10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended September 30, 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 43,021,300 shares of Common Stock ($0.01 par value) outstanding as of November 6, 2019.

PROSIGHT GLOBAL, INC.

TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION		Page
Item 1.	Financial Statements
	Consolidated Balance Sheets (Unaudited) as of September 30, 2019 and December 31, 2018		2
	Consolidated Statements of Operations (Unaudited) for the Three and Nine Months Ended September 30, 2019 and 2018		3
	Consolidated Statements of Comprehensive Income (Unaudited) for the Three and Nine Months Ended September 30, 2019 and 2018		4
	Consolidated Statements of Changes in Stockholders' Equity (Unaudited) for the Three and Nine Months Ended September 30, 2019 and 2018		5
	Consolidated Statements of Cash Flows (Unaudited) for the Nine Months Ended September 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		27
Item 3.	Quantitative and Qualitative Disclosures About Market Risk		50
Item 4.	Controls and Procedures		51
PART II. OTHER INFORMATION
Item 1.	Legal Proceedings		51
Item 1A.	Risk Factors		52
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		52
Item 3.	Defaults Upon Senior Securities		52
Item 4.	Mine Safety Disclosures		52
Item 5.	Other Information		52
Item 6.	Exhibits		53
	Signatures		55

1

ProSight Global, Inc.

Consolidated Balance Sheets (Unaudited)

	September 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 $1,985,250 in 2019 and $1,729,755 in 2018)	$	2,025,955	$	1,693,382
Commercial levered loans at amortized cost (fair value $14,323 in 2019 and $15,858 in 2018)		14,601		16,915
Limited partnerships and limited liability companies at fair value (cost $61,015 in 2019 and $51,903 in 2018)		65,322		53,432
Short-term investments		14,398		36,661
Total investments		2,120,276		1,800,390
Cash and cash equivalents		24,577		22,279
Restricted cash		7,451		7,621
Accrued investment income		13,452		12,279
Premiums and other receivables, net		179,920		200,347
Receivable from reinsurers on paid losses		5,849		12,428
Reinsurance receivable on unpaid losses		213,977		185,295
Deferred policy acquisition costs		103,542		93,613
Prepaid reinsurance premiums		47,285		44,626
Net deferred income taxes		9,361		33,239
Goodwill and net intangible assets		29,196		29,219
Fixed assets and capitalized software, net		37,679		39,001
Funds withheld related to sale of affiliate		19,566		19,397
Other assets		31,255		57,653
Assets of discontinued operations		20,098		19,719
Total assets	$	2,863,484	$	2,577,106
Liabilities
Reserve for unpaid losses and loss adjustment expenses	$	1,515,224	$	1,396,812
Reserve for unearned premiums		472,761		435,933
Ceded reinsurance payable		4,099		13,281
Notes payable, net of debt issuance costs		164,609		182,355
Funds held under reinsurance agreements		68,243		63,165
Other liabilities		81,029		73,474
Liabilities of discontinued operations		26,936		22,256
Total liabilities		2,332,901		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; 43,034,220 and 38,864,289 shares issued and 43,021,300 and 38,851,369 shares outstanding in 2019 and 2018, respectively		430		389
Paid-in capital		661,357		607,260
Accumulated other comprehensive income (loss)		33,930		(22,315)
Retained deficit		(164,934)		(195,304)
Treasury shares - at cost (12,920 shares)		(200)		(200)
Total stockholders’ equity		530,583		389,830
Total liabilities and stockholders’ equity	$	2,863,484	$	2,577,106

See accompanying notes to interim consolidated financial statements (unaudited)

2

ProSight Global, Inc.

Consolidated Statements of Operations (Unaudited)

	Three Months Ended September 30				Nine Months Ended September 30
($ in thousands except per share amounts)	2019		2018		2019		2018
Gross written premiums	$	227,196	$	201,296	$	718,066	$	673,271
Net premiums earned		202,455		187,108		600,543		537,687
Net investment income		16,974		14,044		51,530		43,301
Realized investment gains, net		245		406		495		805
Other income		196		168		386		504
Total revenues		219,870		201,726		652,954		582,297
Expenses:
Net losses and loss adjustment expenses incurred		127,196		109,976		372,644		321,763
Policy acquisition expenses		45,953		44,195		138,059		125,819
General and administrative expenses		25,967		25,051		79,189		75,153
Interest expense		3,216		3,092		9,725		9,207
Other expense		7,162		—		14,332		—
Total expenses		209,494		182,314		613,949		531,942
Income from continuing operations before income taxes		10,376		19,412		39,005		50,355
Income tax provision:
Current		146		184		369		(220)
Deferred		1,869		3,625		7,884		10,310
Total income tax expense		2,015		3,809		8,253		10,090
Net income from continuing operations		8,361		15,603		30,752		40,265
Discontinued operations:
Net (loss) income from discontinued operations		(49)		(429)		(382)		158
Net income	$	8,312	$	15,174	$	30,370	$	40,423
Earnings per share – basic:
Net income from continuing operations	$	0.20	$	0.40	$	0.77	$	1.04
Net income	$	0.19	$	0.39	$	0.76	$	1.04
Earnings per share – diluted:
Net income from continuing operations	$	0.19	$	0.40	$	0.76	$	1.02
Net income	$	0.19	$	0.38	$	0.75	$	1.02

See accompanying notes to interim consolidated financial statements (unaudited)

3

ProSight Global, Inc.

Consolidated Statements of Comprehensive Income (Unaudited)

	Three Months Ended September 30				Nine Months Ended September 30
($ in thousands)	2019		2018		2019		2018
Net income	$	8,312	$	15,174	$	30,370	$	40,423
Other comprehensive income (loss), net of taxes:
Change in unrealized holding gains (losses) on securities, net of deferred tax expense (benefit) of $2,651 and $16,098 in 2019 and $335 and $(8,090) in 2018		9,292		(528)		60,478		(32,134)
Less: reclassification adjustment for gains included in net income, net of tax expense of $156 and $104 in 2019 and $278 and $169 in 2018		4,206		29		4,233		1,112
Other comprehensive income (loss)		5,086		(557)		56,245		(33,246)
Comprehensive income	$	13,398	$	14,617	$	86,615	$	7,177

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
Stock based employee compensation plan		—		—		161		—		—		—		161
Net unrealized loss on investment securities, net of deferred tax expense of $57		—		—		—		(557)		—		—		(557)
Net income		—		—		—		—		15,174		—		15,174
September 30, 2018	$	—	$	387	$	606,905	$	(13,949)	$	(209,424)	$	(200)	$	383,719
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
Stock based employee compensation plan		—		—		6,785		—		—		—		6,785
Net unrealized gain on investment securities, net of deferred tax expense of $2,495		—		—		—		5,086		—		—		5,086
Proceeds from common stock sold in initial public offering, net of offering costs		—		42		51,557		—		—		—		51,599
Shares cancelled		—		(1)		1		—		—		—		—
Retirement of common stock (tax payments on equity compensation)		—		—		(149)		—		—		—		(149)
Net income		—		—		—		—		8,312		—		8,312
September 30, 2019	$	—	$	430	$	661,357	$	33,930	$	(164,934)	$	(200)	$	530,583

See accompanying notes to interim consolidated financial statements (unaudited)

5

ProSight Global, Inc.

Consolidated Statements of Cash Flows (Unaudited)

	Nine Months Ended September 30
($ in thousands)	2019		2018
Operating activities
Net income from continuing operations	$	30,752	$	40,265
Net (loss) income from discontinued operations		(382)		158
Net income		30,370		40,423
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for deferred taxes		7,884		10,310
Net realized investment gains		(495)		(805)
Net limited partnerships gains		(2,917)		(2,893)
Net accretion from bonds and commercial loans		(1,568)		(3,017)
Depreciation and amortization		6,222		5,383
Amortization of debt issuance costs		254		254
Stock based compensation		6,862		559
Changes in:
Premiums and other receivables		20,427		(34,112)
Receivable from reinsurers on paid losses and reinsurance receivable on unpaid losses		(22,103)		(13,555)
Ceded reinsurance payable		(9,182)		23,085
Accrued investment income		(1,173)		(4,201)
Deferred policy acquisition costs		(9,929)		(34,388)
Prepaid reinsurance premiums		(2,659)		62,666
Reserve for unpaid losses and loss adjustment expenses		118,412		110,871
Reserve for unearned premiums		36,828		72,184
Funds withheld related to sale of affiliate		(169)		518
Funds held under reinsurance agreements		5,078		(45,369)
Other assets		22,249		11,155
Other liabilities		7,555		9,395
Total adjustments		181,576		168,040
Net cash provided by operating activities – continuing operations		212,328		208,305
Net cash used in operating activities – discontinued operations		(267)		(230)
Net cash provided by operating activities		212,061		208,075
Investing activities
Purchases of available-for-sale fixed income securities		(423,335)		(315,137)
Sales of available-for-sale fixed income securities		67,848		78,488
Redemptions of available-for-sale fixed income securities		100,713		60,806
Purchases of commercial levered loans		—		(2,612)
Redemptions of commercial levered loans		2,298		10,142
Purchases of limited partnerships		(13,016)		(32,472)
Distributions and redemptions from limited partnerships		4,043		2,351
Purchases of short-term investments		(293,065)		(146,351)
Sales of short-term investments		315,767		115,728
Acquisition of fixed assets and capitalized software		(4,903)		(5,964)
Net cash used in investing activities - continuing operations		(243,650)		(235,021)
Net cash (used in) provided by investing activities - discontinued operations		(380)		2,501
Net cash used in investing activities		(244,030)		(232,520)
Financing activities
Proceeds from shares issued		51,599		—
Tax withholding on stock compensation awards		(149)		—
Proceeds from notes payable		—		5,000
Repayment of notes payable		(18,000)		—
Net cash provided by financing activities		33,450		5,000
Net change in cash and cash equivalents		1,481		(19,445)
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		(387)		(3,570)
Cash, cash equivalents and restricted cash at end of period - continuing operations	$	32,028	$	56,179

See accompanying notes to interim consolidated financial statements (unaudited)

6

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 prior to and including June 30, 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.

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.

Initial Public Offering

On July 29, 2019, the Company completed the IPO with the sale of 7,857,145  shares of the Company’s common stock, including the issuance and sale by the Company of 4,285,715 shares of the Company’s common stock and the sale by ProSight Parallel Investment LLC and ProSight Investment LLC (collectively, the GS Investors) and ProSight TPG, L.P., TPG PS 1, L.P., TPG PS 2, L.P., TPG PS 3, L.P. and TPG PS 4, L.P. (collectively the TPG Investors and together with the GS Investors, the Principal Stockholders) of 3,571,430 shares of the Company’s common stock.

Shares of the Company’s common stock were initially offered to the public by the underwriters in the IPO at a per-share price of $14.00. After deducting underwriting discounts and commissions and estimated offering expenses, the net proceeds to the Company from the IPO were approximately $51.6 million. The Company did not receive any of the proceeds from the sale of the shares of the Company’s common stock sold by the Principal Stockholders in the IPO. Following the IPO, the GS Investors held approximately 40.9% of the Company’s outstanding common stock and the TPG Investors held approximately 39.4% of the Company’s outstanding common stock.

7

ProSight Global, Inc.

Notes to Interim Consolidated Financial Statements (Unaudited)

On August 15, 2019 the Principal Stockholders completed the sale of 1,178,570 shares of the Company’s common stock at a price of $14.00 per share less the underwriting discount pursuant to the underwriters’ exercise of their over-allotment option granted in connection with the IPO. The offering was registered pursuant to the registration statement on Form S-1, which the SEC declared effective on July 24, 2019. The Company did not receive any of the proceeds from the sale of the shares of common stock of the Company sold by the Principal Stockholders in this offering. Following this offering, the GS Investors held approximately 39.5% of the Company’s outstanding common stock and the TPG Investors held approximately 38.0% of the Company’s outstanding common stock.

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 nine months ended September 30, 2019.

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 ASU 2016-01 and does not expect a material impact 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

8

ProSight Global, Inc.

Notes to Interim Consolidated Financial Statements (Unaudited)

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.

In October 2016, the FASB issued ASU 2016-16, Income Taxes, Intra-Entity Transfersof 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 the impact of 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 unobservable 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

9

ProSight Global, Inc.

Notes to Interim Consolidated Financial Statements (Unaudited)

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 nine months ended September 30, 2019 and 2018, is as follows:

	Nine Months Ended September 30
($ in thousands)	2019		2018
Cash paid during the period for:
Interest	$	6,783	$	6,159

In September 2019, the Company withheld 8,388 shares of common stock from an employee related to a tax liability 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 22,203.

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 an insignificant amount and $0.4 million for the three and nine months ended September 30, 2019, respectively. Net loss for discontinued operations was $0.4 million and net income for discontinued operations was $0.2 million for the three and nine months ended September 30, 2018, respectively.

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:

	September 30,		December 31,
($ in thousands)	2019		2018
Assets
Total cash and investments	$	9,993	$	10,436
Other assets		10,105		9,283
Total assets	$	20,098	$	19,719
Liabilities
Unpaid losses and loss adjustment expenses	$	19,189	$	14,030
Other liabilities		7,747		8,226
Total liabilities	$	26,936	$	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.

10

ProSight Global, Inc.

Notes to Interim Consolidated Financial Statements (Unaudited)

(a) The gross unrealized gains and losses on AFS securities included in assets from continuing operations at September 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	$	72,175	$	1,280	$	(104)	$	73,351
Government agency securities		4,840		6		—		4,846
Corporate debt securities		1,348,716		31,712		(4,646)		1,375,782
Municipal debt obligations		14,434		323		(1)		14,756
ABS		84,227		1,139		(150)		85,216
CLO		181,843		160		(2,259)		179,744
CMBS		67,986		2,416		(42)		70,360
RMBS - non-agency		63,803		10,690		(179)		74,314
RMBS - agency		147,226		940		(580)		147,586
Total fixed income securities	$	1,985,250	$	48,666	$	(7,961)	$	2,025,955

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
Municipal debt obligations		6,238		—		(153)		6,085
ABS		82,603		1,095		(117)		83,581
CLO		161,421		160		(4,668)		156,913
CMBS		55,980		—		(2,137)		53,843
RMBS - non-agency		68,594		11,078		(121)		79,551
RMBS - agency		31,348		—		(697)		30,651
Total fixed income securities	$	1,729,755	$	13,675	$	(50,048)	$	1,693,382

(b) The following table summarizes all securities in an unrealized loss position at September 30, 2019, the fair value and gross unrealized loss by asset class and by length of time those securities have been in a loss position:

	Less Than 12 Months				Greater Than 12 Months				Total
											Total
	Fair		Unrealized		Fair		Unrealized		Total		Unrealized
($ in thousands)	Value		Losses		Value		Losses		Fair Value		Losses
U.S. Treasury securities	$	9,666	$	(12)	$	19,521	$	(92)	$	29,187	$	(104)
Corporate debt securities		116,619		(1,934)		127,966		(2,712)		244,585		(4,646)
Municipal debt obligations		6,163		(1)		—		—		6,163		(1)
ABS		21,344		(95)		4,746		(55)		26,090		(150)
CLO		72,748		(672)		63,636		(1,587)		136,384		(2,259)
CMBS		6,555		(9)		6,081		(33)		12,636		(42)
RMBS - non-agency		922		(2)		2,532		(177)		3,454		(179)
RMBS - agency		54,026		(157)		11,736		(423)		65,762		(580)
Total	$	288,043	$	(2,882)	$	236,218	$	(5,079)	$	524,261	$	(7,961)

11

ProSight Global, Inc.

Notes to Interim Consolidated Financial Statements (Unaudited)

The following table summarizes all securities in an unrealized loss position at December 31, 2018, the fair value and gross unrealized loss by asset class and by length of time those securities have been in a loss position:

	Less Than 12 Months				Greater Than 12 Months				Total
											Total
	Fair		Unrealized		Fair		Unrealized		Total		Unrealized
($ in thousands)	Value		Losses		Value		Losses		Fair Value		Losses
U.S. Treasury securities	$	8,263	$	(82)	$	69,727	$	(1,935)	$	77,990	$	(2,017)
Corporate debt securities		393,931		(10,241)		710,482		(29,897)		1,104,413		(40,138)
Municipal debt obligations		—		—		6,085		(153)		6,085		(153)
ABS		25,258		(61)		4,249		(56)		29,507		(117)
CLO		146,004		(4,668)		—		—		146,004		(4,668)
CMBS		—		—		53,843		(2,137)		53,843		(2,137)
RMBS - non-agency		529		(13)		2,449		(108)		2,978		(121)
RMBS - agency		27,150		(513)		3,502		(184)		30,652		(697)
Total	$	601,135	$	(15,578)	$	850,337	$	(34,470)	$	1,451,472	$	(50,048)

The Company was holding 336 and 708 fixed income securities that were in an unrealized loss position as of September 30, 2019 and December 31, 2018, respectively. The Company believes these unrealized losses are temporary, as they resulted from changes in market conditions, including interest rates or sector spreads, and are not considered to be credit risk related. Other-than-temporary impairments (OTTI) charges are recognized as a realized loss to the extent that they are credit related, unless the Company has the intent to sell the security or it is more-likely-than not that the Company will be required to sell the security. In those circumstances, the security is written down to fair value with the entire amount of the write-down charged to earnings as a component of realized losses. The Company had no OTTI charges for the three and nine months ended September 30, 2019 and 2018.

(c) The amortized cost and fair value of fixed income securities, which excludes the Company’s structured securities portfolio, at September 30, 2019, by contractual maturity are shown below. Expected maturities will differ from contractual maturities, because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

	September 30, 2019
	Amortized		Fair
($ in thousands)	Cost		Value
Due in one year or less	$	97,372	$	97,585
Due after one through five years		722,887		733,382
Due after five through ten years		514,633		531,014
Due after ten years		105,273		106,754
		1,440,165		1,468,735
Structured securities:
ABS		84,227		85,216
CLO		181,843		179,744
CMBS		67,986		70,360
RMBS - non-agency		63,803		74,314
RMBS - agency		147,226		147,586
Total	$	1,985,250	$	2,025,955

The Company did not have any non-income producing fixed income investments as of September 30, 2019 and December 31, 2018, respectively.

(d) The Company elected to account for its investments in limited partnerships and limited liability companies of $65.3 million and $53.4 million at September 30, 2019 and December 31, 2018, respectively, at fair value. Changes in fair

12

ProSight Global, Inc.

Notes to Interim Consolidated Financial Statements (Unaudited)

value of such investments are recorded in the consolidated statements of operations within net investment income. The largest investment within the portfolio is the PIMCO Tactical Opportunities fund, which is carried at $35.2 million at September 30, 2019.

The carrying values used for investment in limited partnerships and limited liability companies generally are established on the basis of the valuations provided monthly or quarterly by the managers of such investments. These valuations are determined based upon the valuation criteria established by the governing documents of such investments or utilized in the normal course of such manager’s business, which are reflective of fair value. Such valuations may differ significantly from the values that would have been used had available markets for these investments existed and the differences could be material.

The Company’s strategies for its investments in limited partnerships and limited liability companies include investment funds that employ diverse and fundamentally driven approaches to investing which include effective risk management, hedging strategies and leverage. The portfolio of investments in limited partnerships and limited liability companies consists of common stocks, real estate assets, options, swaps, derivative instruments and other structured products.

The limited partnerships and limited liability companies in which the Company invests sometimes impose limitations on the timing of withdrawals from the funds. The Company’s inability to withdraw its investment quickly from a particular limited partnership or a limited liability company that is performing poorly could result in losses and may affect liquidity. All of the Company’s limited partnerships and limited liability companies have timing limitations. Most limited partnerships and limited liability companies require a 90-day notice period in order to withdraw funds. Some limited partnerships and limited liability companies may require a withdrawal only at the end of their fiscal year. The Company may also be subject to withdrawal fees in the event the limited partnerships and limited liability companies are sold within a minimum holding period, which may be up to one year. Many limited partnerships and limited liability companies have invoked gated provisions that allow the fund to disperse redemption proceeds to investors over an extended period. The Company is subject to such restrictions, which may delay the receipt of proceeds from limited partnerships and limited liability companies.

(e) The Company invests in commercial levered loans, which are private placements. Loans are reported at the principal amount outstanding, reduced by unearned discounts, net deferred loan fees, and an allowance for loan losses. Interest on loans is calculated using the simple interest method on the daily principal amount outstanding. The allowance for loan losses related to impaired loans is determined based on the difference of the carrying value of loans and the present value of expected cash flows discounted at the loan’s effective interest rate or, as a practical expedient, the loan’s observable market price. There was no allowance for loan losses at September 30, 2019 and December 31, 2018, respectively.

(f) Proceeds from sales and redemptions in AFS securities totaled $71.5 million and $19.2 million for the three months ended September 30, 2019 and 2018, respectively. Proceeds from sales and redemptions in AFS securities totaled $168.6 million and $139.3 million for the nine months ended September 30, 2019 and 2018, respectively. Gross realized gains from sales and redemptions in AFS securities totaled $0.3 million and $0.5 million for the three months ended September 30, 2019 and 2018, respectively, and $0.9 million and $1.3 million for the nine months ended September 30, 2019 and 2018, respectively. Gross realized losses from sales and redemptions of AFS investments totaled an insignificant amount and $0.1 million for the three months ended September 30, 2019 and 2018, respectively, and $0.4 million and $0.5 million for the nine months ended September 30, 2019 and 2018.

13

ProSight Global, Inc.

Notes to Interim Consolidated Financial Statements (Unaudited)

(g) Net investment income included in net income from continuing operations in the consolidated statements of operations from each major category of investments for the three and nine months ended September 30, 2019 and 2018, is as follows:

($ in thousands)	Three Months Ended September 30				Nine Months Ended September 30
	2019		2018		2019		2018
Fixed income securities	$	16,764	$	14,422	$	49,414	$	40,830
Commercial levered loans		208		149		586		814
Net limited partnerships gains		468		68		2,862		2,893
Other		101		56		282		79
Gross investment income		17,541		14,695		53,144		44,616
Less: expenses		567		651		1,614		1,315
Net investment income	$	16,974	$	14,044	$	51,530	$	43,301

(h) Included in investments at September 30, 2019 and December 31, 2018, are securities required to be held by the Company (or those that are on deposit) with various regulatory authorities as required by law with a fair value of $209.1 million and $188.6 million, respectively. Fair value and carrying value of assets in the amount of $364.6 million and $353.0 million, respectively, were on deposit in collateral agreements at September 30, 2019. Fair value and carrying value of assets in the amount of $358.5 million and $368.0 million, respectively, were on deposit in collateral agreements at December 31, 2018.

(i) The investment portfolio has exposure to market risks, which include the effect of adverse changes in interest rates, credit quality, limited partnership value and illiquid securities including commercial levered loans and RMBS values on the portfolio. Interest rate risk includes the changes in the fair value of fixed maturities based upon changes in interest rates. Credit quality risk includes the risk of default by issuers of debt securities. Risks from investments in limited partnerships and limited liability companies and illiquid securities include the potential loss from the diminution in the value of the underlying investment of the limited partnerships and limited liability companies and the potential loss from changes in the fair value of commercial levered loans and RMBS.

6. Fair Value Measurements

The Company has established a framework for valuing financial assets and financial liabilities. The framework is based on a hierarchy of inputs used in valuation and gives the highest priority to quoted prices in active markets and requires that observable inputs be used in the valuations when available. The disclosure of fair value estimates in the hierarchy is based on whether the significant inputs into the valuation are observable. In determining the level of the hierarchy in which the estimate is disclosed, the highest priority is given to unadjusted quoted prices in active markets and the lowest priority to unobservable inputs that reflect the Company’s significant market assumptions. The standard describes three levels of inputs that may be used to measure fair value and categorize the assets and liabilities within the hierarchy:

Level 1 – Fair value is based on unadjusted quoted prices in active markets that are accessible to the Company for identical assets or liabilities. These prices generally provide the most reliable evidence and are used to measure fair value whenever available. Active markets are defined as having the following for the measured asset/liability: (i) many transactions, (ii) current prices, (iii) price quotes not varying substantially among market makers, (iv) narrow bid/ask spreads and (v) most information publicly available.

As of September 30, 2019 and December 31, 2018, the Company does not hold any Level 1 securities.

Level 2 – Fair value is based on significant inputs, other than Level 1 inputs, that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the asset through corroboration with observable market data. Level 2 inputs include quoted market prices in active markets for similar assets, nonbinding quotes in

14

ProSight Global, Inc.

Notes to Interim Consolidated Financial Statements (Unaudited)

markets that are not active for identical or similar assets and other market observable inputs (e.g., interest rates, yield curves, prepayment speeds, default rates, loss severities, etc.).

The Company’s Level 2 assets include U.S. Treasury securities, government agency securities, municipal debt obligations, RMBS, CMBS, CLO, ABS and corporate debt securities.

The Company generally obtains valuations from third-party pricing services and/or security dealers for identical or comparable assets or liabilities by obtaining nonbinding broker quotes (when pricing service information is not available) in order to determine an estimate of fair value. The Company bases all of its estimates of fair value for assets on the bid price as it represents what a third-party market participant would be willing to pay in an arm’s-length transaction.

Level 3 – Fair value is based on at least one or more significant unobservable inputs that are supported by little or no market activity for the asset. These inputs reflect the Company’s understanding about the assumptions market participants would use in pricing the asset or liability.

The Company’s Level 3 assets include its investments in corporate debt securities and commercial levered loans as they are illiquid and trade in inactive markets. These markets are considered inactive as a result of the low level of trades of such investments. Commercial levered loans are also not considered within the Level 3 tabular disclosure, because they are in the “held for investment” category and are also not measured at fair value on a recurring basis.

The corporate debt securities classified under Level 3 in the fair value hierarchy are provided to the Company by an independent valuation service provider which use both observable and unobservable inputs in the calculation of fair value. Unobservable inputs, significant to the measurement and valuation of the corporate debt securities are assumptions about prepayment speed, default rates and reinvestment parameters. Significant changes to any of these inputs, or combination of inputs, could significantly change the fair value measurement for these securities when using the income approach.

The primary pricing sources for the Company’s investments in commercial levered loans are reviewed for reasonableness, based on the Company’s understanding of the respective market. Prices may then be determined using valuation methodologies such as discounted cash flow models, as well as matrix pricing analyses performed on nonbinding quotes from brokers or other market makers.

15

ProSight Global, Inc.

Notes to Interim Consolidated Financial Statements (Unaudited)

The following are the major categories of assets measured at fair value on a recurring basis at September 30, 2019 and December 31, 2018, using quoted prices in active markets for identical assets (Level 1), significant other observable inputs (Level 2), and significant unobservable inputs (Level 3):

	September 30, 2019
	Quoted Prices in		Significant
	Active Markets		Other		Significant
	for		Observable		Unobservable
	Identical Assets		Inputs		Inputs
($ in thousands)	(Level 1)		(Level 2)		(Level 3)		Total
Fixed income securities:
U.S. Treasury securities	$	—	$	73,351	$	—	$	73,351
Government agency securities		—		4,846		—		4,846
Corporate debt securities		—		1,246,196		129,586		1,375,782
Municipal debt obligations		—		14,756		—		14,756
ABS		—		85,216		—		85,216
CLO		—		179,744		—		179,744
CMBS		—		70,360		—		70,360
RMBS - non agency		—		74,314		—		74,314
RMBS - agency		—		147,586		—		147,586
Total fixed income securities	$	—	$	1,896,369	$	129,586		2,025,955
Investments measured at net asset value:
Limited partnerships and limited liability companies								65,322
Total assets at fair value							$	2,091,277

	December 31, 2018
	Quoted Prices in		Significant
	Active Markets		Other		Significant
	for		Observable		Unobservable
	Identical Assets		Inputs		Inputs
($ in thousands)	(Level 1)		(Level 2)		(Level 3)		Total
Fixed income securities:
U.S. Treasury securities	$	—	$	90,328	$	—	$	90,328
Corporate debt securities		—		1,065,933		126,497		1,192,430
Municipal debt obligations		—		6,085		—		6,085
ABS		—		83,581		—		83,581
CLO		—		156,913		—		156,913
CMBS		—		53,843		—		53,843
RMBS - non agency		—		79,551		—		79,551
RMBS - agency		—		30,651		—		30,651
Total fixed income securities	$	—	$	1,566,885	$	126,497		1,693,382
Investments measured at net asset value:
Limited partnerships and limited liability companies								53,432
Total assets at fair value							$	1,746,814

There were no transfers between Levels 1 and 2 for the nine months ended September 30, 2019 and the year ended December 31, 2018.

In 2018, securities in the amount of $126.5 million were transferred from Level 2 into Level 3 as it was determined that these securities trade in inactive markets.

16

ProSight Global, Inc.

Notes to Interim Consolidated Financial Statements (Unaudited)

Management believes that the use of the fair value option as specified in Accounting Standards Codification No. 825, Financial Instruments to record limited partnerships and limited liability companies is consistent with its objective for such investments. As such, the entire limited partnership portfolio of $65.3 million and $53.4 million as of September 30, 2019 and December 31, 2018, respectively, was recorded using net asset value, which the Company has determined to be the best indicator of fair value for these investments.

The following tables disclose the carrying value and fair value of financial instruments that are not recognized or are not carried at fair value in the consolidated balance sheets as of September 30, 2019 and December 31, 2018:

	September 30, 2019
	Carrying		Fair Value
($ in thousands)	Value		Total		Level 1		Level 2		Level 3
Assets
Commercial levered loans	$	14,601	$	14,323	$	—	$	—	$	14,323
Liabilities
Notes payable	$	165,000	$	167,736	$	—	$	167,736	$	—
Unamortized debt issuance costs		(391)
Total notes payable	$	164,609

	December 31, 2018
	Carrying		Fair Value
($ in thousands)	Value		Total		Level 1		Level 2		Level 3
Assets
Commercial levered loans	$	16,915	$	15,858	$	—	$	—	$	15,858
Liabilities
Notes payable	$	183,000	$	183,999	$	—	$	183,999	$	—
Unamortized debt issuance costs		(645)
Total notes payable	$	182,355

The fair value of the notes payable at September 30, 2019, approximated a price equal to $167.7 million or 101.7% of the par value. The fair value of the notes payable at December 31, 2018, approximated a price equal to $184.0 million or 100.5% of the par value.

17

ProSight Global, Inc.

Notes to Interim Consolidated Financial Statements (Unaudited)

The following tables provides a summary of the changes in the fair value of securities measured using Level 3 inputs during the nine months ended September 30, 2019 and 2018:

	Level 3
	Corporate
($ in thousands)	Securities
Fair value, December 31, 2018	$	126,497
Total net gains (losses) for the period included in:
Other comprehensive income		1,514
Net realized loss		(4)
Purchases		4,372
Sales		—
Issuances		—
Settlements		(2,793)
Transfers into Level 3		—
Transfers out of Level 3		—
Fair value, September 30, 2019	$	129,586

	Level 3
	Corporate
($ in thousands)	Securities
Fair value, December 31, 2017	$	—
Total net losses for the period included in:
Other comprehensive loss		(362)
Net realized loss		(9)
Purchases		7,228
Sales		—
Issuances		—
Settlements		(1,333)
Transfers into Level 3		119,004
Transfers out of Level 3		—
Fair value, September 30, 2018	$	124,528

7. Accumulated Other Comprehensive Income (Loss)

The following table summarizes the components of accumulated other comprehensive income (loss) (AOCI) for the three and nine months ended September 30, 2019 and 2018:

($ in thousands)	Gross		Tax		Net
June 30, 2019	$	34,898	$	6,054	$	28,844
Unrealized holding gains on fixed income securities		11,943		2,651		9,292
Amounts reclassified into net income		4,362		156		4,206
Other comprehensive income		7,581		2,495		5,086
September 30, 2019	$	42,479	$	8,549	$	33,930

($ in thousands)	Gross		Tax		Net
June 30, 2018	$	(18,740)	$	(5,348)	$	(13,392)
Unrealized holding losses on fixed income securities		(193)		335		(528)
Amounts reclassified into net income		307		278		29
Other comprehensive loss		(500)		57		(557)
September 30, 2018	$	(19,240)	$	(5,291)	$	(13,949)

18

ProSight Global, Inc.

Notes to Interim Consolidated Financial Statements (Unaudited)

($ in thousands)	Gross		Tax		Net
December 31, 2018	$	(29,760)	$	(7,445)	$	(22,315)
Unrealized holding gains on fixed income securities		76,576		16,098		60,478
Amounts reclassified into net income		4,337		104		4,233
Other comprehensive income		72,239		15,994		56,245
September 30, 2019	$	42,479	$	8,549	$	33,930

($ in thousands)	Gross		Tax		Net
December 31, 2017	$	22,265	$	2,968	$	19,297
Unrealized holding losses on fixed income securities		(40,224)		(8,090)		(32,134)
Amounts reclassified into net income		1,281		169		1,112
Other comprehensive loss		(41,505)		(8,259)		(33,246)
September 30, 2018	$	(19,240)	$	(5,291)	$	(13,949)

The following table presents reclassifications out of AOCI attributable to the Company during the three and nine months ended September 30, 2019 and 2018:

	Line in Consolidated	Three Months Ended September 30				Nine Months Ended September 30
($ in thousands)	Statements of Operations	2019		2018		2019		2018
AOCI
Unrealized gains on securities	Realized investment gains	$	4,362	$	307	$	4,337	$	1,281
	Income tax expense		156		278		104		169
Total reclassifications	Net realized investment gains	$	4,206	$	29	$	4,233	$	1,112

8. Related-Party Information

Loans to Executives and Equity Distribution

At December 31, 2018, the Company had $4.2 million in loans to executives. On March 15, 2019, the $4.2 million in loans to executives were repaid. On the same date, a special equity distribution of $4.2 million was made by the Company, which was accounted for as a non-cash transaction on the Company’s consolidated balance sheet.

Transition and Separation Agreement

On May 3, 2019, the Company entered into a Transition and Separation Agreement (the Separation Agreement) with its former Chief Executive Officer (the former CEO). Under the Separation Agreement, the former CEO and the Company agreed to a general release of claims and his compliance with the restrictive covenants.

The Company recorded an expense of $0.4 million and $7.6 million within Other Expense in the consolidated statements of operations for the three and nine months ended September 30, 2019 relating to the severance payments and benefits payable to the former CEO.

Per the terms of the Separation Agreement, the former CEO’s profit interests (P Shares) were forfeited and outstanding RSUs will be treated in accordance with the terms of the applicable award agreements. Additionally, the Company cancelled 137,987 shares of common stock in July 2019 with no consideration as per the terms of the Separation Agreement.

19

ProSight Global, Inc.

Notes to Interim Consolidated Financial Statements (Unaudited)

9. Insurance Operations

Total reinsurance ceded and assumed relating to premiums written, earned premiums and net losses and loss adjustment expenses incurred, are as follows:

	Three Months Ended September 30				Nine Months Ended September 30
($ in thousands)	2019		2018		2019		2018
Written premiums
Direct written premiums	$	226,209	$	200,316	$	715,500	$	668,521
Assumed from other companies		987		980		2,566		4,750
Ceded to other companies		17,722		21,780		88,122		19,368
Net written premiums	$	209,474	$	179,516	$	629,944	$	653,903
Earned premiums
Direct earned premiums	$	229,816	$	212,084	$	683,906	$	623,820
Assumed from other companies		920		1,603		2,794		8,767
Ceded to other companies		28,281		26,579		86,157		94,900
Net earned premiums	$	202,455	$	187,108	$	600,543	$	537,687
Percent of amount assumed to net		0.5%		0.9%		0.5%		1.6%
Losses and loss adjustment expenses incurred
Direct net losses and loss adjustment expenses incurred	$	101,855	$	109,524	$	403,899	$	364,977
Assumed from other companies		29,366		4,440		6,162		(2,238)
Ceded to other companies		4,025		3,988		37,417		40,976
Net losses and loss adjustment expenses incurred	$	127,196	$	109,976	$	372,644	$	321,763

In 2017, the Company ceded significant amounts of premium under the whole account quota share reinsurance agreements (WAQS). In 2018, the WAQS were terminated. To the extent of unearned premium at the time of termination, ceded written premiums, net of the ceding commission, was returned.

For the three and nine months ended September 30, 2019 and 2018 under the WAQS, the Company recorded the following:

	Three Months Ended September 30
($ in thousands)	2019		2018
Ceded written premium	$	6	$	55
Ceded earned premium		—		56
(Increase) reduction to net loss and loss adjustment expenses incurred		(1,632)		874
Reduction (increase) to policy acquisition expenses		1,632		(823)
Reduction to pre-tax income	$	-	$	5

	Nine Months Ended September 30
($ in thousands)	2019		2018
Ceded written premium (return of ceded prepaid)	$	3	$	(68,745)
Ceded earned premium		(3)		14,600
(Increase) reduction to net loss and loss adjustment expenses incurred		(3,839)		9,422
Reduction to policy acquisition expenses		3,837		4,083
(Increase) reduction to pre-tax income	$	(1)	$	1,095

Distribution Partners

The Company negotiates with distribution partners to write direct premium on behalf of the Company’s affiliates. In January 2019, a distribution partner of the Company was acquired by a third-party insurance carrier. In 2018, the

20

ProSight Global, Inc.

Notes to Interim Consolidated Financial Statements (Unaudited)

Company has sourced 13.5% of direct premium from this distribution partner. The Company does not anticipate any future premiums from this distribution partner after the first quarter of 2019. The three distribution partners contributing the largest amounts of direct written premium (excluding the distribution partner above) totaled $75.4 million and $52.0 million for the three months ended September 30, 2019 and 2018, respectively. The three distribution partners contributing the largest amounts of direct written premium (excluding the distribution partner above) totaled $208.4 million and $183.9 million for the nine months ended September 30, 2019 and 2018, respectively.

Unpaid Losses

Unpaid losses are based on individual case estimates for losses reported and include a provision for incurred but not reported (IBNR) losses and loss adjustment expenses. The following table provides a roll forward of the Company’s reserve for unpaid losses and loss adjustment expenses:

	September 30
($ in thousands)	2019		2018
Gross unpaid losses and loss expenses, at beginning of year	$	1,396,812	$	1,258,237
Ceded unpaid losses and loss expenses, at beginning of year		185,295		201,156
Net reserves for losses and loss expenses, at beginning of year		1,211,517		1,057,081
Add:
Incurred losses and loss expenses occurring in the:
Current year		356,926		325,810
Prior years		2,367		(4,047)
Prior years attributable to adjusted premium		13,351		—
Total incurred losses and loss expenses		372,644		321,763
Less:
Paid losses and loss expenses for claims occurring in the:
Current year		39,742		34,359
Prior years		243,172		178,268
Total paid losses and loss expenses for claims		282,914		212,627
Net reserves for losses and loss expenses, at end of period		1,301,247		1,166,217
Ceded unpaid losses and loss expenses, at end of period		213,977		202,891
Gross unpaid losses and loss expenses, at end of period	$	1,515,224	$	1,369,108

During the nine months ended September 30, 2019, the Company’s estimated losses and loss expenses for accident years 2018 and prior developed unfavorably by $2.4 million driven by $23.2 million unfavorable development in General Liability lines partially offset by $18.7 million favorable development in Workers’ Compensation lines and $2.7 in Surety lines. In addition, the Company incurred $13.4 million of losses and loss adjustment expenses related to premium adjustments earned during the nine months ended September 30, 2019 attributable to prior accident years.

During the nine months ended September 30, 2018, the Company’s estimated losses and loss expenses for accident years 2017 and prior developed favorably by $4.0 million driven by $10.8 million of favorable development in Workers’ Compensation, $11.7 million of favorable development in Commercial Auto lines and $3.1 million of favorable development in Marine Liability lines within the All Other Lines category, partially offset by $12.4 million of unfavorable development in General Liability lines and $9.2 million of unfavorable development in Commercial Multiple Peril lines.

10. Income Taxes

The Company and its respective U.S. subsidiaries are subject to the tax laws and regulations of the United States and various state jurisdictions. The Company files a consolidated federal tax return that includes all domestic subsidiaries.

The Company has one non-U.S. subsidiary, PSBL, which has received an undertaking from the Minister of Finance in Bermuda that would exempt it from Bermudian taxation until March 2035.

21

ProSight Global, Inc.

Notes to Interim Consolidated Financial Statements (Unaudited)

The Company uses the estimated annual effective tax rate method for calculating its tax provision in interim periods, which represents the Company’s best estimate of the effective tax rate expected for the full year. The estimated annual effective tax rate typically differs from the U.S. statutory tax rate primarily as a result of applying the Bermuda statutory tax rate of 0% to Bermuda income before taxes and any discrete items recognized during the period. The Company’s effective tax rates were 19.4% and 19.6% for the three months ended September 30, 2019 and 2018, respectively. The decrease in the effective tax rate in the three months ended September 30, 2019 compared to the same period in 2018 was primarily due to the tax effect of share-based compensation and state income taxes. The Company’s effective tax rates were 21.2% and 20.0% for the nine months ended September 30, 2019 and 2018, respectively. The increase in the effective tax rate in the nine months ended September 30, 2019 compared to the same period in 2018 was primarily due to adjustments recorded on state income taxes.

11. Debt

On March 15, 2019, the Company entered into an amended and restated revolving loan agreement (as amended, the revolving facility), among other things, (a) extended the maturity date to the earlier of (i) March 15, 2022, or (ii) 91 days before the maturity of the senior notes due November 2020 or, if such senior notes are amended or replaced, 91 days before the maturity of such amendment or replacement and (b) increased the aggregate principal amount of borrowing capacity from $25.0 million to $50.0 million.

On August 8, 2019, the Company used IPO proceeds to repay $18.0 million in outstanding debt under the revolving facility. As of September 30, 2019, the revolving facility had a borrowing capacity of $50.0 million.

12. Segment Information

The following table provides a summary of the Company’s gross written premium by customer segments within our Specialty Insurance reportable segment. Gross written premiums included in “Other” consist: of (i) primary and excess workers’ compensation coverage for Self-Insured Groups; (ii) niches exited prior to 2018, many with a concentration in commercial auto; (iii) fronting arrangements in which all premium written is ceded to a third party; (iv) participation in industry pools; and (v) emerging new business customer segments.

	Three Months Ended September 30						Nine Months Ended September 30
($ in thousands)	2019			2018			2019			2018
Customer Segment
Construction	$	27,296	12.0%	$	22,451	11.1%	$	83,039	11.6%	$	71,979	10.7%
Consumer Services		35,502	15.6%		29,874	14.8%		100,880	14.0%		80,168	11.9%
Marine and Energy		18,151	8.0%		15,433	7.7%		54,930	7.7%		49,579	7.4%
Media and Entertainment		36,788	16.2%		31,590	15.7%		113,630	15.8%		109,821	16.3%
Professional Services		27,015	11.9%		24,750	12.3%		85,681	11.9%		82,254	12.2%
Real Estate		41,566	18.3%		19,477	9.7%		116,915	16.3%		91,507	13.6%
Transportation		38,180	16.8%		33,134	16.5%		95,694	13.3%		83,496	12.4%
Customer Segment subtotal		224,498	98.8%		176,709	87.8%		650,769	90.6%		568,804	84.5%
Other		2,698	1.2%		24,587	12.2%		67,297	9.4%		104,467	15.5%
Specialty Insurance total	$	227,196		$	201,296		$	718,066		$	673,271

22

ProSight Global, Inc.

Notes to Interim Consolidated Financial Statements (Unaudited)

The following table provides a summary of the Company’s gross written premium by line of business within our Specialty Insurance segment:

	Three Months Ended September 30						Nine Months Ended September 30
($ in thousands)	2019			2018			2019			2018
Line of Business
Commercial Auto	$	52,693	23.2%	$	41,701	20.7%	$	148,773	20.7%	$	114,403	17.0%
General Liability		84,932	37.4%		58,022	28.9%		239,383	33.4%		203,652	30.3%
Workers’ Compensation		27,242	12.0%		54,858	27.3%		152,225	21.1%		198,906	29.5%
Commercial Multiple Peril		16,276	7.1%		15,266	7.5%		52,950	7.4%		49,338	7.3%
All Other Lines		46,053	20.3%		31,449	15.6%		124,735	17.4%		106,972	15.9%
Specialty Insurance total	$	227,196		$	201,296		$	718,066		$	673,271

13. Earnings per Share

The following table provides a reconciliation of the numerators and denominators of basic and diluted earnings per share (EPS) based on restated shares:

	Continuing Operations						Discontinued Operations
(in thousands, except per share amounts)	Income		Shares	Per Share		Loss		Shares	Per Share
Three Months Ended September 30, 2019	(Numerator)		(Denominator)	Amount		(Numerator)		(Denominator)	Amount
Basic EPS:
Net income (loss) available to common stockholders	$	8,361	42,642	$	0.20	$	(49)	42,642	$	(0.01)
Effect of dilutive securities:
Stock compensation plans			418		0.01			418
Diluted EPS	$	8,361	43,060	$	0.19	$	(49)	43,060	$	—

	Continuing Operations						Discontinued Operations
(in thousands, except per share amounts)	Income		Shares	Per Share		Loss		Shares	Per Share
Three Months Ended September 30, 2018	(Numerator)		(Denominator)	Amount		(Numerator)		(Denominator)	Amount
Basic EPS:
Net income (loss) available to common stockholders	$	15,603	38,743	$	0.40	$	(429)	38,743	$	(0.01)
Effect of dilutive securities:
Stock compensation plans			698		—			698
Diluted EPS	$	15,603	39,441	$	0.40	$	(429)	39,441	$	(0.02)

	Continuing Operations						Discontinued Operations
(in thousands, except per share amounts)	Income		Shares	Per Share		Loss		Shares	Per Share
Nine Months Ended September 30, 2019	(Numerator)		(Denominator)	Amount		(Numerator)		(Denominator)	Amount
Basic EPS:
Net income (loss) available to common stockholders	$	30,752	40,120	$	0.77	$	(382)	40,120	$	(0.01)
Effect of dilutive securities:
Stock compensation plans			541		0.01			541
Diluted EPS	$	30,752	40,661	$	0.76	$	(382)	40,661	$	(0.01)

23

ProSight Global, Inc.

Notes to Interim Consolidated Financial Statements (Unaudited)

	Continuing Operations						Discontinued Operations
(in thousands, except per share amounts)	Income		Shares	Per Share		Income		Shares	Per Share
Nine Months Ended September 30, 2018	(Numerator)		(Denominator)	Amount		(Numerator)		(Denominator)	Amount
Basic EPS:
Net income available to common stockholders	$	40,265	38,743	$	1.04	$	158	38,743	$	—
Effect of dilutive securities:
Stock compensation plans			698		0.02			698
Diluted EPS	$	40,265	39,441	$	1.02	$	158	39,441	$	—

14. Share-Based Compensation

2019 Equity Incentive Plan

In connection with, and prior to the completion of the IPO, the Company’s Amended and Restated 2010 Equity Incentive Plan (the 2010 Plan) was terminated. Immediately prior to the merger, all outstanding P Shares granted under the 2010 Plan prior to the IPO, were cancelled, and all outstanding RSUs granted under the 2010 Plan converted into RSUs based on the shares of common stock of the Company.

On July 24, 2019, the Company’s 2019 Equity Incentive Plan (the 2019 Plan) became effective immediately prior to the effectiveness of the registration statement filed in connection with the IPO. The 2019 Plan provides for the grant of stock options, stock appreciation rights, restricted stock, RSUs, performance shares, and units and other cash‑based or share‑based awards.

The 2019 Plan is administered by the compensation committee of the Company’s Board of Directors. Subject to the provisions of the 2019 Plan, the compensation committee determines in its discretion, the persons to whom and the times at which awards are granted, the size of awards (subject to certain limitations set forth in the compensation committee charter) and the terms and conditions of awards.

A total of 4,500,000 shares of common stock are initially authorized and reserved for issuance under the 2019 Plan, including shares underlying RSUs granted under the 2010 Plan, which converted into the Company’s common stock, effective July 25, 2019, as a result of the merger.

The following is a summary of the post-offering compensation included in the 2019 Plan, including the number of common stock granted to each award mentioned below:

(i) 181,118 annual long-term incentive awards in respect of 2019, 90,559 of which are time-vesting RSUs and 90,559 of which are performance-vesting RSUs, granted to management in connection with the IPO. Time-vesting RSUs are subject to vesting as follows: one-third annual installments on each anniversary of grant date, subject to continued service. Performance-vesting RSUs are subject to vesting as follows: cliff vesting on the third anniversary of the grant date to the extent performance metrics are met, subject to continued service. The fair value of such awards is $2.5 million at grant date.

(ii) 1,267,912 supplemental RSU awards, 100% of which are time-vesting RSUs, granted to management in connection with the IPO and subject to vesting as follows: 25% vested at grant date, 25% will vest on the second anniversary of the grant date, subject to continued service and 50% will vest on the third anniversary of the grant date, subject to continued service. The fair value of the supplemental RSUs is $17.8 million.

(iii) 250,000 founders grant awards in the form of time-vesting RSUs with a fair value of $3.5 million at grant date. These awards will cliff vest on the third anniversary of the grant date.

24

ProSight Global, Inc.

Notes to Interim Consolidated Financial Statements (Unaudited)

(iv) 26,399 non-employee director RSU awards with a fair value of $0.4 million at grant date (other than RSUs granted to non-employee directors designated by the Company’s principal stockholders, if any, which will be determined by the Board of Directors). These awards are fully vested on grant date.

(v) 668,170 RSUs initially granted under the 2010 Plan that were converted into RSUs based on shares of the Company’s common stock upon the consummation of the merger.

The table below summarizes the Company’s stock-based compensation expense for the three and nine months ended September 30, 2019 and 2018:

	Three Months Ended September 30				Nine Months Ended September 30
($ in thousands)	2019		2018		2019		2018
Stock-based compensation	$	6,785	$	161	$	6,862	$	559

Stock-based compensation expense is recognized on a straight-line basis over the vesting period of all awards except when an award requires accelerated recognition. The Company does not apply a forfeiture rate to unvested awards and accounts for forfeitures as they occur. Stock-based compensation expense related to long-term incentive awards and director RSUs are included in General and administrative expenses in the Company’s consolidated statements of operations. Stock-based compensation expense related to supplemental RSU’s and founders grant awards are included in other expenses in the Company’s consolidated statements of operations.

The Company began recognizing stock-based compensation expense relating to its 2019 Plan upon its inception and initial stock grants in July 2019. All stock-based compensation expense recognized during the three months ended September 30, 2019 relates to the 2019 Plan.

The following table summarizes RSU transactions for the 2019 Plan for the nine months ended September 30, 2019:

	Number of Shares	Weighted Average Grant Date Fair Value
Unvested outstanding at December 31, 2018	55,264	$	11.09
Granted	1,725,429	$	14.00
Vested	398,641	$	13.60
Forfeited	92,657	$	14.00
Unvested outstanding at September 30, 2019	1,289,395	$	14.00

As of September 30, 2019, The Company had approximately $16.1 million of total unrecognized stock-based compensation expense related to RSUs expected to be recognized over a weighted-average period of 2.6 years.

2019 Employee Stock Purchase Plan

On July 24, 2019, the 2019 Employee Stock Purchase Plan (the 2019 ESPP) became effective immediately prior to the effectiveness of the registration statement filed in connection with the IPO.  A total of 1,000,000 shares of the Company’s common stock will be reserved and available for sale under the 2019 ESPP.

The compensation committee of the Board of Directors administers the 2019 ESPP and have full authority to interpret the terms of the 2019 ESPP.

There was no expense recognized related to the 2019 ESPP for the nine months ended September 30, 2019.

25

ProSight Global, Inc.

Notes to Interim Consolidated Financial Statements (Unaudited)

15. Legal Proceedings

In the normal course of business, the Company’s insurance subsidiaries are subject to disputes, including litigation and arbitration, arising out of the ordinary course of business. The Company’s estimates of the costs of settling such matters are reflected in its reserves for losses and loss expenses, and the Company does not believe that the ultimate outcome of such matters will have a material adverse effect on its financial condition or results of operations.

26

ITEM 2: MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the unaudited interim consolidated financial statements and the notes thereto included in Part I, Item 1 of this Quarterly Report on Form 10-Q (this Quarterly Report), and in conjunction with our audited consolidated financial statements and the notes thereto included in the final prospectus filed with the Securities and Exchange Commission (SEC) on July 25, 2019 (the Prospectus).

Certain restatements have been made to historical information to give effect to the merger and related transactions.  SeeNote 1 – Basis of Reporting in the notes to the consolidated financial statements included in Part I, Item 1 of this Quarterly Report.

References to the "Company," "ProSight," "we," "us," and "our" are to ProSight Global, Inc. and its consolidated subsidiaries unless the context otherwise requires. References to “insurance subsidiaries” are to New York Marine and General Insurance Company (New York Marine), Gotham Insurance Company (Gotham) and Southwest Marine and General Insurance Company (Southwest Marine) unless the context otherwise requires.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Management’s Discussion and Analysis of Financial Condition and Results of Operations includes certain forward-looking statements that are subject to risks, uncertainties and other factors described in “Risk Factors” in this Quarterly Report. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of many factors. Forward-looking statements include statements relating to future developments in our business or expectations for our future financial performance and any statement not involving a historical fact. Forward-looking statements use words such as “anticipate,” “believe,” “estimate,” “expect,” “intend,” “plan,” “should,” “seek,” and other words and terms of similar meaning. Forward-looking statements in this Quarterly Report include, but are not limited to, statements about:

· our strategies to continue our growth trajectory, expand our distribution network and maintain underwriting profitability;

· future growth in existing niches or by entering into new niches;

· our loss expectations and expectation to decrease our loss ratio; and

· our expectations with respect to the ultimate financial obligations to the buyers of our U.K. operations.

Forward-looking statements are subject to known and unknown risks and uncertainties, many of which may be beyond our control. We caution you that forward-looking statements are not guarantees of future performance or outcomes and that actual performance and outcomes may differ materially from those made in or suggested by the forward-looking statements contained in this Quarterly Report. In addition, even if our results of operations, financial condition and cash flows, and the development of the market in which we operate, are consistent with the forward-looking statements contained in this Quarterly Report, those results or developments may not be indicative of results or developments in subsequent periods. New factors emerge from time to time that may cause our business not to develop as we expect, and it is not possible for us to predict all of them. Factors that could cause actual results and outcomes to differ from those reflected in forward-looking statements include:

· the performance of and our relationship with third-party agents and vendors we rely upon to distribute certain business on our behalf;

· the adequacy of our loss reserves;

· the effectiveness of our risk management policies and procedures;

27

· potential technology breaches or failure of our or our business partners’ systems;

· adverse changes in the economy which could lower the demand for our insurance products;

· our ability to effectively start up or integrate new product opportunities;

· cyclical changes in the insurance industry;

· the effects of natural and man-made catastrophic events;

· our ability to adequately assess risks and estimate losses;

· the availability and affordability of reinsurance;

· changes in interest rates, government monetary policies, general economic conditions, liquidity and overall market conditions;

· changes in the business, financial condition or results of operations of the entities in which we invest;

· increased costs as a result of operating as a public company, and time our management will be required to devote to new compliance initiatives;

· our ability to protect intellectual property rights;

· the impact of government regulation, including the impact of restrictions on our business activities under the Bank Holding Company (BHC) Act;

· our status as an emerging growth company;

· the absence of a previous public market for shares of our common stock; and

· potential conflicts of interests with our principal stockholders.

We discuss many of these risks in greater detail under the section titled “Risk Factors” in our prospectus filed with the SEC pursuant to Rule 424(b) and the Securities Act of 1933, as amended, on July 25, 2019. Given these uncertainties, you should not place undue reliance on these forward-looking statements. We qualify all of the forward-looking statements in this Quarterly Report by these cautionary statements. Except as required by law, we undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise.

Overview

We are an entrepreneurial specialty insurance company that since our founding in 2009 has built products, services and solutions with the goal of significantly improving the experience and value proposition for our customers. We write property and casualty insurance with a focus on underwriting specialty risks by partnering with a select number of distributors, often on an exclusive basis. We have a diverse business mix covering specialty niches within the seven customer segments in which we operate. Our customer segments currently include: Media and Entertainment, Real Estate, Professional Services, Transportation, Construction, Consumer Services and Marine and Energy. Within each customer segment, we have multiple niches which represent similar groups of customers.  We market and distribute our insurance product offerings in all 50 states on both an admitted and non-admitted basis. We are focused on delivering consistent underwriting profitability with low volatility of underwriting results.

28

Components of Our Results of Operations

Gross written and earned premiums

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

· Expansion or retraction of business within existing niches;

· Entrance into new customer segments or niches;

· Exit from customer segments or niches;

· Average size and premium rate of newly issued and renewed policies; and

· The amount of policy endorsements, audit premiums, and cancellations.

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. Net earned premiums represent the earned portion of our GWP, less that portion of our GWP that is earned and ceded to third-party reinsurers under our reinsurance agreements.

Ceded written and earned premiums

Ceded written premiums are the amount of GWP ceded to reinsurers. We actively use ceded reinsurance across our book of business to reduce our overall risk position and to protect our capital. Ceded written premiums are earned over the reinsurance contract period in proportion to the period of risk covered and the underlying policies. The volume of our ceded written premiums is impacted by the level of our GWP and any decision we make to increase or decrease retention levels.

Net investment income

We earn investment income on our portfolio of cash and invested assets. Our cash and invested assets are primarily comprised of debt securities, and may also include cash and cash equivalents, short-term investments, and alternative investments. The principal factors that influence net investment income are the size of our investment portfolio and the yield on that portfolio. As measured by amortized cost (which excludes changes in fair value, such as changes in interest rates and credit spreads), the size of our investment portfolio is mainly a function of our invested equity capital along with premiums we receive from our insureds less payments on policyholder claims and operating expenses.

Realized investment gains and losses

Realized investment gains and losses are a function of the difference between the amount received by us on the sale of a security and the security’s amortized cost, as well as any other-than-temporary impairments recognized in earnings.

Losses and Loss Adjustment Expenses

Losses and loss adjustment expenses (LAE) are a function of the amount and type of insurance contracts we write, the loss experience associated with the underlying coverage, and the expenses incurred in the handling of the losses. In general, our losses and LAE are affected by:

· Frequency of claims associated with the particular types of insurance contracts that we write;

· Trends in the average size of losses incurred on a particular type of business;

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· Mix of business written by us;

· Changes in the legal or regulatory environment related to the business we write;

· Trends in legal defense costs;

· Wage inflation; and

· Inflation in medical costs.

Losses and LAE are based on an actuarial analysis of the paid and estimated outstanding losses, including losses incurred during the period and changes in estimates from prior periods. Losses and LAE may be paid out over a number of years.

Underwriting, acquisition and insurance expenses

Underwriting, acquisition and insurance expenses include policy acquisition costs and other underwriting expenses. Policy acquisition costs are principally comprised of the commissions we pay our distribution partners and ceding commissions we receive on business ceded under certain reinsurance contracts. Policy acquisition costs that are directly related to the successful acquisition of those policies are deferred. The amortization of such policy acquisition costs is charged to expense in proportion to premium earned over the policy life. Other underwriting expenses represent the general and administrative expenses of our insurance business including employment costs, telecommunication and technology costs, the costs of our leases, and legal and auditing fees.

Income tax expense

Substantially all of our income tax expense relates to U.S. federal income taxes. Our insurance companies are generally not subject to income taxes in the states in which they operate; however, our non-insurance subsidiaries are subject to state income taxes. The amount of income tax expense or benefit recorded in future periods will depend on the jurisdictions in which we operate and the tax laws and regulations in effect. Among other things, the Tax Cuts and Jobs Act (the TCJA), which was signed into law on December 22, 2017, lowered the U.S. federal corporate tax rate from 35% to 21% starting January 1, 2018. Our income tax expense for periods beginning in 2018 is based on the U.S. federal corporate income tax rate of 21%.

Key Metrics

We discuss certain key metrics, described below, which provide useful information about our business and the operational factors underlying our financial performance.

Net income is the amount of profit or loss remaining after deducting all incurred expenses, including income taxes, from the total earned revenues for an accounting period.

Underwriting income is calculated by subtracting losses and LAE and underwriting, acquisition and insurance expenses from net earned premiums.

Adjusted operating income is net income excluding net realized investment gains and losses, expenses relating to various transactions that we consider to be unique and non-recurring in nature (net of estimated tax impact), and excluding the income tax expense resulting from implementation of TCJA.

Loss and LAE ratio, expressed as a percentage, is the ratio of losses and LAE, allocated and unallocated, to net earned premiums, net of the effects of reinsurance.

Expense ratio, expressed as a percentage, is the ratio of underwriting, acquisition and insurance expenses to net earned premiums.

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Combined ratio is the sum of the loss and LAE ratio and the expense ratio. A combined ratio under 100% indicates an underwriting profit. A combined ratio over 100% indicates an underwriting loss.

Adjusted loss and LAE ratio is the loss and LAE ratio excluding the effects of the WAQS (as defined below).

Adjusted expense ratio is the expense ratio excluding the effects of the WAQS.

Adjusted combined ratio is the combined ratio excluding the effects of the WAQS.

Return on equity is net income expressed on an annualized basis as a percentage of average beginning and ending stockholders’ equity during the period.

Adjusted operating return on equity is adjusted operating income expressed on an annualized basis as a percentage of average beginning and ending stockholders’ equity during the period.

Net retention ratio is the ratio of net written premiums to GWP.

Underwriting income, adjusted operating income, adjusted loss and LAE ratio, adjusted expense ratio, adjusted combined ratio and adjusted operating return on equity are non-GAAP financial measures. See “—Reconciliation of Non-GAAP Financial Measures” for a reconciliation of net income in accordance with GAAP to underwriting income and adjusted operating income. See “—Factors Affecting Our Results of Operations—The WAQS” for additional detail on the impact of the WAQS on our results of operations. 

Factors Affecting Our Results of Operations

The WAQS

In connection with the divestment of our U.K. business, New York Marine as reinsured entered into Whole Account Quota Share Reinsurance Agreements (the WAQS) with third party reinsurers to maintain reasonable underwriting leverage within New York Marine and its subsidiary insurance companies during a transition period following the U.K. divestment. The effective date of the WAQS was April 1, 2017. The reinsurers’ ceding participation is an aggregate 26.0%. A provisional ceding commission of 30% to 30.5% is received as a reduction in the amount of ceded premium. Subject to limits, these ceding commissions will vary in subsequent periods based on contractual ultimate loss ratios. During 2018 and following the transition of the U.S. business back to New York Marine, the WAQS were terminated. Previously ceded written and unearned premium, net of the ceding commission, was reversed. Loss reserves on premium earned prior to the cut-off termination remain ceded loss reserves. Loss reserve development on the reserves ceded under the WAQS is included in continuing operations.

The effect of the WAQS on our results of operations is primarily reflected in our ceded written premiums, losses and LAE, as well as our underwriting, acquisition and insurance expenses.

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The following tables summarize the effect of the WAQS on our underwriting income for the three months ended September 30, 2019 and 2018:

	Three Months Ended September 30, 2019						Three Months Ended September 30, 2018
	Including		Effect of		Excluding		Including		Effect of		Excluding
($ in thousands)	WAQS		WAQS		WAQS		WAQS		WAQS		WAQS
Gross written premiums	$	227,196	$	—	$	227,196	$	201,296	$	—	$	201,296
Ceded written premiums		(17,722)		(6)		(17,716)		(21,780)		(55)		(21,725)
Net written premiums	$	209,474	$	(6)	$	209,480	$	179,516	$	(55)	$	179,571
Net retention(1)		92.2%		—		92.2%		89.2%		—		89.2%
Net premiums earned	$	202,455	$	—	$	202,455	$	187,108	$	(56)	$	187,164
Net losses and LAE		127,196		1,632		125,564		109,976		(874)		110,850
Underwriting, acquisition and insurance expenses		71,920		(1,632)		73,552		69,246		823		68,423
Underwriting income (loss)(2)	$	3,339	$	—	$	3,339	$	7,886	$	(5)	$	7,891
Loss and LAE ratio		62.8%		—		—		58.8%		—		—
Expense ratio		35.5%		—		—		37.0%		—		—
Combined ratio		98.3%		—		—		95.8%		—		—
Adjusted loss and LAE ratio(3)		—		—		62.0%		—		—		59.2%
Adjusted expense ratio(3)		—		—		36.3%		—		—		36.6%
Adjusted combined ratio(3)		—		—		98.3%		—		—		95.8%

⁽¹⁾ The ratio of net written premiums to GWP.

⁽²⁾ Underwriting income is a non-GAAP financial measure. See “—Reconciliation of Non-GAAP Financial Measures” for a reconciliation of net income in accordance with GAAP to underwriting income.

⁽³⁾ Adjusted loss and LAE ratio, adjusted expense ratio and adjusted combined ratio are non-GAAP financial measures. We define adjusted loss and LAE ratio, adjusted expense ratio and adjusted combined ratio as the corresponding ratio (calculated in accordance with GAAP) excluding the effects of the WAQS. We use these adjusted ratios as internal performance measures in the management of our 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. Our adjusted loss and LAE ratio, adjusted expense ratio and adjusted combined ratio should not be viewed as substitutes for our loss and LAE ratio, expense ratio and combined ratio, respectively.

Our results of operations may be difficult to compare from year to year due to the origination and termination of the WAQS.  In light of the impact of the WAQS on our results of operations, we internally evaluated our financial performance both including and excluding the effect of the WAQS.

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The following tables summarize the effect of the WAQS on our underwriting income for the nine months ended September 30, 2019 and 2018:

	Nine Months Ended September 30, 2019						Nine Months Ended September 30, 2018
	Including		Effect of		Excluding		Including		Effect of		Excluding
($ in thousands)	WAQS		WAQS		WAQS		WAQS		WAQS		WAQS
Gross written premiums	$	718,066	$	—	$	718,066	$	673,271	$	—	$	673,271
Ceded written premiums		(88,122)		(3)		(88,119)		(19,368)		68,745		(88,113)
Net written premiums	$	629,944	$	(3)	$	629,947	$	653,903	$	68,745	$	585,158
Net retention(1)		87.7%		—		87.7%		97.1%		—		86.9%
Net premiums earned	$	600,543	$	3	$	600,540	$	537,687	$	(14,600)	$	552,287
Net losses and LAE		372,644		3,839		368,805		321,763		(9,422)		331,185
Underwriting, acquisition and insurance expenses		217,248		(3,837)		221,085		200,972		(4,083)		205,055
Underwriting income (loss)(2)	$	10,651	$	1	$	10,650	$	14,952	$	(1,095)	$	16,047
Loss and LAE ratio		62.1%		—		—		59.8%		64.5%		—
Expense ratio		36.2%		—		—		37.4%		28.0%		—
Combined ratio		98.3%		—		—		97.2%		92.5%		—
Adjusted loss and LAE ratio(3)		—		—		61.4%		—		—		60.0%
Adjusted expense ratio(3)		—		—		36.8%		—		—		37.1%
Adjusted combined ratio(3)		—		—		98.2%		—		—		97.1%

⁽¹⁾ The ratio of net written premiums to GWP.

⁽²⁾ Underwriting income is a non-GAAP financial measure. See “—Reconciliation of Non-GAAP Financial Measures” for a reconciliation of net income in accordance with GAAP to underwriting income.

⁽³⁾ Adjusted loss and LAE ratio, adjusted expense ratio and adjusted combined ratio are non-GAAP financial measures. We define adjusted loss and LAE ratio, adjusted expense ratio and adjusted combined ratio as the corresponding ratio (calculated in accordance with GAAP) excluding the effects of the WAQS. We use these adjusted ratios as internal performance measures in the management of our 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. Our adjusted loss and LAE ratio, adjusted expense ratio and adjusted combined ratio should not be viewed as substitutes for our loss and LAE ratio, expense ratio and combined ratio, respectively.

Our results of operations may be difficult to compare from year to year due to the origination and termination of the WAQS.  In light of the impact of the WAQS on our results of operations, we internally evaluated our financial performance both including and excluding the effect of the WAQS.

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Results of Operations

Three Months Ended September 30, 2019 Compared to Three Months Ended September 30, 2018

The following table summarizes the results of continuing operations for the three months ended September 30, 2019 and 2018:

	Three Months Ended September 30				Change
($ in thousands)	2019		2018		$		Percent
Gross written premiums	$	227,196	$	201,296	$	25,900	12.9%
Ceded written premiums		(17,722)		(21,780)		4,058	(18.6%)
Net written premiums	$	209,474	$	179,516	$	29,958	16.7%
Net premiums earned	$	202,455	$	187,108	$	15,347	8.2%
Losses and LAE:		127,196		109,976		17,220	15.7%
Underwriting, acquisition and insurance expenses		71,920		69,246		2,674	3.9%
Underwriting income(1)		3,339		7,886		(4,547)	(57.7%)
Interest and other expenses, net		10,182		2,924		7,258	248.2%
Net investment income		16,974		14,044		2,930	20.9%
Realized investment gains, net		245		406		(161)	(39.7%)
Income before taxes		10,376		19,412		(9,036)	(46.5%)
Income tax expense		2,015		3,809		(1,794)	(47.1%)
Net income from continuing operations	$	8,361	$	15,603	$	(7,242)	(46.4%)
Adjusted operating income(1)	$	13,825	$	15,282	$	(1,457)	(9.5%)
Adjusted operating return on equity(1)		11.2%		16.2%
Return on equity		6.8%		16.6%
Loss and LAE ratio:		62.8%		58.8%
Loss and LAE ratio –  excluding catastrophe		62.8%		58.8%
Loss and LAE ratio –  Catastrophe		–		–
Expense ratio		35.5%		37.0%
Combined ratio		98.3%		95.8%
Adjusted loss and LAE ratio(2)		62.0%		59.2%
Adjusted loss and LAE ratio – excluding catastrophe		62.0%		59.2%
Adjusted loss and LAE ratio – Catastrophe		–		–
Adjusted expense ratio(2)		36.3%		36.6%
Adjusted combined ratio(2)		98.3%		95.8%

⁽¹⁾ Underwriting income, adjusted operating income and adjusted operating return on equity are non-GAAP financial measures. See “—Reconciliation of Non-GAAP Financial Measures” for reconciliations of net income in accordance with GAAP to underwriting income and adjusted operating income.

⁽²⁾ Adjusted loss and LAE ratio, adjusted expense ratio and adjusted combined ratio are non-GAAP financial measures. We define adjusted loss and LAE ratio, adjusted expense ratio and adjusted combined ratio as the corresponding ratio (calculated in accordance with GAAP) excluding the effects of the WAQS. For additional detail on the impact of the WAQS on our results of operations see “—Factors Affecting Our Results of Operations—The WAQS.”

Net Income

Net income was $8.4 million for the three months ended September 30, 2019 compared to $15.6 million for the three months ended September 30, 2018, a decrease of $7.2 million, or 46.4%.The decrease in net income primarily resulted from an increase in other expenses of $6.8 million due to non-recurring grants of restricted stock units (RSUs) in connection with the initial IPO.

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Premiums

GWP were $227.2 million for the three months ended September 30, 2019 compared to $201.3 million for the three months ended September 30, 2018, an increase of $25.9 million, or 12.9%.

The following table presents the GWP by customer segment for the three months ended September 30, 2019 and 2018:

($ in millions)	Three Months Ended September 30
Customer Segment	2019		2018		% Change
Construction	$	27.3	$	22.5	21.3%
Consumer Services		35.5		29.9	18.7%
Marine and Energy		18.1		15.4	17.5%
Media and Entertainment		36.8		31.6	16.5%
Professional Services		27.0		24.7	9.3%
Real Estate		41.6		19.5	113.3%
Transportation		38.2		33.1	15.4%
Customer segments subtotal	$	224.5	$	176.7	27.1%
Other		2.7		24.6	(89.0%)
Total GWP	$	227.2	$	201.3	12.9%

Premium growth for the three months ended September 30, 2019 was primarily driven by new business and renewals within existing niches and the addition of new niches.  Excluding the decline of GWP within “Other,” premiums for the three months ended September 30, 2019 increased 27.1% compared to the three months ended September 30, 2018.

The changes in GWP were most notable in the following customer segments and niches:

· Real Estate GWP increased by 113.3% to $41.6 million for the three months ended September 30, 2019 compared to $19.5 million for the three months ended September 30, 2018.  There was premium growth across all niches. The Property Managers and Metrobuilders niches had increases in new business of $11.1 million and $6.1 million, respectively, in the third quarter of 2019 when compared to the third quarter of 2018.

· Construction GWP increased by 21.3% to $27.3 million for the three months ended September 30, 2019 compared to $22.5 million for the three months ended September 30, 2018.  There was premium growth across all niches.  The Scaffolding and Luxury Home Builders niches had increases in renewal premium retention of $2.5 million and $1.9 million, respectively, in the third quarter of 2019 when compared to the third quarter of 2018.

· Consumer Services GWP increased by 18.7% to $35.5 million for the three months ended September 30, 2019 compared to $29.9 million for the three months ended September 30, 2018.  The premium growth is due to new business of $7.2 million in the Parking Facilities niche, partially offset by a decline in premium within the Professional Employer Organizations and Social Services niches.  New business and renewal premium retention was limited by unfavorable pricing conditions in primary workers compensation. 

· Other GWP decreased by 89.0% to $2.7 million for the three months ended September 30, 2019 compared to $24.6 million for the three months ended September 30, 2018.  The decline in premium was driven by the exit of the excess workers compensation niche.

Net written premiums increased by $30.0 million, or 16.7%, to $209.5 million for the three months ended September 30, 2019 from $179.5 million for the three months ended September 30, 2018. The increase in net written premiums was directly related to the growth in GWP.

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Net earned premiums increased by $15.3 million, or 8.2%, to $202.5 million for the three months ended September 30, 2019 from $187.1 million for the three months ended September 30, 2018.  The increase in net earned premiums was directly related to the growth in GWP.

Loss and LAE ratio

Our loss and LAE ratio was 62.8% for the three months ended September 30, 2019 compared to 58.8% for the three months ended September 30, 2018. For the three months ended September 30, 2019 we incurred unfavorable prior period development of $5.5 million which includes unfavorable development in general liability of $10.0 million and commercial auto of $7.0 million, partially offset by favorable development in all other of $7.3 million and workers compensation of $4.2 million, as compared to favorable development of $1.4 million for the three months ended September 30, 2018. 

The following tables summarize the effect of the factors indicated above on the loss and LAE ratios and adjusted loss and LAE ratios for the three months ended September 30, 2019 and 2018:

	Three Months Ended September 30
	2019			2018
			% of Earned			% of Earned
($ in thousands)	Losses and LAE		Premiums	Losses and LAE		Premiums
Loss and LAE:
Current accident year – excluding catastrophe	$	121,701	60.1%	$	111,418	59.5%
Current accident year – catastrophe losses		—	0.0%		—	0.0%
Effect of prior year development		5,495	2.7%		(1,442)	(0.7%)
Total	$	127,196	62.8%	$	109,976	58.8%

	Three Months Ended September 30
	2019			2018
			% of Earned			% of Earned
($ in thousands)	Losses and LAE		Premiums	Losses and LAE		Premiums
Adjusted loss and LAE:
Current accident year – excluding catastrophe	$	121,701	60.1%	$	112,292	60.0%
Current accident year – catastrophe losses		—	0.0%		—	0.0%
Effect of prior year development		3,863	1.9%		(1,442)	(0.8%)
Total	$	125,564	62.0%	$	110,850	59.2%

Expense ratio

Our expense ratio was 35.5% for the three months ended September 30, 2019 compared to 37.0% for the three months ended September 30, 2018.  The improvement in the expense ratio reflects an increase in net earned premiums and the effect of WAQS for the three months ended September 30, 2019 compared to the three months ended September 30, 2018.

The following table summarizes the components of the expense ratio for the three months ended September 30, 2019 and 2018:

	Three Months Ended September 30
	2019			2018
			% of Earned			% of Earned
($ in thousands)	Expenses		Premiums	Expenses		Premiums
Underwriting, acquisition and insurance expenses:
Policy acquisition expenses, net of ceded reinsurance	$	47,585	23.5%	$	43,372	23.2%
Underwriting and insurance expenses		25,967	12.8%		25,051	13.4%
Underwriting, acquisition and insurance expenses(1)		73,552	36.3%		68,423	36.6%
Effect of WAQS(1)		(1,632)	(0.8%)		823	0.4%
Total underwriting, acquisition and insurance expenses	$	71,920	35.5%	$	69,246	37.0%

⁽¹⁾ Total underwriting, acquisition and insurance expenses and the effect of the WAQS are calculated based on the net earned premiums including the effects of the WAQS for three months ended September 30, 2019 and 2018.  

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Underwriting income

Underwriting income was $3.3 million for the three months ended September 30, 2019 compared to $7.9 million for the three months ended September 30, 2018, a decrease of $4.5 million, or 57.7%.  The change from the three months ended September 30, 2018 to the three months ended September 30, 2019 is primarily due an increase in the loss and LAE ratio offset by a decrease in the expense ratio. 

Combined ratio

Our combined ratio and adjusted combined ratio was 98.3% for the three months ended September 30, 2019 compared to 95.8% for the three months ended September 30, 2018.  

Investing results

Our net investment income increased by 20.9% to $17.0 million for the three months ended September 30, 2019 from $14.0 million for the three months ended September 30, 2018.  The increase in net investment income is primarily due to a larger portfolio size and a slight increase in net investment yield.  Net investment yield was 3.3% for the three months ended September 30, 2019 and 3.2% for the three months ended September 30, 2018.    

The weighted average duration of our fixed income portfolio, including cash equivalents, was 3.0 years at September 30, 2019 and 3.1 years at September 30, 2018.    

The following table summarizes the components of net investment income and net investment gains for the three months ended September 30, 2019 and 2018:

	Three Months Ended September 30
($ in thousands)	2019		2018		$ Change
Interest from securities	$	16,764	$	14,422	$	2,342
Other investments		777		273		504
Gross investment income		17,541		14,695		2,846
Investment expenses		(567)		(651)		84
Net investment income		16,974		14,044		2,930
Realized investment gains, net		245		406		(161)
Total	$	17,219	$	14,450	$	2,769
Average invested assets at book value	$	2,069,327	$	1,789,970	$	279,357

Interest and other expenses, net

Our interest and other expenses increased by $7.3 million to $10.2 million for the three months ended September 30, 2019 compared to $2.9 million for the three months ended September 30, 2018. The increase is primarily driven by other expenses of $7.2 million due to non-recurring grants of RSU’s in connection with the IPO.

Income tax expense

Our effective tax rate for the three months ended September 30, 2019 was 19.4% compared to 19.6% for the three months ended September 30, 2018. The decrease in the effective tax rate in the third quarter of 2019 compared to the third quarter of 2018 was primarily due to the effect of share-based compensation and state income taxes. For the three months ended September 30, 2019 we received a net income tax refund of $0.3 million, and for the three months ended September 30, 2018 net income tax payments were $0.1 million.  

Adjusted operating income

Adjusted operating income was $13.8 million for the three months ended September 30, 2019, a decrease of $1.5 million, or 9.5% from the adjusted operating income of $15.3 million for the three months ended September 30, 2018.

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Adjusted operating return on equity

Our adjusted operating return on equity was 11.2% for the three months ended September 30, 2019, a decrease of 5.1% percentage points from 16.2% for the three months ended September 30, 2018 primarily due to the increase in stockholders’ equity from $383.7 million in the third quarter of 2018 to $530.6 million in the third quarter of 2019.

Nine Months Ended September 30, 2019 Compared to Nine Months Ended September 30, 2018

The following table summarizes the results of continuing operations for the nine months ended September 30, 2019 and 2018:

	Nine Months Ended September 30				Change
($ in thousands)	2019		2018		$		Percent
Gross written premiums	$	718,066	$	673,271	$	44,795	6.7%
Ceded written premiums		(88,122)		(19,368)		(68,754)	355.0%
Net written premiums	$	629,944	$	653,903	$	(23,959)	(3.7%)
Net premiums earned	$	600,543	$	537,687	$	62,856	11.7%
Losses and LAE:		372,644		321,763		50,881	15.8%
Underwriting, acquisition and insurance expenses		217,248		200,972		16,276	8.1%
Underwriting income(1)		10,651		14,952		(4,301)	(28.8%)
Interest and other expenses, net		23,671		8,703		14,968	172.0%
Net investment income		51,530		43,301		8,229	19.0%
Realized investment gains, net		495		805		(310)	(38.5%)
Income before taxes		39,005		50,355		(11,350)	(22.5%)
Income tax expense		8,253		10,090		(1,837)	(18.2%)
Net income from continuing operations	$	30,752	$	40,265	$	(9,513)	(23.6%)
Adjusted operating income(1)	$	41,683	$	39,629	$	2,054	5.2%
Adjusted operating return on equity(1)		12.1%		13.9%
Return on equity		8.9%		14.1%
Loss and LAE ratio:		62.1%		59.8%
Loss and LAE ratio –  excluding catastrophe		61.6%		59.8%
Loss and LAE ratio –  Catastrophe		0.5%		–
Expense ratio		36.2%		37.4%
Combined ratio		98.3%		97.2%
Adjusted loss and LAE ratio(2)		61.4%		60.0%
Adjusted loss and LAE ratio – excluding catastrophe		60.9%		60.0%
Adjusted loss and LAE ratio – Catastrophe		0.5%		–
Adjusted expense ratio(2)		36.8%		37.1%
Adjusted combined ratio(2)		98.2%		97.1%

⁽¹⁾ Underwriting income, adjusted operating income and adjusted operating return on equity are non-GAAP financial measures. See “—Reconciliation of Non-GAAP Financial Measures” for reconciliations of net income in accordance with GAAP to underwriting income and adjusted operating income.

⁽²⁾ Adjusted loss and LAE ratio, adjusted expense ratio and adjusted combined ratio are non-GAAP financial measures. We define adjusted loss and LAE ratio, adjusted expense ratio and adjusted combined ratio as the corresponding ratio (calculated in accordance with GAAP) excluding the effects of the WAQS. For additional detail on the impact of the WAQS on our results of operations see “—Factors Affecting Our Results of Operations—The WAQS.”

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Net Income

Net income was $30.8 million for the nine months ended September 30, 2019 compared to $40.3 million for the nine months ended September 30, 2018, a decrease of $9.5 million, or 23.6%.  The decrease in net income primarily resulted from an increase in other expenses of $14.3 million due to non-recurring grants of RSUs in connection with the IPO and costs associated with the transition of our former Chief Executive Officer, partially offset by an increase in net investment income of $8.2 million.

Premiums

GWP were $718.1 million for the nine months ended September 30, 2019 compared to $673.3 million for the nine months ended September 30, 2018, an increase of $44.8 million, or 6.7%.

The following table presents the GWP by customer segment for the nine months ended September 30, 2019 and 2018:

($ in millions)	Nine Months Ended September 30
Customer Segment	2019		2018		% Change
Construction	$	83.1	$	72.0	15.4%
Consumer Services		100.9		80.1	26.0%
Marine and Energy		54.9		49.6	10.7%
Media and Entertainment		113.6		109.8	3.5%
Professional Services		85.7		82.3	4.1%
Real Estate		116.9		91.5	27.8%
Transportation		95.7		83.5	14.6%
Customer segments subtotal	$	650.8	$	568.8	14.4%
Other		67.3		104.5	(35.6%)
Total GWP	$	718.1	$	673.3	6.7%

Premium growth for the nine months ended September 30, 2019 was primarily driven by increases in new business and premium retention within previously existing niches.  Excluding the decline of GWP within “Other,” premiums for the nine months ended September 30, 2019 increased 14.4% compared to the nine months ended September 30, 2018. 

The changes in GWP were most notable in the following customer segments and niches:

· Real Estate GWP increased by 27.8% to $116.9 million for the nine months ended September 30, 2019 compared to $91.5 million for the nine months ended September 30, 2018.  There is premium growth across all niches. The Metrobuilders, Builders Risk, and Residential niches had increases in new business of $10.8 million, $4.3 million, and $1.2 million, respectively.  In addition, Residential and Metrobuilders niches had increases in renewal premium retention of $2.6 million and $1.3 million, respectively, during the first nine months of 2019 when compared to the nine months of 2018. 

· Consumer Services GWP increased by 26.0% to $100.9 million for the nine months ended September 30, 2019 compared to $80.1 million for the nine months ended September 30, 2018.  The premium growth is due to increases in the Auto Dealers niche, addition of the Parking Facilities niche, and partially offset by declines in premium within the Professional Employer Organizations and Social Services niches.  Auto Dealers increased $20.7 million during the nine months of 2019 when compared to the nine months of 2018, primarily due to new business of $12.3 million and renewal premium retention of $9.0 million.  Parking Facilities generated $13.7 million in premium in the nine months ended September 30, 2019.  The Professional Employer Organizations and Social Services niches, premiums declined by $7.7 million and $5.4 million, respectively, during the first nine months of 2019 when compared to the nine months of 2018.  New business growth and renewal premium retention were limited by unfavorable pricing conditions in primary workers compensation.

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· Construction GWP increased by 15.4% to $83.1 million for the nine months ended September 30, 2019 compared to $72.0 million for the nine months ended September 30, 2018.  There was premium growth across all niches for the nine months ended September 30, 2019 when compared to the nine months ended September 30, 2018, due to new business and average rate increases of 5.3% across the customer segment also contributed to the growth during the nine months ended September 30, 2019.

· Other GWP decreased by 35.6% to $67.3 million for the nine months ended September 30, 2019 compared to $104.5 million for the nine months ended September 30, 2018.  The decline in premium during the first nine months of 2019 when compared to the first nine months of 2018 was driven by a decline in the excess workers compensation niche.

Net written premiums decreased by $24.0 million, or 3.7%, to $629.9 million for the nine months ended September 30, 2019 from $653.9 million for the nine months ended September 30, 2018. The decrease in net written premiums was directly related to the termination of the WAQS in 2018. Our net retention ratio was 87.7% and 97.1% for the nine months ended September 30, 2019 and 2018, respectively.  Excluding the effects of the WAQS, net written premiums for the nine months ended September 30, 2019 increased by $44.8 million, or 7.7%, to $629.9 million, from $585.2 million for the nine months ended September 30, 2018 primarily related to the growth in GWP in 2019.  Our net retention ratio was 87.7% and 86.9% for the nine months ended September 30, 2019 and 2018, respectively.

Net earned premiums increased by $62.9 million, or 11.7%, to $600.5 million for the nine months ended September 30, 2019 from $537.7 million for the nine months ended September 30, 2018.  The increase in net earned premiums for the first nine months of 2019 compared to the first nine months of 2018 was due to the to the growth in written premium in 2019, and due to the termination of the WAQS in 2018. Excluding the effects of the WAQS, net earned premiums for the nine months ended September 30, 2019 were $600.5 million, an increase of 8.7% from the nine months ended September 30, 2018 of $552.3 million. 

Loss and LAE ratio

Our loss and LAE ratio was 62.1% for the nine months ended September 30, 2019 compared to 59.8% for the nine months ended September 30, 2018.  Included within the loss and LAE ratio of 62.1% is a catastrophe loss of $3.0 million, or 0.5%, from one tornado event in the first nine months of 2019 compared to no catastrophes in the first nine months of 2018.

For the nine months ended September 30, 2019, we incurred unfavorable prior period development of $2.4 million as compared to favorable development of $4.0 million for the first nine months ended September 30, 2018 due to unfavorable development in general liability of $23.2 million, partially offset by favorable development in workers compensation of $18.7 million and all other of $2.7 million.

The following tables summarize the effect of the factors indicated above on the loss and LAE ratios and adjusted loss and LAE ratios for the nine months ended September 30, 2019 and 2018:

	Nine Months Ended September 30
	2019			2018
			% of Earned			% of Earned
($ in thousands)	Losses and LAE		Premiums	Losses and LAE		Premiums
Loss and LAE:
Current accident year – excluding catastrophe	$	367,277	61.2%	$	325,810	60.6%
Current accident year – catastrophe losses		3,000	0.5%		—	0.0%
Effect of prior year development		2,367	0.4%		(4,047)	(0.8%)
Total	$	372,644	62.1%	$	321,763	59.8%

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	Nine Months Ended September 30
	2019			2018
			% of Earned			% of Earned
($ in thousands)	Losses and LAE		Premiums	Losses and LAE		Premiums
Adjusted loss and LAE:
Current accident year – excluding catastrophe	$	367,277	61.2%	$	335,232	60.7%
Current accident year – catastrophe losses		3,000	0.5%		—	0.0%
Effect of prior year development		(1,472)	(0.3%)		(4,047)	(0.7%)
Total	$	368,805	61.4%	$	331,185	60.0%

Expense ratio

Our expense ratio was 36.2% for the nine months ended September 30, 2019 compared to 37.4% for the nine months ended September 30, 2018. The decrease in expense ratio was driven by premium growth in excess of expense growth and due to the effect of the WAQS. The effect of WAQS resulted in a 0.6% percentage points improvement in the underwriting, acquisition and insurance expense ratio. Excluding the impact of the WAQS our expense ratio was 36.8% and 37.1% for the nine months ended September 30, 2019 and September 30, 2018, respectively. 

The following table summarizes the components of the expense ratio for the nine months ended September 30, 2019 and 2018:

	Nine Months Ended September 30
	2019			2018
			% of Earned			% of Earned
($ in thousands)	Expenses		Premiums	Expenses		Premiums
Underwriting, acquisition and insurance expenses:
Policy acquisition expenses, net of ceded reinsurance	$	141,896	23.6%	$	129,902	23.5%
Underwriting and insurance expenses		79,189	13.2%		75,153	13.6%
Underwriting, acquisition and insurance expenses(1)		221,085	36.8%		205,055	37.1%
Effect of WAQS(1)		(3,837)	(0.6%)		(4,083)	0.3%
Total underwriting, acquisition and insurance expenses	$	217,248	36.2%	$	200,972	37.4%

⁽¹⁾ Total underwriting, acquisition and insurance expenses and the effect of the WAQS are calculated based on the net earned premiums including the effects of the WAQS for the nine months ended September 30, 2019 and 2018.

Underwriting income

Underwriting income was $10.7 million for the nine months ended September 30, 2019 compared to $15.0 million for the nine months ended September 30, 2018, a decrease of $4.3 million, or 28.8%. The change from nine months ended September 30, 2018 to September 30, 2019 was due to the change in prior period loss development from favorable of $4.0 million to unfavorable of $2.4 million.

Combined ratio

Our combined ratio was 98.3% for the nine months ended September 30, 2019 compared to 97.2% for the nine months ended September 30, 2018. Our adjusted combined ratio was 98.2% for the nine months ended September 30, 2019 compared to 97.1% for the nine months ended September 30, 2018.

Investing results

Our net investment income increased by 19.0% to $51.5 million for the nine months ended September 30, 2019 from $43.3 million for the nine months ended September 30, 2018.  The increase in net investment income is primarily due to an increase in the amount of invested assets and a slight increase in net investment yield.  Net investment yield was 3.5%  for the nine months ended September 30, 2019 and 3.4% for the nine months ended September 30, 2018.    

The weighted average duration of our fixed income portfolio, including cash equivalents, was 3.0 years at September 30, 2019 and 3.1 years at September 30, 2018. 

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The following table summarizes the components of net investment income and net investment gains for the nine months ended September 30, 2019 and 2018:

	Nine Months Ended September 30
($ in thousands)	2019		2018		$ Change
Interest from securities	$	49,414	$	40,830	$	8,584
Other investments		3,730		3,786		(56)
Gross investment income		53,144		44,616		8,528
Investment expenses		(1,614)		(1,315)		(299)
Net investment income		51,530		43,301		8,229
Realized investment gains, net		495		805		(310)
Total	$	52,025	$	44,106	$	7,919
Average invested assets at book value	$	1,989,131	$	1,715,601	$	273,530

Interest and other expenses, net

Our interest and other expenses increased by $15.0 million to $23.7 million for the nine months ended September 30, 2019 compared to $8.7 million for the nine months ended September 30, 2018. The increase is primarily driven by other expenses of $14.4 million due to non-recurring grants of RSU’s in connection with the IPO and costs associated with the transition of our former Chief Executive Officer.

Income tax expense

Our effective tax rate for the nine months ended September 30, 2019 was 21.2% compared to 20.0% for the nine months ended September 30, 2018. The increase in the effective tax rate in 2019 compared to the same period in 2018 was primarily due to adjustments recorded on state income taxes.  For the nine months ended September 30, 2019 we received a net income tax refund of $0.4 million, and for the nine months ended September 30, 2018 net income tax payments were $0.1 million.

Adjusted operating income

Adjusted operating income was $41.7 million for the nine months ended September 30, 2019, an increase of $2.1 million, or 5.2% from the adjusted operating income of $39.6 million for nine months ended September 30, 2018.

Adjusted operating return on equity

Our adjusted operating return on equity was 12.1% for the nine months ended September 30, 2019, and 13.9% for the nine months ended September 30, 2018.

Liquidity and Capital Resources

Sources and Uses of Funds

We are organized as a holding company with our operations primarily conducted by our wholly owned insurance subsidiaries, New York Marine and Gotham, which are domiciled in New York, and Southwest Marine, which is domiciled in Arizona. Accordingly, the holding company may receive cash through (1) loans from banks, (2) draws on a revolving loan agreement, (3) issuance of equity and debt securities, (4) corporate service fees from our operating subsidiaries, (5) payments from our subsidiaries pursuant to our consolidated tax allocation agreement and other transactions and (6) 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, and pay dividends and taxes and for other business purposes.

We receive corporate service fees from the operating subsidiaries to reimburse us for most of the operating expenses that we incur. Reimbursement of expenses through corporate service fees is based on the actual costs that we expect to incur with no mark-up above our expected costs.

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Management believes that the Company has sufficient liquidity available to meet its operating cash needs and obligations and committed capital expenditures for the next 12 months.

Cash Flows

Our most significant source of cash is from premiums received from our insureds, which, for most policies, we receive at the beginning of the coverage period and 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. We also use cash to pay for operating expenses such as salaries, rent and taxes and capital expenditures such as technology systems. As described under “—Reinsurance” below, we use reinsurance to manage the risk that we take on our policies. We cede, or pay out, part of the premiums we receive to our reinsurers and collect cash back when losses subject to our reinsurance coverage are paid.

The casualty-focused nature of our products, and limited property exposures, enabled significant and increasing operating cash flow generation. The timing of our cash flows from operating activities can vary among periods due to the timing by which payments are made or received. Some of our payments and receipts, including loss settlements and subsequent reinsurance receipts, can be significant, and as a result their timing can influence cash flows from operating activities in any given period. Management believes that cash receipts from premiums, proceeds from investment sales and investment income are sufficient to cover cash outflows in the foreseeable future.

Our cash flows for the nine months ended September 30, 2019 and 2018 were:

	Nine Months Ended September 30
	2019		2018
($ in thousands)
Cash and cash  equivalents provided by (used in):
Operating activities	$	212,061	$	208,075
Investing activities		(244,030)		(232,520)
Financing activities		33,450		5,000
Change in cash and cash equivalents	$	1,481	$	(19,445)

The increase in cash provided by financing activities of $28.5 million for the nine months ended September 30 2019, compared to the nine months ended September 30, 2018 was due to the net proceeds from shares issued in the IPO of $51.6 million, offset by a repayment of our outstanding debt and restated revolving loan agreement of $18.0 million.  The increase in cash provided by operating activities for the nine months ended September 30, 2019, compared to the nine months ended September 30, 2018, was largely driven by the timing of reinsurance activity.

Reinsurance

We actively use ceded reinsurance across our book of business to reduce our overall risk position and to protect our capital. Reinsurance involves a primary insurance company transferring, or “ceding”, a portion of its premium and losses in order to limit its exposure. The ceding of liability to a reinsurer does not relieve the obligation of the primary insurance to the policyholder. The primary insurer remains liable for the entire loss if the reinsurer fails to meet its obligations under the reinsurance agreement. Our reinsurance is primarily contracted under excess of loss agreements. In excess of loss reinsurance, the reinsurer agrees to assume all or a portion of the ceding company’s losses, in excess of a specified amount. In excess of loss reinsurance, the premium payable to the reinsurer is negotiated by the parties based on their assessment of the amount of risk being ceded to the reinsurer because the reinsurer does not share proportionately in the ceding company’s losses. 

We use quota share and facultative reinsurance in selected niches, on a limited basis. In quota share reinsurance, the reinsurer agrees to assume a specified percentage of the ceding company’s losses arising out of a defined class of business in exchange for a corresponding percentage of premiums, net of a ceding commission.  Facultative coverage refers to a reinsurance contract on individual risks as opposed to a group or class of business. It is used for a variety of reasons, including supplementing the limits provided by the treaty coverage or covering risks or perils excluded from treaty reinsurance.

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Our largest quota share reinsurance agreements were the WAQS.  In connection with the divestment of our U.K. business, New York Marine as reinsured entered into the WAQS with third party reinsurers to maintain reasonable underwriting leverage within New York Marine and its subsidiary insurance companies during a transition period following the U.K. divestment. During 2018, and following the transition of the U.S. business back to New York Marine, the WAQS were terminated.

The following is a summary of our significant excess of loss reinsurance programs as of September 30, 2019:

Line of Business Covered	Reinsurance Coverage
Property - per risk	$37.0 million excess of $3.0 million
Property - catastrophe	$195.0 million excess of $5.0 million
Casualty	Supported Umbrella: $6.0 million excess of $4.0 million Unsupported Umbrella: $5.0 million excess of $5.0 million Professional Liability: $5.0 million excess of $5.0 million
Primary Workers Compensation	$37.0 million excess of $3.0 million
Excess Workers Compensation	$95.0 million excess of $5.0 million
Marine	$42.5 million excess of $2.5 million

⁽¹⁾ Our excess of loss reinsurance reduces the financial impact of a loss occurrence.  Our excess of loss reinsurance includes reinstatement provisions, inuring relationships, and other clauses that may impact the amount recovered on a loss occurrence.

At each annual renewal, we consider any plans to change the underlying insurance coverage we offer, as well as updated loss activity, the level of our capital and surplus, changes in our risk appetite and the cost and availability of reinsurance treaties.

Reinsurance contracts do not relieve us from our obligations to policyholders. Failure of the reinsurer to honor its obligations could result in losses to us, and therefore, we establish allowances for amounts considered uncollectible. At each of September 30, 2019 and 2018 the allowance for uncollectible reinsurance was $7.7 million, and $5.5 million respectively. In formulating our reinsurance programs, we are selective in our choice of reinsurers and we consider numerous factors, the most important of which are the financial stability of the reinsurer, its history of responding to claims and its overall reputation. In an effort to minimize our exposure to the insolvency of our reinsurers, we review the financial condition of each reinsurer annually. In addition, we continually monitor for rating downgrades involving any of our reinsurers.  At September 30, 2019, all reinsurance contracts that our insurance subsidiary was a party to were with companies with A.M. Best ratings of "A-" (Excellent) or better. The remaining reinsurance recoverable with non rated reinsurers is collateralized through funds held and letters of credit.

Ratings

ProSight and its insurance subsidiaries 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 “F” (In Liquidation). 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—A downgrade in our Financial Strength Ratings (FSRs) from A.M. Best could negatively affect our results of operations.”

The financial strength ratings assigned by A.M. Best have an impact on the ability of the insurance subsidiaries to attract and retain our distribution partners and on the risk profiles of the submissions for insurance that the insurance subsidiaries receive. The “A-” (Excellent) rating affirmed by A.M. Best on November 1, 2018 is consistent with our business plan and allows us to actively pursue relationships with the distribution partners identified in our marketing plan.

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Financial Condition

Stockholders’ equity

At September 30, 2019, total stockholders’ equity was $530.6 million and tangible stockholders’ equity was $501.4 million, compared to total stockholders’ equity of $389.8 million and tangible stockholders’ equity of $360.6 million at December 31, 2018. The increase in both total and tangible stockholders’ equity was primarily due to net unrealized gains on investment securities of $56.2 million, proceeds from common stock sold in the IPO of $51.6 million, and net income of $30.4 million, for the nine months ended September 30, 2019.

Tangible stockholders’ equity is a non-GAAP financial measure. We define tangible stockholders’ equity as stockholders’ equity less goodwill and intangible assets. Our definition of tangible stockholders’ equity may not be comparable to that of other companies, and it should not be viewed as a substitute for stockholders’ equity calculated in accordance with GAAP. We use tangible stockholders’ equity internally to evaluate the strength of our balance sheet and to compare returns relative to this measure.

Stockholders’ equity at September 30, 2019 and December 31, 2018 reconciles to tangible stockholders’ equity as follows:

	September 30, 2019		December 31, 2018
($ in thousands)
Stockholders’ equity	$	530,583	$	389,830
Less: goodwill and net intangible assets		29,196		29,219
Tangible stockholders’ equity	$	501,387	$	360,611
Book value per share	$	12.33	$	10.03
Tangible book value per share	$	11.65	$	9.28

Initial Public Offering

On July 29, 2019, the Company completed the IPO with the sale of 7,857,145  shares of the Company’s common stock, including the issuance and sale by the Company of 4,285,715 shares of the Company’s common stock and the sale by ProSight Parallel Investment LLC and ProSight Investment LLC (collectively, the GS Investors) and ProSight TPG, L.P., TPG PS 1, L.P., TPG PS 2, L.P., TPG PS 3, L.P. and TPG PS 4, L.P. (collectively the TPG Investors and together with the GS Investors, the Principal Stockholders) of 3,571,430 shares of the Company’s common stock.

Shares of the Company’s common stock were initially offered to the public by the underwriters in the IPO at a per-share price of $14.00. After deducting underwriting discounts and commissions and estimated offering expenses, the net proceeds to the Company from the IPO were approximately $51.6 million. The Company did not receive any of the proceeds from the sale of the shares of the Company’s common stock sold by the Principal Stockholders in the IPO. Following the IPO, the GS Investors held approximately 40.9% of the Company’s outstanding common stock and the TPG Investors held approximately 39.4% of the Company’s outstanding common stock. 

On August 15, 2019 the Principal Stockholders completed the sale of 1,178,570 shares of the Company’s common stock at a price of $14.00 per share less the underwriting discount pursuant to the underwriters’ exercise of their over-allotment option granted in connection with the IPO. The offering was registered pursuant to the registration statement, which the SEC declared effective on July 24, 2019. The Company did not receive any of the proceeds from the sale of the shares of common stock of the Company sold by the Principal Stockholders in this offering. Following this offering, the GS Investors held approximately 39.5% of the Company’s outstanding common stock and the TPG Investors held approximately 38.0% of the Company’s outstanding common stock.

2019 Equity Incentive Plan

In connection with, and prior to the completion of the IPO, the Company’s Amended and Restated 2010 Equity Incentive Plan (the 2010 Plan) was terminated. Immediately prior to the merger, all outstanding P Shares granted under

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the 2010 Plan prior to the IPO, were cancelled, and all outstanding RSUs granted under the 2010 Plan converted into RSUs based on the shares of common stock of the Company.

On July 24, 2019, the Company’s 2019 Equity Incentive Plan (the 2019 Plan) became effective immediately prior to the effectiveness of the registration statement filed in connection with the IPO. The 2019 Plan provides for the grant of stock options, stock appreciation rights, restricted stock, RSUs, performance shares, and units and other cash‑based or share‑based awards.

The 2019 Plan is administered by the compensation committee of the Company’s Board of Directors. Subject to the provisions of the 2019 Plan, the compensation committee determines in its discretion, the persons to whom and the times at which awards are granted, the size of awards (subject to certain limitations set forth in the compensation committee charter) and the terms and conditions of awards.

A total of 4,500,000 shares of common stock are initially authorized and reserved for issuance under the 2019 Plan, including shares underlying RSUs granted under the 2010 Plan, which converted into the Company’s common stock, effective July 25, 2019, as a result of the merger.

The following is a summary of the post-offering compensation included in the 2019 Plan, including the number of common stock granted to each award mentioned below:

(i) 181,118 annual long-term incentive awards in respect of 2019, 90,559 of which are time-vesting RSUs and 90,559 of which are performance-vesting RSUs, granted to management in connection with the IPO. Time-vesting RSUs are subject to vesting as follows: one-third annual installments on each anniversary of grant date, subject to continued service. Performance-vesting RSUs are subject to vesting as follows: cliff vesting on the third anniversary of the grant date to the extent performance metrics are met, subject to continued service. The fair value of such awards is $2.5 million at grant date.

(ii) 1,267,912 supplemental RSU awards, 100% of which are time-vesting RSUs, granted to management in connection with the IPO and subject to vesting as follows: 25% vested at grant date, 25% will vest on the second anniversary of the grant date, subject to continued service, and 50% will vest on the third anniversary of the grant date, subject to continued service. The fair value of the supplemental RSUs is $17.8 million.

(iii) 250,000 founders grant awards in the form of time-vesting RSUs with a fair value of $3.5 million at grant date in connection with the IPO. These awards will cliff vest on the third anniversary of the grant date.

(iv) 26,399 non-employee director RSU awards with a fair value of $0.4 million at grant date (other than RSUs granted to non-employee directors designated by the Company’s principal stockholders, if any, which will be determined by the Board of Directors). These awards are fully vested on grant date.

(v) 668,170 RSUs initially granted under the 2010 Plan that were converted into RSUs based on shares of the Company’s common stock upon the consummation of the merger.

2019 Employee Stock Purchase Plan

On July 24, 2019, the 2019 Employee Stock Purchase Plan (the 2019 ESPP) became effective immediately prior to the effectiveness of the registration statement filed in connection with the IPO.  A total of 1,000,000 shares of the Company’s common stock will be reserved and available for sale under the 2019 ESPP.

The compensation committee of the Board of Directors administers the 2019 ESPP and have full authority to interpret the terms of the 2019 ESPP.

There was no expense recognized related to the 2019 ESPP for the nine months ended September 30, 2019

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Investment portfolio

Our cash and invested assets consist of debt securities, cash and cash equivalents, short-term investments and alternative investments.

At September 30, 2019, $2.0 billion, was comprised of securities that are classified as available-for sale and 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. Also included in our investments were $194.9 million of alternative investments carried at fair value. Our securities, including cash equivalents, had a weighted average duration of 3.0 years and an average rating of “A” at September 30, 2019.

At September 30, 2019 and December 31, 2018, the amortized cost and fair value on fixed-maturity securities were as follows:

		September 30, 2019					December 31, 2018
			Estimated		% of Total				Estimated Fair		% of Total Fair
	Amortized Cost		Fair Value		Fair Value		Amortized Cost		Value		Value
($ in thousands)
Fixed rate securities:	$	1,138,479	$	1,167,205	54.2	%	$	1,045,990	$	1,010,781	55.3	%
Floating rate securities:		715,315		729,163	33.9	%		554,626		556,104	30.4	%
Alternate available-for-sale:		131,456		129,587	6.0	%		129,139		126,497	6.9	%
Total Bonds		1,985,250		2,025,955	94.1	%		1,729,755		1,693,382	92.6	%
Other investments:
Commercial levered loans		14,601		14,323	0.7	%		16,915		15,858	0.9	%
Limited partnerships		65,322		65,322	3.0	%		53,432		53,432	2.9	%
Short-term investments		14,398		14,398	0.7	%		36,661		36,661	2.0	%
Cash and cash equivalents		32,028		32,028	1.5	%		29,900		29,900	1.6	%
Total other investments		126,349		126,071	5.9	%		136,908		135,851	7.4	%
Total Investments	$	2,111,599	$	2,152,026	100.0	%	$	1,866,663	$	1,829,233	100.0	%

The table below presents the credit quality of total bonds at September 30, 2019 and December 31, 2018, as rated by Standard & Poor’s Financial Services, LLC (Standard & Poor’s) or Equivalent Designation:

	September 30, 2019				December 31, 2018
Standard & Poor’s or Equivalent Designation	Estimated Fair Value		% of Total		Estimated Fair Value		% of Total
($ in thousands)
AAA	$	214,253	10.6	%	$	172,575	10.2	%
AA		334,222	16.5	%		295,704	17.4	%
A		678,568	33.5	%		570,846	33.7	%
BBB		612,380	30.2	%		493,900	29.2	%
Below BBB/Not rated		186,532	9.2	%		160,357	9.5	%
Total	$	2,025,955	100.0	%	$	1,693,382	100.0	%

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The amortized cost and fair value of our available-for-sale investments in fixed maturity securities presented by contractual maturity as of September 30, 2019 and December 31, 2018, were as follows:

		September 30, 2019					December 31, 2018
			Estimated		% of Fair				Estimated Fair
	Amortized Cost		Fair Value		Value		Amortized Cost		Value		% of Fair Value
($ in thousands)
Due in one year or less	$	97,372	$	97,585	4.8	%	$	82,048	$	81,553	4.8	%
Due after one year through five years		722,887		733,382	36.2	%		613,707		602,223	35.6	%
Due after five years through ten years		514,633		531,014	26.2	%		552,061		529,257	31.2	%
Due after ten years		105,273		106,754	5.3	%		81,993		75,810	4.5	%
Asset-backed securities		84,227		85,216	4.2	%		82,603		83,581	4.9	%
Collateralized Loan Obligations		181,843		179,744	8.9	%		161,421		156,913	9.3	%
Commercial Mortgage Backed Securities		67,986		70,360	3.5	%		55,980		53,843	3.2	%
Residential Mortgage Backed Securities– non-agency		63,803		74,314	3.6	%		68,594		79,551	4.7	%
Residential Mortgage Backed Securities – agency		147,226		147,586	7.3	%		31,348		30,651	1.8	%
Total fixed maturities	$	1,985,250	$	2,025,955	100.0	%	$	1,729,755	$	1,693,382	100.0	%

Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties, and the lenders may have the right to put the securities back to the borrower.

Restricted investments

In order to conduct business in certain states, we are required to maintain letters of credit or assets on deposit to support state-mandated insurance regulatory requirements and to comply with certain third-party agreements. Assets held on deposit or in trust accounts are primarily in the form of cash or certain high-grade securities.

The fair value of our restricted assets was $573.7 million at September 30, 2019.  This includes $126.7 million of funds in trust for the mutual benefit of our insurance companies due to participation in our intercompany pooling agreement.  Restricted investments increased 4.9%, or $26.6 million, when compared to December 31, 2018 primarily due to state deposits and market appreciation from fixed income securities.

Off-balance sheet arrangements

We do not have any material off-balance sheet arrangements as of September 30, 2019.

As part of the 2017 sale transaction to divest our U.K. business, we entered into Aggregate Stop-Loss and 100% Quota Share reinsurance agreements as reinsurer, with Lloyd’s Syndicate 1110 as our reinsured and committed to fund Lloyd’s Syndicate 1110’s “Funds At Lloyd’s” requirements until June 30, 2020, though such Funds at Lloyd’s obligations would effectively terminate when the 2017 Year of Account completes a “Reinsurance to Close” transaction, which is expected by March 2020. We entered into a Letter of Credit facility arranged to fulfill a portion of these requirements. The facility has a principal amount of £17.7 million and contains certain covenants that require us, among other items, to maintain a minimum net worth, to remain within maximum leverage ratios, meet a minimum RBC ratio and maintain specified liquidity levels.

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Reconciliation of Non-GAAP Financial Measures

Reconciliation of underwriting income

Underwriting income is a non-GAAP financial measure that we believe is useful in evaluating our underwriting performance without regard to investment income. Underwriting income represents the pre-tax profitability of our insurance operations and is derived by subtracting losses and LAE and underwriting, acquisition and insurance expenses from net earned premiums. We use underwriting income as an internal performance measure in the management of our operations because we believe it gives us and users of our financial information useful insight into our results of operations and our underlying business performance. Underwriting income should not be considered in isolation or viewed as a substitute for net income calculated in accordance with GAAP, and other companies may calculate underwriting income differently.

Net income for the three and nine months ended September 30, 2019 and 2018 reconciles to underwriting income as follows:

	Three Months Ended September 30				Nine Months Ended September 30
($ in thousands)	2019		2018		2019		2018
Net income	$	8,361	$	15,603	$	30,752	$	40,265
Income tax expense		2,015		3,809		8,253		10,090
Income before taxes		10,376		19,412		39,005		50,355
Net investment income		16,974		14,044		51,530		43,301
Realized investment gains, net		245		406		495		805
Interest and other expense, net		10,182		2,924		23,671		8,703
Underwriting income	$	3,339	$	7,886	$	10,651	$	14,952

Reconciliation of adjusted operating income

Adjusted operating income is a non-GAAP financial measure that we use 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 underlying business performance, by excluding items that are not part of our underlying profitability drivers or likely to re-occur in the foreseeable future. Adjusted operating income should not be considered in isolation or viewed as a substitute for our net income calculated in accordance with GAAP. Other companies may calculate adjusted operating income differently.

Adjusted operating income for the three and nine months ended September 30, 2019 and 2018 reconciles to net income as follows:

	Three Months Ended September 30				Nine Months Ended September 30
($ in thousands)	2019		2018		2019		2018
Net income	$	8,361	$	15,603	$	30,752	$	40,265
Income tax expense		2,015		3,809		8,253		10,090
Income before taxes		10,376		19,412		39,005		50,355
Other Expense		7,162		—		14,332		—
Realized investment (gains), net		(245)		(406)		(495)		(805)
Adjusted operating income before taxes		17,293		19,006		52,842		49,550
Less: income tax expense on adjusted operating income		3,468		3,724		11,159		9,921
Adjusted operating income	$	13,825	$	15,282	$	41,683	$	39,629

Critical accounting estimates

We identified the accounting estimates which 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

49

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 consolidated financial statements. We evaluate our estimates regularly using information that we believe to be relevant. Our critical accounting policies and estimates are described in our annual consolidated financial statements and the related notes in the Prospectus.

For additional information about our critical accounting policies and estimates, see the disclosure included in the Prospectus, as well as Note 1 – Basis of Reporting in the notes to the consolidated financial statements included in Part I, Item 1 of this Quarterly Report.

Item 3: Quantitative and Qualitative Disclosures About Market Risk

Market risk is the risk of economic losses due to adverse changes in the estimated fair value of a financial instrument as the result of changes in interest rates, equity prices, foreign currency exchange rates and commodity prices. The primary components of market risk affecting us are credit risk and interest rate risk. We do not have significant exposure to equity risk, foreign currency exchange rate risk or commodity risk.

Credit risk is the potential loss resulting from adverse changes in an issuer’s ability to repay its debt obligations. We have exposure to credit risk as a holder of debt instruments. Our risk management strategy and investment policy is to primarily invest in debt instruments of high credit quality issuers and to limit the amount of credit exposure with respect to particular ratings categories and any one issuer. At December 31, 2018, our securities portfolio had an average rating of  “A,” with approximately 66.2% of securities in that portfolio rated “A” or better by at least one nationally recognized rating organization. Our policy is to invest in investment-grade securities and to limit investments in fixed maturities that are unrated or rated below investment-grade. At December 31, 2018, approximately 7.4% of our securities portfolio was unrated or rated below investment-grade. We monitor the financial condition of all of the issuers of securities in our portfolio.

In addition, we are subject to credit risk with respect to our third-party reinsurers. Although our third-party reinsurers are obligated to reimburse us to the extent we cede risk to them, we are ultimately liable to our policyholders on all risks we have ceded. As a result, reinsurance contracts do not limit our ultimate obligations to pay claims covered under the insurance policies we issue and we might not collect amounts recoverable from our reinsurers. We address this credit risk by selecting reinsurers that generally have an A.M. Best rating of  “A-” (Excellent) or better at the time we enter into the agreement and by performing, along with our reinsurance broker, periodic credit reviews of our reinsurers. If one of our reinsurers suffers a credit downgrade, we may consider various options to lessen the risk of asset impairment, including commutation, novation and letters of credit.

Interest rate risk is the risk that we will incur economic losses due to adverse changes in interest rates. The primary market risk to our investment portfolio is interest rate risk associated with investments in securities. Fluctuations in interest rates have a direct effect on the market valuation of these securities. When market interest rates rise, the fair value of our securities decreases. Conversely, as interest rates fall, the fair value of our securities increases. We manage this interest rate risk by investing in securities with varied maturity dates and by managing the duration of our investment portfolio in directional relation to the duration of our reserves. Expressed in years, duration is the weighted average payment period of cash flows, where the weighting is based on the present value of the cash flows. We set duration targets for our fixed income investment portfolios after consideration of the estimated duration of our liabilities and other factors. The effective weighted average duration of the portfolio, including cash equivalents, was 2.9 years as of December 31, 2018.

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We had securities that were subject to interest rate risk with a fair value of $1.7 billion at December 31, 2018 and $1.5 billion at December 31, 2017. The table below illustrates the sensitivity of the fair value of our securities to selected hypothetical changes in interest rates as of December 31, 2018 and 2017.

	December 31, 2018						December 31, 2017
($ in thousands)	Estimated Fair Value		Estimated Change in Fair Value		Estimated % Increase (Decrease) in Fair Value		Estimated Fair Value		Estimated Change in Fair Value		Estimated % Increase (Decrease) in Fair Value
200 basis points increase	$	1,600,239	$	(93,143)	(5.5)	%	$	1,376,647	$	(107,784)	(7.3)	%
100 basis points increase	$	1,645,364	$	(48,018)	(2.8)	%	$	1,428,390	$	(56,041)	(3.8)	%
No Change	$	1,693,382	$	-	-	%	$	1,484,431	$	-	-	%
100 basis points decrease	$	1,744,292	$	50,910	3.0	%	$	1,544,770	$	60,399	4.1	%
200 basis points decrease	$	1,798,095	$	104,713	6.2	%	$	1,609,406	$	124,975	8.4	%

Item 4: Controls and Procedures

Evaluation of Disclosure Controls and Procedures

As of the end of the period covered by this Quarterly Report on Form 10‑Q, the Company’s management, including our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures defined under Rules 13a‑15(e) and 15d‑15(e) under the Exchange Act. Based upon this evaluation, our CEO and CFO concluded that our disclosure controls and procedures were effective in ensuring that material information relating to the Company required to be disclosed in the Company’s periodic SEC filings is made known to them in a timely manner.

Changes in Internal Controls over Financial Reporting

No changes in our internal control over financial reporting (as defined in Rules 13a‑15(f) and 15d‑15(f) under the Exchange Act) occurred during the quarter ended September 30, 2019 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Inherent Limitations on Effectiveness of Controls

The effectiveness of any system of controls and procedures is subject to certain limitations, and, as a result, there can be no assurance that our controls and procedures will detect all errors or fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system will be attained.

Part II: Other Information

Item 1: Legal Proceedings

We are party to legal proceedings which arise in the ordinary course of business. We believe that the outcome of such matters, individually and in the aggregate, will not have a material adverse effect on our condensed consolidated financial position.

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Item 1A: Risk Factors

There have been no material changes to our risk factors previously disclosed in the Company’s Prospectus filed with the Securities and Exchange Commission on July 25, 2019 pursuant to Rule 424(b) of the Securities Act of 1933, as amended.

Item 2: Unregistered Sales of Equity Securities and Use of Proceeds

(b) Use of Proceeds

On July 29, 2019, the Company completed its IPO with the sale of 7,857,145 shares of the Company’s common stock, including the issuance and sale by the Company of 4,285,715 shares of the Company’s common stock and the sale by the Principal Stockholders of 3,571,430 shares of the Company’s common stock. Shares of the Company’s common stock were initially offered to the public by the underwriters in the IPO at a per-share price of $14.00 pursuant to the Prospectus that formed part of the Company’s Registration Statement on Form S-1 (File No. 333-232440), which became effective on July 24, 2019. After deducting underwriting discounts and commissions and estimated offering expenses, net proceeds from the IPO were approximately $51.6 million. On August 8, 2019, a portion of such proceeds was used to repay $18.0 million in outstanding debt under our amended and restated revolving loan agreement. The Company did not receive any of the proceeds from the sale of the shares of the Company’s common stock sold by the Principal Stockholders in the IPO.

We intend to use the net proceeds from the IPO for general corporate purposes, which may include capital contributions to our insurance subsidiaries in conjunction with future growth of premiums written. The principal purposes of the IPO are to create a public market for our common stock, obtain additional capital, facilitate future access to public equity markets, increase awareness of our company in the market, facilitate the use our common stock as a means of attracting and retaining key employees and provide liquidity to our current stockholders.

Item 3: Defaults Upon Senior Securities

None.

Item 4: Mine Safety Disclosures

Not applicable

Item 5: Other Information

None.

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Item 6: Exhibits

We have filed the exhibits listed on the accompanying Exhibit Index, which is incorporated herein by reference.

	Exhibit Index
Exhibit Number	Description
3.1	Amended and Restated Certificate of Incorporation of ProSight Global, Inc. (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed July 29, 2019).
3.2	Amended and Restated Bylaws of ProSight Global, Inc. (incorporated by reference to Exhibit 3.2 to the Company’s Current Report on Form 8-K filed July 29, 2019).
4.1	Registration Rights Agreement between ProSight Global, Inc. and the Holders party thereto (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed July 29, 2019).
10.1	Stockholders’ Agreement among ProSight Global, Inc., the GS Investors and the TPG Investors (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed July 29, 2019).
10.2	Form of Amendment No. 1 to ProSight Global Holdings Limited Amended and Restated 2010 Equity Incentive Plan (incorporated by reference to Exhibit 10.4 to the Registration Statement on Form S-1, as amended (File No. 333-232440)).
10.3	ProSight Global, Inc. 2019 Equity Incentive Plan (incorporated by reference to Exhibit 10.6 to the Registration Statement on Form S-1, as amended (File No. 333-232440)).
10.4	Form of Restricted Stock Unit Agreement under ProSight Global, Inc. 2019 Equity Incentive Plan (incorporated by reference to Exhibit 10.7 to the Registration Statement on Form S-1, as amended (File No. 333-232440)).
10.5	Form of Performance Restricted Stock Unit Agreement under ProSight Global, Inc. 2019 Equity Incentive Plan (incorporated by reference to Exhibit 10.8 to the Registration Statement on Form S-1, as amended (File No. 333-232440)).
10.6	Form of Supplemental Restricted Stock Unit Agreement under ProSight Global, Inc. Equity Incentive Plan (incorporated by reference to Exhibit 10.9 to the Registration Statement on Form S-1, as amended (File No. 333-232440)).
10.7	Form of Founders Grant Restricted Stock Unit Award Agreement under ProSight Global, Inc. 2019 Equity Incentive Plan (incorporated by reference to Exhibit 10.10 to the Registration Statement on Form S-1, as amended (File No. 333-232440)).
10.8	Form of Non-Employee Director Restricted Stock Unit Award Agreement under ProSight Global, Inc. 2019 Equity Incentive Plan​ (incorporated by reference to Exhibit 10.11 to the Registration Statement on Form S-1, as amended (File No. 333-232440)).
10.9	ProSight Global, Inc. 2019 Employee Stock Purchase Plan (incorporated by reference to Exhibit 10.12 to the Registration Statement on Form S-1, as amended (File No. 333-232440)).
10.10	Employment Agreement between ProSight Global, Inc. and Lawrence Hannon (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed July 29, 2019).
10.11	Employment Agreement between ProSight Global, Inc. and Anthony S. Piszel (incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed July 29, 2019).
10.12	Form of Indemnification Agreement between ProSight Global, Inc. and each of its directors and executive officers.
31.1	Certification of Chief Executive Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a) as Adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification of Chief Financial Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a) as Adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1*	Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS	XBRL Instance Document
101.SCH	XBRL Taxonomy Extension Schema Document
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document

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101.LAB	XBRL Taxonomy Extension Label Linkbase Document
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document
*	These certifications are furnished and are not deemed filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	ProSight Global, Inc.
Dated:  November 6, 2019	By:	/s/ Lawrence Hannon
		Lawrence Hannon
		President and Chief Executive Officer
Dated:  November 6, 2019	By:	/s/ Anthony S. Piszel
		Anthony S. Piszel
		Chief Financial Officer

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EX-10.12

Exhibit 10.12

INDEMNIFICATION AGREEMENT

This INDEMNIFICATION AGREEMENT is made this 29th day of July, 2019 (“Agreement”), by and between ProSight Global, Inc., a Delaware corporation (the “Company”) and _______________ (“Indemnitee”).

WHEREAS, Indemnitee is [a[n] [director] [officer] of Company] [and is now serving] and may in the future serve at the request of Company as a director or officer of a subsidiary of the Company;

WHEREAS, in consideration of Indemnitee acting in such position or positions and assuming the responsibilities attendant thereto, Company desires to provide Indemnitee the rights to indemnification and advance payment or reimbursement of expenses described below;

NOW, THEREFORE, in consideration of the premises and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Company and Indemnitee do hereby covenant and agree as follows:

Section 1.  Definitions.  For purposes of this Agreement:

(a)          “Act” shall mean the Delaware General Corporation Law, as amended from time to time;

(b)          the term “Company” shall include any predecessor of Company, including ProSight Global Holdings Limited, an exempted company incorporated in Bermuda (“PGHL”);

(c)          “Expenses” shall mean all reasonable out of pocket fees, costs and expenses, including attorney’s fees, retainers, court costs, transcript costs, fees of experts, witness fees, travel expenses, duplicating costs, printing and binding costs, telephone charges, postage, delivery service fees, Federal, state, local or foreign taxes imposed as a result of the actual or deemed receipt of any payments under this Agreement, and all other disbursements or expenses of the types customarily incurred in connection with involvement in the relevant type of Proceeding;

(d)          “GS Investors” means, collectively, ProSight Investment LLC and ProSight Parallel Investment LLC;

(e)          “Losses” shall mean all Expenses, liabilities and loss (including attorney’s fees, judgments, fines, ERISA excise taxes or penalties and amounts paid in settlement), in each case reasonably incurred or suffered by Indemnitee in connection with a Proceeding;

(f)           “Proceeding” shall mean any actual or threatened action, suit or proceeding, whether civil, criminal, administrative or investigative, in which the Indemnitee is involved in any manner (including as a party or a witness) by reason of the fact that Indemnitee is or was a director, officer or employee of the Company, or, while a director officer or employee of the Company, is or was serving at the request of the Company as a director, officer, employee, agent or trustee of another corporation, partnership, joint venture, trust or other enterprise, including service with respect to an employee benefit plan;

(g)          “Standard of Conduct” shall mean (i) acting in good faith and in a manner reasonably believed by the Indemnitee to be in or not opposed to the best interests of Company and, with respect to any criminal action or proceeding, having had no reasonable cause to believe that Indemnitee’s conduct was unlawful or (ii) if Section 145 (or any successor provision) of the Act shall be amended after the date of this Agreement to provide for a standard of conduct that is more favorable to the Indemnitee, the standard of conduct prescribed by the Act at the time of any assessment of Indemnitee’s conduct.

(h)          “TPG Investors” means, collectively, (i) ProSight TPG, L.P., a Delaware limited partnership, (ii) TPG PS 1, L.P., a Cayman limited partnership, (iii) TPG PS 2, L.P., a Cayman limited partnership, (iv) TPG PS 3, L.P., a Cayman limited partnership, and (v) TPG PS 4, L.P., a Cayman limited partnership;

(i)           a  “Change in Control” shall have the meaning set forth in the Stockholders’ Agreement, dated as of July 29, 2019, by and among the Company, the GS Investors and the TPG Investors, as amended from time to time.

Section 2.  Indemnification –- General.  (a) Subject to the terms and conditions of this Agreement, and except as set forth in clauses (b) and (c) of this Section 2, the Company shall indemnify and hold harmless Indemnitee for all Losses to the fullest extent permitted by law as it presently exists or may hereafter be amended in connection with any Proceeding;

(b)          The Company shall not provide indemnification with respect to Losses in connection with any Proceeding initiated by Indemnitee, except (i) a Proceeding with respect to which the Company, acting through the Board or a duly authorized committee thereof, has provided in advance its written consent to the initiation of such Proceeding by the Indemnitee, and (ii) counterclaims made by Indemnitee which directly respond to and negate the affirmative claim made against the Indemnitee in a Proceeding;

(c)          The Company shall not provide indemnification in respect of any Proceeding by or in the right of the Company to procure a judgment in its favor in which Indemnitee shall have been adjudged to be liable to the Company unless, and only to the extent that, the Delaware Court of Chancery or the court in which such Proceeding was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, Indemnitee is fairly and reasonably entitled to indemnity for such Expenses which the Delaware Court of Chancery or such other court shall deem proper.

Section 3.  Advancement of Expenses.  Subject to the terms and conditions of this Agreement, upon receipt by the Company of an undertaking by Indemnitee to repay Expenses if it shall ultimately be determined that Indemnitee is not entitled to receive payment or reimbursement of Expenses from the Company, the Company shall pay or reimburse Expenses actually and reasonably incurred by Indemnitee in appearing at, participating in or defending a Proceeding, in advance of any final disposition of the Proceeding and promptly after receipt of the statement with respect to such Expenses set forth in Section 14 hereof, provided,  however, that the Company shall not have any obligation to pay or reimburse Expenses (in advance of any final disposition or otherwise) in respect of any Proceeding described in Section 2(b) hereof.  Indemnitee’s obligation to reimburse the Company shall be unsecured and no interest shall be charged thereon.

Section 4.  Successful Defense.  To the extent that Indemnitee has been successful in defense of any Proceeding on the merits or otherwise, Indemnitee shall, to the fullest extent permitted by law, be indemnified against Expenses actually and reasonably incurred by Indemnitee in connection with such Proceeding.  Without limiting the foregoing, if any Proceeding is disposed of on the merits or otherwise (including a disposition without prejudice) without: (i) the final disposition being adverse to Indemnitee; (ii) a final adjudication that Indemnitee was liable to the Company; (iii) a plea of guilty or nolo contendere by Indemnitee; or (iv) a final adjudication that Indemnitee did not meet the Standard of Conduct; then Indemnitee shall be considered for the purposes hereof to have been wholly successful with respect thereto.

Section 5.  Partial Indemnity.  If Indemnitee is entitled under this Agreement to indemnification by the Company for some of the Losses actually and reasonably incurred by Indemnitee in connection with any Proceeding, but not for the total amount thereof because Indemnitee is not wholly successful, the Company shall nevertheless indemnify Indemnitee for the portion of such Losses in connection with or related to each successfully resolved claim, issue or matter to the fullest extent permitted by law.

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Section 6.  Standard of Conduct.  (a) No claim for indemnification shall be paid by Company unless it has been determined that Indemnitee shall have met the Standard of Conduct.

(b)          Unless a Change in Control shall have occurred, and unless otherwise ordered by a court, such determinations shall be made by (i) a majority vote of Company’s directors who are not parties to the Proceeding for which indemnification is sought, even though less than a quorum, (ii) by a committee of such directors designated by a majority vote of the Company’s directors, even though less than a quorum, (iii) if there are no such directors, or if such directors so direct, by independent legal counsel in a written opinion, or (iv) if the Board shall so direct, by the Company’s stockholders.

(c)          If a Change in Control shall have occurred, unless otherwise ordered by a court, such determination shall be made by independent legal counsel in a written opinion.

(d)          If any determination pursuant to this Section 6 shall be made by independent legal counsel, such counsel shall be selected, (i) if a Change in Control shall not have occurred, by the directors of the Company described in clause (b)(i) or (b)(ii) of this Section 6, in their sole discretion and (ii) if a Change in Control shall have occurred, by such directors, subject to the consent of Indemnitee, which consent may not be unreasonably withheld, conditioned or delayed.

(e)          Indemnitee shall be deemed to have met the relevant Standard of Conduct if a determination pursuant to clause (b) or (c) of this Section 6 has not been not made within sixty days of a demand by Indemnitee for indemnification of Losses.  If the Indemnitee has been determined not to have met the Standard of Conduct, Indemnitee may commence litigation in the Delaware Court of Chancery seeking an initial de novo determination by the court or challenging any such determination or any aspect thereof, including the legal or factual bases therefor, and the Company hereby consents to service of process and agrees to appear in any such proceeding.  Any determination under this Section 6 otherwise shall be conclusive and binding on the Company and Indemnitee.

(f)           No determination regarding the relevant Standard of Conduct shall be required before the Company advances Expenses to Indemnitee pursuant to Section 6 of this Agreement or shall otherwise affect the Company’s obligations under such Section.

Section 7.  Contribution.  To provide for just and equitable contribution when the indemnification provided for herein is held by a court of competent jurisdiction to be unavailable to Indemnitee in whole or in part, it is agreed that, in such event, the Company shall, to the fullest extent permitted by law, contribute to the payment of Indemnitee’s Losses with respect to any Proceeding, in an amount that is just and equitable in the circumstances, taking into account, among other things, contributions by other directors and officers of the Company or others pursuant to indemnification agreements or otherwise; provided,  however, that, without limiting the generality of the foregoing, such contribution shall not be required where such holding by the court is due to: (i) the failure of Indemnitee to meet the Standard of Conduct or (ii) any limitation on indemnification set forth in Section 2(b).

Section 8.  Defense of Proceeding.  If any Proceeding asserted or commenced against Indemnitee is also asserted or commenced against the Company or an affiliate of the Company, the Company or the affiliate shall be entitled, except as otherwise provided herein below, to assume the defense thereof.  After notice from the Company or its affiliate to Indemnitee of its election to assume the defense of any such Proceeding, Indemnitee shall have the right to employ Indemnitee’s own counsel in such Proceeding, but the Expenses of such counsel incurred after such notice to Indemnitee shall be at the expense of Indemnitee and the Company shall not be obligated to Indemnitee under this Agreement for any Expenses subsequently incurred by Indemnitee in connection therewith other than reasonable Expenses (not involving fees or expenses of counsel) arising out of Indemnitee’s participation in the defense of such Proceeding, unless (i) otherwise notified by the Company, (ii) Indemnitee’s counsel shall have reasonably concluded and so notified the Company that there is a conflict of interest between the Company or its affiliate and Indemnitee in the conduct of defense of such Proceeding, or (iii) the Company or its affiliate shall not in fact have employed counsel to assume the defense of such Proceeding, in any of which cases the Expenses of

-3-

Indemnitee in such Proceeding shall be reimbursed or paid by the Company.  The Company or its affiliate shall not be entitled to assume the defense of any Proceeding brought by or on behalf of the Company by its stockholders or as to which Indemnitee’s counsel shall have made the conclusion set forth in clause (ii) of the preceding sentence of this Section 8.

Section 9.  Settlements.  Notwithstanding anything provided in Section 2 hereof, the Company shall have no obligation to indemnify Indemnitee under this Agreement for amounts paid in settlement of any Proceeding unless the Company shall have provided its prior written consent to the terms of such settlement, which consent shall not be unreasonably withheld, conditioned or delayed.  The Company shall not settle any Proceeding in any manner that would impose any fine or other obligation on Indemnitee without Indemnitee’s prior written consent, which shall not be unreasonably withheld, conditioned or delayed.

Section 10.  Confidentiality.  Except as required by law or as otherwise becomes public, Indemnitee agrees to keep confidential any information that arises in connection with this Agreement, including but not limited to, claims for indemnification of Losses or the advance payment or reimbursement of Expenses, amounts paid or payable under this Agreement and any communications between the parties hereto.

Section 11.  Nonexclusivity.  The rights of Indemnitee under this Agreement shall not be deemed exclusive and shall be in addition to, and not in lieu of, any right of indemnification of Losses or the advance payment or reimbursement of Expenses that Indemnitee may have under the Company’s certificate of incorporation or by-laws.

Section 12.  No Duplication of Payments.  The Company shall not be liable under this Agreement to make any payment to Indemnitee under this Agreement to the extent that Indemnitee has otherwise actually received payment of such amounts, including pursuant to an insurance policy, from the Company (whether pursuant to a separate payment obligation or a voluntarily payment) or from any other source.

Section 13.  Subrogation.  In the event of any payment under this Agreement, the Company shall be subrogated to the extent of such payment to all of the rights of recovery of Indemnitee (under any insurance policy or otherwise), who shall execute all papers required and shall do everything necessary to secure such rights, including the execution of such documents necessary to enable the Company to effectively bring suit to enforce such rights.

Section 14.  Notice by Indemnitee.  Indemnitee shall promptly notify the Company in writing upon the sooner of (a) becoming aware of any Proceeding where indemnification of Losses or the advance payment or reimbursement of Expenses may be sought or (b) being served with any summons, citation, subpoena, complaint, indictment, information or other document relating to any matter which may be subject to indemnification of Losses or the advance payment or reimbursement of Expenses covered hereunder.  As a condition to indemnification of Losses or the advance payment or reimbursement of Expenses, any demand for payment by Indemnitee hereunder shall be in writing and shall provide reasonable accounting, certified by Indemnitee’s legal counsel, for the Losses to be paid or the advance payment or reimbursement of Expenses by the Company.  The failure of Indemnitee to so notify the Company or any delay in notification shall not relieve the Company of any obligation which it may have to Indemnitee pursuant to this Agreement, except to the extent that the Company shall have been prejudiced by such failure or delay.

Section 15.  Severability.  The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other part of this Agreement.

Section 16.  Binding Effect.  This Agreement shall be binding upon, and inure to the benefit of, Indemnitee and Indemnitee’s heirs, personal representatives, executors and administrators and upon the Company and its successors and assigns.

-4-

Section 17.  Counterparts.  This Agreement may be executed in one or more counterparts, each of which shall for all purposes be deemed to be an original but all of which together shall constitute one and the same Agreement.

Section 18.  Headings.  The headings of the paragraphs of this Agreement are inserted for convenience only and shall not be deemed to constitute part of this Agreement or to affect the construction thereof.

Section 19.  Modification and Waiver.  No supplement, modification or amendment of this Agreement shall be binding unless executed in writing by both of the parties hereto.  No waiver of any of the provisions of this Agreement shall be deemed or shall constitute a waiver of any other provisions hereof (whether or not similar) nor shall such waiver constitute a continuing waiver.

Section 20.  Notices.  All notices, requests, demands and other communications hereunder shall be in writing and shall be deemed to have been duly given (i) if delivered by hand, on the date delivered, or (ii) if sent by guaranteed overnight courier service, with postage prepaid, on the business day after the date on which it is sent:

(a)	If to Indemnitee, to:
	with copies to:
(b)	If to Company, to:
	ProSight Global, Inc.
	412 Mt. Kemble Avenue
	Morristown, NJ 07960
	Attn: Chief Legal Officer

or to such other address as may be furnished to Indemnitee by the Company or to the Company by Indemnitee, as the case may be.

Section 21.  Governing Law.  This Agreement shall be governed by, and construed and enforced in accordance with, the laws of the State of Delaware.

Section 22.  Venue.  Any action, suit or proceeding regarding indemnification of Losses or the advance payment or reimbursement of Expenses arising out of this Agreement or otherwise shall only be brought and heard in the Delaware Court of Chancery.

[signature page follows]

-5-

IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the day and year first above written.

		PROSIGHT GLOBAL, INC.
	By:
		Name:
		Title:
AGREED TO AND ACCEPTED BY:
Name:

[Signature Page to Indemnification Agreement]

EX-31.1

Exhibit 31.1

Certification of Principal Executive Officer

Pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a)

As Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Lawrence Hannon, certify that:

1.   I have reviewed this report on Form 10-Q of ProSight Global, Inc.;

2.   Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.   Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.   The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

a.   Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b.   Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

c.   Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.   The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a.   All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b.   Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:  November 6, 2019	/s/ Lawrence Hannon
	Lawrence Hannon
	Chief Executive Officer

EX-31.2

Exhibit 31.2

Certification of Principal Financial Officer

Pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a)

As Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Anthony S. Piszel, certify that:

1.    I have reviewed this report on Form 10-Q of ProSight Global, Inc.;

2.   Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.   Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.   The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

a.   Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b.   Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

c.   Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.   The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a.   All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b.   Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:  November 6, 2019	/s/ Anthony S. Piszel
	Anthony S. Piszel
	Chief Financial Officer

EX-32.1

EXHIBIT 32.1

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report on Form 10-Q of ProSight Global, Inc. (the “Company”) for the quarter ended September 30, 2019, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), we, Lawrence Hannon, as Chief Executive Officer of the Company, and Anthony S. Piszel, as Chief Financial Officer of the Company, hereby certify pursuant to Title 18, Chapter 63, Section 1350 of the United States Code, as adopted by Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of our knowledge:

(1)  the Report fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934, as amended; and

(2)  the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: November 6, 2019	By:	/s/ Lawrence Hannon
	Name:	Lawrence Hannon
	Title:	Chief Executive Officer
		(Principal Executive Officer)
Date: November 6, 2019	By:	/s/ Anthony S. Piszel
	Name:	Anthony S. Piszel
	Title:	Chief Financial Officer
		(Principal Financial Officer and Principal Accounting Officer)

XML

Share-Based Compensation - 2019 Employee Stock Purchase Plan (Details) - 2019 Employee Stock Purchase Plan - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2019	Jul. 24, 2019
Employee stock purchase plan
Expense recognized related to plan	$ 0
ESPP
Employee stock purchase plan
Number of common shares reserved for sale		1,000,000

XML

Fair Value Measurements - Carrying and Fair Value of Financial Instruments (Details) - USD ($) $ in Thousands	Sep. 30, 2019	Dec. 31, 2018
Liabilities
Total notes payable	$ 164,609	$ 182,355
Fair value of the notes payable as a percentage of par value	101.70%	100.50%
Carrying Value
Assets
Commercial levered loans	$ 14,601	$ 16,915
Liabilities
Notes payable	165,000	183,000
Unamortized debt issuance costs	(391)	(645)
Total notes payable	164,609	182,355
Fair Value
Assets
Commercial levered loans	14,323	15,858
Liabilities
Notes payable	167,736	183,999
Level 2 | Fair Value
Liabilities
Notes payable	167,736	183,999
Level 3 | Fair Value
Assets
Commercial levered loans	$ 14,323	$ 15,858

XML

Investments - Gain Loss on Investment (Details) - USD ($) $ in Millions	3 Months Ended		9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018	Dec. 31, 2018
Investments
Allowance for loan losses	$ 0.0		$ 0.0		$ 0.0
Proceeds from sales and redemptions in AFS securities	71.5	$ 19.2	168.6	$ 139.3
Gross realized gains from sales and redemptions in AFS securities	$ 0.3	0.5	0.9	1.3
Gross realized losses from sales and redemptions of AFS investments		$ 0.1	$ 0.4	$ 0.5

XML

Share-Based Compensation

9 Months Ended

Sep. 30, 2019

Share-Based Compensation

Share-Based Compensation

14. Share-Based Compensation

2019 Equity Incentive Plan

In connection with, and prior to the completion of the IPO, the Company’s Amended and Restated 2010 Equity Incentive Plan (the 2010 Plan) was terminated. Immediately prior to the merger, all outstanding P Shares granted under the 2010 Plan prior to the IPO, were cancelled, and all outstanding RSUs granted under the 2010 Plan converted into RSUs based on the shares of common stock of the Company.

On July 24, 2019, the Company’s 2019 Equity Incentive Plan (the 2019 Plan) became effective immediately prior to the effectiveness of the registration statement filed in connection with the IPO. The 2019 Plan provides for the grant of stock options, stock appreciation rights, restricted stock, RSUs, performance shares, and units and other cash‑based or share‑based awards.

The 2019 Plan is administered by the compensation committee of the Company’s Board of Directors. Subject to the provisions of the 2019 Plan, the compensation committee determines in its discretion, the persons to whom and the times at which awards are granted, the size of awards (subject to certain limitations set forth in the compensation committee charter) and the terms and conditions of awards.

A total of 4,500,000 shares of common stock are initially authorized and reserved for issuance under the 2019 Plan, including shares underlying RSUs granted under the 2010 Plan, which converted into the Company’s common stock, effective July 25, 2019, as a result of the merger.

The following is a summary of the post-offering compensation included in the 2019 Plan, including the number of common stock granted to each award mentioned below:

(i) 181,118 annual long-term incentive awards in respect of 2019, 90,559 of which are time-vesting RSUs and 90,559 of which are performance-vesting RSUs, granted to management in connection with the IPO. Time-vesting RSUs are subject to vesting as follows: one-third annual installments on each anniversary of grant date, subject to continued service. Performance-vesting RSUs are subject to vesting as follows: cliff vesting on the third anniversary of the grant date to the extent performance metrics are met, subject to continued service. The fair value of such awards is $2.5 million at grant date.

(ii) 1,267,912 supplemental RSU awards, 100% of which are time-vesting RSUs, granted to management in connection with the IPO and subject to vesting as follows: 25% vested at grant date, 25% will vest on the second anniversary of the grant date, subject to continued service and 50% will vest on the third anniversary of the grant date, subject to continued service. The fair value of the supplemental RSUs is $17.8 million.

(iii) 250,000 founders grant awards in the form of time-vesting RSUs with a fair value of $3.5 million at grant date. These awards will cliff vest on the third anniversary of the grant date.

(iv) 26,399 non-employee director RSU awards with a fair value of $0.4 million at grant date (other than RSUs granted to non-employee directors designated by the Company’s principal stockholders, if any, which will be determined by the Board of Directors). These awards are fully vested on grant date.

(v) 668,170 RSUs initially granted under the 2010 Plan that were converted into RSUs based on shares of the Company’s common stock upon the consummation of the merger.

The table below summarizes the Company’s stock-based compensation expense for the three and nine months ended September 30, 2019 and 2018:

	Three Months Ended September 30				Nine Months Ended September 30
($ in thousands)	2019		2018		2019		2018
Stock-based compensation	$	6,785	$	161	$	6,862	$	559

Stock-based compensation expense is recognized on a straight-line basis over the vesting period of all awards except when an award requires accelerated recognition. The Company does not apply a forfeiture rate to unvested awards and accounts for forfeitures as they occur. Stock-based compensation expense related to long-term incentive awards and director RSUs are included in General and administrative expenses in the Company’s consolidated statements of operations. Stock-based compensation expense related to supplemental RSU’s and founders grant awards are included in other expenses in the Company’s consolidated statements of operations.

The Company began recognizing stock-based compensation expense relating to its 2019 Plan upon its inception and initial stock grants in July 2019. All stock-based compensation expense recognized during the three months ended September 30, 2019 relates to the 2019 Plan.

The following table summarizes RSU transactions for the 2019 Plan for the nine months ended September 30, 2019:

	Number of Shares	Weighted Average Grant Date Fair Value
Unvested outstanding at December 31, 2018	55,264	$	11.09
Granted	1,725,429	$	14.00
Vested	398,641	$	13.60
Forfeited	92,657	$	14.00
Unvested outstanding at September 30, 2019	1,289,395	$	14.00

As of September 30, 2019, The Company had approximately $16.1 million of total unrecognized stock-based compensation expense related to RSUs expected to be recognized over a weighted-average period of 2.6 years.

2019 Employee Stock Purchase Plan

On July 24, 2019, the 2019 Employee Stock Purchase Plan (the 2019 ESPP) became effective immediately prior to the effectiveness of the registration statement filed in connection with the IPO.  A total of 1,000,000 shares of the Company’s common stock will be reserved and available for sale under the 2019 ESPP.

The compensation committee of the Board of Directors administers the 2019 ESPP and have full authority to interpret the terms of the 2019 ESPP.

There was no expense recognized related to the 2019 ESPP for the nine months ended September 30, 2019.

XML

Investments (Tables)

9 Months Ended

Sep. 30, 2019

Investments

Summary of gross unrealized gains and losses on AFS securities included in assets

The gross unrealized gains and losses on AFS securities included in assets from continuing operations at September 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	$	72,175	$	1,280	$	(104)	$	73,351
Government agency securities		4,840		6		—		4,846
Corporate debt securities		1,348,716		31,712		(4,646)		1,375,782
Municipal debt obligations		14,434		323		(1)		14,756
ABS		84,227		1,139		(150)		85,216
CLO		181,843		160		(2,259)		179,744
CMBS		67,986		2,416		(42)		70,360
RMBS - non-agency		63,803		10,690		(179)		74,314
RMBS - agency		147,226		940		(580)		147,586
Total fixed income securities	$	1,985,250	$	48,666	$	(7,961)	$	2,025,955

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
Municipal debt obligations		6,238		—		(153)		6,085
ABS		82,603		1,095		(117)		83,581
CLO		161,421		160		(4,668)		156,913
CMBS		55,980		—		(2,137)		53,843
RMBS - non-agency		68,594		11,078		(121)		79,551
RMBS - agency		31,348		—		(697)		30,651
Total fixed income securities	$	1,729,755	$	13,675	$	(50,048)	$	1,693,382

Summary of all securities in an unrealized loss position, the fair value and gross unrealized loss by asset class and by length of time those securities have been in a loss position

The following table summarizes all securities in an unrealized loss position at September 30, 2019, the fair value and gross unrealized loss by asset class and by length of time those securities have been in a loss position:

	Less Than 12 Months				Greater Than 12 Months				Total
											Total
	Fair		Unrealized		Fair		Unrealized		Total		Unrealized
($ in thousands)	Value		Losses		Value		Losses		Fair Value		Losses
U.S. Treasury securities	$	9,666	$	(12)	$	19,521	$	(92)	$	29,187	$	(104)
Corporate debt securities		116,619		(1,934)		127,966		(2,712)		244,585		(4,646)
Municipal debt obligations		6,163		(1)		—		—		6,163		(1)
ABS		21,344		(95)		4,746		(55)		26,090		(150)
CLO		72,748		(672)		63,636		(1,587)		136,384		(2,259)
CMBS		6,555		(9)		6,081		(33)		12,636		(42)
RMBS - non-agency		922		(2)		2,532		(177)		3,454		(179)
RMBS - agency		54,026		(157)		11,736		(423)		65,762		(580)
Total	$	288,043	$	(2,882)	$	236,218	$	(5,079)	$	524,261	$	(7,961)

The following table summarizes all securities in an unrealized loss position at December 31, 2018, the fair value and gross unrealized loss by asset class and by length of time those securities have been in a loss position:

	Less Than 12 Months				Greater Than 12 Months				Total
											Total
	Fair		Unrealized		Fair		Unrealized		Total		Unrealized
($ in thousands)	Value		Losses		Value		Losses		Fair Value		Losses
U.S. Treasury securities	$	8,263	$	(82)	$	69,727	$	(1,935)	$	77,990	$	(2,017)
Corporate debt securities		393,931		(10,241)		710,482		(29,897)		1,104,413		(40,138)
Municipal debt obligations		—		—		6,085		(153)		6,085		(153)
ABS		25,258		(61)		4,249		(56)		29,507		(117)
CLO		146,004		(4,668)		—		—		146,004		(4,668)
CMBS		—		—		53,843		(2,137)		53,843		(2,137)
RMBS - non-agency		529		(13)		2,449		(108)		2,978		(121)
RMBS - agency		27,150		(513)		3,502		(184)		30,652		(697)
Total	$	601,135	$	(15,578)	$	850,337	$	(34,470)	$	1,451,472	$	(50,048)

Summary of amortized cost and fair value of fixed income securities

	September 30, 2019
	Amortized		Fair
($ in thousands)	Cost		Value
Due in one year or less	$	97,372	$	97,585
Due after one through five years		722,887		733,382
Due after five through ten years		514,633		531,014
Due after ten years		105,273		106,754
		1,440,165		1,468,735
Structured securities:
ABS		84,227		85,216
CLO		181,843		179,744
CMBS		67,986		70,360
RMBS - non-agency		63,803		74,314
RMBS - agency		147,226		147,586
Total	$	1,985,250	$	2,025,955

Summary of net investment income included in net income from continuing operations

($ in thousands)	Three Months Ended September 30				Nine Months Ended September 30
	2019		2018		2019		2018
Fixed income securities	$	16,764	$	14,422	$	49,414	$	40,830
Commercial levered loans		208		149		586		814
Net limited partnerships gains		468		68		2,862		2,893
Other		101		56		282		79
Gross investment income		17,541		14,695		53,144		44,616
Less: expenses		567		651		1,614		1,315
Net investment income	$	16,974	$	14,044	$	51,530	$	43,301

XML

Consolidated Statements of Comprehensive Income (Unaudited ) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018
Consolidated Statements of Comprehensive Income
Net income	$ 8,312	$ 15,174	$ 30,370	$ 40,423
Other comprehensive income (loss), net of taxes:
Change in unrealized holding gains (losses) on securities, net of deferred tax expense (benefit) of $2,651 and $16,098 in 2019 and $335 and $(8,090) in 2018	9,292	(528)	60,478	(32,134)
Less reclassification adjustment for gains included in net income, net of tax expense of $156 and $104 in 2019 and $278 and $169 in 2018	4,206	29	4,233	1,112
Other comprehensive income (loss)	5,086	(557)	56,245	(33,246)
Comprehensive income	$ 13,398	$ 14,617	$ 86,615	$ 7,177

XML

Document and Entity Information - shares	9 Months Ended
	Sep. 30, 2019	Nov. 06, 2019
Document and Entity Information
Document Type	10-Q
Document Period End Date	Sep. 30, 2019
Entity Registrant Name	ProSight Global, Inc.
Entity Current Reporting Status	Yes
Entity Interactive Data Current	Yes
Entity Filer Category	Non-accelerated Filer
Entity Small Business	false
Entity Emerging Growth Company	true
Entity Ex Transition Period	false
Entity Shell Company	false
Entity Common Stock, Shares Outstanding		43,021,300
Current Fiscal Year End Date	--12-31
Document Fiscal Year Focus	2019
Document Fiscal Period Focus	Q3
Entity Central Index Key	0001634038
Amendment Flag	false

XML

Consolidated Statements of Cash Flows (Unaudited ) - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018
Operating activities
Net income from continuing operations	$ 30,752	$ 40,265
Net (loss) income from discontinued operations	(382)	158
Net Income	30,370	40,423
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for deferred taxes	7,884	10,310
Net realized investment gains	(495)	(805)
Net limited partnerships gains	(2,917)	(2,893)
Net accretion from bonds and commercial loans	(1,568)	(3,017)
Depreciation and amortization	6,222	5,383
Amortization of debt issuance costs	254	254
Stock based compensation	6,862	559
Changes in:
Premiums and other receivables	20,427	(34,112)
Receivable from reinsurers on paid losses and reinsurance receivable from unpaid losses	(22,103)	(13,555)
Ceded reinsurance payable	(9,182)	23,085
Accrued investment income	(1,173)	(4,201)
Deferred policy acquisition costs	(9,929)	(34,388)
Prepaid reinsurance premiums	(2,659)	62,666
Reserve for unpaid losses and loss adjustment expenses	118,412	110,871
Reserve for unearned premiums	36,828	72,184
Funds withheld related to sale of affiliate	(169)	518
Funds held under reinsurance agreements	5,078	(45,369)
Other assets	22,249	11,155
Other liabilities	7,555	9,395
Total adjustments	181,576	168,040
Net cash provided by operating activities – continuing operations	212,328	208,305
Net cash used in operating activities – discontinued operations	(267)	(230)
Net cash provided by operating activities	212,061	208,075
Investing activities
Purchases of available-for-sale fixed income securities	(423,335)	(315,137)
Sales of available-for-sale fixed income securities	67,848	78,488
Redemptions of available-for-sale fixed income securities	100,713	60,806
Purchases of commercial levered loans		(2,612)
Redemptions of commercial levered loans	2,298	10,142
Purchases of limited partnerships	(13,016)	(32,472)
Distributions and redemptions from limited partnerships	4,043	2,351
Purchases of short-term investments	(293,065)	(146,351)
Sales of short-term investments	315,767	115,728
Acquisition of fixed assets and capitalized software	(4,903)	(5,964)
Net cash used in investing activities - continuing operations	(243,650)	(235,021)
Net cash provided by (used in) investing activities - discontinued operations	(380)	2,501
Net cash used in investing activities	(244,030)	(232,520)
Financing activities
Proceeds from shares issued	51,599
Tax withholding on stock compensation awards	(149)
Proceeds from notes payable		5,000
Repayment of notes payable	(18,000)
Net cash provided by financing activities	33,450	5,000
Net change in cash and cash equivalents	1,481	(19,445)
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	(387)	(3,570)
Cash, cash equivalents and restricted cash at end of period - continuing operations	$ 32,028	$ 56,179

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Statements of Cash Flow (Details) - USD ($) $ in Thousands	1 Months Ended	9 Months Ended
	Sep. 30, 2019	Sep. 30, 2019	Sep. 30, 2018
Supplemental cash flow information
Interest		$ 6,783	$ 6,159
Shares withheld to settle tax withholding on vested RSUs	8,388
Net shares issued upon settlement of vested RSUs	22,203

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Earnings per Share (Tables)

9 Months Ended

Sep. 30, 2019

Earnings per Share

Summary of reconciliation of the numerators and denominators of basic and diluted EPS

	Continuing Operations						Discontinued Operations
(in thousands, except per share amounts)	Income		Shares	Per Share		Loss		Shares	Per Share
Three Months Ended September 30, 2019	(Numerator)		(Denominator)	Amount		(Numerator)		(Denominator)	Amount
Basic EPS:
Net income (loss) available to common stockholders	$	8,361	42,642	$	0.20	$	(49)	42,642	$	(0.01)
Effect of dilutive securities:
Stock compensation plans			418		0.01			418
Diluted EPS	$	8,361	43,060	$	0.19	$	(49)	43,060	$	—

	Continuing Operations						Discontinued Operations
(in thousands, except per share amounts)	Income		Shares	Per Share		Loss		Shares	Per Share
Three Months Ended September 30, 2018	(Numerator)		(Denominator)	Amount		(Numerator)		(Denominator)	Amount
Basic EPS:
Net income (loss) available to common stockholders	$	15,603	38,743	$	0.40	$	(429)	38,743	$	(0.01)
Effect of dilutive securities:
Stock compensation plans			698		—			698
Diluted EPS	$	15,603	39,441	$	0.40	$	(429)	39,441	$	(0.02)

	Continuing Operations						Discontinued Operations
(in thousands, except per share amounts)	Income		Shares	Per Share		Loss		Shares	Per Share
Nine Months Ended September 30, 2019	(Numerator)		(Denominator)	Amount		(Numerator)		(Denominator)	Amount
Basic EPS:
Net income (loss) available to common stockholders	$	30,752	40,120	$	0.77	$	(382)	40,120	$	(0.01)
Effect of dilutive securities:
Stock compensation plans			541		0.01			541
Diluted EPS	$	30,752	40,661	$	0.76	$	(382)	40,661	$	(0.01)

	Continuing Operations						Discontinued Operations
(in thousands, except per share amounts)	Income		Shares	Per Share		Income		Shares	Per Share
Nine Months Ended September 30, 2018	(Numerator)		(Denominator)	Amount		(Numerator)		(Denominator)	Amount
Basic EPS:
Net income available to common stockholders	$	40,265	38,743	$	1.04	$	158	38,743	$	—
Effect of dilutive securities:
Stock compensation plans			698		0.02			698
Diluted EPS	$	40,265	39,441	$	1.02	$	158	39,441	$	—

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Income Taxes

9 Months Ended

Sep. 30, 2019

Income Taxes

Income Taxes

10. Income Taxes

The Company and its respective U.S. subsidiaries are subject to the tax laws and regulations of the United States and various state jurisdictions. The Company files a consolidated federal tax return that includes all domestic subsidiaries.

The Company has one non-U.S. subsidiary, PSBL, which has received an undertaking from the Minister of Finance in Bermuda that would exempt it from Bermudian taxation until March 2035.

The Company uses the estimated annual effective tax rate method for calculating its tax provision in interim periods, which represents the Company’s best estimate of the effective tax rate expected for the full year. The estimated annual effective tax rate typically differs from the U.S. statutory tax rate primarily as a result of applying the Bermuda statutory tax rate of 0% to Bermuda income before taxes and any discrete items recognized during the period. The Company’s effective tax rates were 19.4% and 19.6% for the three months ended September 30, 2019 and 2018, respectively. The decrease in the effective tax rate in the three months ended September 30, 2019 compared to the same period in 2018 was primarily due to the tax effect of share-based compensation and state income taxes. The Company’s effective tax rates were 21.2% and 20.0% for the nine months ended September 30, 2019 and 2018, respectively. The increase in the effective tax rate in the nine months ended September 30, 2019 compared to the same period in 2018 was primarily due to adjustments recorded on state income taxes.

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Recently Adopted Accounting Standards

9 Months Ended

Sep. 30, 2019

Recently Adopted Accounting Standards

Recently Adopted Accounting Standards

2. Recently Adopted Accounting Standards

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

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 ASU 2016-01 and does not expect a material impact 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.

In October 2016, the FASB issued ASU 2016-16, Income Taxes, Intra-Entity Transfersof 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 the impact of 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 unobservable 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.

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Fair Value Measurements

9 Months Ended

Sep. 30, 2019

Fair Value Measurements

Fair Value Measurements

6. Fair Value Measurements

The Company has established a framework for valuing financial assets and financial liabilities. The framework is based on a hierarchy of inputs used in valuation and gives the highest priority to quoted prices in active markets and requires that observable inputs be used in the valuations when available. The disclosure of fair value estimates in the hierarchy is based on whether the significant inputs into the valuation are observable. In determining the level of the hierarchy in which the estimate is disclosed, the highest priority is given to unadjusted quoted prices in active markets and the lowest priority to unobservable inputs that reflect the Company’s significant market assumptions. The standard describes three levels of inputs that may be used to measure fair value and categorize the assets and liabilities within the hierarchy:

Level 1 – Fair value is based on unadjusted quoted prices in active markets that are accessible to the Company for identical assets or liabilities. These prices generally provide the most reliable evidence and are used to measure fair value whenever available. Active markets are defined as having the following for the measured asset/liability: (i) many transactions, (ii) current prices, (iii) price quotes not varying substantially among market makers, (iv) narrow bid/ask spreads and (v) most information publicly available.

As of September 30, 2019 and December 31, 2018, the Company does not hold any Level 1 securities.

Level 2 – Fair value is based on significant inputs, other than Level 1 inputs, that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the asset through corroboration with observable market data. Level 2 inputs include quoted market prices in active markets for similar assets, nonbinding quotes in markets that are not active for identical or similar assets and other market observable inputs (e.g., interest rates, yield curves, prepayment speeds, default rates, loss severities, etc.).

The Company’s Level 2 assets include U.S. Treasury securities, government agency securities, municipal debt obligations, RMBS, CMBS, CLO, ABS and corporate debt securities.

The Company generally obtains valuations from third-party pricing services and/or security dealers for identical or comparable assets or liabilities by obtaining nonbinding broker quotes (when pricing service information is not available) in order to determine an estimate of fair value. The Company bases all of its estimates of fair value for assets on the bid price as it represents what a third-party market participant would be willing to pay in an arm’s-length transaction.

Level 3 – Fair value is based on at least one or more significant unobservable inputs that are supported by little or no market activity for the asset. These inputs reflect the Company’s understanding about the assumptions market participants would use in pricing the asset or liability.

The Company’s Level 3 assets include its investments in corporate debt securities and commercial levered loans as they are illiquid and trade in inactive markets. These markets are considered inactive as a result of the low level of trades of such investments. Commercial levered loans are also not considered within the Level 3 tabular disclosure, because they are in the “held for investment” category and are also not measured at fair value on a recurring basis.

The corporate debt securities classified under Level 3 in the fair value hierarchy are provided to the Company by an independent valuation service provider which use both observable and unobservable inputs in the calculation of fair value. Unobservable inputs, significant to the measurement and valuation of the corporate debt securities are assumptions about prepayment speed, default rates and reinvestment parameters. Significant changes to any of these inputs, or combination of inputs, could significantly change the fair value measurement for these securities when using the income approach.

The primary pricing sources for the Company’s investments in commercial levered loans are reviewed for reasonableness, based on the Company’s understanding of the respective market. Prices may then be determined using valuation methodologies such as discounted cash flow models, as well as matrix pricing analyses performed on nonbinding quotes from brokers or other market makers.

The following are the major categories of assets measured at fair value on a recurring basis at September 30, 2019 and December 31, 2018, using quoted prices in active markets for identical assets (Level 1), significant other observable inputs (Level 2), and significant unobservable inputs (Level 3):

	September 30, 2019
	Quoted Prices in		Significant
	Active Markets		Other		Significant
	for		Observable		Unobservable
	Identical Assets		Inputs		Inputs
($ in thousands)	(Level 1)		(Level 2)		(Level 3)		Total
Fixed income securities:
U.S. Treasury securities	$	—	$	73,351	$	—	$	73,351
Government agency securities		—		4,846		—		4,846
Corporate debt securities		—		1,246,196		129,586		1,375,782
Municipal debt obligations		—		14,756		—		14,756
ABS		—		85,216		—		85,216
CLO		—		179,744		—		179,744
CMBS		—		70,360		—		70,360
RMBS - non agency		—		74,314		—		74,314
RMBS - agency		—		147,586		—		147,586
Total fixed income securities	$	—	$	1,896,369	$	129,586		2,025,955
Investments measured at net asset value:
Limited partnerships and limited liability companies								65,322
Total assets at fair value							$	2,091,277

	December 31, 2018
	Quoted Prices in		Significant
	Active Markets		Other		Significant
	for		Observable		Unobservable
	Identical Assets		Inputs		Inputs
($ in thousands)	(Level 1)		(Level 2)		(Level 3)		Total
Fixed income securities:
U.S. Treasury securities	$	—	$	90,328	$	—	$	90,328
Corporate debt securities		—		1,065,933		126,497		1,192,430
Municipal debt obligations		—		6,085		—		6,085
ABS		—		83,581		—		83,581
CLO		—		156,913		—		156,913
CMBS		—		53,843		—		53,843
RMBS - non agency		—		79,551		—		79,551
RMBS - agency		—		30,651		—		30,651
Total fixed income securities	$	—	$	1,566,885	$	126,497		1,693,382
Investments measured at net asset value:
Limited partnerships and limited liability companies								53,432
Total assets at fair value							$	1,746,814

There were no transfers between Levels 1 and 2 for the nine months ended September 30, 2019 and the year ended December 31, 2018.

In 2018, securities in the amount of $126.5 million were transferred from Level 2 into Level 3 as it was determined that these securities trade in inactive markets.

Management believes that the use of the fair value option as specified in Accounting Standards Codification No. 825, Financial Instruments to record limited partnerships and limited liability companies is consistent with its objective for such investments. As such, the entire limited partnership portfolio of $65.3 million and $53.4 million as of September 30, 2019 and December 31, 2018, respectively, was recorded using net asset value, which the Company has determined to be the best indicator of fair value for these investments.

The following tables disclose the carrying value and fair value of financial instruments that are not recognized or are not carried at fair value in the consolidated balance sheets as of September 30, 2019 and December 31, 2018:

	September 30, 2019
	Carrying		Fair Value
($ in thousands)	Value		Total		Level 1		Level 2		Level 3
Assets
Commercial levered loans	$	14,601	$	14,323	$	—	$	—	$	14,323
Liabilities
Notes payable	$	165,000	$	167,736	$	—	$	167,736	$	—
Unamortized debt issuance costs		(391)
Total notes payable	$	164,609

	December 31, 2018
	Carrying		Fair Value
($ in thousands)	Value		Total		Level 1		Level 2		Level 3
Assets
Commercial levered loans	$	16,915	$	15,858	$	—	$	—	$	15,858
Liabilities
Notes payable	$	183,000	$	183,999	$	—	$	183,999	$	—
Unamortized debt issuance costs		(645)
Total notes payable	$	182,355

The fair value of the notes payable at September 30, 2019, approximated a price equal to $167.7 million or 101.7% of the par value. The fair value of the notes payable at December 31, 2018, approximated a price equal to $184.0 million or 100.5% of the par value.

The following tables provides a summary of the changes in the fair value of securities measured using Level 3 inputs during the nine months ended September 30, 2019 and 2018:

	Level 3
	Corporate
($ in thousands)	Securities
Fair value, December 31, 2018	$	126,497
Total net gains (losses) for the period included in:
Other comprehensive income		1,514
Net realized loss		(4)
Purchases		4,372
Sales		—
Issuances		—
Settlements		(2,793)
Transfers into Level 3		—
Transfers out of Level 3		—
Fair value, September 30, 2019	$	129,586

	Level 3
	Corporate
($ in thousands)	Securities
Fair value, December 31, 2017	$	—
Total net losses for the period included in:
Other comprehensive loss		(362)
Net realized loss		(9)
Purchases		7,228
Sales		—
Issuances		—
Settlements		(1,333)
Transfers into Level 3		119,004
Transfers out of Level 3		—
Fair value, September 30, 2018	$	124,528

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Insurance Operations - Gross Written Premiums (Details) $ in Millions	3 Months Ended		9 Months Ended		12 Months Ended
	Sep. 30, 2019 USD ($) item	Sep. 30, 2018 USD ($) item	Sep. 30, 2019 USD ($) item	Sep. 30, 2018 USD ($) item	Dec. 31, 2018
Insurance Operations
Percentage of direct premiums sourced from distribution party acquired by a third party insurance carrier					13.50%
Number of distribution partners contributing the largest amounts of direct written premiums | item	3	3	3	3
Direct premiums written by the largest distribution partners | $	$ 75.4	$ 52.0	$ 208.4	$ 183.9

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Segment Information (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018
Summary of the Company’s gross written premium by customer segments within our Specialty Insurance segment
Gross written premiums	$ 227,196	$ 201,296	$ 718,066	$ 673,271
Commercial Auto
Summary of the Company’s gross written premium by customer segments within our Specialty Insurance segment
Gross written premiums	$ 52,693	$ 41,701	$ 148,773	$ 114,403
Gross written premiums, percent	23.20%	20.70%	20.70%	17.00%
General Liability
Summary of the Company’s gross written premium by customer segments within our Specialty Insurance segment
Gross written premiums	$ 84,932	$ 58,022	$ 239,383	$ 203,652
Gross written premiums, percent	37.40%	28.90%	33.40%	30.30%
Workers' Compensation
Summary of the Company’s gross written premium by customer segments within our Specialty Insurance segment
Gross written premiums	$ 27,242	$ 54,858	$ 152,225	$ 198,906
Gross written premiums, percent	12.00%	27.30%	21.10%	29.50%
Commercial Multiple Peril
Summary of the Company’s gross written premium by customer segments within our Specialty Insurance segment
Gross written premiums	$ 16,276	$ 15,266	$ 52,950	$ 49,338
Gross written premiums, percent	7.10%	7.50%	7.40%	7.30%
All Other Lines
Summary of the Company’s gross written premium by customer segments within our Specialty Insurance segment
Gross written premiums	$ 46,053	$ 31,449	$ 124,735	$ 106,972
Gross written premiums, percent	20.30%	15.60%	17.40%	15.90%
Customer Segment
Summary of the Company’s gross written premium by customer segments within our Specialty Insurance segment
Gross written premiums	$ 224,498	$ 176,709	$ 650,769	$ 568,804
Gross written premiums, percent	98.80%	87.80%	90.60%	84.50%
Construction
Summary of the Company’s gross written premium by customer segments within our Specialty Insurance segment
Gross written premiums	$ 27,296	$ 22,451	$ 83,039	$ 71,979
Gross written premiums, percent	12.00%	11.10%	11.60%	10.70%
Consumer Services
Summary of the Company’s gross written premium by customer segments within our Specialty Insurance segment
Gross written premiums	$ 35,502	$ 29,874	$ 100,880	$ 80,168
Gross written premiums, percent	15.60%	14.80%	14.00%	11.90%
Marine and Energy
Summary of the Company’s gross written premium by customer segments within our Specialty Insurance segment
Gross written premiums	$ 18,151	$ 15,433	$ 54,930	$ 49,579
Gross written premiums, percent	8.00%	7.70%	7.70%	7.40%
Media and Entertainment
Summary of the Company’s gross written premium by customer segments within our Specialty Insurance segment
Gross written premiums	$ 36,788	$ 31,590	$ 113,630	$ 109,821
Gross written premiums, percent	16.20%	15.70%	15.80%	16.30%
Professional Services
Summary of the Company’s gross written premium by customer segments within our Specialty Insurance segment
Gross written premiums	$ 27,015	$ 24,750	$ 85,681	$ 82,254
Gross written premiums, percent	11.90%	12.30%	11.90%	12.20%
Real Estate
Summary of the Company’s gross written premium by customer segments within our Specialty Insurance segment
Gross written premiums	$ 41,566	$ 19,477	$ 116,915	$ 91,507
Gross written premiums, percent	18.30%	9.70%	16.30%	13.60%
Transportation
Summary of the Company’s gross written premium by customer segments within our Specialty Insurance segment
Gross written premiums	$ 38,180	$ 33,134	$ 95,694	$ 83,496
Gross written premiums, percent	16.80%	16.50%	13.30%	12.40%
Other
Summary of the Company’s gross written premium by customer segments within our Specialty Insurance segment
Gross written premiums	$ 2,698	$ 24,587	$ 67,297	$ 104,467
Gross written premiums, percent	1.20%	12.20%	9.40%	15.50%

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Consolidated Statements of Changes in Stockholders’ Equity (Unaudited ) (Parenthetical) - USD ($) $ in Thousands	3 Months Ended
	Sep. 30, 2019	Jun. 30, 2019	Mar. 31, 2019	Sep. 30, 2018	Jun. 30, 2018	Mar. 31, 2018
Statement of Stockholders' Equity
Net unrealized (loss) on investment securities, deferred tax (benefit)	$ 2,495	$ 6,234	$ 7,265	$ 57	$ (2,814)	$ (5,502)

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Discontinued Operations (Details) - USD ($) $ in Thousands	3 Months Ended	9 Months Ended
	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018	Dec. 31, 2018
Assets
Total assets		$ 20,098		$ 19,719
Liabilities
Total liabilities		26,936		22,256
Insurance Operations, U.K. | Discontinued operation
Net income (loss)
Net income (loss) from discontinued operations	$ (400)	(400)	$ 200
Assets
Total cash and investments		9,993		10,436
Other assets		10,105		9,283
Total assets		20,098		19,719
Liabilities
Unpaid losses and loss adjustment expenses		19,189		14,030
Other liabilities		7,747		8,226
Total liabilities		$ 26,936		$ 22,256

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Share-Based Compensation (Tables)

9 Months Ended

Sep. 30, 2019

Share-Based Compensation

Schedule of stock-based compensation expense

	Three Months Ended September 30				Nine Months Ended September 30
($ in thousands)	2019		2018		2019		2018
Stock-based compensation	$	6,785	$	161	$	6,862	$	559

Schedule of restricted stock unit transactions

	Number of Shares	Weighted Average Grant Date Fair Value
Unvested outstanding at December 31, 2018	55,264	$	11.09
Granted	1,725,429	$	14.00
Vested	398,641	$	13.60
Forfeited	92,657	$	14.00
Unvested outstanding at September 30, 2019	1,289,395	$	14.00

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Consolidated Statements of Operations (Unaudited) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018
Consolidated Statements of Operations
Gross written premiums	$ 227,196	$ 201,296	$ 718,066	$ 673,271
Net premiums earned	202,455	187,108	600,543	537,687
Net investment income	16,974	14,044	51,530	43,301
Realized investment gains, net	245	406	495	805
Other income	196	168	386	504
Total revenues	219,870	201,726	652,954	582,297
Expenses:
Net losses and loss adjustment expenses incurred	127,196	109,976	372,644	321,763
Policy acquisition expenses	45,953	44,195	138,059	125,819
General and administrative expenses	25,967	25,051	79,189	75,153
Interest expense	3,216	3,092	9,725	9,207
Other expense	7,162		14,332
Total expenses	209,494	182,314	613,949	531,942
Income from continuing operations before income taxes	10,376	19,412	39,005	50,355
Income tax provision:
Current	146	184	369	(220)
Deferred	1,869	3,625	7,884	10,310
Total income tax expense	2,015	3,809	8,253	10,090
Net income from continuing operations	8,361	15,603	30,752	40,265
Discontinued operations:
Net (loss) income from discontinued operations	(49)	(429)	(382)	158
Net income	$ 8,312	$ 15,174	$ 30,370	$ 40,423
Earnings per share - basic:
Net income from continuing operations	$ 0.20	$ 0.40	$ 0.77	$ 1.04
Net income	0.19	0.39	0.76	1.04
Earnings per share – diluted:
Net income from continuing operations	0.19	0.40	0.76	1.02
Net income	$ 0.19	$ 0.38	$ 0.75	$ 1.02

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Basis of Reporting

9 Months Ended

Sep. 30, 2019

Basis of Reporting

Basis of Reporting

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 prior to and including June 30, 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.

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.

Initial Public Offering

On July 29, 2019, the Company completed the IPO with the sale of 7,857,145  shares of the Company’s common stock, including the issuance and sale by the Company of 4,285,715 shares of the Company’s common stock and the sale by ProSight Parallel Investment LLC and ProSight Investment LLC (collectively, the GS Investors) and ProSight TPG, L.P., TPG PS 1, L.P., TPG PS 2, L.P., TPG PS 3, L.P. and TPG PS 4, L.P. (collectively the TPG Investors and together with the GS Investors, the Principal Stockholders) of 3,571,430 shares of the Company’s common stock.

Shares of the Company’s common stock were initially offered to the public by the underwriters in the IPO at a per-share price of $14.00. After deducting underwriting discounts and commissions and estimated offering expenses, the net proceeds to the Company from the IPO were approximately $51.6 million. The Company did not receive any of the proceeds from the sale of the shares of the Company’s common stock sold by the Principal Stockholders in the IPO. Following the IPO, the GS Investors held approximately 40.9% of the Company’s outstanding common stock and the TPG Investors held approximately 39.4% of the Company’s outstanding common stock.

On August 15, 2019 the Principal Stockholders completed the sale of 1,178,570 shares of the Company’s common stock at a price of $14.00 per share less the underwriting discount pursuant to the underwriters’ exercise of their over-allotment option granted in connection with the IPO. The offering was registered pursuant to the registration statement on Form S-1, which the SEC declared effective on July 24, 2019. The Company did not receive any of the proceeds from the sale of the shares of common stock of the Company sold by the Principal Stockholders in this offering. Following this offering, the GS Investors held approximately 39.5% of the Company’s outstanding common stock and the TPG Investors held approximately 38.0% of the Company’s outstanding common stock.

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.

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Investments

9 Months Ended

Sep. 30, 2019

Investments

Investments

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 September 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	$	72,175	$	1,280	$	(104)	$	73,351
Government agency securities		4,840		6		—		4,846
Corporate debt securities		1,348,716		31,712		(4,646)		1,375,782
Municipal debt obligations		14,434		323		(1)		14,756
ABS		84,227		1,139		(150)		85,216
CLO		181,843		160		(2,259)		179,744
CMBS		67,986		2,416		(42)		70,360
RMBS - non-agency		63,803		10,690		(179)		74,314
RMBS - agency		147,226		940		(580)		147,586
Total fixed income securities	$	1,985,250	$	48,666	$	(7,961)	$	2,025,955

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
Municipal debt obligations		6,238		—		(153)		6,085
ABS		82,603		1,095		(117)		83,581
CLO		161,421		160		(4,668)		156,913
CMBS		55,980		—		(2,137)		53,843
RMBS - non-agency		68,594		11,078		(121)		79,551
RMBS - agency		31,348		—		(697)		30,651
Total fixed income securities	$	1,729,755	$	13,675	$	(50,048)	$	1,693,382

(b) The following table summarizes all securities in an unrealized loss position at September 30, 2019, the fair value and gross unrealized loss by asset class and by length of time those securities have been in a loss position:

	Less Than 12 Months				Greater Than 12 Months				Total
											Total
	Fair		Unrealized		Fair		Unrealized		Total		Unrealized
($ in thousands)	Value		Losses		Value		Losses		Fair Value		Losses
U.S. Treasury securities	$	9,666	$	(12)	$	19,521	$	(92)	$	29,187	$	(104)
Corporate debt securities		116,619		(1,934)		127,966		(2,712)		244,585		(4,646)
Municipal debt obligations		6,163		(1)		—		—		6,163		(1)
ABS		21,344		(95)		4,746		(55)		26,090		(150)
CLO		72,748		(672)		63,636		(1,587)		136,384		(2,259)
CMBS		6,555		(9)		6,081		(33)		12,636		(42)
RMBS - non-agency		922		(2)		2,532		(177)		3,454		(179)
RMBS - agency		54,026		(157)		11,736		(423)		65,762		(580)
Total	$	288,043	$	(2,882)	$	236,218	$	(5,079)	$	524,261	$	(7,961)

The following table summarizes all securities in an unrealized loss position at December 31, 2018, the fair value and gross unrealized loss by asset class and by length of time those securities have been in a loss position:

	Less Than 12 Months				Greater Than 12 Months				Total
											Total
	Fair		Unrealized		Fair		Unrealized		Total		Unrealized
($ in thousands)	Value		Losses		Value		Losses		Fair Value		Losses
U.S. Treasury securities	$	8,263	$	(82)	$	69,727	$	(1,935)	$	77,990	$	(2,017)
Corporate debt securities		393,931		(10,241)		710,482		(29,897)		1,104,413		(40,138)
Municipal debt obligations		—		—		6,085		(153)		6,085		(153)
ABS		25,258		(61)		4,249		(56)		29,507		(117)
CLO		146,004		(4,668)		—		—		146,004		(4,668)
CMBS		—		—		53,843		(2,137)		53,843		(2,137)
RMBS - non-agency		529		(13)		2,449		(108)		2,978		(121)
RMBS - agency		27,150		(513)		3,502		(184)		30,652		(697)
Total	$	601,135	$	(15,578)	$	850,337	$	(34,470)	$	1,451,472	$	(50,048)

The Company was holding 336 and 708 fixed income securities that were in an unrealized loss position as of September 30, 2019 and December 31, 2018, respectively. The Company believes these unrealized losses are temporary, as they resulted from changes in market conditions, including interest rates or sector spreads, and are not considered to be credit risk related. Other-than-temporary impairments (OTTI) charges are recognized as a realized loss to the extent that they are credit related, unless the Company has the intent to sell the security or it is more-likely-than not that the Company will be required to sell the security. In those circumstances, the security is written down to fair value with the entire amount of the write-down charged to earnings as a component of realized losses. The Company had no OTTI charges for the three and nine months ended September 30, 2019 and 2018.

(c) The amortized cost and fair value of fixed income securities, which excludes the Company’s structured securities portfolio, at September 30, 2019, by contractual maturity are shown below. Expected maturities will differ from contractual maturities, because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

	September 30, 2019
	Amortized		Fair
($ in thousands)	Cost		Value
Due in one year or less	$	97,372	$	97,585
Due after one through five years		722,887		733,382
Due after five through ten years		514,633		531,014
Due after ten years		105,273		106,754
		1,440,165		1,468,735
Structured securities:
ABS		84,227		85,216
CLO		181,843		179,744
CMBS		67,986		70,360
RMBS - non-agency		63,803		74,314
RMBS - agency		147,226		147,586
Total	$	1,985,250	$	2,025,955

The Company did not have any non-income producing fixed income investments as of September 30, 2019 and December 31, 2018, respectively.

(d) The Company elected to account for its investments in limited partnerships and limited liability companies of $65.3 million and $53.4 million at September 30, 2019 and December 31, 2018, respectively, at fair value. Changes in fair value of such investments are recorded in the consolidated statements of operations within net investment income. The largest investment within the portfolio is the PIMCO Tactical Opportunities fund, which is carried at $35.2 million at September 30, 2019.

The carrying values used for investment in limited partnerships and limited liability companies generally are established on the basis of the valuations provided monthly or quarterly by the managers of such investments. These valuations are determined based upon the valuation criteria established by the governing documents of such investments or utilized in the normal course of such manager’s business, which are reflective of fair value. Such valuations may differ significantly from the values that would have been used had available markets for these investments existed and the differences could be material.

The Company’s strategies for its investments in limited partnerships and limited liability companies include investment funds that employ diverse and fundamentally driven approaches to investing which include effective risk management, hedging strategies and leverage. The portfolio of investments in limited partnerships and limited liability companies consists of common stocks, real estate assets, options, swaps, derivative instruments and other structured products.

The limited partnerships and limited liability companies in which the Company invests sometimes impose limitations on the timing of withdrawals from the funds. The Company’s inability to withdraw its investment quickly from a particular limited partnership or a limited liability company that is performing poorly could result in losses and may affect liquidity. All of the Company’s limited partnerships and limited liability companies have timing limitations. Most limited partnerships and limited liability companies require a 90-day notice period in order to withdraw funds. Some limited partnerships and limited liability companies may require a withdrawal only at the end of their fiscal year. The Company may also be subject to withdrawal fees in the event the limited partnerships and limited liability companies are sold within a minimum holding period, which may be up to one year. Many limited partnerships and limited liability companies have invoked gated provisions that allow the fund to disperse redemption proceeds to investors over an extended period. The Company is subject to such restrictions, which may delay the receipt of proceeds from limited partnerships and limited liability companies.

(e) The Company invests in commercial levered loans, which are private placements. Loans are reported at the principal amount outstanding, reduced by unearned discounts, net deferred loan fees, and an allowance for loan losses. Interest on loans is calculated using the simple interest method on the daily principal amount outstanding. The allowance for loan losses related to impaired loans is determined based on the difference of the carrying value of loans and the present value of expected cash flows discounted at the loan’s effective interest rate or, as a practical expedient, the loan’s observable market price. There was no allowance for loan losses at September 30, 2019 and December 31, 2018, respectively.

(f) Proceeds from sales and redemptions in AFS securities totaled $71.5 million and $19.2 million for the three months ended September 30, 2019 and 2018, respectively. Proceeds from sales and redemptions in AFS securities totaled $168.6 million and $139.3 million for the nine months ended September 30, 2019 and 2018, respectively. Gross realized gains from sales and redemptions in AFS securities totaled $0.3 million and $0.5 million for the three months ended September 30, 2019 and 2018, respectively, and $0.9 million and $1.3 million for the nine months ended September 30, 2019 and 2018, respectively. Gross realized losses from sales and redemptions of AFS investments totaled an insignificant amount and $0.1 million for the three months ended September 30, 2019 and 2018, respectively, and $0.4 million and $0.5 million for the nine months ended September 30, 2019 and 2018.

(g) Net investment income included in net income from continuing operations in the consolidated statements of operations from each major category of investments for the three and nine months ended September 30, 2019 and 2018, is as follows:

($ in thousands)	Three Months Ended September 30				Nine Months Ended September 30
	2019		2018		2019		2018
Fixed income securities	$	16,764	$	14,422	$	49,414	$	40,830
Commercial levered loans		208		149		586		814
Net limited partnerships gains		468		68		2,862		2,893
Other		101		56		282		79
Gross investment income		17,541		14,695		53,144		44,616
Less: expenses		567		651		1,614		1,315
Net investment income	$	16,974	$	14,044	$	51,530	$	43,301

(h) Included in investments at September 30, 2019 and December 31, 2018, are securities required to be held by the Company (or those that are on deposit) with various regulatory authorities as required by law with a fair value of $209.1 million and $188.6 million, respectively. Fair value and carrying value of assets in the amount of $364.6 million and $353.0 million, respectively, were on deposit in collateral agreements at September 30, 2019. Fair value and carrying value of assets in the amount of $358.5 million and $368.0 million, respectively, were on deposit in collateral agreements at December 31, 2018.

(i) The investment portfolio has exposure to market risks, which include the effect of adverse changes in interest rates, credit quality, limited partnership value and illiquid securities including commercial levered loans and RMBS values on the portfolio. Interest rate risk includes the changes in the fair value of fixed maturities based upon changes in interest rates. Credit quality risk includes the risk of default by issuers of debt securities. Risks from investments in limited partnerships and limited liability companies and illiquid securities include the potential loss from the diminution in the value of the underlying investment of the limited partnerships and limited liability companies and the potential loss from changes in the fair value of commercial levered loans and RMBS.

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Insurance Operations

9 Months Ended

Sep. 30, 2019

Insurance Operations

Insurance Operations

9. Insurance Operations

Total reinsurance ceded and assumed relating to premiums written, earned premiums and net losses and loss adjustment expenses incurred, are as follows:

	Three Months Ended September 30				Nine Months Ended September 30
($ in thousands)	2019		2018		2019		2018
Written premiums
Direct written premiums	$	226,209	$	200,316	$	715,500	$	668,521
Assumed from other companies		987		980		2,566		4,750
Ceded to other companies		17,722		21,780		88,122		19,368
Net written premiums	$	209,474	$	179,516	$	629,944	$	653,903
Earned premiums
Direct earned premiums	$	229,816	$	212,084	$	683,906	$	623,820
Assumed from other companies		920		1,603		2,794		8,767
Ceded to other companies		28,281		26,579		86,157		94,900
Net earned premiums	$	202,455	$	187,108	$	600,543	$	537,687
Percent of amount assumed to net		0.5%		0.9%		0.5%		1.6%
Losses and loss adjustment expenses incurred
Direct net losses and loss adjustment expenses incurred	$	101,855	$	109,524	$	403,899	$	364,977
Assumed from other companies		29,366		4,440		6,162		(2,238)
Ceded to other companies		4,025		3,988		37,417		40,976
Net losses and loss adjustment expenses incurred	$	127,196	$	109,976	$	372,644	$	321,763

In 2017, the Company ceded significant amounts of premium under the whole account quota share reinsurance agreements (WAQS). In 2018, the WAQS were terminated. To the extent of unearned premium at the time of termination, ceded written premiums, net of the ceding commission, was returned.

For the three and nine months ended September 30, 2019 and 2018 under the WAQS, the Company recorded the following:

	Three Months Ended September 30
($ in thousands)	2019		2018
Ceded written premium	$	6	$	55
Ceded earned premium		—		56
(Increase) reduction to net loss and loss adjustment expenses incurred		(1,632)		874
Reduction (increase) to policy acquisition expenses		1,632		(823)
Reduction to pre-tax income	$	-	$	5

	Nine Months Ended September 30
($ in thousands)	2019		2018
Ceded written premium (return of ceded prepaid)	$	3	$	(68,745)
Ceded earned premium		(3)		14,600
(Increase) reduction to net loss and loss adjustment expenses incurred		(3,839)		9,422
Reduction to policy acquisition expenses		3,837		4,083
(Increase) reduction to pre-tax income	$	(1)	$	1,095

Distribution Partners

The Company negotiates with distribution partners to write direct premium on behalf of the Company’s affiliates. In January 2019, a distribution partner of the Company was acquired by a third-party insurance carrier. In 2018, the Company has sourced 13.5% of direct premium from this distribution partner. The Company does not anticipate any future premiums from this distribution partner after the first quarter of 2019. The three distribution partners contributing the largest amounts of direct written premium (excluding the distribution partner above) totaled $75.4 million and $52.0 million for the three months ended September 30, 2019 and 2018, respectively. The three distribution partners contributing the largest amounts of direct written premium (excluding the distribution partner above) totaled $208.4 million and $183.9 million for the nine months ended September 30, 2019 and 2018, respectively.

Unpaid Losses

Unpaid losses are based on individual case estimates for losses reported and include a provision for incurred but not reported (IBNR) losses and loss adjustment expenses. The following table provides a roll forward of the Company’s reserve for unpaid losses and loss adjustment expenses:

	September 30
($ in thousands)	2019		2018
Gross unpaid losses and loss expenses, at beginning of year	$	1,396,812	$	1,258,237
Ceded unpaid losses and loss expenses, at beginning of year		185,295		201,156
Net reserves for losses and loss expenses, at beginning of year		1,211,517		1,057,081
Add:
Incurred losses and loss expenses occurring in the:
Current year		356,926		325,810
Prior years		2,367		(4,047)
Prior years attributable to adjusted premium		13,351		—
Total incurred losses and loss expenses		372,644		321,763
Less:
Paid losses and loss expenses for claims occurring in the:
Current year		39,742		34,359
Prior years		243,172		178,268
Total paid losses and loss expenses for claims		282,914		212,627
Net reserves for losses and loss expenses, at end of period		1,301,247		1,166,217
Ceded unpaid losses and loss expenses, at end of period		213,977		202,891
Gross unpaid losses and loss expenses, at end of period	$	1,515,224	$	1,369,108

During the nine months ended September 30, 2019, the Company’s estimated losses and loss expenses for accident years 2018 and prior developed unfavorably by $2.4 million driven by $23.2 million unfavorable development in General Liability lines partially offset by $18.7 million favorable development in Workers’ Compensation lines and $2.7 in Surety lines. In addition, the Company incurred $13.4 million of losses and loss adjustment expenses related to premium adjustments earned during the nine months ended September 30, 2019 attributable to prior accident years.

During the nine months ended September 30, 2018, the Company’s estimated losses and loss expenses for accident years 2017 and prior developed favorably by $4.0 million driven by $10.8 million of favorable development in Workers’ Compensation, $11.7 million of favorable development in Commercial Auto lines and $3.1 million of favorable development in Marine Liability lines within the All Other Lines category, partially offset by $12.4 million of unfavorable development in General Liability lines and $9.2 million of unfavorable development in Commercial Multiple Peril lines.

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Insurance Operations - Quota Share Arrangements (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018
Insurance activity
Ceded earned premium	$ 28,281	$ 26,579	$ 86,157	$ 94,900
Increase/reduction to pre-tax income	(10,376)	(19,412)	(39,005)	(50,355)
Whole Account Quota Share Reinsurance Agreement
Insurance activity
Ceded written premium (return of ceded prepaid)	6	55	3	(68,745)
Ceded earned premium		56		14,600
Ceded earned premium			(3)
(Increase) reduction to net loss and loss adjustment expenses incurred	(1,632)	874	(3,839)	9,422
Reduction (increase) to policy acquisition expenses	$ 1,632	(823)	3,837	4,083
Increase/reduction to pre-tax income		$ 5	$ (1)	$ 1,095

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Debt (Details) - USD ($) $ in Thousands			9 Months Ended
	Aug. 08, 2019	Mar. 15, 2019	Sep. 30, 2019	Mar. 14, 2019
Line of Credit Facility [Line Items]
Number of days before the maturity of the senior notes due November 2020 that the credit facility matures		91 days
Number of days before the maturity of the senior notes due November 2020, as amended or replaced, that the credit facility matures		91 days
Maximum borrowing capacity		$ 50,000		$ 25,000
Repayment of outstanding debt			$ 18,000
Revolving facility
Line of Credit Facility [Line Items]
Repayment of outstanding debt	$ 18,000
Available borrowing capacity			$ 50,000

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Share-Based Compensation - 2019 Plan Restricted Stock Activity (Details) $ / shares in Units, $ in Millions	9 Months Ended
	Sep. 30, 2019 USD ($) $ / shares shares
Unrecognized Share-based Compensation
Unrecognized stock-based compensation expense | $	$ 16.1
Expected weighted average recognition period	2 years 7 months 6 days
Restricted stock units
Restricted Stock Units
Unvested outstanding at beginning of period | shares	55,264
Granted | shares	1,725,429
Vested | shares	398,641
Forfeited | shares	92,657
Unvested outstanding at end of period | shares	1,289,395
Weighted Average Grant Date Fair Value
Non vested outstanding at beginning of period | $ / shares	$ 11.09
Granted | $ / shares	14.00
Vested | $ / shares	13.60
Forfeited | $ / shares	14.00
Non vested outstanding at end of period | $ / shares	$ 14.00

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Fair Value Measurements - Securities Measured Using Level 3 (Details) - USD ($) $ in Thousands	9 Months Ended		12 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Dec. 31, 2018
Changes in fair value of securities measured using Level 3 inputs
Fair value at beginning of period	$ 126,497
Other comprehensive income (loss)	1,514
Net realized loss	(4)
Purchases	4,372
Settlements	(2,793)
Transfers into Level 3			$ 126,500
Fair value at end of period	$ 129,586		$ 126,497
Corporate debt securities
Changes in fair value of securities measured using Level 3 inputs
Other comprehensive income (loss)		$ (362)
Net realized loss		(9)
Purchases		7,228
Settlements		(1,333)
Transfers into Level 3		119,004
Fair value at end of period		$ 124,528

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Investments - Net Investment Income (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018
Net investment income included in net income (loss)
Gross investment income	$ 17,541	$ 14,695	$ 53,144	$ 44,616
Less: expenses	567	651	1,614	1,315
Net investment income	16,974	14,044	51,530	43,301
Fixed income securities
Net investment income included in net income (loss)
Gross investment income	16,764	14,422	49,414	40,830
Commercial levered loans
Net investment income included in net income (loss)
Gross investment income	208	149	586	814
Net limited partnerships gains
Net investment income included in net income (loss)
Gross investment income	468	68	2,862	2,893
Other
Net investment income included in net income (loss)
Gross investment income	$ 101	$ 56	$ 282	$ 79

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Earnings per Share

9 Months Ended

Sep. 30, 2019

Earnings per Share

Earnings per Share

13. Earnings per Share

The following table provides a reconciliation of the numerators and denominators of basic and diluted earnings per share (EPS) based on restated shares:

	Continuing Operations						Discontinued Operations
(in thousands, except per share amounts)	Income		Shares	Per Share		Loss		Shares	Per Share
Three Months Ended September 30, 2019	(Numerator)		(Denominator)	Amount		(Numerator)		(Denominator)	Amount
Basic EPS:
Net income (loss) available to common stockholders	$	8,361	42,642	$	0.20	$	(49)	42,642	$	(0.01)
Effect of dilutive securities:
Stock compensation plans			418		0.01			418
Diluted EPS	$	8,361	43,060	$	0.19	$	(49)	43,060	$	—

	Continuing Operations						Discontinued Operations
(in thousands, except per share amounts)	Income		Shares	Per Share		Loss		Shares	Per Share
Three Months Ended September 30, 2018	(Numerator)		(Denominator)	Amount		(Numerator)		(Denominator)	Amount
Basic EPS:
Net income (loss) available to common stockholders	$	15,603	38,743	$	0.40	$	(429)	38,743	$	(0.01)
Effect of dilutive securities:
Stock compensation plans			698		—			698
Diluted EPS	$	15,603	39,441	$	0.40	$	(429)	39,441	$	(0.02)

	Continuing Operations						Discontinued Operations
(in thousands, except per share amounts)	Income		Shares	Per Share		Loss		Shares	Per Share
Nine Months Ended September 30, 2019	(Numerator)		(Denominator)	Amount		(Numerator)		(Denominator)	Amount
Basic EPS:
Net income (loss) available to common stockholders	$	30,752	40,120	$	0.77	$	(382)	40,120	$	(0.01)
Effect of dilutive securities:
Stock compensation plans			541		0.01			541
Diluted EPS	$	30,752	40,661	$	0.76	$	(382)	40,661	$	(0.01)

	Continuing Operations						Discontinued Operations
(in thousands, except per share amounts)	Income		Shares	Per Share		Income		Shares	Per Share
Nine Months Ended September 30, 2018	(Numerator)		(Denominator)	Amount		(Numerator)		(Denominator)	Amount
Basic EPS:
Net income available to common stockholders	$	40,265	38,743	$	1.04	$	158	38,743	$	—
Effect of dilutive securities:
Stock compensation plans			698		0.02			698
Diluted EPS	$	40,265	39,441	$	1.02	$	158	39,441	$	—

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Discontinued Operations (Tables)

9 Months Ended

Sep. 30, 2019

Discontinued Operations

Summary of results of operations and carrying amounts of assets and liabilities for discontinued operations

	September 30,		December 31,
($ in thousands)	2019		2018
Assets
Total cash and investments	$	9,993	$	10,436
Other assets		10,105		9,283
Total assets	$	20,098	$	19,719
Liabilities
Unpaid losses and loss adjustment expenses	$	19,189	$	14,030
Other liabilities		7,747		8,226
Total liabilities	$	26,936	$	22,256

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Supplemental Cash Flow

9 Months Ended

Sep. 30, 2019

Supplemental Cash Flow

Supplemental Cash Flow

3. Supplemental Cash Flow

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

	Nine Months Ended September 30
($ in thousands)	2019		2018
Cash paid during the period for:
Interest	$	6,783	$	6,159

In September 2019, the Company withheld 8,388 shares of common stock from an employee related to a tax liability 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 22,203.

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Accumulated Other Comprehensive Income (Loss)

9 Months Ended

Sep. 30, 2019

Accumulated Other Comprehensive Income (Loss)

Accumulated Other Comprehensive Income (Loss)

7. Accumulated Other Comprehensive Income (Loss)

The following table summarizes the components of accumulated other comprehensive income (loss) (AOCI) for the three and nine months ended September 30, 2019 and 2018:

($ in thousands)	Gross		Tax		Net
June 30, 2019	$	34,898	$	6,054	$	28,844
Unrealized holding gains on fixed income securities		11,943		2,651		9,292
Amounts reclassified into net income		4,362		156		4,206
Other comprehensive income		7,581		2,495		5,086
September 30, 2019	$	42,479	$	8,549	$	33,930

($ in thousands)	Gross		Tax		Net
June 30, 2018	$	(18,740)	$	(5,348)	$	(13,392)
Unrealized holding losses on fixed income securities		(193)		335		(528)
Amounts reclassified into net income		307		278		29
Other comprehensive loss		(500)		57		(557)
September 30, 2018	$	(19,240)	$	(5,291)	$	(13,949)

($ in thousands)	Gross		Tax		Net
December 31, 2018	$	(29,760)	$	(7,445)	$	(22,315)
Unrealized holding gains on fixed income securities		76,576		16,098		60,478
Amounts reclassified into net income		4,337		104		4,233
Other comprehensive income		72,239		15,994		56,245
September 30, 2019	$	42,479	$	8,549	$	33,930

($ in thousands)	Gross		Tax		Net
December 31, 2017	$	22,265	$	2,968	$	19,297
Unrealized holding losses on fixed income securities		(40,224)		(8,090)		(32,134)
Amounts reclassified into net income		1,281		169		1,112
Other comprehensive loss		(41,505)		(8,259)		(33,246)
September 30, 2018	$	(19,240)	$	(5,291)	$	(13,949)

The following table presents reclassifications out of AOCI attributable to the Company during the three and nine months ended September 30, 2019 and 2018:

	Line in Consolidated	Three Months Ended September 30				Nine Months Ended September 30
($ in thousands)	Statements of Operations	2019		2018		2019		2018
AOCI
Unrealized gains on securities	Realized investment gains	$	4,362	$	307	$	4,337	$	1,281
	Income tax expense		156		278		104		169
Total reclassifications	Net realized investment gains	$	4,206	$	29	$	4,233	$	1,112

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Basis of Reporting - Initial Public Offering (Details) - USD ($) $ / shares in Units, $ in Millions	Aug. 15, 2019	Jul. 29, 2019
GS Investors | Prosight Global, Inc.
Initial Public Offering
Ownership percentage	39.50%	40.90%
TPG Investors | Prosight Global, Inc.
Initial Public Offering
Ownership percentage	38.00%	39.40%
IPO
Initial Public Offering
Total shares sold		7,857,145
Number of shares issued		4,285,715
Price per share		$ 14.00
Net proceeds from the IPO		$ 51.6
IPO | Principal Stockholders
Initial Public Offering
Shares sold by principal shareholders in offering		3,571,430
Principal Stockholder Offering | Principal Stockholders
Initial Public Offering
Shares sold by principal shareholders in offering	1,178,570
Price per share	$ 14.00

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Segment Information (Tables)

9 Months Ended

Sep. 30, 2019

Segment Information

Summary of gross written premiums by customer segments

	Three Months Ended September 30						Nine Months Ended September 30
($ in thousands)	2019			2018			2019			2018
Customer Segment
Construction	$	27,296	12.0%	$	22,451	11.1%	$	83,039	11.6%	$	71,979	10.7%
Consumer Services		35,502	15.6%		29,874	14.8%		100,880	14.0%		80,168	11.9%
Marine and Energy		18,151	8.0%		15,433	7.7%		54,930	7.7%		49,579	7.4%
Media and Entertainment		36,788	16.2%		31,590	15.7%		113,630	15.8%		109,821	16.3%
Professional Services		27,015	11.9%		24,750	12.3%		85,681	11.9%		82,254	12.2%
Real Estate		41,566	18.3%		19,477	9.7%		116,915	16.3%		91,507	13.6%
Transportation		38,180	16.8%		33,134	16.5%		95,694	13.3%		83,496	12.4%
Customer Segment subtotal		224,498	98.8%		176,709	87.8%		650,769	90.6%		568,804	84.5%
Other		2,698	1.2%		24,587	12.2%		67,297	9.4%		104,467	15.5%
Specialty Insurance total	$	227,196		$	201,296		$	718,066		$	673,271

Summary of gross written premiums by line of business across customer segments

	Three Months Ended September 30						Nine Months Ended September 30
($ in thousands)	2019			2018			2019			2018
Line of Business
Commercial Auto	$	52,693	23.2%	$	41,701	20.7%	$	148,773	20.7%	$	114,403	17.0%
General Liability		84,932	37.4%		58,022	28.9%		239,383	33.4%		203,652	30.3%
Workers’ Compensation		27,242	12.0%		54,858	27.3%		152,225	21.1%		198,906	29.5%
Commercial Multiple Peril		16,276	7.1%		15,266	7.5%		52,950	7.4%		49,338	7.3%
All Other Lines		46,053	20.3%		31,449	15.6%		124,735	17.4%		106,972	15.9%
Specialty Insurance total	$	227,196		$	201,296		$	718,066		$	673,271

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Investments - Unrealized Loss Position (Details) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2019 USD ($) security	Sep. 30, 2018 USD ($)	Sep. 30, 2019 USD ($) security	Sep. 30, 2018 USD ($)	Dec. 31, 2018 USD ($) security
Fair Value
Less Than 12 Months	$ 288,043		$ 288,043		$ 601,135
Greater Than 12 Months	236,218		236,218		850,337
Total Fair Value	524,261		524,261		1,451,472
Unrealized Losses
Less Than 12 Months	(2,882)		(2,882)		(15,578)
Greater Than 12 Months	(5,079)		(5,079)		(34,470)
Total Unrealized Losses	$ (7,961)		$ (7,961)		$ (50,048)
Fixed income securities, unrealized loss position | security	336		336		708
Other-than-temporary impairment (OTTI) charges	$ 0	$ 0	$ 0	$ 0
U.S. Treasury securities
Fair Value
Less Than 12 Months	9,666		9,666		$ 8,263
Greater Than 12 Months	19,521		19,521		69,727
Total Fair Value	29,187		29,187		77,990
Unrealized Losses
Less Than 12 Months	(12)		(12)		(82)
Greater Than 12 Months	(92)		(92)		(1,935)
Total Unrealized Losses	(104)		(104)		(2,017)
Corporate debt securities
Fair Value
Less Than 12 Months	116,619		116,619		393,931
Greater Than 12 Months	127,966		127,966		710,482
Total Fair Value	244,585		244,585		1,104,413
Unrealized Losses
Less Than 12 Months	(1,934)		(1,934)		(10,241)
Greater Than 12 Months	(2,712)		(2,712)		(29,897)
Total Unrealized Losses	(4,646)		(4,646)		(40,138)
Municipal debt obligations
Fair Value
Less Than 12 Months	6,163		6,163
Greater Than 12 Months					6,085
Total Fair Value	6,163		6,163		6,085
Unrealized Losses
Less Than 12 Months	(1)		(1)
Greater Than 12 Months					(153)
Total Unrealized Losses	(1)		(1)		(153)
ABS
Fair Value
Less Than 12 Months	21,344		21,344		25,258
Greater Than 12 Months	4,746		4,746		4,249
Total Fair Value	26,090		26,090		29,507
Unrealized Losses
Less Than 12 Months	(95)		(95)		(61)
Greater Than 12 Months	(55)		(55)		(56)
Total Unrealized Losses	(150)		(150)		(117)
CLO
Fair Value
Less Than 12 Months	72,748		72,748		146,004
Greater Than 12 Months	63,636		63,636
Total Fair Value	136,384		136,384		146,004
Unrealized Losses
Less Than 12 Months	(672)		(672)		(4,668)
Greater Than 12 Months	(1,587)		(1,587)
Total Unrealized Losses	(2,259)		(2,259)		(4,668)
CMBS
Fair Value
Less Than 12 Months	6,555		6,555
Greater Than 12 Months	6,081		6,081		53,843
Total Fair Value	12,636		12,636		53,843
Unrealized Losses
Less Than 12 Months	(9)		(9)
Greater Than 12 Months	(33)		(33)		(2,137)
Total Unrealized Losses	(42)		(42)		(2,137)
RMBS - non-agency
Fair Value
Less Than 12 Months	922		922		529
Greater Than 12 Months	2,532		2,532		2,449
Total Fair Value	3,454		3,454		2,978
Unrealized Losses
Less Than 12 Months	(2)		(2)		(13)
Greater Than 12 Months	(177)		(177)		(108)
Total Unrealized Losses	(179)		(179)		(121)
RMBS - agency
Fair Value
Less Than 12 Months	54,026		54,026		27,150
Greater Than 12 Months	11,736		11,736		3,502
Total Fair Value	65,762		65,762		30,652
Unrealized Losses
Less Than 12 Months	(157)		(157)		(513)
Greater Than 12 Months	(423)		(423)		(184)
Total Unrealized Losses	$ (580)		$ (580)		$ (697)

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Consolidated Statements of Comprehensive Income (Loss) (Unaudited) (Parenthetical) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018
Consolidated Statements of Comprehensive Income
Change in unrealized holding (losses) gains on securities, deferred tax expense (benefit)	$ 2,651	$ 335	$ 16,098	$ (8,090)
Reclassification adjustment for (losses) gains included in net income, tax expense (benefit)	$ 156	$ 278	$ 104	$ 169

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Consolidated Balance Sheets (Unaudited) - USD ($) $ in Thousands	Sep. 30, 2019	Dec. 31, 2018
Assets
Fixed income securities, available-for-sale at fair value (amortized cost $1,985,250 in 2019 and $1,729,755 in 2018)	$ 2,025,955	$ 1,693,382
Commercial levered loans at amortized cost (fair value $14,323 in 2019 and $15,858 in 2018)	14,601	16,915
Limited partnerships and limited liability companies at fair value (cost $61,015 in 2019 and $51,903 in 2018)	65,322	53,432
Short-term investments	14,398	36,661
Total investments	2,120,276	1,800,390
Cash and cash equivalents	24,577	22,279
Restricted cash	7,451	7,621
Accrued investment income	13,452	12,279
Premiums and other receivables, net	179,920	200,347
Receivable from reinsurers on paid losses	5,849	12,428
Reinsurance receivable on unpaid losses	213,977	185,295
Deferred policy acquisition costs	103,542	93,613
Prepaid reinsurance premiums	47,285	44,626
Net deferred income taxes	9,361	33,239
Goodwill and net intangible assets	29,196	29,219
Fixed assets and capitalized software, net	37,679	39,001
Funds withheld related to sale of affiliate	19,566	19,397
Other assets	31,255	57,653
Assets of discontinued operations	20,098	19,719
Total assets	2,863,484	2,577,106
Liabilities
Reserve for unpaid losses and loss adjustment expenses	1,515,224	1,396,812
Reserve for unearned premiums	472,761	435,933
Ceded reinsurance payable	4,099	13,281
Notes payable, net of debt issuance costs	164,609	182,355
Funds held under reinsurance agreements	68,243	63,165
Other liabilities	81,029	73,474
Liabilities of discontinued operations	26,936	22,256
Total liabilities	2,332,901	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; 43,034,220 and 38,864,289 shares issued and 43,021,300 and 38,851,369 shares outstanding in 2019 and 2018, respectively	430	389
Paid-in capital	661,357	607,260
Accumulated other comprehensive income (loss)	33,930	(22,315)
Retained deficit	(164,934)	(195,304)
Treasury shares - at cost (12,920 shares)	(200)	(200)
Total stockholders’ equity	530,583	389,830
Total liabilities and stockholders’ equity	$ 2,863,484	$ 2,577,106

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Earnings per Share (Details) - USD ($) $ / shares in Units, shares in Thousands, $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018
Basic EPS- Income:
Net income (loss) available to common stockholders, continuing operations	$ 8,361	$ 15,603	$ 30,752	$ 40,265
Net income (loss) available to common stockholders, discontinued operations	$ (49)	$ (429)	$ (382)	$ 158
Basic EPS - Shares:
Shares outstanding, basic (in shares)	42,642	38,743	40,120	38,743
Basic EPS - Per Share Amount:
Net Income available to common stockholders, continuing operations (in dollars per share)	$ 0.20	$ 0.40	$ 0.77	$ 1.04
Net Income available to common stockholders, discontinued operations (in dollars per share)	$ (0.01)	$ (0.01)	$ (0.01)
Effect of dilutive securities - Shares:
Stock compensation plans (in shares)	418	698	541	698
Effect of dilutive securities - Per Share Amount:
Stock compensation plans, continuing operations (in dollars per share)	$ 0.01		$ 0.01	$ 0.02
Diluted EPS - Income
Diluted EPS, Diluted net income - continuing operations	$ 8,361	$ 15,603	$ 30,752	$ 40,265
Diluted EPS, Diluted net income - discontinued operations	$ (49)	$ (429)	$ (382)	$ 158
Diluted EPS - Shares
Shares outstanding, diluted (in shares)	43,060	39,441	40,661	39,441
Diluted EPS - Per Share Amount
Diluted EPS, continuing operations (in dollars per share)	$ 0.19	$ 0.40	$ 0.76	$ 1.02
Diluted EPS, discontinued operations (in dollars per share)		$ (0.02)	$ (0.01)

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Related-Party Information (Details) - USD ($) $ in Thousands			3 Months Ended		9 Months Ended
	May 03, 2019	Mar. 15, 2019	Sep. 30, 2019	Mar. 31, 2019	Sep. 30, 2019	Dec. 31, 2018
Related party transactions
Equity distribution for executive loan repayment				$ 4,174
Executives
Related party transactions
Loans payable						$ 4,200
Repayment of loans		$ 4,200
Former CEO
Related party transactions
Common shares cancelled as per terms of the separation agreement	137,987
Other Expense | Former CEO
Related party transactions
Severance expense			$ 400		$ 7,600
Paid-In Capital
Related party transactions
Equity distribution for executive loan repayment		$ 4,200		$ 4,174

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Insurance Operations - Unpaid Losses (Details) - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018
Liability for Unpaid Claims and Claims Adjustment Expense [Roll Forward]
Gross unpaid losses and loss expenses, at beginning of year	$ 1,396,812	$ 1,258,237
Ceded unpaid losses and loss expenses, at beginning of year	185,295	201,156
Net reserve for losses and loss expenses, at beginning of year	1,211,517	1,057,081
Incurred losses and loss expenses occurring in the:
Current year	356,926	325,810
Prior years	2,367	(4,047)
Prior years attributable to adjusted premium	13,351
Total incurred losses and loss expenses	372,644	321,763
Paid losses and loss expenses for claims occurring in the:
Current year	39,742	34,359
Prior years	243,172	178,268
Total paid losses and loss expenses for claims	282,914	212,627
Net reserves for losses and loss expenses, at end of period	1,301,247	1,166,217
Ceded unpaid losses and loss expenses, at end of period	213,977	202,891
Gross unpaid losses and loss expenses, at end of period	1,515,224	1,369,108
Commercial Auto
Incurred losses and loss expenses occurring in the:
Prior years		(11,700)
General Liability
Incurred losses and loss expenses occurring in the:
Prior years	23,200	12,400
Workers' Compensation
Incurred losses and loss expenses occurring in the:
Prior years	(18,700)	(10,800)
Surety Line
Incurred losses and loss expenses occurring in the:
Prior years	$ (2,700)
Commercial Multiple Peril
Incurred losses and loss expenses occurring in the:
Prior years		9,200
Marine Liability
Incurred losses and loss expenses occurring in the:
Prior years		$ (3,100)

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Fair Value Measurements - Assets Measured at Fair Value on a Recurring Basis (Details) - USD ($) $ in Thousands	9 Months Ended	12 Months Ended
	Sep. 30, 2018	Dec. 31, 2018	Sep. 30, 2019
Major categories of assets measured at fair value on a recurring basis
Investments in limited partnership and limited liability companies		$ 53,432	$ 65,322
Transfers from level 1 to level 2		0	0
Transfer from level 2 to level 3		126,500
Recurring
Major categories of assets measured at fair value on a recurring basis
Total fixed income securities		1,693,382	2,025,955
Total assets at fair value		1,746,814	2,091,277
Level 2 | Recurring
Major categories of assets measured at fair value on a recurring basis
Total fixed income securities		1,566,885	1,896,369
Level 3 | Recurring
Major categories of assets measured at fair value on a recurring basis
Total fixed income securities		126,497	129,586
U.S. Treasury securities | Recurring
Major categories of assets measured at fair value on a recurring basis
Total fixed income securities		90,328	73,351
U.S. Treasury securities | Level 2 | Recurring
Major categories of assets measured at fair value on a recurring basis
Total fixed income securities		90,328	73,351
Government agency securities | Recurring
Major categories of assets measured at fair value on a recurring basis
Total fixed income securities			4,846
Government agency securities | Level 2 | Recurring
Major categories of assets measured at fair value on a recurring basis
Total fixed income securities			4,846
Corporate debt securities
Major categories of assets measured at fair value on a recurring basis
Transfer from level 2 to level 3	$ 119,004
Corporate debt securities | Recurring
Major categories of assets measured at fair value on a recurring basis
Total fixed income securities		1,192,430	1,375,782
Corporate debt securities | Level 2 | Recurring
Major categories of assets measured at fair value on a recurring basis
Total fixed income securities		1,065,933	1,246,196
Corporate debt securities | Level 3 | Recurring
Major categories of assets measured at fair value on a recurring basis
Total fixed income securities		126,497	129,586
Municipal debt obligations | Recurring
Major categories of assets measured at fair value on a recurring basis
Total fixed income securities		6,085	14,756
Municipal debt obligations | Level 2 | Recurring
Major categories of assets measured at fair value on a recurring basis
Total fixed income securities		6,085	14,756
ABS | Recurring
Major categories of assets measured at fair value on a recurring basis
Total fixed income securities		83,581	85,216
ABS | Level 2 | Recurring
Major categories of assets measured at fair value on a recurring basis
Total fixed income securities		83,581	85,216
CLO | Recurring
Major categories of assets measured at fair value on a recurring basis
Total fixed income securities		156,913	179,744
CLO | Level 2 | Recurring
Major categories of assets measured at fair value on a recurring basis
Total fixed income securities		156,913	179,744
CMBS | Recurring
Major categories of assets measured at fair value on a recurring basis
Total fixed income securities		53,843	70,360
CMBS | Level 2 | Recurring
Major categories of assets measured at fair value on a recurring basis
Total fixed income securities		53,843	70,360
RMBS - non-agency | Recurring
Major categories of assets measured at fair value on a recurring basis
Total fixed income securities		79,551	74,314
RMBS - non-agency | Level 2 | Recurring
Major categories of assets measured at fair value on a recurring basis
Total fixed income securities		79,551	74,314
RMBS - agency | Recurring
Major categories of assets measured at fair value on a recurring basis
Total fixed income securities		30,651	147,586
RMBS - agency | Level 2 | Recurring
Major categories of assets measured at fair value on a recurring basis
Total fixed income securities		30,651	147,586
Carrying Value | Recurring
Major categories of assets measured at fair value on a recurring basis
Investments in limited partnership and limited liability companies		$ 53,432	$ 65,322

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Investments - Limited Partnerships and Limited Liability Company Investments (Details) - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2019	Dec. 31, 2018
Investments
Investments in limited partnership and limited liability companies	$ 65,322	$ 53,432
Threshold notice period to withdraw funds	90 days
Minimum holding period	1 year
PIMCO Tactical Opportunities Fund
Investments
Investments in limited partnership and limited liability companies	$ 35,200

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Accumulated Other Comprehensive Income (Loss) - Reclassifications Out of AOCI (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018
Unrealized gains on securities, tax	$ 156	$ 278	$ 104	$ 169
Total reclassifications	4,206	29	4,233	1,112
Realized Investment Gains (Losses)
Unrealized gains on securities	4,362	307	4,337	1,281
Income Tax Benefit
Unrealized gains on securities, tax	$ 156	$ 278	$ 104	$ 169

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Fair Value Measurements (Tables)

9 Months Ended

Sep. 30, 2019

Fair Value Measurements

Summary of major categories of assets measured at fair value on a recurring basis

	September 30, 2019
	Quoted Prices in		Significant
	Active Markets		Other		Significant
	for		Observable		Unobservable
	Identical Assets		Inputs		Inputs
($ in thousands)	(Level 1)		(Level 2)		(Level 3)		Total
Fixed income securities:
U.S. Treasury securities	$	—	$	73,351	$	—	$	73,351
Government agency securities		—		4,846		—		4,846
Corporate debt securities		—		1,246,196		129,586		1,375,782
Municipal debt obligations		—		14,756		—		14,756
ABS		—		85,216		—		85,216
CLO		—		179,744		—		179,744
CMBS		—		70,360		—		70,360
RMBS - non agency		—		74,314		—		74,314
RMBS - agency		—		147,586		—		147,586
Total fixed income securities	$	—	$	1,896,369	$	129,586		2,025,955
Investments measured at net asset value:
Limited partnerships and limited liability companies								65,322
Total assets at fair value							$	2,091,277

	December 31, 2018
	Quoted Prices in		Significant
	Active Markets		Other		Significant
	for		Observable		Unobservable
	Identical Assets		Inputs		Inputs
($ in thousands)	(Level 1)		(Level 2)		(Level 3)		Total
Fixed income securities:
U.S. Treasury securities	$	—	$	90,328	$	—	$	90,328
Corporate debt securities		—		1,065,933		126,497		1,192,430
Municipal debt obligations		—		6,085		—		6,085
ABS		—		83,581		—		83,581
CLO		—		156,913		—		156,913
CMBS		—		53,843		—		53,843
RMBS - non agency		—		79,551		—		79,551
RMBS - agency		—		30,651		—		30,651
Total fixed income securities	$	—	$	1,566,885	$	126,497		1,693,382
Investments measured at net asset value:
Limited partnerships and limited liability companies								53,432
Total assets at fair value							$	1,746,814

Summary of carrying value and fair value of financial instruments that are not recognized or are not carried at fair value

	September 30, 2019
	Carrying		Fair Value
($ in thousands)	Value		Total		Level 1		Level 2		Level 3
Assets
Commercial levered loans	$	14,601	$	14,323	$	—	$	—	$	14,323
Liabilities
Notes payable	$	165,000	$	167,736	$	—	$	167,736	$	—
Unamortized debt issuance costs		(391)
Total notes payable	$	164,609

	December 31, 2018
	Carrying		Fair Value
($ in thousands)	Value		Total		Level 1		Level 2		Level 3
Assets
Commercial levered loans	$	16,915	$	15,858	$	—	$	—	$	15,858
Liabilities
Notes payable	$	183,000	$	183,999	$	—	$	183,999	$	—
Unamortized debt issuance costs		(645)
Total notes payable	$	182,355

Summary of the changes in the fair value of securities measured using Level 3 inputs

	Level 3
	Corporate
($ in thousands)	Securities
Fair value, December 31, 2018	$	126,497
Total net gains (losses) for the period included in:
Other comprehensive income		1,514
Net realized loss		(4)
Purchases		4,372
Sales		—
Issuances		—
Settlements		(2,793)
Transfers into Level 3		—
Transfers out of Level 3		—
Fair value, September 30, 2019	$	129,586

	Level 3
	Corporate
($ in thousands)	Securities
Fair value, December 31, 2017	$	—
Total net losses for the period included in:
Other comprehensive loss		(362)
Net realized loss		(9)
Purchases		7,228
Sales		—
Issuances		—
Settlements		(1,333)
Transfers into Level 3		119,004
Transfers out of Level 3		—
Fair value, September 30, 2018	$	124,528

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Debt

9 Months Ended

Sep. 30, 2019

Debt

Debt

11. Debt

On March 15, 2019, the Company entered into an amended and restated revolving loan agreement (as amended, the revolving facility), among other things, (a) extended the maturity date to the earlier of (i) March 15, 2022, or (ii) 91 days before the maturity of the senior notes due November 2020 or, if such senior notes are amended or replaced, 91 days before the maturity of such amendment or replacement and (b) increased the aggregate principal amount of borrowing capacity from $25.0 million to $50.0 million.

On August 8, 2019, the Company used IPO proceeds to repay $18.0 million in outstanding debt under the revolving facility. As of September 30, 2019, the revolving facility had a borrowing capacity of $50.0 million.

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Legal Proceedings

9 Months Ended

Sep. 30, 2019

Legal Proceedings

Legal Proceedings

15. Legal Proceedings

In the normal course of business, the Company’s insurance subsidiaries are subject to disputes, including litigation and arbitration, arising out of the ordinary course of business. The Company’s estimates of the costs of settling such matters are reflected in its reserves for losses and loss expenses, and the Company does not believe that the ultimate outcome of such matters will have a material adverse effect on its financial condition or results of operations.

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Accumulated Other Comprehensive Income (Loss) - Components of AOCI (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018
AOCI Attributable to Parent, Net of Tax
Balance at the beginning of period, gross	$ 34,898	$ (18,740)	$ (29,760)	$ 22,265
Unrealized holding gains (losses) on fixed income securities, gross	11,943	(193)	76,576	(40,224)
Amounts reclassified into net loss, gross	4,362	307	4,337	1,281
Other comprehensive income, gross	7,581	(500)	72,239	(41,505)
Balance at the end of period, gross	42,479	(19,240)	42,479	(19,240)
Balance at the beginning of period, tax	6,054	(5,348)	(7,445)	2,968
Unrealized holding gains (losses) on fixed income securities, tax	2,651	335	16,098	(8,090)
Amounts reclassified into net loss, tax	156	278	104	169
Other comprehensive income, tax	2,495	57	15,994	(8,259)
Balance at the end of period, tax	8,549	(5,291)	8,549	(5,291)
Balance at the beginning of period, net	28,844	(13,392)	(22,315)	19,297
Unrealized holding gains (losses) on fixed income securities	9,292	(528)	60,478	(32,134)
Amounts reclassified into net income	4,206	29	4,233	1,112
Other comprehensive income (loss)	5,086	(557)	56,245	(33,246)
Balance at the end of period, net	$ 33,930	$ (13,949)	$ 33,930	$ (13,949)

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Investments - Other Details (Details) - USD ($) $ in Millions	Sep. 30, 2019	Dec. 31, 2018
Investments
Securities required to be held with various regulatory authorities as required by law	$ 209.1	$ 188.6
Fair value of assets on deposit in collateral agreements	364.6	358.5
Carrying value of assets on deposit in collateral agreements	$ 353.0	$ 368.0

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Investments - Amortized Cost and Fair Value of Fixed Income Securities (Details) $ in Thousands	Sep. 30, 2019 USD ($)
Amortized Cost
Due in one year or less	$ 97,372
Due after one through five years	722,887
Due after five through ten years	514,633
Due after ten years	105,273
Amortized Cost	1,440,165
Fair Value
Due in one year or less	97,585
Due after one through five years	733,382
Due after five through ten years	531,014
Due after ten years	106,754
Fair Value	1,468,735
Amortized Cost - Structured securities	1,985,250
Fair Value - Structured securities	2,025,955
ABS
Fair Value
Amortized Cost - Structured securities	84,227
Fair Value - Structured securities	85,216
CLO
Fair Value
Amortized Cost - Structured securities	181,843
Fair Value - Structured securities	179,744
CMBS
Fair Value
Amortized Cost - Structured securities	67,986
Fair Value - Structured securities	70,360
RMBS - non-agency
Fair Value
Amortized Cost - Structured securities	63,803
Fair Value - Structured securities	74,314
RMBS - agency
Fair Value
Amortized Cost - Structured securities	147,226
Fair Value - Structured securities	$ 147,586

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Segment Information

9 Months Ended

Sep. 30, 2019

Segment Information

Segment Information

12. Segment Information

The following table provides a summary of the Company’s gross written premium by customer segments within our Specialty Insurance reportable segment. Gross written premiums included in “Other” consist: of (i) primary and excess workers’ compensation coverage for Self-Insured Groups; (ii) niches exited prior to 2018, many with a concentration in commercial auto; (iii) fronting arrangements in which all premium written is ceded to a third party; (iv) participation in industry pools; and (v) emerging new business customer segments.

	Three Months Ended September 30						Nine Months Ended September 30
($ in thousands)	2019			2018			2019			2018
Customer Segment
Construction	$	27,296	12.0%	$	22,451	11.1%	$	83,039	11.6%	$	71,979	10.7%
Consumer Services		35,502	15.6%		29,874	14.8%		100,880	14.0%		80,168	11.9%
Marine and Energy		18,151	8.0%		15,433	7.7%		54,930	7.7%		49,579	7.4%
Media and Entertainment		36,788	16.2%		31,590	15.7%		113,630	15.8%		109,821	16.3%
Professional Services		27,015	11.9%		24,750	12.3%		85,681	11.9%		82,254	12.2%
Real Estate		41,566	18.3%		19,477	9.7%		116,915	16.3%		91,507	13.6%
Transportation		38,180	16.8%		33,134	16.5%		95,694	13.3%		83,496	12.4%
Customer Segment subtotal		224,498	98.8%		176,709	87.8%		650,769	90.6%		568,804	84.5%
Other		2,698	1.2%		24,587	12.2%		67,297	9.4%		104,467	15.5%
Specialty Insurance total	$	227,196		$	201,296		$	718,066		$	673,271

The following table provides a summary of the Company’s gross written premium by line of business within our Specialty Insurance segment:

	Three Months Ended September 30						Nine Months Ended September 30
($ in thousands)	2019			2018			2019			2018
Line of Business
Commercial Auto	$	52,693	23.2%	$	41,701	20.7%	$	148,773	20.7%	$	114,403	17.0%
General Liability		84,932	37.4%		58,022	28.9%		239,383	33.4%		203,652	30.3%
Workers’ Compensation		27,242	12.0%		54,858	27.3%		152,225	21.1%		198,906	29.5%
Commercial Multiple Peril		16,276	7.1%		15,266	7.5%		52,950	7.4%		49,338	7.3%
All Other Lines		46,053	20.3%		31,449	15.6%		124,735	17.4%		106,972	15.9%
Specialty Insurance total	$	227,196		$	201,296		$	718,066		$	673,271

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Supplemental Cash Flow (Tables)

9 Months Ended

Sep. 30, 2019

Supplemental Cash Flow

Summary of supplemental cash flow information

	Nine Months Ended September 30
($ in thousands)	2019		2018
Cash paid during the period for:
Interest	$	6,783	$	6,159

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Accumulated Other Comprehensive Income (Loss) (Tables)

9 Months Ended

Sep. 30, 2019

Accumulated Other Comprehensive Income (Loss)

Summary of the components of accumulated other comprehensive income (loss)

($ in thousands)	Gross		Tax		Net
June 30, 2019	$	34,898	$	6,054	$	28,844
Unrealized holding gains on fixed income securities		11,943		2,651		9,292
Amounts reclassified into net income		4,362		156		4,206
Other comprehensive income		7,581		2,495		5,086
September 30, 2019	$	42,479	$	8,549	$	33,930

($ in thousands)	Gross		Tax		Net
June 30, 2018	$	(18,740)	$	(5,348)	$	(13,392)
Unrealized holding losses on fixed income securities		(193)		335		(528)
Amounts reclassified into net income		307		278		29
Other comprehensive loss		(500)		57		(557)
September 30, 2018	$	(19,240)	$	(5,291)	$	(13,949)

($ in thousands)	Gross		Tax		Net
December 31, 2018	$	(29,760)	$	(7,445)	$	(22,315)
Unrealized holding gains on fixed income securities		76,576		16,098		60,478
Amounts reclassified into net income		4,337		104		4,233
Other comprehensive income		72,239		15,994		56,245
September 30, 2019	$	42,479	$	8,549	$	33,930

($ in thousands)	Gross		Tax		Net
December 31, 2017	$	22,265	$	2,968	$	19,297
Unrealized holding losses on fixed income securities		(40,224)		(8,090)		(32,134)
Amounts reclassified into net income		1,281		169		1,112
Other comprehensive loss		(41,505)		(8,259)		(33,246)
September 30, 2018	$	(19,240)	$	(5,291)	$	(13,949)

Summary of reclassifications out of accumulated other comprehensive income (loss)

	Line in Consolidated	Three Months Ended September 30				Nine Months Ended September 30
($ in thousands)	Statements of Operations	2019		2018		2019		2018
AOCI
Unrealized gains on securities	Realized investment gains	$	4,362	$	307	$	4,337	$	1,281
	Income tax expense		156		278		104		169
Total reclassifications	Net realized investment gains	$	4,206	$	29	$	4,233	$	1,112

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Discontinued Operations

9 Months Ended

Sep. 30, 2019

Discontinued Operations

Discontinued Operations

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 an insignificant amount and $0.4 million for the three and nine months ended September 30, 2019, respectively. Net loss for discontinued operations was $0.4 million and net income for discontinued operations was $0.2 million for the three and nine months ended September 30, 2018, respectively.

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:

	September 30,		December 31,
($ in thousands)	2019		2018
Assets
Total cash and investments	$	9,993	$	10,436
Other assets		10,105		9,283
Total assets	$	20,098	$	19,719
Liabilities
Unpaid losses and loss adjustment expenses	$	19,189	$	14,030
Other liabilities		7,747		8,226
Total liabilities	$	26,936	$	22,256

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Related-Party Information

9 Months Ended

Sep. 30, 2019

Related-Party Information

Related-Party Information

8. Related-Party Information

Loans to Executives and Equity Distribution

At December 31, 2018, the Company had $4.2 million in loans to executives. On March 15, 2019, the $4.2 million in loans to executives were repaid. On the same date, a special equity distribution of $4.2 million was made by the Company, which was accounted for as a non-cash transaction on the Company’s consolidated balance sheet.

Transition and Separation Agreement

On May 3, 2019, the Company entered into a Transition and Separation Agreement (the Separation Agreement) with its former Chief Executive Officer (the former CEO). Under the Separation Agreement, the former CEO and the Company agreed to a general release of claims and his compliance with the restrictive covenants.

The Company recorded an expense of $0.4 million and $7.6 million within Other Expense in the consolidated statements of operations for the three and nine months ended September 30, 2019 relating to the severance payments and benefits payable to the former CEO.

Per the terms of the Separation Agreement, the former CEO’s profit interests (P Shares) were forfeited and outstanding RSUs will be treated in accordance with the terms of the applicable award agreements. Additionally, the Company cancelled 137,987 shares of common stock in July 2019 with no consideration as per the terms of the Separation Agreement.

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Investments - Gross Unrealized Gains and Losses on AFS Securities (Details) - USD ($) $ in Thousands	Sep. 30, 2019	Dec. 31, 2018
Gross unrealized gains and losses on AFS securities included in assets
Cost/Amortized Cost	$ 1,985,250	$ 1,729,755
Gross Unrealized Gains	48,666	13,675
Gross Unrealized Losses	(7,961)	(50,048)
Fair Value	2,025,955	1,693,382
U.S. Treasury securities
Gross unrealized gains and losses on AFS securities included in assets
Cost/Amortized Cost	72,175	92,219
Gross Unrealized Gains	1,280	126
Gross Unrealized Losses	(104)	(2,017)
Fair Value	73,351	90,328
Government agency securities
Gross unrealized gains and losses on AFS securities included in assets
Cost/Amortized Cost	4,840
Gross Unrealized Gains	6
Fair Value	4,846
Corporate debt securities
Gross unrealized gains and losses on AFS securities included in assets
Cost/Amortized Cost	1,348,716	1,231,352
Gross Unrealized Gains	31,712	1,216
Gross Unrealized Losses	(4,646)	(40,138)
Fair Value	1,375,782	1,192,430
Municipal debt obligations
Gross unrealized gains and losses on AFS securities included in assets
Cost/Amortized Cost	14,434	6,238
Gross Unrealized Gains	323
Gross Unrealized Losses	(1)	(153)
Fair Value	14,756	6,085
ABS
Gross unrealized gains and losses on AFS securities included in assets
Cost/Amortized Cost	84,227	82,603
Gross Unrealized Gains	1,139	1,095
Gross Unrealized Losses	(150)	(117)
Fair Value	85,216	83,581
CLO
Gross unrealized gains and losses on AFS securities included in assets
Cost/Amortized Cost	181,843	161,421
Gross Unrealized Gains	160	160
Gross Unrealized Losses	(2,259)	(4,668)
Fair Value	179,744	156,913
CMBS
Gross unrealized gains and losses on AFS securities included in assets
Cost/Amortized Cost	67,986	55,980
Gross Unrealized Gains	2,416
Gross Unrealized Losses	(42)	(2,137)
Fair Value	70,360	53,843
RMBS - non-agency
Gross unrealized gains and losses on AFS securities included in assets
Cost/Amortized Cost	63,803	68,594
Gross Unrealized Gains	10,690	11,078
Gross Unrealized Losses	(179)	(121)
Fair Value	74,314	79,551
RMBS - agency
Gross unrealized gains and losses on AFS securities included in assets
Cost/Amortized Cost	147,226	31,348
Gross Unrealized Gains	940
Gross Unrealized Losses	(580)	(697)
Fair Value	$ 147,586	$ 30,651

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Consolidated Statements of Changes in Stockholders’ Equity (Unaudited ) - USD ($) $ in Thousands	Common Stock	Paid-In Capital	Accumulated Other Comprehensive Income (Loss)	Retained Deficit	Treasury Shares	Total
Balance at the beginning of the period at Dec. 31, 2017	$ 387	$ 606,346	$ 19,297	$ (249,847)	$ (200)	$ 375,983
Increase (decrease) in Stockholders' Equity
Stock based employee compensation plan		238				238
New unrealized gain (loss) on investment securities, net of deferred tax expense (benefit)			(21,459)			(21,459)
Net income				10,795		10,795
Balance at the end of the period at Mar. 31, 2018	387	606,584	(2,162)	(239,052)	(200)	365,557
Balance at the beginning of the period at Dec. 31, 2017	387	606,346	19,297	(249,847)	(200)	375,983
Increase (decrease) in Stockholders' Equity
Net income						40,423
Balance at the end of the period at Sep. 30, 2018	387	606,905	(13,949)	(209,424)	(200)	383,719
Balance at the beginning of the period at Mar. 31, 2018	387	606,584	(2,162)	(239,052)	(200)	365,557
Increase (decrease) in Stockholders' Equity
Stock based employee compensation plan		160				160
New unrealized gain (loss) on investment securities, net of deferred tax expense (benefit)			(11,230)			(11,230)
Net income				14,454		14,454
Balance at the end of the period at Jun. 30, 2018	387	606,744	(13,392)	(224,598)	(200)	368,941
Increase (decrease) in Stockholders' Equity
Stock based employee compensation plan		161				161
New unrealized gain (loss) on investment securities, net of deferred tax expense (benefit)			(557)			(557)
Net income				15,174		15,174
Balance at the end of the period at Sep. 30, 2018	387	606,905	(13,949)	(209,424)	(200)	383,719
Balance at the beginning of the period at Dec. 31, 2018	389	607,260	(22,315)	(195,304)	(200)	389,830
Increase (decrease) in Stockholders' Equity
Stock based employee compensation plan		77				77
New unrealized gain (loss) on investment securities, net of deferred tax expense (benefit)			27,752			27,752
Equity distribution		(4,174)				(4,174)
Net income				13,440		13,440
Balance at the end of the period at Mar. 31, 2019	389	603,163	5,437	(181,864)	(200)	426,925
Balance at the beginning of the period at Dec. 31, 2018	389	607,260	(22,315)	(195,304)	(200)	389,830
Increase (decrease) in Stockholders' Equity
Net income						30,370
Balance at the end of the period at Sep. 30, 2019	430	661,357	33,930	(164,934)	(200)	530,583
Balance at the beginning of the period at Mar. 31, 2019	389	603,163	5,437	(181,864)	(200)	426,925
Increase (decrease) in Stockholders' Equity
New unrealized gain (loss) on investment securities, net of deferred tax expense (benefit)			23,407			23,407
Net income				8,618		8,618
Balance at the end of the period at Jun. 30, 2019	389	603,163	28,844	(173,246)	(200)	458,950
Increase (decrease) in Stockholders' Equity
Stock based employee compensation plan		6,785				6,785
New unrealized gain (loss) on investment securities, net of deferred tax expense (benefit)			5,086			5,086
Proceeds from common stock sold in initial public offering, net of offering costs	42	51,557				51,599
Shares cancelled	(1)	1
Retirement of common stock (tax payments on equity compensation)		(149)				(149)
Net income				8,312		8,312
Balance at the end of the period at Sep. 30, 2019	$ 430	$ 661,357	$ 33,930	$ (164,934)	$ (200)	$ 530,583

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Consolidated Balance Sheets (Unaudited) (Parenthetical) - USD ($) $ in Thousands	Sep. 30, 2019	Dec. 31, 2018
Consolidated Balance Sheets
Fixed income securities, available-for-sale, amortized cost	$ 1,985,250	$ 1,729,755
Commercial levered loans, fair value	14,323	15,858
Limited partnerships and limited liability companies, cost	$ 61,015	$ 51,903
Preferred stock, par value	$ 0.01	$ 0.01
Preferred stock, shares authorized	50,000,000	50,000,000
Preferred stock, shares issued	0	0
Preferred stock, shares outstanding	0	0
Common stock, par value	$ 0.01	$ 0.01
Common stock, shares authorized	200,000,000	200,000,000
Common stock, shares issued	43,034,220	38,864,289
Common stock, shares outstanding	43,021,300	38,851,369
Treasury shares, shares	12,920	12,920

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Basis of Reporting - Reorganization (Details) - shares	Jul. 25, 2019	Sep. 30, 2019	Jul. 24, 2019	Dec. 31, 2018
Basis of Reporting
Shares of the Company issued as merger consideration	38,851,369
Percentage of equity interests of the Company issued as merger consideration	100.00%
Conversion ratio of PGHL shares to Company shares	6.46
Common stock, shares authorized		200,000,000	200,000,000	200,000,000
Preferred stock, shares authorized		50,000,000	50,000,000	50,000,000

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Insurance Operations (Tables)

9 Months Ended

Sep. 30, 2019

Insurance Operations

Summary of reinsurance ceded and assumed relating to premiums written, earned premiums and net losses and loss adjustment expenses

	Three Months Ended September 30				Nine Months Ended September 30
($ in thousands)	2019		2018		2019		2018
Written premiums
Direct written premiums	$	226,209	$	200,316	$	715,500	$	668,521
Assumed from other companies		987		980		2,566		4,750
Ceded to other companies		17,722		21,780		88,122		19,368
Net written premiums	$	209,474	$	179,516	$	629,944	$	653,903
Earned premiums
Direct earned premiums	$	229,816	$	212,084	$	683,906	$	623,820
Assumed from other companies		920		1,603		2,794		8,767
Ceded to other companies		28,281		26,579		86,157		94,900
Net earned premiums	$	202,455	$	187,108	$	600,543	$	537,687
Percent of amount assumed to net		0.5%		0.9%		0.5%		1.6%
Losses and loss adjustment expenses incurred
Direct net losses and loss adjustment expenses incurred	$	101,855	$	109,524	$	403,899	$	364,977
Assumed from other companies		29,366		4,440		6,162		(2,238)
Ceded to other companies		4,025		3,988		37,417		40,976
Net losses and loss adjustment expenses incurred	$	127,196	$	109,976	$	372,644	$	321,763

Summary of effects of the termination of Quota Share Arrangements on pre-tax income

	Three Months Ended September 30
($ in thousands)	2019		2018
Ceded written premium	$	6	$	55
Ceded earned premium		—		56
(Increase) reduction to net loss and loss adjustment expenses incurred		(1,632)		874
Reduction (increase) to policy acquisition expenses		1,632		(823)
Reduction to pre-tax income	$	-	$	5

	Nine Months Ended September 30
($ in thousands)	2019		2018
Ceded written premium (return of ceded prepaid)	$	3	$	(68,745)
Ceded earned premium		(3)		14,600
(Increase) reduction to net loss and loss adjustment expenses incurred		(3,839)		9,422
Reduction to policy acquisition expenses		3,837		4,083
(Increase) reduction to pre-tax income	$	(1)	$	1,095

Summary of unpaid losses

	September 30
($ in thousands)	2019		2018
Gross unpaid losses and loss expenses, at beginning of year	$	1,396,812	$	1,258,237
Ceded unpaid losses and loss expenses, at beginning of year		185,295		201,156
Net reserves for losses and loss expenses, at beginning of year		1,211,517		1,057,081
Add:
Incurred losses and loss expenses occurring in the:
Current year		356,926		325,810
Prior years		2,367		(4,047)
Prior years attributable to adjusted premium		13,351		—
Total incurred losses and loss expenses		372,644		321,763
Less:
Paid losses and loss expenses for claims occurring in the:
Current year		39,742		34,359
Prior years		243,172		178,268
Total paid losses and loss expenses for claims		282,914		212,627
Net reserves for losses and loss expenses, at end of period		1,301,247		1,166,217
Ceded unpaid losses and loss expenses, at end of period		213,977		202,891
Gross unpaid losses and loss expenses, at end of period	$	1,515,224	$	1,369,108

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Insurance Operations - Reinsurance Ceded and Assumed (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018
Written premiums
Direct written premiums	$ 226,209	$ 200,316	$ 715,500	$ 668,521
Assumed from other companies	987	980	2,566	4,750
Ceded to other companies	17,722	21,780	88,122	19,368
Net written premiums	209,474	179,516	629,944	653,903
Earned premiums
Direct earned premiums	229,816	212,084	683,906	623,820
Assumed from other companies	920	1,603	2,794	8,767
Ceded to other companies	28,281	26,579	86,157	94,900
Net premiums earned	$ 202,455	$ 187,108	$ 600,543	$ 537,687
Percent of amount assumed to net	0.50%	0.90%	0.50%	1.60%
Losses and loss adjustment expenses incurred
Direct net losses and loss adjustment expenses incurred	$ 101,855	$ 109,524	$ 403,899	$ 364,977
Assumed from other companies	29,366	4,440	6,162	(2,238)
Ceded to other companies	4,025	3,988	37,417	40,976
Net losses and loss adjustment expenses incurred	$ 127,196	$ 109,976	$ 372,644	$ 321,763

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Income Taxes (Details) - subsidiary	3 Months Ended		9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018
Number of foreign subsidiaries			1
Effective income tax rate	19.40%	19.60%	21.20%	20.00%
PSGH | Bermuda
Statutory income tax rate			0.00%	0.00%

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Share-Based Compensation - 2019 Equity Incentive Plan (Details) - USD ($) $ in Thousands		3 Months Ended		9 Months Ended
	Jul. 25, 2019	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018	Jul. 24, 2019
Share-based Compensation
Share-based compensation expense		$ 6,785	$ 161	$ 6,862	$ 559
Restricted stock units
Share-based Compensation
Restricted stock unit awards granted				1,725,429
2019 Equity Incentive Plan
Share-based Compensation
Number of common stock authorized						4,500,000
Number of common shares reserved for issuance						4,500,000
2019 Equity Incentive Plan | Long-term Equity Incentive Plan Awards (RSUs)
Share-based Compensation
Restricted stock unit awards granted	181,118
Grant date fair value	$ 2,500
2019 Equity Incentive Plan | LTIP Time Vesting RSUs
Share-based Compensation
Restricted stock unit awards granted	90,559
2019 Equity Incentive Plan | LTIP Time Vesting RSUs | At One Year
Share-based Compensation
Vesting percentage	33.33%
2019 Equity Incentive Plan | LTIP Time Vesting RSUs | At Two Years
Share-based Compensation
Vesting percentage	33.33%
2019 Equity Incentive Plan | LTIP Time Vesting RSUs | At Three Years
Share-based Compensation
Vesting percentage	33.33%
2019 Equity Incentive Plan | LTIP Performance Vesting RSUs
Share-based Compensation
Restricted stock unit awards granted	90,559
Cliff vesting period	3 years
2019 Equity Incentive Plan | Supplemental RSUs
Share-based Compensation
Restricted stock unit awards granted	1,267,912
Percentage of time-vesting awards	100.00%
Grant date fair value	$ 17,800
2019 Equity Incentive Plan | Supplemental RSUs | At Grant Date
Share-based Compensation
Vesting percentage	25.00%
2019 Equity Incentive Plan | Supplemental RSUs | At Two Years
Share-based Compensation
Vesting percentage	25.00%
2019 Equity Incentive Plan | Supplemental RSUs | At Three Years
Share-based Compensation
Vesting percentage	50.00%
2019 Equity Incentive Plan | Founders Grant RSUs
Share-based Compensation
Restricted stock unit awards granted	250,000
Grant date fair value	$ 3,500
Cliff vesting period	3 years
2019 Equity Incentive Plan | Director RSUs
Share-based Compensation
Restricted stock unit awards granted	26,399
Grant date fair value	$ 400
2010 Equity Incentive Plan | Restricted stock units
Share-based Compensation
Number of RSUs converted into RSUs based on common stock upon merger	668,170