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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended June 30, 2021

OR

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

For the transition period from           to

Commission file number 001-38996

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 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 43,788,499 shares of Common Stock ($0.01 par value) outstanding as of August 3, 2021.

PROSIGHT GLOBAL, INC. AND SUBSIDIARIES

TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION

Page

Item 1.

Financial Statements

Consolidated Balance Sheets (Unaudited) as of June 30, 2021 and December 31, 2020

2

Consolidated Statements of Operations (Unaudited) for the Three and Six Months Ended June 30, 2021 and 2020

3

Consolidated Statements of Comprehensive Income (Loss) (Unaudited) for the Three and Six Months Ended June 30, 2021 and 2020

4

Consolidated Statements of Changes in Stockholders' Equity (Unaudited) for the Three and Six Months Ended June 30, 2021 and 2020

5

Consolidated Statements of Cash Flows (Unaudited) for the Six Months Ended June 30, 2021 and 2020

6

Notes to Interim Consolidated Financial Statements (Unaudited)

7

Item 2.

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

29

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

50

Item 4.

Controls and Procedures

50

PART II. OTHER INFORMATION

Item 1.

Legal Proceedings

51

Item 1A.

Risk Factors

51

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

51

Item 3.

Defaults Upon Senior Securities

51

Item 4.

Mine Safety Disclosures

51

Item 5.

Other Information

51

Item 6.

Exhibits

52

Signatures

53

1

ProSight Global, Inc. and Subsidiaries

Consolidated Balance Sheets (Unaudited)

    

June 30, 

    

December 31, 

($ in thousands except share amounts)

2021

2020

Assets

 

  

 

Investments:

 

  

 

  

Fixed maturity securities, available-for-sale at fair value (amortized cost $1,651,797 in 2021 and $2,159,743 in 2020, allowance for credit losses $(1,011) in 2021 and $(1,457) in 2020)

 

$

1,686,570

$

2,266,057

Commercial levered loans at amortized cost (fair value $5,269 in 2021 and $12,180 in 2020)

 

 

5,299

 

12,308

Non-redeemable preferred stock securities at fair value (cost $1,400 in 2021 and $6,541 in 2020)

1,400

7,049

Bond exchange-traded funds at fair value (cost $0 in 2021 and $44,679 in 2020)

44,882

Limited partnerships and limited liability companies at fair value (cost $72,814 in 2021 and $74,268 in 2020)

 

 

97,150

 

90,468

Short-term investments

 

 

18,833

 

154

Total investments

 

 

1,809,252

 

2,420,918

Cash and cash equivalents

 

 

652,374

 

12,078

Restricted cash

 

24,502

 

7,525

Accrued investment income

 

 

9,659

 

13,693

Premiums and other receivables, net

 

 

131,145

 

146,243

Receivable from reinsurers on paid losses, net

 

 

11,167

 

10,481

Reinsurance receivables on unpaid losses, net

 

 

152,075

 

170,522

Deferred policy acquisition costs

 

 

98,424

 

94,437

Prepaid reinsurance premiums

 

 

46,624

 

56,787

Goodwill and net intangible assets

 

 

17,233

 

17,248

Fixed assets and capitalized software, net

 

 

31,798

 

33,896

Funds withheld related to sale of affiliate

 

 

19,532

 

19,534

Other assets

 

 

16,008

 

25,996

Assets of discontinued operations

 

 

22,709

 

21,354

Total assets

 

$

3,042,502

$

3,050,712

Liabilities

 

 

 

  

Reserve for unpaid losses and loss adjustment expenses

 

$

1,598,934

$

1,602,902

Reserve for unearned premiums

 

 

450,278

 

448,676

Ceded reinsurance payable

 

 

23,429

 

38,152

Notes payable, net of debt issuance costs

 

 

204,029

 

203,267

Secured loan payable, net of debt issuance costs

20,773

22,668

Funds held under reinsurance agreements

 

 

19,099

 

23,179

Net deferred income taxes

1,669

10,137

Other liabilities

 

 

59,191

 

40,034

Liabilities of discontinued operations

 

 

44,115

 

37,729

Total liabilities

 

 

2,421,517

 

2,426,744

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; 43,632,764 and 43,449,087 shares issued, 43,619,844 and 43,436,167 shares outstanding in 2021 and 2020, respectively

 

 

436

 

434

Paid-in capital

 

 

672,105

 

668,798

Accumulated other comprehensive income

 

 

31,103

 

89,122

Retained deficit

 

 

(82,459)

 

(134,186)

Treasury shares - at cost (12,920 shares)

 

 

(200)

 

(200)

Total stockholders’ equity

 

 

620,985

 

623,968

Total liabilities and stockholders’ equity

 

$

3,042,502

$

3,050,712

See accompanying notes to interim consolidated financial statements (unaudited)

2

ProSight Global, Inc. and Subsidiaries

Consolidated Statements of Operations (Unaudited)

Three Months Ended June 30

Six Months Ended June 30

($ in thousands except per share amounts)

    

2021

    

2020

    

2021

    

2020

Gross written premiums

$

238,522

$

186,394

$

407,913

400,178

Net earned premiums

 

178,897

 

181,629

 

351,868

387,291

Net investment income

 

14,581

 

23,791

 

31,260

32,606

Realized investment gains, net

 

15,784

 

1,891

 

48,892

2,123

Other income

 

45

 

101

 

117

213

Total revenues

 

209,307

 

207,412

 

432,137

422,233

Expenses:

 

 

  

 

Net losses and loss adjustment expenses incurred

 

114,400

 

112,473

 

219,923

240,030

Policy acquisition expenses

 

43,696

 

42,033

 

86,055

89,019

General and administrative expenses

 

24,457

 

26,415

 

47,456

53,052

Interest expense

 

2,666

 

3,067

 

5,324

6,172

Other expense

1,339

1,390

2,656

3,127

Total expenses

 

186,558

 

185,378

 

361,414

391,400

Income from continuing operations before income taxes

 

22,749

 

22,034

 

70,723

30,833

Income tax provision:

 

 

  

 

Current

 

2,619

 

4,116

 

8,465

5,747

Deferred

 

2,068

 

635

 

6,649

992

Total income tax expense

 

4,687

 

4,751

 

15,114

6,739

Net income from continuing operations

 

18,062

 

17,283

 

55,609

24,094

Discontinued operations:

 

 

  

 

Net (loss) income from discontinued operations

 

(1,544)

 

279

 

(3,882)

536

Net income

$

16,518

$

17,562

$

51,727

24,630

Earnings per share – basic:

 

 

  

 

Net income from continuing operations

$

0.41

$

0.39

$

1.27

$

0.55

Net income

$

0.38

$

0.40

$

1.18

$

0.56

Earnings per share – diluted:

 

 

  

 

 

Net income from continuing operations

$

0.40

$

0.39

$

1.24

$

0.55

Net income

$

0.37

$

0.40

$

1.16

$

0.56

See accompanying notes to interim consolidated financial statements (unaudited)

3

ProSight Global, Inc. and Subsidiaries

Consolidated Statements of Comprehensive Income (Loss) (Unaudited)

Three Months Ended June 30

Six Months Ended June 30

($ in thousands)

    

2021

    

2020

    

2021

    

2020

Net income

$

16,518

$

17,562

$

51,727

$

24,630

Other comprehensive (loss) income, net of taxes:

 

 

  

 

Change in unrealized holding gains (losses) on available-for-sale debt securities, net of deferred tax expense (benefit) of $3,206 and $(4,849) in 2021 and $20,851 and $4,749 in 2020

 

12,069

78,456

 

(18,199)

 

17,492

Less: reclassification adjustment for gains included in net income, net of tax expense of $3,310 and $10,174 in 2021 and $726 and $862 in 2020

 

13,232

2,952

 

39,468

 

3,758

Less: reclassification adjustment for credit losses included in net income, net of tax expense (benefit) of $5 and $94 in 2021 and $(330) and $(417) in 2020

18

(1,240)

352

(1,569)

Other comprehensive (loss) income

 

(1,181)

76,744

 

(58,019)

 

15,303

Comprehensive income (loss)

$

15,337

$

94,306

$

(6,292)

$

39,933

See accompanying notes to interim consolidated financial statements (unaudited)

4

ProSight Global, Inc. and Subsidiaries

Consolidated Statements of Changes in Stockholders’ Equity (Unaudited)

    

    

    

    

Accumulated

    

    

    

Preferred

Common

Paid-In

Other Comprehensive

Retained

Treasury

($ in thousands)

Stock

Stock

Capital

Income (Loss)

Deficit

Shares

Total

December 31, 2019

$

$

431

$

661,761

$

37,453

$

(156,414)

$

(200)

$

543,031

Stock based employee compensation plan

 

2

 

1,754

 

 

 

 

1,756

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

 

 

 

(61,441)

 

 

 

(61,441)

Retirement of common stock (tax payments on equity compensation)

(2,263)

(2,263)

Payments related to offering costs

(49)

(49)

Net income

7,068

7,068

March 31, 2020

$

$

433

$

661,203

$

(23,988)

$

(149,346)

$

(200)

$

488,102

Stock based employee compensation plan

3,057

3,057

Net unrealized gain on available-for-sale debt securities, net of deferred tax expense of $20,455

76,744

76,744

Tax benefit on payments related to offering costs

635

635

Net income

17,562

17,562

June 30, 2020

$

$

433

$

664,895

$

52,756

$

(131,784)

$

(200)

$

586,100

December 31, 2020

$

$

434

$

668,798

$

89,122

$

(134,186)

$

(200)

$

623,968

Stock based employee compensation plan

2

1,918

1,920

Share purchase plan

60

60

Net unrealized loss on available-for-sale debt securities, net of deferred tax benefit of $(15,008)

(56,838)

(56,838)

Retirement of common stock (tax payments on equity compensation)

(655)

(655)

Net income

35,209

35,209

March 31, 2021

$

$

436

$

670,121

$

32,284

$

(98,977)

$

(200)

$

603,664

Stock based employee compensation plan

1,984

1,984

Net unrealized loss on available-for-sale debt securities, net of deferred tax benefit of $(109)

(1,181)

(1,181)

Net income

16,518

16,518

June 30, 2021

$

$

436

$

672,105

$

31,103

$

(82,459)

$

(200)

$

620,985

See accompanying notes to interim consolidated financial statements (unaudited)

5

ProSight Global, Inc. and Subsidiaries

Consolidated Statements of Cash Flows (Unaudited)

Six Months Ended June 30

($ in thousands)

    

2021

    

2020

Operating activities

 

  

 

  

Net income from continuing operations

$

55,609

 

$

24,094

Net (loss) income from discontinued operations

 

(3,882)

 

 

536

Net income

 

51,727

 

 

24,630

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

 

  

 

 

  

Provision for deferred taxes

 

6,649

 

 

992

Realized investment gains, net

 

(48,892)

 

 

(2,123)

Net limited partnerships and limited liability companies gains

 

(8,100)

 

 

(1,254)

Net amortization from bonds and commercial loans

 

1,157

 

 

1,808

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

22

(115)

Net change in fair value of bond exchange-traded funds

1,511

Depreciation and amortization

 

4,487

 

 

4,186

Amortization of debt issuance costs

858

169

Stock based compensation

 

3,904

 

 

4,813

Changes in:

 

 

 

Premiums and other receivables, net

 

15,098

 

 

46,485

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

 

17,761

 

 

53,509

Ceded reinsurance payable

 

(14,723)

 

 

2,556

Accrued investment income

 

4,034

 

 

(509)

Deferred policy acquisition costs

 

(3,987)

 

 

4,225

Prepaid reinsurance premiums

 

10,163

 

 

(4,976)

Reserve for unpaid losses and loss adjustment expenses

 

(3,968)

 

 

22,475

Reserve for unearned premiums

 

1,602

 

 

(32,289)

Funds withheld related to sale of affiliate

 

2

 

 

(76)

Funds held under reinsurance agreements

 

(4,080)

 

 

(35,997)

Other assets

9,901

(4,465)

Other liabilities

 

19,157

 

 

10,324

Total adjustments

 

12,556

 

 

69,738

Net cash provided by operating activities – continuing operations

 

68,165

 

 

93,832

Net cash provided by operating activities – discontinued operations

 

68

 

 

115

Net cash provided by operating activities

 

68,233

 

 

93,947

Investing activities

 

  

 

  

Purchases of available-for-sale fixed maturity securities

 

(652,395)

(408,224)

Sales of available-for-sale fixed maturity securities

 

1,025,174

194,904

Redemptions of available-for-sale fixed maturity securities

 

182,428

111,877

Purchases of non-redeemable preferred stock securities

(11,669)

Sales of non-redeemable preferred stock securities

5,627

Redemptions of commercial levered loans

 

7,026

608

Sales of bond exchange-traded funds

43,371

Purchases of limited partnerships

 

(2,035)

(13,651)

Distributions and redemptions from limited partnerships

 

3,453

1,847

Purchases of short-term investments

 

(161,382)

(34,955)

Sales of short-term investments

 

142,714

78,485

Acquisition of fixed assets and capitalized software

 

(2,373)

(2,634)

Net cash provided by (used in) investing activities – continuing operations

 

591,608

 

(83,412)

Net cash provided by investing activities – discontinued operations

 

1,599

 

634

Net cash provided by (used in) investing activities

 

593,207

 

(82,778)

Financing activities

 

  

 

  

Payments related to offering costs

(49)

Tax withholding on stock compensation awards

(655)

(2,263)

Proceeds from stock purchase plan

60

Proceeds from secured loan payable

24,997

Repayment of secured loan payable

(1,905)

Net cash (used in) provided by financing activities

 

(2,500)

 

22,685

Net change in cash and cash equivalents

 

658,940

 

33,854

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

 

19,603

27,497

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

 

1,779

255

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

 

(3,446)

(1,003)

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

$

676,876

 

$

60,603

See accompanying notes to interim consolidated financial statements (unaudited)

6

Table of Contents

ProSight Global, Inc. and Subsidiaries

Notes to Interim Consolidated Financial Statements (Unaudited)

1. Basis of Reporting

The accompanying unaudited interim consolidated financial statements of ProSight Global, Inc. and its subsidiaries (the “Company”) have been prepared in conformity with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and do not contain all of the information and footnotes required by U.S. GAAP for complete financial statements. The unaudited interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the related notes thereto included in the Company’s 2020 Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on February 23, 2021. 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.

Effective August 4, 2021, the Company completed its previously announced merger with Pedal Merger Sub, Inc. (“Merger Sub”), pursuant to the agreement and plan of merger (the “Merger Agreement”) by and among Pedal Parent Inc. (“Parent”), owned by affiliates of TowerBrook Capital Partners L.P. and Further Global Capital Management, and Merger Sub. Pursuant to the Merger Agreement, Merger Sub merged with and into the Company (the “merger”), with the Company surviving as a wholly owned subsidiary of Parent.

Pursuant to the Merger Agreement, each ProSight common share held by our stockholders converted into the right to receive $12.85 in cash, without interest. In connection with the merger, the Company executed an adverse development cover and loss portfolio transfer transaction with Cavello Bay Reinsurance Limited.

In connection with the merger, all outstanding obligations in respect of principal, interest and fees under the Credit Agreement, dated as of June 12, 2020, (the “Credit Agreement”) were repaid and all commitments under the Credit Agreement were terminated. Simultaneously with the consummation of the merger and the termination of the Credit Agreement, the Company entered into a credit agreement with third-party lenders and an administrative agent dated August 4, 2021, with terms that were materially similar to the Credit Agreement.

Use of Estimates

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

2. Recently Adopted Accounting Standards

Accounting Guidance Adopted

In August 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2018-15, Intangibles - Goodwill and Other - Internal-Use Software: Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract (“ASU 2016-15”). ASU 2018-15 aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. ASU 2018-15 provides the option to apply prospectively to costs for activities performed on or after the date that the entity first adopts or retrospectively in accordance with guidance on accounting changes. The Company adopted ASU 2018-15 as of January 1, 2021 and elected to apply the adopted guidance prospectively to all implementation costs incurred after the adoption date. The Company’s adoption of this guidance did not have a material impact on the Company’s financial condition or results of operations.

7

Table of Contents

ProSight Global, Inc. and Subsidiaries

Notes to Interim Consolidated Financial Statements (Unaudited)

Accounting Guidance Not Yet Adopted

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

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

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848) – Facilitation of the Effects of Reference Rate Reform on Financial Reporting (“ASU 2020-04”), which provides optional expedients and exceptions to the guidance in GAAP on contract modifications and hedge accounting to ease the financial reporting burdens related to the expected market transition away from the London Interbank Offered Rate ("LIBOR") and other interbank offered rates to alternative reference rates. Companies can elect to adopt ASU 2020-04 as of the beginning of the interim period that includes March 2020, or any date thereafter through December 31, 2022. The Company is currently evaluating the impact of this guidance on its financial condition and results of operations.

8

Table of Contents

ProSight Global, Inc. and Subsidiaries

Notes to Interim Consolidated Financial Statements (Unaudited)

3. Supplemental Cash Flow

The following table represents the supplemental cash flow information for the six months ended June 30, 2021 and 2020:

Six Months Ended June 30

($ in thousands)

    

2021

    

2020

Cash paid during the period for:

 

  

 

  

Interest

$

4,385

$

6,187

Federal income tax

$

5,850

$

Non-cash activity:

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

$

1,461

$

4,117

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

$

1,987

$

2,174

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

$

1,665

$

4,624

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

$

2,274

$

2,526

Tax benefit on payments related to offering costs

$

$

635

For the six months ended June 30, 2021, the Company withheld 50,926 shares of common stock from employees related to tax liabilities incurred upon the settlement of vested restricted stock units (“RSUs”). The number of shares of common stock issued, upon the settlement of vested RSUs net of tax withholding, was 183,677.

4. Discontinued Operations

In March 2017, the Company announced its exit from the United Kingdom (“U.K.”) insurance market. The financial results and subsequent expenses directly attributable to U.K. operations are included in the Company’s financial statements and classified within discontinued operations for all periods presented. Net loss from discontinued operations was $1.5 million and $3.9 million for the three and six months ended June 30, 2021. Net income from discontinued operations was $0.3 million and $0.5 million for the three and six months ended June 30, 2020.

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

    

June 30, 

    

December 31, 

($ in thousands)

2021

2020

Assets

Cash and investments

$

11,032

$

10,939

Other assets

 

11,677

 

10,415

Total assets

$

22,709

$

21,354

Liabilities

 

  

 

  

Reserve for unpaid losses and loss adjustment expenses

$

38,668

$

32,414

Other liabilities

 

5,447

 

5,315

Total liabilities

$

44,115

$

37,729

5. Investments

The Company’s investment portfolio consists of fixed maturity securities, commercial levered loans, limited partnerships and limited liability companies, non-redeemable preferred stock securities, bond exchange-traded funds, and short-term investments. Fixed maturity securities may include U.S. Treasury securities, government agency securities, municipal debt obligations, residential mortgage-backed securities (“RMBS”), commercial mortgage-backed securities (“CMBS”), collateralized loan obligations (“CLO”), asset-backed securities (“ABS”) and corporate debt securities.

9

Table of Contents

ProSight Global, Inc. and Subsidiaries

Notes to Interim Consolidated Financial Statements (Unaudited)

Corporate debt securities may include investment grade and below investment grade bonds, bank loan investments and redeemable preferred stock securities. The Company has designated its investments in fixed maturity securities as available-for-sale (“AFS”) securities.

(a) The gross unrealized gains and losses on fixed maturity securities included in assets from continuing operations at June 30, 2021, are as follows:

    

Cost/

Gross

    

Gross

Amortized

Credit Loss

Unrealized

Unrealized

Fair

($ in thousands)

Cost

Allowance

Gains

Losses

Value

Fixed maturity securities:

U.S. Treasury securities

 

$

45,555

$

$

1,269

 

$

(28)

$

46,796

Government agency securities

19,935

148

(171)

19,912

Corporate debt securities

 

1,026,771

(508)

 

38,803

 

(12,676)

 

1,052,390

Municipal debt obligations

 

144,356

 

3,100

 

(435)

 

147,021

ABS

 

64,590

 

505

 

(200)

 

64,895

CLO

 

90,942

 

60

(427)

 

90,575

CMBS

 

53,219

 

1,570

 

(217)

 

54,572

RMBS - non-agency

 

89,432

(503)

 

5,262

 

(474)

 

93,717

RMBS - agency

 

116,997

 

808

 

(1,113)

 

116,692

Total fixed maturity securities

$

1,651,797

$

(1,011)

$

51,525

$

(15,741)

$

1,686,570

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

    

Cost/

    

Gross

    

Gross

Amortized

Credit Loss

Unrealized

Unrealized

Fair

($ in thousands)

Cost

Allowance

Gains

Losses

Value

Fixed maturity securities:

U.S. Treasury securities

 

$

50,248

$

 

$

1,909

 

$

$

52,157

Government agency securities

30,446

561

31,007

Corporate debt securities

 

1,317,667

(598)

 

 

86,447

 

(6,485)

1,397,031

Municipal debt obligations

 

198,773

 

 

8,437

 

(116)

207,094

ABS

 

54,989

 

 

696

 

(427)

55,258

CLO

 

140,615

 

 

154

 

(1,643)

139,126

CMBS

 

111,313

 

 

7,008

 

(361)

117,960

RMBS - non-agency

 

109,110

(859)

 

 

8,619

 

(734)

116,136

RMBS - agency

 

146,582

 

 

3,721

 

(15)

150,288

Total fixed maturity securities

$

2,159,743

$

(1,457)

$

117,552

$

(9,781)

$

2,266,057

10

Table of Contents

ProSight Global, Inc. and Subsidiaries

Notes to Interim Consolidated Financial Statements (Unaudited)

(b) The following table summarizes the fair values and gross unrealized losses for fixed maturity securities in an unrealized loss position at June 30, 2021, grouped by asset class and by duration of time in a continuous unrealized 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

 

$

23,079

$

(28)

 

$

 

$

23,079

 

$

(28)

Government agency securities

 

11,949

(171)

11,949

(171)

Corporate debt securities

 

193,335

(3,096)

 

88,194

(9,580)

 

281,529

 

(12,676)

Municipal debt obligations

 

48,243

 

(431)

 

2,162

(4)

 

50,405

 

(435)

ABS

 

25,627

 

(136)

 

6,421

(64)

 

32,048

 

(200)

CLO

 

7,596

 

(17)

 

41,476

(410)

 

49,072

 

(427)

CMBS

 

12,138

 

(202)

 

4,695

(15)

 

16,833

 

(217)

RMBS - non-agency

 

15,300

 

(210)

 

5,821

(264)

 

21,121

 

(474)

RMBS - agency

 

82,760

 

(1,113)

 

 

82,760

 

(1,113)

Total fixed maturity securities

 

$

420,027

$

(5,404)

$

148,769

$

(10,337)

$

568,796

$

(15,741)

The following table summarizes the fair values and gross unrealized losses for fixed maturity securities in an unrealized loss position at December 31, 2020, grouped by asset class and by duration of time in a continuous unrealized 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

Corporate debt securities

$

36,450

$

(740)

 

$

101,628

 

$

(5,745)

 

$

138,078

 

$

(6,485)

Municipal debt obligations

 

12,211

 

(73)

 

3,344

 

(43)

 

15,555

 

(116)

ABS

 

9,121

 

(364)

 

9,461

 

(63)

 

18,582

 

(427)

CLO

 

29,909

 

(215)

 

82,758

 

(1,428)

 

112,667

 

(1,643)

CMBS

 

17,559

 

(348)

 

800

 

(13)

 

18,359

 

(361)

RMBS - non-agency

 

11,759

 

(249)

 

6,723

 

(485)

 

18,482

 

(734)

RMBS - agency

 

2,467

 

(15)

 

 

 

2,467

 

(15)

Total fixed maturity securities

$

119,476

$

(2,004)

$

204,714

$

(7,777)

$

324,190

$

(9,781)

(c) The Company was holding 360 and 212 fixed maturity securities that were in an unrealized loss position as of June 30, 2021 and December 31, 2020, respectively. The Company does not intend to sell the investments and it is not more likely than not that the Company will be required to sell the investments before recovery of their amortized cost bases, which may be maturity.

The Company analyzes fixed maturity securities in an unrealized loss position for credit losses if they meet the following criteria: (i) they are trading in a significant loss position, (ii) failure of the issuer of the security to make scheduled interest or principal payments, (iii) there have been negative credit events with respect to the issuer, or (iv) there have been negative current events surrounding an issuer or the environment in which an issuer operates.

For fixed maturity securities in an unrealized loss position that require a credit loss analysis, the Company estimates a present value of expected cash flows. If the results of the cash flow analysis indicate that the Company will not recover the full amount of its amortized cost basis, the Company records a credit loss for the excess of amortized cost over the present value of expected cash flows, not to exceed the unrealized loss. Changes in the credit loss allowance are recognized through realized investment gains, net on the consolidated statements of operations. The credit loss allowance benefit for fixed maturity securities was $0.0 million and $0.4 million for the three and six months ended June 30, 2021, respectively. The credit loss allowance expense for fixed maturity securities was $1.6 million and $2.0 million for the three and six months ended June 30, 2020, respectively.

11

Table of Contents

ProSight Global, Inc. and Subsidiaries

Notes to Interim Consolidated Financial Statements (Unaudited)

The following table is a rollforward of the credit loss allowance for fixed maturity securities:

December 31,

Additions

Reduction

Reduction

Change in Securities

June 30,

($ in thousands)

2020

New Securities

Sales

Intent to Sell