IPO Preview: Trean Insurance Group Starts IPO Rollout


Trean Insurance Group (TIG) intends to raise $100 million in an IPO of its common stock, according to an S-1 registration statement.

The firm provides specialty casualty insurance coverage services for companies within the U.S.

TIG has produced increasing topline revenue and operating profit, but other ratios have fared less impressively.

I’ll provide an update when we learn more about the IPO from management.

Wayzata, Minnesota-based Trean was founded to offer specialty casualty insurance coverage to small and mid-sized businesses, primarily workers' compensation insurance.

Workers' comp provided 82.8% of the firm’s gross written premiums for the year ended December 31, 2019.

Management is led by founder, president and CEO Mr. Andrew O'Brien, who was previously EVP at the E.W. Blanch Company and has held senior positions at other insurance industry firms prior to that.

Below is a brief overview video of casualty insurance:

Source: The Audiopedia

The company’s primary offerings are sold through:

  • Program Partners - other organizations
  • Owned MGAs - owned managing general agencies

Trean has received at least $96.5 million from investors including Altaris Funds and Blake Enterprises

The firm acquires new customer by two means, working through unrelated third parties (Program Partners) and through its owned managing general agencies [MGSs]

In specialty insurance markets, companies such as Trean tend to rely on specialist distributors and wholesale brokers.

This serves to reduce infrastructure and personnel costs by limiting the number of companies the firm interacts with.

G&A expenses as a percentage of total revenue have been rising as revenues have increased.

The G&A efficiency rate, defined as how many dollars of additional new revenue are generated by each dollar of G&A spend, was 1.0x in the most recent reporting period.

According to a 2019 market research report gleaned from Fitch Ratings, the 2020 property & casualty insurance market in the U.S. was expected to see 4.4% written premium growth on a direct basis and 3.9% net.

The report, which was prepared before the onset of the Covid19 pandemic, expected pricing growth to 'modestly outpace loss costs in 2020, contributing to the slight improvement in underwriting results.'

The report suggested that rate hikes would continue for 'the next year or two' for most lines.

Also, a report by Willis Towers Watson said it expected price increases to continue, but 'a more orderly market to emerge by mid-2020, especially for property.'

Needless to say, the Covid19 pandemic has likely thrown a wrench into those expectations for continued price hikes, especially in the hospitality, healthcare and education sectors where the majority of layoffs have occurred.

Major competitive or other industry participants include:

  • State National Companies
  • AF Group

Management says it hasn't seen 'a significant impact in our reported claims or incurred losses in the first quarter of 2020 relating to the Covid-19 pandemic.'

However, most observers believe the second quarter of 2020 (and beyond) is when the real economic pain will begin hitting the U.S. economy.

Trean’s recent financial results can be summarized as follows:

  • Growing topline revenue
  • Increasing operating income and margin
  • Uneven net income
  • Decreasing cash flow from operations

Below are relevant financial results derived from the firm’s registration statement:


Source: Company registration statement

As of March 31, 2020, Trean had $73.8 million in cash and $799.3 million in total liabilities.

Free cash flow during the twelve months ended March 31, 2020, was $49.4 million.

Trean intends to raise $100 million in gross proceeds from an IPO of its common stock, although the final amount may differ.

Management says it will use the net proceeds from the IPO to buy back preferred stock, pay down debt and for general corporate purposes.

Management’s presentation of the company roadshow is not available.

Listed bookrunners of the IPO are J.P. Morgan, Evercore ISI, William Blair and JMP Securities.


Trean is seeking public market capital investment to finance its expansion plans and pay down debt and preferred stock.

The firm’s financials indicate its topline revenue growth is accelerating and its operating margin is growing.

Cash flow from operations has declined in recent years but the firm is still producing significant free cash flow.

G&A expenses as a percentage of total revenue have risen as revenues have grown.

The market opportunity for specialty casualty insurers is in a state of flux over the near term as the Covid19 pandemic scrambles assumptions.

Management said its activities have been minimally impacted by the pandemic as the firm has avoided the industries most hard-hit by the pandemic.

Below are various underwriting and other relevant ratios:


Source: Company registration statement

The company’s overall loss and expense ratios have trended upward, while its adjusted return on equity has fluctuated significantly, producing its lowest result in the most recent quarter.

J.P. Morgan is the lead left underwriter and IPOs led by the firm over the last 12-month period have generated an average return of 75.4% since their IPO. This is a top-tier performance for all major underwriters during the period.

When we learn more about the IPO’s pricing and valuation assumptions, perhaps with Q2 2020’s financials, I’ll provide a final opinion.

Expected IPO Pricing Date: To be announced.

Glossary Of Terms

(I have no position in any stocks mentioned as of the article date, no plans to initiate any positions within the next 48 hours, and no business relationship with any company whose stock is mentioned in this article. IPO stocks can be very volatile in the days immediately after an IPO. Information provided is for educational purposes only, may be incomplete or out of date, and does not constitute financial, legal, or investment advice.)


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