Joining on the webcast. We appreciate you. My name is Joe Noyons. I'm with Three Part Advisors. Up next, we have one of our investor relations clients, Tiptree Inc. Tiptree is traded under the symbol TIPT on the Nasdaq, and presenting on behalf of the company today is the company's CFO, Scott McKinney.
Thanks, Joe. Welcome, everyone. It's great to see everyone in here. Today, I'll just do a brief overview of Tiptree, our value drivers, and the potential that we see for future growth in the company. If you'd like a follow-up, I can do one-on-one sessions afterwards or catch you in the hallways. Just before we get started, the normal disclaimers. So here are just legal disclaimers that cover the presentation today. We do use non-GAAP financial metrics throughout, the reconciliations of which are in the appendix, and this is also available on our website. So what is Tiptree? So we are a holding company that allocates capital to businesses where we believe we can generate long-term growth and returns for shareholders.
We look for unique under-the-radar small and middle-market companies that have strong management in place and teams that would benefit from our capital and the experience that our team of professionals can bring to the table. Our structure as a holding company provides us a competitive advantage as it affords us the ability to hold these businesses for longer periods of time, allowing us to focus on optimal value creation. Today, our largest business is the Fortegra Group, an insurance company that we acquired in 2014. Fortegra is a specialty insurer that focuses on niche property and casualty lines as well as service offerings. The business has grown dramatically in the nearly 10 years under Tiptree's ownership, all while generating consistent and growing earnings.
Our asset manager, Tiptree Advisors, manages the investment portfolio of our insurance company with the primary goal of capital preservation while also generating consistent and growing yields. With the current rate environment, we do see significant opportunities to increase investment earnings compared to prior years. Our non-insurance businesses, we collectively refer to as Tiptree Capital. When we allocate capital, we do take a diversified strategy. As total return investors, we aim for a mix of operational cash as well as capital appreciation. When we do make capital allocation decisions, we do so as owners. Currently, today, insiders own 34% of Tiptree. Just very quickly on our history, we are in our 17th year of operation, founded in 2007, and we have been public since 2013. Over that time, we have invested in approximately 20 businesses across the insurance and insurance services, asset management, specialty finance, real estate, and infrastructure sectors.
The bottom left of this chart highlights our total shareholder return over that time compared to the relative benchmarks. Strong operating performance from our businesses, combined with a history of strategic transactions, has led to the returns above these benchmarks. It's also worth highlighting, over the past 10 years, we have repurchased 15 million shares, or approximately 36% of the shares that were outstanding at year-end 2014. All of these were done at steep discounts to book and intrinsic value at the time of the purchase. As I mentioned previously, we make our investment decisions with the objective of providing our investors with access to quality small and middle-market companies, experienced management teams, and the opportunity to generate higher returns and value appreciation with Tiptree support. Since our founding in 2007, we have invested in many sectors with realized investments yielding IRRs in excess of 20%.
Although our primary objective today is to grow Fortegra, we do continue to look for opportunities across a broad group of industries. We assess our performance by return on capital and return to our shareholders, including both price appreciation and dividends paid. We believe adjusted net income is the best measure of the operating earnings power of the company. For the last 12 months, we earned $87 million on that measure, or a 20% return on equity on that basis. In June of 2022, $200 million of capital was raised at the Fortegra level from Warburg Pincus, which in return was for approximately 25% of the business on an as-converted basis. This transaction provided Tiptree with many strategic benefits, including highlighting the underlying value of our investment in Fortegra, as well as raising additional growth capital for the business.
In March of this year, we, along with Warburg, invested an additional $40 million of capital into Fortegra to support its growth objectives, and within the last month, we raised $150 million through a junior subordinated note at Fortegra to fund future growth. Each quarter on this slide, we provide information to calculate Tiptree's sum of the parts value, which includes a valuation range for Fortegra, reflecting the multiples implied by Warburg's investment in 2022 and earnings multiples of relevant peers. We believe there is significant value in Fortegra, as evidenced by the $147 million of trailing 12-month adjusted net income, which, compared on a year-over-year basis, increased 37% from last year, so with that overview of Tiptree, we should just dive deeper into the specialty insurance business. Fortegra continues to produce record top-line results with premium and premium equivalents of $2.9 billion on a trailing 12-month basis.
Fortegra retains just under 50% of the risk that it underwrites, all while producing a combined ratio consistently in the low 90s, or what would equate to a 10% margin on our underwritten insurance. The differentiators of the business really come down to three things. First, it's an underwriting-first organization. We invest in and continue to hire talented underwriters that have deep domain expertise. Second, the business leverages technology to improve our underwriting performance and to create operating efficiencies on our $3 billion of volume. By using machine learning and data analytics principles, our underwriters can better identify and monitor hidden and correlated risks across our $2.9 billion of underwritten volume. We also operate a cost-efficient, agent-driven model that seeks to earn a blend of both underwriting income and fee income in each of our offerings.
And then third, we ensure alignment with our agents and partners by sharing in the risk either through variable commission structures, where commissions paid are adjusted based on the performance of the underwriting, or through traditional reinsurance, much of which is to captives that are owned by our agents and partners, aligning interests. We place a premium value on diversification, and that means diversification by product line, agent, partner, risk selection, and geography. We believe this approach produces more consistent results and limits aggregation and catastrophic exposures in our niche offerings. Fortegra underwrites many specialty lines, which include insurance and fee-based offerings. Premiums and equivalents have grown at a 22% growth rate since 2018, driven by a 20% organic growth rate, in addition to four bolt-on acquisitions in the auto warranty services sector over the past five years.
Our specialty insurance lines represent 88% of the premiums and consist primarily of specialty commercial and personal lines. Examples of lines that we write include commercial property, professional and general liability, business owners' policies, life sciences, contractors, oil and gas services, and hospitality lines, to name a few. Excess and surplus lines, or non-admitted lines, represent over $1 billion of premiums, or 35% of the total, and have been and will continue to be a meaningful driver of growth and profitability for the business. We focus on agents or lines of business where the aggregate premium per year is less than $20 million. In fact, roughly 80% of our agents are less than that $20 million figure, which tends to be less competitive compared to the larger lines and increases our diversification. Services represent the remaining 12% of the business.
These offerings primarily consist of service contracts that provide consumers with extended protection on things like automobiles, appliances, furniture, as well as mobile phones. Here's a quick financial snapshot. The hallmark of Fortegra really is its consistent performance. So first of all, consistent growth, delivering 23% compounded annual growth since 2017. You can see in the bottom left, consistent underwriting performance, delivering a 91% combined ratio over the past five years. And finally, consistent and as well as growing return on equity to shareholders. And that's driven by both the combination of our insurance products as well as the capital-light fee-based offerings. You can see in the bottom right of the chart, adjusted net income has grown nearly sixfold from $26 million in 2017 to $147 million over the latest 12 months.
In the third quarter, specifically, revenues increased 18% while delivering an adjusted return on equity of 28%, consistent with historical measures. We expect this growth and profitability to continue, mostly driven by our specialty commercial lines, in particular our E&S offerings. This next slide highlights Fortegra's compelling financial profile against a broader set of specialty, commercial, and Bermuda peers. Fortegra is one of two companies with a five-year growth rate above 20% and an average adjusted ROE of above 20%. Additionally, the company's underwriting has produced a combined ratio five points better than the median, with the lowest volatility across the peer group. Since 2014, Fortegra has not posted a combined ratio of above 94% or below 87% in any given quarter, a true testament to the underwriting consistency that we seek.
On this next chart, you can see the components of our investment portfolio, which was $1.5 billion as of the end of the third quarter. 90% is invested in a combination of high credit quality, liquid securities, and cash with an average S&P rating of AA-. Book yield was 4.1% at the quarter- end, up nearly 280 basis points from 2021, driven by improving yields on short-duration fixed income securities and money market funds. With these short-dated investments offering yields of approximately 5%, we held a higher-than-average cash and short-term investment balance over the past year. The duration of our fixed income portfolio currently sits at 2.7 years, which positions us well as maturities roll and the portfolio grows to reinvest at a higher yield, all while maintaining a similar credit quality rating. To conclude on Fortegra, there are several reasons why we remain bullish about Fortegra's growth prospects.
First, since 2017, we have seen unearned premiums and deferred revenues grow at a 24% compounded annual growth rate. This $2.4 billion currently sitting on our balance sheet represents substantial future revenues. Second, the markets for specialty P&C risks remain favorable, given inflationary pressures and the frequency and severity of catastrophic events. Given this backdrop, we anticipate the hard market environment will extend Fortegra's growth as it has over the past several years. For a bit of context, the E&S market has more than doubled from $50 billion in 2018 to $115 billion in 2023. This is driven by many factors, including favorable pricing trends, as well as an increased number of specialized lines moving from admitted to non-admitted markets. We, along with many of our peers, believe these trends will continue.
In the E&S space, Fortegra has made several important hires over the past several years that have a strong track record for underwriting profitably. In June of this year, we announced that Fortegra obtained its license to write specialty business in Belgium and the European Union. This will serve as an additional catalyst for growth alongside our ongoing efforts to onboard new agents and launch new programs in the U.S. And then lastly, the service business has grown substantially both in the U.S. and Europe, driven by its vertically integrated product offering. We believe that providing our agents with a full suite of products, including the insurance, administration, premium finance, as well as other ancillary offerings, gives us a strategic advantage.
Switching gears to our non-insurance holdings, Tiptree Capital today is primarily invested in our mortgage origination and servicing business, cash and short-dated U.S. T reasuries, and a small allocation to public equities. Our mortgage business, we saw extraordinary returns on capital in the 2020 and 2021 timeframe, which has subsided over the past two years as rates have risen. While the broader mortgage markets have experienced significant headwinds, our mortgage business produced positive results this year, driven by the servicing side of the business as well as active cost management over the past 18 months. Even with the volume and margin compression over those past 24 months, over the past four years, the business has grown retained earnings substantially, resulting in a very strong balance sheet that includes an MSR asset worth $40 million. As rates normalize, we anticipate growth in originations for our mortgage business.
With cash balances on hand, you can see here in Tiptree Capital and no debt at the holding company level, we continue to look for opportunities to generate long-term absolute returns. Having no set holding period and able to take very long-term views, we do believe we have a competitive advantage to others seeking to allocate capital in the small to middle market space. Quickly to wrap, we have a great company in Fortegra that's well-positioned to continue its growth and value creation. Specialty insurance markets remain favorable. Our services business continues to expand both domestically and internationally, and all while keeping the focus on the underwriting principles that have delivered such a consistent track record over time. What can you expect from Tiptree going forward?
We'll continue to do what we've done for the last 17 years: focus on long-term value creation, deploy capital patiently, invest for total return, and think like owners. So thank you for joining me today, and I'll go ahead and open it up if there's any questions here in the audience.
Talk a little bit about, I guess when I look at the valuation, I think I'm fairly well-convinced on the insurance , but I'm just kind of curious if we're done for overheads?
Sure.
Yeah, sure. So the question, just to repeat the question, is the valuation of the insurance company seems relatively straightforward. Could you talk a little bit about the corporate overhead and the implications of that? Certainly, as with any holding company, there is usually some form of discount, which I believe is mostly associated with corporate overhead. Over the last several years, we've worked to reduce the external spend, in particular finance, tax spend, Sarbanes-Oxley costs, etc. Today, the corporate overhead does sit at about $30 million. We think of that as two buckets.
Roughly $15 million, or half of it, is just our core operations at the headquarters: rent, audit expense, D&O insurance, base salaries of our employees, which include legal, finance, investment staff, and then obviously our senior management. That will stay relatively constant and has actually shrunk over the last five years pretty substantially. The remainder is really incentive compensation that's geared towards growing value for the company and growing value for shareholders.
I do think as you look at some of our financial metrics, it's stayed relatively consistent over the last few years, whereas the growth in our operating businesses has far outpaced it.
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Yeah, sure. So the question is, we attempted to IPO Fortegra earlier this year, just to give a little color. I obviously can't go too deep into the process, but we felt that creating a public platform for Fortegra was in the best interest of Fortegra, Tiptree, and all of our shareholders. Ultimately, when we ran the process, market conditions just didn't warrant the valuation that we felt that our investors deserved, and so we pulled it. We certainly consider all alternatives with Fortegra and how to best grow the business and deliver value for our shareholders, and that's constantly what we're searching for.
I think the great news is everyone went back to work the next day, and we've continued to grow the business. Tiptree and Warburg, as I mentioned, put in $40 million of capital, and with some tax obligations that we owed to Fortegra as well, it ended up being about $50 million that they could use for growth. And then, as I mentioned here, within the last couple of weeks, to fill the capital need to continue the growth trajectory that we've seen over the last several years, we did do just a junior subordinated bond, which should allow the company to grow for the next two to three years very nicely. Those instruments receive some hybrid equity credit from our regulators, and that's very helpful when considering different regulatory ratios and RBC ratios at our statutory insurance companies.
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Sure. Yeah. So the question was just, could we go through the product mix and how that pertains to different pricing cycles and the ultimate risk that we're taking? Yeah. The business was really built on a product called credit insurance, which on the chart that you're looking at today would sit within the personal lines as well as some of the alternative risk categories. So if you flash this chart back 10 years, those two boxes would probably make up 80%-90% of the total. So we've really diversified the book of business and grown in our specialty insurance lines. What is unique about our alternative risks and personal insurance lines, which probably makes up about 25%-30% of our products, is we're somewhat agnostic to the loss impacts as most of those products are in a true 100% variable commission structure.
We're collecting our 8-10 cents of every dollar, regardless of the underlying performance of the product. Those are also less subject to pricing cycles of the insurance trends and world, just essentially because they're prima facie rates, which means they're determined by the state. There's not a competitive dynamic on those rates. Where you've seen growth, in particular on the top chart, is certainly some in the admitted insurance box, but definitely the E&S insurance box. That's where you have freer rate and form flexibility as far as how you price, how you monitor and price the terms and conditions. That's where we've seen a tremendous amount of growth, which is up to about $1 billion of premiums, whereas in the 2020 timeframe was really nothing for our company.
So that's been the most significant amount of growth and where we have the most pricing power as well. Yeah, sure. So total book value, the way we look at it is we have about $600 million of book value at the insurance company. Since Tiptree owns around 70% on a diluted basis, we would have our roughly $450 million of book value. The one thing I would note is that our warranty and services lines, when underwriting those, those do not require a balance sheet or capital upfront. So think of those as very capital light. All you really need is an insurance contractual liability insurance policy to be able to write those premiums. So Fortegra does operate in a very capital light nature as compared to many of its peers, mostly due to its product set, but particularly due to the services side of the business.
Outside of Fortegra, you see here Tiptree Capital that I've flipped to, there's $110 million of balance sheet capital there, and you can see the splits. It's roughly $50 million in our mortgage business, $50 million of cash and effectively treasuries, which are just there for our balance sheet and then a little bit of equities.
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Sure. The shift from admitted to non-admitted lines. What I would say is the world is becoming more complex. You think about climate change, the impacts of that, particularly in coastal exposures, the impacts of social inflation, which really relates to large or sometimes referred to as nuclear verdicts.
What that results in is just more attention that needs to be paid to underwriting lines of business, more specialization, and that tends to lead more business into the excess and surplus markets rather than the admitted markets. A great example is many insurers have pulled out of both Florida and California just for even very typical standard lines such as auto and homeowners insurance. Now, we do not underwrite those lines of business, but that's a great example of why you're seeing such a transition from admitted to non-admitted markets.
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Good question. The question was around Fortegra and have we needed to increase its reserves. So as we sit today, our reserves have never been in a better position. We have obviously our own internal actuaries as well as we use Milliman on a quarterly basis to validate those reserves.
Historically, the way to look at that is by looking at our prior year development. And historically, Fortegra has had very little prior year development. Usually, our loss picks have been spot on. Last year, we did have $10 million of favorable prior year development, which related to a very specific block of business that we had commuted off of our balance sheet. But overall, no, our reserves are in a great position, and we haven't had really much to say of either favorable or unfavorable prior year development.
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Yeah, sure. So the question is, how big can you get? I mean, we're on a path to try to get to $5 billion of premiums. We don't give specific guidance as to how long that will take, but we're very much within the next few years targeting to get to that.
The best thing I could point you to is historically, obviously on much smaller denominators, we've been able to grow the business at 22%. I think it comes down a little bit from there, but with a continued hard market, continuing to bring on new underwriters, adding new product lines, new programs, et cetera, we still think that growing in the mid to high teens type profile is achievable, particularly on net written premiums, where, as I mentioned in my earlier remarks, right now we only keep 50% of the business that we underwrite. If the top line premiums were to come down, not that we expect them to, but if they were to, we can still grow the business by just retaining more of the premium that we already underwrite ourselves, and that would flow through to our P&L revenues, et cetera.
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The question we're getting is, why are we only keeping 50%? I wouldn't call it a capital issue. It's a capital management decision. Yes, if we were flush with capital, we'd love to keep more of the business that we underwrite. But today, just given our capital position as well as optimizing it, because you do earn a ceding fee when you cede business to third-party reinsurers, it provides a little bit of a boost to our return on equity by ceding some volume and having less capital, but including the ceding fee. As the business continues to retain capital, we have and we will continue to probably up our retention a little bit. Two years ago, on our whole account quota share, we kept 30% of the business. Last year, we upped that to 40%, and this year we're somewhere between 45% and 50%.
We have changed the amount that we keep under our whole account quota share arrangement, particularly on our casualty lines of business.
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How far could you go? I mean, you certainly could. I think there would be a point where you would evaluate a trade-off and that you may be able to think of a more optimal capital structure rather than keeping all of it. But sure, many of our competitors keep 80%-90% of their premiums, and they have the capital base to do it. Okay. Very good. Thank you, everyone. If you have any other questions, I'll catch you out in the hallway. Thanks.