Annual Report for Fiscal Year Ending December 31, 2025 (Form 10-K)

MANAGEMENT'S DISCUSSION AND ANALYSIS OFFINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following Management's Discussion and Analysis of financial condition and results of operations should be read in conjunction with the Consolidated Financial Statements, related notes and other financial information appearing elsewhere in this Annual Report on Form 10-K, filed with the U. S. Securities and Exchange Commission ("SEC").

Recent Developments and Significant Transactions

Capital Raises

On February 27, 2026, the Company issued $14.0 million of common stock through a backstopped rights offering for 14,000,000 shares of common stock priced at $1.00 per share. A portion of the proceeds were used to redeem all of the $7.5 million of the Company's outstanding Series B Preferred Stock, described below. The remaining proceeds will be used for working capital and general corporate purposes.

On December 23, 2025, the Company issued a total of $8.0 million of its newly designated non-convertible mandatorily redeemable Series C Preferred Stock, no par value, through a private placement of 1,600 preferred shares priced at $5,000 per share that matures on April 2, 2027, to Clarkston Companies, Inc., an entity affiliated with Jeffrey Hakala, a member of the Board of Directors of the Company. The Series C Preferred Stock requires quarterly dividend payments at a dividend rate of 15.0% per annum.

On February 27, 2025 and March 3, 2025, the Company issued a total of $7.5 million of its newly designated non-convertible mandatorily redeemable Series B Preferred Stock, no par value, through a private placement of 1,500 preferred shares priced at $5,000 per share that matures on December 31, 2026, and issued the Purchaser (as defined below) common stock purchase warrants (the "Warrants") to purchase 4,000,000 shares at an exercise price of $1.50 per share.

The Company redeemed the Series B Preferred Stock in full in February 2026, as discussed below. The Warrants entitle the Purchaser to purchase up to 4,000,000 shares of the Company's common stock at an exercise price of $1.50 per share. The Warrants will expire on January 31, 2027.

The Series B Preferred Stock was sold to Clarkston 91 West LLC (the "Purchaser"), an entity affiliated with Gerald and Jeffrey Hakala, who were both at such time members of the Board of Directors of the Company. The Company used the proceeds for working capital and general corporate purposes.

Premium Revenue Reductions

In January 2024, the Company began to reduce premium revenues from underwriting operations due to a lack of adequate statutory capital and surplus in its Insurance Company Subsidiaries. The Company ceased writing almost all commercial lines premiums by August 30, 2024. The Company wrote minimal premiums from commercial lines in 2025, and has no current plans to re-establish commercial lines premium volumes in the near future. The Company expects to continue to directly write the Midwest and Texas homeowners business going forward, however, the Company is subject to significant concentration of risk because all of the homeowners business is produced by one agency, SSU, and we no longer have any ownership interest or control over where SSU places its business. To provide ongoing capital support for the Insurance Company Subsidiaries, the Company sold its agency operations on August 30, 2024.

Sale and Disposal of Agency Business

On August 30, 2024, the Company completed the sale of all of the issued and outstanding membership interests of CIS to BSU Leaf Holdings LLC, a Delaware limited liability company (the "Buyer"), pursuant to the Interest Purchase Agreement, dated as of August 30, 2024 (the "CIS Agreement"), by and among the Company, Buyer and Buyer's parent (the "CIS Sale"). CIS comprised the Company's managing general agency ("MGA") business and was the legal entity used to implement the strategic shift to non risk-bearing revenue from an underwriting-based model as described in the Company's Annual Report on Form 10-K for the year ended December 31, 2023. CIS also represented almost all of the wholesale agency segment. CIS and the related wholesale agency segment are now reported as discontinued operations in 2024. The Company sold CIS in order to generate liquidity to pay down debt and provide capital to the Insurance Company Subsidiaries.

The CIS Sale has had and will continue to have a significant negative impact on revenues for the Company going forward. With the strategic shift away from underwriting revenues, as discussed in previous filings, the Company was relying on the growth of commission revenue to replace the lost revenue from underwriting. Now that the wholesale agency segment has been sold, the Company will need to rely entirely on underwriting revenues. These revenues have reduced significantly in the past year. For example, gross written premiums were $59.8 million for the year ended December 31, 2025, compared to $72.1 million for the year ended December 31, 2024.

In connection with the CIS Sale, 68 of the Company's 77 employees were transferred to the Buyer, including Nicholas Petcoff, the Company's then current Chief Executive Officer, as well as all of the underwriting, claims and IT teams, and a portion of the finance staff and other operating staff. As part of the completion of the CIS Sale, Mr. Petcoff resigned from his role as Chief Executive Officer and as a director on August 30, 2024. Concurrently, Brian Roney, President of the Company, was appointed as the Company's new Chief Executive Officer. The Company entered into a transition services agreement with the buyer to allow both parties to share resources for a certain period of time in order to effectuate an orderly separation of the internal systems and operations. The Company incurred $145,000 and $104,000 of expense for the years ended December 31, 2025 and 2024, respectively, related to the transition services agreement.

The Company also entered into a producer administration agreement with CIS with regards to the current books of business requiring CIS to support any underwriting and related system obligations of the run-off book of business. Separately, the Company entered into a claims administration agreement with CIS, to handle all commercial lines claims run-off or any other claims generated from business produced by CIS.

The initial purchase price of CIS was $45.0 million, subject to purchase price adjustments. In addition, during the three years ending on the third anniversary of the Closing Date, the Company is eligible under the CIS Agreement to receive up to three contingent payments based on performance thresholds of the gross revenue earned by CIS in the applicable quarter, with the aggregate amount of contingent payments capped at $25.0 million. Consideration paid in cash to the Company was $46.6 million on August 30, 2024, which is comprised of the $45.0 million initial purchase price, plus $1.6 million of cash in CIS in excess of the working capital deficiency (as defined in the CIS Agreement).

The contingent consideration payments, in order of achievability are $5.0 million, $10.0 million and $10.0 million. The contingent consideration included in the gain on sale was calculated based on the fair value of the three contingent payments as of September 30, 2024, in accordance with ASC 820 - Fair Value Measurement. The first contingent payment was earned as of September 30, 2024, and was reported at a fair value of $4.9 million. The full $5.0 million contingent payment was received by the Company in December 2024, with the change in fair value being reflected in Change in fair value of contingent considerations in the Consolidated Statements of Operations. The second contingent payment was earned and paid in the second quarter of 2025, with the change in fair value being reflected in Change in fair value of contingent considerations in the Consolidated Statement of Operations.

The third contingent payment, equaling $10.0 million, is expected to be earned and paid by September 2026, but is still subject to uncertainty. The Company determined the fair value of the third contingent payments to be $4.3 million as of December 31, 2025. As fair value estimate of the third contingent payment changes over time, subsequent measurement adjustments will be reflected in income or loss in the period of change. See Note 4 ~ Fair Value Measurementsfor further details.

There was significant judgment in deriving the fair value of the final $10.0 million contingent payment, including estimating the extent of time it will take to achieve the earnout, the credit quality of the buyer and, most importantly, the risk that the contingent payments may not be achieved at all. There is greater than an insignificant chance that we do not receive the final contingent payment. There are no provisions allowing for a partial payment of the earnout.

Sale of SSU

Prior to August 30, 2024, the Company owned 50% of SSU and the other 50% of SSU was owned by Andrew Petcoff, the son of James Petcoff, the Company's former Executive Chairman and Co-Chief Executive Officer and beneficial owner of more than 5% of the Company's common stock. Andrew Petcoff purchased 50% of SSU from the Company on December 31, 2022, for $1,000.

On August 30, 2024, the Company completed the sale of its 50% ownership interest in SSU to an entity owned by Andrew Petcoff. Pursuant to the Membership Interest Purchase Agreement, dated as of August 30, 2024 (the "SSU Agreement") among Sycamore Financial Group, LLC, Andrew Petcoff (the buyers) and VSRM Insurance Agency, Inc. (the seller), the aggregate purchase price was $6.5 million, with $3.0 million paid in cash to the Company at the time of the closing and the remaining $3.5 million was paid to the Company during the fourth quarter of 2024. A gain of $6.5 million was recognized on the sale of SSU.

As part of the sale, the Company entered into a new program administration agreement with SSU, which requires SSU to provide underwriting and systems support to the homeowners programs that they produce. Separately, the Company entered into a claims administration agreement with CIS, now owned by BSU Leaf Holdings LLC., to handle all homeowners claims going forward.

Other Impacts of Recent Developments

With the completion of the disposal of the agency business, we have just two agency relationships; with CIS and SSU. CIS has control over almost all of our historical commercial lines premium volume. The Company no longer writes any commercial lines business and has terminated its agency appointment with CIS effective December 31, 2025. SSU has control of our remaining homeowners book of business and could move that business to another insurer or insurers. This is a significantly different structure from when we filed our 2023 Annual Report on Form 10-K, on April 1, 2024 with the U. S. Securities and Exchange Commission. We no longer directly "market and sell our insurance products through a network of over 4,400 independent agents that distribute our policies through approximately 950 sales offices" as stated in that filing. Those relationships are now owned by unrelated third parties (CIS and SSU). This greatly amplifies our concentration of risk relative to our marketing and distribution network.

Our staff is now only twelve people. We are relying heavily upon the CIS and SSU teams to handle underwriting, claims, and information technology services. Much of this is managed either through program administration agreements with CIS and SSU or a claims administration agreement with CIS. The policy management system also conveyed with CIS, which we can continue to use for our existing business, but may not be available for any new programs we may consider. CIS and SSU also handle all billing and collections. We no longer have the internal capacity to operate a direct bill process.

Redemption of Series A Preferred Stock and payoff of Senior Secured Debt

On August 30, 2024, with a portion of the proceeds from the sale of CIS, the Company paid off all of its outstanding $9.3 million privately placed 12.5% Senior Secured Notes, and redeemed all of the $6.0 million of its outstanding Series A Preferred Stock. The Company incurred a redemption premium of $397,000 from the Series A Preferred Stock, and recorded the premium as additional dividends paid on the Series A Preferred Stock. See Note 8 ~ Debtand Note 12 ~ Shareholders' Equityof the Notes to the Consolidated Financial Statements for further details.

A.M. Best and Kroll

On March 25, 2024, Kroll downgraded the financial strength ratings of TIC and WPIC. Kroll had given TIC an insurance financial strength rating of BB- with a negative outlook. Kroll had given WPIC an insurance financial strength rating of B with a negative outlook. A BB- and a B rating indicates that the insurer's financial condition is low quality. Concurrently, the Company withdrew its participation in the rating process, and shall be non-rated by Kroll going forward.

On March 14, 2024, A.M. Best downgraded the financial strength ratings of TIC and WPIC to C. A rating of C means A.M. Best considers both companies to have a "weak" ability to meet ongoing financial obligations. Concurrently, the Company withdrew its participation in the rating process, and shall be non-rated by A.M. Best going forward.

Business Overview

We are an insurance holding company that markets and services our product offerings through specialty personal insurance business lines. We are authorized to write insurance as an excess and surplus lines carrier in 44 states, including the District of Columbia. We are licensed to write insurance as an admitted carrier in 42 states, including the District of

Columbia, and we used to offer our insurance products in almost all 50 states. As of December 31, 2025, we offer only homeowners insurance products in Texas, Illinois and Indiana.

Our revenues are primarily derived from premiums earned from our insurance operations. We also generate other revenues through investment income. Prior to the sale of CIS we also generated other income mainly from installment fees and policy issuance fees related to the policies we wrote. Our revenues generated from the Company's MGA, CIS, are reflected in discontinued operations in 2024. Following the CIS Sale, we no longer generate commission income or related installment and policy issuance fees.

Our expenses consist primarily of losses and loss adjustment expenses, agents' commissions, and other underwriting and administrative expenses. Historically, we have organized our operations in three insurance businesses: commercial insurance lines, personal lines, and agency business prior to the CIS Sale. Together, the commercial and personal lines refer to "underwriting" operations that take insurance risk, and the agency business refers to non-risk insurance business.

Through our personal insurance lines, we offer homeowners insurance and dwelling fire insurance products to individuals in several states. Our specialty homeowners insurance product line is primarily comprised of low-value dwelling insurance tailored for owners of lower valued homes, which we offer in Texas, Illinois and Indiana.

Through our commercial insurance lines, we historically offered coverage for both commercial property and commercial liability. We also offered coverage for commercial automobiles and workers' compensation. Our insurance policies were sold to targeted small and mid-sized businesses on a single or multiple-coverage basis. Effective December 31, 2025, the Company no longer writes any commercial lines business.

Our MGA, CIS, operated through our wholesale agency business segment. Through CIS, we historically offered commercial and personal lines insurance products for our Insurance Company Subsidiaries as well as third-party insurers. As mentioned above, following the CIS Sale, we no longer are operating this business and its historical results are included in discontinued operations.

Critical Accounting Estimates

General

We identified the accounting estimates below as 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 which 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 consolidated financial statements. These judgments and estimates affect the reported amounts of assets, liabilities, revenues and expenses and the disclosure of 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. See the Consolidated Financial Statements Note 1 ~ Summary of Significant Accounting Policies, for further details.

Unpaid Loss and Loss Adjustment Expense Reserves and Reinsurance Recoverables on Unpaid Loss and Loss Adjustment Expenses

Our recorded loss and loss adjustment expense ("LAE") reserves represent management's best estimate of unpaid loss and LAE, and related reinsurance recoverables, at each balance sheet date, based on information, facts and circumstances known at such time. Our loss and LAE reserves reflect our estimates at the balance sheet date of:

We do not discount the loss and LAE reserves for the time value of money.

Case reserves are initially set by our claims personnel. When a claim is reported to us, our claims department completes a case-basis valuation and establishes a case reserve for the estimated amount of the probable ultimate losses and LAE associated with that claim. Our claims department updates their case-basis valuations upon receipt of additional information and reduces case reserves as claims are paid. The case reserve is based primarily upon an evaluation of the following factors:

IBNR reserves, on both a gross basis, and net of reinsurance recoverables basis, are determined by subtracting case reserves and paid loss and LAE from the estimated ultimate loss and LAE. Our actuarial department develops estimated ultimate loss and LAE on a quarterly basis. Our Reserve Review Committee (which includes our Chief Executive Officer and our Chief Financial Officer) meets each quarter to review our actuaries' estimated ultimate expected loss and LAE.

We use several generally accepted actuarial methods to develop estimated ultimate loss and LAE estimates by line of business and accident year. This process relies on the basic assumption that past experience, adjusted for the effects of current developments and likely trends, is a reasonable basis for predicting future outcomes. These methods utilize various inputs, including:

The principal standard actuarial methods used by our actuaries for their comprehensive reviews include:

Our actuaries give different weights to each of these methods based upon the amount of historical experience data by line of business and by accident year and based on judgment as to what method is believed to result in the most accurate estimate.

The application of each method by line of business and by accident year may change in the future if it is determined that a different emphasis for each method would result in more accurate estimates.

Our actuaries also analyze several diagnostic measures by line of business and accident year, including but not limited to: reported and closed frequency and severity, claim reporting and claim closing patterns, paid and incurred loss ratio development, and ratios of paid loss and LAE to incurred loss and LAE. After the actuarial methods and diagnostic measures have been performed and analyzed, our actuaries use their judgment and expertise to select an estimated ultimate loss and LAE by line of business and by accident year.

Our actuaries estimate an IBNR reserve for our unallocated LAE not specifically identified to a particular claim, namely our internal claims department salaries and associated general overhead and administrative expenses associated with the adjustment and processing of claims. These estimates, which are referred to as unallocated loss adjustment expense ("ULAE") reserves, are based on internal cost studies and analyses reflecting the relationship of ULAE paid to actual paid and incurred losses. We select factors that are applied to case reserves and IBNR reserve estimates in order to estimate the amount of ULAE reserves applicable to estimated loss reserves at the balance sheet date.

We allocate the applicable portion of our estimated loss and LAE reserves to amounts recoverable from reinsurers under reinsurance contracts and report those amounts separately from our loss and LAE reserves as an asset on our balance sheet.

The estimation of ultimate liability for losses and LAE is a complex process, and therefore involves a considerable degree of judgment and expertise. Our loss and LAE reserves do not represent an exact measurement of liability, but are estimates based upon various factors, including but not limited to:

Most or all of these factors are not directly or precisely quantifiable, particularly on a prospective basis, and are subject to a significant degree of variability over time. In addition, the establishment of loss and LAE reserves makes no provision for the broadening of coverage by legislative action or judicial interpretation or for the extraordinary future emergence of new types of losses not sufficiently represented in our historical experience or which cannot yet be quantified. As a result, an integral component of our loss and LAE reserving process is the use of informed subjective estimates and judgments about our ultimate exposure to losses and LAE. Accordingly, the ultimate liability may vary significantly from the current estimate. The effects of change in the estimated loss and LAE reserves are included in the results of operations in the period in which the estimate is revised.

Our reserves consist entirely of reserves for property and liability losses, consistent with the coverages provided for in the insurance policies directly written or assumed by us under reinsurance contracts. Several years may elapse between the occurrence of an insured loss, the reporting of the loss to us and our payment of the loss. The level of IBNR reserves in relation to total reserves depends upon the characteristics of the specific line of business, particularly related to the speed with which claims are reported and outstanding claims are paid. Lines of business for which claims are reported slowly will have a higher percentage of IBNR reserves than lines of business that report and settle claims more quickly.

The following table shows the ratio of IBNR reserves to total reserves net of reinsurance recoverables as of December 31, 2025 (dollars in thousands):

Included in the reinsurance recoverables were reinsurance recoverables from the LPT which were $3.4 million of reinsurance recoverables on case reserves. All of the reinsurance recoverables from the LPT are included in commercial lines.

Although we believe that our reserve estimates are reasonable, it is possible that our actual loss and LAE experience may not conform to our assumptions and may, in fact, vary significantly from our assumptions. Accordingly, the ultimate settlement of losses and the related LAE may vary significantly from the estimates included in our financial statements. We continually review our estimates and adjust them as we believe appropriate as our experience develops or new information becomes known to us. Such adjustments are included in current operations.

Our loss and LAE reserves are estimates and do not represent an exact measurement of liability. The most significant assumptions affecting our IBNR reserve estimates are the loss development factors applied to paid losses and case reserves to develop IBNR by line of business and accident year. Although historical loss development provides us with an indication of future loss development, it typically varies from year to year. Thus, for each accident year within each line of business we select one loss development factor out of a range of historical factors.

We generated a sensitivity analysis of our net reserves which represents reasonably likely levels of variability in our selected loss development factors. We believe the most meaningful approach to the sensitivity analysis is to vary the loss development factors that drive the ultimate loss and LAE estimates. We applied this approach on an accident year basis, reflecting the reasonably likely differences in variability by level of maturity of the underlying loss experience for each accident year. Generally, the most recent accident years are characterized by more unreported losses and less information available for settling claims and have more inherent uncertainty than the reserve estimates for more mature accident years. Therefore, we used variability factors of plus or minus 10% for the most recent accident year, 5% for the preceding accident year, and 2.5% for the second preceding accident year. There is minimal expected variability for accident years at four or more years' maturity.

The following table displays ultimate net loss and LAE and net loss and LAE reserves by accident year for the year ended December 31, 2025. We applied the sensitivity factors to each accident year amount and have calculated the amount of potential net loss and LAE reserve change and the impact on 2025 reported pre-tax income and on net income and shareholders' equity at December 31, 2025. We believe it is not appropriate to sum the illustrated amounts as it is not reasonably likely that each accident year's reserve estimate assumptions will vary simultaneously in the same direction to the full extent of the sensitivity factor. The shareholders' equity amounts include an income tax rate assumption of 21%, however due to the net operating losses available to use against taxable income and the offsetting valuation allowance, there is no

difference between pre-tax income and shareholders' equity in this schedule. The dollar amounts in the table are in thousands.

(1) Represents amounts as of December 31, 2025.

(2) Represents how pre-tax income and shareholders' equity would change if the Net Ultimate Loss and LAE were to change by the percentage in the Ultimate Loss and LAE Sensitivity Factor column.

Investment Valuation and Credit Losses

We carry debt securities classified as available-for-sale at fair value, and unrealized gains and losses on such securities, totaled $8.4 million as of December 31, 2025, net of any deferred taxes, which are reported as a separate component of accumulated other comprehensive income. Our equity securities that do not result in consolidation and are not accounted for under the equity method are measured at fair value and any changes in fair value are recognized in net income. We carry other equity investments that do not have a readily determinable fair value at cost, less impairment and adjusted for observable price changes under the measurement alternative provided under GAAP. We review the equity securities and other equity investments for impairment during each reporting period.

We review available-for-sale debt securities for credit losses based on current expected credit loss methodology at the end of each reporting period. We do not have any securities classified as trading or held to maturity.

At each quarter-end, for available-for-sale debt securities in an unrealized loss position, the Company first assesses whether it intends to sell or it is more likely than not that it will be required to sell the security before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the security's amortized cost basis is written down to fair value through earnings.

For debt securities available-for-sale that do not meet the aforementioned criteria, the Company evaluates whether the decline in fair value has resulted from credit losses or other factors. In making this assessment, management considers the extent to which fair value is less than amortized cost, any changes to the rating of the security by a rating agency, and adverse conditions specifically related to the security, among other factors. If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the security are compared to the amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an allowance for credit losses is recorded for the credit loss, limited by the amount that the fair value is less than the amortized cost basis. Any impairment that has not been recorded through an allowance for credit losses is recognized in other comprehensive income. Changes in the allowance for credit losses are recorded as provision for (or reversal of) credit loss expense. Losses are charged against the allowance when management believes the uncollectability of an available-for-sale

security is confirmed or when either of the criteria regarding intent or requirement to sell is met. Our outside investment managers assist us in this evaluation.

Fair values are measured in accordance with ASC 820, Fair Value Measurements. The guidance establishes a framework for measuring fair value and a three-level hierarchy based upon the quality of inputs used to measure fair value. The three levels of the fair value hierarchy are: (1) Level 1: inputs are based on quoted prices (unadjusted) in active markets for identical assets or liabilities at the measurement date, (2) Level 2: inputs are other than quoted prices that are observable for the asset or liabilities, either directly or indirectly, for substantially the full term of the asset or liability and (3) Level 3: unobservable inputs that are supported by little or no market activity. The unobservable inputs represent the Company's best assumption of how market participants would price the assets or liabilities. The Company also has investment company limited partnership investments, which are measured at net asset value (NAV). The fair value of these investments is based on the capital account balances reported by the investment funds subject to their management review and adjustment. The capital account balances reflect the fair value of the investment funds.

The fair values of debt and equity securities have been determined using fair value prices provided by our investment managers, who utilize internationally recognized independent pricing services. The prices provided by the independent pricing services are generally based on observable market data in active markets (e.g., broker quotes and prices observed for comparable securities).

The values for publicly-traded equity securities are generally based on Level 1 inputs which use the market approach valuation technique. The values for debt securities generally incorporate significant Level 2 inputs. The carrying value of cash and short-term investments approximate their fair values due to their short-term maturity.

We review fair value prices provided by our outside investment managers for reasonableness by comparing the fair values provided by the managers to those provided by our investment custodian. We also review and monitor changes in unrealized gains and losses. We obtain an understanding of the methods, models and inputs used by our investment managers and independent pricing services, and controls are in place to validate that prices provided represent fair values. Our control process includes initial and ongoing evaluation of the methodologies used, a review of specific securities and an assessment for proper classification within the fair value hierarchy.

Contingent Considerations from the CIS Sale

As noted earlier, the Company was eligible to receive three contingent payments from the CIS Sale, based on performance thresholds of the gross revenue earned by CIS. The first contingent payment was earned as of September 30, 2024, and received in December 2024. The second contingent payment was earned and received during the second quarter of 2025. The third contingent payment, equaling $10.0 million, is expected to be earned and paid by September 2026, but is still subject to uncertainty. The Company determined the fair value of the third contingent payment to be $4.3 million as of December 31, 2025. The fair value of the third contingent payment was calculated in accordance with ASC 820 - Fair Value Measurement. See Note 4 ~ Fair Value Measurements for further discussion of the calculation of the contingent consideration.

Non-GAAP Financial Measures

Adjusted Operating Income (Loss) and Adjusted Operating Income (Loss) Per Share

Adjusted operating income (loss) and adjusted operating income (loss) per share are non-GAAP measures that represent net income allocable to common shareholders excluding net realized investment gains (losses), change in fair value of equity securities, other gains (losses), change in fair value of contingent considerations, change in contingent consideration bonus expense and net income (loss) from discontinued operations. The most directly comparable financial GAAP measures to adjusted operating income and adjusted operating income per share are net income and net income per share, respectively. Adjusted operating income and adjusted operating income per share are intended as supplemental information and are not meant to replace net income or net income per share. Adjusted operating income and adjusted operating income per share should be read in conjunction with the GAAP financial results. Our definition of adjusted operating income may be different

from that used by other companies. The following is a reconciliation of net income to adjusted operating income (dollars in thousands), as well as net income per share to adjusted operating income per share:

* Amount is included in Operating Expenses on the Consolidated Statement of Operations. See Note 18 ~ Commitments and Contingencies for further information about the contingent consideration bonus expense.

** The Company has recorded a full valuation allowance against its deferred tax assets as of December 31, 2025 and 2024. As a result, there were no taxable impacts to adjusted operating income from the adjustments to net income (loss) in the table above after taking into account the use of net operating losses and the change in the valuation allowance.

We use adjusted operating income (loss) and adjusted operating income (loss) per share, in conjunction with other financial measures, to assess our performance and to evaluate the results of our business. We believe these measures provide investors with valuable information relating to our ongoing performance that may be obscured by the effect of investment gains and losses as a result of our market risk sensitive instruments, which primarily relate to fixed income securities that are available-for-sale and not held for trading purposes. Realized investment gains and losses may vary significantly between periods and are generally driven by external economic developments, such as capital market conditions. Accordingly, adjusted operating income (loss) excludes the effect of items that tend to be highly variable from period to period and highlights the results from our ongoing business operations and the underlying loss or profitability of our business. We believe that it is useful for investors to evaluate adjusted operating income (loss) and adjusted operating income (loss) per share, along with net income (loss) and net income (loss) per share, when reviewing and evaluating our performance.

Executive Overview

The Company's gross written premiums decreased $12.3 million, or 17.0%, to $59.8 million in 2025, compared to $72.1 million in 2024.

Our personal lines gross written premiums increased $5.7 million, or 12.7%, to $51.1 million in 2025, compared to $45.4 million in 2024. Our focus going forward is entirely on personal lines. Effective December 31, 2025, the Company no longer writes any commercial lines business.

The Company's commercial lines gross written premiums decreased $18.0 million, or 67.4%, to $8.7 million in 2025, compared to $26.7 million in 2024.

The Company reported a net loss from continuing operations of $18.4 million, or $1.51 per share in 2025, compared to a net loss from continuing operations of $34.2 million, or $2.87 per share in 2024.

The Company did not have any discontinued operations in 2025. The Company reported net income from discontinued operations of $58.6 million, or $4.79 per share in 2024.

Adjusted operating loss, a non-GAAP measure, was $24.2 million, or $1.98 per share in 2025, compared to $34.6 million, or $2.83 per share in 2024.

Results of Operations - 2025 Compared to 2024

The following table summarizes our operating results for the years indicated (dollars in thousands):

Summary Operating Results

* Percentage change is not meaningful

Premiums

Premiums are earned ratably over the term of the policy, whereas written premiums are reflected on the effective date of the policy. Almost all commercial lines and homeowners products have annual policies, under which premiums are earned evenly over one year. The resulting net earned premiums are impacted by the gross and ceded written premiums, earned ratably over the terms of the policies.

Our premiums are presented below for the years ended December 31, 2025 and 2024 (dollars in thousands):

Summary of Premium Revenue

Gross written premiums decreased by $12.3 million, or 17.0%, to $59.8 million in for the year ended December 31, 2025, compared to $72.1 million for the year ended December 31, 2024.

Personal lines gross written premiums increased $5.7 million, or 12.7%, to $51.1 million for the year ended December 31, 2025, compared to $45.4 million for the year ended December 31, 2024. The increase was due to the organic growth in the low-value dwelling book of business in Texas and in the Midwest which, combined, grew by $11.7 million in 2025 compared to 2024. This increase was offset by our exit in Oklahoma homeowners business. We plan to continue to write the Midwest and Texas homeowners programs but we do not expect continued growth to be significant.

Commercial lines gross written premiums decreased $18.0 million, or 67.4%, to $8.7 million for the year ended December 31, 2025, compared to $26.7 million, for the year ended December 31, 2024. As of September 1, 2024, we no longer write any hospitality or small business commercial lines business. These lines are in run-off, and earned a small amount of premium in 2025. We currently do not expect to write a significant amount of other commercial lines in the near term.

Net written premiums decreased $28.0 million, or 56.7%, to $21.3 million, for the year ended December 31, 2025, compared to $49.3 million for the year ended December 31, 2024. Net written premiums declined, in part due to the run-off of most of the commercial lines business. In addition, we entered into a new 50% quota share agreement for the homeowners business, inclusive of the unearned premium as of June 1, 2025, which significantly reduced the personal lines net written premium, even though there was substantial gross written premium growth.

Net earned premiums decreased $28.5 million, or 46.8%, to $32.4 million, for the year ended December 31, 2025, compared to $60.9 million for the year ended December 31, 2024. This decrease was consistent with the decrease in net written premiums during 2025.

Losses and Loss Adjustment Expenses

The tables below detail our losses and LAE and loss ratios for the years ended December 31, 2025 and 2024 (dollars in thousands).

Net losses and LAE decreased by $34.8 million, or 47.4%, to $38.5 million for the year ended December 31, 2025, compared to $73.3 million for the year ended December 31, 2024. The decrease was partially attributable to a $14.8 million decrease in current accident year losses due to a significant reduction in net earned premiums as shown above. The decrease in current accident year losses was further added to by a $20.0 million decrease in adverse development on prior-year loss reserves.

Of the $13.7 million in adverse development in 2025, $11.2 million was related to the Company's legacy commercial lines of business, while $2.5 million was related to the Company's personal lines of business. Of the $11.2 million of adverse development in the commercial lines of business, $8.2 million was experienced in the Company's hospitality programs and $4.0 million was experienced in the Company's small business programs, most notably the Security Guard program.

Of the $33.7 million in adverse development in 2024, $33.5 million was related to emergence in the commercial liability lines of business. The adverse development was predominantly in the Security Guard program, which we ceased writing, and ceded all unearned premiums on September 30, 2023. We experienced higher-than expected open case loss emergence due to higher loss severity due to litigated claims and settling at a much higher amount than expected. To mitigate the impact of potential further adverse development on case reserves, we increased our expected loss ratio inputs for calculating IBNR in multiple accident years for this program which increased our ultimate loss estimates in accident years 2020 through 2023 by $33.5 million, for the year ended December 31, 2024. The adverse development in this program was partially offset by favorable development in other programs.

Expense Ratio

Our expense ratio is a measure of the efficiency and performance of the commercial and personal lines of business (our risk-bearing underwriting operations). It is calculated by dividing the sum of policy acquisition costs and other underwriting expenses by the sum of net earned premiums and other income of the underwriting business. Costs that cannot be readily identifiable as a direct cost of a segment or product line remain in Corporate for segment reporting purposes. The expense ratio excludes wholesale agency and Corporate expenses.

The table below provides the expense ratio by major component:

Our expense ratio increased by 14.0% for the year ended December 31, 2025, to 49.8%, compared to 35.8% for the year ended December 31, 2024.

Policy acquisition costs are costs we incur to issue policies, which include commissions, premium taxes and underwriting reports. The Company offsets direct commissions with ceding commissions from reinsurers. The percentage of policy acquisition costs to net earned premiums and other income increased by 4.2% for the year ended December 31, 2025, to 26.0%, compared to 21.8% for the year ended December 31, 2024. The increase was primarily related to the increased commission rates under new producer agreements concurrent with the sale of CIS and SSU. SSU, which is producing substantially all go-forward business, now manages the policy issuance, premium collections and systems of the homeowners book of business.

Operating expenses consist primarily of employee compensation, information technology and occupancy costs, such as rent and utilities. Operating expenses as a percent of net earned premiums and other underwriting income increased by 9.8% for the year ended December 31, 2025, to 23.8%, compared to 14.0% for the year ended December 31, 2024. The increase in the ratio was mostly due to significantly lower net earned premiums, while legacy operational costs related to the run-off books of business still exist. Such legacy costs are expected to reduce over the next year.

Underwriting Results

We measure the performance of our consolidated results, in part, based on our underwriting gain or loss. We define underwriting gain or loss as income (loss) before income taxes, excluding net investment income, net realized investment gains (losses), changes in fair value of equity securities, other gains (losses), change in fair value of contingent considerations and interest expense. We utilize this metric because we believe it gives our management and other users of our financial information useful insight into our underlying business performance. Underwriting income should not be viewed as a substitute for pre-tax income calculated in accordance with GAAP. A reconciliation between underwriting gain or loss and

pre-tax income is included in Note 19 ~ Segment Information. The following table provides the underwriting gain or loss for the years ended December 31, 2025 and 2024 (dollars in thousands):

Underwriting Gain (Loss)

Investment Income

Net investment income decreased by $726,000, or 12.6%, to $5.0 million for the year ended December 31, 2025, compared to $5.8 million for the year ended December 31, 2024. This decrease was due to a decrease in interest income in our debt securities due to lower interest rates in 2025. Average invested assets during 2025 were $121.3 million compared to $136.9 million for the same period in 2024. The investment portfolio was comprised of 77.3% debt securities, 1.1% equity securities, and 21.6% short-term investments as of December 31, 2025. The investment portfolio was comprised of 82.3% debt securities, 1.2% equity securities, and 16.5% short-term investments as of December 31, 2024.

The debt securities portfolio had an average credit quality was AA+ at December 31, 2025 and 2024, respectively. The portfolio produced a tax-equivalent book yield of 3.2% for the years ended December 31, 2025 and 2024. The option adjusted duration of the debt securities portfolio was 2.6 years and 2.7 years at December 31, 2025 and 2024, respectively.

Realized Investment Gains (Losses)

Net realized investment losses were $716,000 during 2025, compared to $125,000 of losses during 2024. The Company had minimal activity related to selling equity securities in 2025 and 2024.

Interest Expense

Interest expense was $3.2 million and $4.9 million for the years ended December 31, 2025 and 2024, respectively.

On December 23, 2025, the Company issued a total of $8.0 million of its newly designated non-convertible mandatorily redeemable Series C Preferred Stock. The Series C Preferred Stock requires quarterly dividend payments. The quarterly dividend rate is 15.0% per annum. The Company recorded $30,000 of interest expense for the twelve months ended December 31, 2025, related to the dividends from the Series C Preferred Stock.

On February 27, 2025 and March 3, 2025, the Company issued a total of $7.5 million of its newly designated non-convertible mandatorily redeemable Series B Preferred Stock. The Series B Preferred Stock requires quarterly dividend payments at a rate equal to the prime rate of Waterford Bank, N.A. plus 600 basis points, or 12.0%, whichever is higher. As of December 31, 2025, this equated to an annualized rate of 13.0%. The Company recorded $838,000 of interest expense for the twelve months ended December 31, 2025, related to the dividends from the Series B Preferred Stock.

On August 30, 2024, the Company paid off all of its $9.3 million of outstanding Senior Secured Notes with the proceeds from the CIS Sale. The Company incurred a $753,000 call premium from the paydown of the Senior Secured Notes. The Company amortized through interest expense $771,000 of debt issuance costs related to the paydown of the Senior Secured Notes.

In December 2024, the Company bought back $5.0 million of its outstanding senior unsecured notes at a 10.0% discount. The Company recognized a $500,000 gain from the buyback that is included in Other Gains on the Consolidated Statement of Operations. The Company amortized through interest expense $379,000 of debt issuance costs related to the $5.0 million buyback of notes.

Preferred Dividend

On August 30, 2024, the Company redeemed all of the $6.0 million of its outstanding Series A Preferred Stock. The Company incurred a redemption premium of $397,000 and recorded the premium as additional dividends paid on the Series A Preferred Stock. The redemption premium reduced the Company's net income allocable to common shareholders. The Company paid $420,000 in dividends and incurred a redemption premium of $397,000 related to the Series A Preferred Stock in 2024. The dividends and the redemption premium both reduced the Company's net income allocable to common shareholders.

Income Tax Expense

For the year ended December 31, 2025 and 2024, the Company reported a tax expense and tax benefit of $141,000 and $1.8 million, respectively. There is a $22.9 million valuation allowance against 100% of the net deferred tax assets at December 31, 2025. The valuation allowance was $19.7 million as of December 31, 2024.

As of December 31, 2025, the Company has net operating loss carryforwards for federal income tax purposes of $80.0 million, of which $68.6 million expire in tax years 2030 through 2043 and $11.4 million will never expire. This equates to approximately $16.8 million of future tax benefits on taxable income based on the current 21% statutory federal tax rate. Of this amount, $8.0 million are limited in the amount that can be utilized in any one year and may expire before they are realized under Section 382 of the Internal Revenue Code. The Company has state net operating loss carryforwards of $89.4 million, which expire in tax years 2026 through 2045.

The state net operating losses are mainly in Michigan and have an estimated $5.3 million of future tax benefits on taxable income. There is a full valuation allowance against all the Company's deferred tax assets, inclusive of the deferred tax assets on the net operating losses carried forward.

Liquidity and Capital Resources

Sources and Uses of Funds

At December 31, 2025, the Company had $52.1 million in cash, cash equivalents, and short-term investments. Our principal sources of funds are insurance premiums, investment income and proceeds from maturities and sales of invested assets. These funds are primarily used to pay claims, commissions, employee compensation, taxes and other operating expenses, and service debt.

We conduct our business operations primarily through our Insurance Company Subsidiaries. Our ability to service debt, pay dividends on our preferred stock and pay administrative expenses is primarily reliant upon our intercompany service fees paid by the Insurance Company Subsidiaries to the holding company for management, administrative, and information technology services provided to the Insurance Company Subsidiaries by the Parent Company. Secondarily, the Parent Company may receive dividends from the Insurance Company Subsidiaries; however, this is not the primary means in which the holding company supports its funding as state insurance laws restrict the ability of our Insurance Company Subsidiaries to declare dividends to the Parent Company. Generally, the limitations are based on the greater of statutory net income for the preceding year or 10% of statutory surplus at the end of the preceding year. There were no dividends paid from our Insurance Company Subsidiaries for the years ended December 31, 2025 and 2024. However, there was a $4.0 million return-of-capital payment made by WPIC to PHI in 2025. We do not anticipate any dividends being paid to us from our insurance subsidiaries in the near term.

As a result of multiple years of underwriting losses, mainly from the legacy commercial lines of business, the Insurance Company Subsidiaries capital and surplus has diminished over the years. In addition, there was $12.3 million and $29.9 million of adverse development in TIC during 2025 and 2024, respectively. This resulted in the need for PHI to contribute a combined $16.0 million to TIC during the fourth quarter of 2024 and the first quarter of 2025. PHI also contributed $6.5 million of cash to TIC in June 2025. PHI contributed all of its $7.6 million ownership interest in WPIC to TIC effective December 31, 2025, as further support to TIC's capital and surplus. Additionally, PHI contributed $3.0 million of cash to TIC in February 2026 which was included in TIC's reported statutory capital and surplus as of December 31, 2025. Even with

these contributions, TIC fell within the Company Action Level of the Risk Based Capital ("RBC") with an RBC ratio of 236% and 156% as of December 31, 2025 and 2024, respectively, and is required to submit an updated plan of remediation to its domiciliary regulator.

To fund these additional contributions, PHI initially raised $7.5 million from the issuance of the Series B Preferred Stock in the first quarter of 2025. PHI also utilized proceeds from the second $10.0 million earnout from the CIS Sale, which were received in the second quarter of 2025. PHI raised $8.0 million from the issuance of the Series C Preferred Stock in December 2025. In February 2026, PHI completed a backstopped rights offering for $14.0 million which utilized a portion of the proceeds to redeem the $7.5 million Series B Preferred Stock and contribute the $3.0 million of cash to TIC from PHI in February 2026. To further support capital, PHI did not charge any services fees to the Insurance Company Subsidiaries during 2024 or 2025. WPIC no longer writes any business and TIC's writings are significantly constrained by its diminished capital position.

If we do not remediate the regulatory deficiency the insurance regulator could suspend or terminate TIC's authority to write business. Also, A.M. Best and Kroll downgraded the financial strength ratings of both companies and we terminated the rating relationship. Therefore, neither company is currently rated by a nationally recognized statistical rating organization which can have an impact on the ability to market to policyholders. These circumstances could jeopardize the ability of the Company to generate insurance underwriting revenues.

As an effort to support TIC and WPIC during 2025 and 2024, PHI received no intercompany service fees from the Insurance Company Subsidiaries and has relied significantly on proceeds from sales of assets and capital raises over the last two years in order to ensure its ability to meet its obligations as they became due.

With the recently issued $14.0 million of common stock through a backstopped rights offering, proceeds of $8.0 million from the Series C Preferred Stock, anticipated go-forward revenue primarily from TIC, the expected receipt of a $10.0 million third earnout payment by September 2026 and the potential sale of available assets which could generate short-term cash flow and additional short-term financing available from existing investors, management believes the Company has the ability to meet its obligations as they become due over the next twelve months.

The book value per share reflected in our financial statements, which have been prepared in accordance with GAAP, may not represent the amount that shareholders would receive if the Company were liquidated or sold.

The book value per share is calculated based on the historical cost of our assets, less accumulated depreciation and liabilities. This value does not account for the current market conditions, potential future earnings or expenses, or the fair market value of our assets (exclusive of equity security investments) and liabilities. As a result, the book value per share may differ significantly from the actual proceeds that could be realized in a liquidation or sale.

Several factors contribute to this discrepancy, including the following:

Our outstanding public debt securities are currently trading at a discount to their face amount. In order to reduce future cash interest payments, as well as future amounts due at maturity or upon redemption, we may, from time to time, purchase such debt for cash, in exchange for common stock, or for a combination of cash and common stock, in open market or privately negotiated transactions. We will evaluate any such transactions in light of then-existing market conditions, taking into account our current liquidity and prospects for future access to capital. The amounts involved in such transactions, individually or in the aggregate, may be material.

Cash Flows

Operating Activities.Cash used in operating activities for the year ended December 31, 2025 was $43.9 million compared to $32.7 million for the same period in 2024. The $11.2 million increase in cash used in operating activities was primarily due to a $21.8 million decrease in net premiums collected in 2025 compared to 2024. This was partially offset by $11.8 million decrease in net losses paid in 2025 compared to 2024.

Investing Activities. Cash provided by investing activities for the year ended December 31, 2025 was $28.1 million compared to $70.3 million for the same period in 2024. The $42.2 million decrease in cash provided by investing activities was largely driven by $58.3 million in cash received from the sale of CIS and SSU during 2024 that was not received during 2025. This decrease was offset by $10.0 million of proceeds received from the contingent consideration from the CIS Sale in 2025.

Financing Activities. Cash provided by financing activities for the year ended December 31, 2025, was $15.5 million compared to $21.1 million of cash used for the same period in 2024. The $36.6 million increase in cash provided was primarily due to the Company issuing $5.6 million of Series B Preferred Stock and $1.9 million of stock warrants issued from the Series B Preferred Stock in 2025. The Company also received $8.0 million from its issuance of Series C Preferred Stock in 2025. The Company repaid its $6.0 million of Series A Preferred Stock and $14.3 million of long-term debt in 2024.

Outstanding Debt

The Company has $12.9 million of gross debt outstanding as of December 31, 2025, from its senior unsecured notes. The senior unsecured notes bear an interest rate of 9.75% per annum, payable quarterly at the end of March, June, September and December and mature on September 30, 2028. The Company may redeem the senior unsecured notes in whole or in part, at face value at any time after September 30, 2025.

In December 2024, the Company bought back $5.0 million of its outstanding senior unsecured notes held by the lender of the Company's prior Senior Secured Notes at a 10.0% discount. The Company recognized a $500,000 gain from the buyback that is included in Other Gains on the Consolidated Statement of Operations. The Company amortized through interest expense $379,000 of debt issuance costs related to the $5.0 million buyback of notes.

On August 30, 2024, the Company paid off all of its $9.3 million of outstanding Senior Secured Notes with the proceeds from the CIS Sale. The Company incurred a $753,000 call premium from the paydown of the Senior Secured Notes. The Company amortized through interest expense $771,000 of debt issuance costs related to the paydown of the Senior Secured Notes.

As of December 31, 2025, the carrying value of the senior unsecured notes was offset by $700,000 of capitalized debt issuance costs. The debt issuance costs are amortized through interest expense over the life of the loans. Refer to Note 8~ Debtfor additional information regarding our outstanding debt.

Contractual Obligations and Commitments

The following table is a summary of our contractual obligations and commitments as of December 31, 2025 (dollars in thousands):

Regulatory and Rating Issues

The NAIC has a RBC formula (referred to above) to be applied to all property and casualty insurance companies. The formula measures required capital and surplus based on an insurance company's products and investment portfolio and is used as a tool to evaluate the capital adequacy of regulated companies. The RBC formula is used by state insurance regulators to monitor trends in statutory capital and surplus for the purpose of initiating regulatory action. In general, an insurance company must submit a calculation of its RBC formula to the insurance department of its state of domicile as of the end of the previous calendar year. These laws require increasing degrees of regulatory oversight and intervention as an insurance company's RBC declines.

At December 31, 2025 and 2024, TIC fell within the Company Action Level with an RBC ratio of 236% and 156%, respectively. Management is required to update a plan to its domiciliary regulator that shows how TIC will get above the minimum level requirements. In the event TIC does not regain compliance, the director may suspend, revoke, or limit the certificate of authority of the Companies. Management believes the actions it has already taken over the course of 2025 and 2024, including cash contributions made to TIC in 2025 and 2024, will be sufficient to bring TIC back into compliance by December 31, 2026.

The NAIC's IRIS was developed to assist state insurance departments in executing their statutory mandates to oversee the financial condition of insurance companies operating in their respective states. IRIS identifies thirteen industry ratios and specifies "usual values" for each ratio. State insurance regulators review the IRIS ratio results to determine if an insurer is in need of further regulatory scrutiny or action. While the ratios, individually and collectively, are useful tools for identifying companies that may be experiencing financial difficulty, they are only a guide for regulators and should not be considered an absolute indicator of a Company's financial condition. While inquiries from regulators are not uncommon, our Insurance Company Subsidiaries have not experienced any regulatory actions due to their IRIS ratio results.

Recently Issued Accounting Pronouncements

Refer to Note 1 ~ Summary of Significant Accounting Policies: Recently Issued Accounting Guidance of the Notes to the Consolidated Financial Statements for detailed information.