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United States securities and exchange commission logo
February 17, 2024
Richard Bunch
Chief Executive Officer
TWFG, Inc.
1201 Lake Woodlands Drive, Suite 4020
The Woodlands, Texas 77380
Re: TWFG, Inc.
Draft Registration
Statement submitted January 19, 2024
CIK No. 0002007596
Dear Richard Bunch:
We have reviewed your
draft registration statement and have the following comments.
Please respond to this letter by providing the requested
information and either submitting
an amended draft registration statement or publicly filing your
registration statement on
EDGAR. If you do not believe a comment applies to your facts and
circumstances or do not
believe an amendment is appropriate, please tell us why in your
response.
After reviewing the information you provide in response to this
letter and your amended
draft registration statement or filed registration statement, we may
have additional comments.
Draft Registration Statement submitted January 19, 2024
Cover Page
1. We note the second and
seventh measures on page iii include a statement explaining how
or why the measure is
used. However, the third, fourth, fifth and sixth measures simply
state that the measures
are appropriate because they "do not relate to underlying business
performance." Please
revise to further differentiate among these measures and explain
how what is eliminated
from each one does not relate to underlying business
performance.
Prospectus Summary, page 1
2. Please revise to
clarify the nature of your particular business and revenue streams as
compared to other key
participants, customers and end-customers in the broader insurance
market. For example, we
note the reference to Total Written Premium on page 1. Please
make clear, if true,
that you do not underwrite risk in exchange for premiums. Identify
your principal
customers responsible for material revenues. For example, explain and
Richard Bunch
FirstName
TWFG, Inc.LastNameRichard Bunch
Comapany17,
February NameTWFG,
2024 Inc.
February
Page 2 17, 2024 Page 2
FirstName LastName
quantify the extent to which individuals seeking insurance pay you
commissions as part of
their premiums paid to insurance carriers. It is unclear if insurance
carriers and/or
individual agents or small businesses of insurance agents or brokers
pay fees or
commissions to you that constitute a material portion of your
revenues. Where you refer to
clients, please explain whether these are individuals paying premiums
and/or commissions
to you or others, and clarify the extent to which clients used as a
capitalized defined term
are different from clients used elsewhere, such as "our client base"
and "client
satisfaction" on page 2. Please also avoid or clarify jargon and
legalistic terms, for
example TWFG "partners" and "carrier partners" if these do not
describe legal
partnerships.
3. Additionally, we note that throughout the prospectus you refer to your
insurance agents.
Please clarify, if true, that none of the insurance agents operating
in your branches are
employees of your company or your subsidiaries. Otherwise, please
revise to quantify the
number of insurance agents you employ.
4. We note the statements (1) on page iv that TWFG MGA Agencies do not
include TWFG
branding and (2) on page 41 that you collect premiums in "certain
cases." We also note
that your website allows persons to find what appear to be small, TWFG
agencies by
searching with a zip code. With a view to clarifying disclosure,
advise us whether
"branding" is restricted to agencies that are presented as TWFG
agencies on your website.
Are corporate agencies the only ones on your website, or do they also
include "Agency-in-
a-Box" or other agencies? Do you collect premiums only through
corporate agencies or
from other agency clients? In your revised disclosure, clarify if
"platform" refers
exclusively to your website or to other channels or arrangements with
your contractual
parties or end consumers.
5. We note the extensive definitions appearing between the Cover Page and
the Summary.
Please move pages ii-iv to after the Summary. Additionally, where you
first use MGA,
please describe your typical MGA independent agency and provide an
explanation in
plain language understandable to the average investor how MGA is
differentiated from
Agency-in-a-Box, corporate agencies and agencies that include TWFG
branding.
6. We note your statement on pages 3 and 109 that you believe you are one
of the largest
independent insurance agencies focused primarily on personal lines.
Please disclose your
basis for this statement. Additionally, please clarify if you mean you
are one of the largest
independent insurance agencies in a specific state, in all states
where you operate, or
otherwise as applicable.
7. We note your disclosure regarding geographic diversity here and
elsewhere in your
prospectus. We also note your risk factor on page 38 disclosing that a
significant portion
of your business is concentrated in Texas, California, and Louisiana.
Where you highlight
your geographic diversity, please balance your statement by disclosing
your business
concentration in certain states, identifying such states.
Additionally, where appropriate,
please discuss the ways in which this risk is managed.
Richard Bunch
FirstName
TWFG, Inc.LastNameRichard Bunch
Comapany17,
February NameTWFG,
2024 Inc.
February
Page 3 17, 2024 Page 3
FirstName LastName
8. Please revise the text accompanying the map on page 5, the last risk
factor on page 38 and
where appropriate to provide quantitative disclosure of the
approximate percentages of
your business concentrated in Texas, California and Louisiana and any
other states with
concentration.
9. Please revise page eight to explain what you mean by "insurance
carriers delegate the
authority to bind a policy to us within negotiated limits and
criteria." We also note the
reference on page eight to TWFG Agencies selling their Books of
Business to you. Please
revise to clarify where purchased accounts are placed, for example
with Corporate
Branches or elsewhere.
Our Business, page 3
10. We note disclosure that you operate through two primary offerings,
identified as Insurance
Services and TWFG s managing general agency ( TWFG MGA ). Please
revise your
filing to separately disclose the revenues earned from the
Agency-in-a-Box branches
and your Corporate Branches as well as the MGA offerings for each
period presented.
11. We note your disclosure addressing how commissions and related
expenses are handled
with Agency-in-a-Box branches; however, please revise your
filing to also provide a
similar discussion which addresses the Corporate Branches and TWFG
MGA. Also,
disclose the percentage of commission revenues recognized from each
source during the
periods presented.
12. We note disclosure on page four that in January 2024 you acquired nine
Branches and
converted them into Corporate Branches. Please revise to address when
the prior five
Branches were acquired. Additionally, please revise your filing to
discuss your Corporate
Branch growth strategy, how you determine whether to purchase a Branch
and convert it
into a Corporate Branch, disclose the costs incurred to acquire the
Corporate Branches and
quantify the actual and expected financial statement impact of these
acquisitions and
subsequent conversion on your operations and financial position of the
company including
liquidity requirements.
Summary of Risk Factors, page 13
13. It appears your Summary of Risk Factors should address the condition
that your total
consolidated debt is collateralized by substantially all of your
assets including rights to
future commissions and that, as discussed in the last risk on page 44,
the specified changes
in ownership could result in a change of control default under your
Credit Agreements.
Please revise or advise us why you believe this disclosure is not
material.
Summary of Historical and Pro Forma Financial and Other Data
Key Performance Indicators, page 27
14. Please revise to also disclose the total written premiums for both
personal and commercial
insurance during the periods presented.
Richard Bunch
FirstName
TWFG, Inc.LastNameRichard Bunch
Comapany17,
February NameTWFG,
2024 Inc.
February
Page 4 17, 2024 Page 4
FirstName LastName
Organic Revenue and Organic Revenue Growth, page 28
15. Please revise to specifically disclose each of the individual
components considered in the
determination of organic revenue for the year ended December 31,
2021, which was
utilized in determining the organic revenue growth recognized
for the year ended
December 31, 2022.
An overall decline in economic activity could have a material adverse effect on
the financial
condition and results of operations, page 30
16. Please discuss here and where appropriate whether your business and
results of operations
have been materially affected by the factors listed in this risk
factor, such as the recent
resurgence of inflation and expected interest rate increases. For
example, you state that
rising inflation and interest rates could shift demand for services,
which could negatively
affect the amount of business you are able to obtain. Please clarify
the extent to which the
recent significant increase in inflation and interest rates materially
affected your results of
operations or margins.
We derive a significant portion of our insurance carrier capacity from a
limited number of
insurance carriers., page 32
17. We note your disclosure that four insurance carriers accounted for
38.8% of your Total
Written Premium for the year ended December 31, 2022. Please tell us
if any single
insurance carrier accounted for a substantial portion of your
revenues. If so, please
disclose who these insurance carriers are or provide us with the
analysis of why you
believe this information is not material to investors. As information
for the year ended
December 31, 2023 is available, please make conforming disclosures.
We have debt outstanding that could adversely affect our financial flexibility
and the ability to
borrow, page 44
18. Please revise to identify and quantify the key ratios and covenants
you are subject to under
debt agreements, including the two coverage ratios identified on page
100. Additionally,
please disclose the current status of your debt under the Revolving
Credit Agreement and
Credit Agreements.
We rely on the efficient, uninterrupted, and secure operation of complex
information technology
systems and networks, page 54
19. We note that you first became aware that you might have experienced a
cyberattack, and
subsequently confirmed through an investigation that you did
experience a cyberattack, in
August 2023. Please revise where appropriate to disclose the nature of
your board of
director's role in overseeing your cybersecurity risk management, the
manner in which the
board administers this oversight function and any effect this has on
the board s leadership
structure.
Richard Bunch
FirstName
TWFG, Inc.LastNameRichard Bunch
Comapany17,
February NameTWFG,
2024 Inc.
February
Page 5 17, 2024 Page 5
FirstName LastName
Risks relating to ownership of our Class A common stock and this offering, page
63
20. Please revise to quantify the "significant percentage" of common stock
Bunch Holdings
can hold while still being able to significantly influence your
business. Clarify the
circumstances when transfers of Class C common stock retain and lose
the high-vote
provision.
Use of Proceeds, page 78
21. We note that you intend to use the net proceeds for, among other uses,
potential strategic
acquisitions of, or investments in, other business or technologies.
Please disclose the
identity of such business, if known, or, if not known, the nature of
the business to be
sought, the status of any negotiations with respect to the
acquisition, and a brief
description of such business.
Management's Discussion and Analysis, page 92
22. We note blanks throughout this section and the explanatory note
preceding the Cover Page
about omitted information. We may have comments regarding information
to be provided.
In this regard, we note you identify some macroeconomic trends on page
94 and
identify "soft" and "hard" markets on page 32 when discussing how you
may be impacted
by cyclicality in the insurance market. Your revised overview
disclosure on page 94 and
the period-to-period analysis disclosures beginning on page 96 should
clarify the
historical, current and expected markets and their actual and
reasonably likely material
impacts on your financial condition and results of operations.
Overview, page 92
23. We note disclosure on page 94 of your two asset acquisitions and five
asset acquisitions
completed in 2022 and 2023, respectively. We also note that through
these asset
acquisitions, you have acquired agencies, books of business, MGAs
insurance networks
and renewal rights across a range of specialties and geographies.
Please revise to disclose
how you accounted for each of these acquisitions clearly addressing
how each of the
individual components of the asset acquisitions were valued, and the
impact these
acquisitions have had on your operating results and financial position
for each of the
periods presented.
24. Please revise to provide a discussion which identifies the number of
Agency-in-a-Box
branches, Corporate Branches, and MGA Agencies for each period
presented along with a
discussion of how the year-over-year changes have impacted your
operating results and
financial position of the Company.
Commission Income, page 95
25. Please revise here or elsewhere as appropriate to describe the
commission structure you
typically maintain with insurance carriers.
Richard Bunch
FirstName
TWFG, Inc.LastNameRichard Bunch
Comapany17,
February NameTWFG,
2024 Inc.
February
Page 6 17, 2024 Page 6
FirstName LastName
Consolidated Results of Operations, page 96
26. Please revise to disclose and discuss the commission income recognized
from Agency-
in-a Box branches, Corporate Branches and TWFG MGA during each the
periods
presented.
27. Please revise to disclose and discuss each of the different types of
fee income, specialty
policy fees, branch fees, license fees and third-party administrator
fees recognized in each
of the periods presented.
28. Please revise to separately disclose and discuss the commission fees
paid to Agency-in-a-
Box branches, Corporate Branches and MGA Agencies during the
periods presented.
Key Performance Indicators, page 97
29. We note you identify total written premium as your only key
performance indicator and
believe it is a useful metric because it is the underlying driver of
the majority of your
revenue. Please revise the relevant sections of your filing to
disaggregate total written
premiums (for both personal and commercial insurance) by those
obtained from your
Agency-in-a-Box, Corporate Branches, and from TWFG MGA along
with the reason(s)
for the period-over-period changes to total written premium for each
period presented.
Business, page 107
30. We note the statement on pages three and 107 that you believe you are
one of the largest
independent insurance agencies focused primarily on personal lines.
Please revise to
clarify the basis for this statement, for example, whether it is based
on the amount
of revenues, the number of agents or otherwise.
Business
Company Review, page 107
31. Please revise to provide a discussion of the premium financing
business which is operated
through the IPFS Corporation, ensuring that it also addresses the
impact on the operating
results and financial position of the Company for the periods
presented.
Competition, page 124
32. We note the statement on pages one, 92 and 107 that you are "pioneers"
and a leading
independent distribution platform with advantages over traditional
distribution models.
Please revise page 124 to address competition among other independent
distributions
platforms and revise Summary, Management's Discussion and Analysis and
Business to
explain for the average investor how your independent distribution
platform differs from a
traditional distribution model.
Richard Bunch
FirstName
TWFG, Inc.LastNameRichard Bunch
Comapany17,
February NameTWFG,
2024 Inc.
February
Page 7 17, 2024 Page 7
FirstName LastName
Certain Relationships and Related Party Transactions, page 136
33. Please revise your disclosure in this section to include all
disclosure required by Item 404
of Regulation S-K. For example, disclose:
the name of each related party and the basis on which the named
person is
a related party. Refer to Item 404(a)(1) of Regulation S-K;
all material terms of the agreements and arrangements. For
example, you do not
disclose the terms for the "monthly management fee" to TWICO or
EVO. As another
non-exclusive example, you do not disclose the fee structure for
the enterprise license
agreements with EVO; and
all related party transactions responsive to the item requirement.
In this regard, we
note references on page F-20 to AIS and the statement that you
consider AIS a related
party.
Lease Agreement, page 136
34. Please advise us of the entity with which you expect to enter into a
new long-term lease
agreement in 2024 and confirm you will file the agreement as an
exhibit.
Notes to Consolidated Financial Statements
Note 2. Summary of Significant Accounting Policies
Restricted Cash, page F-12
35. Please revise to disclose the amount of short-term high quality
securities held by the
Company at each period end presented. Further, disclose where these
investments are
reflected in the financial statements.
36. Please revise to address the reasons for carrier liabilities exceeding
the amount of
restricted cash at December 31, 2022, given that they appear to be
related to the similar
services performed.
Fair Value Measurements, page F-14
37. Please revise to disclose your accounting policy for commissions
payable.
Note 3. Revenue, page F-16
38. Please revise to provide an aging analysis of the commissions
receivable for the periods
presented.
Exhibits
39. Please file a form of agreement for your MGA programs with insurance
carriers. Please
file other material agreements, including the intercompany services
and cost allocation
agreement and managing general agency and claims agreement with TWICO.
Richard Bunch
FirstName
TWFG, Inc.LastNameRichard Bunch
Comapany17,
February NameTWFG,
2024 Inc.
February
Page 8 17, 2024 Page 8
FirstName LastName
General
40. Please provide us with supplemental copies of all written
communications, as defined in
Rule 405 under the Securities Act, that you, or anyone authorized to
do so on your behalf,
have presented or expect to present to potential investors in reliance
on Section 5(d) of the
Securities Act, whether or not you retained, or intend to retain,
copies of those
communications. Please contact Madeleine Mateo at (202) 551-3465 to
discuss how to
submit the materials, if any, to us for our review.
41. We note your disclosure on page 68 that you may invest client and
insurance carrier
premiums and surplus line taxes in short-term high-quality securities.
We also note your
disclosure on page 73 that you maintain cash and investment balances.
Please add the
following disclosures:
Describe your investment strategy and, if applicable, how your
strategy differs from a
traditional fixed-income investment strategy in your Summary and
Business sections.
As applicable, disclose in the appropriate sections the impacts
of macroeconomic
conditions, such as interest rates, foreign currency exchange
rates, conditions in the
debt and equity markets and market volatility, as well as risks
associated with asset
classes that comprise your investment portfolio.
In your Business section, break down the investment portfolio
by composition of
investment grade and non-investment grade assets, further broken
down by asset
class and assigned credit rating. These figures should be
provided by dollar amount
and the percentage of your portfolio.
In your Business section, disclose the material terms of any
investment management
agreements currently in place, including the identities of the
parties to the agreement,
the compensation structure with and historical fees paid to the
investment
manager(s), any minimum amount of assets required to be covered
under the
agreement, and term and termination provisions. Please file the
material agreements
as exhibits.
42. We note the offering will be conducted through an Up-C structure and
the LLC Units held
by the Pre-IPO LLC Members and New Members will be exchanged into
Class A
common stock, Class B common stock, and Class C common stock in the
manner
described in your prospectus. Please disclose, if material, any
economic differences or
potential economic differences between the common stock and the LLC
Units and the
risks that such differences pose to potential investors.
43. We note your references to the tax advantages of the "Up-C" structure.
Provide disclosure
clarifying the reasons for organizing the post-IPO entity in an UP-C
structure, explaining
the different intended tax benefits for each of the public company
(and how they are
achieved) and the existing owners, and stating whether you
contemplated other alternative
structures and, if not, why not. Please ensure the explanatory
disclosure is understandable
to the average investor. Conflicts of interest and disproportionate
benefits relevant to
public investors should be highlighted in Risk Factors, for example in
the Risk Factor
Richard Bunch
TWFG, Inc.
February 17, 2024
Page 9
beginning on page 61.
44. We note the directed share program referenced on page 23. Please
clarify the "certain
other persons associated with us" and indicate whether the directed
share program shares
will be subject to a lock up agreement.
45. We note the high-vote common stock to be held by the controlling
shareholder and that
you will be a controlled company. Please advise us if Bunch Holdings
or Mr. Bunch will
effectively have managerial control over the operations of TWFG
Holding Company,
LLC.
Please contact John Spitz at 202-551-3484 or Marc Thomas at 202-551-3452
if you have
questions regarding comments on the financial statements and related matters.
Please contact
Madeleine Joy Mateo at 202-551-3465 or James Lopez at 202-551-3536 with any
other
questions.
FirstName LastNameRichard Bunch Sincerely,
Comapany NameTWFG, Inc.
Division of
Corporation Finance
February 17, 2024 Page 9 Office of Finance
FirstName LastName