• Conifer Holdings Reports 2024 First Quarter Financial Results

    Source: Nasdaq GlobeNewswire / 14 May 2024 15:01:00   America/Chicago

    TROY, Mich., May 14, 2024 (GLOBE NEWSWIRE) -- Conifer Holdings, Inc. (Nasdaq: CNFR) (“Conifer” or the “Company”) today announced results for the first quarter ended March 31, 2024.

    First Quarter 2024 Financial Highlights (compared to the prior year period)

    • Combined ratio was 96.7%, an improvement of 2.8 percentage points from Q1 2023
    • Expense ratio improved 2.6 percentage points to 34.7%
    • Net investment income increased 18.7% over the prior year period to $1.6 million
    • Net income allocable to common shareholders of $74,000, or $0.01 per share, based on 12.2 million weighted average shares outstanding

    Management Comments

    Nick Petcoff, CEO of Conifer, commented, "We are pleased to see the early signs of progress resulting from our strategic shift away from a risk-bearing carrier revenue model, toward wholesale agency, production-based revenue. Results to date have been encouraging, and we are proud to report a profitable first quarter for Conifer.”

    Strategic Shift to Non-Risk Bearing Revenue

    As previously announced, Conifer made the strategic decision to shift its revenue model to focus on a wholesale agency, production-based approach beginning in 2024. Progress to date has been steady, and the Company’s return to profitability in the first quarter of 2024 underscores the effectiveness of this strategic initiative.

    Based on initial indications, Conifer ultimately plans to redirect all commercial gross written premium through its wholly owned managing general agency (“MGA”), Conifer Insurance Services (“CIS”). Accordingly, the Company anticipates that substantially all commercial lines business will be directly written by third-party insurers with A.M. Best ratings of A- or better by the end of the second quarter of 2024.

    Conifer made considerable progress during the first quarter of 2024 in directing premium to capacity providers for coverage across multiple lines of business. Furthermore, the Company has ramped up transfer of cannabis premium to capacity providers and expects to ultimately shift all premium for this line of business to its capacity partners as well. The Company anticipates that this and other capacity initiatives will lead to substantially increased premiums placed for its agency segment and generate greater commission revenue over time.

    The Company does plan to continue retaining and underwriting low-value homeowners business in Texas and the Midwest.  As detailed in the Personal Lines results overview below, premium for the first quarter of 2024 increased 59.6% from the prior year period. Moreover, this line of business has demonstrated strong performance, leading to a combined ratio of 83.0% for the quarter.

    2024 First Quarter Financial Results Overview

     At and for the
    Three Months Ended March 31,
     2024 2023 % Change
     (dollars in thousands, except share and
    per share amounts)
          
    Gross written premiums$24,313  $36,214  -32.9%
    Net written premiums 15,391   18,342  -16.1%
    Net earned premiums 16,887   21,952  -23.1%
          
    Net investment income 1,552   1,307  18.7%
    Change in fair value of equity investments 43   694  -93.8%
          
    Net income (loss) allocable to common shareholders 74   1,001  **
    Earnings (loss) per common share, basic and diluted$0.01  $0.08   
          
    Adjusted operating income (loss)* 188   307  **
    Adjusted operating income (loss) per share, diluted*$0.02  $0.03  **
          
    Book value per common share outstanding$0.21  $1.82   
          
    Weighted average shares outstanding, basic and diluted 12,222,881   12,215,849   
          
    Underwriting ratios:     
    Loss ratio (1) 62.0%  62.2%  
    Expense ratio (2) 34.7%  37.3%  
    Combined ratio (3) 96.7%  99.5%  
          
    * The "Definitions of Non-GAAP Measures" section of this release defines and reconciles data that are not based on generally accepted accounting principles.
    ** Percentage is not meaningful     
    (1) The loss ratio is the ratio, expressed as a percentage, of net losses and loss adjustment expenses to net earned premiums and other income from underwriting operations.
    (2) The expense ratio is the ratio, expressed as a percentage, of policy acquisition costs and other underwriting expenses to net earned premiums and other income from underwriting operations.
    (3) The combined ratio is the sum of the loss ratio and the expense ratio. A combined ratio under 100% indicates an underwriting profit. A combined ratio over 100% indicates an underwriting loss.
          

    2024 First Quarter Gross Written Premium

    Gross written premiums decreased 32.9% in the first quarter of 2024 to $24.3 million, compared to
    $36.2 million in the prior year period. This decrease reflects the Company’s planned decision to reduce premium leverage on our operating subsidiaries and focus on non-risk bearing revenue.

    Commercial Lines Financial and Operational Review

    Commercial Lines Financial Review
     Three Months Ended March 31,
     2024
    		 2023
    		 % Change
     (dollars in thousands)
          
    Gross written premiums$12,762  $28,975  -56.0%
    Net written premiums 8,287   12,241  -32.3%
    Net earned premiums 8,797   17,123  -48.6%
          
    Underwriting ratios:     
    Loss ratio 76.5%  61.4%  
    Expense ratio 32.7%  36.2%  
    Combined ratio 109.2%  97.6%  
          
    Contribution to combined ratio from net     
    (favorable) adverse prior year development 0.5%  -4.8%  
          
    Accident year combined ratio (1) 108.7%  102.4%  
          
    (1) The accident year combined ratio is the sum of the loss ratio and the expense ratio, less changes in net ultimate loss estimates from prior accident year loss reserves. The accident year combined ratio provides management with an assessment of the specific policy year's profitability and assists management in their evaluation of product pricing levels and quality of business written.
          

    The Company’s commercial lines of business represented 52.5% of total gross written premium in the first quarter of 2024. As noted above, premium decreased considerably year over year as Conifer executed its planned shift over to its commission-based revenue model with our managing general agency, CIS. For example, as part of the planned reduction in premiums written, substantially all of the Security Guard program is now no longer being written on Conifer paper.

    Personal Lines Financial and Operational Review

               
    Personal Lines Financial Review
     Three Months Ended March 31,
      2024   2023  % Change 
     (dollars in thousands)
               
    Gross written premiums$11,551  $7,239  59.6%
    Net written premiums 7,104   6,101  16.4%
    Net earned premiums 8,090   4,829  67.5%
               
    Underwriting ratios:          
    Loss ratio 46.2%  65.3%   
    Expense ratio 36.8%  40.8%   
    Combined ratio 83.0%  106.1%   
               
    Contribution to combined ratio from net          
    (favorable) adverse prior year development -6.3%  -8.1%   
               
    Accident year combined ratio 89.3%  114.2%   
               

    Personal lines, representing 47.5% of total gross written premium for the quarter, consists primarily of low-value dwelling homeowner’s insurance in Texas and the Midwest.

    Personal lines gross written premium increased 59.6% from the prior year period to $11.6 million for the first quarter of 2024, led by growth in the Company’s low-value dwelling line of business in Texas.

    Conifer was pleased to report strong performance in the premium it chose to retain:  Personal Lines business posted a combined ratio of 83.0% for the first quarter of 2024. This represents an improvement of more than 23 percentage points compared to the prior year period.

    Combined Ratio Analysis

     Three Months Ended
    March 31,
     2024
    		 2023
      
        
    Underwriting ratios:   
    Loss ratio62.0% 62.2%
    Expense ratio34.7% 37.3%
    Combined ratio96.7% 99.5%
        
    Contribution to combined ratio from net (favorable)   
    adverse prior year development-2.7% -5.6%
        
    Accident year combined ratio99.4% 105.1%
        

    Combined Ratio:
    The Company's combined ratio was 96.7% for the three months ended March 31, 2024, an improvement of 2.8 percentage points compared to the prior year period. This strong performance serves as a testament to the effectiveness of the company's risk mitigation strategies and its commitment to sustained profitability.

    Loss Ratio:
    The Company’s losses and loss adjustment expenses were $10.5 million for the first quarter ended March 31, 2024, down from $13.7 million in the prior year period. This resulted in a loss ratio of
    62.0% for the first quarter of 2024, down slightly from the same period in 2023.

    Expense Ratio:
    The expense ratio demonstrated continued improvement in the first quarter, reflecting the Company’s sustained emphasis on expense management: the expense ratio for the first quarter of
    2024 was 34.7%, down from 37.3% in the prior year period and below the Company’s near-term target of 35%.

    Net Investment Income
    Net investment income was $1.6 million for the quarter ended March 31, 2024, compared to
    $1.3 million in the prior year period.

    Change in Fair Value of Equity Securities
    During the quarter, the Company reported a small gain from the change in fair value of equity investments of $43,000, compared to a $694,000 gain in the prior year period.  

    Net Income (Loss) allocable to common shareholders
    The Company reported net income allocable to common shareholders of $74,000, or $0.01 per share, for the first quarter of 2024.

    Adjusted Operating Income (Loss)
    Adjusted operating income was $188,000, or $0.02 per share, for the first quarter ended March 31, 2024. See Definitions of Non-GAAP Measures.

    Earnings Conference Call with Accompanying Slide Presentation
    The Company will hold a conference call/webcast on Wednesday, May 15, 2024, at 8:30 a.m. ET to discuss results for the first quarter ended March 31, 2024.

    Investors, analysts, employees and the general public are invited to listen to the conference call via:

    Webcast:On the Event Calendar at IR.CNFRH.com
    Conference Call: 844-868-8843 (domestic) or 412-317-6589 (international)
      

    The webcast will be archived on the Conifer Holdings website and available for replay for at least one year.

    About Conifer Holdings
    Conifer Holdings, Inc. is a Michigan-based property and casualty holding company. Through its subsidiaries, Conifer offers specialty insurance coverage for both commercial and personal lines, marketing through independent agents in all 50 states. The Company is traded on the Nasdaq Global Market under the symbol CNFR. Additional information is available on the Company's website at www.ir.cnfrh.com.

    Definitions of Non-GAAP Measures
    Conifer prepares its public financial statements in conformity with accounting principles generally accepted in the United States of America (GAAP). Statutory data is prepared in accordance with statutory accounting rules as defined by the National Association of Insurance Commissioners' (NAIC) Accounting Practices and Procedures Manual, and therefore is not reconciled to GAAP data.

    We believe that investors’ understanding of Conifer’s performance is enhanced by our disclosure of adjusted operating income. Our method for calculating this measure may differ from that used by other companies and therefore comparability may be limited. We define adjusted operating income (loss), a non-GAAP measure, as net income (loss) excluding: 1) net realized investment gains and losses, 2) change in fair value of equity securities and 3) Other gains (losses).  We use adjusted operating income as an internal performance measure in the management of our operations because we believe it gives our management and other users of our financial information useful insight into our results of operations and our underlying business performance.

    Forward-Looking Statement

    This press release contains forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements give current expectations or forecasts of future events or our future financial or operating performance, and include Conifer’s expectations regarding premiums, earnings, its capital position, expansion, and growth strategies. The forward-looking statements contained in this press release are based on management’s good-faith belief and reasonable judgment based on current information. The forward-looking statements are qualified by important factors, risks and uncertainties, many of which are beyond our control, that could cause our actual results to differ materially from those in the forward-looking statements, including those described in our form 10-K (“Item 1A Risk Factors”) filed with the SEC on April 1, 2024 and subsequent reports filed with or furnished to the SEC. Any forward-looking statement made by us in this report speaks only as of the date hereof or as of the date specified herein. We undertake no obligation to publicly update any forward-looking statement, whether as a result of new information, future developments or otherwise, except as may be required by any applicable laws or regulations.

    Reconciliations of adjusted operating income (loss) and adjusted operating income (loss) per share:

     Three Months Ended
    March 31,
     2024 2023
     (dollar in thousands, except
    share and per share amounts)
        
    Net income (loss)$231 $1,001
    Less:   
    Change in fair value of equity securities 43  694
    Impact of income tax expense (benefit) from adjustments * -  -
    Adjusted operating income (loss)$188 $307
        
    Weighted average common shares, diluted 12,222,881  12,215,849
        
    Diluted income (loss) per common share:   
    Net income (loss)$0.02 $0.08
    Less:   
    Change in fair value of equity securities, net of tax -  0.05
    Impact of income tax expense (benefit) from adjustments * -  -
    Adjusted operating income (loss), per share$0.02 $0.03
        

    * The Company has recorded a full valuation allowance against its deferred tax assets as of March 31, 2024 and March 31, 2023, respectively. 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 NOLs and the change in the valuation allowance.

    Conifer Holdings, Inc. and Subsidiaries
    Consolidated Balance Sheets
    (dollars in thousands)
        
     March 31, December 31,
     2024 2023
    Assets(Unaudited)  
    Investment securities:   
    Debt securities, at fair value (amortized cost of $134,219 and$120,534  $122,113 
    $135,370, respectively)   
    Equity securities, at fair value (cost of $2,374 and $2,385, respectively) 2,387   2,354 
    Short-term investments, at fair value 23,724   20,838 
    Total investments 146,645   145,305 
        
    Cash and cash equivalents 17,316   11,125 
    Premiums and agents' balances receivable, net 24,056   29,369 
    Receivable from Affiliate 1,155   1,047 
    Reinsurance recoverables on unpaid losses 73,807   70,807 
    Reinsurance recoverables on paid losses 5,075   12,619 
    Prepaid reinsurance premiums 20,486   28,908 
    Deferred policy acquisition costs 5,663   6,285 
    Other assets 6,875   6,339 
    Total assets$301,078  $311,804 
        
    Liabilities and Shareholders' Equity   
    Liabilities:   
    Unpaid losses and loss adjustment expenses$175,826  $174,612 
    Unearned premiums 55,231   65,150 
    Reinsurance premiums payable 2,399   246 
    Debt 24,946   25,061 
    Funds held under reinsurance agreements 24,211   24,550 
    Premiums payable to other insureds 8,840   13,986 
    Accounts payable and accrued expenses 7,066   5,310 
    Total liabilities 298,519   308,915 
        
    Commitments and contingencies -   - 
        
    Shareholders' equity:   
    Preferred stock, no par value (10,000,000 shares authorized; 1,000 6,000   6,000 
    issued and outstanding, respectively)   
    Common stock, no par value (100,000,000 shares authorized; 12,222,881   
    issued and outstanding, respectively) 98,132   98,100 
    Accumulated deficit (86,609)  (86,683)
    Accumulated other comprehensive income (loss) (14,964)  (14,528)
    Total shareholders' equity 2,559   2,889 
    Total liabilities and shareholders' equity$301,078  $311,804 
        


    Conifer Holdings, Inc. and Subsidiaries
    Consolidated Statements of Operations (Unaudited)
    (dollars in thousands, except share and per share data)
        
     Three Months Ended
     March 31
     2024
    		 2023
        
    Revenue and Other Income   
    Premiums   
    Gross earned premiums$34,232  $34,294 
    Ceded earned premiums (17,345)  (12,342)
    Net earned premiums 16,887   21,952 
    Net investment income 1,552   1,307 
    Change in fair value of equity securities 43   694 
    Agency commission income 4,336   430 
    Other income 260   196 
    Total revenue and other income 23,078   24,579 
        
    Expenses   
    Losses and loss adjustment expenses, net 10,520   13,713 
    Policy acquisition costs 7,013   4,721 
    Operating expenses 4,495   4,279 
    Interest expense 877   686 
    Total expenses 22,905   23,399 
        
    Income (loss) before equity earnings in Affiliate and income taxes 173   1,180 
    Equity earnings in Affiliate, net of tax 58   (179)
    Income tax expense (benefit) -   - 
        
    Net income (loss) 231   1,001 
    Preferred stock dividends 157   - 
    Net income (loss) allocable to common shareholders 74   1,001 
        
    Earnings (loss) per common share,   
    basic and diluted
    		$0.01  $0.08 
        
    Weighted average common shares outstanding,   
    basic and diluted
    		 12,222,881   12,215,849 
        

    For Further Information:
    Jessica Gulis, 248.559.0840
    ir@cnfrh.com


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