• Conifer Holdings Reports 2022 Second Quarter Financial Results

    Source: Nasdaq GlobeNewswire / 10 Aug 2022 15:01:00   America/Chicago

    BIRMINGHAM, Mich., Aug. 10, 2022 (GLOBE NEWSWIRE) -- Conifer Holdings, Inc. (Nasdaq: CNFR) (“Conifer” or the “Company”) today announced results for the second quarter ended June 30, 2022.

    Second Quarter 2022 Financial Highlights (compared to the prior year period)

    • Gross written premium increased 7.0% to $37.4 million
    • Commercial Lines gross written premium increased 3.6% to $32.1 million
    • Personal Lines gross written premium increased 32.4% to $5.3 million
    • Net earned premium remained steady at $24.6 million
    • Expense ratio decreased to 39.0%, down 230 basis points from Q2 2021
    • Book value per share of $1.75 as of June 30, 2022

    Subsequent to the end of the second quarter, the Company completed a private placement of 2,500,000 shares of common stock at $2.00 per share, which was sold to the Company’s management and Board of Directors for proceeds of $5.0 million. Taking this transaction into account, on a pro forma basis, the Company’s total shareholders’ equity as of June 30, 2022 would have been $22.0 million, and its book value per share would have been $1.80.

    James Petcoff, Executive Chairman and Co-CEO, commented, “While we are pleased to report continued top-line growth in our most profitable lines of business, we must recognize that these achievements were generally obscured by persistent adverse development from select lines. As a result, we have taken numerous prudent actions to strengthen our reserves overall and we look forward to reporting the beneficial results of those initiatives in the very near future.”

    2022 Second Quarter Financial Results Overview

     At and for the Three Months Ended June 30, At and for the Six Months Ended June 30,
     2022 2021 % Change 2022 2021 % Change
                
     (dollars in thousands, except share and per share amounts)
                  
    Gross written premiums$37,418  $34,981  7.0% $70,382  $65,354  7.7%
    Net written premiums 27,266   28,532  -4.4%  45,287   53,015  -14.6%
    Net earned premiums 24,576   24,838  -1.1%  48,531   47,673  1.8%
                  
    Net investment income 564   503  12.1%  1,071   1,035  3.5%
    Net realized investment gains (losses) (1,436)  1,060  **   (1,505)  3,984  ** 
    Change in fair value of equity investments 317   (525) **   597   (1,065)   
    Other gains (losses) (1)  8,910  **   (6)  8,910  ** 
                  
    Net income (loss) (8,399)  5,552  **   (11,269)  916  ** 
    Net income (loss) per share, diluted$(0.86) $0.57     $(1.16) $0.09    
                  
    Adjusted operating income (loss)* (7,279)  (3,893) **   (10,355)  (10,913) ** 
    Adjusted operating income (loss) per share, diluted*$(0.75) $(0.40) **  $(1.07) $(1.13) ** 
                  
    Book value per common share outstanding$1.75  $4.53     $1.75  $4.53    
                  
    Weighted average shares outstanding, basic and diluted 9,712,602   9,686,631      9,710,223   9,684,193    
                  
    Underwriting ratios:             
    Loss ratio (1) 90.2%  71.9%     82.7%  77.9%   
    Expense ratio (2) 39.0%  41.3%     38.3%  42.9%   
    Combined ratio (3) 129.2%  113.2%     121.0%  120.8%   
                  
    * 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. 

    2022 Second Quarter Premiums

    Gross Written Premiums
    Gross written premiums increased 7.0% in the second quarter of 2022 to $37.4 million, compared to $35.0 million in the prior year period. The increase reflects a combination of rate increases and continued expansion into select specialty lines, specifically in the Company’s small business programs. Personal lines premium, specifically Conifer’s low-value dwelling line of business, continues to bolster Conifer’s profitable top line growth.

    Net Earned Premiums
    Net earned premiums decreased 1.1% to $24.6 million for the second quarter of 2022, compared to $24.8 million for the prior year period. The Company expects net earned premium to increase throughout 2022 as consistent increases in gross written premium over the past several quarters continue to earn ratably through the year.

    Commercial Lines Financial and Operational Review

    Commercial Lines Financial Review
        
     Three Months Ended June 30, Six Months Ended June 30,
     2022 2021 % Change 2022 2021 % Change
     (dollars in thousands)
                
    Gross written premiums$32,076  $30,947  3.6% $60,662  $58,168  4.3%
    Net written premiums 22,386   24,672  -9.3%  36,726   46,229  -20.6%
    Net earned premiums 20,784   22,188  -6.3%  41,308   42,894  -3.7%
                
    Underwriting ratios:           
    Loss ratio 95.5%  76.2%    88.1%  78.8%  
    Expense ratio 38.0%  41.2%    37.2%  42.9%  
    Combined ratio 133.5%  117.4%    125.3%  121.7%  
                
    Contribution to combined ratio from net (favorable) adverse prior year development 44.4%  27.8%    36.1%  26.4%  
                
    Accident year combined ratio (1) 89.1%  89.6%    89.2%  95.3%  
                
    (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, representing 85.7% of total gross written premium in the second quarter of 2022, primarily consists of property and liability coverage offered to owner-operated small- to mid-sized businesses.

    Commercial lines gross written premium increased 3.6% in the second quarter of 2022 to $32.1 million, reflecting the Company’s continued emphasis on expansion in its most profitable specialty lines.

    The commercial lines combined ratio was 133.5% for the three months ended June 30, 2022, compared to 117.4% in the prior year period. The loss ratio was 95.5% for the second quarter of 2022, compared with 76.2% in the prior year period. Adverse prior year development contributed 44.4% to the commercial lines loss ratio for the second quarter, stemming largely from quick service restaurant and other discontinued or significantly deemphasized lines of business. The Company anticipates marked improvement in the near term as deemphasized lines of business roll off the Company’s books. Moreover, the Company has undertaken a number of targeted loss mitigation initiatives over the course of the second quarter, expected to significantly benefit the Company’s bottom line in the months to come.

    The commercial lines expense ratio for the second quarter was 38.0%, down from 41.2% during the prior year period, reflecting the Company’s commitment to sustained expense management and profitable top line growth.

    The commercial lines accident year combined ratio was 89.1% for the second quarter of 2022.

    Personal Lines Financial and Operational Review

    Personal Lines Financial Review
     
     Three Months Ended June 30, Six Months Ended June 30,
     2022 2021 % Change 2022 2021 % Change
     (dollars in thousands)
                
    Gross written premiums$5,342  $4,034  32.4% $9,720  $7,186  35.3%
    Net written premiums 4,880   3,860  26.4%  8,561   6,786  26.2%
    Net earned premiums 3,792   2,650  43.1%  7,223   4,779  51.1%
                
    Underwriting ratios:           
    Loss ratio 61.4%  36.6%    51.7%  69.8%  
    Expense ratio 44.7%  42.0%    44.1%  42.8%  
    Combined ratio 106.1%  78.6%    95.8%  112.6%  
                
    Contribution to combined ratio from net (favorable) adverse prior year development 7.0%  0.9%    0.6%  13.1%  
                
    Accident year combined ratio 99.1%  77.7%    95.2%  99.5%  

    Personal lines, representing 14.3% of total gross written premium for the second quarter of 2022, consists largely of low-value dwelling homeowner’s insurance.

    Personal lines gross written premium increased 32.4% to $5.3 million in the second quarter of 2022 compared to $4.0 million in the prior year period. This increase was led by growth in the Company’s low-value dwelling line of business in Oklahoma and Texas.

    The personal lines combined ratio was 106.1% for the three months ended June 30, 2022, compared to 78.6% in the prior year period. Personal lines loss ratio was 61.4%, compared to 36.6% in the prior year period.

    The personal lines accident year combined ratio was 99.1% for the second quarter of 2022.

    Combined Ratio Analysis

     Three Months Ended June 30, Six Months Ended June 30,
     2022 2021 2022 2021
      
            
    Underwriting ratios:       
    Loss ratio90.2% 71.9% 82.7% 77.9%
    Expense ratio39.0% 41.3% 38.3% 42.9%
    Combined ratio129.2% 113.2% 121.0% 120.8%
            
    Contribution to combined ratio from net (favorable) adverse prior year development38.6% 24.9% 30.9% 25.0%
            
    Accident year combined ratio90.6% 88.3% 90.1% 95.8%

    Combined Ratio
    The Company's combined ratio was 129.2% for the quarter ended June 30, 2022, compared to 113.2% for the same period in 2021. The Company’s accident year combined ratio for the quarter ended June 30, 2022 was 90.6%, compared to 88.3% in the prior year period.

    Loss Ratio:
    The Company’s losses and loss adjustment expenses were $22.3 million for the three months ended June 30, 2022, compared to $17.9 million in the prior year period. This resulted in a loss ratio of 90.2%, compared to 71.9% in the prior year period.

    Before adverse development, the loss ratio for the second quarter of 2022 was 51.6%, which aligns with the Company’s target loss ratio in its select specialty lines of business. As deemphasized business continues to roll off the books, and as statutes expire in difficult jurisdictions, the Company fully anticipates that the loss ratio will improve correspondingly.

    Moreover, the Company has taken important steps to restrict the bottom-line effects of adverse prior year development from these deemphasized lines of business, and expects to see the beneficial results of these initiatives in the near term.

    Expense Ratio:
    The expense ratio was 39.0% for the second quarter of 2022, compared to 41.3% in the prior year period.

    Net Investment Income
    Net investment income was $564,000 during the quarter ended June 30, 2022, compared to $503,000 in the prior year period.

    Net Realized Investment Income
    Net realized investment losses during the second quarter were $1.4 million, compared to net realized investment gains of $1.1 million in the prior year period.

    Change in Fair Value of Equity Securities
    During the second quarter, the Company reported a gain of $317,000 from the change in fair value of equity investments, compared to a loss of $525,000 in the prior year period.

    Net Income
    In the second quarter of 2022, the Company reported a net loss of $8.4 million, or $0.86 per share, compared to net income of $5.6 million, or $0.57 per share, in the prior year period.

    Adjusted Operating Income
    In the second quarter of 2022, the Company reported an adjusted operating loss of $7.3 million, or $0.75 per share, compared to an adjusted operating loss of $3.9 million, or $0.40 per share, for the same period in 2021. See Definitions of Non-GAAP Measures.

    Earnings Conference Call and Webcast with Accompanying Slide Presentation
    The Company will hold a conference call/webcast on Thursday, August 11, 2022 at 8:30 a.m. ET to discuss results for the second quarter ended June 30, 2022.

    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 the Company
    Conifer Holdings, Inc. is a specialty insurance holding company, offering customized coverage solutions tailored to the needs of our insureds. Nationwide, Conifer markets largely through independent agents, and is traded on the NASDAQ exchange under the symbol “CNFR”. Additional information is available on the Company’s website at www.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 after-tax net realized investment gains and losses, excluding the tax effect of changes in unrealized gains and losses, excluding the after-tax change in fair value of equity securities. 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.

    Reconciliations of adjusted operating income and adjusted operating income per share:

     Three Months Ended June 30, Six Months Ended June 30,
      2022  2021  2022  2021
      
     (dollar in thousands, except share and per share amounts)
            
    Net income (loss)$(8,399) $5,552  $(11,269) $916 
    Less:       
    Net realized investment gains (losses), net of tax (1,436)  1,060   (1,505)  3,984 
    Other gains (losses), net of tax (1)  8,910   (6)  8,910 
    Change in fair value of equity securities, net of tax 317   (525)  597   (1,065)
    Adjusted operating income (loss)$(7,279) $(3,893) $(10,355) $(10,913)
            
    Weighted average common shares, diluted 9,712,602   9,686,631   9,710,223   9,684,193 
            
    Diluted income (loss) per common share:       
    Net income (loss)$(0.86) $0.57  $(1.16) $0.09 
    Less:       
    Net realized investment gains (losses), net of tax (0.14)  0.11   (0.15)  0.41 
    Other gains (losses), net of tax -   0.92   -   0.92 
    Change in fair value of equity securities, net of tax 0.03   (0.06)  0.06   (0.11)
    Adjusted operating income (loss), per share$(0.75) $(0.40) $(1.07) $(1.13)

    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 March 10, 2022 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.

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


    Conifer Holdings, Inc. and Subsidiaries
    Consolidated Balance Sheets
    (dollars in thousands)

     June 30, December 31,
      2022  2021
    Assets(Unaudited)  
    Investment securities:   
    Debt securities, at fair value (amortized cost of $132,427 and $150,732, respectively)$119,207  $149,783 
    Equity securities, at fair value (cost of $1,433 and $10,972, respectively) 990   9,931 
    Short-term investments, at fair value 28,001   23,013 
    Total investments 148,198   182,727 
        
    Cash and cash equivalents 13,148   9,913 
    Premiums and agents' balances receivable, net 24,701   21,197 
    Receivable from Affiliate 5,216   5,784 
    Reinsurance recoverables on unpaid losses 37,769   40,344 
    Reinsurance recoverables on paid losses 4,479   1,347 
    Prepaid reinsurance premiums 15,381   8,301 
    Deferred policy acquisition costs 10,747   12,267 
    Other assets 15,416   8,524 
    Total assets$275,055  $290,404 
        
    Liabilities and Shareholders' Equity   
    Liabilities:   
    Unpaid losses and loss adjustment expenses$140,996  $139,085 
    Unearned premiums 69,104   65,269 
    Reinsurance premiums payable 3,711   5,318 
    Debt 33,720   33,564 
    Accounts payable and accrued expenses 10,547   6,665 
    Total liabilities 258,078   249,901 
        
    Commitments and contingencies -   - 
        
    Shareholders' equity:   
    Common stock, no par value (100,000,000 shares authorized; 9,715,324 and 9,707,817 issued and outstanding, respectively) 92,799   92,692 
    Accumulated deficit (61,348)  (50,079)
    Accumulated other comprehensive income (loss) (14,474)  (2,110)
    Total shareholders' equity  16,977   40,503 
    Total liabilities and shareholders' equity$275,055  $290,404 


    Conifer Holdings, Inc. and Subsidiaries
    Consolidated Statements of Operations (Unaudited)
    (dollars in thousands, except share and per share data)

     Three Months Ended Six Months Ended
     June 30, June 30,
      2022  2021  2022  2021
            
    Revenue and Other Income       
    Premiums       
    Gross earned premiums$33,782  $30,228  $66,546  $58,475 
    Ceded earned premiums (9,206)  (5,390)  (18,015)  (10,802)
    Net earned premiums 24,576   24,838   48,531   47,673 
    Net investment income 564   503   1,071   1,035 
    Net realized investment gains (losses) (1,436)  1,060   (1,505)  3,984 
    Change in fair value of equity securities 317   (525)  597   (1,065)
    Other gains (losses) (1)  8,910   (6)  8,910 
    Other income 663   666   1,361   1,222 
    Total revenue and other income 24,683   35,452   50,049   61,759 
            
    Expenses       
    Losses and loss adjustment expenses, net 22,251   17,926   40,269   37,288 
    Policy acquisition costs 5,725   6,896   11,189   13,646 
    Operating expenses 4,470   4,342   8,630   8,691 
    Interest expense 727   732   1,438   1,453 
    Total expenses 33,173   29,896   61,526   61,078 
            
    Income (loss) before equity earnings in Affiliate and income taxes (8,490)  5,556   (11,477)  681 
    Equity earnings in Affiliate, net of tax 93   180   169   428 
    Income tax expense (benefit) 2   184   (39)  193 
    Net income (loss) (8,399)  5,552   (11,269)  916 
            
    Earnings (loss) per common share, basic and diluted$(0.86) $0.57  $(1.16) $0.09 
            
    Weighted average common shares outstanding, basic and diluted 9,712,602   9,686,631   9,710,223   9,684,193 
            

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