Conifer Holdings Reports 2023 Second Quarter Financial Results

Conifer Holdings, Inc.

Company to Host Conference Call at 8:30 AM ET on Thursday, August 10, 2023

TROY, Mich., Aug. 09, 2023 (GLOBE NEWSWIRE) -- Conifer Holdings, Inc. (Nasdaq: CNFR) (“Conifer” or the “Company”) today announced results for the second quarter ended June 30, 2023.

Second Quarter 2023 Financial Highlights (compared to the prior year period)

• Gross written premium increased 19.4% to $44.7 million

• Expense ratio continues downward trend: 110 basis point improvement from Q2 2022

• Combined ratio of 120.9%; accident year combined ratio excluding the impact of storm-related losses was 95.4% ⁽⁶⁾
  

Management Comments
James Petcoff, Executive Chairman and Co-CEO, commented, “While the second quarter results were affected by atypically severe storm losses, it is important to emphasize that excluding the impact of these storm-related losses, Conifer would have achieved continued profitability in the quarter.”

2023 Second Quarter Financial Results Overview

	At and for the Three Months Ended June 30,												At and for the Six Months Ended June 30,
		2023				2022			% Change					2023				2022			% Change
	(dollars in thousands, except share and per share amounts)
Gross written premiums	$	44,674			$	37,418				19.4	%		$	80,888			$	70,382				14.9	%
Net written premiums		29,328				27,266				7.6	%			47,670				45,287				5.3	%
Net earned premiums		23,183				24,576				-5.7	%			45,135				48,531				-7.0	%
Net investment income		1,354				564				140.1	%			2,661				1,071				148.5	%
Net realized investment gains (losses)		-				(1,436	)			**				-				(1,505	)			**
Change in fair value of equity investments		(12	)			317				-103.8	%			682				597				14.2	%
Other gains (losses)		-				(1	)			**				-				(6	)			**
Net income (loss)		(4,739	)			(8,399	)			**				(3,738	)			(11,269	)			**
Net income (loss) per share, diluted	$	(0.39	)		$	(0.86	)						$	(0.31	)		$	(1.16	)
Adjusted operating income (loss)*		(4,727	)			(7,279	)			**				(4,420	)			(10,355	)			**
Adjusted operating income (loss) per share, diluted*	$	(0.39	)		$	(0.75	)			**			$	(0.36	)		$	(1.07	)			**
Book value per common share outstanding	$	1.38			$	1.75							$	1.38			$	1.75
Weighted average shares outstanding, basic and diluted		12,220,331				9,712,602								12,218,102				9,710,223
Underwriting ratios:
Loss ratio (1)		83.0	%			90.2	%							72.9	%			82.7	%
Expense ratio (2)		37.9	%			39.0	%							37.6	%			38.3	%
Combined ratio (3)		120.9	%			129.2	%							110.5	%			121.0	%
* 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.

2023 Second Quarter Premiums

Gross Written Premiums
Gross written premiums increased 19.4% in the second quarter of 2023 to $44.7 million, compared to $37.4 million in the prior year period. This top line growth was orchestrated through a multi-faceted approach: Rate increases in select market segments were thoughtfully aligned with the Company's risk profile; while concurrently, continued expansion within select key verticals allowed the Company to capitalize on existing strengths and expertise, and highlight runway for future growth in these historically profitable lines of business.

This approach was most clearly demonstrated in the Company’s small business program, where GWP increased 17.0% in the second quarter of 2023 to $28.0 million. Conifer’s low-value dwelling line of business continued its strong growth trajectory as well, with premiums up 62.0% to $6.9 million in the quarter.

Net Earned Premiums
Net earned premiums decreased 5.7% to $23.2 million in the second quarter of 2023, compared to $24.6 million for the prior year period. The decrease was primarily due to higher specific loss property reinsurance rates, effective January 1, 2023.

Commercial Lines Financial and Operational Review

Commercial Lines Financial Review
	Three Months Ended June 30,												Six Months Ended June 30,
		2023				2022			% Change					2023				2022			% Change
	(dollars in thousands)
Gross written premiums	$	34,761			$	32,076				8.4	%		$	63,736			$	60,662				5.1	%
Net written premiums		20,485				22,386				-8.5	%			32,726				36,726				-10.9	%
Net earned premiums		17,487				20,784				-15.9	%			34,610				41,308				-16.2	%
Underwriting ratios:
Loss ratio		77.5	%			95.5	%							69.5	%			88.1	%
Expense ratio		37.4	%			38.0	%							36.8	%			37.2	%
Combined ratio		114.9	%			133.5	%							106.3	%			125.3	%
Contribution to combined ratio from net (favorable) adverse prior year development		5.0	%			44.4	%							0.2	%			36.1	%
Accident year combined ratio (non-GAAP) (4)		109.9	%			89.1	%							106.1	%			89.2	%
Impact from storms		5.5	%			-								2.7	%			-
Accident year combined ratio before impact of storms (non-GAAP) (4)		104.4	%			89.1	%							103.4	%			89.2	%
(4) 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 accident year combined ratio is a non-GAAP measure. We excluded $967,000 of severe storm losses from the accident year combined ratio during the quarter due to the significant variance relative to our historical and expected future losses. The accident year combined ratio before impact of storms is a non-GAAP measure.

The Company’s commercial lines of business represented 77.8% of total gross written premium in the second quarter of 2023. Conifer’s dedication to maintaining and enhancing its deep knowledge and experience within select key verticals remains a cornerstone of its strategy. This expertise-driven approach provides the foundation for the Company's future growth and profitability.

Commercial lines gross written premium increased 8.4% in the second quarter of 2023 to $34.8 million, diligently executing on the Company’s strategy of combining rate increases with organic growth in historically profitable lines of business.

The Commercial lines combined ratio was 114.9% for the three months ended June 30, 2023; this represents an improvement of 18.6 percentage points compared to the same period in 2022. The loss ratio was 77.5% for the quarter, down 18.0 percentage points from 95.5% in the prior year period.

The expense ratio was 37.4% for the second quarter of 2023, marking continued improvement from the prior year period.

Personal Lines Financial and Operational Review

Personal Lines Financial Review
	Three Months Ended June 30,												Six Months Ended June 30,
		2023				2022			% Change					2023				2022			% Change
	(dollars in thousands)
Gross written premiums	$	9,913			$	5,342				85.6	%		$	17,152			$	9,720				76.5	%
Net written premiums		8,843				4,880				81.2	%			14,944				8,561				74.6	%
Net earned premiums		5,696				3,792				50.2	%			10,525				7,223				45.7	%
Underwriting ratios:
Loss ratio		100.1	%			61.4	%							84.1	%			51.7	%
Expense ratio		39.2	%			44.7	%							40.0	%			44.1	%
Combined ratio		139.3	%			106.1	%							124.1	%			95.8	%
Contribution to combined ratio from net (favorable) adverse prior year development		-6.4	%			7.0	%							-7.2	%			0.6	%
Accident year combined ratio (non-GAAP) (5)		145.7	%			99.1	%							131.3	%			95.2	%
Impact from storms		78.0	%			-								42.2	%			-
Accident year combined ratio before impact of storms (non-GAAP) (5)		67.7	%			99.1	%							89.1	%			95.2	%
(5) 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 accident year combined ratio is a non-GAAP measure. We excluded $4.4 million of severe storm losses from the accident year combined ratio during the quarter due to the significant variance relative to our historical and expected future losses. The accident year combined ratio before impact of storms is a non-GAAP measure.

Personal lines, representing 22.2% of total gross written premium for the second quarter of 2023, consists mainly of low-value dwelling homeowner’s insurance.

Personal lines gross written premium increased 85.6% to $9.9 million in the second quarter of 2023 compared to the prior year period, led by growth in the Company’s low-value dwelling line of business.

Personal lines combined ratio was 139.3% for the three months ended June 30, 2023. As noted in the Company’s July 28, 2023 press release, losses stemmed predominantly from the multiple convection storms that largely impacted Oklahoma and Texas in the second quarter. Before the impact of these storm-related losses, the personal lines accident year combined ratio was a profitable 67.3% for the second quarter of 2023, and 89.1% for the six months ended June 30, 2023.

Combined Ratio Analysis

	Three Months Ended June 30,								Six Months Ended June 30,
		2023				2022				2023				2022
Underwriting ratios:
Loss ratio		83.0	%			90.2	%			72.9	%			82.7	%
Expense ratio		37.9	%			39.0	%			37.6	%			38.3	%
Combined ratio		120.9	%			129.2	%			110.5	%			121.0	%
Contribution to combined ratio from net (favorable) adverse prior year development		2.2	%			38.6	%			-1.5	%			30.9	%
Accident year combined ratio (non-GAAP) (6)		118.7	%			90.6	%			112.0	%			90.1	%
Impact from storms		23.3	%			-				11.9	%			-
Accident year combined ratio before impact of storms (non-GAAP) (6)		95.4	%			90.6	%			100.1	%			90.1	%
(6) 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 accident year combined ratio is a non-GAAP measure. We excluded $5.4 million of severe storm losses from the accident year combined ratio during the quarter due to the significant variance relative to our historical and expected future losses. The accident year combined ratio before impact of storms is a non-GAAP measure.

Combined Ratio:
The Company's combined ratio was 120.9% for the quarter ended June 30, 2023, down 8.3 percentage points from the prior year period. Before the impact of storm losses as described above, the Company’s accident year combined ratio was 95.4% for the quarter.

Loss Ratio:
The Company’s losses and loss adjustment expenses were $19.3 million for the three months ended June 30, 2023, down from $22.3 million in the prior year period.

Expense Ratio:
The expense ratio continues to improve, due in large part to the Company’s sustained emphasis on expense management: the expense ratio for the second quarter of 2023 was 37.9%, down from 39.0% in the prior year period as the Company approaches its near-term target expense ratio of 35%.

Net Investment Income
Net investment income was $1.4 million during the quarter ended June 30, 2023, up 140.1% compared to $564,000 in the prior year period.

Net Realized Investment Gains (Losses)
The Company did not have any realized investment gains or losses during the second quarter of 2023. Net realized investment losses were $1.4 million in the prior year period.

Change in Fair Value of Equity Securities
During the quarter, the Company reported a loss of $12,000 from the change in fair value of equity investments, compared to a gain of $317,000 in the prior year period.

Net Income (Loss)
The Company reported net loss of $4.7 million, or $0.39 per share, for the second quarter of 2023, compared to a net loss of $8.4 million, or $0.86 per share, in the prior year period.

Adjusted Operating Income (Loss)
In the second quarter of 2023, the Company reported an adjusted operating loss of $4.7 million, or $0.39 per share, compared to an adjusted operating loss of $7.3 million, or $0.75 per share, for the same period in 2022. See Definitions of Non-GAAP Measures.

Earnings Conference Call with Accompanying Slide Presentation
The Company will hold a conference call/webcast on Thursday, August 10, 2023 at 8:30 a.m. ET to discuss results for the second quarter ended June 30, 2023.

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

Webcast: Conference Call:

On the Event Calendar at IR.CNFRH.com 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 specialty insurance holding company, offering customized coverage solutions tailored to the needs of our insureds nationwide. Conifer 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 the after-tax amounts of: 1) net realized investment gains and losses, 2) Other gains (losses) and 3) 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,
		2023				2022				2023				2022
	(dollar in thousands, except share and per share amounts)
Net income (loss)	$	(4,739	)		$	(8,399	)		$	(3,738	)		$	(11,269	)
Less:
Net realized investment gains (losses), net of tax		-				(1,436	)			-				(1,505	)
Other gains (losses), net of tax		-				(1	)			-				(6	)
Change in fair value of equity securities, net of tax		(12	)			317				682				597
Adjusted operating income (loss)	$	(4,727	)		$	(7,279	)		$	(4,420	)		$	(10,355	)
Weighted average common shares, diluted		12,220,331				9,712,602				12,218,102				9,710,223
Diluted income (loss) per common share:
Net income (loss)	$	(0.39	)		$	(0.86	)		$	(0.31	)		$	(1.16	)
Less:
Net realized investment gains (losses), net of tax		-				(0.14	)			-				(0.15	)
Other gains (losses), net of tax		-				-				-				-
Change in fair value of equity securities, net of tax		-				0.03				0.05				0.06
Adjusted operating income (loss), per share	$	(0.39	)		$	(0.75	)		$	(0.36	)		$	(1.07	)

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 27, 2023 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.

Conifer Holdings, Inc. and Subsidiaries
Consolidated Balance Sheets
(dollars in thousands)
	June 30,				December 31,
		2023				2022
Assets	(Unaudited)
Investment securities:
Debt securities, at fair value (amortized cost of $121,367 and $127,119, respectively)	$	105,996			$	110,201
Equity securities, at fair value (cost of $2,282 and $1,905, respectively)		2,326				1,267
Short-term investments, at fair value		39,564				25,929
Total investments		147,886				137,397
Cash and cash equivalents		18,765				28,035
Premiums and agents' balances receivable, net		25,895				21,802
Receivable from Affiliate		933				1,261
Reinsurance recoverables on unpaid losses		56,505				82,651
Reinsurance recoverables on paid losses		5,828				6,653
Prepaid reinsurance premiums		24,444				16,399
Deferred policy acquisition costs		9,500				10,290
Other assets		6,767				7,862
Total assets	$	296,523			$	312,350
Liabilities and Shareholders' Equity
Liabilities:
Unpaid losses and loss adjustment expenses	$	145,004			$	165,539
Unearned premiums		78,468				67,887
Reinsurance premiums payable		12,023				6,144
Debt		34,031				33,876
Accounts payable and accrued expenses		10,140				19,954
Total liabilities		279,666				293,400
Commitments and contingencies		-				-
Shareholders' equity:
Common stock, no par value (100,000,000 shares authorized; 12,222,881 and 12,215,849 issued and outstanding, respectively)		98,013				97,913
Accumulated deficit		(64,498	)			(60,760	)
Accumulated other comprehensive income (loss)		(16,658	)			(18,203	)
Total shareholders' equity		16,857				18,950
Total liabilities and shareholders' equity	$	296,523			$	312,350

Consolidated Statements of Operations (Unaudited)
(dollars in thousands, except share and per share data)
		Three Months Ended								Six Months Ended
		June 30								June 30
			2023				2022				2023				2022
Revenue and Other Income
Premiums
Gross earned premiums		$	36,013			$	33,782			$	70,307			$	66,546
Ceded earned premiums			(12,830	)			(9,206	)			(25,172	)			(18,015	)
Net earned premiums			23,183				24,576				45,135				48,531
Net investment income			1,354				564				2,661				1,071
Net realized investment gains (losses)			-				(1,436	)			-				(1,505	)
Change in fair value of equity securities			(12	)			317				682				597
Other gains (losses)			-				(1	)			-				(6	)
Other income			398				663				1,024				1,361
Total revenue and other income			24,923				24,683				49,502				50,049
Expenses
Losses and loss adjustment expenses, net			19,319				22,251				33,032				40,269
Policy acquisition costs			4,413				5,725				9,134				11,189
Operating expenses			5,114				4,470				9,393				8,630
Interest expense			820				727				1,506				1,438
Total expenses			29,666				33,173				53,065				61,526
Income (loss) before equity earnings in Affiliate and income taxes			(4,743	)			(8,490	)			(3,563	)			(11,477	)
Equity earnings (loss) in Affiliate, net of tax			4				93				(175	)			169
Income tax expense (benefit)			-				2				-				(39	)
Net income (loss)			(4,739	)			(8,399	)			(3,738	)			(11,269	)
Earnings (loss) per common share, basic and diluted		$	(0.39	)		$	(0.86	)		$	(0.31	)		$	(1.16	)
Weighted average common shares outstanding, basic and diluted			12,220,331				9,712,602				12,218,102				9,710,223

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