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Conifer Holdings Reports 2022 Third Quarter Financial Results

Company to Host Conference Call at 8:30 AM ET on Thursday, November 10, 2022

TROY, Mich., Nov. 09, 2022 (GLOBE NEWSWIRE) -- Conifer Holdings, Inc. (Nasdaq: CNFR) (“Conifer” or the “Company”) today announced results for the third quarter ended September 30, 2022.

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

  • Gross written premium down 1.8% quarter over quarter, excluding deemphasized lines (largely QSR and FL business), GWP increased 8.9% over the prior year period
  • Commercial Lines gross written premium for the third quarter, excluding deemphasized lines, increased 4.0% to $27.4 million
  • Personal Lines gross written premium increased 41.5% to $5.5 million
  • Net earned premium remained steady at $25.0 million
  • Expense ratio decreased to 39.9%, down 240 basis points from Q3 2021

Subsequent to the end of the third quarter, the Company executed an asset purchase agreement with Whitetail Insurance Services, LLC, a wholly-owned subsidiary of Acrisure, LLC (“Acrisure”). The sale of certain assets of MGA Venture Agency Holdings, Inc. (“Venture”) closed on Friday, October 14, 2022, and was made effective as of October 1, 2022.

The Company also completed a Loss Portfolio Transfer (LPT) reinsurance agreement with Fleming Reinsurance Ltd (“Fleming Re”) subsequent to the end of the third quarter. Through this transaction, Conifer secured $20 million of adverse development cover for accident years 2019 and prior.

Under the agreement, Fleming Re will cover an aggregate limit of $66.3 million of paid losses on $40.8 million of stated net reserves as of June 30, 2022, relating to accident years 2019 and prior. Within the aggregate limit, there is a $5.5 million loss corridor in which the Company retains losses in excess of $40.8 million.

James Petcoff, Executive Chairman and Co-CEO, commented, “We are pleased to report the recent closing of two significant and strategic transactions that will make efficient use of our capital to support the Company’s profitable growth into the future.”

2022 Third Quarter Financial Results Overview

    At and for the Three Months Ended September 30,   At and for the Nine Months Ended September 30,
      2022       2021     % Change   2022       2021     % Change
    (dollars in thousands, except share and per share amounts)
                         
Gross written premiums $ 33,088     $ 33,704     -1.8 %   $ 103,470     $ 99,058     4.5 %
Net written premiums   23,693       26,069     -9.1 %     68,980       79,084     -12.8 %
Net earned premiums   24,958       24,941     0.1 %     73,489       72,614     1.2 %
                         
Net investment income   860       514     67.3 %     1,931       1,549     24.7 %
Net realized investment gains (losses)   -       (101 )   **       (1,505 )     3,883     **  
Change in fair value of equity investments   (151 )     (2,169 )   **       446       (3,234 )      
Other gains (losses)   66       2,778     **       60       11,688     **  
                             
Net income (loss)   (1,523 )     (1,209 )   **       (12,792 )     (293 )   **  
  Net income (loss) per share, diluted $ (0.14 )   $ (0.12 )         $ (1.26 )   $ (0.03 )      
                             
Adjusted operating income (loss)*   (1,438 )     (1,717 )   **       (11,793 )     (12,630 )   **  
  Adjusted operating income (loss) per share, diluted* $ (0.13 )   $ (0.18 )   **     $ (1.16 )   $ (1.30 )   **  
                         
Book value per common share outstanding $ 1.32     $ 4.34         $ 1.32     $ 4.34      
                         
Weighted average shares outstanding, basic and diluted   11,101,194       9,692,150           10,178,975       9,686,874      
                         
Underwriting ratios:                      
  Loss ratio (1)   66.6 %     64.6 %         77.2 %     73.3 %    
  Expense ratio (2)   39.9 %     42.3 %         38.8 %     42.7 %    
  Combined ratio (3)   106.5 %     106.9 %         116.0 %     116.0 %    
                         
* 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.
                         

2022 Third Quarter Premiums

Gross Written Premiums
Gross written premiums decreased 1.8% in the third quarter of 2022 to $33.1 million, compared to $33.7 million in the prior year period. However, excluding deemphasized lines of business (QSR, Commercial Auto, Florida business), gross written premium increased 8.9% over the prior period. 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 increased 0.1% to $25.0 million for the third quarter of 2022, compared to $24.9 million for the prior year period. The Company expects net earned premium to continue its increase through the remainder of 2022 as increases in profitable gross written premium over the past several quarters continue to earn ratably through the year.

Commercial Lines Financial and Operational Review

    Three Months Ended September 30,   Nine Months Ended September 30,
      2022       2021     % Change   2022       2021     % Change
    (dollars in thousands)
                         
Gross written premiums $ 27,635     $ 29,849     -7.4 %   $ 88,297     $ 88,017     0.3 %
Net written premiums   18,730       22,456     -16.6 %     55,456       68,685     -19.3 %
Net earned premiums   20,789       21,975     -5.4 %     62,097       64,869     -4.3 %
                         
Underwriting ratios:                      
  Loss ratio   64.0 %     66.7 %         80.0 %     74.7 %    
  Expense ratio   39.6 %     42.7 %         38.0 %     42.9 %    
  Combined ratio   103.6 %     109.4 %         118.0 %     117.6 %    
                         
Contribution to combined ratio from net                      
  (favorable) adverse prior year development   13.2 %     15.2 %         28.4 %     22.6 %    
                         
Accident year combined ratio (1)   90.4 %     94.2 %         89.6 %     95.0 %    
                         
(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 83.5% of total gross written premium in the third quarter of 2022, primarily consists of property and liability coverage offered to owner-operated small- to mid-sized businesses.

Commercial lines gross written premium fell slightly in the third quarter of 2022 to
$27.6 million. Excluding the Company’s deemphasized lines of business, commercial lines gross written premium rose 4.0% in the quarter. This reflects the Company’s continued emphasis on expansion in its most profitable specialty lines.

The commercial lines combined ratio was 103.6% for the three months ended September 30, 2022, compared to 109.4% in the prior year period.   The loss ratio was 64.0% for the third quarter of 2022, compared with 66.7% in the prior year period. The Company anticipates continued improvement in the near term as deemphasized lines of business roll off the Company’s books. Moreover, the completion of the Loss Portfolio Transfer reinsurance agreement in mid-October 2022 is expected to significantly benefit the Company’s bottom line in the months to come.

The commercial lines expense ratio for the third quarter was 39.6%, down from 42.7% 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 90.4% for the third quarter of 2022.

Personal Lines Financial and Operational Review

    Three Months Ended September 30,   Nine Months Ended September 30,
      2022       2021     % Change   2022       2021     % Change
    (dollars in thousands)
                         
Gross written premiums $ 5,453     $ 3,855     41.5 %   $ 15,173     $ 11,041     37.4 %
Net written premiums   4,963       3,613     37.4 %     13,524       10,399     30.1 %
Net earned premiums   4,169       2,966     40.6 %     11,392       7,745     47.1 %
                         
Underwriting ratios:                      
  Loss ratio   79.2 %     48.8 %         61.8 %     61.8 %    
  Expense ratio   41.3 %     39.2 %         43.1 %     41.4 %    
  Combined ratio   120.5 %     88.0 %         104.9 %     103.2 %    
                         
Contribution to combined ratio from net                      
  (favorable) adverse prior year development   9.1 %     9.7 %         3.8 %     11.8 %    
                         
Accident year combined ratio   111.4 %     78.3 %         101.1 %     91.4 %    
                         

Personal lines, representing 16.5% of total gross written premium for the third quarter of 2022, consists largely of low-value dwelling homeowner’s insurance.

Personal lines gross written premium increased 41.5% to $5.5 million in the third quarter of 2022 compared to $3.9 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 120.5% for the three months ended September 30, 2022, compared to 88.0% in the prior year period. Personal lines loss ratio was 79.2%, compared to 48.8% in the prior year period.

The personal lines accident year combined ratio was 111.4% for the third quarter of 2022.

Combined Ratio Analysis

    Three Months Ended September 30,   Nine Months Ended September 30,
    2022    2021      2022    2021 
     
Underwriting ratios:                
  Loss ratio 66.6 %   64.6 %     77.2 %   73.3 %
  Expense ratio 39.9 %   42.3 %     38.8 %   42.7 %
  Combined ratio 106.5 %   106.9 %     116.0 %   116.0 %
                   
Contribution to combined ratio from net (favorable)                
  adverse prior year development 12.6 %   14.6 %     24.6 %   21.4 %
                   
Accident year combined ratio 93.9 %   92.3 %     91.4 %   94.6 %
                   

Combined Ratio
The Company's combined ratio was 106.5% for the quarter ended September 30, 2022, compared to 106.9% for the same period in 2021. The Company’s accident year combined ratio for the quarter ended September 30, 2022 was 93.9%, compared to 92.3% in the prior year period.

Loss Ratio:
The Company’s losses and loss adjustment expenses were $16.7 million for the three months ended September 30, 2022, compared to $16.2 million in the prior year period. This resulted in a loss ratio of 66.6%, compared to 64.6% in the prior year period.

The accident year loss ratio for the third quarter of 2022 was 54.0%, 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 39.9% for the third quarter of 2022, compared to 42.3% in the prior year period.

Net Investment Income
Net investment income was $860,000 during the quarter ended September 30, 2022, compared to $514,000 in the prior year period.

Net Realized Investment Income
Net realized investment income was flat during the third quarter of 2022, compared to net realized investment losses of $101,000 in the prior year period.

Change in Fair Value of Equity Securities
During the third quarter, the Company reported a loss of $151,000 from the change in fair value of equity investments, compared to a loss of $2.2 million in the prior year period.

Net Income
In the third quarter of 2022, the Company reported a net loss of $1.5 million, or $0.14 per share, compared to net loss of $1.2 million, or $0.12 per share, in the prior year period.

Adjusted Operating Income

In the third quarter of 2022, the Company reported an adjusted operating loss of $1.4 million, or $0.13 per share, compared to an adjusted operating loss of $1.7 million, or $0.18 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, November 10, 2022 at 8:30 a.m. ET to discuss results for the third quarter ended September 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 after-tax other 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 September 30,   Nine Months Ended September 30,
      2022       2021       2022       2021  
    (dollar in thousands, except share and per share amounts)
               
Net income (loss) $ (1,523 )   $ (1,209 )   $ (12,792 )   $ (293 )
Less:              
Net realized investment gains (losses), net of tax   -       (101 )     (1,505 )     3,883  
Other gains (losses), net of tax   66       2,778       60       11,688  
Change in fair value of equity securities, net of tax   (151 )     (2,169 )     446       (3,234 )
Adjusted operating income (loss) $ (1,438 )   $ (1,717 )   $ (11,793 )   $ (12,630 )
                 
Weighted average common shares, diluted   11,101,194       9,692,150       10,178,975       9,686,874  
                 
Diluted income (loss) per common share:              
Net income (loss) $ (0.14 )   $ (0.12 )   $ (1.26 )   $ (0.03 )
Less:              
Net realized investment gains (losses), net of tax   -       (0.01 )     (0.15 )     0.40  
Other gains (losses), net of tax   -       0.29       0.01       1.20  
Change in fair value of equity securities, net of tax   (0.01 )     (0.22 )     0.04       (0.33 )
Adjusted operating income (loss), per share $ (0.13 )   $ (0.18 )   $ (1.16 )     (1.30 )

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)
               
          September 30, December 31,
            2022       2021  
Assets   (Unaudited)    
Investment securities:        
  Debt securities, at fair value (amortized cost of $129,372 and   $ 111,847     $ 149,783  
    $150,732, respectively)        
  Equity securities, at fair value (cost of $1,906 and $10,972, respectively)   1,312       9,931  
  Short-term investments, at fair value     30,562       23,013  
    Total investments     143,721       182,727  
               
Cash and cash equivalents     35,413       9,913  
Premiums and agents' balances receivable, net     21,856       21,197  
Receivable from Affiliate     5,862       5,784  
Reinsurance recoverables on unpaid losses     41,749       40,344  
Reinsurance recoverables on paid losses     2,489       1,347  
Prepaid reinsurance premiums     15,333       8,301  
Deferred policy acquisition costs     10,483       12,267  
Other assets     9,096       8,524  
      Total assets   $ 286,002     $ 290,404  
               
Liabilities and Shareholders' Equity        
Liabilities:        
  Unpaid losses and loss adjustment expenses   $ 144,557     $ 139,085  
  Unearned premiums     67,792       65,269  
  Reinsurance premiums payable     3,352       5,318  
  Debt       48,298       33,564  
  Accounts payable and accrued expenses     5,838       6,665  
      Total liabilities     269,837       249,901  
               
Commitments and contingencies     -       -  
               
Shareholders' equity:        
  Common stock, no par value (100,000,000 shares authorized; 12,215,324 and    
    9,707,817 issued and outstanding, respectively)     97,857       92,692  
  Accumulated deficit     (62,871 )     (50,079 )
  Accumulated other comprehensive income (loss)     (18,821 )     (2,110 )
    Total shareholders' equity     16,165       40,503  
      Total liabilities and shareholders' equity   $ 286,002     $ 290,404  


Conifer Holdings, Inc. and Subsidiaries
Consolidated Statements of Operations (Unaudited)
(dollars in thousands, except share and per share data)
                       
          Three Months Ended   Nine Months Ended
          September 30,   September 30,
            2022       2021       2022       2021  
                       
Revenue and Other Income                
  Premiums                
    Gross earned premiums   $ 34,401     $ 31,770     $ 100,947     $ 90,245  
    Ceded earned premiums     (9,443 )     (6,829 )     (27,458 )     (17,631 )
      Net earned premiums     24,958       24,941       73,489       72,614  
  Net investment income     860       514       1,931       1,549  
  Net realized investment gains (losses)     -       (101 )     (1,505 )     3,883  
  Change in fair value of equity securities     (151 )     (2,169 )     446       (3,234 )
  Other gains (losses)     66       2,778       60       11,688  
  Other income     603       752       1,964       1,974  
      Total revenue and other income     26,336       26,715       76,385       88,474  
                       
Expenses                
  Losses and loss adjustment expenses, net     16,671       16,159       56,940       53,447  
  Policy acquisition costs     6,230       7,173       17,419       20,819  
  Operating expenses     4,380       4,077       13,010       12,768  
  Interest expense     778       701       2,216       2,154  
      Total expenses     28,059       28,110       89,585       89,188  
                       
Income (loss) before equity earnings in Affiliate and income taxes     (1,723 )     (1,395 )     (13,200 )     (714 )
  Equity earnings in Affiliate, net of tax     199       184       368       612  
  Income tax expense (benefit)     (1 )     (2 )     (40 )     191  
Net income (loss)     (1,523 )     (1,209 )     (12,792 )     (293 )
                       
Earnings (loss) per common share,                
   basic and diluted   $ (0.14 )   $ (0.12 )   $ (1.26 )   $ (0.03 )
                       
Weighted average common shares outstanding,                
   basic and diluted     11,101,194       9,692,150       10,178,975       9,686,874  


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