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Conifer Holdings Reports 2023 Third Quarter Financial Results
Source: Nasdaq GlobeNewswire / 09 Nov 2023 16:49:25 America/New_York
TROY, Mich., Nov. 09, 2023 (GLOBE NEWSWIRE) -- Conifer Holdings, Inc. (Nasdaq: CNFR) (“Conifer” or the “Company”) today announced results for the third quarter ended September 30, 2023.
Third Quarter 2023 Financial Highlights (compared to the prior year period)
- Gross written premium increased 16.5% to $38.5 million
- Net investment income increased 68.6% to $1.5 million
- Expense ratio improved to 33.9%, down 600 bps from the prior year
- Combined ratio of 120.8%; accident year combined ratio excluding the impact of storm-related losses was 95.3% (6)
Management Comments
James Petcoff, Executive Chairman and Co-CEO, commented, “While the third quarter results were affected by atypically severe storm losses, it is important to emphasize that our growing core lines of business are delivering positive results. Moreover, excluding the impact of these storm-related losses, Conifer would have achieved profitability in the quarter.”2023 Third Quarter Financial Results Overview
At and for the
Three Months Ended September 30,At and for the
Nine Months Ended September 30,2023 2022 % Change 2023 2022 % Change (dollars in thousands, except share and per share amounts) Gross written premiums $ 38,548 $ 33,088 16.5 % $ 119,436 $ 103,470 15.4 % Net written premiums 5,689 23,693 -76.0 % 53,359 68,980 -22.6 % Net earned premiums 23,979 24,958 -3.9 % 69,114 73,489 -6.0 % Net investment income 1,450 860 68.6 % 4,111 1,931 112.9 % Net realized investment gains (losses) - - ** - (1,505 ) ** Change in fair value of equity investments (87 ) (151 ) 42.4 % 595 446 33.4 % Gain from sale of renewal rights 2,335 - 2,335 - Other gains (losses) - 66 ** - 60 ** Net income (loss) (2,706 ) (1,523 ) ** (6,444 ) (12,792 ) ** Net income (loss) per share, diluted $ (0.22 ) $ (0.14 ) $ (0.53 ) $ (1.26 ) Adjusted operating income (loss)* (4,954 ) (1,438 ) ** (9,374 ) (11,793 ) ** Adjusted operating income (loss) per share, diluted* $ (0.41 ) $ (0.13 ) ** $ (0.77 ) $ (1.16 ) ** Book value per common share outstanding $ 0.96 $ 1.32 $ 0.96 $ 1.32 Weighted average shares outstanding, basic and diluted 12,222,881 11,101,194 12,219,713 10,178,975 Underwriting ratios: Loss ratio (1) 86.9 % 66.6 % 77.8 % 77.2 % Expense ratio (2) 33.9 % 39.9 % 36.3 % 38.8 % Combined ratio (3) 120.8 % 106.5 % 114.1 % 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. 2023 Third Quarter Premiums
Gross Written Premiums
Gross written premiums increased 16.5% in the third quarter of 2023 to $38.5 million, compared to $33.1 million in the prior year period. This top line growth derived primarily from continued expansion within select key verticals that have demonstrated strong performance. By narrowing the focus to these historically profitable core lines of business, the Company not only minimizes risk exposure, but is also able to reap maximum returns from existing underwriting expertise.The Company’s small business program continues to lead the way in this regard, comprising 81.9% of commercial lines premium and 60.6% of overall GWP for the third quarter. Conifer’s low-value home/dwelling lines of business have shown strong historical performance, and were major contributors to the overall growth in personal lines premium.
Net Earned Premium
Net earned premium decreased 3.9% to $24.0 million in the third quarter of 2023, compared to $25.0 million for the prior year period.Commercial Lines Financial and Operational Review
Commercial Lines Financial Review Three Months Ended September 30, Nine Months Ended September 30, 2023 2022 % Change 2023 2022 % Change (dollars in thousands) Gross written premiums $ 28,492 $ 27,635 3.1 % $ 92,228 $ 88,297 4.5 % Net written premiums (3,155 ) 18,730 -116.8 % 29,571 55,456 -46.7 % Net earned premiums 17,315 20,789 -16.7 % 51,925 62,097 -16.4 % Underwriting ratios: Loss ratio 88.8 % 64.0 % 76.0 % 80.0 % Expense ratio 31.7 % 39.6 % 35.1 % 38.0 % Combined ratio 120.5 % 103.6 % 111.1 % 118.0 % Contribution to combined ratio from net (favorable) adverse prior year development 23.3 % 13.2 % 7.9 % 28.4 % Accident year combined ratio (non-GAAP) (4) 97.2 % 90.4 % 103.2 % 89.6 % Impact from storms - - 1.9 % - Accident year combined ratio before impact of storms (non-GAAP) (4) 97.2 % 90.4 % 101.3 % 89.6 % (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 presented the accident year combined ratio for the three and nine months ended September 30, 2023, before the $0 and $967,000 of severe storm losses, 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 73.9% of total gross written premium in the third quarter of 2023. Conifer redoubled its commitment to strategically maintaining and broadening its reach within select key verticals where the Company has deep underwriting knowledge and experience. This expertise-driven approach provides the foundation for current and future profitable growth.
Commercial lines gross written premium increased 3.1% in the third quarter of 2023 to $28.5 million, as Conifer continues to execute on its strategy of maintaining organic growth in historically profitable lines of business.
The Commercial lines accident year combined ratio was 97.2% for the three months ended September 30, 2023. As the residual impact of deemphasized lines continues to decrease, the Company expects to report profitable performance from currently growing key select verticals.
The expense ratio was 31.7% for the third quarter of 2023, marking significant improvement of 790 basis points from the prior year period, and beating the Company’s 35% target.
Personal Lines Financial and Operational Review
Personal Lines Financial Review Three Months Ended September 30, Nine Months Ended September 30, 2023 2022 % Change 2023 2022 % Change (dollars in thousands) Gross written premiums $ 10,056 $ 5,453 84.4 % $ 27,208 $ 15,173 79.3 % Net written premiums 8,844 4,963 78.2 % 23,788 13,524 75.9 % Net earned premiums 6,664 4,169 59.8 % 17,189 11,392 50.9 % Underwriting ratios: Loss ratio 82.0 % 79.2 % 83.3 % 61.8 % Expense ratio 39.7 % 41.3 % 39.9 % 43.1 % Combined ratio 121.7 % 120.5 % 123.2 % 104.9 % Contribution to combined ratio from net (favorable) adverse prior year development -6.3 % 9.1 % -6.8 % 3.8 % Accident year combined ratio (non-GAAP) (5) 128.0 % 111.4 % 130.0 % 101.1 % Impact from storms 37.5 % - 40.3 % - Accident year combined ratio before impact of storms (non-GAAP) (5) 90.5 % 111.4 % 89.7 % 101.1 % (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 presented the accident year combined ratio for the three and nine months ended September 30, 2023, before the $2.5 million and $7.0 million of severe storm losses, 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 26.1% of total gross written premium for the third quarter of 2023, consists mainly of low-value home/dwelling insurance products. Gross written premium in personal lines was $10.1 million for the third quarter of 2023.
Personal lines combined ratio was 121.7% for the three months ended September 30, 2023. Severe convective storms in Oklahoma that led to industry-wide losses were also predominantly responsible for Conifer’s elevated combined ratio in the third quarter.
Before the impact of these storm-related losses, the personal lines accident year combined ratio was 90.5% for the third quarter, and 89.7% for the nine months ended September 30, 2023.
Combined Ratio Analysis
Three Months Ended
September 30,Nine Months Ended
September 30,2023 2022 2023 2022 Underwriting ratios: Loss ratio 86.9 % 66.6 % 77.8 % 77.2 % Expense ratio 33.9 % 39.9 % 36.3 % 38.8 % Combined ratio 120.8 % 106.5 % 114.1 % 116.0 % Contribution to combined ratio from net (favorable) adverse prior year development 15.0 % 12.6 % 4.2 % 24.6 % Accident year combined ratio (non-GAAP) (6) 105.8 % 93.9 % 109.9 % 91.4 % Impact from storms 10.5 % - 11.5 % - Accident year combined ratio before impact of storms (non-GAAP) (6) 95.3 % 93.9 % 98.4 % 91.4 % (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 presented the accident year combined ratio for the three and nine months ended September 30, 2023, before the $2.5 million and $7.9 million of severe storm losses, 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 120.8% for the three months ended September 30, 2023. Before the impact of storm losses as described above, the Company’s accident year combined ratio was 95.3% for the quarter.Loss Ratio:
The Company’s losses and loss adjustment expenses were $20.9 million for the third quarter and $53.9 million for the nine months ended September 30, 2023, down from $56.9 million in the prior year period.Expense Ratio:
The expense ratio exhibited significant improvement in the third quarter, due in large part to the Company’s sustained emphasis on expense management: the expense ratio for the third quarter of 2023 was 33.9%, down from 39.9% in the prior year period and below the Company’s near-term target of 35%.Net Investment Income
Net investment income was $1.5 million during the quarter ended September 30, 2023, up 68.6% compared to $860,000 in the prior year period.
Net Realized Investment Gains (Losses)
The Company did not have any realized investment gains or losses during the third quarter or nine months ended September 30, 2023. Net realized investment losses were $1.5 million for the first nine months of 2022.
Change in Fair Value of Equity Securities
During the quarter, the Company reported a loss of $87,000 from the change in fair value of equity investments, compared to a loss of $151,000 in the prior year period.Net Income (Loss)
The Company reported net loss of $2.7 million, or $0.22 per share, for the third quarter of 2023; compared to a net loss of $1.5 million, or $0.14 per share, in the prior year period.Adjusted Operating Income (Loss)
In the third quarter of 2023, the Company reported an adjusted operating loss of $5.0 million, or $0.41 per share, compared to an adjusted operating loss of $1.4 million, or $0.13 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 Friday, November 10, 2023 at 8:30 a.m. ET to discuss results for the third quarter ended September 30, 2023.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 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) Change in fair value of equity securities, 3) Gain on sale of renewal rights and 4) 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.
Reconciliations of adjusted operating income and adjusted operating income per share:
Three Months Ended
September 30,Nine Months Ended
September 30,2023 2022 2023 2022 (dollar in thousands, except share and per share amounts) Net income (loss) $ (2,706 ) $ (1,523 ) $ (6,444 ) $ (12,792 ) Less: Net realized investment gains (losses), net of tax - - - (1,505 ) Change in fair value of equity securities, net of tax (87 ) (151 ) 595 446 Gain from sale of renewal rights 2,335 - 2,335 - Other gains (losses), net of tax - 66 - 60 Adjusted operating income (loss) $ (4,954 ) $ (1,438 ) $ (9,374 ) $ (11,793 ) Weighted average common shares, diluted 12,222,881 11,101,194 12,219,713 10,178,975 Diluted income (loss) per common share: Net income (loss) $ (0.22 ) $ (0.14 ) $ (0.53 ) $ (1.26 ) Less: Net realized investment gains (losses), net of tax - - - (0.15 ) Change in fair value of equity securities, net of tax - (0.01 ) 0.05 0.04 Gain from sale of renewal rights 0.19 - 0.19 - Other gains (losses), net of tax - - - 0.01 Adjusted operating income (loss), per share $ (0.41 ) $ (0.13 ) $ (0.77 ) $ (1.16 ) 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) September 30, December 31, 2023 2022 Assets (Unaudited) Investment securities: Debt securities, at fair value (amortized cost of $119,499 and $127,119, respectively) $ 101,745 $ 110,201 Equity securities, at fair value (cost of $2,387 and $1,905, respectively) 2,345 1,267 Short-term investments, at fair value 40,523 25,929 Total investments 144,613 137,397 Cash and cash equivalents 14,361 28,035 Premiums and agents' balances receivable, net 24,512 21,802 Receivable from Affiliate 889 1,261 Reinsurance recoverables on unpaid losses 46,766 82,651 Reinsurance recoverables on paid losses 6,959 6,653 Prepaid reinsurance premiums 43,132 16,399 Deferred policy acquisition costs 5,737 10,290 Other assets 6,474 7,862 Total assets $ 293,443 $ 312,350 Liabilities and Shareholders' Equity Liabilities: Unpaid losses and loss adjustment expenses $ 139,214 $ 165,539 Unearned premiums 78,865 67,887 Reinsurance premiums payable 4,727 6,144 Debt 25,264 33,876 Funds held under reinsurance agreements 26,541 11,084 Accounts payable and accrued expenses 7,041 8,870 Total liabilities 281,652 293,400 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) 98,057 97,913 Accumulated deficit (67,204 ) (60,760 ) Accumulated other comprehensive income (loss) (19,062 ) (18,203 ) Total shareholders' equity 11,791 18,950 Total liabilities and shareholders' equity $ 293,443 $ 312,350 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, 2023 2022 2023 2022 Revenue and Other Income Premiums Gross earned premiums $ 38,150 $ 34,401 $ 108,457 $ 100,947 Ceded earned premiums (14,171 ) (9,443 ) (39,343 ) (27,458 ) Net earned premiums 23,979 24,958 69,114 73,489 Net investment income 1,450 860 4,111 1,931 Net realized investment gains (losses) - - - (1,505 ) Change in fair value of equity securities (87 ) (151 ) 595 446 Gain from sale of renewal rights 2,335 - 2,335 - Other gains (losses) - 66 - 60 Other income 439 603 1,463 1,964 Total revenue and other income 28,116 26,336 77,618 76,385 Expenses Losses and loss adjustment expenses, net 20,911 16,671 53,943 56,940 Policy acquisition costs 4,725 6,230 13,859 17,419 Operating expenses 4,403 4,380 13,796 13,010 Interest expense 855 778 2,361 2,216 Total expenses 30,894 28,059 83,959 89,585 Income (loss) before equity earnings in Affiliate and income taxes (2,778 ) (1,723 ) (6,341 ) (13,200 ) Equity earnings (loss) in Affiliate, net of tax 72 199 (103 ) 368 Income tax expense (benefit) - (1 ) - (40 ) Net income (loss) (2,706 ) (1,523 ) (6,444 ) (12,792 ) Earnings (loss) per common share, basic and diluted $ (0.22 ) $ (0.14 ) $ (0.53 ) $ (1.26 ) Weighted average common shares outstanding, basic and diluted 12,222,881 11,101,194 12,219,713 10,178,975 For Further Information:
Jessica Gulis, 248.559.0840
ir@cnfrh.com
