Conifer Holdings Reports 2022 Fourth Quarter and Year End Financial Results

Written by Customer Service on March 9, 2023. Posted in Earnings Releases And Operating Results.

Company to Host Conference Call at 8:30 AM ET on Thursday, March 9, 2023

TROY, Mich., March 08, 2023 (GLOBE NEWSWIRE) — Conifer Holdings, Inc. (Nasdaq: CNFR) (“Conifer” or the “Company”) today announced results for the fourth quarter and year ended December 31, 2022.

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

Gross written premium increased 4.6% to $34.5 million
Net earned premiums decreased 11.3% to $23.2 million
Expense ratio was 37.2% (420bps improvement from Q4 2021)
Net income of $2.1 million, or $0.17 per share, based on 12.2 million weighted average shares outstanding

Year End 2022 Financial Highlights (compared to the prior year period)

Gross written premium increased 4.5% to $138.0 million
Net earned premium decreased 2.1% to $96.7 million
Expense ratio down 400bps to 38.4%

Management Comments
James Petcoff, Executive Chairman and Co-CEO, commented, “Following the execution of a Loss Portfolio Transfer Agreement specific to accident years 2019 and prior, plus continued additional investments to bolster our general reserves, we are better positioned than ever to address the legacy reserve drag that had been hampering our financial results. Our refined focus on our best performing specialty verticals, in combination with our moves to strengthen overall reserves, should lead to near term and sustainable profitability.”

2022 Fourth Quarter Financial Results Overview

	At and for the Three Months Ended December 31,								At and for the Year Ended December 31,
		2022			2021		% Change			2022			2021		% Change
	(dollars in thousands, except share and per share amounts)

Gross written premiums	$	34,549		$	33,037		4.6	%	$	138,019		$	132,095		4.5	%
Net written premiums		22,252			22,345		-0.4	%		91,232			101,429		-10.1	%
Net earned premiums		23,222			26,188		-11.3	%		96,711			98,802		-2.1	%

Net investment income		1,112			419		165.4	%		3,043			1,968		54.6	%
Net realized investment gains (losses)		–			(1,005	)	**			(1,505	)		2,878		**
Change in fair value of equity investments		(43	)		1,214		**			403			(2,020	)	**
Gain from VSRM Transaction		8,810			–		**			8,810			–		**
Other gains (losses)		(1	)		(24	)	**			59			11,664		**
Loss portfolio transfer (loss)		(5,400	)		–		**			(5,400	)		–		**

Net income (loss)		2,111			(801	)	**			(10,681	)		(1,094	)	**
Net income (loss) per share, diluted	$	0.17		$	(0.08	)			$	(1.00	)	$	(0.11	)

Adjusted operating income (loss)*		(1,255	)		(986	)	**			(13,048	)		(13,616	)	**
Adjusted operating income (loss) per share, diluted*	$	(0.10	)	$	(0.10	)	**		$	(1.22	)	$	(1.40	)	**

Book value per common share outstanding	$	1.55		$	4.17				$	1.55		$	4.17

Weighted average shares outstanding, basic and diluted		12,215,479			9,707,203					10,692,090			9,691,998

Underwriting ratios:
Loss ratio (1)		105.2	%		62.5	%				83.9	%		70.5	%
Expense ratio (2)		37.2	%		41.4	%				38.4	%		42.4	%
Combined ratio (3)		142.4	%		103.9	%				122.3	%		112.9	%

* 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 Fourth Quarter Premiums
Gross Written Premiums
Gross written premiums increased 4.6% in the fourth quarter of 2022 to $34.5 million, compared to $33.0 million in the prior year period. The overall premium increase was achieved through a combination of rate increases and continued emphasis on growth in specialty lines, specifically in the Company’s small business programs, $23.2 million in the quarter, up 6% from Q4 2021. Further supporting this increase, the Company saw continued growth in personal lines, driven by its low-value dwelling line of business.

Net Earned Premiums
Net earned premiums decreased 11.3% to $23.2 million for the fourth quarter of 2022, compared to $26.2 million for the prior year period. The decrease was due to the new specific loss reinsurance treaties that were entered into December 31, 2021 and January 1, 2022, which included 40% ceding commissions. For the year, net earned premium was down slightly at 2.1%. Despite this decrease, the Company continued to drive sustained expense ratio improvement through vigilant expense management.

Commercial Lines Financial and Operational Review

Commercial Lines Financial Review
	Three Months Ended December 31,								Year Ended December 31,
		2022			2021		% Change			2022			2021		% Change
	(dollars in thousands)

Gross written premiums	$	28,571		$	29,058		-1.7	%	$	116,868		$	117,075		-0.2	%
Net written premiums		16,862			18,622		-9.5	%		72,318			87,307		-17.2	%
Net earned premiums		18,726			22,890		-18.2	%		80,823			87,759		-7.9	%

Underwriting ratios:
Loss ratio		111.3	%		66.6	%				87.3	%		72.6	%
Expense ratio		37.6	%		41.3	%				37.9	%		42.4	%
Combined ratio		148.9	%		107.9	%				125.2	%		115.0	%

Contribution to combined ratio from net
(favorable) adverse prior year development		32.6	%		16.4	%				29.4	%		21.0	%

Accident year combined ratio (1)		116.3	%		91.5	%				95.8	%		94.0	%


Loss ratio excluding Hurricane Ian		94.5	%		66.6	%				83.6	%		72.6	%
Expense ratio excluding Hurricane Ian		34.8	%		41.3	%				37.2	%		42.4	%
Combined ratio excluding Hurricane Ian		129.3	%		107.9	%				120.8	%		115.0	%

Accident year loss ratio
excluding Hurricane Ian		64.4	%		50.2	%				54.7	%		51.6	%

Accident year combined ratio
excluding Hurricane Ian		99.2	%		91.5	%				91.9	%		94.0	%
(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 represented 82.7% of total gross written premium in the fourth quarter of 2022. Looking forward: the Company has re-underwritten its book to focus on select key verticals in select specialty markets where the Company has deep underwriting knowledge and experience, strong agent relationships, and runway for growth.

Commercial lines gross written premium decreased 1.7% in the fourth quarter of 2022 to $28.6 million, as the Company began narrowing its focus to write only the most profitable specialty lines.

The Commercial lines combined ratio was 148.9% for the three months ended December 31, 2022. The loss ratio was 111.3% in the quarter, due in large part to the impact of Hurricane Ian, as well as additional reserve bolstering in the period. Excluding the impact of Hurricane Ian, the loss ratio for the period drops to 94.5%, and considering the reserve impact in the quarter, the accident year loss ratio nets down to 64.4%.

The expense ratio was 37.6% for the fourth quarter of 2022, marking continued improvement from 41.3% during the prior year period.

The Company booked through the required loss corridor of the LPT purchased in Q4 2022, such that the Company expects minimal to no additional anticipated reserve impact for accident years 2019 and prior.

In the fourth quarter, excluding the impact of Hurricane Ian, the Commercial lines accident year combined ratio was 99.2%.

Personal Lines Financial and Operational Review

Personal Lines Financial Review
	Three Months Ended December 31,								Year Ended December 31,
		2022			2021		% Change			2022			2021		% Change
	(dollars in thousands)

Gross written premiums	$	5,978		$	3,979		50.2	%	$	21,151		$	15,020		40.8	%
Net written premiums		5,390			3,723		44.8	%		18,914			14,122		33.9	%
Net earned premiums		4,496			3,298		36.3	%		15,888			11,043		43.9	%

Underwriting ratios:
Loss ratio		79.7	%		34.2	%				66.9	%		53.6	%
Expense ratio		35.5	%		42.4	%				41.0	%		41.7	%
Combined ratio		115.2	%		76.6	%				107.9	%		95.3	%

Contribution to combined ratio from net
(favorable) adverse prior year development		(0.5	)%		0.9	%				2.6	%		8.6	%

Accident year combined ratio		115.7	%		75.7	%				105.3	%		86.7	%


Loss ratio excluding Hurricane Ian		72.5	%		34.2	%				64.8	%		53.6	%
Expense ratio excluding Hurricane Ian		35.3	%		42.4	%				40.9	%		41.7	%
Combined ratio excluding Hurricane Ian		107.8	%		76.6	%				105.7	%		95.3	%

Accident year loss ratio
excluding Hurricane Ian		73.0	%		33.3	%				62.2	%		45.0	%

Accident year combined ratio
excluding Hurricane Ian		108.3	%		75.7	%				103.1	%		86.7	%

Personal lines, representing 17.3% of total gross written premium for the fourth quarter of 2022, consists largely of low-value dwelling homeowner’s insurance.

Personal lines gross written premium increased 50.2% to $6.0 million in the fourth quarter of 2022 compared to the prior year period, led by growth in the Company’s low-value dwelling line of business in Texas and Oklahoma.

Personal lines combined ratio was 115.2% for the three months ended December 31, 2022; excluding the impact of Hurricane Ian, the combined ratio was 107.8%. For the full year 2022, the personal lines combined ratio was 107.9%; excluding the impact of Hurricane Ian, it was 105.7%. Personal Lines experienced a few more severe fire losses in 2022 than the recent historical averages which added to the loss ratio.

The personal lines accident year combined ratio, excluding Hurricane Ian, was 108.3% for the fourth quarter of 2022; for the twelve months, the accident year combined ratio was 103.1% excluding the impact of Hurricane Ian.

Combined Ratio Analysis

	Three Months Ended December 31,				Year Ended December 31,
	2022		2021		2022		2021


Underwriting ratios:
Loss ratio	105.2	%	62.5	%	83.9	%	70.5	%
Expense ratio	37.2	%	41.4	%	38.4	%	42.4	%
Combined ratio	142.4	%	103.9	%	122.3	%	112.9	%

Contribution to combined ratio from net (favorable)
adverse prior year development	26.2	%	14.5	%	25.0	%	19.6	%

Accident year combined ratio	116.2	%	89.4	%	97.3	%	93.3	%

Loss ratio excluding Hurricane Ian	90.5	%	62.5	%	80.6	%	70.5	%
Expense ratio excluding Hurricane Ian	34.9	%	41.4	%	37.8	%	42.4	%
Combined ratio excluding Hurricane Ian	125.4	%	103.9	%	118.4	%	112.9	%

Accident year loss ratio
excluding Hurricane Ian	65.9	%	48.0	%	55.9	%	50.9	%

Accident year combined ratio
excluding Hurricane Ian	100.8	%	89.4	%	93.7	%	93.3	%

Combined Ratio:
The Company’s combined ratio was 142.4% for the quarter ended December 31, 2022, due largely to the combined impact of Hurricane Ian and additional reserve bolstering. The combined ratio was 122.3% for the year ended December 31, 2022. The Company’s accident year combined ratio for the twelve-month period was 97.3%; excluding the impact of Hurricane Ian, the accident year combined ratio for the full year was 93.7%.

Loss Ratio:
The Company’s losses and loss adjustment expenses were $24.5 million for the three months ended December 31, 2022. The accident year loss ratio, excluding the impact of Hurricane Ian, was 55.9% for the full year 2022, which aligns with the Company’s target loss ratio in its select specialty lines of business.

Expense Ratio:
Improvements continue, due to the Company’s emphasis on expense management: the expense ratio for the fourth quarter of 2022 was 37.2%, down from 41.4% in the prior year period. For the full year 2022, the expense ratio improved 400 basis points to 38.4%

Net Investment Income
Net investment income was $1.1 million during the quarter ended December 31, 2022, compared to $419,000 in the prior year period. For the full year 2022, net investment income was $3.0 million, up from $2.0 million for the full year 2021.

Net Realized Investment Gains (Losses)
Net realized investment gains were flat during the fourth quarter of 2022, compared to net realized investment losses of $1.0 million in the prior year period.

Change in Fair Value of Equity Securities
During the quarter, the Company reported a small loss from the change in fair value of equity investments of $43,000, compared to a gain of $1.2 million in the prior year period. For the full year 2022, the Company reported a gain of $403,000, compared to a $2.0 million loss in 2021.

Net Income (Loss)
The Company reported net income of $2.1 million, or $0.17 per share, for the fourth quarter of 2022; an improvement compared to a net loss of $801,000, or $0.08 per share, in the prior year period.

Adjusted Operating Income (Loss)
In the fourth quarter of 2022, the Company reported an adjusted operating loss of $1.3 million, or $0.10 per share, compared to an adjusted operating loss of $986,000, or $0.10 per share, for the same period in 2021. See Definitions of Non-GAAP Measures.

Earnings Conference Call with Accompanying Slide Presentation
The Company will hold a conference call/webcast on Thursday, March 9, 2023 at 8:30 a.m. ET to discuss results for the fourth quarter and year ended December 31, 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 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 from VSRM Transaction, 4) Loss portfolio transfer (loss) and 5) 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 December 31,						Year Ended December 31,
		2022			2021			2022			2021
	(dollar in thousands, except share and per share amounts)

Net income (loss)	$	2,111		$	(801	)	$	(10,681	)	$	(1,094	)
Less:
Net realized investment gains (losses), net of tax		–			(1,005	)		(1,505	)		2,878
Change in fair value of equity securities, net of tax		(43	)		1,214			403			(2,020	)
Gain from VSRM Transaction, net of tax		8,810			–			8,810			–
Loss portfolio transfer (loss), net of tax		(5,400	)		–			(5,400	)		–
Other gains (losses), net of tax		(1	)		(24	)		59			11,664
Adjusted operating income (loss)	$	(1,255	)	$	(986	)	$	(13,048	)	$	(13,616	)

Weighted average common shares, diluted		12,215,479			9,707,203			10,692,090			9,691,998

Diluted income (loss) per common share:
Net income (loss)	$	0.17		$	(0.08	)	$	(1.00	)	$	(0.11	)
Less:
Net realized investment gains (losses), net of tax		–			(0.10	)		(0.14	)		0.30
Change in fair value of equity securities, net of tax		(0.01	)		0.12			0.04			(0.21	)
Gain from VSRM Transaction, net of tax		0.72			–			0.82			–
Loss portfolio transfer (loss), net of tax		(0.44	)		–			(0.51	)		–
Other gains (losses), net of tax		–			–			0.01			1.20
Adjusted operating income (loss), per share	$	(0.10	)	$	(0.10	)	$	(1.22	)	$	(1.40	)

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)

				December 31,			December 31,
					2022			2021
Assets				(Unaudited)
Investment securities:
	Debt securities, at fair value (amortized cost of $127,119 and			$	110,201		$	149,783
		$150,732, respectively)
	Equity securities, at fair value (cost of $1,905 and $10,972, respectively)				1,267			9,931
	Short-term investments, at fair value				25,929			23,013
		Total investments			137,397			182,727

Cash and cash equivalents					28,035			9,913
Premiums and agents’ balances receivable, net					21,802			21,197
Receivable from Affiliate					1,261			5,784
Reinsurance recoverables on unpaid losses					82,651			40,344
Reinsurance recoverables on paid losses					6,653			1,347
Prepaid reinsurance premiums					16,399			8,301
Deferred policy acquisition costs					10,290			12,267
Other assets					7,862			8,524
			Total assets	$	312,350		$	290,404

Liabilities and Shareholders’ Equity
Liabilities:
	Unpaid losses and loss adjustment expenses			$	165,539		$	139,085
	Unearned premiums				67,887			65,269
	Reinsurance premiums payable				6,144			5,318
	Debt				33,876			33,564
	Accounts payable and accrued expenses				19,954			6,665
			Total liabilities		293,400			249,901

Commitments and contingencies					–			–

Shareholders’ equity:
	Common stock, no par value (100,000,000 shares authorized; 12,215,849 and
		9,707,817 issued and outstanding, respectively)			97,913			92,692
	Accumulated deficit				(60,760	)		(50,079	)
	Accumulated other comprehensive income (loss)				(18,203	)		(2,110	)
		Total shareholders’ equity			18,950			40,503
			Total liabilities and shareholders’ equity	$	312,350		$	290,404

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

				Three Months Ended						Year Ended
				December 31,						December 31,
					2022			2021			2022			2021

Revenue and Other Income
	Premiums
		Gross earned premiums		$	34,454		$	32,805		$	135,401		$	123,050
		Ceded earned premiums			(11,232	)		(6,617	)		(38,690	)		(24,248	)
			Net earned premiums		23,222			26,188			96,711			98,802
	Net investment income				1,112			419			3,043			1,968
	Net realized investment gains (losses)				–			(1,005	)		(1,505	)		2,878
	Change in fair value of equity securities				(43	)		1,214			403			(2,020	)
	Gain from VSRM Transaction				8,810			–			8,810			–
	Loss portfolio transfer (loss)				(5,400	)		–			(5,400	)		–
	Other gains (losses)				(1	)		(24	)		59			11,664
	Other income				804			697			2,768			2,671
			Total revenue and other income		28,504			27,489			104,889			115,963

Expenses
	Losses and loss adjustment expenses, net				24,500			16,414			81,440			69,861
	Policy acquisition costs				4,760			7,632			22,179			28,451
	Operating expenses				5,779			3,741			18,789			16,509
	Interest expense				755			698			2,971			2,852
			Total expenses		35,794			28,485			125,379			117,673

Income (loss) before equity earnings in Affiliate and income taxes					(7,290	)		(996	)		(20,490	)		(1,710	)
	Equity earnings in Affiliate, net of tax				–			212			368			824
	Income tax expense (benefit)				(9,401	)		17			(9,441	)		208
Net income (loss)					2,111			(801	)		(10,681	)		(1,094	)

Earnings (loss) per common share,
	basic and diluted			$	0.17		$	(0.08	)	$	(1.00	)	$	(0.11	)

Weighted average common shares outstanding,
	basic and diluted				12,215,479			9,707,203			10,692,090			9,691,998

Conifer Holdings Reports 2022 Fourth Quarter and Year End Financial Results

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