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Conifer Holdings Reports 2023 Fourth Quarter and Year End Financial Results; Announces Strategic Shift to Production Based Revenue
Источник: Nasdaq GlobeNewswire / 04 апр 2024 16:01:00 America/New_York
TROY, Mich., April 04, 2024 (GLOBE NEWSWIRE) -- Conifer Holdings, Inc. (Nasdaq: CNFR) (“Conifer” or the “Company”) today announced results for the fourth quarter and year ended December 31, 2023.
Year End 2023 Financial Highlights (compared to the prior year period)
- Gross written premium increased 4.2% to $143.8 million
- Net investment income increased 81.6% to $5.5 million
- Expense ratio improved 130bps to 37.1%
Management Comments
Nick Petcoff, CEO of Conifer, commented, "Much of our recorded loss for the 2023 year was realized in the fourth quarter alone, as we further strengthened our reserve position in efforts to put adverse development behind us. The remainder of the loss was largely driven by earlier in the year convective storm losses from the Oklahoma homeowners business, which is in run-off.
In addition, throughout 2023 we further navigated an ever-evolving insurance landscape, as we transitioned away from the limitations of a carrier-based revenue model, towards wholesale agency, production-based revenue. This shift empowers us to foster greater agility in meeting the market demands of our customers, by providing A-rated capacity, while reducing exposure to market fluctuations, and enhancing stability in our bottom line.”
Strategic Shift to Non-Risk Bearing Revenue
In 2023, Conifer started shifting focus to its wholly owned managing general agency (“MGA”), Conifer Insurance Services (“CIS”). As a result, the Company expects 100% of future commercial gross written premium to run through its MGA. This move is intended to optimize Conifer’s resources and will complement a shift to primarily focus on commission revenues within its MGA.
Substantially all of the Company's commercial lines business is expected to be directly written by third-party insurers with A.M. Best ratings of A- or better starting in the second quarter of 2024. By leveraging these capacity providers, Conifer will ensure a sustainable business model going forward, more focused on commission revenue, and less so on risk retention through its operating subsidiaries. The Company does expect to continue underwriting the low-value homeowners business written in Texas, and the Midwest.
Utilizing third-party A-rated capacity providers for Conifer’s MGA-produced business will provide a much broader reach for existing profitable programs, which is expected to result in the production of substantially more premium volume for the agency segment and generate greater commission revenue overall over time.
2023 Fourth Quarter and Full Year Financial Results Overview
At and for the Three Months Ended December 31, At and for the Year Ended December 31, 2023 2022 % Change 2023 2022 % Change (dollars in thousands, except share and per share amounts) Gross written premiums $ 24,398 $ 34,549 -29.4 % $ 143,834 $ 138,019 4.2 % Net written premiums 15,329 22,252 -31.1 % 68,688 91,232 -24.7 % Net earned premiums 14,821 23,222 -36.2 % 83,935 96,711 -13.2 % Net investment income 1,415 1,112 27.2 % 5,526 3,043 81.6 % Net realized investment gains (losses) (20 ) - ** (20 ) (1,505 ) ** Change in fair value of equity securities 13 (43 ) ** 608 403 50.9 % Gain from VSRM Transaction - 8,810 ** - 8,810 ** Loss portfolio transfer risk fee - (5,400 ) ** - (5,400 ) ** Gain from sale of renewal rights - - ** 2,335 - ** Other gains (losses) - (1 ) ** - 59 ** Net income (loss) (19,460 ) 2,111 ** (25,904 ) (10,681 ) ** Net income (loss) per share, diluted $ (1.59 ) $ 0.17 $ (2.12 ) $ (1.00 ) Adjusted operating income (loss)* (19,453 ) (1,255 ) ** (28,827 ) (13,048 ) ** Adjusted operating income (loss) per share, diluted* $ (1.59 ) $ (0.10 ) $ (2.36 ) $ (1.22 ) Book value per common share outstanding $ 0.24 $ 1.55 $ 0.24 $ 1.55 Weighted average shares outstanding, basic and diluted 12,222,881 12,215,479 12,220,511 10,692,090 Underwriting ratios: Loss ratio (1) 191.1 % 105.2 % 97.8 % 83.9 % Expense ratio (2) 40.6 % 37.2 % 37.1 % 38.4 % Combined ratio (3) 231.7 % 142.4 % 134.9 % 122.3 % * 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.
Commercial Lines Financial and Operational ReviewCommercial Lines Financial Review Three Months Ended December 31, Year Ended December 31, 2023 2022 % Change 2023 2022 % Change (dollars in thousands) Gross written premiums $ 14,850 $ 28,571 -48.0 % $ 107,078 $ 116,868 -8.4 % Net written premiums 7,009 16,862 -58.4 % 36,580 72,318 -49.4 % Net earned premiums 7,296 18,726 -61.0 % 59,221 80,823 -26.7 % Underwriting ratios: Loss ratio 316.7 % 111.3 % 105.7 % 87.3 % Expense ratio 38.4 % 37.6 % 35.5 % 37.9 % Combined ratio 355.1 % 148.9 % 141.2 % 125.2 % Contribution to combined ratio from net (favorable) adverse prior year development 205.5 % 32.6 % 32.3 % 29.4 % Accident year combined ratio (1) 149.6 % 116.3 % 108.9 % 95.8 % (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 60.9% of total gross written premium in the fourth quarter of 2023.Personal Lines Financial and Operational Review
Personal Lines Financial Review Three Months Ended December 31, Year Ended December 31, 2023 2022 % Change 2023 2022 % Change (dollars in thousands) Gross written premiums $ 9,548 $ 5,978 59.7 % $ 36,756 $ 21,151 73.8 % Net written premiums 8,320 5,390 54.4 % 32,108 18,914 69.8 % Net earned premiums 7,525 4,496 67.4 % 24,714 15,888 55.6 % Underwriting ratios: Loss ratio 69.0 % 79.7 % 78.9 % 66.9 % Expense ratio 42.7 % 35.5 % 40.7 % 41.0 % Combined ratio 111.7 % 115.2 % 119.6 % 107.9 % Contribution to combined ratio from net (favorable) adverse prior year development (2.6 )% (0.5 )% -5.6 % 2.6 % Accident year combined ratio 114.3 % 115.7 % 125.2 % 105.3 %
Personal lines, representing 39.1% of total gross written premium for the fourth quarter of 2023, consists largely of low-value dwelling homeowner’s insurance in Texas and the Midwest.Personal lines gross written premium increased 59.7% to $9.5 million in the fourth quarter of 2023 compared to the prior year period, led by growth in the Company’s low-value dwelling line of business in Texas.
Combined Ratio Analysis
Three Months Ended December 31, Year Ended December 31, 2023 2022 2023 2022 Underwriting ratios: Loss ratio 191.1 % 105.2 % 97.8 % 83.9 % Expense ratio 40.6 % 37.2 % 37.1 % 38.4 % Combined ratio 231.7 % 142.4 % 134.9 % 122.3 % Contribution to combined ratio from net (favorable) adverse prior year development 100.0 % 26.2 % 21.2 % 25.0 % Accident year combined ratio 131.7 % 116.2 % 113.7 % 97.3 %
Net Investment Income
Net investment income was $1.4 million during the quarter ended December 31, 2023, compared to $1.1 million in the prior year period. For the full year 2023, net investment income was $5.5 million, up from $3.0 million for the full year 2022.Net Realized Investment Gains (Losses)
Net realized investment gains were largely flat during the fourth quarter of 2023, compared to the prior year period.Change in Fair Value of Equity Securities
During the quarter, the Company reported a small gain from the change in fair value of equity investments of $13,000, compared to a loss of $43,000 in the prior year period. For the full year 2023, the Company reported a gain of $608,000, compared to $403,000 in 2022.Net Income (Loss)
The Company reported net loss of $19.5 million, or $1.59 per share, for the fourth quarter of 2023.Adjusted Operating Income (Loss)
In the fourth quarter of 2023, the Company reported an adjusted operating loss of $19.5 million, or $1.59 per share. See Definitions of Non-GAAP Measures.Earnings Conference Call with Accompanying Slide Presentation
The Company will hold a conference call/webcast on Friday, April 5, 2024 at 8:30 a.m. ET to discuss results for the fourth quarter and year ended December 31, 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 Capital Market 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: 1) net realized investment gains and losses, 2) change in fair value of equity securities, 3) gain from VSRM Transaction, 4) Loss portfolio transfer risk fee, 5) Gain from sale of renewal rights and 6) 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.
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 April 1, 2024 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.
Reconciliations of adjusted operating income (loss) and adjusted operating income (loss) per share:
Three Months Ended December 31, Year Ended December 31, 2023 2022 2023 2022 (dollar in thousands, except share and per share amounts) Net income (loss) $ (19,460 ) $ 2,111 $ (25,904 ) $ (10,681 ) Less: Net realized investment gains (losses) (20 ) - (20 ) (1,505 ) Change in fair value of equity securities 13 (43 ) 608 403 Gain from VSRM Transaction - 8,810 - 8,810 Loss portfolio transfer risk fee - (5,400 ) - (5,400 ) Gain from sale of renewal rights - - 2,335 - Other gains (losses) - (1 ) - 59 Impact of income tax expense (benefit) from adjustments * - - - - Adjusted operating income (loss) $ (19,453 ) $ (1,255 ) $ (28,827 ) $ (13,048 ) Weighted average common shares, diluted 12,222,881 12,215,479 12,220,511 10,692,090 Diluted income (loss) per common share: Net income (loss) $ (1.59 ) $ 0.17 $ (2.12 ) $ (1.00 ) Less: Net realized investment gains (losses) - - - (0.14 ) Change in fair value of equity securities - (0.01 ) 0.05 0.04 Gain from VSRM Transaction - 0.72 - 0.82 Loss portfolio transfer risk fee - (0.44 ) - (0.51 ) Gain from sale of renewal rights - - 0.19 - Other gains (losses) - - - 0.01 Impact of income tax expense (benefit) from adjustments * - - - - Adjusted operating income (loss), per share $ (1.59 ) $ (0.10 ) $ (2.36 ) $ (1.22 ) * The Company has recorded a full valuation allowance against its deferred tax assets as of December 31, 2023 and 2022. As a result, there were no taxable impacts to adjusted operating income from the adjustments to net income (loss) in the table above after taking into account the use of NOLs and the change in the valuation allowance. Conifer Holdings, Inc. and Subsidiaries Consolidated Balance Sheets (dollars in thousands) December 31, December 31, 2023 2022 Assets Investment securities: Debt securities, at fair value (amortized cost of $135,370 and $127,119, respectively) $ 122,113 $ 110,201 Equity securities, at fair value (cost of $2,385 and $1,905, respectively) 2,354 1,267 Short-term investments, at fair value 20,838 25,929 Total investments 145,305 137,397 Cash and cash equivalents 11,125 28,035 Premiums and agents' balances receivable, net 29,369 21,802 Receivable from Affiliate 1,047 1,261 Reinsurance recoverables on unpaid losses 70,807 82,651 Reinsurance recoverables on paid losses 12,619 6,653 Prepaid reinsurance premiums 28,908 16,399 Deferred policy acquisition costs 6,285 10,290 Other assets 6,339 7,862 Total assets $ 311,804 $ 312,350 Liabilities and Shareholders' Equity Liabilities: Unpaid losses and loss adjustment expenses $ 174,612 $ 165,539 Unearned premiums 65,150 67,887 Reinsurance premiums payable 246 6,144 Debt 25,061 33,876 Funds held under reinsurance agreements 24,550 11,084 Premiums payable to other insureds 13,986 - Accounts payable and accrued expenses 5,310 8,870 Total liabilities 308,915 293,400 Commitments and contingencies - - Shareholders' equity: Preferred stock, no par value (10,000,000 shares authorized; 1,000 and 0 issued and outstanding, respectively) 6,000 - Common stock, no par value (100,000,000 shares authorized; 12,222,881 and 12,215,849 issued and outstanding, respectively) 98,100 97,913 Accumulated deficit (86,683 ) (60,760 ) Accumulated other comprehensive income (loss) (14,528 ) (18,203 ) Total shareholders' equity 2,889 18,950 Total liabilities and shareholders' equity $ 311,804 $ 312,350 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, 2023 2022 2023 2022 Revenue and Other Income Premiums Gross earned premiums $ 38,115 $ 34,454 $ 146,572 $ 135,401 Ceded earned premiums (23,294 ) (11,232 ) (62,637 ) (38,690 ) Net earned premiums 14,821 23,222 83,935 96,711 Net investment income 1,415 1,112 5,526 3,043 Net realized investment gains (losses) (20 ) - (20 ) (1,505 ) Change in fair value of equity securities 13 (43 ) 608 403 Gain from VSRM Transaction - 8,810 - 8,810 Loss portfolio transfer risk fee - (5,400 ) - (5,400 ) Gain from sale of renewal rights - - 2,335 - Other gains (losses) - (1 ) - 59 Agency commission income 4,743 278 5,680 1,414 Other income 168 526 694 1,354 Total revenue and other income 21,140 28,504 98,758 104,889 Expenses Losses and loss adjustment expenses, net 28,470 24,500 82,413 81,440 Policy acquisition costs 7,033 4,760 20,892 22,179 Operating expenses 4,095 5,779 17,891 18,789 Interest expense 845 755 3,206 2,971 Total expenses 40,443 35,794 124,402 125,379 Income (loss) before income taxes (19,303 ) (7,290 ) (25,644 ) (20,490 ) Equity earnings in Affiliate, net of tax (148 ) - (251 ) 368 Income tax expense (benefit) 9 (9,401 ) 9 (9,441 ) Net income (loss) (19,460 ) 2,111 (25,904 ) (10,681 ) Preferred stock dividends 19 - 19 - Net income (loss) allocable to common shareholders (19,441 ) 2,111 (25,885 ) (10,681 ) Earnings (loss) per common share, basic and diluted $ (1.59 ) $ 0.17 $ (2.12 ) $ (1.00 ) Weighted average common shares outstanding, basic and diluted 12,222,881 12,215,479 12,220,511 10,692,090
For Further Information:
Jessica Gulis, 248.559.0840
ir@cnfrh.com