Conifer Holdings Reports 2024 Second Quarter Financial Results

Conifer Holdings, Inc. (Nasdaq: CNFR) (“Conifer” or the “Company”) today announced results for the second quarter ended June 30, 2024.

Second Quarter 2024 Financial Highlights (compared to the prior year period)

Expense ratio improved 5.8 percentage points to 32.1%
Net investment income increased 11.2% over the prior year period to $1.5 million
Significant progress in planned gross written premium shift toward MGA model

Management Comments

Nick Petcoff, CEO of Conifer, commented, "We are pleased to report significant advances in our strategic transformation. Our main focus is shifting premium away from the traditional risk-bearing carrier revenue model to a more sustainable and scalable production-based revenue approach. This change reflects our commitment to aligning our business model with market demands by creating long-term value.”

Strategic Turn toward Non-Risk Bearing Revenue

Conifer saw significant progress in the second quarter of 2024 in its initiative to run commercial gross written premium through its wholly owned managing general agency (“MGA”), Conifer Insurance Services (CIS). This strategic shift away from a traditional risk-bearing revenue model to focus instead on a wholesale agency, production-based approach began in late 2023, and the Company expects 100% of future commercial gross written premium to flow through its MGA.

This approach is intended to optimize Conifer’s resources and will complement the Company’s shift to primarily focus on commission revenues within its MGA. Accordingly, Conifer anticipates that substantially all commercial lines business will be directly written by third-party insurers with A.M. Best ratings of A- or better by the end of the third quarter in 2024.

During the second quarter of 2024, Conifer continued advancing its plan to direct premium to capacity providers for coverage across multiple commercial lines of business. Furthermore, the transfer of cannabis premium to capacity providers has progressed at a steady pace, and the Company expects to ultimately shift all premium for this line of business to its capacity partners as well. The Company expects that this and other capacity initiatives will significantly boost the premiums placed by its agency segment, ultimately driving higher commission revenue over time.

The Company has continued to underwrite low-value homeowners business in Texas and the Midwest. As detailed in the Personal Lines results overview below, premium for the second quarter of 2024 increased 23.0% from the prior year period.

2024 Second Quarter Financial Results Overview

	At and for the Three Months Ended June 30,							At and for the Six Months Ended June 30,
	2024			2023			% Change	2024			2023			% Change
	(dollars in thousands, except share and per share amounts)

Gross written premiums	$	18,971		$	44,674		-57.5%	$	43,284		$	80,888		-46.5%
Net written premiums		13,247			29,328		-54.8%		28,638			47,670		-39.9%
Net earned premiums		16,666			23,183		-28.1%		33,553			45,135		-25.7%

Net investment income		1,505			1,354		11.2%		3,057			2,661		14.9%
Net realized investment gains (losses)		(118	)		-		**		(118	)		-		**
Change in fair value of equity investments		(196	)		(12	)	**		(153	)		682		**

Net income (loss) allocable to common shareholders		(3,950	)		(4,739	)			(3,876	)		(3,738	)
Earnings (loss) per share, diluted	$	(0.32	)	$	(0.39	)		$	(0.32	)	$	(0.31	)

Adjusted operating income (loss)*		(3,636	)		(4,727	)			(3,605	)		(4,420	)
Adjusted operating income (loss) per share*	$	(0.30	)	$	(0.39	)		$	(0.30	)	$	(0.36	)

Book value per common share outstanding	$	(0.10	)	$	1.38			$	(0.10	)	$	1.38

Weighted average shares outstanding, basic and diluted		12,222,881			12,220,331				12,222,881			12,218,102

Underwriting ratios:
Loss ratio (1)		91.5	%		83.0	%			76.6	%		72.9	%
Expense ratio (2)		32.1	%		37.9	%			33.4	%		37.6	%
Combined ratio (3)		123.6	%		120.9	%			110.0	%		110.5	%

* 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.

2024 Second Quarter Gross Written Premium

Gross written premiums decreased 57.5% in the second quarter of 2024 to $19.0 million, compared to $44.7 million in the prior year period. This decrease reflects the Company’s continued progress toward its goal to reduce premium leverage on operating subsidiaries and focus on non-risk bearing revenue. Commercial Lines Financial and Operational Review

Commercial Lines Financial Review

	Three Months Ended June 30,								Six Months Ended June 30,
	2024			2023			% Change		2024			2023			% Change
	(dollars in thousands)

Gross written premiums	$	6,782		$	34,761		-80.5	%	$	19,544		$	63,736		-69.3	%
Net written premiums		4,285			20,485		-79.1	%		12,572			32,726		-61.6	%
Net earned premiums		8,681			17,487		-50.4	%		17,478			34,610		-49.5	%

Underwriting ratios:
Loss ratio		79.4	%		77.5	%				77.9	%		69.5	%
Expense ratio		25.3	%		37.4	%				29.1	%		36.8	%
Combined ratio		104.7	%		114.9	%				107.0	%		106.3	%

Contribution to combined ratio from net
(favorable) adverse prior year development		23.6	%		5.0	%				12.0	%		0.2	%

Accident year combined ratio (1)		81.1	%		109.9	%				95.0	%		106.1	%

(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 35.7% of total gross written premium in the second quarter of 2024. As noted above, premium decreased considerably year over year in keeping with the strategic shift to a commission-based revenue model through Conifer’s managing general agency, CIS.

Personal Lines Financial and Operational Review

Personal Lines Financial Review

	Three Months Ended June 30,								Six Months Ended June 30,
		2024			2023		% Change			2024			2023		% Change
	(dollars in thousands)

Gross written premiums	$	12,189		$	9,913		23.0	%	$	23,740		$	17,152		38.4	%
Net written premiums		8,962			8,843		1.3	%		16,066			14,944		7.5	%
Net earned premiums		7,985			5,696		40.2	%		16,075			10,525		52.7	%

Underwriting ratios:
Loss ratio		104.6	%		100.1	%				75.2	%		84.1	%
Expense ratio		39.5	%		39.2	%				38.1	%		40.0	%
Combined ratio		144.1	%		139.3	%				113.3	%		124.1	%

Contribution to combined ratio from net
(favorable) adverse prior year development		9.3	%		-6.4	%				1.4	%		-7.2	%

Accident year combined ratio		134.8	%		145.7	%				111.9	%		131.3	%

Personal lines, representing 64.3% of total gross written premium for the quarter. Personal lines gross written premium increased 23.0% from the prior year period to $12.2 million for the second quarter of 2024, led by growth in the Company’s low-value dwelling line of business in Texas and the Midwest. Seasonal spring storms significantly impacted our personal lines results for the quarter, mainly from the Oklahoma based business, which is in run-off. The run-off for that book is expected to be largely complete by the end of this year.

Combined Ratio Analysis

	Three Months Ended June 30,				Six Months Ended June 30,
	2024		2023		2024		2023

Underwriting ratios:
Loss ratio	91.5	%	83.0	%	76.6	%	72.9	%
Expense ratio	32.1	%	37.9	%	33.4	%	37.6	%
Combined ratio	123.6	%	120.9	%	110.0	%	110.5	%

Contribution to combined ratio from net (favorable)
adverse prior year development	16.8	%	2.2	%	6.9	%	-1.5	%

Accident year combined ratio	106.8	%	118.7	%	103.1	%	112.0	%

Net Investment IncomeNet investment income was $1.5 million for the quarter ended June 30, 2024, compared to $1.4 million in the prior year period.

Change in Fair Value of Equity SecuritiesDuring the quarter, the Company reported a loss from the change in fair value of equity investments of $196,000, compared to a $12,000 loss in the prior year period.

Net Income (Loss) allocable to common shareholdersThe Company reported net loss allocable to common shareholders of $4.0 million, or $0.32 per share, for the second quarter of 2024.

Adjusted Operating Income (Loss)In the second quarter of 2024, the Company reported an adjusted operating loss of $3.6 million, or $0.30 per share. See Definitions of Non-GAAP Measures.

Earnings Conference Call with Accompanying Slide PresentationThe Company will hold a conference call/webcast on Wednesday, August 14, 2024, at 8:30 a.m. ET to discuss results for the second quarter ended June 30, 2024.

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 HoldingsConifer Holdings, Inc. is a Michigan-based property and casualty holding company. Through its subsidiaries, Conifer offers specialty insurance coverage for both commercial and personal lines, marketing through independent agents in all 50 states. The Company is traded on the Nasdaq Global Market under the symbol CNFR. Additional information is available on the Company's website at www.ir.cnfrh.com.

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.

Definitions of Non-GAAP MeasuresConifer 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 and 2) 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 (loss) and adjusted operating income (loss) per share:

	Three Months Ended June 30,						Six Months Ended June 30,
	2024			2023			2024			2023
	(dollar in thousands, except share and per share amounts)

Net income (loss) allocable to common shareholders	$	(3,950	)	$	(4,739	)	$	(3,876	)	$	(3,738	)
Less:
Net realized investment gains (losses)		(118	)		-			(118	)		-
Change in fair value of equity securities, net of tax		(196	)		(12	)		(153	)		682
Impact of income tax expense (benefit) from adjustments *		-			-			-			-
Adjusted operating income (loss)	$	(3,636	)	$	(4,727	)	$	(3,605	)	$	(4,420	)

Weighted average common shares, diluted		12,222,881			12,220,331			12,222,881			12,218,102

Diluted income (loss) per common share:
Net income (loss) allocable to common shareholders	$	(0.32	)	$	(0.39	)	$	(0.32	)	$	(0.31	)
Less:
Net realized investment gains (losses)		(0.01	)		-			(0.01	)		-
Change in fair value of equity securities		(0.01	)		-			(0.01	)		0.05
Impact of income tax expense (benefit) from adjustments *		-			-			-			-
Adjusted operating income (loss), per share	$	(0.30	)	$	(0.39	)	$	(0.30	)	$	(0.36	)


Conifer Holdings, Inc. and Subsidiaries
Consolidated Balance Sheets
(dollars in thousands)

	June 30,			December 31,
	2024			2023
Assets	(Unaudited)
Investment securities:
Debt securities, at fair value (amortized cost of $132,889 and $135,370, respectively)	$	119,371		$	122,113
Equity securities, at fair value (cost of $1,844 and $2,385, respectively)		1,660			2,354
Short-term investments, at fair value		23,339			20,838
Total investments		144,370			145,305

Cash and cash equivalents		9,697			11,125
Premiums and agents' balances receivable, net		30,583			29,369
Receivable from Affiliate		1,174			1,047
Reinsurance recoverables on unpaid losses		74,358			70,807
Reinsurance recoverables on paid losses		8,614			12,619
Prepaid reinsurance premiums		13,494			28,908
Deferred policy acquisition costs		4,606			6,285
Other assets		6,038			6,339
Total assets	$	292,934		$	311,804

Liabilities and Shareholders' Equity
Liabilities:
Unpaid losses and loss adjustment expenses	$	174,786		$	174,612
Unearned premiums		44,820			65,150
Reinsurance premiums payable		1,408			246
Debt		24,832			25,061
Funds held under reinsurance agreements		23,602			24,550
Premiums payable to other insureds		19,299			13,986
Accounts payable and accrued expenses		5,352			5,310
Total liabilities		294,099			308,915

Commitments and contingencies		-			-

Shareholders' equity:
Preferred stock, no par value (10,000,000 shares authorized; 1,000 issued and outstanding, respectively)		6,000			6,000
Common stock, no par value (100,000,000 shares authorized; 12,222,881 issued and outstanding, respectively)		98,170			98,100
Accumulated deficit		(90,559	)		(86,683	)
Accumulated other comprehensive income (loss)		(14,776	)		(14,528	)
Total shareholders' equity		(1,165	)		2,889
Total liabilities and shareholders' equity	$	292,934		$	311,804

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

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2024			2023			2024			2023

Revenue and Other Income
Premiums
Gross earned premiums	$	29,381		$	36,013		$	63,613		$	70,307
Ceded earned premiums		(12,715	)		(12,830	)		(30,060	)		(25,172	)
Net earned premiums		16,666			23,183			33,553			45,135
Net investment income		1,505			1,354			3,057			2,661
Net realized investment gains (losses)		(118	)		-			(118	)		-
Change in fair value of equity securities		(196	)		(12	)		(153	)		682
Agency commission income		8,831			211			13,167			641
Other income		160			187			420			383
Total revenue and other income		26,848			24,923			49,926			49,502

Expenses
Losses and loss adjustment expenses, net		15,281			19,319			25,801			33,032
Policy acquisition costs		10,480			4,413			17,493			9,134
Operating expenses		4,256			5,114			8,751			9,393
Interest expense		869			820			1,746			1,506
Total expenses		30,886			29,666			53,791			53,065

Income (loss) before equity earnings in Affiliate and income taxes		(4,038	)		(4,743	)		(3,865	)		(3,563	)
Equity earnings (loss) in Affiliate, net of tax		228			4			286			(175	)
Income tax expense (benefit)		(18	)		-			(18	)		-

Net income (loss)		(3,792	)		(4,739	)		(3,561	)		(3,738	)
Preferred stock dividends		158			-			315			-
Net income (loss) allocable to common shareholders		(3,950	)		(4,739	)		(3,876	)		(3,738	)

Earnings (loss) per common share,
basic and diluted	$	(0.32	)	$	(0.39	)	$	(0.32	)	$	(0.31	)

Weighted average common shares outstanding,
basic and diluted		12,222,881			12,220,331			12,222,881			12,218,102