Q4 2021 Conifer Holdings Inc Earnings Call
Good day and welcome to the Conifer Holdings fourth quarter Investors Conference call. All participants will be in listen only mode should you need assistance. Please signal conference specialist by pressing star key followed by zero.
After today's presentation there'll be an opportunity to ask questions I would now like to turn the conference over to Brian Roney. Please go ahead.
Thank you and good morning, everyone conifer issued its 2021 fourth quarter and year end financial results. After the close of market yesterday, you can find copies of the earnings release on the company's website IR Dot C. N F R H dot com.
Slide presentation to accompany management's discussion. This morning is available to view or download via webcast or from the Investor relations portion of <unk> website.
Before we get started the company has asked that I note that except with respect to historical information statements made in this conference call may constitute forward looking statements within the meaning of the federal securities laws, including statements relating to trends the company's operations and financial results.
And the business and products of the company and its subsidiaries.
Actual results from conifer may differ materially from the results anticipated in these forward looking statements as a result of various risks and uncertainties underlying our forward looking statements, including risks and uncertainties associated with COVID-19, and its impact on the economy and on our business as well.
As those risks described from time to time in conifer's filings with the SEC, including our latest Form 10-K and subsequent reports.
Conifer, specifically disclaims any obligation to update or revise any forward looking statements, whether as a result of new information future developments or otherwise.
In addition, a replay of this call will be provided through a link on the Investor Relations section of our web site.
During this call. We'll also discuss non-GAAP financial measures as defined by SEC regulation G. Reconciliations of these non-GAAP financial measures to the comparable GAAP financial measures are included when possible in our earnings release, and our historical SEC filings.
Statutory accounting data is prepared in accordance with statutory accounting rules and is therefore not reconciled to GAAP.
We will conduct a Q&A session. After management's prepared remarks. This morning with that I'll turn the call over to Jim <unk>, Chairman and Chief Executive Officer, Jim.
Thanks, Brian Good morning, everyone.
On the call with me today are in addition to Brian or Nick Harold Andy.
On today's call I'll provide a brief update on our business and strategic initiatives underway at the company. Nick will then discuss our underwriting results in greater detail and Harold will cover the financials.
The highlights for our fourth quarter and really for all of 2021 was the continuation of our top line premium growth.
Year over year I was pleased to see gross written premiums increased by roughly 19% over the 2020 levels.
What's more the sustained top line is consequently lead to even greater net earned premium.
Hoping further rationalize and reduce our expense ratio.
In addition, our ongoing expansion expense initiatives have helped streamline our organization.
Through even greater technological utilization.
As you may be aware.
Over the past several years, we have continued to refine our business mix and in 2021 was no different we focused on our book of business on the most profitable lines, whether commercial or personal.
Today, we have we feel we have a quality book of business and are.
Focused on expanding this book, while capitalizing on opportunities.
We continue to closely monitor performance throughout our book utilizing our flexible infrastructure to respond to niche market opportunities.
Fourth quarter was a positive indication of that successful books of business coming into fruition and ensuring that our previous underwriting efforts are reflected in our results.
With our business mix optimize we continue to refine our booked account by account and seek additional way right wherever needed.
The fourth quarter reflected solid underwriting results, which we expect to continue throughout 2022 and beyond.
Looking ahead to the rest of 2022 growth in our core specialty markets remain sustainable.
With significant runway and opportunities to reach deeper into our chosen markets. We expect to see a consistent long term profitability emerge with that let me turn it over to Nick for more color on our underwriting results Nick.
Thank you Jim.
As Jim noted we were pleased to report solid topline growth not only in the fourth quarter, but for all of 2021 , resulting from our sustained commitment to underwriting in our specialty markets.
Commercial lines represented 88% of our total production for the period, where in particular, we saw substantial growth from our small business group.
Our personal lines, it's just mainly a low value dwelling business represented 12% of written premiums for the quarter.
Commercial lines gross written premiums were up 10% to $29 million in the quarter and up almost 14% for the full year, continuing a very positive overall growth trends.
During the fourth quarter, our new business submissions continue to expand and we are still benefiting from high existing renewal retention levels at approximately 90%.
As we reach deeper into our core specialty lines and expand our premium base, we continue to increase our market share in key geographies, including our home state of Michigan.
Michigan gross written premium increased $6 million or 26% in 2021, and we see plenty of room for continued market share expansion in the state.
This business has resulted in continued positive underwriting performance and remains a significant driver of our anticipated future growth.
Overall hospitality premiums have started to rebound as anticipated, reflecting the normalization of premium contributions as COVID-19 restrictions ease nationwide.
Our small business book continued its strong upward trend with exceptional premium growth of 31% over the course of 2021.
This equates to an increase of more than $20 million, an additional premium for the full year, a key driver of overall premium growth.
Keep in mind that roughly half of that overall premium increase for the full year 2021 was driven by additional rate achieved in the period roughly 9% across the board on average.
While commercial lines had a good quarter, we reported an even better one for personal lines.
For the fourth quarter, we reported a 63% increase in personal lines premium roughly $4 million for the fourth quarter and a 75% increase to $15 million for the 12 months ended December 31.
While this growth alone is encouraging it was even better when considering the results personal lines performance was highlighted by a strong fourth quarter, posting a very profitable combined ratio of 77% and profitability for the full year as well.
Our personal lines consist principally of low value dwelling products, where our underwriting teams have established strongly relationships and select specialty markets.
Geographically this as well dispersed the solid growth, particularly in Texas and in Indiana.
Our core loss ratio for commercial lines was 67% even as we continued to bolster reserves in the period.
Our personal lines loss ratio was excellent at 34% and when taken together are all and loss ratio for the quarter was a solid 62%.
The positive theme to note here is that the underlying fundamentals exhibited in the fourth quarter were very strong accumulatively reflect reflective of the underwriting improvements made in prior periods as we optimized our business mix.
Now we are seeing the benefits of our earlier efforts and we believe these results are indicative of future performance and the current book.
What evidence supports our confidence emergence trends for recent accident years are clearly favorable.
Seeing significantly reduced overall claim counts.
Most notably in those deemphasize lines, all coupled with higher outstanding average reserves when compared to average paid.
Leading us to feel assured that prior development is trending more favorably today.
We're not saying that we couldnt experienced any additional development going forward, but we are certainly encouraged with the performance trends. We are currently seeing.
On the claim count front, let me offer an another example.
As we've outlined in prior earnings calls <unk> has been a challenging line for us.
Since 2018, we have significantly reduced premium in this line and a carefully refined our business in geographies to include only the best of the best.
As a result, while premium is down significantly we have also seen claim counts decreased considerably as well <unk> claims were down 54% from 2019 to 2020 and down another 70% from 2020 to 2021.
These reduced claim counts reflected not just in the U S airline, but across all liability lines taken as a whole new liability claims dropped 47% between 2019 and 2020 and fell another 40% from 2020 to 2021.
This is consistent with our expected outcomes, resulting from the decision to focus our underwriting efforts on trying to penetrate deeper in our best performing lines.
Obviously continued underwriting enhancement is a never ending ongoing process, but we are pleased to see the current operating results, reflecting the efforts and changes previously made.
With that said I'll now turn the call over to Harold to discuss the financials.
Thank you Nick I will provide a brief review of the results and I also encourage investors to review our filings and presentation on the Companys website for greater detail.
In the fourth quarter gross written premiums increased 14% to $33 million.
But Jim and Nick having detailed breakout of premiums I will focus on our underwriting results specifically the improvements in our loss and expense ratios.
Kind of first combined ratio was 104% in the fourth quarter down from 111% in the same period last year.
Our overall loss ratio was 62% a slight improvement from 67% in the fourth quarter of 2020.
The loss ratio in commercial lines was 67% this quarter substantially unchanged from last year's fourth quarter, while the personal lines loss ratio was 34% down considerably from 61% in the fourth quarter of 2020.
And this quarter, we were particularly pleased with the underwriting performance of our personal lines, which resulted in a combined ratio of 77%.
This represents an improvement of almost 2700 basis points over the same period last year.
Our current accident year combined ratio was 89% in the fourth quarter compared to 93% in the prior year period.
Moving to our expense ratio, we continue to see improvement.
Resulting from planned expense reductions and premium growth.
Accordingly, our expense ratio improved to 41% this quarter compared to 44% in the same period last year down 250 basis points.
As we continue to scale up our net earned premiums maintained cost management initiatives and further leverage the investments we've made in technology. We believe the sub 40 expense ratio is very achievable in the near future.
Net investment income was $419000 during the fourth quarter compared to $563000 in the prior year period.
The company reported a net realized investment loss of $1 million compared with a net realized gain of $3 $6 million in the prior year period.
We also recognized a $1 2 million dollar increase in fair value of equity investments in the fourth quarter.
Our investments remain conservatively managed with the majority in fixed income securities with an average credit quality of double a and average duration of three six years and a tax equivalent yield of one 4%.
Overall, the company reported a net loss of $801000 or <unk> <unk> per share for the fourth quarter compared to net income of $3 $3 million 34 per share in the prior year period.
This quarter conifer reported an adjusted operating loss of $986000 10 per share compared to an adjusted operating loss of $2 5 million or 26 per share in the same period in 2020.
For the full year 2021, the company reported a net loss of $1 1 million versus a net income of 595000 last year.
Moving to the balance sheet total assets were $290 million at year end with cash and total investments of $193 million.
Our book value at year end was $4 70, <unk> 17 per share.
We have a $1 50 per share and net deferred tax assets that due to a full valuation allowance were not reflected in book value.
And with that I'd like to turn it back over to Jim for closing remarks.
I think.
Thanks Harold.
Pleased to see the successful execution of our business plan and the growth of our top line, while simultaneously reducing exposures to lines that have generated the greatest impact to our reserves.
Given the results we've achieved to date and our trajectory looking forward. We are confident that our efforts will continue to bear fruit in 2022 and beyond.
The primary focus of <unk>.
<unk> leadership team.
Remains to drive bottom line profitability.
And now we're ready to take your questions.
Operator. Thank you we will now begin the question and answer session.
To take a question you May Press Star then one on your Touchtone phone.
If youre using a speakerphone please pick up your handset before pressing the keys to withdraw your question. Please press Star then two at.
At this time, we will pause momentarily to assemble our roster.
Okay.
Our first question comes from Paul Newsome from Piper Sandler. Please go ahead.
Good morning.
Thank you for the call.
Love to hear the outlook for the.
Our expense ratio, becoming sub 40.
Any thoughts on sort of the timeframe of that I don't need a quarterly predictions, but are we talking within a year or two or you.
Beyond that or anything that sort of gives us a sense of the.
How that might emerge would be great.
I think I'll leave that up to Bryan or Daryl.
Sure.
I I can handle that Paul thank you.
We do see very positive movement in the expense ratio and I would expect certainly by the second quarter of next year or this year excuse me 2022.
Maybe even in the first quarter, but I don't want to be too optimistic.
And that we should see below 40 expense ratios.
Fantastic and then just maybe a little bit more color on the competitive environment.
Lots of news about sort of incrementally smaller price increases and I guess, that's translating into.
Maybe lesser of a hard market or are you seeing the same sorts of things.
Targeted markets.
I'm going to leave that up to Nick but before I do.
Say in general, it's really a line specific and that isn't it may be in general overall, the rate increases aren't going to be its big but certain lines are going to continue to experience rate increases Nick go ahead.
Sure Yes.
And in the areas, where we're writing.
We do still see a strong environment in particular on property, we have not seen that really tail off towards the end of last year.
It was a strong year on the <unk>.
Casualty front for us outside of work comp, but as.
As I think other carriers have noted we did see a little bit of.
Decrease in the increases I guess, we would say towards the end of last year, we didn't see a strong momentum on the casualty side in the fourth quarter as we had seen earlier in the year I.
I wouldn't say.
It does.
Soft market or anything like that it's still a pretty I think a pretty firm market, but just not as firm as it was earlier in the year. So I do think we've.
<unk> seen that in our casualty lines, but the property market continues to be very strong from a rate environment.
Great. Thank you and good luck for the 2022.
Thanks, Paul.
Our next question comes from Bob Farnam from burning and Scattergood. Please go ahead.
Hi, there and good morning.
Just maybe looking for a little bit more details on the commercial lines reserve development and kind of what lines were driving that and what accident years.
I think.
Either Nick or apparel.
Whoever wants to take that.
Sure Ike this is Nick I can I can take that.
The <unk> line was the largest area of development that we saw in the fourth quarter. Most of it was from 2018 and 19 2020 in 2021 are still looking like very strong years for us.
And again, it's the quick service restaurant in particular in certain geographies, Florida sort of being the key one.
New Jersey has also been a tough geography for us.
But those are really the two <unk> was by far the largest and those were the years that saw the most emergence and if I add something there mix from an underwriting perspective, I think that the premium in the state of Florida isn't that down like 95%, yes, we've been since really the end of 2019.
<unk>.
Aggressively reducing our exposure in Florida on that particular class of business and to Brian's point, we're down 95% roughly from where we were in those years.
It is the development coming back in the queue I started development is it coming from.
Actual cases that theyre getting more severe than you expected or are you or you're putting in the IP and ARPA or potential for increased expenses like I'm trying to figure out whether this is right.
Severity driven frequency driven actual cases or just that would be an arm.
Yeah, It would be a combination of IV and are in the fourth quarter and just emergence on the litigation in the state of Florida. So you have ongoing.
Mostly slip and fall type losses, and the legal expense on the drawn out.
Litigation environment combined with you we are seeing in certain trials, although I think we've done a good job of that you are seeing like the rest of the market.
Your severity based on more litigation, but also jury verdicts thankfully.
We haven't seen as many of those but it's more of just the overall cost involved with litigation and more frequent litigation.
Excuse me sorry.
Do you have concerns with the perhaps courts opening it up and even having even more difficult environment I didn't know it.
If during the pandemic are you actually had a bit of a breather.
Yes, I mean I would say.
Does somewhat of a breather in 2020, although I think at towards the end of 2020, we started to see things normalize we are certainly seeing.
Things move more quickly and in the courts.
But that hasn't I don't think that's really been as much of an effect I think it.
It was.
Issue, even through Covid, where you were still spending money on litigation.
The trials werent happening, but the costs there were still involved.
And if I just wanted to clarify one thing.
Particularly with <unk>.
Most of the claims are reported relatively early certainly after a two year period, you don't really see any additional claims coming in so we did see a fair amount of emergence and existing case reserve development.
The good news behind that is when you start looking at some of our older accident years, where we had some of the bigger challenges. Our case reserves are cases or claim count is way down. So it just offers much less opportunity for further development.
Okay. Good thanks for that additional color.
While you're on that.
New money yields have been it looks like obviously, you're not you're not getting a whole lot of from your investment.
Income just kind of curious how new money yields are looking relative to the exploration of our existing bonds.
<unk>.
Let me take that one it's Brian actually as you look at the portfolio. There's a couple of things going on.
You are right, we still have a relatively short duration. So the kind of the rule is significant but new money yields are not significant so as you look at the overall total return, it's obviously relatively low but part of the idea. There is that we're keeping a very high quality and very low.
<unk> and on top of it we made a conscious decision when we look at kind of her insurance company in particular with the end of last year, we moved out of equities and we've stayed out of equities. So in terms of trying to have less exposure to markets. We kind of took the equity exposure for conifer, which.
The larger of our two operating subsidiaries off the table now that could create an opportunity for us going forward, depending on what happens with where markets are today, but.
Specifically as we look at total return we took the equity exposure off and you're right. We're not seeing huge yield increases, but we are seeing a rolling over because of the short duration. So we do think we are going to be able to take advantage of rate increases as we see the markets move up.
Okay. Thanks for that.
And last question for me is did you was there a change in your reinsurance in commercial lines. It just seemed like a ceded premium was up.
A bit in the fourth quarter didn't know what was driving that.
Nick I can yes, I can take that.
We entered into a new reinsurance treaty effective 12 31.
That has a ceding commission component to it.
Not a quota share it's a regular excess of loss treaty, but that caused us to recognize additional.
<unk> written premium.
You know versus what we've seen in the past so I think on a go forward basis youre going to see more ceded.
Earned premium in ceded written premium, but youre going is going to be offset by a ceding Commission.
Accordingly, it doesn't really have much of an impact to the bottom line and really no impact on a GAAP basis. It does help us a little bit on a statutory basis as well, which is why we did it it helps us with our risk based capital.
And our surplus so that's why we did that.
Are you are you planning on having a line item for the seeded a ceded commissions or is that.
As can be lumped into something else like other income.
That's going to be included in acquisition cost, but on a GAAP basis. There is no difference.
Is it just.
Included in acquisition cost, we will probably have a footing as it starts there was no impact to the income statement.
As of 12 31, because it was effective.
On the last day of the.
For the year so.
But going forward, we probably will have a disclosure that talks about it.
Okay.
Great. Thanks for the answers.
Thank you.
Again, if you have a question. Please press Star then one.
Our next question comes from Greg Peters from Raymond James. Please go ahead.
Good morning, everyone.
My questions have been asked.
I know you gave.
Gave some color around how.
How you think the expense ratio might improve in 'twenty two.
Can you just from a big picture perspective give us an idea of what you think the top line results might look like.
In terms of year over year increase and then also the loss ratio and obviously, there's going to be a range on the loss ratio, but just trying to put the pieces together to come up with the right.
Number and any guidance you can offer on those two areas would be helpful.
Well I'll give my.
Not as Brian or Nick want to chime in if they are welcome to ask here.
As far as top line goes I wouldn't see.
I would expect us not to achieve the same growth we had last year.
As there were a couple.
Deemphasize proper.
Property lines that are going to we.
We will work as we continue to go to our most profitable books of business the loss ratio on an accident year basis is better than the b.
The calendar year that you've seen so I would expect improvement in the loss ratio.
As we go forward and.
So you asked about growth.
And the model for sure.
Yeah.
I expect the loss ratio to improve.
Yeah.
And I expect growth to be there, but not as significant as last year, Nick or Brian do you want to answer that.
Great.
No I think you've got it yeah, I agree with that as well.
On the accident year loss ratio component.
What do you estimate you know.
The gap there.
The variance between.
Where you are and where it was for 'twenty one versus.
How you think obviously the rates coming through in the rate's going to be give you a better should theoretically drive.
The loss ratio lower but I'm just curious what your views are.
Are you going to book, a lower accident year, and 'twenty, two because of the changes or.
I guess.
Grasping at straws trying to understand how we should think about the accident year loss ratio for 'twenty, two well well the accident year loss ratio for 'twenty, two probably be similar.
Sure.
Maybe tick up a little.
Most of the improvement in our <unk>.
<unk> had come from the realignment of the books of business.
Obviously in 2020 with places being close there is some benefit to us because you know <unk>.
<unk> will then place people didn't necessarily go out of business.
To ensure their properties sure.
Lower.
Lower limits of liability and different things to lower than their own premiums individually, but we did get a benefit.
From places, we close 2021 really continued.
A decrease in the frequency per premium dollar in our casualty business, which tells you that.
The books of business, we're writing or much about it so.
As time goes on.
The World continues to open up I expect a little increase in the accident year loss ratio, but I don't see a dramatic one.
The only wildcard.
Wildcard there is on property, although we don't have a lot of wind exposed property.
We have seen quarter to quarter depending on.
Freezes and different things, we could see some volatility in our property loss ratio, but for the year, we expect that to continue to be very good. So.
I would expect a casualty loss ratio to tick up a little bit on an accident year basis, but Nick or Brian do you have a comment on that.
No I think you're I agree with your assessment on the accident year and obviously as.
Reserve development improves and we see less of that.
Calendar year and accident year should be come closer in that gap should recede and be pretty close to the same number hopefully you hear very shortly and.
And we do expect that that expense ratio is going to come down I mean, our target is still 35, and we're going to be pushing hard obviously on that so we are looking for profitability in the year.
Got it alright, well.
Thanks, Jim and Nick and Brian and good luck to your to the Euro.
Thank you. Thank you Greg everybody is.
Everybody's voice, especially here so I don't think I've talked to Greg in a quite a long time so.
Good to hear your voice.
Again, if you have a question. Please press Star then one.
There are no more questions in the queue. This concludes our question and answer session I would like to turn the conference back over to Jim Pickoff were for closing remarks.
I just wanted to say again that I appreciate everybody being on the call today.
And.
We're very we're very pleased with where we're going from the underwriting.
Loss ratio and expense ratio.
Focuses that we've had so.
Look forward to talking to you guys next quarter and I hope everybody stays safe take care bye.
Conference has now concluded. Thank you for attending today's presentation you may now disconnect.
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