Q1 2022 Conifer Holdings Inc Earnings Call
Good morning, and welcome to Conifer Holdings first quarter 2022, Investor Conference call. All participants will be in listen only mode should you need assistance. Please signal a conference specialist by pressing the star key followed by zero.
After todays presentation, there will be an opportunity to ask questions. Please note. This event is being recorded I would now like to turn the conference over to Brian Roney. Please go ahead.
Thank you and good morning, everyone Conifer issued its 2022 first quarter financial results after the close of market yesterday.
You can find copies of the earnings release on the Companys website.
I R Dot C N F R H dot com.
The slide presentation accompanying managements discussion. This morning is available to view or download via webcast or from the Investor relations portion of Conifer's website.
Before we get started we note that except with regard 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 the products of the company and its.
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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 our business as well.
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 website.
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> Executive Chairman and co Chief Executive Officer, Jim.
Thanks, Brian Good morning, everyone.
On the call with me are also Nick Harold.
That can Harold and his absence today.
On today's call I'll provide a brief update of our business.
Our progress towards key strategic initiatives at the call today.
As per the norm, Nick will discuss the underwriting results in greater detail and Harold will cover the financials.
Generally we were encouraged to see continued topline premium growth in the first quarter, particularly in the most profitable lines of business.
Our premium growth was achieved through a combination of solid rate increases higher salary pension and.
And disciplined expansion in our chosen specialty markets.
For the quarter gross written premiums were up 9%.
Largely a result of rate increases on our book of business.
In addition to premium growth we were pleased to see.
Continued improvement in our expense ratio.
We realized our short term goal of sub 40% expense ratio for the first quarter and.
And we expect the improved expense trend will continue for the balance of the year.
Near term expense ratio goal is 35%.
The consistent top line growth with year over year gross written premium increases once again boosted our net earned premiums for the quarter. The net earned premium growth when combined with the results of our expense management.
<unk> us well for sustained improvement.
<unk> of our financial results.
What was challenging for us in the quarter was the impact of continued reserve strengthening as.
As a result, we are committed to mitigating any future development.
As we shed residual burden of deemphasize lines of business.
Given the performance we've seen today and our improved business mix, we feel more confident than ever that underwriting profitability is imminent.
Our executive management and leadership teams have concentrated significant energy at a number of initiatives come back the development.
And ultimately to generate sustained loss ratio improvement.
These initiatives are starting to bear positive results and we see a clear path forward.
To achieving our ultimate goal, which is to deliver.
Sure.
With that I'm, turning it over to Nick.
Thank you Jim.
As Jim noted we were pleased to see our topline growth trend continue into the first quarter of 2022 with gross written premium up 9% to roughly $33 million.
87% of total gross written premium in the first quarter came from our commercial lines, which enjoyed particularly strong growth from our small business group.
This was driven in part by rate increases on our specialty E&S products and in part by select geographic expansion in our chosen specialty markets.
While we continue to write commercial premium in all 50 States. We believe that geographic selection is very important to long term overall account profitability.
For example, while certain jurisdictions in Florida remains problematic for us and for the industry at large we are clearly deemphasize deemphasizing writing there.
On the other hand, as we reach deeper into our core specialty lines and expand our premium base. We continue to increase market share in key geographies like our home state of Michigan.
In fact, Michigan accounted for more than 28% of total gross written premium in the first quarter of 2022, and we see plenty of room for continued market share expansion in the state.
This business has resulted in sustained positive underwriting performance and remains a significant driver of anticipated future growth.
Commercial lines gross written premiums were up 5% to $29 million in the quarter, continuing a strong overall growth trend.
Business submissions continue to expand and we're still benefiting from high existing renewal retention levels around 90%.
Premium growth continues to be strong development significantly impacted our commercial lines bottomline in the quarter.
Immediately we did experience a few losses that trial, yes, we continue to focus on mitigating future development largely through focused case reserve strengthening wherever appropriate.
Generally, though we are seeing positive trends in overall claim count reductions.
For example, total claims in Q1 2022 were down 17% from a year ago down 25% from the same period in 2020 and down 40% from Q1 2019.
For quick service restaurants in particular open claims are down 52% from Q1 2021 down 66% from the same period in 2020 and down 75% from the first quarter of 2019.
As these claims trends continue we do expect less development to emerge over time as these improvements are largely attributed to our positive multi year efforts to refine our business mix.
Personal lines, which represented a growing share of overall business at 13% of gross written premium for the quarter, We reported a 39% increase in personal lines premium to roughly $4 million.
Our personal lines business consists principally of low value dwelling products.
Our underwriting teams have established strong relationships and their select specialty markets.
Geographically this as well dispersed with solid growth in particular emphasis in Texas and Oklahoma.
Notably personal lines delivered profitable results for the first quarter of 2022 reporting a combined ratio of 85% for the period.
This is a solid improvement over the first quarter of 2021, and a positive contributor to underwriting profit for the period.
That I'll now turn over the call to Harold <unk> for the financials.
Hey, Nick I'll provide a quick review of the results and I encourage investors to review our filings and presentation on the Companys website for greater detail.
In the first quarter gross written premiums increased 9% to $33 million with Jim and Nick having the premium outbreak breakout excuse me I will focus on our underwriting results.
Conifer's combined ratio was 112% in the first quarter down from 109, 29% in the same period last year.
Our loss ratio was 75% and while still above target was an improvement from 84% in the first quarter of 2021.
The loss ratio in commercial lines was 81%.
Essentially unchanged from the same period last year, while the loss rate while the.
Loss ratio for the personal lines was 41% down considerably from 111% for the first quarter in 2021.
And this quarter, we were particularly pleased with the underwriting performance of our personal lines, which resulted in a combined ratio of 85%.
This represents a significant improvement of some 70 percentage points over the same period last year.
Overall, our current accident year combined ratio was 90% in the first quarter compared to 104% in the prior year period.
Moving to our expense ratio.
We continue to see improvement, resulting from ongoing expense reduction efforts, coupled with additional net earned premium growth.
Accordingly, our expense ratio improved to 38% this quarter down 700 basis points compared to 45% for the same period last year.
As we continue to scale up our net earned premium maintain cost management initiatives and further leverage the investments we have made in technology. We believe the expense ratio improvement is sustainable moving forward.
Net investment income was 507000 during the fourth quarter compared to 532000 in the prior year period.
While the company reported a net realized investment loss of 69000 for the first quarter of 2022 compared to a net realized gain of $2 9 million in the prior year period.
We also recorded a $280000 increase in fair value of equity investments in the first 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 seven years and a tax equivalent yield of one 4%.
Overall, the company reported a net loss of $2 9 million or <unk> 30.
<unk> per share for the first quarter compared to a net loss of $4 6 million or <unk> 48 per share in the prior year period.
This quarter conifer reported an adjusted operating loss of $3 1 million or <unk> 32 per share compared to an adjusted operating loss of $7 million or <unk> 72 per share for the same period in 2021.
Moving to the balance sheet total assets were $285 million at quarter end with cash and total investments of $181 million.
Our book value at quarter end was $3 13 per share.
We have $1 72.
We have a $1 72 per share and net deferred tax assets during the fall due to a full valuation allowance.
Not reflected in book value.
And with that I'd like to turn it back over to Jim for closing remarks. Thank you Harold.
It was another.
Another we're on the right direction with respect to our current accident year in our current mix of business. The development still seems to pop up and it has been.
A problem for us, but we're getting we're getting there and we feel confident that we will be able to manage that in the future.
Any questions.
We will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone.
Using a speakerphone please pick up your handset before pressing the key to withdraw from the question queue. Please press Star then two at this time, we will pause momentarily to assemble our roster.
The first question is from Paul Newsome of Piper Sandler. Please go ahead.
Good morning.
I was hoping you could talk a little bit more about just the update on the court.
On the clean cow.
Going down.
<unk>.
How much.
Is there any pattern that could be related to the courts being closed down.
In various jurisdictions, we as the pandemic and have you seen any changes related to the courts, perhaps opening up in various jurisdictions.
The answer is yes, and I'm going to.
To give you more detail on that yes, absolutely we are seeing the court system pick up.
Was pretty evident in the first quarter, we did see open claim counts drop as things pick up in cases start moving and you are able to settle out or closed claims that were kind of held in limbo during COVID-19.
On the flip side, we did have.
A few more cases go to trial, then probably a normal quarter because you are seeing the court's open up again.
So youre seeing both the activity with cases going to trial and cases closing out at a more rapid pace than they had over the last couple of years with Covid. So that's definitely there's definitely an impact there with the activity that we're seeing on the claims side.
Through our more detail or is that good.
That's extremely helpful. I cover related question.
So the reserve development this quarter, just any patterns from an accident year perspective.
I'm curious about sort of linking the two questions in the sense that.
Was there any patterns in.
The accident years.
Developments, where that would line up are not lined up.
With the court cases, the courts can opening up.
We're shutting down during the pandemic.
Pandemic.
<unk>.
It seems like this is just anecdotal and it's my opinion.
Based on the information we've seen it seems like the.
Judges are trying to get these cases moved and get stuff off their docket, so there'll be quite aggressive.
Trying to push settlements or demand trials, putting everybody on the spot.
We're seeing a lot of activity that way.
We're also seeing kind of.
I would say in certain geographies. The plaintiffs are being extremely plaintiffs' counsel as being extremely difficult to deal with.
Forcing us.
To go to trial, because we have really no other choice.
When you go to trial.
I'd say, we're about batting about 500 in the first quarter.
A couple of we thought we would when we lost a couple that we're on offense we want.
So it's really.
The pattern, we're seeing is that what hurt us is the.
Quick service restaurants, and that the volume that we got in the jurisdictions that were unfavorable to us when we're in.
When we're in Michigan or in some other.
Geographies, where we have a reasonable chance of CT systems, where we're doing very well when we are in.
Geographies that are not as friendly.
Southeast, Florida being one major one.
We're having troubles. So we're obviously trying to address those logically.
Move to mitigate that issue as much as possible. So.
Okay.
In courts that are really packed theyre trying to move move things through quickly.
Interesting that makes it so does that mean that the accident years that the reserve development that happened or are more in the last couple of years because of that effect or is it more.
More spread out.
We believe 2020 in 2021 are good years.
For us.
We had changed our mix of business, we had changed.
Worked very diligently to address the issues in 16, 17, 18, and part of 19 started 90 and you can't turn the ship on a dime.
And we believe that.
Those accident years are going to be better.
Yeah.
The <unk> business, we rode was heavier in 2018 19 and those are the years were seeing some development.
That makes sense and then just maybe a couple of extra words.
Competitive environment from a rate.
In terms perspective.
Businesses that you're in this if anything changed in the last quarter or material way or anything into single general from a competitive perspective would be great.
Yes, I think on the property side, it's still a strong rate environment and we saw that in the first quarter, maybe not quite as strong as we saw in Q4, but I think there's evidence now that that's picking up again into Q2, so thats a positive in the rate environment and one thing we're seeing on the hospitality side.
We did see.
Some progress on rate increases in the quarter as well and youre seeing that with the economic activity in hospitality pick up we were able to get rate on that class of business and then I think some of what we're seeing maybe has less <unk>.
Explicit and rate, but we are seeing in term. So you are seeing.
People increase their insurance increased deductibles.
Limit coverages to maybe save on rate increases, but obviously youre tightening terms so.
There's some favorable momentum momentum there, but I wouldn't say.
The story has changed dramatically from Q1 from prior quarters, it's still a pretty strong rate environment.
Great. Thank you very much and thanks for the call and I'll, let somebody else ask a question I appreciate all the help.
Thank you Paul.
The next question is from Bob Farnam of burning.
And Scott. Please go ahead.
Yes, hi, there and good morning.
Just a little bit more on the reserve stuff. So what's your feeling in terms of the courts.
How far along are they in removing the log jam of cases.
My question is is this something that we should expect in the second quarter in the third quarter is.
There may still be elevated cases that are going to trial.
Okay.
I don't.
Things are quite active.
Sure.
But as.
As time goes on the total number of claims we have is going down.
Okay. So then the total number of claims and the old years continues to go down and hopefully.
The reserve strengthening that we've been doing on that.
Those cases will result in loss and loss development from those older years.
For us.
Is the activity up yes, I would say we're moving.
Things are moving.
Quickly for those older years, as I said to Paul though.
Our frequency.
In 2020 in 2021.
Hi.
Is down significantly and I don't know do you remember those numbers, Nick Yes, I mean, GL frequency is down well over 50%.
<unk> 'twenty.
From 2020.
2020, and 2019, so for premium dollar we are seeing significantly less claims and from.
From 2000 to 2020 accident year compared to 2019, and the 2021 accident year compared to 2020. So you are seeing the claims volume come down and part of that metric also takes into account rate increase and we've been getting rate increases as well so the frequency number per premium dollars actually down.
Significantly yes.
And my point there is.
I guess I'm not answering your question specifically, but.
The activity has picked up but the total number of claims that have come down. So although it may have picked up but we don't have as many to deal with.
Our.
Total number of claims.
Specifically related to.
Claims received.
Yes.
Is down 64% from.
Q1, 19 for Q1 of 'twenty two.
So.
And our total number of claims outstanding are done well over 50% probably in the same number of 60%.
So.
So it's hard to imagine.
We're going to continue to see that.
Develop proposals.
Yes.
Having said that who knows right, but we're not getting new claims and from those years the statutes of Ron.
More way more confident in the years.
Really 19 2021.
And as Jim said, while claims are down 64%.
<unk> liability claims first quarter versus first quarter 2019 are down 77%.
In line with what Nick was saying.
And if you think about our premium our premiums up and Thats why we have such a significant reduction in claims frequency.
Alright, okay.
Ill move on to something besides reserves so.
The expense ratio improved more than I expected in this quarter I know you've been talking about the inspection the expense ratio improvement for for many quarters now but was there anything thats one time.
That's my first question and second question you are talking about a 35%.
Target in the near term is that so are we looking for this year to reach 35 is that something that's reasonable.
I think that's a question for Harold.
Thank you so one of the reasons why our expense ratio is lower as we entered into.
Some reinsurance agreements that included a ceding commission.
This had the effect of increasing our loss ratio and our and reducing our expense ratio. So it increased ceded earned premiums, but reduced commissions by a ceding commission.
So kind of net out on a combined ratio basis, but it reflected some improvement in the.
The expense ratio and it made the loss ratio look a little bit worse overall, though our expense ratio is down if you were to back that out we're still down.
Two percentage points from the first quarter of 2021, so we're still making some very good headway on the expense ratio 35 is probably too low for the current year.
But we should still maybe pick away at what our current expense rate ratio is for the rest of this year.
Our fixed costs continue to go down.
And our earned premium continues to go up.
So we're going to continue to see improvements so that 38.
Headed towards 35 might.
Might not be until first quarter of next year, but we're definitely on the way.
Alright.
Yes, thanks for that Harold.
That was actually kind of a follow up to my next question because they saw that the <unk>.
Ceded premiums went up so I was just curious what changes happen in the reinsurance so is that a quota share treaty that you got into.
It was actually part of our excess of loss Treaty is very similar to our older trees, but this is the first time.
We used the ceding commission.
For them it helps us with a little bit of boost in surplus on a statutory basis, but really has no impact on underwriting results on a GAAP basis.
Alright, okay.
And last question for me is the new money yields like what the changes in interest rates.
Kind of trying to get a feel for what we might expect from investment income going forward.
This is Brian I'll take that one the portfolio right. Now is 50% is three years or last 31% is one year or less and we've got about 10% in cash and probably seven or 8% and floaters, so with the duration.
And our three seven.
New money yields are definitely improving so we would expect to see investment income go up with the short duration and the relatively short.
Breakout mix of the portfolio.
Okay. Good.
Alright, that's it for me thanks.
Again, if you have a question. Please press Star then one the next question is from Greg Peters of Raymond James. Please go ahead.
Well good morning, everyone.
I have two questions.
First question will be on just the geographic.
Exposures in commercial lines I think it's slide nine of your investor deck in the second.
Question will be on cash.
In further geographic exposure I think Nick you mentioned in your comments may be lightening up a little bit in <unk>.
Areas in commercial in Florida, and so Im looking at this business mix on slide nine of your investor deck and.
As you know.
Hugh.
Emphasize the locations that are favorable to your underwriting.
Restrictions.
Or guidelines, how do you think this business mix is going to change within your top five states.
Sure Yes.
Again on Florida, we continue to see that decline and we will see that continue to decline this year and.
Into next year as well Mitch.
Michigan continues to see strong growth, that's where most of the underwriting or excuse me marketing focus is right now we still see a lot of runway and really all of our product lines in the state of Michigan, probably excluding.
Personal line and then Texas is another state that we're focused on the commercial line side, we've added some marketing.
Personnel to the state of Texas that we think will help grow that book.
The commercial book in that state so.
I would say in Michigan, and Texas, probably are two areas of the country that we do see probably becoming a larger portion of the overall book and with Florida being the state that will continue to see decline.
Got it.
And then on just simple catastrophe exposure and I know you were commenting on your reinsurance structure.
And the answer to the previous question, but.
Brent.
We're entering wind season.
And I'm just curious.
For the 22 year, how we should be thinking about.
Bob.
The enterprise's exposure to catastrophes in light of what you've done with reinsurance.
Sure, we do still have some Florida commercial exposure on the property side. So.
That's still obviously as wind exposed from a hurricane standpoint, although if you look at the book in aggregate were more of a straight line sort of convective storm exposed company now with the especially at the personal lines growth then.
Texas and Oklahoma.
And for.
For that book Q1, and Q2 are really that kind of tougher quarters.
We haven't really seen anything sort of outside the norm. There are cat does come up on fix one we don't see any significant changes to the structure. Obviously the pricing environment is tough there and we did have some losses from winter storm Yuri last year, but we don't see really.
Significant changes to structure or I don't know.
Think pricing either.
If I could add something to that we have a retention of $2 million.
But because of our wind exposure has gone down so much over the last few years when you look at the blended.
RMS and AAR.
Yes.
One in 100 year storm were actually excellent.
I should say probable maximum loss, whereas so blended one in 600 year storm. So we have very good reinsurance coverage on that with.
Underlying exposure $2 million.
So.
Okay.
Growth in Texas, and Oklahoma, I guess, the second quarter, we get a lot of.
Storm activity in those states.
Should we think about this and I think Harold you probably answered it but should we think about each like Pcs event you have.
Potential 2 million dollar retention or am I getting too granular.
No that's correct yeah, our retention on any one event for the personal lines is $2 million and commercial for that matter. We do have a narrowing reinsurance on the commercial side that picks up some of that before it hits the cat, but yes on an aggregate basis in any one event it would be $2 million or <unk>.
We have come.
Not the same as they were last year correct, we continue to make geographic changes too.
Our exposures and our excellent they've gone down and are we.
We expect from a risk standpoint, our risk is continues to get reduced we don't know what impact that's going to have based on the.
Expectations of reinsurers, and inflation et cetera, et cetera, but through the second quarter, we havent seen any type of event that would get anywhere near our retention.
And thanks, Sean.
And just in the first quarter did you have you didnt none of the events that happened on the BCS events trick.
Triggered any maximum retention in your results correct.
Correct, I mean, you would've seen the loss ratios on the personal lines go up because it was a quiet quarter.
Our personal lines performed well.
And there were some events that went through but we would not impacted not significantly.
Just to point out that other than <unk> that happened last year.
It's only been hurricanes that really hit us pretty hard.
That would would cause our losses to go up and touch any sort of level of retention for relative to a cat, we don't have that much individual exposure too.
Anyone storm coming through.
<unk> cat, we've ever had outside of Hurricanes, yes, absolutely.
Yes, okay, well, thanks for the answers and good luck.
Thanks, Thanks, Greg.
This concludes our question and answer question I would like to turn the conference back over to Jim Petkoff for closing remarks.
Yes.
I just wanted to thank everybody for being on the call today.
We're cognizant of the development, we're moving in the right direction claims are coming down we feel the current accident years.
Forming quite well and we like our book of business, we've really moved geographically and we manage the cash standpoint.
So.
We're as I said in my remarks, we're optimistic that we're moving in the right direction. So thanks again.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.