Conifer Holdings Inc. Q1 2023 Earnings Call

Good morning, and welcome to the Conifer Holdings first quarter 2023 earnings conference call.

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I would now like to turn the conference over to Brian Roney. Please go ahead.

Thank you and good morning, everyone Conifer issued its 2023 first quarter financial results. After the close of market yesterday, you can find copies of the earnings release on the company's website IR Dot C and F. Our age Dot com.

A slide presentation accompanying managements discussion. This morning is available to view or download via webcast or from the Investor Relations section of <unk> website.

Before we get started please 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.

Consider areas.

Actual results may differ materially from the results anticipated in these forward looking statements due to various risks and uncertainties underlying our forward looking statements as 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.

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 Peck off Executive Chairman and co Chief Executive Officer, Jim.

Thanks, Brian Good morning, everyone.

Joining me today on the call are Nick and Harold as well.

I'm pleased to report that the first quarter financial results bear out the key strategic decisions management has been implementing over the past several years.

In particular, the actions, we took to improve our business mix by focusing on select profitable verticals as well as strengthening our overall reserves.

Together these actions have positioned us for profitable future growth.

One of the major initiatives undertaken in 2022 was the execution of our loss portfolio transfer a reinsurance agreement.

Specific to liability lines for accident years 2019 and prior.

As we will report further in further detail later in the call we have begun to recognize the benefits resulting from that decision.

Already in the first quarter of 2023, and we are confident that these favorable results will continue.

As always we remain dedicated to preserving our sustainable top line continuing to streamline our expense structure and maintain our operational profitability to generate favorable return to caterpillar shareholders.

In that light I am pleased to report significant improvement across a broad spectrum of metrics for the first quarter.

These and other underwriting improvements have been instrumental in our ability to achieve profitability. This quarter and we will continue to evaluate and refine our underwriting practices to drive sustainable growth.

We are proud of the hard work and dedication of our entire team and we remain committed to delivering exceptional value to our insureds and our shareholders. We will continue to build on this quarter's success in the months and years to come.

I'm now going to hand, it off to Nick for more color on our underwriting.

As Jim noted, we have implemented numerous underwriting changes over the past several years that are beginning to bear results and that point the way to continued and sustainable future profitability.

Significant underwriting enhancements over the past several years include implementing a variety of underwriting tools that enable us to more accurately predict the likelihood of claims and losses based on a variety of factors such as demographics location and previous claims history.

This has allowed us to make more informed underwriting decisions, including tightened terms and conditions improved geographic distribution and increased rate where appropriate to reflect the level of risk for each policy.

In addition by diligently maintaining our focus on several key specialty verticals, we've enabled our underwriting team to deepen and utilize their area of expertise to develop unique products that provide superior customer service to our agents and insurers.

Narrowing the breath of our underwriting focus has generated improved operating efficiency as well, resulting in faster policy turnaround times and more streamlined processes to reduce expenses and provide an improved overall customer experience.

Moreover, greater refined risk selection leads to reduced frequency and severity of claims where our agency partners can be frontline underwriters and help us deliver not only better product selection overall.

But drive better underwriting results.

Years in the making all of these efforts combined to build strong relationships with our agency partners as evidenced by our continuing account retention of 90% overall.

Gross written premium was just over $36 million for the first quarter, a 10% increase over the same period last year.

The majority of our premium continues to come from commercial lines, which accounted for 80% of total gross written premium in the period.

Commercial lines production was up slightly to $29 million as we continue to focus on our specialty markets, where we are generating successful underwriting results.

In the quarter, we reported a profitable combined ratio of 97, 6% for commercial lines.

Our small business group continued to be the major contributor to increased commercial lines premium production as he saw topline growth in this group of more than 10% in the quarter.

Generally rate continues to be a strong positive contributing factor across all lines of business for conifer.

Our personal lines business, which consists principally of low value dwelling products continues to represent a solid share of overall business at 20% of total gross written premium for the first quarter.

Personal lines gross written premium was up more than 65% over the same period last year to just over $7 million for the first quarter.

Texas, and Oklahoma continue to perform well overall, despite cat losses that led to an elevated loss ratio for the first quarter and we are pleased with the geographic spread weird achieving there.

As noted in previous earnings calls, we continue to see additional runway for logical growth and continued rate increases in our personal lines premium production.

In addition to positive underwriting results overall, our claims continue to trend favorably across our book as well.

With respect to frequency for premium and general claims severity for example, as of March 31st I'll Open liability claims are down 42% since the first quarter of 2019.

All of these positive factors combined to provide ongoing evidence that the strategic decisions implemented in 2020 two and prior were well founded and we are confident that they point to continued improvement in our underwriting results going forward.

And with that I'll turn it over to Harold to discuss the financials. Thank you Nick.

Excuse me.

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.

As Nick noted in the first quarter gross written premiums increased 10% to over $36 million with Nick having detailed the premium breakout I'll focus more on our overall financial results Conifer's combined ratio was 99, 5% in the first quarter down 13 percentage points from the same period last year.

The loss ratio was 62% compared to 75% for the first quarter of 2022 as.

As we see the results of prior year's strategic initiatives coming to fruition. We anticipate continued positive improvement in our results going forward.

The loss ratio in commercial lines was 61% for the first quarter down 20 percentage points compared to the first quarter of last year, clearly, reflecting the underwriting improvements made over the past several years.

Our expense ratio continues to improve despite lower net earned premiums due to the success of our ongoing expense reduction efforts. The expense ratio was 37% for the first quarter down slightly from the same period last year and approaching our target expense ratio of 35%.

As net earned premiums begin declined two anticipated organic growth in our key verticals over time the expense ratio is expected to continue to improve.

Net investment income was $1 $3 million during the first quarter up 100.

From $507000 in the prior year.

We recorded $694000 increase in the fair value of equity investments in the first quarter, while net realized investment income was insignificant.

Our investments remain conservatively managed with the vast majority of our investable assets and fixed income securities with an average credit quality of double a an average duration of three four years and a tax equivalent yield of two 4%.

The company reported net income of $1 million or eight cents per share for the first quarter compared to a net loss of $2 9 million or <unk> 30 per share in the prior year period.

This quarter conifer reported and adjusted operating income of $307000 or <unk> <unk> per share compared to an adjusted operating loss of $3 1 million or <unk> 32 per share for the first quarter of last year.

Moving to the balance sheet.

Total assets were $293 million at quarter end.

With cash and total investments of $163 million.

Our book value at quarter end was $1 82 per share representing a 17% increase from book value of $1 55 per share at year end.

We have $1 68 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.

Thanks, Harold and Nick.

In conclusion, I'm very pleased with our performance this quarter.

Though we have some significant runway ahead of us to do things better we think that we're on our path our results speak to the commitment to generate profitable operating income through underwriting discipline and strategic decision, making across the organization.

Over the last several years, our consistent underwriting improvements were the key to our success this quarter and I am confident that our continued focus will drive sustainable growth and profitability in the future.

Looking ahead, we will continue to invest in our business and explore opportunities for logical growth, we remain focused on delivering exceptional value to our customers and shareholders and we are excited about the future.

We will now take any questions.

We will now begin the question and answer session to ask a question you May Press Star then one on your telephone keypad.

If youre using a speakerphone please pick up your handset before pressing the keys.

To withdraw your question. Please press Star then two.

At this time, we will pause momentarily to assemble the roster.

Yeah.

Yeah.

Yeah.

And our first question will come from Paul Newsome of Piper Sandler. Please go ahead.

Good morning, Thanks for the call.

Was hoping you could kind of look at or talk to both the commercialized and personalized separately about the.

The amount of premium growth that's generated by rate increases versus.

You know exposure grows over time.

Good morning, Paul glad you're on the call. That's obviously a question for Nick sure.

Yeah on the personal line side, we had filed a or we had implemented a 10% rate increase on our Texas homeowners book effective 112023, and then on her Oklahoma book, There was a 12% rate increase effective three one so on our personal lines book.

There was both growth on exposure, but also right as well that led to the growth that we saw in the quarter. Obviously the percentage growth is as large because we were working off of a relatively small number but it's a combination of both organic.

Growth and rate similar story on the commercial line side are property rates, where our renewal rates were up 7% year over year and our G. L rates on our hospitality were up 4% year over year, while our small business is closer to a 13 person.

On a year over year. So it's a combination of both rate and exposure are certainly on the personal line side on the commercial line side were seeing a little bit more rate because there's as we've grown and the commercial line side. We've also been exiting some key geographies.

Like Florida, So we're seeing a little bit more growth to be a rate on the commercial line side.

Right.

Another topic.

Almost every insurer.

This quarter is the reinsurance and the hard work of insurance and the impact on.

In your business can you remind us.

Where are you.

Mr view reinsurance usage and what might happen prospectively.

Mutual insurance market continues.

Well.

The reinsurance market at the end of the year was one of the most difficult that I've ever seen.

Fortunately on our casualty there was not much.

Much change at all we've been pretty consistent I think it should have gone down but it didn't so.

Yes, that's the negative, but we didn't really get much of the rate change there. The property was very significant due to and.

Several large clients, we really didn't hit the cat very hard at.

At all they came in specific with excess of loss policy side.

The commercial side. So the reality is we don't expect our CAD, which comes up six one to have much change we're right in the middle there now, but we did get hit quite hard on our excess of loss contracts.

At the beginning of the year, which property capacity was at a premium we expect this to improve.

In the near future because our our experiences other than Ian is still quite good. So we're hoping for relief on the.

Property side.

For sure at the end of the year, but in the near term.

That's probably more detail than you needed, but the reality was just one of the worst.

Uh huh.

Reinsurance markets I've ever seen Nick do you want to add anything.

No I think you covered it does the you did see increases on our property per risk.

We don't expect major changes on our property cat that comes up at six one.

Right and then.

That's more of a broad question there has been a lot of mixed commentary and the earnings calls so far this quarter about the competitive environment, who are especially commercial in particular.

Was wondering if you know obviously you already.

Sliced it relatively small slice in total.

If youre seeing any changes in the competitive environment or your parts of the especially the commercial business.

Yeah.

Okay.

And then I'll, let Nick answer sure I think it varies quite a bit by geography for us and by I guess spoke S. I'd say less so in our ASP fatality, we don't see as much competition.

That.

The market as we have seen in the past.

And some of our other small commercial lines, especially on the E&S side. We are seeing some new entrants are more focused on the casualty lines of business property due to the reinsurance.

You mentioned is still a very tight and that's a hard market that we're seeing we have seen a few new entrants and some of the casualty E&S markets that we're in we haven't we haven't seen a dramatic impact on pricing yet in those markets but.

We are seeing more competitors in the marketplace and yeah, we'll have to see how that develops over the rest of the year.

Great. Thank you very much appreciate the help as always.

Thanks, Paul.

Yes.

Okay.

This concludes our question and answer session I would like to turn the conference back over to Jim Petkoff for any closing remarks.

I just wanted to think.

Paul for the question and for the people who are listening in and I. Appreciate your continued interest.

We feel we're on the right path and look forward to the future. Thanks.

The conference has now concluded. Thank you for attending today's presentation and you may now disconnect.

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