Q2 2023 Conifer Holdings Inc Earnings Call

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Good morning, everyone and welcome to Conifer Holdings second quarter 2023, Investor Conference call.

All participants will be in a listen only mode should you need assistance. Please signal our conference specialist by pressing the Starkey followed by zero.

After todays presentation, there will be an opportunity to ask questions.

Also note todays event is being recorded.

At this time I'd like to turn the floor over to you Brian Roney. Please go ahead.

Thank you and good morning, everyone Conifer issued its 2023 second quarter financial results. After the close of market yesterday, you can find copies of the earnings release on the company's website.

<unk> Dot C N F our age dotcom.

Slide presentation accompanying managements remarks. 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 regards 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 subsidiaries.

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 kind of first 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 Petkoff Executive Chairman and co Chief Executive Officer, Jim.

Thank you Brian good morning, everyone.

Also joining me on the call today are Nick and Harold.

Thank you for joining us today to discuss our second quarter financial results.

Like the industry at large the impact of wind related events was felt by many in the quarter.

In this regard we are no different than our peers.

The effected personal lines business. It has almost been almost 10 years since said that anywhere near this magnitude as Kurt.

Despite the unusual storm related losses in the period I am pleased to see continued progress in several key areas of emphasis for conifer for.

For example, top line growth and expense management in.

In the quarter gross written premiums were up 19%.

Significant rate increases coupled with organic growth within our historically profitable core specialty business allowed us to achieve achieved this sustained substantial topline growth.

Moreover for the six month period gross written premium was up almost 15% on the year as well.

Nick will provide more color shortly but that is solid growth in the quarter and for the six months, we see room for continued expansion going forward.

It's important to recognize that our disciplined underwriting strategy played a pivotal role in driving this top line growth over the past few years, we have diligently refine their book of business focusing on lines, where we have deep knowledge and experience in the key profitable verticals that we emphasize.

Furthermore, when we isolate the impact of the storm related losses, we posted an underlying accident year combined ratio of 95% for the second quarter. It is a testament to the strength of our core operation and reiterate our commitment to underwriting excellence and our ability to navigate challenges while remaining focused on long term profitable growth.

Additionally, our expense ratio continues to trend favorably demonstrating consistent and sustained improvement on an overall expense reduction.

We are approaching our target expense ratio of 35%.

A significant near term milestone that reflects our commitment to operational efficiency and enhancing over our overall profitability.

These results affirm our efforts to streamline our processes to control costs and positioning the company for continued improvement as we move forward.

I'd like to take a moment to emphasize that these achievements are a testament to the hard work and dedication of our entire team.

Our unwavering commitment to our strategic vision, coupled with their marketing expertise has enabled us to navigate the complexities facing our entire industry, while positioning conifer for sustainable success I'll now hand, it off to Nick for more color on our underwriting results.

I go in Jim's comments I will provide additional details regarding the operational objectives that have shaped our performance strategic direction and that point the way to sustainable future profitability.

Over the past few years, our underwriting teams have been dedicated to meticulous business mix enhancement cultivating our lines, where we have a distinct competitive advantage.

By focusing on these core specialty is harnessing the power of our own experience and data we have.

Strategically aligned our underwriting efforts with lines of business, where we have strong knowledge extensive experience and a proven track record track record of profitability.

This approach yielded gross written premium of just under $45 million a record high watermark for quarterly premium.

As Jim noted earlier, we achieved a 19% increase in gross written premium compared to the prior year period.

This increase resulted from a combination of significant sustained rate increases and organic growth in our key select operating verticals.

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

Commercial lines production was up 8% in the quarter to $35 million.

Our strategic use of technology has been particularly useful in our efforts to refine our commercial lines book.

Through the application of advanced data analytics, we can comprehensively examined market trends and consumer behavior and risk patterns to identify and target prudent growth opportunities with precision.

This data driven approach has guided us in selecting lines of business, where our expertise alliance pass at current market factors.

By leveraging these underwriting insights, we've attracted quality business and optimize our book for profitable growth, while retaining a solid overall account retention at 90%.

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

Personal lines gross written premium was up 86% over the same period last year to just under $10 million for the second quarter.

Excluding the impact of storm related losses, the personal lines accident year combined ratio was 68% for the second quarter of 2023 and 89% for the first half of the year.

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

We focused on proactive significant rate increases in Oklahoma and in Texas, and our efforts to refine our personal lines performance, leveraging advanced modeling and analytics to price risk more accurately and effectively overtime.

Excluding the impact of storm losses, the company's accident year combined ratio was 95% for the second quarter.

This marks a notable improvement over the prior year period and continues our profitability trend given the first quarter results.

It also highlights our unwavering commitment to effective risk assessment prudent pricing and responsible claims management.

As the overall profile of kind of first book continues to improve we expect to see a corresponding downward trend in the overall combined ratio.

The company has emphasized its focus on strategic disciplined underwriting for consistent profitability and operating efficiency.

By dedicating resources to the best performing lines of business. The company will continue to drive sustainable growth and long term profitability.

With that I'll turn it over the call to Harold for the financials.

Thank you Nick.

I'll provide a quick recap of the financial results and I encourage investors to review our filings and presentation on the company's website for greater detail.

As noted gross written premiums increased 19% to just over $45 million in the second quarter, and we think having detailed the premium breakout I will focus more on the overall financial results.

For the quarter. The overall combined ratio was 121%, which even when considering the elevated storm activity.

Bind ratio was still down 830 basis points from the same period last year and.

And excluding the impact of the storm activity in the second quarter Conifer's accident year combined ratio was 95% as noted earlier.

Our loss ratio was 83% in the quarter, given the storms, but nonetheless improved 720 basis points versus the same period last year and improved 980 basis points to 73% for the first half of 2023.

The expense ratio was 38% for the quarter down 110 basis points for the same period last year and approaching our target expense ratio of 35%.

Our expense ratio continues to trend favorably downwards. Despite the lower net earned premiums due to the success of our ongoing expense reduction efforts.

As net earned premiums begin to increase over time through anticipated organic growth in our key verticals. We expect the expense ratio of just continued to trend downward accordingly.

Net investment income was a $1.4 million during the second quarter up 140% from $564000 in the prior year period and was up 149% to $2 7 million for the six month period.

Our investments remain conservatively managed with the vast majority of them in fixed income securities with an average credit quality of double a plus an average duration of three one years and a tax equivalent yield of two 8%.

With $5.4 million of storm losses in the second quarter. The company reported a net loss of $4 $7 million or <unk> 39 per share compared to a net loss of $8 $4 million or 86 cents per share in the prior year period.

Moving to the balance sheet total assets were $297 million at quarter end with cash and total investments of $167 million.

Our book value at quarter end was $1 38 per share we do have a one eight or one.

$1 86 per share and net deferred tax assets due to a full valuation allowance were not reflected in book value.

So with that I'd like to turn it back over to Jim for closing remarks.

Thanks, Harold Thanks, Nick.

In closing I want to emphasize that we are resolute in our commitment to achieving sustainable growth and operational efficiency over time.

In order to deliver superior service to our policyholders and results to our shareholders.

As we move forward, we remain confident in our ability to navigate the evolving markets that we serve and we remain alert and nimble and recognizing and responding to industry wide challenges.

Such as the storm related activity exhibited in the second quarter.

All in efforts to deliver long term value to our shareholders.

With that I'd like to invite any questions that you may have operator.

Ladies and gentlemen, we will now begin the question and answer session to ask a question you May press star and one on a touchtone telephone.

If you are using a speaker phone.

Please pick up the handset before pressing the keys to ensure the best sound quality.

Withdraw your question you May press Star and two.

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

Our first question today comes from Paul Newsome from Piper Sandler. Please go ahead with your question.

Good morning, Thanks for the call.

Hum.

Could you talk about the the relationship between net and gross premium, particularly in commercial and the gross appears to be growing faster than the net is that just purely a function of reinsurance or is there something else.

Yeah that is a function of reinsurance we did see increases on our property reinsurance at one one given our the activity last year from E. N. We also have a ceding commission on our ex ol treaties. So that also reduces.

The the not compared to the gross.

Right.

There was a small amount of adverse development I believe.

Can you talk about the sources of that.

Yes, we did see some emergent center restaurant Bar Tavern book Ah in 2022, so our more recent year, mostly from Florida, which we've now put into run off this year.

So we don't see that as being a major impact moving forward.

And the rest of that the development was really a ceded to the loss portfolio transfer you know that we've put in place last year.

Right.

How should we think about the cat load perspective.

With the growth in property business.

[laughter] Yeah. It was an unusually active quarter for our Texas and Oklahoma books of business. It's it's moved last two our coastal exposure, where we're seeing katz from hurricane losses in more of a severe convective storm a risk moving forward.

We've both of those books of business. If you look at the last couple of years have performed very well and I think we had 25 cats in a second.

Smaller cat events in the second quarter, which was up significantly from last year. So you know while it did impact us I do think it was an anomaly for this quarter, we were actually file there where we've implemented a 28% rate increase for a R.

Oklahoma book effective eight one and we have a 20% rate increase being implemented nine one for our taxes book. So I do think Q2 will be a more active quarter for that book as opposed to hurricane season, and we add more of our Florida business.

And that also follows on several other rate increases for both of those states previously as well.

Should we should we think of the cat load in general rising.

Really think obviously.

And we grew the second quarter's pretty anomalous.

Is it is the expansion of that business, creating a little bit more of it.

Expected cat load prospectively or pretty stable based on historic patterns.

I think you could say in the second the first and second quarter, yes, it's reasonable to expect that we'd see more impacts from cat events moving forward because of those books of business on the flip side, we exited most of our Florida exposure. So we don't expect to see as much AR.

The third and fourth quarter from a hurricane perspective, so yes, that's it.

Reasonable to assume based on that book in the first half of the year, it's going to be more active with cat exposure in those states, but less active for the second half of the year given the lack of business in Florida. So overall, probably pretty similar to last year, maybe just in different parts of the country in different parts of the different quarters throughout the calendar.

But are you asking for the cat load perspective from perspective of rate.

No from you know really from a combined ratio perspective.

Uh huh.

We obviously are going to be building in some expectations for sort of in a normal year.

And.

It looks like its that that piece of the losses might be going up.

On average, but it's kind of hard to tell.

Okay, I think Nick answered that.

And then maybe a.

A few will thoughts on the expense ratio improvements and how.

Well how much more you think you can.

Those improvements.

And then until this is where here I'll just speak.

Yeah. This is where it all has to make sense.

But I will tell you.

We expanded attention.

Yes.

What I would tell you that from a total management standpoint, we have been laser focused on making sure our expenses are coming into line.

The board has been very active.

And encouraging us to do that and we haven't embraced us.

Expense side, so apparel well.

Well, yeah, and and and actually this last quarter that we had include some expenses that will not be going forward as a result of.

Some of the expense reductions that we made in the second quarter, which won't really be seen until the third and fourth quarter. So there. There is ongoing efforts that that will still.

So more benefit in the future quarters moving forward. We also in this particular quarter had a few more expenses that.

Or estimates from year end relating to some of the expenses relating to the transactions. We had last year that we had to adjust for in in this quarter. So yeah.

Yeah, you can actually see it's hard to put a number on it but you should see a continued reduction in that expense ratio you know basically in the next quarter.

Thank you I appreciate the help as always.

Thanks, Paul.

And ladies and gentlemen, with that we will be concluding today's question and answer session I'd like to turn the floor back over to Jim Peck off for any closing remarks.

Thanks for being on the call we appreciate it.

We will continue to move forward on the initiatives. We have started we're confident in our core underlying business and look forward to next quarter. Thank you.

Ladies and gentlemen, with that we appreciate your time and interest and thank you for joining you may now disconnect your lines.