Q3 2023 Conifer Holdings Inc Earnings Call

Good morning, and welcome to the Conifer holdings third quarter, 2023 investor call.

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

After today's presentation there'll be an opportunity to ask questions. Please note. This event is being recorded.

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

Thank you and good morning, everyone Conifer issued its 2023 third quarter financial results. After the close of market yesterday, you can find copies of the earnings release on the company's website, IR dot TNF or age dotcom.

A slide presentation accompanying managements remarks. This morning is available to view or download via webcast or from the Investor Relations section of Conifer's 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.

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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 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 and our earnings release and our historical SEC filings statutory accounting data is prepared in.

Since 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 and good morning, everyone.

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

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

The industry at large where personal lines has had a tough go.

Our quarter was mostly impacted by recent storm activity.

After several years of systemic wind exposure reduction for example, exiting Florida altogether or for European risk is now almost negligible.

In the quarter, we were significantly impacted by wind and a form of convective storm.

More specifically our personal lines book of business was hit the hardest in Oklahoma.

Before the storm activity in the period, we were generally pleased with the improving results for.

For example, despite the unusual related losses in the period, we saw continued growth in our select key verticals.

In total gross written premiums were up roughly 17% in the third quarter and up nicely for the year as well.

Overall, we continue to focus our underwriting efforts on organic growth in our historically profitable core business.

Which continues to generate substantial top line growth and our emphasize key specialty verticals.

We remember we remain focused on executing in our historically profitable lines, which I believe speaks to the strength of our underwriting teams and their deep expertise in select markets.

While the top line has been moving we are also pleased to see the expense ratio coming into line with our ongoing expense management efforts.

We posted a 34% expense ratio for the third quarter. This continuous improvement demonstrates our persistent drive toward overall expense reduction.

Before I hand, the call over to Nick for more color on our underwriting results I'd like to take a moment to note the transition that will take place at the end of this year, where Nick will be taking over the role of CEO for conifer.

I'm proud to hand, the reins over to Nick and I'm confident that the company is in good hands in that sound footing moving it to a bright future.

Nick.

Thank you Jim I'm genuinely excited to take on the role as well as the opportunities and challenges that lie ahead for conifer.

As Jim noted kind of for us long term prospects appear bright and improving in no small part due to the strategic direction and operational commitment are continuously refining our overall business mix over the last several years.

You've heard us talk about this before but we are in an even better position today in days gone by and I'm pleased to see the collective team effort coming to ultimate fruition.

Over the past few years, our underwriting teams have been keenly concentrating on refining our business makes narrowly focusing on the select specialty lines, where we have a distinct competitive advantage.

Advantage, and where we see logical growth in historical profitability.

Focusing these key select verticals and maximizing the advantage of our teams underwriting experience. Our efforts are optimized for lines of business, where we have deep knowledge, coupled with a proven track record.

Gross written premiums for the third quarter were over $38 million, a 17% increase compared to the prior year period.

This increase resulted from organic growth in our select operating verticals combined with ongoing rate increases.

The primary driver for our top line continues to be commercial lines business, which accounted for roughly 75% of total gross written premium in the period.

In spite of planned premium reductions like in the state of Florida, Our commercial lines production was still up 3% in the quarter to $28 million.

Within commercial lines, our small business segment shows great potential for continued strong performance and comprised the majority of gross written premium for the quarter.

Our personal lines business stands at just over 25% of total gross written premium for the third quarter.

Low value home and dwelling insurance products are the main driver of the personal lines gross written premium which in total was $10 million for the third quarter.

Our business in Oklahoma has performed generally well over the last several years it did severely impact our financials over the last couple of quarters, leading us to decide to non renew that book of business. In contrast, our low value dwelling book has continued to perform very well, including storms posting a 53% loss ratio through nine months of this year.

Before the impact of storm related losses, the personal lines accident year combined ratio was 91% for the third quarter of 2023 and 90% for the first nine months of the year.

Overall, when looking at our combined ratio before the impact of storm losses, the company's accident year combined ratio was 95% for the third quarter. This highlights the fundamental strength of our book and demonstrates our commitment to attentive pricing practices and responsible claims management as.

As the effect of this quarter storm related losses.

There's a way to reveal the strong foundation below we expect the financial results to reflect improved combined ratios going forward by devoting our efforts to the best performing lines of business, especially in our key select verticals. The company will continue to drive towards long term profitability with that I'll turn the call over to Harold to discuss 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 Companys website for greater detail.

As noted gross written premiums increased 17% and just to just under $39 million in the third quarter.

For the quarter, our overall combined ratio was 121% due in large part to the elevated storm activity, Nick and Jim noted in their remarks.

Before the impact of the additional loss emergence from the second quarter storm activity conifer's accident year combined ratio was 95% in the third quarter.

The loss ratio was 87% for the quarter again, largely resulting from the convective storms that impacted much of the industry.

This quarters expense ratio was 34% down 600 basis points from the same period last year and beating our target expense ratio of 35%.

Despite lower net earned premiums we continue to see the expense ratio improve as a result of our ongoing expense reduction efforts.

Net investment income was $1.5 million during the quarter up 69% from 180 from 860000 in the prior year period.

For the first nine months of 2023 net investment income was up 113% over last year to $4 $1 million.

Our investments remain conservatively managed with the vast majority of our investable assets in fixed income securities with an average credit quality of double a plus an average duration of two eight years.

And the growing tax equivalent yield of two 9%.

Also we have a sizable portion of our investable assets in T bills and adjustable floaters.

Largely as a result of the $2.5 million in storm losses in the third quarter. The company reported a net loss of $2 $7 million or 22 per share compared to a net loss of $1 5 million or 14 per share in the prior year period.

Moving to the balance sheet total assets were $293 million at quarter end.

With cash and total investments of $159 million.

Our book value at quarter end was <unk> 96 per share.

We have a $1 96 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 closing I want to emphasize that we as we move forward I remain confident in <unk> ability to deliver long term value to our shareholders I look forward to helping Nick in his new role in any way I can with that I'd like to invite any questions operator.

Thank you we will now begin the question and answer session to ask 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 this time, we'll pause momentarily to assemble our roster.

Yes.

And our first question comes from Paul Newsome from Piper Sandler. Please go ahead.

Good morning, and thanks for the call and congratulations to Nick for the position.

I was hoping you could start with the transaction you did with core specialty.

And how you think that will affect the.

<unk> prospectively.

Well I'll start we did that.

In order to.

Consolidated the writings, a little bit and Delever. The company, we looked at what the cost was the business that we had in the acquisition cost of that business was high for us due to the fraud B and it was our higher loss ratio business that we had left on the books.

So with that being gone it enhances the statutory.

Strength of the insurance companies. So we look to that transaction to put us in a position to write the other business more efficiently and with less act.

Acquisition costs, but that's my view of it.

No I agree primarily at it bolsters the surplus level on the book was growing pretty substantially as Jim mentioned the acquisition costs for the highest throughout the company and Ah you know we thought that the limits profiles were also very high so from a reinsurance perspective. It was also costly and.

Yeah, we just thought it made the most sense to move away from that book for all of those factors.

So oh.

It looks like it was roughly a third of your gross premiums.

So I assume that that you know there's no replacement for that so prospectively, we should basically assume your gross premiums are.

But by a third and impact.

Impact on wound revenues should be earned in or I think they bought the premiums.

And so the.

You bet.

You'd be ours. So I would guess that you know next quarter, you're basically looking for a third less revenues.

Insurance revenues does that thoroughly.

Right.

Sure.

Yeah and in the near term, we will see a depth as a result of the transaction obviously, we see growth in other areas. So that will offset the decline out of that book of business. So yes in the near term, we will see a decline in the AR and the premiums.

Yeah, I would guess, but I don't know with some certainty because it happened at the end of the quarter. There was a difference between what you were from a gross premiums perspective, and a net wins.

It was.

Clearly unusual is that is that the transaction happening that.

Affected that very low.

Net written premium number in the third quarter.

Yes, absolutely this is harold.

It's when we see the the unearned premium that was about $30 million of unearned premium so that shows up as ceded written now that does not affect any.

Net earned premium for.

For the third quarter, but it does affect our ceded written and net written.

Alright, Thank you very much.

Thanks, Paul Thanks, Paul.

Again, if you have a question. Please press Star then one.

Yeah.

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 Peck Hough for any closing remarks.

Thank you everyone. We appreciate your interest in the company and we look forward to seeing you in the future. If you have any questions. Please feel free to reach out to us.

Thanks.

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

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