Q1 2024 Conifer Holdings Inc Earnings Call
Operator: Good morning, everyone, and welcome to Conifer Holdings' first quarter 2024 conference call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. Please note today's event is also being recorded. At this time, I'd like to turn the conference call over to Brian Roney. Sir, please go ahead.
Good morning, everyone and welcome to Conifer Holdings first quarter 2024 earnings Conference call.
Speaker Change: All participants will be in a listen only mode should you need assistance. Please signal a conference specialist by pressing the star key followed by zero.
Speaker Change: After todays presentation, there will be an opportunity to ask questions.
Speaker Change: Today's event is also being recorded.
Speaker Change: At this time I'd like to turn the conference call over to Brian Roney.
Brian Joseph Roney: Please go ahead.
Brian Joseph Roney: Thank you, and good morning everyone. Conifer issued its 2024 first quarter financial results after the close of market yesterday. You can find copies of the earnings release on the company's website at ir.cnfrh.com. The slide presentation accompanying management's 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 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 products of the company and its subsidiaries.
Brian Joseph Roney: Thank you and good morning, everyone Conifer issued its 2024 first quarter financial results. After the close of market yesterday, you can find copies of the earnings release on the company's website at IR Dot C. N F R H dot com.
Brian Joseph Roney: Slide presentation accompanying managements remarks. This morning is available to view or download via webcast or from the Investor Relations section of <unk> website.
Brian Joseph Roney: 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 due to new information, future developments, or otherwise.
Brian Joseph Roney: 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 comes.
<unk> and its subsidiaries.
Brian Joseph Roney: 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.
Speaker Change: Conifer, specifically disclaims any obligation to update or revise any forward looking statements, whether due to new information future developments or otherwise.
Brian Joseph Roney: 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 Nick Petcoff, our Chief Executive Officer.
Speaker Change: In addition, a replay of this call will be provided through a link on the Investor Relations section of our website.
Speaker Change: 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.
Speaker Change: Cacciatore accounting data is prepared in accordance with statutory accounting rules and is therefore not reconciled to GAAP.
Speaker Change: We will conduct a Q&A I think Q&A session. After management's prepared remarks. This morning with that I'll turn the call over to Nick <unk>, Our Chief Executive Officer Nick.
Nicholas James Petcoff: Thanks, Brian, and good morning, everyone. Also on the call with us today is Harold Meloche. I'm pleased to report that the first quarter financial results bear out the strategic decisions we discussed during our last call. We have made significant strides in executing our shift to a revenue model focused on a wholesale agency production-based approach, and we see the first quarter results as indicative that we are moving in the right direction. At the outset, let me provide a brief overview of our tactical commercial lines direction.
Speaker Change: Thanks, Brian and good morning, everyone.
Speaker Change: Also on the call with us today as Harold Melas.
Nick: I'm pleased to report that the first quarter financial results bear out the strategic decisions, we discussed during our last call.
We have made significant strides in executing our shift to a revenue model focused on our wholesale agency production based approach.
Nick: We see the first quarter results is indicative that we are moving in the right direction.
Nick: At the outset, let me provide a brief overview of our tactical commercial lines direction.
Nicholas James Petcoff: Recognizing the evolving landscape of the insurance industry and with an eye to the long-term success and sustainability of the company, we made the decision to pivot towards a wholesale agency model and largely away from an underwriting revenue model for our commercial lines business. This move allows us to leverage the expertise and networks of our agency partners, enhancing our distribution channels, and expanding our reach in key markets. Further, this decision to focus on non-risk-bearing revenue enables us to offer insureds A- rated capacity and simultaneously mitigate market risks, ultimately ensuring stability in our bottom line.
Nick: Recognizing the evolving landscape of the insurance industry and with an eye to the long term success and sustainability of the company.
Nick: We made the decision to pivot towards a wholesale agency model and largely away from an underwriting revenue model for our commercial lines business.
Nick: This move allows us to leverage the expertise and networks of our agency partners enhancing our distribution channels and expanding our reach in key markets.
Nick: Further this decision to focus on non risk bearing revenue enables us to offer insurance AA minus rated capacity and simultaneously mitigate market risks ultimately ensuring stability in our bottom line.
Nicholas James Petcoff: We made considerable progress during the first quarter of 2024 in directing premium to capacity providers for coverage across multiple lines of business. We've also started to ramp up the transfer of cannabis premium to our capacity partners, expanding our reach to new markets and strengthening our position as a leading provider of cannabis-related coverage. At our core, we remain committed to preserving a strong and consistent top line, continuing to streamline our expense structure, and maintaining operational profitability over the long term to generate favorable returns for Conifer's shareholders.
Nick: We made considerable progress during the first quarter of 2020 for interacting premium to capacity providers for coverage across multiple lines of business.
Nick: We've also started to ramp up the transfer of cannabis premium to our capacity partners expanding our reach to new markets and strengthening our position as a leading provider of cannabis related coverage.
Nick: At our core we remain committed to preserving our strong and consistent top line continuing to streamline our expense structure and maintaining operational profitability over the long term to generate favorable returns for conifer shareholders.
Nicholas James Petcoff: In that light, the preliminary results are encouraging, as they have borne out the key decision to shift our focus to a commission revenue model based upon wholesale agency production at the beginning of 2024. With planned reductions in premium leverage starting in 2023, our percentage of commercial lines production was expected to decline in the first quarter. Overall, commercial ions represented roughly 53% of total production for the quarter.
Nick: In that light the preliminary results are encouraging as they are born out of the key decision to shift our focus to a commission revenue model based upon wholesale agency production at the beginning of 2024.
Nick: With planned reductions in premium leverage starting in 2023.
Nick: Our percentage of commercial lines production was expected to be down in the first quarter.
Nick: Overall commercial lines represented roughly 53% of total production for the quarter.
Nicholas James Petcoff: Our personalized production made up a larger percentage of premiums in Q1. While we have moved our commercial lines business largely to a commission-based model utilizing our in-house MGA Conifer insurance services, our personal lines production is still retained by our operating subsidiaries. As a result, we have continued to underwrite low-valued homeowners' business, primarily in Texas and the Midwest. Given the strong performance in that line year-to-date, leading to a combined ratio of 83% for the first quarter, we are pleased to retain that business on Conifer Paper moving forward.
Our personal lines production made up a larger percentage of premiums in Q1.
Nick: Well, we have moved our commercial lines business largely to a commission based model utilizing our in house MGA kind of for our insurance services. Our personal lines production is still retained by our operating subsidiaries.
Nick: As a result, we have continued to underwrite low valued homeowners business, primarily in Texas and the Midwest.
Nick: Given our strong performance in that line year to date, leading to a combined ratio of 83% for the first quarter. We are pleased to retain that business on conifer paper moving forward.
Nicholas James Petcoff: As we effectively manage the shift in production models, we are proud of the hard work and dedication of our entire team and remain committed to delivering exceptional value to our insurers and shareholders. We will continue to build on this quarter's success in the months and years to come. With that, I'll pass the call over to Harold to discuss the numbers.
Nick: As we effectively manage the shift in production models. We are proud of the hard work and dedication of our entire team and remain committed to delivering exceptional value to our insureds and shareholders.
Nick: We will continue to build on this quarter's success in the months and years to come.
Speaker Change: With that I'll pass the call over to Harold to discuss the numbers Harold.
Harold James Meloche: Thank you Nick I will provide a quick recap of financial results and I encourage investors to review our financial filings and presentation on the Companys website for greater detail.
Harold James Meloche: I'll provide a quick recap of financial results, and I encourage investors to review our filings and presentation on the company's website for greater detail. In the first quarter, gross written premium decreased 33% to $24 million, reflecting our decision to reduce premium leverage on operating subsidiaries and focus on production-based revenue through our managing general agency. The breakout of first quarter total gross written premiums was 52% commercial lines and 48% personal lines. Conifer's combined ratio was 97% in the first quarter, down 280 basis points from the same period last year.
Harold James Meloche: In the first quarter gross written premium decreased 33% to $24 million, reflecting our decision to reduce premium leverage on operating subsidiaries and focus on production based revenue to our managing General agency.
Harold James Meloche: The breakout of first quarter total gross written premiums was 52% commercial lines and 48% personal lines.
Harold James Meloche: <unk> combined ratio was 97% in the first quarter down 280 basis points from the same period last year.
Harold James Meloche: Our loss ratio is 62%, steady from the first quarter of 2023. As we see the non-risk-based revenue model continue to progress, we anticipate continued positive movement in our results going forward. The accident-year loss ratio in personal lines was 53% for the first quarter, down 20 percentage points compared to the first quarter of last year, reflecting the strong underwriting actions we've taken in low-value dwelling business. Our expense ratio continues to improve despite lower net earned premiums due to the success of our ongoing expense reduction efforts.
Harold James Meloche: Our loss ratio was 62% steady from the first quarter of 2023.
Harold James Meloche: As we see the non risks bid based revenue model continued to progress. We anticipate continued positive movement in our results going forward.
Harold James Meloche: The accident year loss ratio in personal lines was 53% for the first quarter down 20 percentage points compared to the first quarter of last year.
Speaker Change: Reflecting the strong underwriting actions, we've taken and low value dwelling business.
Speaker Change: 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 35% for the first quarter down 260 basis points from the same period last year and meet our near term target of 35%.
Harold James Meloche: The expense ratio was 35% for the first quarter, down 260 basis points from the same period last year and meets our near-term target of 35%. Net investment income was $1.6 million during the first quarter, up 19% from $1.3 million in the prior year period. Our investment portfolio remains conservatively managed with a vast majority of fixed income securities with an average credit quality of AA+, an average duration of 2.7 years, and a tax equivalent yield of 3.4%.
Speaker Change: Net investment income was $1 $6 million during the first quarter up 19% from $1 $3 million in the prior year period.
Speaker Change: Our investment portfolio remains conservatively managed with the vast majority in fixed income securities with an average credit quality of double a plus an average duration of two seven years and a tax equivalent yield of three 4%.
Harold James Meloche: The company reported net income allocable to common shareholders of $74,000 or $0.01 per share and an adjusted operating income of $188,000 or $0.02 per share for the first quarter of 2024. Moving to the balance sheet, total assets were $301 million a quarter and with cash and total investments of $164 million. Our book value at quarter end was $0.21 per share. However, we have $2.29 per share in 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 Nick for his closing remarks.
Speaker Change: The company reported net income allocable to common shareholders of $74000 or <unk> per share and an adjusted operating income of $188000 or <unk> per share for the first quarter 2024.
Speaker Change: Moving to the balance sheet total assets were $301 million at quarter end with cash and total investments of $164 million.
Speaker Change: Our book value at quarter end was 21 per share we have $2 29 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 Nick for closing remarks.
Nicholas James Petcoff: Thanks Harold. In closing, I want to reiterate that our first quarter results underscore our commitment to sound strategic decision-making across the organization. We remain focused on delivering exceptional value to our customers and shareholders, and we are excited about the future of our company. With that, I'd like to invite any questions. Operator. Ladies and gentlemen, at this time, we'll begin that question and answer session.
Nicholas James Petcoff: Thanks, Harold in closing I want to reiterate that our first quarter results underscore our commitment to sound strategic decision, making across the organization.
Nicholas James Petcoff: We remain focused on delivering exceptional value to our customers and shareholders and we are excited about the future of our company with that I'd like to invite any questions operator.
Operator: Ladies and gentlemen, at this time we'll begin that question and answer session. To ask a question, you may press star and then one. To withdraw your question, you may press star and two. If you are using a speakerphone, we do ask that you please pick up your handset prior to pressing the numbers to ensure the best sound quality.
Speaker Change: Ladies and gentlemen at this time well begin the question and answer session to ask a question you May Press Star and then one to withdraw your question you May Press Star two if you are using a speakerphone.
Speaker Change: Please pick up your handset prior depressing the numbers to ensure the best sound quality.
Operator: Once again, that is a star and then one to join the question queue. We'll pause momentarily to assemble the roster. And ladies and gentlemen, at this time, when we have no questions, I'd like to turn the floor back over to Nick for any closing remarks. Thank you.
Speaker Change: Once again that is star and then one to join the question queue, we will pause momentarily to assemble the roster.
Speaker Change: And ladies and gentlemen at this time and showing no questions I'd like to turn the floor back over to Nick for any closing remarks.
Nicholas James Petcoff: Thank you.
Nicholas James Petcoff: We appreciate your time and interest in the company and invite you to reach out to us at any time.
Nicholas James Petcoff: We appreciate your time and interest in the company and invite you to reach out to us at any time.
Nicholas James Petcoff: Thank you.
Nicholas James Petcoff: Thank you.
Operator: And with that, ladies and gentlemen, we'll be concluding today's conference call and presentation. We do thank you for joining us. You may now disconnect your lines.
Speaker Change: And with that ladies and gentlemen will be concluding today's conference call and presentation. We do thank you for joining you may now disconnect your lines.