Q2 2024 Conifer Holdings Inc Earnings Call

[inaudible]

Operator: 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 today's 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 do so.

Operator: in the second quarter, 2024 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.

Speaker Change: Good morning and welcome to Conifer Holdings second quarter 2024 investor conference call. All participants will be in listen-only mode.

Speaker Change: 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 this event is being recorded. I would now like to turn the conference over to Brian Roney. Please go ahead.

Operator: After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded.

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

Nick Preckhoff: Thank you and good morning, everyone. Conifer issued its 2024 second 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 remarks this morning is available to view or download via webcast or from the Investor Relations section of Conifer's website.

Brian Roney: Thank you and good morning, everyone. Conifer issued its 2024 second 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. Thank you. Thank you.

Brian Roney: Thank you and good morning everyone. Conifer issued its 2024 second 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.

Speaker Change: 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.

Nick Preckhoff: 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 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 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 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. In addition, a replay of this call will be provided through a link on the Investor Relations section of our website.

Speaker Change: 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.

Speaker Change: and the business and the products of the company and its subsidiaries.

Speaker Change: 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 stylings 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. In addition, a replay of this call will be provided through a link on the investor relations section of our website.

Nick Preckhoff: 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. Reconciliation 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.

Brian Roney: 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 filing. Statutory accounting data is prepared in accordance with statutory accounting rules and is therefore not reconciled to GAAP.

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.

Nick Petcoff: 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. Nick?

Nick Preckhoff: We will conduct a Q&A session after management's prepared remarks this morning.

Brian Roney: 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. Thanks, Brian. And good morning, everyone.

Nick Preckhoff: With that, I'll turn the call over to Nick Preckhoff, our Chief Executive Officer. Nick?

Nick Preckhoff: Thanks, Brian, and good morning everyone. Also on the call with us today is Harold Mulash. As you review our second quarter results, you'll notice a significant change in our top line figures. This is a deliberate and strategic decision on our part as we continue our shift towards a commission-based revenue model, channeling premium to our wholly owned managing general agency, Conifer Insurance Services. Our focus is on ramping up the optimization of our commercial lines by running growth-written premium through our MGA. This move aligns with our long-term strategy to achieve more stable and predictable revenue streams through commissions rather than the traditional risk-bearing carrier revenue model.

Nick Petcoff: Also on the call with us today is Harold Meloche. As you review our second quarter results, you'll notice a significant change in our top line figures. This is a deliberate and strategic decision on our part as we continue our shift towards a commission-based revenue model, channeling premium through our wholly owned managing general agency, Conifer Insurance Services. Our focus is on ramping up the optimization of our commercial lines by running gross written premium through our MGA.

Nick Petcoff: Thanks Brian, and good morning everyone. Also on the call with us today is Harold Meloche.

Speaker Change: As you review our second quarter results, you'll notice a significant change in our top line figures.

Speaker Change: This is a deliberate and strategic decision on our part as we continue our shift towards a commission-based revenue model, channeling premium through our wholly owned Managing General Agency, Conifer Insurance Services.

Speaker Change: Our focus is on ramping up the optimization of our commercial lines by running gross written premium through our MGA. This move aligns with our long-term strategy to achieve more stable and predictable revenue streams through commissions rather than the traditional risk-bearing carrier revenue model.

Nick Petcoff: This move aligns with our long-term strategy to achieve more stable and predictable revenue streams through commissions rather than the traditional risk-bearing carrier revenue model. While this has resulted in a lower top line compared to previous periods, it is a critical step in enhancing our overall profitability and creating a more scalable and sustainable business model. Under this model, we can leverage the expertise and network of our agency partners, enhancing our distribution channels and expanding our reach in key markets.

Nick Preckhoff: While this has resulted in a lower top line compared to previous periods, it is a critical step in enhancing our overall profitability and creating a more scalable and sustainable business model. Under this model, we can leverage the expertise and network of our agency partners, enhancing our distribution channels and expanding our reach and key markets. Through this approach, our business is directly written by third-party insurers with AM Best ratings of A-minus or better. Utilizing third-party, aerated capacity providers for MGA produce business provides a much broader reach for existing profitable programs. Enabling us to offer insurers superior coverage and paper while simultaneously governing risk through a scalable and sustainable production-based revenue model.

Speaker Change: While this has resulted in a lower top line compared to previous periods, it is a critical step in enhancing our overall profitability and creating a more scalable and sustainable business model.

Speaker Change: Under this model, we can leverage the expertise and network of our agency partners, enhancing our distribution channels, and expanding our reach in key markets.

Nick Petcoff: Through this approach, our business is directly written by third-party insurers with AM Best ratings of A- or better. Utilizing third-party, aerated capacity providers for MGA, and produce business provides a much broader reach for existing profitable programs, enabling us to offer insured, superior coverage and paper while simultaneously governing risk through a scalable and sustainable production-based revenue model. During the second quarter of 2024, we made significant strides in channeling premiums to our capacity providers across various commercial lines of business.

Speaker Change: Through this approach, our business is directly written by third-party insurers with AMBES ratings of A- or better.

Speaker Change: Utilizing third-party A-rated capacity providers for MGA-produced business.

Speaker Change: provides a much broader reach for existing profitable programs.

Speaker Change: enabling us to offer insured superior coverage and paper while simultaneously governing risk through a scalable and sustainable production-based revenue model.

Nick Preckhoff: During the second quarter of 2024, we made significant strides in channeling premiums to our capacity providers across various commercial lines of business. Specifically, we have started to accelerate the transfer of cannabis premiums to our capacity partner, Palomar, enabling us to expand into new markets and solidify our position as a leading provider of cannabis-related coverage across the U.S. As planned, our commercialized production decreased significantly in the second quarter compared to the prior year period. This is largely the result of more time required to ramp up our other complimentary capacity providers in the period. For the quarter, our commercialized combined ratio came in at 105%, and the accident year combined ratio was a solid 81%.

Nick Petcoff: Specifically, we have started to accelerate the transfer of cannabis premiums to our capacity partner, Palomar, enabling us to expand into new markets and solidify our position as a leading provider of cannabis-related coverage across the U.S. As planned, our commercialized production decreased significantly in the second quarter compared to the prior year period. This is largely the result of more time required to ramp up our other complementary capacity providers during the period. For the quarter, our commercial lines combined ratio came in at 105%, and the accident year combined ratio was a solid 81%.

Speaker Change: During the second quarter of 2024, we made significant strides in channeling premiums to our capacity providers across various commercial lines of business.

Speaker Change: Specifically, we have started to accelerate the transfer of cannabis premiums to our capacity partner, Palomar, enabling us to expand into new markets and solidify our position as a leading provider of cannabis-related coverage across the U.S.

Speaker Change: As planned, our commercialized production decreased significantly in the second quarter compared to the prior year period.

Speaker Change: This is largely the result of more time required to ramp up our other complementary capacity providers in the period.

Speaker Change: For the quarter our commercial lines combined ratio came in at 105% and the accident year combined ratio was a solid 81%. Overall commercial lines represented roughly 36% of total production for the quarter.

Nick Preckhoff: Overall, commercial lines represented roughly 36% of total production for the quarter. Switching to our personal lines, these results were significantly impacted in the quarter by spring storms. Most of the loss came from our Oklahoma business, which is currently in runoff. We expect that the runoff process will be largely competed completed by your end. With Oklahoma going away, our production for this segment will primarily come from low-value homeowners' business in Texas and the Midwest. In general, personalized production was retained through our traditional carrier-based revenue model and represented a larger percentage of growth, written premium in the second quarter.

Nick Petcoff: Overall, commercial lines represented roughly 36% of total production for the quarter. Switching to our personal lines, these results were significantly impacted in the quarter by spring storms. Most of the loss came from our Oklahoma business, which is currently in runoff. We expect that the runoff process will be largely completed by year end.

Speaker Change: Switching to our personal lines, these results were significantly impacted in the quarter by spring storms.

Speaker Change: Most of the loss came from our Oklahoma business, which is currently in runoff.

Speaker Change: We expect that the runoff process will be largely completed by year-end.

Nick Petcoff: With Oklahoma going away, our production for this segment will primarily come from low-valued homeowners business in Texas and the Midwest. In general, personalized production was retained through our traditional carrier-based revenue model and represented a larger percentage of gross written premium in the second quarter. We expect this trend to continue in the quarters ahead as we further transition our revenue model. Overall, we remain confident that this approach will yield marked benefits over time, not only improving our margins but also equipping us to better serve our insurance and agency partners with a more flexible and responsive offering.

Speaker Change: With Oklahoma going away, our production for this segment will primarily come from low-valued homeowners business in Texas and the Midwest.

Speaker Change: In general, personalized production was retained through our traditional carrier-based revenue model and represented a larger percentage of gross written premium in the second quarter.

Nick Preckhoff: We expect this trend to continue in the quarters ahead as we further transition our revenue model. Overall, we remain confident that this approach will yield market benefits over time. Not only improving our margins, but also equipping us to better serve our insurance and agency partners with a more flexible and responsive offering. As we continue this transition, we remain committed to preserving a strong and consistent top line, continuing to streamline our expense structure and generating operational profitability over the long term to achieve favorable returns for our shareholders.

Speaker Change: We expect this trend to continue in the quarters ahead as we further transition our revenue model.

Speaker Change: Overall, we remain confident that this approach will yield marked benefits over time.

Speaker Change: Not only improving our margins, but also equipping us to better serve our insurance and agency partners with a more flexible and responsive offering.

Nick Petcoff: As we continue this transition, we remain committed to preserving a strong and consistent top line, continuing to streamline our expense structure, and generating operational profitability over the long term to achieve favorable returns for our shareholders. With that, I'll turn the call over to Harold to discuss the numbers.

Speaker Change: As we continue this transition, we remain committed to preserving a strong and consistent top line, continuing to streamline our expense structure and generating operational profitability over the long term to achieve favorable returns for our shareholders.

Harold Meloche: With that, I'll turn the call over to Harold to discuss the numbers. Harold, thank you, Nick. I'll provide a brief recap of the financial results, and I encourage investors to review our filings and presentation on the company's website for further detail. In the second quarter, overall growth, written premium decreased 58% to $19 million, reflecting our decision to reduce premium leverage on our operating subsidiaries and to focus instead on the commission-based revenue through our MGA, Conifer Insurance Services. The breakout for second quarter total growth, written premium was 36% commercial lines and 64% personal lines. Overall, Conifer's combined ratio was 124% in the second quarter, which was impacted by the Oklahoma storms. We stopped writing Oklahoma premium at May, which should reduce, which should result in improved mix of business of homeowners going forward.

Harold Meloche: Thank you, Nick. I'll provide a brief recap of the financial results, and I encourage investors to review our filings and presentation on the company's website for further detail. In the second quarter, overall gross written premium decreased 58% to $19 million, reflecting our decision to reduce premium leverage on our operating subsidiaries and to focus instead on commission-based revenue through our MGA, Conifer Insurance Services. The breakout for second quarter total gross written premium was 36% commercial lines and 64% personal lines. Overall, Conifer's combined ratio was 124% in the second quarter, which was impacted by the Oklahoma storms.

Speaker Change: With that, I'll turn the call over to Harold to discuss the numbers. Harold? Thank you, Nick. I'll provide a brief recap of the financial results, and I encourage investors to review our filings and presentation on the company's website for further detail.

Harold Meloche: In the second quarter, overall gross written premium decreased 58% to $19 million, reflecting our decision to reduce premium leverage on our operating subsidiaries and to focus instead on the commission-based revenue through our MGA, Conifer Insurance Services.

Harold Meloche: The breakout for second quarter total gross written premium was 36% commercial lines and 64% personal lines.

Speaker Change: Overall, Conifer's combined ratio was 124% in the second quarter, which was impacted by the Oklahoma storms.

Harold Meloche: We stopped writing Oklahoma premium in May, which should result in an improved mix of business for homeowners going forward. Our expense ratio continues to improve despite lower net-earned premiums due to the success of our ongoing expense reduction effort. The expense ratio was 32% in the second quarter, down 580 basis points from the same period last year and well below our near-term target of 35%. Agency commission in the second quarter was nearly $90 million compared to $211,000 in the second quarter of 2023, illustrating the progress the company has made in its initiative to drive commission-based revenue and shift to a managing general agency business model.

Harold Meloche: We stopped writing Oklahoma Premium in May, which should result in an improved mix of business of homeowners going forward.

Harold Meloche: 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 32% in the second quarter, down 580 basis points from the same period last year and well below our near term target of 35%. Agency commission in the second quarter was nearly $9 million compared to $211,000 in the second quarter of 2023, illustrating the progress the company has made in its initiative to drive commission-based revenue and shift to a managing general agency business model. Net investment income was $1.5 million during the second quarter, up 11% from $1.4 million in the prior year period.

Harold Meloche: Our expense ratio continues to improve despite lower net-earned premiums due to the success of our ongoing expense reduction efforts.

Harold Meloche: The expense ratio is 32% in the second quarter, down 580 basis points from the same period last year, and well below our near-term target of 35%.

Harold Meloche: Agency commission in the second quarter was nearly $9 million compared to $211,000 in the second quarter of 2023, illustrating the progress the company has made in its initiative to drive commission-based revenue and shift to a managing general agency business model.

Harold Meloche: Net Investment Income was $1.5 million during the second quarter, up 11% from $1.4 million in the prior year period. We recorded a $196,000 decrease in the fair value of equity investments in the second quarter, leading to a net realized investment loss of $118,000.

Harold Meloche: Net investment income was $1.5 million during the second quarter, up 11% from $1.4 million in the prior year period.

Harold Meloche: We recorded $196,000 decrease in the fair value of equity investments in the second quarter, leading to a net-realized investment loss of $1.8 million, $118,000. 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 plus, on average duration of 2.6 years and a tax equivalent yield of 3.4%. Our company reported net loss allocable to common shareholders of $4 million, or $32 per share, and adjusted operating loss of $3.6 million, or $30 per share, for the second quarter of 2024.

Harold Meloche: We recorded a $196,000 decrease in the fair value of equity investments in the second quarter, leading to a net realized investment loss of $118,000.

Harold Meloche: 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 on average duration of 2.6 years, and a tax equivalent yield of 3.4%. Our company reported a net loss allocable to common shareholders of $4 million, or $0.32 per share, and an adjusted operating loss of $3.6 million, or $0.30 per share, for the second quarter of 2024. Moving to the balance sheet, total assets were $293 million at quarter end, with cash and total investments of $154 million.

Harold Meloche: Our investments remain conservatively managed, with the vast majority of our investable assets in fixed income securities, with an average credit quality of AA+, an average duration of 2.6 years, and a tax equivalent yield of 3.4%.

Harold Meloche: Our company reported net loss allocable to common shareholders of $4 million, or $0.32 per share, and adjusted operating loss of $3.6 million, or $0.30 per share, for the second quarter of 2024.

Harold Meloche: Moving to the balance sheet, total assets were $293 million at quarter end, with cash and total investments of $154 million.

Harold Meloche: Moving to the balance sheet, total assets for $293 million at quarter end with cash and total investments of $154 million. And with that I'd like to turn it back over to Nick for closing remarks.

Nick Petcoff: And with that, I'd like to turn it back over to Nick for his closing remarks. Thanks, Harold. In summary, as we wrap up, this strategic shift is positioning us for stronger, more sustainable growth. We're excited about the future and confident that our focused approach will deliver long-term value to our shareholders. Thank you for your continued support. With that, I'd like to invite any questions. Operator. We will now begin the question and answer session. To ask a question, you may press star and then one on your touch-tone phone. If you're using a speaker phone, please pick up your handset before pressing the keys.

Nick Preckhoff: And with that, I'd like to turn it back over to Nick for closing remarks. Thanks, Harold. In summary, as we wrap up, this strategic shift is positioning us for stronger, more sustainable growth. We're excited about the future and confident that our focused approach will deliver long-term value to our shareholders.

Nick Petcoff: Thanks, Harold. In summary, as we wrap up, this strategic shift is positioning us for stronger, more sustainable growth. We're excited about the future and confident that our focused approach will deliver long-term value to our shareholders.

Nick Preckhoff: Thank you for your continued support.

Operator: With that, I'd like to invite any questions.

Operator: Operator? We will now begin the question and answer session. To ask a question, you may press star, then one on your touchtone phone. If you're using a speaker phone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw it, please press star, then two.

Speaker Change: Thank you for your continued support. With that, I'd like to invite any questions. Operator?

Operator: If at any time your question has been addressed and you would like to withdraw it, please press star then... At this time, we will pause momentarily to assemble our office. Our one question comes from Robert Behrman of From Retail. Please go ahead. Thank you.

Speaker Change: We will now begin the question and answer session.

Speaker Change: To ask a question, you may press star, then one on your touch-tone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw it, please press star, then two. At this time, we will pause momentarily to assemble our roster.

Operator: At this time, we will pause momentarily to assemble our roster.

Unknown Shareholder: Our one question comes from Robert Bearman of From Retail. Please go ahead.

Speaker Change: James Petcoff, Nicholas Petcoff, Brian Roney, Jon Newsome, Conifer Holdings

Speaker Change: Our one question comes from Robert Behrman of From Retail. Please go ahead.

Unknown Shareholder: Thank you.

Unknown Shareholder: I'm a long-standing shareholder and, like management, has suffered through a string of losses here. And I'd like to get some color on when you expect to become profitable and, if that is not achieved, what are your sources of liquidity and additional capital? I appreciate the question. You know, we do feel that with the pivot to the MGA model on the commercial line side and the support of the A rated paper, we do feel that the commission based model that we're moving to does allow us to achieve profitability more quickly than we have as a carrier based model.

Nick Preckhoff: I'm a long-standing shareholder and like management, have suffered through the string of losses here. I'd like to get some color on when you expect to become profitable, and if that is not achieved, what are your sources of liquidity and additional capital?

Robert Behrman: Thank you. I'm a longstanding shareholder and like management has suffered through

Robert Behrman: The string of losses here and I'd like to get some color on when you expect to become profitable and if.

Speaker Change: That is not achieved. What are your sources of liquidity and additional capital?

Nick Preckhoff: Sure. I can lead that off. I appreciate the question. We do feel that with the pivot to the MJ model on the commercial line side and the support of the a-rated paper, we do feel that the commission-based model that we're moving to does allow us to achieve profitability more quickly than we had as a carrier-based model. The personal lines obviously had a big impact on us in the second quarter with weather. We do feel good about the personal lines book that we have moving forward. Typically, the second quarter is a difficult quarter for us. With the revenue model based on commissions rather than balance sheet risk on the commercial line side, getting A-rated paper on all of that business allowing us to grow and improve weather results in the personal lines, we do think that that's a combination that will get us to profitability and that's what we're focused on.

Speaker Change: I can leave that off. Appreciate the question.

Speaker Change: You know, we do feel that with the pivot to the MJA model on the commercial line side and the support of the aerated paper, we do feel that the commission-based model that we're moving to does allow us to achieve profitability more quickly than we had as a carrier-based model.

Unknown Shareholder: You know, the personal lines obviously had a big impact on us in the second quarter with weather. We do feel good about the personal lines book that we have moving forward. You know, typically, the second quarter is a difficult quarter for us.

Speaker Change: You know, the personal lines obviously had a big impact on us in the second quarter with weather. We do feel good about the personal lines book that we have moving forward, you know, typically the second quarter is a difficult quarter for us. So

Nick Petcoff: So, you know, with the move to a revenue model based on commissions rather than balance sheet risk on the commercial line side, getting rated paper on all of that business, allowing us to grow, and improved weather results in the personal lines, we do think that that's a combination that will get us to profitability. And that's what we're focused on as it relates to liquidity. I'll let Harold tackle that one and talk a little bit about it.

Harold Meloche: You know, with the move to the revenue model based on commissions rather than balance sheet risk on the commercial line side, getting A-rated paper on all of that business, allowing us to grow and, you know, improved weather results in the personal lines, we do think that that's a combination that will get us to profitability, and that's what we're focused on. As it relates to liquidity, I'll let Harold tackle that one and talk a little bit about that.

Harold Meloche: As it relates to the liquidity, I'll let Harold tackle that one and talk a little bit about that.

Harold Meloche: So, we did have expense reductions over the last several years, which does help align our expense structure with our revenues. Also, you know, we are, we did mention in our 10-Q that the, to the extent that we need additional liquidity, we are considering other asset sales.

Harold Meloche: So we did have expense reductions over the last several years, which does help align our expense structure with our revenues. Also, we did mention in our 10-Q that to the extent that we need additional liquidity, we are considering other asset sales. If there are no further questions, this will conclude the question and answer session. Mr. Petcoff, you may conclude the question and answer session. Thank you. And we appreciate the question. And we appreciate everyone's time and interest in the company and invite any of you to reach out to us at any time. And thank you and have a good day; the conference is now concluded. Thank you for attending today's presentation.

Harold Meloche: So we did have expense reductions over the last several years, which does help align our expense structure with our revenues. Also, you know, we are

Speaker Change: We did mention in our 10-Q that to the extent that we need additional liquidity, we are considering other asset sales.

Operator: If no further questions, this will conclude the question-and-answer session.

Speaker Change: With no further questions, this will conclude the question and answer session. Mr. Petcoff, you may conclude the call.

James Petcoff: Mr. Petcoff, you may conclude the call. Thank you, and we appreciate the question, and we appreciate everyone's time and interest in the company, and invite any of you to reach out to us at any time. Thank you. Have a good day.

Speaker Change: Thank you and we appreciate the question and we appreciate everyone's time and interest in the company and invite any of you to reach out to us at any time and thank you and have a good day.

Operator: The conference is now concluded. Thank you for attending today's presentation.

Operator: You may now disconnect.

Operator: in the second quarter, 2024 Investor Conference Call. All participants will be in listen only mode. Should you need assistance, please signately conference specialist by pressing the star key followed by zero.

Operator: After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded.

Brian Roney: I would now like to turn the conference over to Brian Roney. Please go ahead. Thank you and good morning everyone.

Brian Roney: Conifer issued its 2024 second 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 remarks this morning is available to view or download via webcast or from the investor relations section of Conifer's website.

Brian 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 company in 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 conifer's filings with the SEC, including our latest form 10k 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 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-GAP financial measures as defined by SEC regulation G. Reconciliation of these non-GAP financial measures to the comparable GAP 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 GAP.

Brian Roney: We will conduct a Q&A session after management's prepared remarks this morning.

Nick Preckhoff: With that, I'll turn the call over to Nick Preckhoff, our chief executive officer. Nick? Thanks Brian, and good morning everyone. Also on the call with us today is Harold Mulash. As your review, our second quarter results, you'll notice a significant change in our top line figures. This is a deliberate and strategic decision on our part as we continue our shift towards a commission-based revenue model, channeling premium to our wholly owned managing general agency, conifer insurance services.

Nick Preckhoff: Our focus is on ramping up the optimization of our commercial lines by running growth-written premium through our MGA. This move aligns with our long-term strategy to achieve more stable and predictable revenue streams through commissions rather than the traditional risk-bearing carrier revenue model. While this has resulted in a lower top line compared to previous periods, it is a critical step in enhancing our overall profitability and creating a more scalable and sustainable business model.

Nick Preckhoff: Under this model, we can leverage the expertise and network of our agency partners, enhancing our distribution channels, and expanding our reach and key markets. Through this approach, our business is directly written by third-party insurers with AM best ratings of A-minus or better. Utilizing third-party, aerated capacity providers for MGA produce business provides a much broader reach for existing profitable programs. Enabling us to offer insurers superior coverage and paper while simultaneously governing risk through a scalable and sustainable production based revenue model.

Nick Preckhoff: During the second quarter of 2024, we made significant strides in channeling premiums to our capacity providers across various commercial lines of business. Specifically, we have started to accelerate the transfer of cannabis premiums to our capacity partner Palomar, enabling us to expand into new markets and solidify our position as a leading provider of cannabis related coverage across the U.S. As planned, our commercialized production decreased significantly in the second quarter compared to the prior year period.

Nick Preckhoff: This is largely the result of more time required to ramp up our other complimentary capacity providers in the period. For the quarter, our commercialized combined ratio came in at 105% and the accident year combined ratio was a solid 81%. Overall, commercial lines represented roughly 36% of total production for the quarter. Switching to our personal lines, these results were significantly impacted in the quarter by spring storms. Most of the loss came from our Oklahoma business, which is currently in runoff.

Nick Preckhoff: We expect that the runoff process will be largely competed completed by your end. With Oklahoma going away, our production for this segment will primarily come from low-value homeowners business in Texas and the Midwest. In general, personalized production was retained through our traditional carrier based revenue model and represented a larger percentage of growth, written premium in the second quarter. We expect this trend to continue in the quarters ahead as we further transition our revenue model.

Nick Preckhoff: Overall, we remain confident that this approach will yield market benefits over time. Not only improving our margins, but also equipping us to better serve our insurance and agency partners with a more flexible and responsive offering. As we continue this transition, we remain committed to preserving a strong and consistent top line, continuing to streamline our expense structure and generating operational profitability over the long-term to achieve favorable returns for our shareholders.

Harold Meloche: With that, I'll turn the call over to Harold to discuss the numbers. Harold, thank you, Nick. I'll provide a brief recap of the financial results and I encourage investors to review our filings and presentation on the company's website for further detail.

Harold Meloche: In the second quarter, overall growth, written premium decreased 58% to $19 million, reflecting our decision to reduce premium leverage on our operating subsidiaries and to focus instead on the commission-based revenue through our MGA, Conifer Insurance Services. The breakout for second quarter total growth, written premium was 36% commercial lines and 64% personal lines. Overall, Conifer's combined ratio was 124% in the second quarter, which was impacted by the Oklahoma storms. We stopped writing Oklahoma premium at May, which should reduce, which should result in improved mix of business of homeowners going forward.

Harold Meloche: 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 32% in the second quarter down 580 basis points from the same period last year and well below our near term target of 35%. Agency commission in the second quarter was nearly $9 million compared to $211,000 in the second quarter of 2023, illustrating the progress the company has made in its initiative to drive commission-based revenue and shift to a managing general agency business model.

Harold Meloche: Net investment income was $1.5 million during the second quarter, up 11% from $1.4 million in the prior year period. We recorded $196,000 decrease in the fair value of equity investments in the second quarter, leading to a net-realized investment loss of $1,8 million, $118,000. 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 plus on average duration of 2.6 years and a tax equivalent yield of 3.4%.

Harold Meloche: Our company reported net loss allocable to common shareholders of $4 million or $32 per share and adjusted operating loss of $3.6 million or $30 per share for the second quarter of 2024. Moving to the balance sheet, total assets were $293 million at quarter end with cash and total investments of $154 million.

Nick Preckhoff: And with that I'd like to turn it back over to Nick for closing remarks. Thanks, Harold.

Nick Preckhoff: In summary, as we wrap up, this strategic shift is positioning us for stronger, more sustainable growth. We're excited about the future and confidence that our focused approach will deliver long-term value to our shareholders. Thank you for your continued support.

Operator: With that, I'd like to invite any questions. Operator? We will now begin the question and answer session. To ask a question, you may press star then one on your touchtone phone. If you're using a speaker phone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw it, please press star then two. At this time, we will pause momentarily to assemble our roster.

Unknown Shareholder: Our one question comes from Robert Bearman of From Retail. Please go ahead. Thank you.

Nick Preckhoff: I'm a long-standing shareholder and like management has suffered through the string of losses here. I'd like to get some color on when you expect to become profitable and if that is not achieved, what are your sources of liquidity and additional capital? Sure. I can lead that off. I appreciate the question. We do feel that with the pivot to the MJ model on the commercial line side and the support of the a-rated paper, we do feel that the commission based model that we're moving to does allow us to achieve profitability more quickly than we had as a carrier based model.

Nick Preckhoff: The personal lines obviously had a big impact on us in the second quarter with weather. We do feel good about the personal lines book that we have moving forward, typically the second quarter is a difficult quarter for us. With the revenue model based on commissions rather than balance sheet risk on the commercial line side, getting a-rated paper on all of that business allowing us to grow and improve weather results in the personal lines, we do think that that's a combination that will get us to profitability and that's what we're focused on.

Nick Preckhoff: As it relates to the liquidity, I'll let Harold tackle that one and talk a little bit about that. So, we did have expense reductions over the last several years, which does help align our expense structure with our revenues. Also, you know, we are, we did mention in our 10Q that the, to the extent that we need additional liquidity, we are considering other assets sales.

James Petcoff: If no further questions, this will conclude the question and answer session. Mr. Petcoff, you may conclude the call. Thank you, and we appreciate the question, and we appreciate everyone's time and interest in the company, and invite any of you to reach out to us at any time, and thank you. Have a good day. The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.