CNFRL Conifer Holdings Inc

Conifer Holdings, Inc. (Nasdaq: CNFR) (“Conifer” or the “Company”) today announced results for the second quarter ended June 30, 2022.

Second Quarter 2022 Financial Highlights (compared to the prior year period)

• Gross written premium increased 7.0% to $37.4 million
• Commercial Lines gross written premium increased 3.6% to $32.1 million
• Personal Lines gross written premium increased 32.4% to $5.3 million
• Net earned premium remained steady at $24.6 million
• Expense ratio decreased to 39.0%, down 230 basis points from Q2 2021
• Book value per share of $1.75 as of June 30, 2022

Subsequent to the end of the second quarter, the Company completed a private placement of 2,500,000 shares of common stock at $2.00 per share, which was sold to the Company’s management and Board of Directors for proceeds of $5.0 million. Taking this transaction into account, on a pro forma basis, the Company’s total shareholders’ equity as of June 30, 2022 would have been $22.0 million, and its book value per share would have been $1.80.

James Petcoff, Executive Chairman and Co-CEO, commented, “While we are pleased to report continued top-line growth in our most profitable lines of business, we must recognize that these achievements were generally obscured by persistent adverse development from select lines. As a result, we have taken numerous prudent actions to strengthen our reserves overall and we look forward to reporting the beneficial results of those initiatives in the very near future.”

2022 Second Quarter Financial Results Overview

	At and for the Three Months Ended June 30,											At and for the Six Months Ended June 30,
	2022				2021				% Change			2022				2021				% Change
	(dollars in thousands, except share and per share amounts)
Gross written premiums	$	37,418			$	34,981			7.0	%		$	70,382			$	65,354			7.7	%
Net written premiums		27,266				28,532			-4.4	%			45,287				53,015			-14.6	%
Net earned premiums		24,576				24,838			-1.1	%			48,531				47,673			1.8	%
Net investment income		564				503			12.1	%			1,071				1,035			3.5	%
Net realized investment gains (losses)		(1,436	)			1,060			**				(1,505	)			3,984			**
Change in fair value of equity investments		317				(525	)		**				597				(1,065	)
Other gains (losses)		(1	)			8,910			**				(6	)			8,910			**
Net income (loss)		(8,399	)			5,552			**				(11,269	)			916			**
Net income (loss) per share, diluted	$	(0.86	)		$	0.57						$	(1.16	)		$	0.09
Adjusted operating income (loss)*		(7,279	)			(3,893	)		**				(10,355	)			(10,913	)		**
Adjusted operating income (loss) per share, diluted*	$	(0.75	)		$	(0.40	)		**			$	(1.07	)		$	(1.13	)		**
Book value per common share outstanding	$	1.75			$	4.53						$	1.75			$	4.53
Weighted average shares outstanding, basic and diluted		9,712,602				9,686,631							9,710,223				9,684,193
Underwriting ratios:
Loss ratio (1)		90.2	%			71.9	%						82.7	%			77.9	%
Expense ratio (2)		39.0	%			41.3	%						38.3	%			42.9	%
Combined ratio (3)		129.2	%			113.2	%						121.0	%			120.8	%
* The "Definitions of Non-GAAP Measures" section of this release defines and reconciles data that are not based on generally accepted accounting principles.
** Percentage is not meaningful
(1) The loss ratio is the ratio, expressed as a percentage, of net losses and loss adjustment expenses to net earned premiums and other income from underwriting operations.
(2) The expense ratio is the ratio, expressed as a percentage, of policy acquisition costs and other underwriting expenses to net earned premiums and other income from underwriting operations.
(3) The combined ratio is the sum of the loss ratio and the expense ratio. A combined ratio under 100% indicates an underwriting profit. A combined ratio over 100% indicates an underwriting loss.

2022 Second Quarter Premiums

Gross Written PremiumsGross written premiums increased 7.0% in the second quarter of 2022 to $37.4 million, compared to $35.0 million in the prior year period. The increase reflects a combination of rate increases and continued expansion into select specialty lines, specifically in the Company’s small business programs. Personal lines premium, specifically Conifer’s low-value dwelling line of business, continues to bolster Conifer’s profitable top line growth.

Net Earned PremiumsNet earned premiums decreased 1.1% to $24.6 million for the second quarter of 2022, compared to $24.8 million for the prior year period. The Company expects net earned premium to increase throughout 2022 as consistent increases in gross written premium over the past several quarters continue to earn ratably through the year.

Commercial Lines Financial and Operational Review

Commercial Lines Financial Review
	Three Months Ended June 30,											Six Months Ended June 30,
	2022				2021				% Change			2022				2021				% Change
	(dollars in thousands)
Gross written premiums	$	32,076			$	30,947			3.6	%		$	60,662			$	58,168			4.3	%
Net written premiums		22,386				24,672			-9.3	%			36,726				46,229			-20.6	%
Net earned premiums		20,784				22,188			-6.3	%			41,308				42,894			-3.7	%
Underwriting ratios:
Loss ratio		95.5	%			76.2	%						88.1	%			78.8	%
Expense ratio		38.0	%			41.2	%						37.2	%			42.9	%
Combined ratio		133.5	%			117.4	%						125.3	%			121.7	%
Contribution to combined ratio from net (favorable) adverse prior year development		44.4	%			27.8	%						36.1	%			26.4	%
Accident year combined ratio (1)		89.1	%			89.6	%						89.2	%			95.3	%
(1) The accident year combined ratio is the sum of the loss ratio and the expense ratio, less changes in net ultimate loss estimates from prior accident year loss reserves. The accident year combined ratio provides management with an assessment of the specific policy year's profitability and assists management in their evaluation of product pricing levels and quality of business written.

The Company’s commercial lines of business, representing 85.7% of total gross written premium in the second quarter of 2022, primarily consists of property and liability coverage offered to owner-operated small- to mid-sized businesses.

Commercial lines gross written premium increased 3.6% in the second quarter of 2022 to $32.1 million, reflecting the Company’s continued emphasis on expansion in its most profitable specialty lines.

The commercial lines combined ratio was 133.5% for the three months ended June 30, 2022, compared to 117.4% in the prior year period. The loss ratio was 95.5% for the second quarter of 2022, compared with 76.2% in the prior year period. Adverse prior year development contributed 44.4% to the commercial lines loss ratio for the second quarter, stemming largely from quick service restaurant and other discontinued or significantly deemphasized lines of business. The Company anticipates marked improvement in the near term as deemphasized lines of business roll off the Company’s books. Moreover, the Company has undertaken a number of targeted loss mitigation initiatives over the course of the second quarter, expected to significantly benefit the Company’s bottom line in the months to come.

The commercial lines expense ratio for the second quarter was 38.0%, down from 41.2% during the prior year period, reflecting the Company’s commitment to sustained expense management and profitable top line growth.

The commercial lines accident year combined ratio was 89.1% for the second quarter of 2022.

Personal Lines Financial and Operational Review

Personal Lines Financial Review
	Three Months Ended June 30,											Six Months Ended June 30,
	2022				2021				% Change			2022				2021				% Change
	(dollars in thousands)
Gross written premiums	$	5,342			$	4,034			32.4	%		$	9,720			$	7,186			35.3	%
Net written premiums		4,880				3,860			26.4	%			8,561				6,786			26.2	%
Net earned premiums		3,792				2,650			43.1	%			7,223				4,779			51.1	%
Underwriting ratios:
Loss ratio		61.4	%			36.6	%						51.7	%			69.8	%
Expense ratio		44.7	%			42.0	%						44.1	%			42.8	%
Combined ratio		106.1	%			78.6	%						95.8	%			112.6	%
Contribution to combined ratio from net (favorable) adverse prior year development		7.0	%			0.9	%						0.6	%			13.1	%
Accident year combined ratio		99.1	%			77.7	%						95.2	%			99.5	%

Personal lines, representing 14.3% of total gross written premium for the second quarter of 2022, consists largely of low-value dwelling homeowner’s insurance.

Personal lines gross written premium increased 32.4% to $5.3 million in the second quarter of 2022 compared to $4.0 million in the prior year period. This increase was led by growth in the Company’s low-value dwelling line of business in Oklahoma and Texas.

The personal lines combined ratio was 106.1% for the three months ended June 30, 2022, compared to 78.6% in the prior year period. Personal lines loss ratio was 61.4%, compared to 36.6% in the prior year period.

The personal lines accident year combined ratio was 99.1% for the second quarter of 2022.

Combined Ratio Analysis

	Three Months Ended June 30,						Six Months Ended June 30,
	2022			2021			2022			2021
Underwriting ratios:
Loss ratio	90.2	%		71.9	%		82.7	%		77.9	%
Expense ratio	39.0	%		41.3	%		38.3	%		42.9	%
Combined ratio	129.2	%		113.2	%		121.0	%		120.8	%
Contribution to combined ratio from net (favorable) adverse prior year development	38.6	%		24.9	%		30.9	%		25.0	%
Accident year combined ratio	90.6	%		88.3	%		90.1	%		95.8	%

Combined RatioThe Company's combined ratio was 129.2% for the quarter ended June 30, 2022, compared to 113.2% for the same period in 2021. The Company’s accident year combined ratio for the quarter ended June 30, 2022 was 90.6%, compared to 88.3% in the prior year period.

Loss Ratio: The Company’s losses and loss adjustment expenses were $22.3 million for the three months ended June 30, 2022, compared to $17.9 million in the prior year period. This resulted in a loss ratio of 90.2%, compared to 71.9% in the prior year period.

Before adverse development, the loss ratio for the second quarter of 2022 was 51.6%, which aligns with the Company’s target loss ratio in its select specialty lines of business. As deemphasized business continues to roll off the books, and as statutes expire in difficult jurisdictions, the Company fully anticipates that the loss ratio will improve correspondingly.

Moreover, the Company has taken important steps to restrict the bottom-line effects of adverse prior year development from these deemphasized lines of business, and expects to see the beneficial results of these initiatives in the near term.

Expense Ratio: The expense ratio was 39.0% for the second quarter of 2022, compared to 41.3% in the prior year period.

Net Investment IncomeNet investment income was $564,000 during the quarter ended June 30, 2022, compared to $503,000 in the prior year period.

Net Realized Investment IncomeNet realized investment losses during the second quarter were $1.4 million, compared to net realized investment gains of $1.1 million in the prior year period.

Change in Fair Value of Equity SecuritiesDuring the second quarter, the Company reported a gain of $317,000 from the change in fair value of equity investments, compared to a loss of $525,000 in the prior year period.

Net Income In the second quarter of 2022, the Company reported a net loss of $8.4 million, or $0.86 per share, compared to net income of $5.6 million, or $0.57 per share, in the prior year period.

Adjusted Operating IncomeIn the second quarter of 2022, the Company reported an adjusted operating loss of $7.3 million, or $0.75 per share, compared to an adjusted operating loss of $3.9 million, or $0.40 per share, for the same period in 2021. See Definitions of Non-GAAP Measures.

Earnings Conference Call and Webcast with Accompanying Slide PresentationThe Company will hold a conference call/webcast on Thursday, August 11, 2022 at 8:30 a.m. ET to discuss results for the second quarter ended June 30, 2022.

Investors, analysts, employees and the general public are invited to listen to the conference call via:

	Webcast:	On the Event Calendar at IR.CNFRH.com
	Conference Call:	844-868-8843 (domestic) or 412-317-6589 (international)

The webcast will be archived on the Conifer Holdings website and available for replay for at least one year.

About the CompanyConifer Holdings, Inc. is a specialty insurance holding company, offering customized coverage solutions tailored to the needs of our insureds. Nationwide, Conifer markets largely through independent agents, and is traded on the NASDAQ exchange under the symbol “CNFR”. Additional information is available on the Company’s website at www.CNFRH.com.

Definitions of Non-GAAP MeasuresConifer prepares its public financial statements in conformity with accounting principles generally accepted in the United States of America (GAAP). Statutory data is prepared in accordance with statutory accounting rules as defined by the National Association of Insurance Commissioners' (NAIC) Accounting Practices and Procedures Manual, and therefore is not reconciled to GAAP data.

We believe that investors’ understanding of Conifer’s performance is enhanced by our disclosure of adjusted operating income. Our method for calculating this measure may differ from that used by other companies and therefore comparability may be limited. We define adjusted operating income (loss), a non-GAAP measure, as net income (loss) excluding after-tax net realized investment gains and losses, excluding the tax effect of changes in unrealized gains and losses, excluding the after-tax change in fair value of equity securities. We use adjusted operating income as an internal performance measure in the management of our operations because we believe it gives our management and other users of our financial information useful insight into our results of operations and our underlying business performance.

Reconciliations of adjusted operating income and adjusted operating income per share:

	Three Months Ended June 30,								Six Months Ended June 30,
	2022				2021				2022				2021
	(dollar in thousands, except share and per share amounts)
Net income (loss)	$	(8,399	)		$	5,552			$	(11,269	)		$	916
Less:
Net realized investment gains (losses), net of tax		(1,436	)			1,060				(1,505	)			3,984
Other gains (losses), net of tax		(1	)			8,910				(6	)			8,910
Change in fair value of equity securities, net of tax		317				(525	)			597				(1,065	)
Adjusted operating income (loss)	$	(7,279	)		$	(3,893	)		$	(10,355	)		$	(10,913	)
Weighted average common shares, diluted		9,712,602				9,686,631				9,710,223				9,684,193
Diluted income (loss) per common share:
Net income (loss)	$	(0.86	)		$	0.57			$	(1.16	)		$	0.09
Less:
Net realized investment gains (losses), net of tax		(0.14	)			0.11				(0.15	)			0.41
Other gains (losses), net of tax		-				0.92				-				0.92
Change in fair value of equity securities, net of tax		0.03				(0.06	)			0.06				(0.11	)
Adjusted operating income (loss), per share	$	(0.75	)		$	(0.40	)		$	(1.07	)		$	(1.13	)

Forward-Looking StatementThis press release contains forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements give current expectations or forecasts of future events or our future financial or operating performance, and include Conifer’s expectations regarding premiums, earnings, its capital position, expansion, and growth strategies. The forward-looking statements contained in this press release are based on management’s good-faith belief and reasonable judgment based on current information. The forward-looking statements are qualified by important factors, risks and uncertainties, many of which are beyond our control, that could cause our actual results to differ materially from those in the forward-looking statements, including those described in our form 10-K (“Item 1A Risk Factors”) filed with the SEC on March 10, 2022 and subsequent reports filed with or furnished to the SEC. Any forward-looking statement made by us in this report speaks only as of the date hereof or as of the date specified herein. We undertake no obligation to publicly update any forward-looking statement, whether as a result of new information, future developments or otherwise, except as may be required by any applicable laws or regulations.

For Further Information:Jessica Gulis, 248.559.0840ir@cnfrh.com

Conifer Holdings, Inc. and SubsidiariesConsolidated Balance Sheets(dollars in thousands)

	June 30,				December 31,
	2022				2021
Assets	(Unaudited)
Investment securities:
Debt securities, at fair value (amortized cost of $132,427 and $150,732, respectively)	$	119,207			$	149,783
Equity securities, at fair value (cost of $1,433 and $10,972, respectively)		990				9,931
Short-term investments, at fair value		28,001				23,013
Total investments		148,198				182,727
Cash and cash equivalents		13,148				9,913
Premiums and agents' balances receivable, net		24,701				21,197
Receivable from Affiliate		5,216				5,784
Reinsurance recoverables on unpaid losses		37,769				40,344
Reinsurance recoverables on paid losses		4,479				1,347
Prepaid reinsurance premiums		15,381				8,301
Deferred policy acquisition costs		10,747				12,267
Other assets		15,416				8,524
Total assets	$	275,055			$	290,404
Liabilities and Shareholders' Equity
Liabilities:
Unpaid losses and loss adjustment expenses	$	140,996			$	139,085
Unearned premiums		69,104				65,269
Reinsurance premiums payable		3,711				5,318
Debt		33,720				33,564
Accounts payable and accrued expenses		10,547				6,665
Total liabilities		258,078				249,901
Commitments and contingencies		-				-
Shareholders' equity:
Common stock, no par value (100,000,000 shares authorized; 9,715,324 and 9,707,817 issued and outstanding, respectively)		92,799				92,692
Accumulated deficit		(61,348	)			(50,079	)
Accumulated other comprehensive income (loss)		(14,474	)			(2,110	)
Total shareholders' equity		16,977				40,503
Total liabilities and shareholders' equity	$	275,055			$	290,404

Conifer Holdings, Inc. and SubsidiariesConsolidated Statements of Operations (Unaudited)(dollars in thousands, except share and per share data)

	Three Months Ended								Six Months Ended
	June 30,								June 30,
	2022				2021				2022				2021
Revenue and Other Income
Premiums
Gross earned premiums	$	33,782			$	30,228			$	66,546			$	58,475
Ceded earned premiums		(9,206	)			(5,390	)			(18,015	)			(10,802	)
Net earned premiums		24,576				24,838				48,531				47,673
Net investment income		564				503				1,071				1,035
Net realized investment gains (losses)		(1,436	)			1,060				(1,505	)			3,984
Change in fair value of equity securities		317				(525	)			597				(1,065	)
Other gains (losses)		(1	)			8,910				(6	)			8,910
Other income		663				666				1,361				1,222
Total revenue and other income		24,683				35,452				50,049				61,759
Expenses
Losses and loss adjustment expenses, net		22,251				17,926				40,269				37,288
Policy acquisition costs		5,725				6,896				11,189				13,646
Operating expenses		4,470				4,342				8,630				8,691
Interest expense		727				732				1,438				1,453
Total expenses		33,173				29,896				61,526				61,078
Income (loss) before equity earnings in Affiliate and income taxes		(8,490	)			5,556				(11,477	)			681
Equity earnings in Affiliate, net of tax		93				180				169				428
Income tax expense (benefit)		2				184				(39	)			193
Net income (loss)		(8,399	)			5,552				(11,269	)			916
Earnings (loss) per common share, basic and diluted	$	(0.86	)		$	0.57			$	(1.16	)		$	0.09
Weighted average common shares outstanding, basic and diluted		9,712,602				9,686,631				9,710,223				9,684,193