Conifer Holdings, Inc. (NASDAQ:CNFR) Q1 2023 Earnings Convention Name Might 11, 2023 8:30 AM ET
Firm Members
Brian Roney – President
Jim Petcoff – Government Chairman and Co-Chief Government Officer
Nick Petcoff – Director and Co-Chief Government Officer
Harold Meloche – Chief Monetary Officer
Convention Name Members
Paul Newsome – Piper Sandler
Operator
Good morning, and welcome to the Conifer Holdings First Quarter 2023 Earnings Convention Name. All members can be in listen-only mode. [Operator Instructions] After at the moment’s presentation, there can be a chance to ask questions. [Operator Instructions] Please word this occasion is being recorded.
I’d now like to show the convention over to Brian Roney. Please go forward.
Brian Roney
Thanks, and good morning, everybody. Conifer issued its 2023 first quarter monetary outcomes after the shut of market yesterday. You could find copies of the earnings launch on the corporate’s web site, ir.cnfrh.com. The slide presentation accompanying administration’s dialogue this morning is offered to view or obtain through webcast or from the Investor Relations part of Conifer’s web site.
Earlier than we get began, please word that besides with regard to historic info, statements made on this convention name might represent forward-looking statements inside the which means of the federal securities legal guidelines, together with statements referring to traits, the corporate’s operations and monetary outcomes and the enterprise and the merchandise of the corporate and its subsidiaries. Precise outcomes might differ materially from the outcomes anticipated in these forward-looking statements on account of varied dangers and uncertainties underlying our forward-looking statements as described infrequently in Conifer’s filings with the SEC, together with our newest Type 10-Okay and subsequent stories. Conifer particularly disclaims any obligation to replace or revise any forward-looking statements, whether or not because of new info, future developments or in any other case.
As well as, a replay of this name can be offered by means of a hyperlink on the Investor Relations part of our web site. Throughout this name, we’ll additionally focus on non-GAAP monetary measures as outlined by SEC Regulation G. Reconciliations of those non-GAAP monetary measures to the comparable GAAP monetary measures are included when attainable in our earnings launch and our historic SEC filings. Statutory accounting information is ready in accordance with statutory accounting guidelines and is due to this fact not reconciled to GAAP. We’ll conduct a Q&A session after administration’s ready remarks this morning.
With that, I will flip the decision over to Jim Petcoff, Government Chairman and Co-Chief Government Officer. Jim?
Jim Petcoff
Thanks, Brian. Good morning, everybody. Becoming a member of me at the moment on the decision are Nick and Harold as nicely. I am happy to report that the primary quarter monetary outcomes bear out the important thing strategic choices administration has been implementing over the previous a number of years. Specifically, the actions we took to enhance our enterprise combine by specializing in choose worthwhile verticals in addition to strengthening our total reserves. Collectively, these actions have positioned us for worthwhile future progress. One of many main initiatives undertaken in 2022 was the execution of our loss portfolio switch reinsurance settlement, particular to legal responsibility strains for accident years 2019 and prior. As we’ll report additional in additional element later within the name, we’ve begun to acknowledge the advantages ensuing from that call already within the first quarter of 2023, and we’re assured that these favorable outcomes will proceed.
As at all times, we stay devoted to preserving a sustainable high line, persevering with to streamline our expense construction and preserve our operational profitability to generate favorable return to Conifer shareholders. In that mild, I am happy to report important enchancment throughout a broad spectrum of metrics for the primary quarter. These and different underwriting enhancements have been instrumental in our capacity to attain profitability this quarter, and we’ll proceed to guage and refine our underwriting practices to drive sustainable progress. We’re happy with the exhausting work and dedication of our total crew, and we stay dedicated to delivering distinctive worth to our insurers and our shareholders. We’ll proceed to construct on this quarter’s success within the months and years to return.
I am now going at hand it off to Nick for extra shade on our underwriting.
Nick Petcoff
As Jim famous, we’ve applied quite a few underwriting adjustments over the previous a number of years which are starting to bear outcomes and that time the way in which to continued and sustainable future profitability. Important underwriting enhancements over the previous a number of years embody implementing a wide range of underwriting instruments that allow us to extra precisely predict the probability of claims and losses primarily based on a wide range of components comparable to demographics, location and former claims historical past.
This has allowed us to make extra knowledgeable underwriting choices, together with tightened phrases and circumstances, improved geographic distribution and elevated price the place applicable to replicate the extent of threat for every coverage. As well as, by diligently sustaining our concentrate on a number of key specialty verticals, we have enabled our underwriting crew to deepen and make the most of their space of experience to develop distinctive merchandise and supply superior customer support to our brokers and insurers. Narrowing the breadth of our underwriting focus has generated improved working effectivity as nicely, leading to quicker coverage turnaround occasions and extra streamlined processes to scale back bills and supply an improved total buyer expertise.
Furthermore, better refined threat choice results in lowered frequency and severity of claims the place our company companions will be frontline underwriters and assist us ship not solely higher product choice total however drive higher underwriting outcomes. Years within the making, all of those efforts mixed to construct sturdy relationships with our company companions as evidenced by our persevering with account retention of 90% total. Gross written premium was simply over $36 million for the primary quarter, a ten% improve over the identical interval final yr. Nearly all of our premium continues to return from business strains, which accounted for 80% of whole gross written premium within the interval. Business strains manufacturing was up barely to $29 million as we proceed to concentrate on our specialty markets the place we’re producing profitable underwriting outcomes.
Within the quarter, we reported a worthwhile mixed ratio of 97.6% for business strains. Our small enterprise group continued to be the foremost contributor to elevated business strains premium manufacturing as we noticed high line progress on this group of greater than 10% within the quarter. Usually, price continues to be a powerful constructive contributing issue throughout all strains of enterprise for Conifer. Our private strains enterprise, which consists principally of low-value dwelling merchandise continues to signify a stable share of total enterprise at 20% of whole gross written premium for the primary quarter. Private strains gross written premium was up greater than 65% over the identical interval final yr to simply over $7 million for the primary quarter.
Texas and Oklahoma proceed to carry out nicely total regardless of cat losses that led to an elevated loss ratio for the primary quarter, and we’re happy with the geographic unfold we’re attaining there. As famous in earlier earnings calls, we proceed to see further runway for logical progress and continued price will increase in our private strains premium manufacturing. Along with constructive underwriting outcomes total, our claims proceed to pattern favorably throughout our e book as nicely with respect to frequency per premium and normal declare severity. For instance, as of March 31, all open legal responsibility claims are down 42% for the reason that first quarter of 2019. All of those constructive components mix to supply ongoing proof that the strategic choices applied in 2022 and prior had been nicely based, and we’re assured that they level to continued enchancment in our underwriting outcomes going ahead.
And with that, I will flip it over to Harold to debate the financials.
Harold Meloche
Thanks, Nick. I will present a fast overview of the outcomes, and I encourage buyers to overview our filings and presentation on the corporate’s web site for better element. As Nick famous, within the first quarter, gross written premiums elevated 10% to over $36 million. With Nick having detailed the premium breakout, I will focus extra on our total monetary outcomes. Conifer’s mixed ratio was 99.5% within the first quarter, down 13 share factors from the identical interval final yr. Our loss ratio was 62% in comparison with 75% for the primary quarter of 2022.
As we see the outcomes of prior yr strategic initiatives coming to fruition, we anticipate continued constructive enchancment in our outcomes going ahead. The loss ratio in business strains was 61% for the primary quarter, down 20 share factors in comparison with the primary quarter of final yr, clearly reflecting the underwriting enhancements remodeled the previous a number of years. Our expense ratio continues to enhance regardless of decrease web earned premiums because of the success of our ongoing expense discount efforts. The expense ratio was 37% for the primary quarter, down barely from the identical interval final yr and approaching our goal expense ratio of 35%. As web earned premiums start to climb by means of anticipated natural progress in our key verticals over time, the expense ratio is anticipated to proceed to enhance. Web funding earnings was $1.3 million in the course of the first quarter, up [indiscernible] from $507,000 within the prior yr. We recorded $694,000 improve within the honest worth of fairness investments within the first quarter, whereas web realized funding earnings was insignificant.
Our investments stay conservatively managed with the overwhelming majority of our investable belongings and stuck earnings securities with a median credit score high quality of AA, a median period of three.4 years and a tax equal yield of two.4%. The corporate reported web earnings of $1 million or $0.08 per share for the primary quarter in comparison with a web lack of $2.9 million or $0.30 per share within the prior yr interval. This quarter, Conifer reported an adjusted working earnings of $307,000 or $0.03 per share in comparison with an adjusted working lack of $3.1 million or $0.32 per share for the primary quarter of final yr. Shifting to the stability sheet. Complete belongings had been $293 million at quarter finish, with money and whole investments of $163 million. Our e book worth at quarter finish was $1.82 per share, representing a 17% improve from e book worth of $1.55 per share at year-end. We’ve $1.68 per share in web deferred tax belongings that on account of a full valuation allowance weren’t mirrored in e book worth.
And with that, I might like to show it again over to Jim for closing remarks.
Jim Petcoff
Thanks, Harold and Nick. In conclusion, I am more than happy with our efficiency this quarter. Although we’ve important runway forward of us to do issues higher, we predict that we’re on our path. Our outcomes converse to the dedication to generate worthwhile working earnings by means of underwriting self-discipline and strategic decision-making throughout the group. During the last a number of years, our constant underwriting enhancements had been the important thing to our success this quarter, and I am assured that our continued focus will drive sustainable progress and profitability sooner or later. Trying forward, we’ll proceed to spend money on our enterprise and discover alternatives for logical progress. We stay centered on delivering distinctive worth to our clients and shareholders, and we’re excited concerning the future. We’ll now take any questions.
Query-and-Reply Session
Operator
We’ll now start the question-and-answer session. [Operator Instructions] And our first query will come from Paul Newsome of Piper Sandler. Please go forward.
Paul Newsome
Good morning. Thanks for the decision. I hoped you possibly can type of take a look at or discuss to each the business strains and the private strains individually concerning the quantity of premium progress that is generated by price will increase versus publicity progress over time.
Jim Petcoff
Good morning, Paul. Glad you are on the decision. That is clearly a query for Nick.
Nick Petcoff
Positive. Sure, on the private strains aspect, we had filed a – we applied a ten% price improve on our Texas owners e book efficient 1/1/2023. After which on our Oklahoma e book, there was a 12% price improve efficient 3/1. So on our private strains e book, there was each progress on publicity, but in addition price as nicely that led to the expansion that we noticed within the quarter. Clearly, the proportion progress is massive as a result of we’re working off of a comparatively small quantity. Nevertheless it’s a mixture of each natural progress and price.
Related story on the business strains aspect. Our property renewal charges had been up 7% year-over-year, and our GL charges on our hospitality had been up 4% year-over-year whereas our small enterprise is nearer to 13% year-over-year. So it is a mixture of each price and publicity actually on the private strains aspect. On the business line aspect, we’re seeing a little bit bit extra price as a result of as we have grown within the business line aspect, we have additionally been exiting some key geographies like Florida. So we’re seeing a little bit bit extra progress through price on the business line aspect.
Paul Newsome
Nice. One other subject for nearly each insurer this quarter has been reinsurance and the exhausting market reinsurance and the impression on your corporation. Might you remind us of the place is form of your reinsurance utilization and what would possibly occur prospectively if the exhausting reinsurance market continues?
Jim Petcoff
Nicely, the reinsurance market on the finish of the yr was one of the tough that I’ve ever seen. Luckily, on our casualty, there was not a lot change in any respect. We have been fairly constant. I believe it ought to have gone down, however it did not. So I suppose that is the unfavorable. However we did not actually get a lot of the speed change there. The property was very important on account of Ian. We had a number of massive purchasers. We actually did not hit the cat very exhausting in any respect. They got here in particularly extra of loss insurance policies on the business aspect. So the fact is we do not count on our cat, which comes up 6:1 to have a lot change. We’re proper within the center there now. However we did get hit fairly exhausting on our extra loss contracts initially of the yr, which property capability was at a premium. We count on this to enhance within the close to future as a result of our expertise is apart from Ian it is nonetheless fairly good. So we’re hoping for a reduction on the property aspect within the – for positive on the finish of the yr however within the close to time period. That is in all probability extra element than you wanted. However the actuality was it was one of many worst reinsurance markets I’ve ever seen. Nick, do you wish to add something?
Nick Petcoff
No, I believe you coated it. We did see will increase on our property per threat. We do not count on main adjustments on our property cat that comes up at 6:1.
Paul Newsome
Nice. After which final extra of a broad query. There was a variety of combined commentary within the earnings name to date this quarter concerning the aggressive atmosphere for specialty business specifically. I used to be questioning if – clearly you’re a comparatively small slice within the whole, when you’re seeing any adjustments within the aggressive atmosphere on your elements of the specialty business enterprise.
Jim Petcoff
I will let Nick reply it.
Nick Petcoff
Positive. I believe it varies fairly a bit by geography for us and by I suppose focus. I might say much less so in our hospitality, we do not see as a lot competitors in that market as we’ve seen previously. And a few of our different small business strains, particularly on the E&S aspect, we’re seeing some new entrants extra centered on the casualty strains of enterprise. Property because of the reinsurance that you simply talked about remains to be a really tight and, I might say, exhausting market that we’re seeing. We’ve seen a number of new entrants in a number of the casualty E&S markets that we’re in. We’ve not seen a dramatic impression on pricing but in these markets. However we’re seeing extra opponents within the market. And sure, we’ll need to see how that develops over the remainder of the yr.
Paul Newsome
Nice, thanks. Very a lot respect the assistance as at all times.
Nick Petcoff
Thanks, Paul.
Jim Petcoff
Thanks, Paul.
Operator
This concludes our question-and-answer session. I wish to flip the convention again over to Jim Petcoff for any closing remarks.
Jim Petcoff
I simply wish to thank, Paul, for the query and for the individuals, who’re listening in, and I respect your continued curiosity. And we really feel we’re on the correct path and stay up for the long run. Thanks.
Operator
The convention has now concluded. Thanks for attending at the moment’s presentation and you might now disconnect.
