UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
For the Quarterly Period Ended
OR
For the transition period from to
Commission file number
(Exact name of registrant as specified in its charter)
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(State or other jurisdiction of incorporation or organization) |
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(I.R.S. Employer Identification No.) |
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(Address of principal executive offices) |
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(Zip code) |
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(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
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Trading Symbol(s) |
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Name of each exchange on which registered |
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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☐ |
Accelerated filer ☐ |
Smaller reporting company |
Emerging growth company |
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No
The number of outstanding shares of the registrant’s common stock, no par value, as of August 13, 2024, was
CONIFER HOLDINGS, INC. AND SUBSIDIARIES
Form 10-Q
INDEX
2
PART 1 - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
CONIFER HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(dollars in thousands)
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June 30, |
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December 31, |
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(Unaudited) |
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Assets |
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Investment securities: |
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Debt securities, at fair value (amortized cost of $ |
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$ |
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$ |
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Equity securities, at fair value (cost of $ |
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Short-term investments, at fair value |
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Total investments |
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Cash and cash equivalents |
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Premiums and agents' balances receivable, net |
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Receivable from Affiliate |
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Reinsurance recoverables on unpaid losses |
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Reinsurance recoverables on paid losses |
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Prepaid reinsurance premiums |
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Deferred policy acquisition costs |
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Other assets |
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Total assets |
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$ |
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$ |
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Liabilities and Shareholders' Equity |
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Liabilities: |
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Unpaid losses and loss adjustment expenses |
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$ |
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$ |
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Unearned premiums |
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Reinsurance premiums payable |
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Debt |
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Funds held under reinsurance agreements |
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Premiums payable to other insureds |
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Accounts payable and accrued expenses |
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Total liabilities |
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Shareholders' equity: |
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Preferred stock, |
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Common stock, |
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Accumulated deficit |
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( |
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( |
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Accumulated other comprehensive income (loss) |
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( |
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( |
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Total shareholders' equity |
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( |
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Total liabilities and shareholders' equity |
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$ |
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$ |
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The accompanying notes are an integral part of the Consolidated Financial Statements.
3
CONIFER HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Statements of Operations (Unaudited)
(dollars in thousands, except per share data)
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Three Months Ended |
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Six Months Ended |
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2024 |
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2023 |
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2024 |
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2023 |
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Revenue and Other Income |
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Premiums |
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Gross earned premiums |
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$ |
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$ |
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$ |
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Ceded earned premiums |
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( |
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( |
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( |
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( |
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Net earned premiums |
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Net investment income |
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Net realized investment gains (losses) |
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( |
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( |
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Change in fair value of equity securities |
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( |
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( |
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Agency commission income |
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Other income |
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Total revenue and other income |
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Expenses |
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Losses and loss adjustment expenses, net |
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Policy acquisition costs |
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Operating expenses |
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Interest expense |
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Total expenses |
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Income (loss) before equity earnings in Affiliate and income taxes |
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( |
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( |
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Equity earnings (loss) in Affiliate, net of tax |
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Income tax expense (benefit) |
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( |
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( |
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Net income (loss) |
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$ |
( |
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$ |
( |
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$ |
( |
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$ |
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Preferred stock dividends |
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Net income (loss) allocable to common shareholders |
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$ |
( |
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$ |
( |
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$ |
( |
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$ |
( |
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Earnings (loss) per common share, basic and diluted |
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$ |
( |
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$ |
( |
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$ |
( |
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$ |
( |
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Weighted average common shares outstanding, basic and diluted |
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The accompanying notes are an integral part of the Consolidated Financial Statements.
4
CONIFER HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Statements of Comprehensive Income (Loss) (Unaudited)
(dollars in thousands)
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Three Months Ended |
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Six Months Ended June 30, |
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2024 |
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2023 |
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2024 |
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2023 |
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Net income (loss) |
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$ |
( |
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$ |
( |
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$ |
( |
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$ |
( |
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Other comprehensive income (loss), net of tax: |
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Unrealized investment gains (losses): |
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Unrealized investment gains (losses) during the period |
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( |
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( |
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Income tax (benefit) expense |
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Unrealized investment gains (losses), net of tax |
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( |
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Less: reclassification adjustments to: |
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Net realized investment gains (losses) included in net income (loss) |
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Income tax (benefit) expense |
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Total reclassifications included in net income (loss), net of tax |
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Other comprehensive income (loss) |
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( |
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( |
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Total comprehensive income (loss) |
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$ |
( |
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$ |
( |
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$ |
( |
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$ |
( |
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The accompanying notes are an integral part of the Consolidated Financial Statements.
5
CONIFER HOLDINGS, INC. AND SUBSIDIARIES
(dollars in thousands)
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No Par, Preferred Stock |
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No Par, Common Stock |
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Accumulated |
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Accumulated |
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Total |
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Shares |
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Amount |
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Shares |
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Amount |
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Deficit |
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Income (Loss) |
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Equity |
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Balances at March 31, 2024 |
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$ |
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$ |
( |
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$ |
( |
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$ |
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Net income (loss) |
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— |
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— |
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— |
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— |
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( |
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— |
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( |
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Stock-based compensation expense |
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— |
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— |
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— |
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— |
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— |
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Dividends on preferred stock |
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— |
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— |
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— |
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— |
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( |
) |
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— |
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( |
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Other comprehensive income (loss) |
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— |
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— |
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— |
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— |
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— |
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Balances at June 30, 2024 |
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$ |
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$ |
( |
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$ |
( |
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$ |
( |
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Balances at March 31, 2023 |
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$ |
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$ |
( |
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$ |
( |
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$ |
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Net income (loss) |
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— |
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— |
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( |
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— |
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( |
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Repurchase of common stock |
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( |
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( |
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— |
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— |
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( |
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Stock-based compensation expense |
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— |
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— |
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Other comprehensive income (loss) |
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— |
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— |
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— |
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( |
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( |
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Balances at June 30, 2023 |
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— |
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— |
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$ |
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$ |
( |
) |
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$ |
( |
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$ |
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No Par, Common Stock |
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No Par, Common Stock |
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Accumulated |
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Accumulated |
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Total |
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Shares |
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Amount |
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Shares |
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Amount |
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Deficit |
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Income (Loss) |
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Equity |
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Balances at December 31, 2023 |
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$ |
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$ |
( |
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$ |
( |
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$ |
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Net income (loss) |
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— |
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— |
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— |
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— |
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( |
) |
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— |
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( |
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Stock-based compensation expense |
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— |
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— |
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— |
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— |
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— |
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Dividends on preferred stock |
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— |
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— |
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— |
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— |
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( |
) |
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— |
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( |
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Other comprehensive income (loss) |
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— |
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— |
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— |
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— |
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— |
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( |
) |
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( |
) |
Balances at June 30, 2024 |
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$ |
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$ |
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$ |
( |
) |
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$ |
( |
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$ |
( |
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Balances at December 31, 2022 |
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$ |
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$ |
( |
) |
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$ |
( |
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$ |
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Net income (loss) |
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— |
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— |
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( |
) |
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— |
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( |
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Repurchase of common stock |
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( |
) |
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( |
) |
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— |
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— |
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( |
) |
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Stock-based compensation expense |
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— |
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— |
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Other comprehensive income (loss) |
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— |
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— |
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— |
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Balances at June 30, 2023 |
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— |
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$ |
- |
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$ |
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$ |
( |
) |
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$ |
( |
) |
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$ |
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The accompanying notes are an integral part of the Consolidated Financial Statements.
6
CONIFER HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Unaudited)
(dollars in thousands)
|
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Six Months Ended June 30, |
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2024 |
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2023 |
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Cash Flows From Operating Activities |
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Net income (loss) |
|
$ |
( |
) |
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$ |
( |
) |
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: |
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Depreciation and amortization |
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Amortization of bond premium and discount, net |
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( |
) |
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( |
) |
Net realized investment (gains) losses |
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— |
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Change in fair value of equity securities |
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( |
) |
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Stock-based compensation expenses |
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Equity loss (earnings) in Affiliate, net of tax |
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( |
) |
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Changes in operating assets and liabilities: |
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(Increase) decrease in: |
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Premiums and agents' balances and other receivables |
|
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( |
) |
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( |
) |
Reinsurance recoverables |
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Prepaid reinsurance premiums |
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( |
) |
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Deferred policy acquisition costs |
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||
Other assets |
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( |
) |
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|
Increase (decrease) in: |
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|
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||
Unpaid losses and loss adjustment expenses |
|
|
|
|
|
( |
) |
|
Unearned premiums |
|
|
( |
) |
|
|
|
|
Funds held under reinsurance agreements |
|
|
( |
) |
|
|
( |
) |
Reinsurance premiums payable |
|
|
|
|
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||
Premiums payable to other insureds |
|
|
|
|
|
— |
|
|
Accounts payable and other liabilities |
|
|
|
|
|
( |
) |
|
Net cash provided by (used in) operating activities |
|
|
( |
) |
|
|
( |
) |
Cash Flows From Investing Activities |
|
|
|
|
|
|
||
Purchase of investments |
|
|
( |
) |
|
|
( |
) |
Proceeds from maturities and redemptions of investments |
|
|
|
|
|
|
||
Proceeds from sales of investments |
|
|
|
|
|
|
||
Obligation to SSU |
|
|
— |
|
|
|
( |
) |
Net cash provided by (used in) investing activities |
|
|
|
|
|
( |
) |
|
Cash Flows From Financing Activities |
|
|
|
|
|
|
||
Repurchase of common stock |
|
|
— |
|
|
|
( |
) |
Dividends paid to shareholders |
|
|
( |
) |
|
|
— |
|
Repayment of long-term debt |
|
|
( |
) |
|
|
— |
|
Net cash provided by (used in) financing activities |
|
|
( |
) |
|
|
( |
) |
Net increase (decrease) in cash |
|
|
( |
) |
|
|
( |
) |
Cash at beginning of period |
|
|
|
|
|
|
||
Cash at end of period |
|
$ |
|
|
$ |
|
||
Supplemental Disclosure of Cash Flow Information: |
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|
||
Interest paid |
|
$ |
|
|
$ |
|
||
Income taxes paid (refunded), net |
|
|
|
|
|
( |
) |
|
The accompanying notes are an integral part of the Consolidated Financial Statements.
7
CONIFER HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)
1. Summary of Significant Accounting Policies
Basis of Presentation and Management Representation
The consolidated financial statements include accounts, after elimination of intercompany accounts and transactions, of Conifer Holdings, Inc. (the “Company” or “Conifer”), its wholly owned subsidiaries, Conifer Insurance Company ("CIC"), White Pine Insurance Company ("WPIC"), Red Cedar Insurance Company ("RCIC"), Conifer Insurance Services ("CIS"), which is our managing general agency ("MGA"), formerly known as Sycamore Insurance Agency, Inc. ("Sycamore"), and VSRM, Inc. ("VSRM"). CIC, WPIC, and RCIC are collectively referred to as the "Insurance Company Subsidiaries." On a stand-alone basis, Conifer Holdings, Inc. is referred to as the "Parent Company." VSRM owns a
The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”), which differ from statutory accounting practices prescribed or permitted for insurance companies by regulatory authorities. The Company has applied the rules and regulations of the United States Securities and Exchange Commission (“SEC”) regarding interim financial reporting and therefore the consolidated financial statements do not include all of the information and notes required by GAAP for annual financial statements. In the opinion of management, all adjustments, consisting of items of a normal recurring nature, necessary for a fair presentation of the consolidated interim financial statements, have been included.
These consolidated financial statements and the notes thereto should be read in conjunction with the Company's audited consolidated financial statements and related notes included in its Annual Report on Form 10-K for the year ended December 31, 2023, as filed with the SEC.
The results of operations for the six months ended June 30, 2024, are not necessarily indicative of the results expected for the year ended December 31, 2024.
Business
The Company is engaged in the sale of property and casualty insurance products and has organized its principal operations into
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. While management believes the amounts included in the consolidated financial statements reflect management's best estimates and assumptions, actual results may differ from these estimates.
Cash, Cash Equivalents, and Short-term Investments
Cash consists of cash deposits in banks, generally in operating accounts. Cash equivalents consist of money-market funds that are specifically used as overnight investments tied to cash deposit accounts. Short-term investments, consisting of money market funds, are classified as investments in the consolidated balance sheets as they relate to the Company’s investment activities.
8
Accounting Guidance Not Yet Adopted
In January 2021, the FASB issued ASU 2022-06, Reference Rate Reform (Topic 848). This guidance provides optional expedients and exceptions that are intended to ease the burden of updating contracts to contain a new reference rate due to the discontinuation of the London Inter-Bank Offered Rate (LIBOR). This guidance is available immediately and may be implemented in any period prior to the guidance expiration on December 31, 2024. Management does not expect the new guidance to have a material impact on the Company’s consolidated financial statements.
In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280). This guidance is intended to improve reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses, allowing financial statement users to better understand the components of a segment's profit or loss to assess potential future cash flows for each reportable segment and the entity as a whole. The amendments expand a public entity's segment disclosures by requiring disclosure of significant segment expenses that are regularly provided to the chief operating decision maker ("CODM"), clarifying when an entity may report one or more additional measures to assess segment performance, requiring enhanced interim disclosures, providing new disclosure requirements for entities with a single reportable segment, and requiring other new disclosures. ASU 2023-07 is effective for fiscal years beginning after December 31, 2024. Early adoption is permitted. The Company is currently evaluating the impact the adoption of this standard will have on its consolidated financial statements.
In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740). ASU 2023-09 requires public business entities to disclose additional information with respect to the reconciliation of the effective tax rate to the statutory rate. Additionally, public business entities will need to disaggregate federal, state and foreign taxes paid in their financial statements. ASU 2023-09 is effective for public business entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2024. The Company is currently evaluating the impact the adoption of this standard will have on its consolidated financial statements.
Company Liquidity
We conduct our business operations primarily through our Insurance Company Subsidiaries and MGA. Our ability to service debt, and pay administrative expenses has been primarily reliant upon our intercompany service fees paid by the Insurance Company Subsidiaries and MGA to the holding company for management, administrative, and information technology services provided to the Insurance Company Subsidiaries and MGA by the Parent Company. The Parent Company may receive dividends from the Insurance Company Subsidiaries; however, this is not the primary means in which the holding company supports its funding as state insurance laws restrict the ability of our Insurance Company Subsidiaries to declare dividends to the Parent Company, and we do not anticipate any dividends being paid to us from our Insurance Company Subsidiaries during 2024 and 2025. The Parent Company may receive dividends from our MGA without regulatory restrictions.
Due to significant losses in 2023, much of which was attributable to strengthening reserves and severe storm activity affecting the Oklahoma homeowners business, both Insurance Company Subsidiaries lack sufficient capital to continue to underwrite the volume of business they have historically written. Accordingly, in the first quarter of 2024, management implemented a strategic shift in which the Company began utilizing third-party insurers to mostly rely on commission revenues generated by our MGA to fund operations and service debt. Substantially all of our commercial lines business is no longer being written by our Insurance Company Subsidiaries as of June 30, 2024. However, we do plan to continue to write a limited amount of the personal lines on CIC. As of June 30, 2024, the Company no longer expects to write any additional business in WPIC. It is likely that the Company will need to contribute $
The Company has executed multiple producer agreements that will underwrite a majority of the Company’s commercial lines business. We expect to continue to underwrite the existing personal lines business within our Insurance Company Subsidiaries. We believe that our existing cash, cash equivalents, short-term investments and investment securities balances in addition to any proceeds from the sale of any assets or business operations will be adequate to meet our capital and liquidity needs and the needs of our subsidiaries over the next twelve months.
2. Investments
The Company analyzed its investment portfolio in accordance with its credit loss review policy and determined it did not need to record a credit loss for the three and six months ended June 30, 2024. The Company holds only investment grade securities from high credit quality issuers. The gross unrealized losses of $
9
The cost or amortized cost, gross unrealized gains or losses, and estimated fair value of the investments in securities classified as available for sale at June 30, 2024 and December 31, 2023 were as follows (dollars in thousands):
|
|
June 30, 2024 |
|
|||||||||||||
|
|
Cost or |
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|
Gross Unrealized |
|
|
Estimated |
|
|||||||
|
|
Amortized Cost |
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Gains |
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Losses |
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Fair Value |
|
||||
Debt Securities: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
U.S. Government |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|||
State and local government |
|
|
|
|
|
|
|
|
( |
) |
|
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|
|||
Corporate debt |
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|
|
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|
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|
( |
) |
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|
|||
Asset-backed securities |
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( |
) |
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|
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Mortgage-backed securities |
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( |
) |
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|
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Commercial mortgage-backed securities |
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( |
) |
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|
|||
Collateralized mortgage obligations |
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|
|
|
( |
) |
|
|
|
|||
Total debt securities available for sale |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|||
|
|
December 31, 2023 |
|
|||||||||||||
|
|
Cost or |
|
|
Gross Unrealized |
|
|
Estimated |
|
|||||||
|
|
Amortized Cost |
|
|
Gains |
|
|
Losses |
|
|
Fair Value |
|
||||
Debt Securities: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
U.S. Government |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|||
State and local government |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|||
Corporate debt |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|||
Asset-backed securities |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|||
Mortgage-backed securities |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|||
Commercial mortgage-backed securities |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|||
Collateralized mortgage obligations |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|||
Total debt securities available for sale |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|||
The following table summarizes the aggregate fair value and gross unrealized losses, by security type, of the available-for-sale securities in unrealized loss positions. The table segregates the holdings based on the length of time that individual securities have been in a continuous unrealized loss position (dollars in thousands):
|
|
June 30, 2024 |
|
|||||||||||||||||||||||||||||||||
|
|
Less than 12 months |
|
|
Greater than 12 months |
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