PRHI

Good morning and welcome to Conifer Holdings' Second Quarter 2024 Investor Conference Call. All participants will be in listen-only mode. [Operator Instructions]. 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.

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 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. In addition, a replay of this call will be provided through a link on the Investor Relations section of our website. During this call, we'll also discuss non-GAAP financial measures as defined by SEC Regulation G. Reconciliations of these non-GAAP financial measures to the comparable GAAP financial measures are included when possible in our earnings release and our historical SEC filings. Statutory accounting data is prepared in accordance with statutory accounting rules and is therefore not reconciled to GAAP. We will conduct a Q&A session after management's prepared remarks this morning. With that, I'll turn the call over to Nick Petcoff, our Chief Executive Officer. Nick?

Thanks, Brian and good morning, everyone. 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. 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. Through this approach, our business is directly written by third-party insurers with A.M. Best ratings of A minus or better. Utilizing third-party A-rated capacity providers for MGA-produced 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. 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 commercial lines 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 in the period. 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. 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 run-off. We expect that the run-off process will be largely completed by year-end. With Oklahoma going away, our production for this segment will primarily come from low-valued homeowner’s business in Texas and the Midwest. In general, personal lines 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 market benefits over time, not only improving our margins but also equipping us to better serve our insurers 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. 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 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. 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. We stopped writing Oklahoma premium in May, which should reduce -- which should result in improved mix of business of homeowners going forward. 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. We recorded $196,000 decrease in the fair value of equity investments in the second quarter, leading to a net realized investment loss of $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 AA+ 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 $0.32 per share and 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. 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 and 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?

[Operator Instructions]. Our one question comes from Robert Bairman [ph] from Retail. Please go ahead.

Thank you. 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?

Yes, I can lead that off. Appreciate the question. We do feel that with the pivot to the MGA model on the commercial lines 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. So with the move to the revenue model based on commissions rather than balance sheet risk on the commercial lines side, getting A-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 that.

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

With 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, and have a good day.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

Good morning, everyone, and welcome to Conifer Holdings First Quarter 2024 Earnings Conference Call. [Operator Instructions]. After today's presentation, there will be an opportunity to ask questions. Please note, today's event is also being recorded. At this time, I'd like to turn the conference call over to Brian Roney. Sir, please go ahead.

Thank you, and good morning, everyone. Conifer issued its 2024 1st 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 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 funds 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. During this call, we'll also discuss non-GAAP financial measures as defined by SEC Regulation G. Reconciliations of these non-GAAP financial measures to the comparable GAAP financial measures are included when possible in our earnings release and our historical SEC filings. Statutory accounting data is prepared in accordance with statutory accounting rules and is there as 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?

Thanks, Brian, and good morning, everyone. Also on the call with us today is Harold Meloche. I'm pleased to report that the first quarter financial results bear out the strategic decisions we discussed during our last call. We have made significant strides in executing our shift to a revenue model focused on a wholesale agency production-based approach. We see the first quarter results as indicative that we are moving in the right direction. At the outset, let me provide a brief overview of our tactical commercial lines direction. Recognizing the evolving landscape of the insurance industry and with an eye to the long-term success and sustainability of the company, we made the decision to pivot towards a wholesale agency model and largely away from an underwriting revenue model for our commercial lines business. This move allows us to leverage the expertise and networks of our agency partners, enhancing our distribution channels and expanding our reach in key markets. Further, this decision to focus on nonrisk-bearing revenue enables us to offer insureds A- rated capacity and simultaneously mitigate market risks, ultimately ensuring stability in our bottom line. We made considerable progress during the first quarter of 2024 and directing premium to capacity providers for coverage across multiple lines of business. We've also started to ramp up transfer of cannabis premium to our capacity partners, expanding our reach to new markets and strengthening our position as a leading provider of cannabis-related coverage. At our core, we remain committed to preserving a strong and consistent top line, continuing to streamline our expense structure and maintaining operational profitability over the long term to generate favorable returns for Conifer shareholders. In that light, the preliminary results are encouraging as they have borne out the key decision to shift our focus to a commission revenue model based upon wholesale agency production at the beginning of 2024. With planned reductions in premium leverage starting in 2023, our percentage of commercial lines production was expected to be down in the first quarter. Overall commercial lines represented roughly 53% of total production for the quarter. Our personal lines production made up a larger percentage of premiums in Q1. While we have moved our commercial lines business largely to a commission-based model, utilizing our in-house MGA Conifer Insurance Services, our personal lines production is still retained by our operating subsidiaries. As a result, we have continued to underwrite low-valued homeowners business, primarily in Texas and the Midwest. Given the strong performance in that line year-to-date, leading to a combined ratio of 83% for the first quarter, we are pleased to retain that business on Conifer favor moving forward. As we effectively manage the shift in production models, we are proud of the hard work and dedication of our entire team and remain committed to delivering exceptional value to our insurance and shareholders. We will continue to build on this quarter's success in the months and years to come. With that, I'll pass the call over to Harold to discuss the numbers. Harold?

Thank you, Nick. I'll provide a quick recap of financial results, and I encourage investors to view our financial filings and presentation on the company's website for greater detail. In the first quarter, gross written premium decreased 33% to $24 million, reflecting our decision to reduce premium leverage on operating subsidiaries and focus on production-based revenue through our managing general agency. The breakout of first quarter total gross written premiums was 52% commercial lines and 48% personalized. Conifer's combined ratio was 97% in the first quarter, down 280 basis points from the same period last year. Our loss ratio was 62%, steady from the first quarter of 2023. As we see the non-risk-based revenue model continue to progress, we anticipate continued positive movement in our results going forward. The accident year loss ratio in personal lines was 53% for the first quarter, down 20 percentage points compared to the first quarter of last year, reflecting the strong underwriting actions we've taken in low-value dwelling business. Our expense ratio continues to improve despite lower net earned premiums due to the success of our ongoing expense reduction efforts. The expense ratio was 35% for the first quarter, down 260 basis points from the same period last year and meets our near-term target of 35%. Net investment income was $1.6 million during the first quarter, up 19% from $1.3 million in the prior year period. Our investment portfolio remains conservatively managed with the vast majority in fixed income securities with an average credit quality of AA an average duration of 2.7 years and a tax equivalent yield of 3.4%. The company reported net income allocable to common shareholders of $74,000 or $0.01 per share and an adjusted operating income of $188,000 or $0.02 per share for the first quarter of 2024. Moving to the balance sheet. Total assets were $301 million at quarter end, with cash and total investments of $164 million. Our book value at quarter end was $0.21 per share. We have $2.29 per share and net deferred tax assets that due to a full valuation allowance were not reflected in book value. And with that, I'd like to turn it back over to Nick for closing remarks.

Thanks, Harold. In closing, I want to reiterate that our first quarter results underscore our commitment to sound strategic decision-making across the organization. We remain focused on delivering exceptional value to our customers and shareholders, and we are excited about the future of our company. With that, I'd like to invite any questions. Operator?

[Operator Instructions] Ladies and gentlemen, at this time, in showing no questions, I'd like to turn the floor back over to Nick for any closing remarks.

Thank you. We appreciate your time and interest in the company and invite you to reach out to us at any time.

Thank you.

And with that, ladies and gentlemen, we'll be concluding today's conference call and presentation. We do thank you for joining. You may now disconnect your lines.

Good day, and welcome to the Conifer Holdings Fourth Quarter 2023 Earnings Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Brian Roney. Please go ahead.

Thank you, and good morning, everyone. Conifer issued a press release relating to its 2023 fourth quarter financial results after the close of market yesterday. You can find copies of the earnings release on the company's website, 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 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 as a result of 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. During this call, we'll also discuss non-GAAP financial measures as defined by SEC Regulation G. Reconciliations of these non-GAAP financial measures to the comparable GAAP financial measures are included when possible in our earnings release and our historical SEC filings. Statutory accounting data is prepared in accordance with statutory accounting rules and is therefore not reconciled to GAAP. We will conduct a Q&A session after management's prepared remarks this morning. With that, I'll turn the call over to Nick Petcoff, our Chief Executive Officer. Nick?

Thanks, Brian, and good morning, everyone. Also on the call with us today is our CFO, Harold Meloche. As we close the chapter on 2023, I want to take a moment to provide some insight into the numbers we've reported for the full year. The absolute majority of our total reported loss was actually realized in the fourth quarter alone and was the result of a strategic decision on our part. In the fourth quarter, we made the conscious decision to further strengthen our overall reserves by fully booking to our outside actuaries point estimate. Given the magnitude of the financial impact, this decision was not taken lightly. But we do believe it was prudent to ensure the long-term stability of our company and to protect against further development in the future. Another factor affecting financial performance during the year was the impact of convective storms on our Personal Lines book of business in Oklahoma in particular. Our Texas Personal Lines book also saw storms in the year, but generally performed much better overall. As a result, even after several solidly performing years prior, we made the decision to reduce the overall storm risk and non-renew our Oklahoma book, which is now in runoff. As for Personal Lines going forward, we do expect to continue underwriting the low-valued homeowners business written in Texas and in the Midwest. These regions have proven to be reliable sources of revenue for our company and we recognize the importance of maintaining our presence in these markets. We remain committed to serving the needs of homeowners in these regions by providing them with reliable and affordable insurance coverage. We believe that by continuing to underwrite profitable business in Texas and the Midwest, we can remain well positioned for long-term success. For the full year 2023, our personal lines production was roughly 26% of total premiums written with the remaining 74% of premium coming from commercial lines. As for commercial lines, we have made a significant strategic shift in revenue recognition models in 2023 and beyond. Whereby in years past, we had employed a risk retention model utilizing our operating insurance companies to write and retain underwriting risk for commercial lines premium. We have just moved to a production-based revenue model through our wholly owned managing general agency, Conifer Insurance Services, or CIS. With that in mind, for commercial lines production, we have decided to transition away from the limitations of a carrier-based revenue model and instead, embrace a managing general agency production-based revenue approach. This shift represents a fundamental change in how we do business, and it is one that we believe will position us for long-term success and sustainability. Under this new model, starting in the second quarter of 2024, substantially all of our commercial lines business will be directly written by third-party insurers with A.M. Best ratings of A- or better. Utilizing third-party A-rated capacity providers for our MGA-produced business will provide a much broader reach for existing profitable programs. Further, it will empower us to ensure a sustainable business model going forward, one that is more focused on commission revenue and less on risk retention through our subsidiary carriers. When looking to the future and across the insurance landscape, it has become increasingly clear that we need to adapt to a production-based world in order to thrive in a rapidly changing market. With that in mind, as outlined in several press releases earlier this week, we are pleased to partner with both Palomar and Accelerant to provide A-rated paper to our commercial lines insurance going forward. Both of these -- those partners will allow us to better meet our customers' overall needs and extend our reach in the profitable markets that we serve best. I want to assure our shareholders, policyholders and partners that this transition has been managed thoughtfully and responsibly. We are working closely with all stakeholders to ensure a smooth and seamless transition, minimizing any disruptions to our operations and maintaining the high standards of service and integrity that remain our company's hallmark. Thank you for your continued support as we embark on this exciting new chapter in Conifer's journey. Our commitment to excellence, integrity and transparency continues to drive every decision we make. And with that, I'll pass the call over to Harold to discuss the numbers. Harold?

Thank you, Nick. I'll provide a brief [ overcap ] to the financial results, and I encourage investors to review our filings and presentation on the company's website for greater detail. With Nick having detailed the premium breakout, I will focus on the underwriting results. For the year 2023, our overall combined ratio was 135% compared to 122% during the same period last year. The accident year combined ratio for the fourth quarter was 132% and 114% for the full year 2023. The expense ratio for the full year 2023 was 37%, down from 38% for the full year of 2022 and nearly reaching our target expense ratio of 35%. Net investment income was $1.4 million during the fourth quarter, up 27% from $1.1 million in the prior year period. Our investments remain conservatively managed with the vast majority of our investable assets and fixed income securities with an average credit quality of AA+, an average duration of 2.9 years and a growing tax equivalent yield of 3.3%. Overall, the company reported a net loss of $19.5 million or $1.59 per share for the fourth quarter and compared to a net income of $2.1 million or $0.17 per share in the prior year period. The company reported an adjusted operating loss of $19.5 million or $1.59 per share compared to an adjusted operating loss of $1.3 million or $0.10 per share in the prior year period. Moving to the balance sheet. Total assets were $312 million at quarter end, with cash and total investments of $156 million. And with that, I'll turn it back over to Nick for closing remarks.

Thanks, Harold. In closing, I want to emphasize that as we move forward, I remain confident in Conifer's ability to deliver long-term value to our shareholders. And with that, I'd like to invite any questions you may have. Operator?

[Operator Instructions] There appear to be no questions at this time, which concludes our question-and-answer session. I would like to turn the conference back over to Nick Petcoff for any closing remarks.

Thank you. We appreciate your time and interest in the company and invite anyone to reach out to us with any questions that you may have. I appreciate your time today. Thank you.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

Good morning, and welcome to the Conifer Holdings Third Quarter 2023 Investor Call. All participants will be in listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. Please note, this event is being recorded. I'd now like to turn the conference over to Brian Roney. Please go ahead.

Thank you, and good morning, everyone. Conifer issued its 2023 third quarter financial results after the close of market yesterday. You can find copies of the earnings release on the company's website, 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 regards 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 as a result of 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. 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. We will conduct a Q&A session after management's prepared remarks this morning. With that, I'll turn the call over to Jim Petcoff, Executive Chairman and Co-Chief Executive Officer. Jim?

Thanks, Brian, and good morning, everyone. Also on the call with me today are Nick and Harold. Thank you for joining us today to discuss our third quarter financial results. Like the industry at large where personal lines has had a tough go, our quarter was mostly impacted by recent storm activity. After several years of systemic wind exposure reduction, for example, exiting Florida altogether, our hurricane risk is now almost negligible, yet in the quarter, we were significantly impacted by wind in the form of convective storm. More specifically, our personalized book of business was hit the hardest in Oklahoma. But before the storm activity in the period, we were generally pleased with the improving results. For example, despite the unusual related losses in the period, we saw continued growth in our select key verticals. In total, gross written premiums were up roughly 17% in the third quarter and up nicely for the year as well. Overall, we continue to focus our underwriting efforts on organic growth in our historically profitable core business, which continues to generate substantial top-line growth in our emphasized key specialty verticals. We remember -- we remain focused on executing in our historically profitable lines, which I believe speaks to the strength of our underwriting teams and their deep expertise in our select markets. While the top-line has been moving, we are also pleased to see the expense ratio coming into line with our ongoing expense management efforts. We posted a 34% expense ratio for the third quarter. This continuous improvement demonstrates our persistent drive toward overall expense reduction. Before I hand the call over to Nick for more color on our underwriting results, I'd like to take a moment to note the transition that will take place at the end of this year where Nick will be taking over the role of CEO for Conifer. I'm proud to hand the reins over to Nick and I'm confident that the company is in good hands and on sound footing moving into a bright future. Nick?

Thank you, Jim. I am genuinely excited to take on the role as well as the opportunities and challenges that lie ahead for Conifer. As Jim noted, Conifer's long-term prospects appear bright and improving in no small part due to the strategic direction and operational commitment of continuously refining our overall business mix over the last several years. You've heard us talk about this before but we're in an even better position today than days gone by, and I'm pleased to see the collective team effort coming to ultimate fruition. Over the past few years, our underwriting teams have been keenly concentrating on refining our business mix, narrowly focusing on those select specialty lines where we have a distinct competitive advantage and where we see logical growth and historical profitability. By focusing these key select verticals and maximizing the advantage of our team's underwriting experience, our efforts are optimized toward lines of business where we have deep knowledge coupled with a proven track record. Gross written premiums for the third quarter were over $38 million, a 17% increase compared to the prior-year period. This increase resulted from organic growth in our select operating verticals, combined with ongoing rate increases. The primary driver for our top-line continues to be Commercial Lines business, which accounted for roughly 75% of total gross written premium in the period. In spite of planned premium reductions, like in the state of Florida, our Commercial Lines production was still up 3% in the quarter to $28 million. Within Commercial Lines, our small business segment shows great potential for continued strong performance, and comprises the majority of gross written premium for the quarter. Our Personal Lines business stands at just over 25% of total gross written premium for the third quarter. Low-value home and dwelling insurance products are the main driver of the Personal Lines gross written premium, which in total was $10 million for the third quarter. While our business in Oklahoma has performed generally well over the last several years, it did severely impact our financials over the last couple quarters, leading us to decide to not renew that book of business. In contrast, our low-value dwelling book has continued to perform very well, including storms, posting a 53% loss ratio through nine months this year. Before the impact of storm-related losses, the Personal Line's accident year combined ratio was 91% for the third quarter of 2023 and 90% for the first nine months of the year. Overall, when looking at our combined ratio before the impact of storm losses, the company's accident year combined ratio was 95% for the third quarter. This highlights the fundamental strength of our book and demonstrates our commitment to attentive pricing practices and responsible claims management. As the effect of this quarter's storm-related losses clears the way to reveal the strong foundation below, we expect the financial results to reflect improved combined ratios going forward. By devoting our efforts to the best performing lines of business, especially in our key select verticals, the company will continue to drive toward long-term profitability. With that, I'll turn the call over to Harold to discuss the financials.

Thank you, Nick. I'll provide a quick recap of the financial results, and I encourage investors to review our filings and presentation on the company's website for greater detail. As noted, gross written premiums increased 17% to just under $39 million in the third quarter. For the quarter, our overall combined ratio was 121%, due in large part to the elevated storm activity Nick and Jim noted in their remarks. Before the impact of the additional loss emergence from the second quarter storm activity, Conifer's accident year combined ratio was 95% in the third quarter. The loss ratio was 87% for the quarter, again largely resulting from the convective storms that impacted much of the industry. This quarter's expense ratio was 34%, down 600 basis points from the same period last year and beating our target expense ratio of 35%. Despite lower net earned premiums, we continue to see the expense ratio improve as a result of our ongoing expense reduction efforts. Net investment income was $1.5 million during the quarter, up 69% from $860,000 in the prior-year period. For the first nine months of 2023, net investment income was up 113% over last year to $4.1 million. Our investments remain conservatively managed with the vast majority of our investable assets in fixed income securities with an average credit quality of AA plus, an average duration of 2.8 years, and a growing tax equivalent yield of 2.9%. Also, we have a sizable portion of our investable assets in T-bills and adjustable floaters. Largely as a result of the $2.5 million in storm losses in the third quarter, the company reported a net loss of $2.7 million or $0.22 per share, compared to a net loss of $1.5 million or $0.14 per share in the prior-year period. Moving to the balance sheet. Total assets were $293 million at quarter-end, with cash and total investments of $159 million. Our book value at quarter-end was $0.96 per share. We have $1.96 per share in net deferred tax assets that, due to a full valuation allowance, were not reflected in book value. And with that, I'd like to turn it back over to Jim for closing remarks.

Thanks, Harold and Nick. In closing, I want to emphasize that we -- as we move forward, I remain confident in Conifer's ability to deliver long-term value to our shareholders. I look forward to helping Nick in his new role in any way I can. With that, I'd like to invite any questions. Operator?

Thank you. We will now begin the question-and-answer session. [Operator Instructions] And our first question comes from Paul Newsome from Piper Sandler. Please go ahead.

Good morning. Thanks for the call. Congratulations to Nick for the position. I was hoping you could start with the transaction that you did with Core Specialty, and how you think that will affect the results prospectively?

Well, I'll start. We did the -- in order to consolidate the writings a little bit and de-lever the company, we looked at what the cost was of the business that we had, and the acquisition costs of that business was high for us due to the front fee and it was our higher loss ratio business that we had left on the books. So, with that being gone, it enhances the statutory strength of the insurance companies. So, we look to that transaction to put us in a position to write the other business more efficiently and with less acquisition costs. But that's my view of it. Nick?

No, I agree. Primarily, it bolsters the surplus level. The book was growing pretty substantially. As Jim mentioned, the acquisition costs were the highest throughout the company. And we thought that the limits profiles were also very high. So, from a reinsurance perspective, it was also costly. And we thought it made the most sense to move away from that book for all of those factors.

So, it looks like it was roughly a third of your gross premiums. So, I assume that there's no replacement for that. So, prospectively, we should basically assume your gross premiums are cut by a third. And the impact on earned revenue should be what, earned in -- or I think they bought the premium business so...

The UPR.

The UPR. So, I would guess that next quarter you're basically looking for what, a third less revenues, insurance revenues. Is that fairly right, roughly?

Yeah, in the near term, we will see a dip as a result of the transaction. Obviously, we see growth in other areas, so that will offset the decline out of that book of business. So, yes, in the near term, we will see a decline in the premiums.

I would guess, but I don't know if this is certain, because it happened at the end of the quarter. There was a difference between what you reported from a gross premiums perspective and a net written, that was fairly unusual. Is that the transaction happening that affected that very low net written premium number in the third quarter?

Yes, absolutely. This is Harold. When we ceded the unearned premium, that was about $30 million of unearned premium. So that shows up as ceded written. Now that does not affect any net earned premium for the third quarter, but it does affect ceded written and net written.

Great. Thank you very much.

Thanks, Paul.

Thanks, Paul.

[Operator Instructions] There are no more questions in the queue. This concludes our question-and-answer session. I would like to turn the conference back over to Jim Petcoff for any closing remarks.

Thank you, everyone. We appreciate your interest in the company, and we look forward to seeing you in the future. If you have any questions, please feel free to reach out to us. Thank you.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

Good morning, everyone, and welcome to Conifer Holdings' Second Quarter 2023 Investor Conference Call. All participants will be in a listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. Please also note, today's event is being recorded. At this time, I'd like to turn the floor over to Brian Roney. Please go ahead.

Thank you, and good morning, everyone. Conifer issued its 2023 second quarter financial results after the close of market yesterday. You can find copies of the earnings release on the company's website, 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 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 as a result of 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. During this call, we'll also discuss non-GAAP financial measures as defined by SEC Regulation G. Reconciliations of these non-GAAP financial measures to the comparable GAAP financial measures are included, when possible, in our earnings release and our historical SEC filings. Statutory accounting data is prepared in accordance with statutory accounting rules and is therefore not reconciled to GAAP. We will conduct a Q&A session after management's prepared remarks this morning. With that, I'll turn the call over to Jim Petcoff, Executive Chairman and Co-Chief Executive Officer. Jim?

Thank you, Brian. Good morning, everyone. Also joining me on the call today are Nick and Harold. Thank you for joining us today to discuss our second quarter financial results. Like the industry at large, the impact of wind-related events was felt by many in the quarter. In this regard, we are no different than our peers. In fact, the affected personal lines business, it has been almost 10 years since an event anywhere near this magnitude has occurred. Despite the unusual storm-related losses in the period, I'm pleased to see continued progress in several key areas of emphasis for Conifer. For example, top line growth and expense management. In the quarter, gross written premiums were up 19%. Significant rate increases coupled with organic growth within our historically profitable core specialty business, allowed us to achieve this substantial top line growth. Moreover, for the six-month period, gross written premium was up almost 15% on the year as well. Nick will provide more color shortly, but that is solid growth in the quarter and for the six months. We see room for continued expansion going forward. It's important to recognize that our disciplined underwriting strategy played a pivotal role in driving this top line growth. Over the past few years, we have diligently refined our book of business, focusing on lines where we have deep knowledge and experience in the key profitable verticals that we emphasize most. Furthermore, when we isolate the impact of storm-related losses, we posted an underlying accident year combined ratio of 95% for the second quarter. It is a testament to the strength of our core operation and reiterates our commitment to underwriting excellence and our ability to navigate challenges while remaining focused on long-term profitable growth. Additionally, our expense ratio continues to trend favorably, demonstrating consistent and sustained improvement on an overall expense reduction. We are approaching our target expense ratio of 35%, a significant near-term milestone that reflects our commitment to operational efficiency and enhancing overall profitability. These results affirm our efforts to streamline our processes, control costs and position the company for continued improvement as we move forward. I'd like to take a moment to emphasize that these achievements are a testament to the hard work and dedication of our entire team. Their unwavering commitment to our strategic vision, coupled with their market expertise, has enabled us to navigate the complexities facing our entire industry while positioning Conifer for sustainable success. I'll now hand it off to Nick for more color on our underwriting results.

Echoing Jim's comments, I'll provide additional details regarding the operational objectives that have shaped our performance, strategic direction and that point the way to sustainable future profitability. Over the past few years, our underwriting teams have been dedicated to a meticulous business mix enhancement, cultivating our lines where we have a distinct competitive advantage. By focusing on these core specialties, harnessing the power of our own experience and data, we've strategically aligned our underwriting efforts with lines of business where we have strong knowledge, extensive experience and a proven track record of profitability. This approach yielded gross written premium of just under $45 million, a record high water mark for quarterly premium. As Jim noted earlier, we achieved a 19% increase in gross written premium compared to the prior year period. This increase resulted from a combination of significant sustained rate increases and organic growth in our key select operating verticals. The majority of our premium continues to come from commercial lines, which accounted for just under 80% of total gross written premium in the period. Commercial lines production was up 8% in the quarter to $35 million. Our strategic use of technology has been particularly useful in our efforts to refine our commercial lines book. Through the application of advanced data analytics, we can comprehensively examine market trends, consumer behavior and risk patterns to identify and target prudent growth opportunities with precision. This data-driven approach has guided us in selecting lines of business where our expertise aligns best with current market factors. By leveraging these underwriting insights, we’ve attracted quality business and optimized our book for profitable growth, while retaining a solid overall account retention at 90%. Our personal lines business, which consists principally of low-value dwelling products, continues to grow and represent a solid share of overall business at just over 20% of total gross written premium for the second quarter. Personal lines gross written premium was up 86% over the same period last year to just under $10 million for the second quarter. Excluding the impact of storm related losses, the personal lines accident year combined ratio was 68% for the second quarter of 2023 and 89% for the first half of the year. As noted in previous earnings calls, we continue to see additional runway for significant growth and additional rate increases in our personal lines premium production as well. We focused on proactive significant rate increases in Oklahoma and in Texas and our efforts to refine our personal lines performance, leveraging advanced modeling and analytics to price risk more accurately and effectively over time. Excluding the impact of storm losses, the company’s accident year combined ratio was 95% for the second quarter. This marks a notable improvement over the prior year period and continues our profitability trend given the first quarter results. It also highlights our unwavering commitment to effective risk assessment, prudent pricing and responsible claims management. As the overall profile of Conifer’s book continues to improve, we expect to see a corresponding downward trend in the overall combined ratio. The company has emphasized its focus on strategic disciplined underwriting for consistent profitability and operating efficiency. By dedicating resources to the best performing lines of business, the company will continue to drive sustainable growth and long-term profitability. With that, I will turn over the call to Harold for the financials.

Thank you, Nick. I’ll provide a quick recap of the financial results and I encourage investors to review our filings and presentation on the company’s website for greater detail. As noted, gross written premiums increased 19% to just over $45 million in the second quarter, and with Nick having detailed the premium breakout, I will focus more on our overall financial results. For the quarter the overall combined ratio was 121%, which even when considering the elevated storm activity, the combined ratio was still down 830 basis points from the same period last year. And excluding the impact of the storm activity in the second quarter, Conifer’s accident year combined ratio was 95% as noted earlier. Our loss ratio was 83% in the quarter given the storms, but nonetheless improved 720 basis points versus the same period last year and improved 980 basis points to 73% for the first half of 2023. The expense ratio was 38% for the quarter down 110 basis points for the same period last year, and approaching our target expense ratio of 35%. Our expense ratio continues to trend favorably downwards, despite the lower net earned premiums due to the success of our ongoing expense reduction efforts. As net earned premiums begin to increase over time through anticipated organic growth and our key verticals, we expect the expense ratio to continue to trend downward accordingly. Net investment income was $1.4 million during the second quarter, up 140% from $564,000 in the prior year period, and was up 149% to $2.7 million for the six month period. Our investments remain conservatively managed with the vast majority of them in fixed income securities with an average credit quality of AA+, an average duration of 3.1 years and a tax equivalent yield of 2.8%. With $5.4 million of storm losses in the second quarter, the company reported a net loss of $4.7 million or $0.39 per share compared to a net loss of $8.4 million or $0.86 per share in the prior year period. Moving to the balance sheet. Total assets were $297 million at quarter end with cash and total investments of $167 million. Our book value at quarter end was $1.38 per share. We do have a 1.8 – $1.86 per share and net deferred tax assets that due to a full valuation allowance were not reflected in book value. With that, I’d like to turn it back over to Jim for closing remarks.

Thanks, Harold. Thanks, Nick. In closing, I want to emphasize that we are resolute in our commitment to achieving sustainable growth and operational efficiency over time in order to deliver superior service to our policy holders and results to our shareholders. As we move forward, we remain confident in our ability to navigate the evolving markets that we serve, and we remain alert and nimble in recognizing and responding to industry-wide challenges such as the storm-related activity exhibited in the second quarter, all in, efforts to deliver long-term value to our shareholders. With that, I’d like to invite any questions that you may have. Operator?

[Operator Instructions] Our first question today comes from Paul Newsome from Piper Sandler. Please go ahead with your question.

Good morning. Thanks for the call. Could you talk about the relationship between the net and the gross premium, particularly in commercial? And the gross appears to be growing faster than the net. Is that just purely a function of reassurance or is there something else going on?

Nick?

Yes, that is a function of reinsurance. We did see increases on our property reinsurance at 1/1 given the activity last year from Ian. We also have ceding commission on our XOL treaties, so that also reduces the knot compared to the gross.

Right. There was a small amount of adverse development, I believe. Can we talk about the sources of that and…

Yes, we did see some emergence on our restaurant bar tavern book in 2022, so our more recent year, mostly from Florida, which we’ve now put into runoff this year. So we don’t see that as being a major impact moving forward. And the rest of the development was really ceded to the loss portfolio transfer that we’ve put in place last year.

Great. How should we think about the cat load perspectively with the growth in the property business?

Yes. It was an unusually active quarter for our Texas and Oklahoma books of business. It’s moved less to a coastal exposure where we’re seeing cats from hurricane losses and more of a severe convective storm risk moving forward. Both of those books of business, if you look at the last couple years have performed very well. I think we had 25 cats in the second – smaller cat events in the second quarter, which was up significantly from last year. So, while it did impact us, I do think it was an anomaly for this quarter. We’re actually filed a – or we’ve implemented a 28% rate increase for our Oklahoma book effective 8/1, and we have a 20% rate increase being implemented 9/1 for our Texas book. So I do think Q2 will be a more active quarter for that book as opposed to hurricane season and we had more of our Florida business.

And that also follows on several other rate increases for both of those states previously as well.

Should we think of the cat load in general rising? I'm not really thinking – obviously, like everyone agreed with the second quarter is pretty anomalous. Is the expansion of that business creating a little bit more of an expected cat load prospectively? Or is it pretty stable based on historic patterns?

I think you could say in the second – the first and second quarter, yes, it's reasonable to expect that we'd see more impact from cat events moving forward because of those books of business. On the flip side, we exited most of our Florida exposure. So we don't expect to see as much in the third and fourth quarter from a hurricane perspective. So yes, it's reasonable to assume, based on that book in the first half of the year, it's going to be more active with cat exposure in those states, but less active for the second half of the year given the lack of business in Florida. So overall, probably pretty similar to last year, maybe just in different parts of the country and different parts of the – or different quarters throughout the calendar.

But are you asking for the cat load perspective from a perspective of rate?

No, from – really from a combined ratio perspective. We obviously are going to be building in some expectation for sort of a normal year. And it looks like it's that piece of the losses might be going up on average, but it's kind of hard to tell.

Okay. I think Nick answered it.

And then maybe a few more thoughts on the expense ratio improvements and how much more you think you can get those improvements?

This is where Harold gets to speak. Yes. This is where Harold get to speak – but I will tell you…

That way I tell you that from a total management standpoint, we have been laser-focused on making sure our expenses are coming into line. And the Board has been very active and encouraging us to do that and we have embraced the expense side. So Harold?

Well, yes, and actually, this last quarter that we had include some expenses that will not be going forward as a result of some of the expense reductions that we made in the second quarter which won't really be seen until the third and fourth quarter. So there is ongoing efforts that will still show more benefit in the future quarters moving forward. We also, in this particular quarter had a few more expenses that were estimates from year-end relating to some of the expenses relating to the transactions we had last year, that we had to adjust for in this quarter. So yes, you can actually see – it's hard to put a number on it, but you should see a continued reduction in that expense ratio basically in the next quarter.

Thank you.

Thanks Paul.

And ladies and gentlemen, with that, we'll be concluding today's question-and-answer session. I'd like to turn the floor back over to Jim Petcoff for any closing remarks.

Thanks for being on the call. We appreciate it. We will continue to move forward on the initiatives we have started. We're confident in our core underlying business and look forward to next quarter. Thank you.

Ladies and gentlemen, with that, we appreciate your time and interest. We thank you for joining. You may now disconnect your lines.