Earnings Labs

Presurance Holdings, Inc. (PRHI)

Q4 2022 Earnings Call· Thu, Mar 9, 2023

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Transcript

Operator

Operator

Hello and welcome to Conifer Holdings’ Fourth Quarter 2022 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 today’s event is being recorded. I would now like to turn the conference over to Brian Roney. Please go ahead.

Brian Roney

Analyst

Thank you and good morning, everyone. Conifer issued its 2022 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 discussion this morning is available to view or download via webcast or from the Investor Relations portion 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, including risks and uncertainties associated with COVID-19 and its impact on the economy and on our business. As well as those risks 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 will 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 will turn the call over to Jim Petcoff, Executive Chairman and Co-Chief Executive Officer. Jim?

James G. Petcoff

Analyst

Thanks Brian. Good morning everyone. Joining me on the call today are Nick and Harold as we look in review of the full year of 2022. Our focus remains dedicated to achieving sustainable, top line, streamlined expense structure and operating profit for Conifer. In that light, I'm pleased to report another year of top line growth in 2022. Over the past several years, we have continued to make significant strides in organically growing our business. While our top line has continued to grow and was up roughly 5% for 2022, more importantly, that growth came as we continue to write what we know best, by staying in our underwriting lane and expanding further into our key underwriting verticals. Nick will discuss that more later. For years, we've heard us talk about the positive underwriting steps that we've been taking to not only grow our book, but to grow it profitably overtime. In addition to the significant underwriting enhancements over the past several years, including tightened terms and conditions, lower reinsurance retentions, improved geographic spread, and increased rate across the book, we have continued to strengthen our general case reserves and ratchet up our ultimates as well. All our efforts to strengthen the book, prove our overall reserve position and lead to an operating profit. In conjunction with top line growth and underwriting enhancements, we have executed on numerous initiatives to drive down our expense ratio. As a result, we posted a 38% expense ratio for the full year, our best or yearly performance to date. We expect to continue those successful expense savings initiatives as we go forward. Keep in mind our expense ratio goal remains 35% or lower. For the fourth quarter, we posted a 37% expense ratio, so we are definitely making headway. Overall, with the top line…

Nicholas J. Petcoff

Analyst

As Jim noted, we have implemented numerous underwriting changes over the past several years that we believe will lead to consistent profitability over time. As a result, we remain committed to executing our underwriting strategy of narrowing our focus to several key specialty verticals. Our goal is to run deep in these select verticals, allowing for greater market penetration and better operating efficiency, also allowing us to leverage our depth of underwriting talent in these same specialty lines. Overall gross written premium was roughly $34.5 million for the fourth quarter, just under a 5% increase for both the fourth quarter and the year-end. The significant majority of our total gross written premium continues to come from commercial lines with 83% of total gross written premium for the fourth quarter. Commercial lines production was down slightly for the quarter and flat for the year as we executed our strategy to deliberately narrow our underwriting focus. Yet premium in our small business group was up nicely in the quarter and for the year. Small commercial business was roughly 80% of the commercial lines business in the quarter. In addition to premium, rate continues to positively flow through our books. Small commercial business saw solid rate increases for the quarter and the year. Even though we are achieving solid rate increases on our book and in today's underwriting environment, geographic mix remains a huge factor in delivering favorable underwriting results. Similar to last quarter, when we exclude the emphasized lines of business from the calculation, our total gross written premium jumps up in commercial lines, showing growth in the areas where we want to grow and shedding unwanted premium where warranted. For example, hospitality premium was affected by continued underwriting improvements in the year as we continued to refine our geographic spread and…

Harold Meloche

Analyst

Thank you, Nick. I'll provide a quick review of the results and I encourage investors to review our filings and presentation on the company's website for greater detail. In the fourth quarter, gross written premiums increased 5% to just under $35 million. With Jim and Nick having detailed the premium break out, I will focus on our underwriting results. Conifer's combined ratio was 142% in the fourth quarter compared to 104% during the same period last year. As mentioned earlier, the company booked through the required loss corridor of the LPT and took additional steps to significantly strengthen reserves in the quarter. This action combined with the impact of Hurricane Ian led to the elevation of our combined ratio for the quarter and are not expected to be recurring moving forward. The accident year combined ratio for the fourth quarter, excluding the impact of Hurricane Ian was 101% and was 94% for the full year 2022. Our loss ratio was 105% compared to 63% in the fourth quarter of 2021. Again, this was due to the unusual items previously detailed. Our accident year loss ratio for the quarter, excluding Hurricane Ian's impact was 66%. In commercial lines, where much of the reserve strengthening activity was focused and where we saw the most significant impact of Hurricane Ian, the loss ratio was 111%, while the personal lines loss ratio was 80% in the fourth quarter of 2022. Moving to our expense ratio, the downward trajectory continues despite lower net earned premiums due to the success of our ongoing expense reduction efforts. The expense ratio was 37% for the fourth quarter, down 420 basis points from the same period last year and approaching our target expense ratio of 35%. The expense ratio for the full year 2022 was 38% compared to 41%…

James G. Petcoff

Analyst

Thanks, Harold and Nick. We took major steps in 2022, to further strengthen our overall reserve position, especially for accident years 2019 and prior with the purchase of the Loss Portfolio Transfer. I'm encouraged by growth and the focus in underwriting on our historically profitable key verticals as well as the results we've achieved to date from ongoing expense reductions. Based on the outcomes so far in 2023, I'm confident that we were moving in the right direction. I fully expect to see continued successes for the balance of the year and beyond. And now, hopefully, there's someone that wants to ask a question. Operator?

Operator

Operator

Yes, thank you. [Operator Instructions]. Alright, we have a question from Tom Stewart, a private investor.

Unidentified Analyst

Analyst

Good morning. Can you hear me?

James G. Petcoff

Analyst

I can.

Unidentified Analyst

Analyst

Hello.

James G. Petcoff

Analyst

Hi, can you hear us?

Unidentified Analyst

Analyst

Yes, I got you. There are some 6.75% notes coming due in September and I see you filed an S1 for a new offering last year. And I was wondering what the plan was for the maturing notes towards the end of September of this year?

James G. Petcoff

Analyst

Well, we're either going to renew them or pay them off. And we have plans underway to do one or the other, so you'll be seeing more S1 come through and hopefully in the next quarter or two, we'll get those taken care of.

Unidentified Analyst

Analyst

That sounds great. Thank you very much.

Operator

Operator

Thank you. And this does conclude the question-and-answer session. I would like to return the call to Jim Petcoff for any closing comments.

James G. Petcoff

Analyst

I appreciate everybody who's on the call and thank you. It's been a very busy quarter, getting the lost portfolio transfer in place, closing on the transaction. I don't usually like to compliment the accounting and finance department, but they did an excellent job of getting all this accounted for and put together for the year end. And we really are pleased to have an additional 20 million of reserves for the 2019 and prior, which puts us in a position to stop having the reserve development that we've been having. And as we look forward to the business going forward, we are confident that we're on the correct path from an underwriting and operating profit position. So thank you for being on the call.

Operator

Operator

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