Search Icon
Conifer Holdings, Inc. (NASDAQ:CNFR) - Executing Strategic Shift to Wholesale Agency Model
Published on September 24, 2024 | Ticker: CNFR

Conifer Holdings, Inc. (NASDAQ:CNFR) is an insurance holding company that markets and services its product offerings through specialty commercial and specialty personal insurance business lines. The company has recently made a strategic shift towards a wholesale agency model, moving away from an underwriting revenue model for its commercial lines business.

Business Overview

Conifer is currently authorized to write insurance as an excess and surplus lines carrier in 44 states, including the District of Columbia, and is licensed to write insurance as an admitted carrier in 42 states, including the District of Columbia. The company offers its insurance products in almost all 50 states.

Conifer organizes its operations into three insurance businesses: commercial insurance lines, personal lines, and agency business. The commercial insurance lines offer coverage for commercial property, commercial liability, commercial automobiles, and workers' compensation. The personal insurance lines offer homeowners insurance and dwelling fire insurance products, primarily in Illinois, Indiana, and Texas. The agency business, operated through the company's managing general agency (MGA) Conifer Insurance Services, offers commercial and personal lines insurance products for Conifer's Insurance Company Subsidiaries as well as third-party insurers.

Strategic Shift to Wholesale Agency Model

In the first quarter of 2024, Conifer began a strategic shift that will reduce premium revenues from underwriting operations and increase commission revenues from policy production within the MGA. The company has started utilizing third-party insurers for the underwriting capacity in one program, and expects to see significant expansion of the use of two third-party insurers during the second quarter of 2024. By the third quarter of 2024, the company expects that almost all commercial lines business previously underwritten by its Insurance Company Subsidiaries will be written by third-party insurers. Conifer plans to continue to directly write the Midwest and Texas homeowners business.

This strategic shift allows Conifer to leverage the expertise and networks of its agency partners, enhancing its distribution channels and expanding its reach in key markets. Furthermore, the decision to focus on non-risk-bearing revenue enables the company to offer insureds A- rated capacity and mitigate market risks, ultimately ensuring stability in its bottom line.

Financials

For the first quarter of 2024, Conifer reported gross written premiums of $24.3 million, a 32.9% decrease compared to the same period in 2023. Commercial lines gross written premiums decreased by 56.0% to $12.8 million, while personal lines gross written premiums increased by 59.6% to $11.6 million. The decrease in commercial lines premiums was primarily due to the sale of the Security Program in September 2023, as well as continued reductions in certain hospitality lines as the company exited less profitable states. The increase in personal lines premiums was driven by organic growth in the low-value dwelling book of business in Texas and Oklahoma.

Net written premiums decreased by 16.1% to $15.4 million in the first quarter of 2024, compared to $18.3 million in the same period of 2023, as a result of the reduction in gross written premiums.

The company's combined ratio improved to 96.7% in the first quarter of 2024, compared to 99.5% in the same period of 2023. The loss ratio remained steady at 62.0%, while the expense ratio decreased by 260 basis points to 34.7% due to the company's ongoing expense reduction efforts.

Net investment income increased by 18.7% to $1.6 million in the first quarter of 2024, compared to $1.3 million in the same period of 2023. Conifer's investment portfolio remains conservatively managed, with the vast majority in fixed-income securities with an average credit quality of AA and an average duration of 2.7 years.

Conifer reported net income allocable to common shareholders of $74,000, or $0.01 per share, and adjusted operating income of $188,000, or $0.02 per share, for the first quarter of 2024.

Liquidity

As of March 31, 2024, Conifer had total assets of $301 million, with cash and total investments of $164 million. The company's book value at the end of the first quarter was $0.21 per share, with an additional $2.29 per share in net deferred tax assets that were not reflected in the book value due to a full valuation allowance.

The company's Insurance Company Subsidiaries had aggregate statutory capital and surplus of $34.0 million as of March 31, 2024, down from $32.8 million as of December 31, 2023. Both CIC and WPIC fell below critical statutory capital and surplus minimum requirements, including the Risk Based Capital (RBC) ratio, at the end of 2023. The company submitted an action plan with the state of domicile insurance regulator on April 1, 2024, to remediate certain statutory capital and surplus regulatory deficiencies.

Conifer believes that its existing cash, cash equivalents, short-term investments, and investment securities balances will be adequate to meet its capital and liquidity needs and the needs of its subsidiaries on a short-term and long-term basis. The company may also consider the sale of other assets to generate additional cash resources.

Risks and Challenges

Conifer faces several risks, including credit risk with its reinsurers, interest rate risk in its investment portfolio, and regulatory risks related to its Insurance Company Subsidiaries' capital and surplus requirements. The company's strategic shift to a wholesale agency model also introduces execution risks as it transitions away from an underwriting revenue model.

Outlook

Despite these risks, Conifer's management remains focused on delivering exceptional value to its customers and shareholders. The company is committed to preserving a strong and consistent top line, continuing to streamline its expense structure, and maintaining operational profitability over the long term. The preliminary first quarter results indicate that the strategic shift to a commission revenue model based on wholesale agency production is progressing as planned.

Conclusion

Conifer Holdings, Inc. has made significant strides in executing its strategic shift to a wholesale agency model, which is expected to reduce premium revenues from underwriting operations and increase commission revenues from policy production. This move allows the company to leverage its agency partners' expertise and networks, enhance its distribution channels, and mitigate market risks, ultimately ensuring stability in its bottom line. While the company faces various risks, its management remains committed to delivering exceptional value to its customers and shareholders, as evidenced by the preliminary first quarter results.

You may be interested in...
CNO Financial Group (CNO): Providing Reliable Solutions for Middle-Income Americans
Business Overview and History: CNO Financial Group, Inc. (CNO) is a leading insurance holding company that develops, markets, and administers health insurance, annuity, individual life insurance, and other insurance products. The company's primary focus is on serving the middle-income pre-retiree and retired Americans, a segment that it believes is underserved and offers significant growth potential.
Read More
American Financial Group Inc (AFG) - Building Resilience Amidst Market Volatility
American Financial Group Inc (AFG), a leading property and casualty insurance provider, has demonstrated its ability to navigate challenging market conditions and deliver consistent financial performance for its shareholders. With a diverse portfolio of specialized commercial products, AFG has established itself as a formidable player in the industry, leveraging its expertise and adaptability to weather the storms of economic uncertainty.
Read More
Hallmark Financial Services, Inc. (HALL): Navigating Industry Challenges with Resilience
Hallmark Financial Services, Inc. (HALL) is a diversified insurance holding company that has weathered significant challenges in recent years. With a rich history spanning over three decades, the company has evolved its product portfolio and operational strategies to adapt to the dynamic insurance landscape. As Hallmark navigates through industry headwinds, its commitment to providing innovative solutions and delivering value to its customers has remained steadfast.
Read More
Conifer Holdings (CNFR): A Transformed Insurance Company Navigating a Strategic Shift
Conifer Holdings, Inc. (CNFR) is an insurance holding company that has undergone a significant transformation in recent years, pivoting its business model to focus on commission-based revenue rather than traditional risk-bearing operations. The company’s strategic shift has aimed to enhance its profitability and create a more sustainable, scalable business structure.
Read More
The Hanover Insurance Group Inc (THG): A Resilient Insurer Navigating Industry Challenges
The Hanover Insurance Group Inc (THG) is a leading property and casualty insurance company that has demonstrated remarkable resilience and adaptability in the face of industry-wide challenges. With a history spanning over 170 years, THG has established itself as a trusted provider of exceptional insurance solutions to individuals, families, and businesses across the United States.
Read More