Release Date: August 14, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Strategic shift towards a commission-based revenue model through Conifer Insurance Services.
- Significant reduction in expense ratio to 32%, down 580 basis points from the same period last year.
- Increased net investment income by 11% to $1.5 million.
- Successful transfer of cannabis premiums to capacity partner Palomar, expanding market reach.
- Improved operational profitability expected from the new revenue model and expense reduction efforts.
Negative Points
- Overall gross written premium decreased by 58% to $19 million.
- Combined ratio was high at 124%, impacted by spring storms in Oklahoma.
- Net loss allocable to common shareholders was $4 million or $0.32 per share.
- Adjusted operating loss of $3.6 million or $0.30 per share for the second quarter.
- Continued challenges in personal lines due to adverse weather conditions.
Q & A Highlights
Q: 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?
A: (Nicholas Petcoff, CEO) We feel that with the pivot to the MGA model on the commercial lines side and the support of the A-rated paper, the commission-based model allows us to achieve profitability more quickly than the carrier-based model. The personal lines had a big impact in the second quarter due to weather, but we feel good about the personal lines book moving forward. Improved weather results in personal lines and the shift to a commission-based revenue model should help us achieve profitability. (Harold Meloche, CFO) We have had expense reductions over the last several years, aligning our expense structure with our revenues. We are also considering other asset sales for additional liquidity if needed.
Q: Can you provide more details on the strategic shift towards a commission-based revenue model and its expected impact on financials?
A: (Nicholas Petcoff, CEO) The shift towards a commission-based revenue model through our wholly-owned managing general agency, Conifer Insurance Services, is a deliberate and strategic decision. This move aims 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 overall profitability and creating a more scalable and sustainable business model.
Q: How did the spring storms impact the personal lines segment, and what are the expectations moving forward?
A: (Nicholas Petcoff, CEO) The personal lines segment was significantly impacted by spring storms, particularly in Oklahoma, which is currently in run-off. Most of the loss came from our Oklahoma business. We expect the run-off process to be largely completed by year-end. Moving forward, production for this segment will primarily come from low-valued homeowner’s business in Texas and the Midwest.
Q: What were the key financial metrics for the second quarter, and how do they reflect the company's strategic shift?
A: (Harold Meloche, CFO) 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 focus on commission-based revenue through our MGA. The combined ratio was 124%, impacted by Oklahoma storms. The expense ratio improved to 32%, down 580 basis points from the same period last year. Agency commission was nearly $9 million, illustrating progress in driving commission-based revenue.
Q: Can you elaborate on the company's investment strategy and its performance in the second quarter?
A: (Harold Meloche, CFO) Net investment income was $1.5 million during the second quarter, up 11% from $1.4 million in the prior year period. We recorded a $196,000 decrease in the fair value of equity investments, leading to a net realized investment loss of $118,000. Our investments remain conservatively managed, with the vast majority in fixed income securities with an average credit quality of AA+ and an average duration of 2.6 years.
Q: What are the company's plans for the commercial lines segment, particularly regarding the transfer of cannabis premiums?
A: (Nicholas Petcoff, CEO) 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 US. This move aligns with our strategy to leverage third-party A-rated capacity providers for MGA-produced business, providing a broader reach for existing profitable programs.
Q: How does the company plan to manage expenses and improve operational efficiency moving forward?
A: (Harold Meloche, CFO) Our expense ratio continues to improve despite lower net earned premiums due to the success of our ongoing expense reduction efforts. We remain committed to streamlining our expense structure and generating operational profitability over the long term to achieve favorable returns for our shareholders.
Q: What are the company's expectations for the personal lines segment in the upcoming quarters?
A: (Nicholas Petcoff, CEO) With Oklahoma going away, our production for the personal lines segment will primarily come from low-valued homeowner’s business in Texas and the Midwest. We expect this trend to continue in the quarters ahead as we further transition our revenue model.
Q: Can you provide an update on the company's balance sheet and overall financial health?
A: (Harold Meloche, CFO) Total assets were $293 million at quarter end, with cash and total investments of $154 million. The company reported a net loss allocable to common shareholders of $4 million or $0.32 per share and an adjusted operating loss of $3.6 million or $0.30 per share for the second quarter of 2024.
Q: What are the company's long-term goals and strategies to deliver value to shareholders?
A: (Nicholas Petcoff, CEO) Our strategic shift towards a commission-based revenue model is positioning us for stronger and more sustainable growth. We are focused on 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.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
