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What changed in Presurance Holdings, Inc.'s 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of Presurance Holdings, Inc.'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+348 added−330 removedSource: 10-K (2024-04-01) vs 10-K (2023-03-27)

Top changes in Presurance Holdings, Inc.'s 2023 10-K

348 paragraphs added · 330 removed · 222 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

49 edited+10 added−10 removed68 unchanged
Biggest changeThe following tables summarize our gross written premiums by segment and state for the years indicated therein (dollars in thousands): Gross Written Premium by Segment 2022 % 2021 % 2020 % Commercial $ 116,868 85 % $ 117,075 89 % $ 102,763 92 % Personal 21,151 15 % 15,020 11 % 8,572 8 % Total $ 138,019 100 % $ 132,095 100 % $ 111,335 100 % 4 Gross Written Premiums by State 2022 % 2021 % 2020 % Michigan $ 33,739 24.5 % $ 29,314 22.2 % $ 23,304 20.9 % Texas 14,236 10.3 % 12,062 9.1 % 10,243 9.2 % Florida 13,705 9.9 % 13,727 10.4 % 13,573 12.2 % California 12,967 9.4 % 11,805 8.9 % 8,140 7.3 % Oklahoma 11,882 8.6 % 7,695 5.8 % 2,264 2.2 % New York 10,622 7.7 % 7,893 6.0 % 6,386 5.7 % Pennsylvania 4,499 3.3 % 4,863 3.7 % 4,846 4.4 % Ohio 4,378 3.2 % 4,123 3.1 % 3,823 3.4 % Indiana 3,232 2.3 % 3,692 2.8 % 3,559 3.2 % Colorado 3,010 2.2 % 2,917 2.2 % 2,832 2.5 % Illinois 2,644 1.9 % 2,457 1.9 % 1,818 1.6 % All Other States 23,105 16.7 % 31,547 23.9 % 30,547 27.4 % Total $ 138,019 100.0 % $ 132,095 100.0 % $ 111,335 100.0 % The Conifer Approach We have built our business in a manner that is designed to adapt to changing market conditions and deliver predictable results over time.
Biggest changeThe following tables summarize our gross written premiums by segment and state for the years indicated therein (dollars in thousands): Gross Written Premium by Segment 2023 % 2022 % Commercial $ 107,078 74 % $ 116,868 85 % Personal 36,756 26 % 21,151 15 % Total $ 143,834 100 % $ 138,019 100 % Gross Written Premiums by State 2023 % 2022 % Michigan $ 34,996 24.3 % $ 33,739 24.5 % Texas 21,783 15.1 % 14,236 10.3 % Oklahoma 17,972 12.5 % 11,882 8.6 % California 11,479 8.0 % 12,967 9.4 % New York 9,269 6.4 % 10,622 7.7 % Florida 7,632 5.3 % 13,705 9.9 % Ohio 4,996 3.5 % 4,378 3.2 % Pennsylvania 4,314 3.0 % 4,499 3.3 % Illinois 3,839 2.7 % 2,644 1.9 % Indiana 3,422 2.4 % 3,232 2.3 % Colorado 2,723 1.9 % 3,010 2.2 % All Other States 21,409 14.9 % 23,105 16.7 % Total $ 143,834 100.0 % $ 138,019 100.0 % 5 The Conifer Approach We have built our business in a manner that is designed to adapt to changing market conditions and deliver predictable results over time.
All commercial and personal policy applications are underwritten according to established guidelines that have been provided to our independent agency force. These guidelines have been integrated into our information technology system framework and only policies that meet our guidelines are accepted by our system.
All commercial and personal policy applications have been underwritten according to established guidelines that have been provided to our independent agency force. These guidelines have been integrated into our information technology system framework and only policies that meet our guidelines are accepted by our system.
The intermediaries are 10 required to hold such funds in appropriate bank accounts subject to restrictions on withdrawals and prohibitions on commingling. Licensing and Agency Contracts We, or certain of our designated employees, must be licensed to act as agents by regulatory authorities in the states in which we conduct business.
The intermediaries are required to hold such funds in appropriate bank accounts subject to restrictions on withdrawals and prohibitions on commingling. 10 Licensing and Agency Contracts We, or certain of our designated employees, must be licensed to act as agents by regulatory authorities in the states in which we conduct business.
The breadth of our specialty commercial insurance products enables our agents and their small business clients to 3 avoid the administrative costs and time required to seek coverage for each of these items from separate insurers. As such, we compete for commercial lines business based on our flexible product offerings and customer service, rather than on pricing alone.
The breadth of our specialty commercial insurance products enables our agents and their small business clients to avoid the administrative costs and time required to seek coverage for each of these items from separate insurers. As such, we compete for commercial lines business based on our flexible product offerings and customer service, rather than on pricing alone.
If our guidelines have not been followed, the application may be cancelled or updated and re‑submitted for further underwriting review. Claims We believe that effective claims management is vitally important to our success, allowing us to cost effectively pay valid claims, while vigorously defending those claims that lack merit.
If our guidelines have not been followed, the application may be cancelled or updated and re‑submitted for further underwriting review. 7 Claims We believe that effective claims management is vitally important to our success, allowing us to cost effectively pay valid claims, while vigorously defending those claims that lack merit.
Where the deficiency is the result of an estimate, the estimated amount of deficiency (or even the finding of whether or not a deficiency exists) may change as new information becomes available. 13 Expense Ratio For GAAP, it is the ratio of GAAP underwriting expenses incurred to net earned premiums plus other income.
Where the deficiency is the result of an estimate, the estimated amount of deficiency (or even the finding of whether or not a deficiency exists) may change as new information becomes available. Expense Ratio For GAAP, it is the ratio of GAAP underwriting expenses incurred to net earned premiums plus other income.
By handling our claims internally, we can quickly assess claims, improve communication with our policyholders and claimants and better control our claims management costs. 7 We have several in‑house attorneys with considerable legal experience in trying cases in the lines of business we write.
By handling our claims internally, we can quickly assess claims, improve communication with our policyholders and claimants and better control our claims management costs. We have several in‑house attorneys with considerable legal experience in trying cases in the lines of business we write.
As our historical data for a particular line of business increases, both in terms of the number of years of loss experience and the size of our data pool, we will increasingly rely upon our own loss experience rather than industry loss experience in 9 establishing our loss and LAE reserves.
As our historical data for a particular line of business increases, both in terms of the number of years of loss experience and the size of our data pool, we will increasingly rely upon our own loss experience rather than industry loss experience in establishing our loss and LAE reserves.
Our claims department consists of experienced claims professionals located in Michigan, Florida, Pennsylvania and Texas. We utilize a proactive claims handling philosophy to internally manage or supervise all of our claims from inception through final disposition.
Our claims department consists of experienced claims professionals located in Michigan, Florida, Oklahoma, Pennsylvania and Texas. We utilize a proactive claims handling philosophy to internally manage or supervise all of our claims from inception through final disposition.
As of December 31, 2022, approximately 48.0% of our gross written premiums were admitted, and approximately 52.0% were E&S. Insurance companies writing on an admitted basis are licensed by the states in which they sell policies and are required to offer policies using premium rates and forms that are typically filed with and approved by the state insurance regulators.
As of December 31, 2023, approximately 48.0% of our gross written premiums were admitted, and approximately 52.0% were E&S. Insurance companies writing on an admitted basis are licensed by the states in which they sell policies and are required to offer policies using premium rates and forms that are typically filed with and approved by the state insurance regulators.
Included among these attorneys is our head in‑house litigator, who consults on all trials and has 28 years of litigation experience. We also have numerous seasoned property and liability adjusters which allow us to manage our claims exposures more carefully, across all markets.
Included among these attorneys is our head in‑house litigator, who consults on all trials and has 29 years of litigation experience. We also have numerous seasoned property and liability adjusters which allow us to manage our claims exposures more carefully, across all markets.
Restrictions on Dividends and Risk-Based Capital For information on Restrictions on Dividends and Risk-based Capital that affect us please refer to Note 11 ~ Statutory Financial Data, Risk-Based Capital and Dividend Restrictions of the Notes to the Consolidated Financial Statements and the Regulatory and Rating Issues section within Item 7, Management’s Discussion and Analysis .
Restrictions on Dividends and Risk-Based Capital For information on Restrictions on Dividends and Risk-based Capital that affect us please refer to Note 12 ~ Statutory Financial Data, Risk-Based Capital and Dividend Restrictions of the Notes to the Consolidated Financial Statements and the Regulatory and Rating Issues section within Item 7, Management’s Discussion and Analysis .
Underwriting gain or loss Net earned premiums plus other income, less losses, LAE, commissions, and operating expenses. 14
Underwriting gain or loss Net earned premiums plus other income, less losses, LAE, commissions, and operating expenses.
The Company's assessments from insolvency funds were minimal for the years ended December 31, 2022, 2021, and 2020. Our Insurance Company Subsidiaries are also required to participate in various mandatory insurance facilities or in funding mandatory pools, which are generally designed to provide insurance coverage for consumers who are unable to obtain insurance in the voluntary insurance market.
The Company's assessments from insolvency funds were minimal for the years ended December 31, 2023 and 2022. Our Insurance Company Subsidiaries are also required to participate in various mandatory insurance facilities or in funding mandatory pools, which are generally designed to provide insurance coverage for consumers who are unable to obtain insurance in the voluntary insurance market.
In addition, we believe our willingness to meet these under-served segments of the personal lines insurance market fosters deeper relationships with, and increased loyalty from, the agents who distribute our products. Of the personal lines policies that were in-force on December 31, 2022, the average premium amount of an individual policy was $1,200.
In addition, we believe our willingness to meet these under-served segments of the personal lines insurance market fosters deeper relationships with, and increased loyalty from, the agents who distribute our products. Of the personal lines policies that were in-force on December 31, 2023, the average premium amount of an individual policy was $1,500.
To the extent that reinsurance treaties do not cover these assessments, they may have an adverse effect on the Company. For the years ended December 31, 2022, 2021, and 2020, total assessments paid to all such facilities were minimal.
To the extent that reinsurance treaties do not cover these assessments, they may have an adverse effect on the Company. For the years ended December 31, 2023 and 2022, total assessments paid to all such facilities were minimal.
Lender The Huntington National Bank Loss An occurrence that is the basis for submission and/or payment of a claim. Losses may be covered, limited or excluded from coverage, depending on the terms of the policy. Loss adjustment expenses (LAE) The expenses of settling claims, including legal and other fees and the portion of general expenses allocated to claim settlement costs.
Loss An occurrence that is the basis for submission and/or payment of a claim. Losses may be covered, limited or excluded from coverage, depending on the terms of the policy. Loss adjustment expenses (LAE) The expenses of settling claims, including legal and other fees and the portion of general expenses allocated to claim settlement costs.
Of the commercial lines policies that were in-force on December 31, 2022, the average premium amount of an individual policy was $6,700. We also have substantial expertise in providing specialty homeowners insurance products to targeted customers that are often under-served by other homeowners' insurance carriers.
Of the commercial lines policies that were in-force on December 31, 2023, the average premium amount of an individual policy was $6,900. We also have substantial expertise in providing specialty homeowners insurance products to targeted customers that are often under-served by other homeowners' insurance carriers.
Many of our products are targeted to traditionally profitable classes of policyholders that we believe are under-served by other insurers. We market and sell these insurance products through a network of over 4,900 independent agents that distribute our policies through approximately 940 sales offices.
Many of our products are targeted to traditionally profitable classes of policyholders that we believe are under-served by other insurers. We market and sell these insurance products through a network of over 4,400 independent agents that 3 distribute our policies through approximately 950 sales offices.
Information relating to our reinsurance structure and treaty information is included within Note 8 ~ Reinsurance. 8 Loss Reserve Development The following table presents the development of our loss and loss adjustment expenses ("LAE") reserves from 2012 through 2022, net of reinsurance recoverables (dollars in thousands).
Information relating to our reinsurance structure and treaty information is included within Note 9 ~ Reinsurance. 8 Loss Reserve Development The following table presents the development of our loss and loss adjustment expenses ("LAE") reserves from 2013 through 2023, net of reinsurance recoverables (dollars in thousands).
The Act was extended through December 31, 2027 in December of 2019. The Act continues to require insurance companies to offer terrorism coverage. There is minimal exposure to this coverage as most of our policyholders decline this coverage option. Employees At December 31, 2022, we had 109 employees. Substantially all of our employees are full-time.
The Act was extended through December 31, 2027 in December of 2019. The Act continues to require insurance companies to offer terrorism coverage. There is minimal exposure to this coverage as most of our policyholders decline this coverage option. Employees At December 31, 2023, we had 94 employees. All of our employees were full-time as of December 31, 2023.
Within these three businesses, the Company offers various insurance products and insurance agency services. Through our Insurance Company Subsidiaries, we offer insurance coverage in specialty commercial and specialty personal product lines. Currently, we are authorized to write insurance as an excess and surplus lines (“E&S”) carrier in 45 states including the District of Columbia.
Through our Insurance Company Subsidiaries, we offer insurance coverage in specialty commercial and specialty personal product lines. Currently, we are authorized to write insurance as an excess and surplus lines (“E&S”) carrier in 45 states including the District of Columbia.
Premium leverage ratio The ratio of written premium (gross or net) to consolidated statutory surplus. Redundancy With regard to reserves for a given liability, a redundancy exists when it is estimated or determined that the reserves are greater than what will be needed to pay the ultimate settlement value of the related liabilities.
Redundancy With regard to reserves for a given liability, a redundancy exists when it is estimated or determined that the reserves are greater than what will be needed to pay the ultimate settlement value of the related liabilities.
Management uses accident year combined ratio as one component to assess the Company's current year performance and as a measure to evaluate, and if necessary, adjust current year pricing and underwriting.
Management uses accident year combined ratio as one component to assess the Company's current year performance and as a measure to evaluate, and if necessary, adjust current year pricing and underwriting. Adjusted operating income (loss) Adjusted operating income (loss) is a non-GAAP measure.
As used in this Form 10-K, references to “Conifer,” “Conifer Holdings,” “the Company,” “our Company,” “we,” “us,” and “our” refer to Conifer Holdings, Inc., a Michigan corporation, and its wholly owned subsidiaries Conifer Insurance Company (“CIC”), Red Cedar Insurance Company (“RCIC”), White Pine Insurance Company (“WPIC”), Sycamore Insurance Agency, Inc. (“Sycamore”), and, as of October 13, 2022, VSRM, Inc. ("VSRM").
As used in this Form 10-K, references to “Conifer,” “Conifer Holdings,” “the Company,” “our Company,” “we,” “us,” and “our” refer to Conifer Holdings, Inc., a Michigan corporation, and its wholly owned subsidiaries Conifer Insurance Company (“CIC”), White Pine Insurance Company ("WPIC"), Red Cedar Insurance Company (“RCIC”), Conifer Insurance Services ("CIS") formerly known as Sycamore Insurance Agency, Inc.
We retain sole binding authority on the majority of our business. Binding authority is only granted to select long-term agents. When binding authority is granted, we restrict this authority to a specific set of guidelines that are provided to each agent.
Controls include frequent review of the quality of business, loss experience and other mechanisms. We retain sole binding authority on the majority of our business. Binding authority is only granted to select long-term agents. When binding authority is granted, we restrict this authority to a specific set of guidelines that are provided to each agent.
Additional information relating to our reserves is included within the Unpaid Losses and Loss Adjustment Expenses section of Note 1 ~ Summary of Significant Accounting Policies and Note 7 ~ Unpaid Losses and Loss Adjustment Expenses of the Notes to the Consolidated Financial Statements, as well as in the Critical Accounting Policies: Unpaid Loss and Loss Adjustment Expense Reserves section of Item 7, Management’s Discussion and Analysis .
We applied reserving practices consistent with historical methodologies and incorporated specific analyses where appropriate. 9 Additional information relating to our reserves is included within the Unpaid Losses and Loss Adjustment Expenses section of Note 1 ~ Summary of Significant Accounting Policies and Note 8 ~ Unpaid Losses and Loss Adjustment Expenses of the Notes to the Consolidated Financial Statements, as well as in the Critical Accounting Policies: Unpaid Loss and Loss Adjustment Expense Reserves section of Item 7, Management’s Discussion and Analysis .
Adjusted operating income (loss), per share Adjusted operating income (loss) on a per share basis. Assignment of Benefits A legal tool that allows a third party to assert a claim and be paid for services performed for an insured who would normally be reimbursed directly by the insurance company after making a claim themselves.
Assignment of Benefits A legal tool that allows a third party to assert a claim and be paid for services performed for an insured who would normally be reimbursed directly by the insurance company after making a claim themselves. Book value per share Total common shareholders' equity divided by the number of common shares outstanding.
We actively solicit their input regarding potential improvements to our business methods and consult with them in developing new products and entering new customer markets. At the same time, we take careful measure to appropriately control and monitor our agents’ operations. Controls include frequent review of the quality of business, loss experience and other mechanisms.
We view our agents as key partners in risk selection. We actively solicit their input regarding potential improvements to our business methods and consult with them in developing new products and entering new customer markets. At the same time, we take careful measure to appropriately control and monitor our agents’ operations.
Policyholders' surplus As determined under SAP, the amount remaining after all liabilities are subtracted from all admitted assets. Admitted assets are assets of an insurer prescribed or permitted by a state to be recognized on the statutory balance sheet. Policyholders' surplus is also referred to as “surplus” or “statutory surplus” for statutory accounting purposes.
Admitted assets are assets of an insurer prescribed or permitted by a state to be recognized on the statutory balance sheet. Policyholders' surplus is also referred to as “surplus” or “statutory surplus” for statutory accounting purposes. Premium leverage ratio The ratio of written premium (gross or net) to consolidated statutory surplus.
Year Ended December 31, 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 (1) Net liability for losses and loss expenses $ 17,547 $ 24,956 $ 28,307 $ 30,017 $ 47,993 $ 67,830 $ 63,122 $ 84,667 $ 87,052 $ 98,741 $ 82,888 Liability re-estimated as of: One year later 13,508 23,763 29,321 40,239 57,452 71,186 79,351 100,261 106,482 123,668 Two years later 13,601 25,521 33,274 52,321 60,453 87,536 94,786 118,116 129,665 Three years later 13,821 26,560 38,569 58,251 69,833 95,367 108,022 137,327 Four years later 13,860 27,784 40,822 62,185 74,381 102,335 117,607 Five years later 13,980 27,920 42,274 64,547 76,860 106,705 Six years later 14,048 28,339 42,967 66,072 79,622 Seven years later 13,982 28,655 43,341 66,883 Eight years later 14,050 28,880 43,771 Nine years later 14,133 29,487 Ten years later 14,626 Net cumulative redundancy (deficiency) $ 2,921 $ (4,531 ) $ (15,464 ) $ (36,866 ) $ (31,629 ) $ (38,875 ) $ (54,485 ) $ (52,660 ) $ (42,613 ) $ (24,927 ) $ 82,888 Cumulative amount of net liability paid as of: One year later 5,186 $ 13,245 $ 16,091 $ 20,200 $ 29,533 $ 44,521 $ 29,520 $ 40,244 $ 39,187 $ 51,129 Two years later 9,106 19,711 24,060 35,972 56,962 62,369 57,864 70,478 79,965 Three years later 11,444 23,241 32,699 50,676 61,168 77,409 78,861 103,770 Four years later 13,015 26,056 37,474 58,317 66,556 87,587 100,377 Five years later 13,522 27,217 40,438 61,349 70,945 99,544 Six years later 13,903 27,780 41,979 63,814 76,563 Seven years later 13,878 28,384 42,428 65,654 Eight years later 13,923 28,555 43,025 Nine years later 13,927 29,199 Ten years later 14,395 Gross liability-end of year 24,843 28,909 31,532 35,423 54,651 87,896 92,807 107,246 111,270 139,085 165,539 Reinsurance recoverable on unpaid losses 7,296 3,952 3,225 5,405 6,658 20,066 29,685 22,579 24,218 40,344 82,651 Net liability-end of year 17,547 24,957 28,307 30,018 47,993 67,830 63,122 84,667 87,052 98,741 82,888 Gross liability re-estimated - latest 20,671 35,702 52,783 84,930 115,658 174,272 177,075 173,828 164,154 167,738 Reinsurance recoverable on unpaid losses re-estimated - latest 6,044 6,216 9,012 18,047 36,036 67,566 59,468 36,501 34,490 44,070 Net liability re-estimated - latest 14,627 29,486 43,771 66,883 79,622 106,706 117,607 137,327 129,664 123,668 Gross cumulative redundancy (deficiency) $ 4,172 $ (6,793 ) $ (21,251 ) $ (49,507 ) $ (61,007 ) $ (86,376 ) $ (84,268 ) $ (66,582 ) $ (52,884 ) $ (28,653 ) (1) The 2022 column includes $25.9 million of reinsurance recoverables from the loss portfolio transfer (“LPT”) described in Item 6: Selected Consolidated Financial Data.
Year Ended December 31, 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 (1) 2023 (1) Net liability for losses and loss expenses $ 24,956 $ 28,307 $ 30,017 $ 47,993 $ 67,830 $ 63,122 $ 84,667 $ 87,052 $ 98,741 $ 82,888 $ 103,805 Liability re-estimated as of: One year later 23,763 29,321 40,239 57,452 71,186 79,351 100,261 106,482 123,668 100,698 Two years later 25,521 33,274 52,321 60,453 87,536 94,786 118,116 129,665 144,116 Three years later 26,560 38,569 58,251 69,833 95,367 108,022 137,327 143,307 Four years later 27,784 40,822 62,185 74,381 102,335 117,607 146,027 Five years later 27,920 42,274 64,547 76,860 106,705 122,597 Six years later 28,339 42,967 66,072 79,622 109,865 Seven years later 28,655 43,341 66,883 80,235 Eight years later 28,880 43,771 67,020 Nine years later 29,487 43,712 Ten years later 29,396 Net cumulative redundancy (deficiency) $ (4,440 ) $ (15,405 ) $ (37,003 ) $ (32,242 ) $ (42,035 ) $ (59,475 ) $ (61,360 ) $ (56,255 ) $ (45,375 ) $ (17,810 ) $ 103,805 Cumulative amount of net liability paid as of: One year later 13,245 $ 16,091 $ 20,200 $ 29,533 $ 44,521 $ 29,520 $ 40,244 $ 39,187 $ 51,129 $ 57,963 Two years later 19,711 24,060 35,972 56,962 62,369 57,864 70,478 79,965 95,765 Three years later 23,241 32,699 50,676 61,168 77,409 78,861 103,770 114,622 Four years later 26,056 37,474 58,317 66,556 87,587 100,377 128,772 Five years later 27,217 40,438 61,349 70,945 99,544 114,346 Six years later 27,780 41,979 63,814 76,563 106,535 Seven years later 28,384 42,428 65,654 78,821 Eight years later 28,555 43,025 66,238 Nine years later 29,199 43,148 Ten years later 29,237 Gross liability-end of year 28,909 31,532 35,423 54,651 87,896 92,807 107,246 111,270 139,085 165,539 174,612 Reinsurance recoverable on unpaid losses 3,952 3,225 5,405 6,658 20,066 29,685 22,579 24,218 40,344 82,651 70,807 Net liability-end of year 24,957 28,307 30,018 47,993 67,830 63,122 84,667 87,052 98,741 82,888 103,805 Gross liability re-estimated - latest 35,911 53,611 85,551 115,849 176,969 182,121 186,956 186,015 204,735 200,159 Reinsurance recoverable on unpaid losses re-estimated - latest 6,515 9,899 18,530 35,613 67,104 59,524 40,929 42,708 60,619 99,460 Net liability re-estimated - latest 29,396 43,712 67,021 80,236 109,865 122,597 146,027 143,307 144,116 100,699 Gross cumulative redundancy (deficiency) $ (7,002 ) $ (22,079 ) $ (50,128 ) $ (61,198 ) $ (89,073 ) $ (89,314 ) $ (79,710 ) $ (74,745 ) $ (65,650 ) $ (34,620 ) (1) The 2023 and 2022 column includes $10.9 million and $25.9 million of reinsurance recoverables from the loss portfolio transfer (“LPT”), respectively.
Book value per share Total common shareholders' equity divided by the number of common shares outstanding. Case reserves Estimates of anticipated future payments to be made on each specific reported claim. Combined Ratio based on accounting principles generally accepted in the United States of America (“GAAP”) The combined ratio is the sum of the loss ratio and the expense ratio.
Case reserves Estimates of anticipated future payments to be made on each specific reported claim, which are exclusive of any IBNR estimated reserves. 12 Combined Ratio based on accounting principles generally accepted in the United States of America (“GAAP”) The combined ratio is the sum of the loss ratio and the expense ratio.
Our senior management team has successfully created, managed and grown numerous insurance companies and books of business, and has longstanding relationships with many independent agents and policyholders in our targeted markets. • Ability to leverage technology to drive efficiency. We utilize a web‑based information technology system that creates greater organizational efficiency in our company.
Our senior management team has an average of over 29 years of experience in the insurance industry. Our senior management team has successfully created, managed and grown numerous insurance companies and books of business, and has longstanding relationships with many independent agents and policyholders in our targeted markets. • Ability to leverage technology to drive efficiency.
Losses incurred The total losses sustained by an insurance company under a policy or policies, whether paid or unpaid. Incurred losses include a provision for IBNR. NAIC-IRIS ratios Financial ratios calculated by the NAIC to assist state insurance departments in monitoring the financial condition of insurance companies.
Losses incurred The total losses sustained by an insurance company under a policy or policies, whether paid or unpaid. Incurred losses include a provision for IBNR.
We recruit our producers through referrals from our existing network of agents, word‑of‑mouth, advertisement, as well as direct contacts initiated by potential agents. Our marketing efforts are directed through our offices in Michigan and Florida. We view our agents as key partners in risk selection.
Our Insurance Company Subsidiaries market and distribute their products mainly through an independent agency network, however we utilize managing general agents and certain key wholesalers when appropriate. We recruit our producers through referrals from our existing network of agents, word-of-mouth, advertisement, as well as direct contacts initiated by potential agents. Our marketing efforts are directed through our offices in Michigan.
The selection of an insurance company by a business or individual is strongly influenced by the business or individual’s agent. We seek to maintain favorable relationships with our select group of agents. Our distribution philosophy is to treat our agents as partners, and we provide them with competitive products, personal service and attractive commissions.
We seek to maintain favorable relationships with our 6 select group of agents. Our distribution philosophy is to treat our agents as partners, and we provide them with competitive products, personal service and attractive commissions. We believe these factors contribute to our positive agency retention.
We offer coverage to our insureds both on an E&S and admitted basis. We believe this flexibility enables us to pivot effectively between E&S and admitted policies as customer needs and regulatory conditions dictate. • Conservative risk management with an emphasis on lowering volatility. We focus on the risk/reward of insurance underwriting, while maintaining a prudent investment policy.
We offer coverage to our insureds both on an E&S and admitted basis. We believe this flexibility enables us to pivot effectively between E&S and admitted policies as customer needs and regulatory conditions dictate. Our Competitive Strengths We believe the following competitive strengths have allowed us to grow our business: • Controlled and disciplined underwriting.
Accident year combined ratio The accident year combined ratio is an insurance industry measure that excludes changes in net ultimate loss estimates from prior accident year loss reserves.
Glossary Accident year The annual calendar accounting period in which loss events occurred, regardless of when the losses are actually reported, booked or paid. Accident year combined ratio The accident year combined ratio is an insurance industry measure that excludes changes in net ultimate loss estimates from prior accident year loss reserves.
We have shifted our focus to low-value dwelling lines of business in order to bring personal lines premium levels back up and to maintain a strategic balance of commercial and personal lines of business. While we pursue top line premium growth, we do not do so at the expense of losing underwriting discipline.
Geographic Diversity and Mix of Business Over the past several years, we have increased our focus on specific core commercial lines of business. We have shifted our focus to low-value dwelling lines of business in order to bring personal lines premium levels back up and to maintain a strategic balance of commercial and personal lines of business.
In addition, the SEC maintains an Internet site that contains reports, proxy statements, and other information that we file at www.sec.gov .
In addition, the SEC maintains an Internet site that contains reports, proxy statements, and other information that we file at www.sec.gov . Information found on our website or any other website is not part of this annual report on Form 10-K or any other report we file with, or furnish to the SEC.
CIC, RCIC and WPIC are collectively referred to as the "Insurance Company Subsidiaries." On a stand-alone basis Conifer Holdings, Inc. is referred to as the "Parent Company." Business Overview The Company is engaged in the sale of property and casualty insurance products and has organized its business model around three classes of insurance businesses: commercial lines, personal lines, and wholesale agency business.
Business Overview Historically, the Company has engaged in the sale of property and casualty insurance products and has organized its business model around three classes of insurance businesses: commercial lines, personal lines, and wholesale agency business. Within these three businesses, the Company offers various insurance products and insurance agency services.
Our proactive handling of claims reinforces our relationships with our customers and agents by demonstrating our willingness to defend our insureds aggressively and help them mitigate losses. • Proven management team. Our senior management team has an average of over 29 years of experience in the insurance industry.
We pay what we owe, contest what we don't, and make sound judgment for those claims that fall in between. Our proactive handling of claims reinforces our relationships with our customers and agents by demonstrating our willingness to defend our insureds aggressively and help them mitigate losses. • Proven management team.
We customize the coverages we offer, and continually monitor our markets and respond to changes in our markets by adjusting our pricing, product structures and underwriting guidelines. By tailoring the terms and conditions of our policies, we align our actual underwriting risk with the profit of each insurance account that we write. • Proactive claims handling.
We underwrite substantially all policies to our specific guidelines with our experienced, in-house underwriting team. We customize the coverages we offer, and continually monitor our markets and respond to changes in our markets by adjusting our pricing, product structures and underwriting guidelines.
Leveraging the infrastructure of programmers and support staff of third‑party vendors allows our in‑house business analysts to focus on new product development and roll‑out. We believe this capability reduces our time to market for new products, enhances services for insureds, increases our ability to capture data, and reduces cost. Marketing and Distribution Independent agents are our main distribution source.
We believe this capability reduces our time to market for new products, enhances services for insureds, increases our ability to capture data, and reduces cost. Marketing and Distribution Independent agents have been our main distribution source. The selection of an insurance company by a business or individual is strongly influenced by the business or individual’s agent.
Moreover, our experienced underwriters review each risk to ensure the guidelines are followed. 6 In addition to marketing to individual agents, our Sycamore Insurance Agency reviews specific opportunities to write select business on a direct basis. Underwriting We are focused on underwriting profitability and effective enterprise risk management.
In addition to marketing to individual agents, CIS reviews specific opportunities to write select business on a direct basis. Underwriting Historically, we have been focused on underwriting profitability and effective enterprise risk management. Our underwriting philosophy for our specialty commercial risks in the hospitality industry has been to look at each risk individually and selectively before writing any policies.
We employ a proactive claims handling philosophy that utilizes an internal team of experienced in-house attorneys to manage and supervise our claims from inception until resolution. We pay what we owe, contest what we don't, and make sound judgment for those claims that fall in between.
By tailoring the terms and conditions of our policies, we align our actual underwriting risk with the profit of each insurance account that we write or produce. • Proactive claims handling. We employ a proactive claims handling philosophy that utilizes an internal team of experienced in-house attorneys to manage and supervise our claims from inception until resolution.
We believe these factors contribute to our positive agency retention. In 2022, our top six independent agencies accounted for approximately 42% of our gross written premiums in our commercial lines, and our top four independent agencies accounted for approximately 45% of our gross written premiums in our personal lines. We have long term relationships with each of these agencies.
In 2023, our top four independent agencies accounted for approximately 35% of our gross written premiums in our commercial lines, and our top four independent agencies accounted for approximately 62% of our gross written premiums in our personal lines.
The wholesale agency business increases the product options to the Company’s independent retail agents by offering both insurance products from the Insurance Company Subsidiaries as well as products offered by other insurers. The wholesale agency business was sold to our 50%-owned affiliate, Venture Agency Holdings, Inc. (“Affiliate”) on June 30, 2021.
The wholesale agency business has provided more product options to the Company’s independent retail agents by offering both insurance products from the Insurance Company Subsidiaries as well as products offered by other insurers. Strategic Shift to Non Risk-Bearing Revenue 4 Historically, our wholesale agency segment produced only a small portion of our gross written premiums.
Adjusted operating income (loss) Net income (loss) excluding net realized investment and other gains (losses), net of tax, the effects of tax reform, the tax effect of changes in unrealized gains to the extent included in net income, the change in the fair value of equity securities, net of tax, and the capitalization and amortization of deferred gains from the adverse development cover (ADC).
Adjusted operating income (loss) on a per share represents the net income (loss) allocable to common shareholders excluding net realized investment gains (losses) per share, change in fair value of equity securities per share, the gain from sale of renewal rights per share, the gain from VSRM Transaction per share, the loss portfolio transfer risk fee per share and other gains (losses) per share.
Removed
As of that date, this business was no longer consolidated in the Company’s financial statements. Geographic Diversity and Mix of Business Over the past several years, we have increased our focus on specific core commercial lines of business.
Added
("Sycamore") and, as of October 13, 2022, 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 50% non-controlling interest in Sycamore Specialty Underwriters, LLC ("SSU" or "Affiliate").
Removed
Our underwriters have the experience and institutional flexibility to recognize when to exit certain products in favor of more profitable opportunities as insurance market conditions dictate.
Added
Beginning in 2024, our wholesale agency segment is being converted into a full managing general agency (“MGA”) and is expected to produce almost 100% of the Company’s gross written premiums.
Removed
We employ conservative risk management practices and opportunistically purchase reinsurance to minimize our exposure to liability for individual risks. In addition, we seek to maintain a diversified liquid investment portfolio to reduce overall balance sheet volatility.
Added
More importantly, as a result of the Insurance Company Subsidiaries lacking sufficient capital to continue to underwrite the volume of business they have historically written, we plan to utilize third-party insurers and rely mostly on commission revenues in our MGA, CIS. Substantially all of the Company's commercial lines business will be directly written by third-party insurers with A.M.
Removed
As of December 31, 2022, our investments primarily consisted of fixed income investments with an average credit rating of “AA+” and an option adjusted duration of 3.5 years. 5 Our Competitive Strengths We believe the following competitive strengths have allowed us to grow our business and will continue to support our strategic growth initiatives: • Talented underwriters with broad expertise.
Added
Best ratings of A- or better by the end of the second quarter of 2024. We expect to continue to underwrite the low-value homeowners business written in Texas and the Midwest, however, we will be non-renewing all homeowners business written in Oklahoma by the end of the second half of 2024.
Removed
Our underwriters have significant experience managing account profitability across market cycles. With an average of over 28 years of experience, our senior underwriters possess the required expertise to respond appropriately to market forces. • Controlled and disciplined underwriting. We underwrite substantially all policies to our specific guidelines with our experienced, in-house underwriting team.
Added
Utilizing third-party insurers as underwriters of our MGA-produced business will provide a much broader reach for our existing profitable programs and we expect this to result in the production of substantially more premium volume for the agency segment generating more commission revenue.
Removed
We anticipate our concentration in these agencies will decrease in future periods as we establish relationships with additional agencies, as part of our strategic growth plan. Our Insurance Company Subsidiaries market and distribute their products mainly through an independent agency network, however we utilize managing general agents and certain key wholesalers when appropriate.
Added
This shift will significantly reduce revenues from earned premiums in the near term and investment income, over time, for the Insurance Company Subsidiaries. Cash from operating activities will shift from premiums and investment income to revenues from commissions.
Removed
With an average of over 28 years of experience, our senior underwriters have the experience to properly manage account profitability across market cycles. Our underwriting philosophy for our specialty commercial risks in the hospitality industry is to look at each risk individually and selectively before writing any policies.
Added
Over time, cash from operating activities will be reduced as losses are paid on existing loss reserves which will be offset by cash flows increasing from investing activities as we sell investments to fund the loss payments. We believe this strategic shift is the best path forward to profitability for the Company.
Removed
We applied reserving practices consistent with historical methodologies and incorporated specific analyses where appropriate.
Added
We utilize a web‑based information technology system that creates greater organizational efficiency in our company. Leveraging the infrastructure of programmers and support staff of third‑party vendors allows our in‑house business analysts to focus on new product development and roll‑out.
Removed
The public may read and copy any materials we file with the Commission at the SEC's Public Reference Room at 100 F Street, NE., Washington, DC 20549, on official business days during the hours of 10 a.m. to 3 p.m. The public may obtain information on the operation of the Public Reference Room by calling the Commission at 1-800-SEC-0330.
Added
Adjusted operating income (loss) represents net income (loss) excluding net realized investment gains (losses), change in fair value of equity securities, the gain from sale of renewal rights, the gain from VSRM Transaction, the loss portfolio transfer risk fee and other gains (losses). Adjusted operating income (loss), per share Adjusted operating income (loss) per share is a non-GAAP measure.
Removed
Information found on our website or any other website is not part of this annual report on Form 10-K or any other report we file with, or furnish to the SEC. 12 Glossary Accident year The annual calendar accounting period in which loss events occurred, regardless of when the losses are actually reported, booked or paid.
Added
NAIC-IRIS ratios Financial ratios calculated by the NAIC to assist state insurance departments in monitoring the financial condition of insurance companies. 13 Policyholders' surplus As determined under SAP, the amount remaining after all liabilities are subtracted from all admitted assets.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

57 edited+24 added−12 removed151 unchanged
Biggest changeAny provision of our amended and restated articles of incorporation or bylaws or Michigan law that has the effect of delaying or deterring a change in control could limit the opportunity for our shareholders to receive a premium for their shares, and could also affect the price that some investors are willing to pay for our common stock otherwise. 28 Our ability to meet our obligations on our outstanding debt, including making principal and interest payments on the Notes and the Subordinated Notes, may be limited by our holding company structure and regulatory constraints restricting dividends or other distributions by our Insurance Company Subsidiaries.
Biggest changeAny provision of our amended and restated articles of incorporation or bylaws or Michigan law that has the effect of delaying or deterring a change in control could limit the opportunity for our shareholders to receive a premium for their shares, and could also affect the price that some investors are willing to pay for our common stock otherwise.
We are a holding company that transacts the majority of our business through our Insurance Company Subsidiaries and, as a result, our principal sources of funds are payments from our Insurance Company Subsidiaries, including intercompany service fees and dividends.
We are a holding company that transacts the majority of our business through our Insurance Company Subsidiaries and, as a result, our principal sources of funds are payments from our Insurance Company Subsidiaries, including intercompany service fees and dividends.
In addition, any determination to declare or pay future dividends to our shareholders will be at the discretion of our Board and will depend on a variety of factors, including (1) our financial condition, liquidity, results of operations (including our ability to generate cash flow in excess of expenses and our expected or actual net income), retained earnings and collateral and capital requirements, (2) general business conditions, (3) legal, tax and regulatory limitations, (4) contractual prohibitions and other restrictions, (5) the effect of a dividend or dividends upon our financial strength ratings and (6) any other factors that our Board deems relevant.
In addition, any determination to declare or pay future dividends to our shareholders will be at the discretion of our board of directors ("Board") and will depend on a variety of factors, including (1) our financial condition, liquidity, results of operations (including our ability to generate cash flow in excess of expenses and our expected or actual net income), retained earnings and collateral and capital requirements, (2) general business conditions, (3) legal, tax and regulatory limitations, (4) contractual prohibitions and other restrictions, (5) the effect of a dividend or dividends upon our financial strength ratings and (6) any other factors that our Board deems relevant.
Our indebtedness, including the indebtedness we or our subsidiaries may incur in the future, could have important consequences for the holders of the Notes, including: • limiting our ability to satisfy our obligations with respect to the Notes; • increasing our vulnerability to general adverse economic and industry conditions; 29 • limiting our ability to obtain additional financing to fund future working capital, capital expenditures, and other general corporate requirements; • requiring a substantial portion of our cash flow from operations for the payment of principal of, and interest on, our indebtedness and thereby reducing our ability to use our cash flow to fund working capital, capital expenditures and general corporate requirements; and • limiting our flexibility in planning for, or reacting to, changes in our business and the industry; and putting us at a disadvantage compared to competitors with less indebtedness.
Our indebtedness, including the indebtedness we or our subsidiaries may incur in the future, could have important consequences for the holders of the Notes, including: • limiting our ability to satisfy our obligations with respect to the Notes; • increasing our vulnerability to general adverse economic and industry conditions; • limiting our ability to obtain additional financing to fund future working capital, capital expenditures, and other general corporate requirements; • requiring a substantial portion of our cash flow from operations for the payment of principal of, and interest on, our indebtedness and thereby reducing our ability to use our cash flow to fund working capital, capital expenditures and general corporate requirements; and • limiting our flexibility in planning for, or reacting to, changes in our business and the industry; and putting us at a disadvantage compared to competitors with less indebtedness.
To the extent that our existing capital is insufficient, we may need to raise additional capital in the future through offerings of debt or equity securities or otherwise to: • Fund liquidity needs caused by underwriting or investment losses; • Replace capital lost in the event of significant losses or adverse reserve development; • Satisfy letters of credit or guarantee bond requirements that may be imposed by our clients or by regulators; 26 • Meet rating agency or regulatory capital requirements; or • Respond to competitive pressures.
To the extent that our existing capital is insufficient, we may need to raise additional capital in the future through offerings of debt or equity securities or otherwise to: • Fund liquidity needs caused by underwriting or investment losses; • Replace capital lost in the event of significant losses or adverse reserve development; • Satisfy letters of credit or guarantee bond requirements that may be imposed by our clients or by regulators; • Meet rating agency or regulatory capital requirements; or • Respond to competitive pressures.
The market price of our common stock could fluctuate significantly for many reasons, including in response to the risks described in this section or any number of our financial filings or disclosures or for reasons unrelated to our operations, such as reports by industry analysts, investor perceptions or negative announcements by our customers, competitors or suppliers regarding their own performance, as well as industry conditions and general financial, economic and political instability.
The market price of our common stock could fluctuate significantly for many reasons, including in response to the risks described in this section or any number of our financial filings or disclosures or for reasons unrelated to our operations, such as reports by industry analysts, investor perceptions or negative announcements by our customers, competitors or suppliers 30 regarding their own performance, as well as industry conditions and general financial, economic and political instability.
In the event of such default, the holders of such indebtedness could elect to declare all the funds borrowed thereunder to be due and payable, together with accrued and unpaid interest, the lenders under any other debt we may incur in the future could elect to terminate their commitments, cease making further loans and institute foreclosure proceedings against our assets, and we could be forced into bankruptcy or liquidation.
In the event of such default, the holders of such indebtedness could elect to declare all the funds borrowed thereunder to be due and payable, together with accrued and unpaid interest, the lenders under any other debt 29 we may incur in the future could elect to terminate their commitments, cease making further loans and institute foreclosure proceedings against our assets, and we could be forced into bankruptcy or liquidation.
In addition, our inability to obtain reinsurance coverage at reasonable rates and in amounts adequate to mitigate the risks associated with severe weather conditions and other catastrophes could have a material adverse effect on our business and results of operations. We may be unable to obtain reinsurance coverage at reasonable prices or on terms that provide us adequate protection.
In addition, our inability to obtain reinsurance coverage at reasonable rates and in amounts adequate to mitigate the risks associated with severe weather conditions and other catastrophes could have a material adverse effect on our business and results of operations. 17 We may be unable to obtain reinsurance coverage at reasonable prices or on terms that provide us adequate protection.
Factors that could affect such analyses include but are not limited to: • If unfavorable financial, regulatory or market trends affect us, including excess market capacity; • If we incur operating losses or significant investment portfolio losses; • If we have unresolved issues with government regulators; 25 • If we are unable to retain our senior management or other key personnel; • If A.M.
Factors that could affect such analyses include but are not limited to: • If unfavorable financial, regulatory or market trends affect us, including excess market capacity; • If we incur operating losses or significant investment portfolio losses; • If we have unresolved issues with government regulators; • If we are unable to retain our senior management or other key personnel; • If A.M.
State insurance departments also conduct periodic examinations of the affairs of insurance companies and require the filing of annual and other reports relating to financial condition, holding company issues and other matters. These regulatory requirements may impose timing and expense or other constraints that could adversely affect our ability to achieve some or all of our business objectives.
State insurance departments also conduct periodic examinations of the affairs of insurance companies and require the filing of annual and other reports relating to financial condition, holding 22 company issues and other matters. These regulatory requirements may impose timing and expense or other constraints that could adversely affect our ability to achieve some or all of our business objectives.
Our business could be adversely affected by changes in state laws, including those relating to asset and reserve valuation requirements, surplus requirements, limitations on investments and dividends, enterprise risk and RBC requirements and, at 24 the federal level, by laws and regulations that may affect certain aspects of the insurance industry, including proposals for preemptive federal regulation.
Our business could be adversely affected by changes in state laws, including those relating to asset and reserve valuation requirements, surplus requirements, limitations on investments and dividends, enterprise risk and RBC requirements and, at the federal level, by laws and regulations that may affect certain aspects of the insurance industry, including proposals for preemptive federal regulation.
This may prevent or discourage unsolicited acquisition proposals or offers for our common stock that you may feel are in your best interest as one of our shareholders. We incur significant costs as a result of operating as a public company, and our management is required to devote substantial time to related compliance initiatives.
This may prevent or discourage unsolicited acquisition proposals or offers for our common stock that you may feel are in your best interest as one of our shareholders. 27 We incur significant costs as a result of operating as a public company, and our management is required to devote substantial time to related compliance initiatives.
This could adversely affect our ability to operate our business. The admitted market is subject to more state regulation than the E&S market, particularly with regard to rate and form filing requirements, restrictions on the ability to exit lines of business, premium tax payments and membership in various 23 state associations, such as guaranty associations.
This could adversely affect our ability to operate our business. The admitted market is subject to more state regulation than the E&S market, particularly with regard to rate and form filing requirements, restrictions on the ability to exit lines of business, premium tax payments and membership in various state associations, such as guaranty associations.
The availability of reasonably affordable reinsurance is a critical element of our business plan. One important way we utilize reinsurance is to reduce volatility in claims payments by limiting our exposure to losses from large risks. Another way we use reinsurance is to purchase 18 substantial protection against concentrated losses when we enter new markets.
The availability of reasonably affordable reinsurance is a critical element of our business plan. One important way we utilize reinsurance is to reduce volatility in claims payments by limiting our exposure to losses from large risks. Another way we use reinsurance is to purchase substantial protection against concentrated losses when we enter new markets.
We cannot predict with certainty the amount of future assessments because they depend on factors outside our control, such as insolvencies of other insurance companies. Significant assessments could have a material adverse effect on our financial condition and results of operations.
We cannot predict with certainty the amount of future assessments because they depend on factors outside 25 our control, such as insolvencies of other insurance companies. Significant assessments could have a material adverse effect on our financial condition and results of operations.
Like other insurance companies, we rely on estimates and assumptions in setting our premium rates. Establishing adequate premium rates is necessary, together with investment income, to generate sufficient revenue to offset losses, LAE and other underwriting costs and to earn a profit.
Like other insurance companies, we rely on estimates and assumptions in setting our 15 premium rates. Establishing adequate premium rates is necessary, together with investment income, to generate sufficient revenue to offset losses, LAE and other underwriting costs and to earn a profit.
If we are unable to generate sufficient cash flow to service our debt 22 and meet our other commitments, we may need to restructure or refinance all or a portion of our debt, sell material assets or operations or raise additional debt or equity capital.
If we are unable to generate sufficient cash flow to service our debt and meet our other commitments, we may need to restructure or refinance all or a portion of our debt, sell material assets or operations or raise additional debt or equity capital.
Such adverse development can result in the unplanned need for additional capital, which may need to be obtained through the sale of assets or additional issuance of common stock which could dilute current shareholder value.
Such adverse development can result in the unplanned need for additional capital, which may need to be obtained through the sale of assets or additional issuance of common stock or preferred stock which could dilute current shareholder value.
As a result, the insurance business historically has been a cyclical industry characterized by periods of intense price competition due to excessive underwriting capacity as well as periods when shortages of capacity increased premium levels.
As a result, the insurance business historically has been a cyclical industry characterized by 18 periods of intense price competition due to excessive underwriting capacity as well as periods when shortages of capacity increased premium levels.
A number of new, proposed or potential legislative or industry developments could further increase competition in our industry including, but not limited to: • An increase in capital‑raising by companies in our lines of business, which could result in new entrants to our markets and an excess of capital in the industry; • The deregulation of commercial insurance lines in certain states and the possibility of federal regulatory reform of the insurance industry, which could increase competition from standard carriers for our E&S lines of insurance business; and 17 • Changing practices caused by the Internet may lead to greater competition in the insurance business.
A number of new, proposed or potential legislative or industry developments could further increase competition in our industry including, but not limited to: 16 • An increase in capital‑raising by companies in our lines of business, which could result in new entrants to our markets and an excess of capital in the industry; • The deregulation of commercial insurance lines in certain states and the possibility of federal regulatory reform of the insurance industry, which could increase competition from standard carriers for our E&S lines of insurance business; and • Changing practices caused by the Internet may lead to greater competition in the insurance business.
In setting their ratings, A.M. Best and Kroll utilize a quantitative and qualitative analysis of a company’s balance sheet strength, operating performance and business profile. These analyses include comparisons to peers and industry standards as well as assessments of operating plans, philosophy and management. For A.M. Best, the ratings range from A++, or superior, to F for in liquidation.
Best and Kroll utilize a quantitative and qualitative analysis of a company’s balance sheet strength, operating performance and business profile. These analyses include comparisons to peers and industry standards as well as assessments of operating plans, philosophy and management. For A.M. Best, the ratings range from A++, or superior, to F for in liquidation.
To the extent an active trading market does not exist, the liquidity and trading price for the Notes may be harmed. If we default on our obligations to pay our other indebtedness, we may not be able to make payments on the Notes.
To the extent an active trading market does not exist, the liquidity and trading price for the Notes may be harmed. If we default on our obligations to pay our other indebtedness, we may not be able to make payments on the New Public Notes.
Our reputation is one of our key assets. Our ability to attract and retain policyholders is highly dependent upon the external perceptions of our level of service, trustworthiness, business practices, financial condition and other subjective qualities. Negative perceptions or publicity regarding these or other matters, including from actual or alleged conduct by us or our employees, could damage our reputation.
Our ability to attract and retain policyholders is highly dependent upon the external perceptions of our level of service, trustworthiness, business practices, financial condition and other subjective qualities. Negative perceptions or publicity regarding these or other matters, including from actual or alleged conduct by us or our employees, could damage our reputation.
Although the Notes are currently listed on Nasdaq, the trading market for the Notes may be limited, which could affect the market price of the Notes or your ability to sell them.
Although the New Public Notes are currently listed on Nasdaq, the trading market for the New Public Notes may be limited, which could affect the market price of the New Public Notes or your ability to sell them.
These and other factors could result in a downgrade of our rating. A downgrade of our rating could cause our current and future agents, retail brokers and insureds to choose other, more highly‑rated competitors. A downgrade of this rating could also increase the cost or reduce the availability of reinsurance to us.
These and other factors could result in a downgrade of our rating. The recent downgrade and withdrawal of our rating could cause our current and future agents, retail brokers and insureds to choose other, more highly‑rated competitors and could also increase the cost or reduce the availability of reinsurance to us.
In addition, the Subordinated Notes contain various restrictive covenants that relate to the Company’s tangible net worth, fixed-charge coverage ratios, dividend paying capacity, reinsurance retentions, and risk-based capital ratios. If we are unable to meet debt covenant requirements or to obtain future waivers regarding such failures, we could be in breach of our credit agreement.
For example, the senior secured notes contain various restrictive covenants that relate to the Company’s tangible net worth, fixed-charge coverage ratios, dividend paying capacity, reinsurance retentions, and risk-based capital ratios. If we are unable to meet debt covenant requirements or to obtain future waivers regarding such failures, we could be in breach of our credit agreement.
We evaluate each reinsurance claim based on the facts of the case, historical experience with the reinsurer on similar claims and existing case law and include any amounts deemed uncollectible from the reinsurer in our reserve for uncollectible reinsurance. 21 Damage to our reputation could have a material adverse effect on our business.
We evaluate each reinsurance claim based on the facts of the case, historical experience with the reinsurer on similar claims and existing case law and include any amounts deemed uncollectible from the reinsurer in our reserve for uncollectible reinsurance. Damage to our reputation could have a material adverse effect on our business. Our reputation is one of our key assets.
If we are unable to retain key management and employees or recruit other qualified personnel, we may be adversely affected. We believe that our future success depends, in large part, on our ability to retain our experienced management team and key employees, particularly our chairman and chief executive officer, James G. Petcoff.
If we are unable to retain key management and employees or recruit other qualified personnel, we may be adversely affected. We believe that our future success depends, in large part, on our ability to retain our experienced management team and key employees, particularly our chief executive officer, Nicholas J. Petcoff.
Our principal shareholders and management own a significant percentage of our stock and are able to exert significant control over matters subject to shareholder approval. As of December 31, 2022, our executive officers, directors, 5% shareholders and their affiliates owned approximately 69.3% of our voting stock. Therefore, these shareholders have the ability to influence us through their ownership position.
Our principal shareholders and management own a significant percentage of our stock and are able to exert significant control over matters subject to shareholder approval. As of December 31, 2023, our executive officers, directors, 5% shareholders and their affiliates owned approximately 71.7% of our voting stock. Therefore, these shareholders have the ability to influence us through their ownership position.
We could also become subject to certain anti‑takeover provisions under Michigan law which may discourage, delay or prevent someone from acquiring us or merging with us, whether or not an acquisition or merger is desired by or beneficial to our shareholders.
Such vesting or acceleration could discourage the acquisition of our Company. We could also become subject to certain anti‑takeover provisions under Michigan law which may discourage, delay or prevent someone from acquiring us or merging with us, whether or not an acquisition or merger is desired by or beneficial to our shareholders.
In addition, as a result of current industry non-weather factors, such as the increase in litigation surrounding the Assignment of Benefits claims and lawsuits in Florida, in particular, we may experience additional losses that could adversely affect our financial position and results of operations. We may not be able to manage our growth effectively.
In addition, as a result of current industry non-weather factors, such as the increase in litigation surrounding the Assignment of Benefits claims and lawsuits in Florida, in particular, we may experience additional losses that could adversely affect our financial position and results of operations.
In an economic downturn, our customers may have less need for insurance coverage, cancel existing insurance policies, modify their coverage or not renew with us. Existing policyholders may exaggerate or even falsify claims to obtain higher claims payments. These outcomes would reduce our underwriting profit to the extent these factors are not reflected in the rates we charge.
In an economic downturn, our customers may have less need for insurance coverage, cancel existing insurance policies, modify their coverage or not renew with us. These outcomes would reduce our underwriting profit to the extent these factors are not reflected in the rates we charge.
Furthermore, our competitors may make it more difficult for us to hire their personnel by offering excessive compensation arrangements to certain employees to induce them not to leave their current employment and bringing litigation against employees who do leave (and possibly us as well) to join us.
Our competitors may offer more favorable compensation arrangements to our key management or employees to incentivize them to leave our Company. 19 Furthermore, our competitors may make it more difficult for us to hire their personnel by offering excessive compensation arrangements to certain employees to induce them not to leave their current employment and bringing litigation against employees who do leave (and possibly us as well) to join us.
A downgrade or withdrawal of any rating could severely limit or prevent us from writing new and renewal insurance contracts and would have a material adverse effect on our financial condition and results of operations. We are subject to assessments and other surcharges from state guaranty funds, and mandatory state insurance facilities, which may reduce our profitability.
Furthermore, these recent developments could severely limit or prevent us from writing new and renewal insurance contracts and may have a material adverse effect on our financial condition and results of operations. We are subject to assessments and other surcharges from state guaranty funds, and mandatory state insurance facilities, which may reduce our profitability.
Our distribution model depends almost entirely on the agencies that distribute our products. In 2022, six independent agencies accounted for approximately 42% of our gross written premiums in our commercial lines, and four independent agencies, accounted for approximately 45% of our gross written premiums in our personal lines.
Our distribution model depends almost entirely on the agencies that distribute our products. In 2023, six independent agencies accounted for approximately 40% of our gross written premiums in our commercial lines, and four independent agencies, accounted for approximately 62% of our gross written premiums in our personal lines.
The failure to manage our growth effectively and maintain underwriting discipline could have a material adverse effect on our business, financial condition and results of operations. We operate in a highly competitive environment and we may not continue to be able to compete effectively against larger or more well ‑ established business rivals.
The failure to obtain sufficient third party underwriting capacity could have a material adverse effect on our business, financial condition and results of operations. We operate in a highly competitive environment and we may not continue to be able to compete effectively against larger or more well ‑ established business rivals.
Failure to meet these requirements could subject us to regulatory action. Our Insurance Company Subsidiaries are subject to minimum capital and surplus requirements imposed under the laws of their respective states of domicile and each state in which they issue policies. As of December 31, 2022, our Insurance Company Subsidiaries were in compliance with all such reserves.
Failure to meet these requirements could subject us to regulatory action. Our Insurance Company Subsidiaries are subject to minimum capital and surplus requirements imposed under the laws of their respective states of domicile and each state in which they issue policies.
If redemption does occur, holders of the redeemed Notes may be unable to reinvest the money received in the redemption at a rate that is equal to or higher than the rate of return on the Notes. 30 ITEM 1B. UNRESOLV ED STAFF COMMENTS None.
If redemption does occur, holders of the redeemed Notes may be unable to reinvest the money received in the redemption at a rate that is equal to or higher than the rate of return on the Notes. 31
Any of these factors could lead to an adverse effect on our business, financial condition and results of operations. 19 Adverse economic factors, including recession, inflation, periods of high unemployment or lower economic activity could result in the sale of fewer policies than expected or an increase in the infrequency or severity of claims and premium defaults or both, which, in turn, could affect our growth and profitability.
Adverse economic factors, including recession, inflation, periods of high unemployment or lower economic activity could result in the sale of fewer policies than expected or an increase in the infrequency or severity of claims and premium defaults or both, which, in turn, could affect our growth and profitability.
If we do not accurately assess the risks that we underwrite, we may not charge adequate premiums to cover our losses and expenses, which would adversely affect our results of operations and our profitability.
If we do not accurately assess the risks that we underwrite, we may not charge adequate premiums to cover our losses and expenses, which would adversely affect our results of operations and our profitability. Alternatively, we could set our premiums too high, which could reduce our competitiveness and lead to lower revenues.
Rating Agency Risks A decline in our financial strength rating may result in a reduction of new or renewal business. Participants in the insurance industry use ratings from independent ratings agencies, such as A.M. Best Company, Inc. (“A.M. Best”) and Kroll Bond Rating Agency ("Kroll") as an important means of assessing the financial strength and quality of insurers.
Participants in the insurance industry use ratings from independent ratings agencies, such as A.M. Best Company, Inc. (“A.M. Best”) and Kroll Bond Rating Agency ("Kroll") as an important means of assessing the financial strength and quality of insurers. In setting their ratings, A.M.
Negative market conditions may impair our ability to underwrite insurance at rates we consider appropriate and commensurate relative to the risk assumed. If we cannot underwrite insurance at appropriate rates, our ability to transact business will be materially and adversely affected.
Negative market conditions may impair our ability to underwrite insurance at rates we consider appropriate and commensurate relative to the risk assumed. If we cannot underwrite insurance at appropriate rates, our ability to transact business will be materially and adversely affected. Any of these factors could lead to an adverse effect on our business, financial condition and results of operations.
As of December 31, 2022, we had $24.4 million of senior unsecured notes (the “Notes”) outstanding and $10.5 million of subordinated notes (the "Subordinated Notes") outstanding. The Company's line of credit matured on December 1, 2022, and was not renewed. See Note 9 ~ Debt for additional details.
As of December 31, 2023, the Company had $17.9 million of 9.75% public senior unsecured notes outstanding and $9.8 million of senior secured notes outstanding. The Company's line of credit matured on December 1, 2022, and was not 21 renewed. See Note 10 ~ Debt for additional details.
Alternatively, we could set our premiums too high, which could reduce our competitiveness and lead to lower revenues. 16 Pricing involves the acquisition and analysis of historical loss data and the projection of future trends, loss costs and expenses, and inflation trends, among other factors, for each of our products in multiple risk tiers and many different markets.
Pricing involves the acquisition and analysis of historical loss data and the projection of future trends, loss costs and expenses, and inflation trends, among other factors, for each of our products in multiple risk tiers and many different markets.
The failure of a reinsurer to pay us does not lessen our contractual obligations to insureds. If a reinsurer fails to pay the expected portion of a claim or claims, our net losses might increase substantially and adversely affect our financial condition. Any disputes with reinsurers regarding coverage under reinsurance contracts could be time‑consuming, costly and uncertain of success.
The failure of a reinsurer to pay us does not lessen our contractual obligations to insureds. If a reinsurer fails to pay the expected portion of a claim or claims, our net losses might increase substantially and adversely affect our financial condition.
There can be no assurance that we can attract and retain the necessary employees to conduct our business activities on a timely basis or at all. Our competitors may offer more favorable compensation arrangements to our key management or employees to incentivize them to leave our Company.
There can be no assurance that we can attract and retain the necessary employees to conduct our business activities on a timely basis or at all.
Downgrades to the credit ratings of our reinsurance counterparties may result in the reduction of rating agency capital credit provided by those reinsurance contracts and could, therefore, result in a downgrade of our own credit ratings.
Any disputes with reinsurers regarding coverage under reinsurance contracts could be time‑consuming, costly and uncertain of success. 20 Downgrades to the credit ratings of our reinsurance counterparties may result in the reduction of rating agency capital credit provided by those reinsurance contracts and could, therefore, result in a downgrade of our own credit ratings.
The loss of any of our executive officers or other key personnel, or our inability to recruit and retain additional qualified personnel as we grow, could materially and adversely affect our business and results of operations, and could prevent us from fully implementing our growth strategies. 20 We rely on our systems and employees, and those of certain third ‑ party vendors and service providers in conducting our operations, and certain failures, including internal or external fraud, operational errors, or systems malfunctions, could materially adversely affect our operations.
The loss of any of our executive officers or other key personnel, or our inability to recruit and retain additional qualified personnel as we grow, could materially and adversely affect our business and results of operations, and could prevent us from fully implementing our growth strategies.
Other expenses associated with being a public company include increases in auditing, accounting and legal fees and expenses, investor relations expenses, increased directors’ fees and director and officer liability insurance costs, registrar and transfer agent fees and listing fees, as well as other expenses. 27 Certain provisions of our corporate governance documents and Michigan law could discourage, delay or prevent a merger or acquisition at a premium price.
Other expenses associated with being a public company include increases in auditing, accounting and legal fees and expenses, investor relations expenses, increased directors’ fees and director and officer liability insurance costs, registrar and transfer agent fees and listing fees, as well as other expenses.
In some instances, these changes may not become apparent until sometime after we have issued insurance contracts that are affected by the changes. As a result, the full extent of liability under our insurance contracts may not be known for many years after a contract is issued.
In some instances, these changes may not become apparent until sometime after we have issued insurance contracts that are affected by the changes.
We are subject to risks typically associated with debt financing, such as insufficient cash flow to meet required debt service payment obligations and the inability to refinance existing indebtedness. The Notes are due on September 30, 2023.
We are subject to risks typically associated with debt financing, such as insufficient cash flow to meet required debt service payment obligations and the inability to refinance existing indebtedness. Our ability to make payments on our indebtedness is subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond our control.
Our amended and restated articles of incorporation and bylaws contain provisions that may make the acquisition of our Company more difficult without the approval of our board of directors (our “Board”).
Certain provisions of our corporate governance documents and Michigan law could discourage, delay or prevent a merger or acquisition at a premium price. Our amended and restated articles of incorporation and bylaws contain provisions that may make the acquisition of our Company more difficult without the approval of our Board.
These provisions may frustrate or prevent any attempts by our shareholders to replace or remove our current management by making it more difficult for shareholders to replace members of the Board, which is responsible for appointing members of our management.
These provisions may frustrate or prevent any attempts by our shareholders to replace or remove our current management by making it more difficult for shareholders to replace members of the Board, which is responsible for appointing members of our management. 28 In addition, our 2015 Omnibus Incentive Plan permits the Board or a committee thereof to accelerate, vest or cause the restrictions to lapse with respect to outstanding equity awards, in the event of, or immediately prior to, a change in control.
Kroll's ratings range from AAA (extremely strong) to R (under regulatory supervision). As of the filing date of this Annual Report on Form 10-K, A.M. Best has assigned financial strength ratings of B+ with a stable outlook for CIC and WPIC. A rating of B+ means A.M.
Kroll's ratings range from AAA (extremely strong) to R (under regulatory supervision). On March 25, 2024, Kroll downgraded the financial strength ratings of CIC and WPIC. Kroll has given CIC an insurance financial strength rating of BB- with a negative outlook. Kroll has given WPIC an insurance financial strength rating of B with a negative outlook.
Any new minimum capital and surplus requirements adopted in the future may require us to increase the capital and surplus of our Insurance Company Subsidiaries, which we may not be able to do. We may become subject to additional government or market regulation which may have a material adverse impact on our business.
Any new 23 minimum capital and surplus requirements adopted in the future may require us to increase the capital and surplus of our Insurance Company Subsidiaries, which we may not be able to do. As of December 31, 2023, CIC fell within the Company Action Level and WPIC fell within the Regulatory Action Level of the RBC formula.
In addition, price volatility may be greater if the public float and the trading volume of our common stock remain low. We may require additional capital in the future, which may not be available or available only on unfavorable terms. Our future capital requirements depend on many factors, including our ability to grow premium volume and underwrite the business profitably.
Our future capital requirements depend on many factors, including our ability to grow premium volume and underwrite the business profitably.
These material risks include, but are not limited to, the following: • Operational Risks • Investment Risks • Liquidity Risks • Legal and Regulatory Risks • Rating Agency Risks • General Risk Factors Operational Risks The effects of the COVID-19 pandemic and its economic and societal impact could adversely impact our businesses, assets and financial performance.
These material risks include, but are not limited to, the following: • Operational Risks • Investment Risks • Liquidity Risks • Legal and Regulatory Risks • Rating Agency Risks • General Risk Factors Operational Risks We may not be able to extend or repay our indebtedness owed to our secured lenders, which would have a material adverse effect on our financial condition and ability to continue as a going concern.
Removed
COVID-19 has caused significant disruption to public health, the global economy, financial markets, and commercial, social and community activity generally. The pandemic and the economic uncertainty may result in higher levels of loss and claims activity in certain lines of business and our premium revenue may reduce by a suppression of national and global commercial activity.
Added
If we are unable to service or repay these obligations at maturity and we are otherwise unable to extend the maturity dates or refinance these obligations, we would be in default. We cannot provide any assurances that we will be able to raise 14 the necessary amount of capital to service these obligations.
Removed
If the ongoing pandemic continues to create disruptions or turmoil in the credit or financial markets, it could adversely affect our ability to access capital on favorable terms, or at all, and continue to meet our liquidity needs.
Added
Upon a default, our secured lenders would have the right to exercise their rights and remedies to collect, which would include foreclosing on our assets. Accordingly, a default would have a material adverse effect on our business, and we would likely be forced to seek bankruptcy protection.
Removed
Governmental, regulatory and judicial actions in response to the COVID-19 pandemic may adversely affect our financial performance and our ability to conduct our businesses.
Added
Our various loan agreements contain financial and non-financial covenants and provisions providing for cross-default. The evaluation of compliance with these provisions is subject to interpretation and the exercise of judgment. Our actual incurred losses may be greater than our loss and loss adjustment expense reserves, which could have a material adverse effect on our financial condition and results of operations.
Removed
Insurance and financial regulators may attempt to impose new obligations on insurers in connection with the pandemic that could materially affect our business or profitability, including any retroactive change to the terms of existing insurance contracts that specifically exclude business interruption losses arising from the pandemic.
Added
There may be limited capacity from third party insurers to support the business produce by our MGA. As discussed in Item 1 ~ Business , the Company is making a strategic shift wherein our Insurance Company Subsidiaries will underwrite significantly less business.
Removed
While we believe that any retroactive attempt to rewrite the terms of existing contracts would be unconstitutional, we cannot be certain of ultimate judicial outcomes. In addition, there is a risk that novel litigation theories, in conjunction with a diverse range of potential jury and judicial venues across many jurisdictions, could give rise to unforeseen pandemic related liability.
Added
The Company’s earned premium and investment income revenues will be substantially replaced with commission revenue generated by CIS, our MGA, producing premiums for third-party insurers. We cannot assure that we will be able to locate third party insurers to underwrite the business our MGA can produce.
Removed
The disruption and other effects caused by COVID-19 could adversely impact the efficiency and productivity of our Business operations. To protect our employees and in response to the global and regional restrictions on interpersonal contact and travel because of the COVID-19 pandemic, much of our work force is working remotely, placing increased demands on our IT systems.
Added
We rely on our systems and employees, and those of certain third ‑ party vendors and service providers in conducting our operations, and certain failures, including internal or external fraud, operational errors, or systems malfunctions, could materially adversely affect our operations.
Removed
There is no assurance that our ability to continue to function in this new environment will not be adversely affected by an extended period of limited access to our physical facilities or by other developments such as an extended disruption in the telecommunications and internet infrastructure that support our remote work capability. 15 Our actual incurred losses may be greater than our loss and loss adjustment expense reserves, which could have a material adverse effect on our financial condition and results of operations.
Added
As of December 31, 2023, the Company was not in compliance with the tangible net worth, dividend paying capacity, risk-based capital and consolidated debt to capital covenants on its senior secured notes.
Removed
We intend to continue to grow our business, which could require additional capital, systems development and skilled personnel.
Added
On March 27, 2024, the holders of the senior secured notes waived the December 31, 2023 covenants and modified the minimum requirements of the financial debt covenants beginning with the first quarter ending March 31, 2024. Management expects to be in compliance with all debt covenants in future periods.
Removed
We cannot assure you that we will be able to locate profitable business opportunities, meet our capital needs, expand our systems and our internal controls effectively, allocate our human resources optimally, identify qualified employees or agents or incorporate effectively the components of any businesses we may acquire in our effort to achieve growth.
Added
WPIC also fell below two other regulatory thresholds which are necessary to stay in compliance. Management is required to provide a plan to its domiciliary regulator that shows how the Companies will get above the minimum level requirements.
Removed
Our ability to make payments on our indebtedness is subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond our control.
Added
Management believes that the planned reduction in premium anticipated by a strategic shift to use third-party insurers for substantially all of its commercial lines business will be sufficient to bring the Companies back into compliance by December 31, 2024. Management expects to substantially cease all writings in WPIC by the end of the second quarter of 2024.
Removed
Best considers both companies to have a “good” ability to meet ongoing financial obligations. Kroll has given CIC and WPIC an insurance financial strength rating of BBB+ with a stable outlook as of the date of this Annual Report on Form 10-K. A BBB+ rating indicates that the insurer's financial condition is adequate. A.M.
Added
For more information about Management's strategic shift to non-risk bearing revenue, see Item 1 ~ Business and Item 7 ~ Management's Discussion and Analysis of Financial Condition and Results of Operations. We may become subject to additional government or market regulation which may have a material adverse impact on our business.
Removed
In addition, our 2015 Omnibus Incentive Plan permits the Board or a committee thereof to accelerate, vest or cause the restrictions to lapse with respect to outstanding equity awards, in the event of, or immediately prior to, a change in control. Such vesting or acceleration could discourage the acquisition of our Company.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeITEM 2. P ROPERTIES We lease office space in Troy, Michigan, where our principal executive office is located. We also lease offices in Southfield, Michigan; Jacksonville and Miami, Florida. We believe that our facilities are adequate for our current needs and that suitable additional or substitute space will be available as needed.
Biggest changeITEM 2. P ROPERTIES We lease office space in Troy, Michigan, where our principal executive office is located. We also lease offices in Southfield, Michigan; and Miami, Florida. We believe that our facilities are adequate for our current needs and that suitable additional or substitute space will be available as needed.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeITEM 3. LEGA L PROCEEDINGS We are party to legal proceedings which arise in the ordinary course of business. We believe that the outcome of such matters, individually and in the aggregate, will not have a material adverse effect on our consolidated financial position, operating results or liquidity. ITEM 4. MINE SA FETY DISCLOSURES Not Applicable. 31 PART II
Biggest changeITEM 3. LEGA L PROCEEDINGS We are party to legal proceedings which arise in the ordinary course of business. We believe that the outcome of such matters, individually and in the aggregate, will not have a material adverse effect on our consolidated financial position, operating results or liquidity. ITEM 4. MINE SA FETY DISCLOSURES Not Applicable. 32 PART II

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeRepurchases of Company's Stock On December 5, 2018, the Company's Board of Directors authorized a stock repurchase program, under which the Company may repurchase up to one million shares of the Company's common stock. Shares may be purchased in the open market or through negotiated transactions.
Biggest changeA substantially greater number of holders are beneficial owners whose shares are held of record by banks, brokers and other nominees. Repurchases of Company's Stock On December 5, 2018, the Company's Board authorized a stock repurchase program, under which the Company may repurchase up to one million shares of the Company's common stock.
Any future determination to declare cash dividends on our common stock will be made at the discretion of the board of directors and will depend on the financial condition, results of operations, capital requirements, general business conditions and other factors that the board of directors may deem relevant.
Any future determination to declare cash dividends on our common stock will be made at the discretion of the board of directors and will depend on the financial condition, results of operations, capital requirements, general business conditions and other factors that the Board may deem relevant.
No underwriters were involved in the foregoing sale of securities. The issuances of the securities described above were deemed to be exempt from registration under the Securities Act in reliance on Section 4(2) of the Securities Act as transactions by an issuer not involving a public offering.
No underwriters were involved in the foregoing sale of securities. The issuances of the securities described above were deemed to be exempt from registration under the Securities Act in reliance on Section 4(2) of the Securities Act as transactions by an issuer not involving a public offering. ITEM 6. [Reserved] 34
The company did not repurchase any shares of stock for the year ended December 31, 2022 related to the stock repurchase program. For the year ended December 31, 2022, the Company repurchased 1,968 shares of stock valued at approximately $4,000 related to the vesting of the Company’s restricted stock units.
The company did not repurchase any shares of stock for the year ended December 31, 33 2023 related to the stock repurchase program. For the year ended December 31, 2023, the Company repurchased 1,968 shares of stock valued at approximately $3,000 related to the vesting of the Company’s restricted stock units.
The program may be terminated or suspended at any time, at the discretion of the Company. The Company may in the future enter into a Rule 10b5-1 trading plan to effect a portion of the authorized purchases, if criteria set forth in the plan are met.
Shares may be purchased in the open market or through negotiated transactions. The program may be terminated or suspended at any time, at the discretion of the Company. The Company may in the future enter into a Rule 10b5-1 trading plan to effect a portion of the authorized purchases, if criteria set forth in the plan are met.
Big Beaver Rd., Suite 200 American Stock Transfer & Trust Co, LLC Troy, MI 48084 6201 15 th Avenue Phone: (248) 559-0840 Brooklyn, NY 11219 Corporate Counsel Honigman Miller Schwartz and Cohn, LLP 600 Woodward Avenue 2290 First National Building Detroit, MI 48226-3506 Shareholder Relations and Form 10-K A copy of our 2022 Annual Report and Form 10-K, as filed with the Securities and Exchange Commission, may be obtained upon written request to our Financial Reporting Department at our corporate headquarters at ir@cnfrh.com.
Big Beaver Rd., Suite 200 Equiniti Trust Company, LLC Troy, MI 48084 48 Wall Street Phone: (248) 559-0840 New York, NY 10005 Corporate Counsel Honigman, LLP 660 Woodward Avenue 2290 First National Building Detroit, MI 48226-3506 Shareholder Relations and Form 10-K A copy of our 2023 Annual Report and Form 10-K, as filed with the Securities and Exchange Commission, may be obtained upon written request to our Financial Reporting Department at our corporate headquarters at ir@cnfrh.com.
Upon the repurchase of the Company's shares, the shares remain authorized, but not issued or outstanding. Recent Sales of Unregistered Securities In August 2022, the Company issued $5.0 million of common equity through a private placement of 2,500,000 shares priced at $2.00 per share. The participants in the private placement consisted of members of the Company's Board of Directors.
Upon the Automatic Conversion, the holder shall be deemed to be the holder of record of the Company’s common stock issuable upon such conversion. In August 2022, the Company issued $5.0 million of common equity through a private placement of 2,500,000 shares priced at $2.00 per share. The participants in the private placement consisted of members of the Company's Board.
The Parent Company has not historically paid dividends and does not anticipate paying cash dividends on its common stock for the foreseeable future. 32 For additional information regarding dividend restrictions, refer to the Liquidity and Capital Resources section of Management’s Discussion and Analysis.
The Parent Company has not historically paid dividends and does not anticipate paying cash dividends on its common stock for the foreseeable future. Shareholders of Record Our common stock is traded on The Nasdaq Capital Market under the symbol "CNFR." As of April 1, 2024, there were 26 shareholders of record of our common stock.
Removed
Share Price and Dividend Information Our common stock is traded on the Nasdaq under the symbol “CNFR.” The following table sets forth the high and low sale prices of our common shares as reported by the Nasdaq for each period shown: High Low 2021 First Quarter 4.82 2.80 Second Quarter 4.08 2.50 Third Quarter 4.33 2.51 Fourth Quarter 3.07 2.10 2022 First Quarter 2.50 2.16 Second Quarter 2.44 1.38 Third Quarter 2.20 1.43 Fourth Quarter 2.32 1.34 Neither Michigan law nor our amended and restated articles of incorporation requires our board of directors to declare dividends on our common stock.
Added
Dividend Policy Neither Michigan law nor our amended and restated articles of incorporation requires our Board to declare dividends on our common stock.
Removed
Shareholders of Record As of March 27, 2023, there were 27 shareholders of record of our common stock. A substantially greater number of holders are beneficial owners whose shares are held of record by banks, brokers and other nominees.
Added
Upon the repurchase of the Company's shares, the shares remain authorized, but not issued or outstanding.
Added
Recent Sales of Unregistered Securities On December 20, 2023 (the “Initial Issue Date”), the Company issued $6.0 million of its newly designated Series A Preferred Stock (the "Series A Preferred Stock"), no par value, through a private placement of 1,000 shares of Series A Preferred Stock priced at $6,000 per share that matures on June 30, 2026 (the “Maturity Date”).
Added
The Series A Preferred Stock was sold to Clarkston 91 West LLC (the "Purchaser"), an entity affiliated with Gerald and Jeffrey Hakala, members of the Board of the Company.
Added
The sale of the Series A Preferred Stock was not registered under the Securities Act of 1933, as amended (the “Securities Act”), in reliance on the exemption from registration provided by Section 4(a)(2) of the Securities Act and certain rules and regulations promulgated thereunder.
Added
The Series A Preferred Stock shall only be convertible for shares of the Company’s common stock, no par value, at the Maturity Date.
Added
On the Maturity Date, each outstanding share of the Series A Preferred Stock, that has not otherwise been redeemed, shall automatically convert into 4,000 shares of the Company’s common stock, subject to adjustment for reverse and forward stock splits, stock dividends, stock combinations and other similar transactions of the common stock that occur after the Initial Issue Date (the “Automatic Conversion”).

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeThe following is a reconciliation of net income to adjusted operating income (dollars in thousands), as well as net income per share to adjusted operating income per share: For the Years Ended December 31, 2022 2021 2020 Net income (loss) $ (10,681 ) $ (1,094 ) $ 595 Less: Net realized investment gains (losses), net of tax (1,505 ) 2,878 8,126 Change in fair value of equity securities, net of tax 403 (2,020 ) 228 Gain from VSRM Transaction, net of tax 8,810 — — Loss portfolio transfer risk fee, net of tax (5,400 ) — — Other gains (losses), net of tax 59 11,664 260 Adjusted operating income (loss) $ (13,048 ) $ (13,616 ) $ (8,019 ) Weighted average common shares, diluted 10,692,090 9,691,998 9,625,059 Diluted income (loss) per common share: Net income (loss) $ (1.00 ) $ (0.11 ) $ 0.06 Less: Net realized investment gains (losses), net of tax (0.14 ) 0.30 0.84 Change in fair value of equity securities, net of tax 0.04 (0.21 ) 0.02 Gain from VSRM Transaction, net of tax 0.82 - - Loss portfolio transfer risk fee, net of tax (0.51 ) - - Other gains (losses), net of tax 0.01 1.20 0.03 Adjusted operating income (loss) per share $ (1.22 ) $ (1.40 ) $ (0.83 ) We use adjusted operating income and adjusted operating income per share, in conjunction with other financial measures, to assess our performance and to evaluate the results of our business.
Biggest changeThe following is a reconciliation of net income to adjusted operating income (dollars in thousands), as well as net income per share to adjusted operating income per share: For the Years Ended December 31, 2023 2022 Net income (loss) $ (25,904 ) $ (10,681 ) Less: Net realized investment gains (losses) (20 ) (1,505 ) Change in fair value of equity securities 608 403 Gain from VSRM Transaction — 8,810 Loss portfolio transfer risk fee — (5,400 ) Gain from sale of renewal rights 2,335 — Other gains (losses) — 59 Impact of income tax expense (benefit) from adjustments * — — Adjusted operating income (loss) $ (28,827 ) $ (13,048 ) Weighted average common shares, diluted 12,220,511 10,692,090 Diluted income (loss) per common share: Net income (loss) $ (2.12 ) $ (1.00 ) Less: Net realized investment gains (losses) — (0.14 ) Change in fair value of equity securities 0.05 0.04 Gain from VSRM Transaction — 0.82 Loss portfolio transfer risk fee — (0.51 ) Gain from sale of renewal rights 0.19 — Other gains (losses) — 0.01 Impact of income tax expense (benefit) from adjustments * — — Adjusted operating income (loss) per share $ (2.36 ) $ (1.22 ) * The Company has recorded a full valuation allowance against its deferred tax assets as of December 31, 2023 and 2022.
Financing Activities . Cash provided by financing activities for the years ended December 31, 2022, was $2.1 million compared to $5.0 million of cash used by financing activities for years ended December 31, 2021. The $7.1 million increase was largely attributed to the Company raising $5.0 million through the issuance of additional common stock in August 2022.
Cash provided by financing activities for the years ended December 31, 2022, was $2.1 million compared to $5.0 million of cash used by financing activities for years ended December 31, 2021. The $7.1 million increase was largely attributed to the Company raising $5.0 million through the issuance of additional common stock in August 2022.
The case reserve is based primarily upon an evaluation of the following factors: • The type of loss; • The severity of injury or damage; • Our knowledge of the circumstances surrounding the claim; • The jurisdiction of the occurrence; • Policy provisions related to the claim; 39 • Expenses intended to cover the ultimate cost of settling claims, including investigation and defense of lawsuits resulting from such claims, costs of outside adjusters and experts, and all other expenses which are identified to the case; and • Any other information considered pertinent to estimating the indemnity and expense exposure presented by the claim.
The case reserve is based primarily upon an evaluation of the following factors: • The type of loss; • The severity of injury or damage; • Our knowledge of the circumstances surrounding the claim; • The jurisdiction of the occurrence; • Policy provisions related to the claim; • Expenses intended to cover the ultimate cost of settling claims, including investigation and defense of lawsuits resulting from such claims, costs of outside adjusters and experts, and all other expenses which are identified to the case; and • Any other information considered pertinent to estimating the indemnity and expense exposure presented by the claim.
We do not discount the loss and LAE reserves for the time value of money. Case reserves are initially set by our claims personnel. When a claim is reported to us, our claims department completes a case‑basis valuation and establishes a case reserve for the estimated amount of the probable ultimate losses and LAE associated with that claim.
We do not discount the loss and LAE reserves for the time value of money. Case reserves are initially set by our claims personnel. When a claim is reported to us, our claims department completes a case‑basis valuation and establishes a case reserve for the estimated amount of the probable ultimate losses and LAE 38 associated with that claim.
The shareholders' equity amounts include an income tax rate assumption of 21%, however due to the net operating losses (“NOL”) available to use against taxable income and the offsetting valuation allowance, there is no difference between pre-tax income and shareholders’ equity in this schedule. The dollar amounts in the table are in thousands.
The shareholders' equity amounts include an income tax rate assumption of 21%, however due to the net operating losses (“NOL”) available to use against taxable income and the offsetting valuation 41 allowance, there is no difference between pre-tax income and shareholders’ equity in this schedule. The dollar amounts in the table are in thousands.
The Company also utilized $12.5 million of federal tax net operating losses carried forward and $14.8 million state tax net operating losses 36 carried forward, for a net-of-tax benefit of $9.4 million. VSRM retained $8.9 million of debt, and $9.4 million of tax liabilities, as well as other smaller assets and liabilities that did not go with the transaction.
The Company also utilized $12.5 million of federal tax net operating losses carried forward and $14.8 million state tax net operating losses carried forward, for a net-of-tax benefit of $9.4 million. VSRM retained $8.9 million of debt, and $9.4 million of tax liabilities, as well as other smaller assets and liabilities that did not go with the transaction.
Regulatory and Rating Issues The NAIC has a RBC formula to be applied to all property and casualty insurance companies. The formula measures required capital and surplus based on an insurance company’s products and investment portfolio and is used as a tool to evaluate the capital adequacy of regulated companies.
Regulatory and Rating Issues The NAIC has a RBC formula to be applied to all property and casualty insurance companies. The formula measures required capital and surplus based on an insurance company’s products and investment portfolio and is used as a tool to 54 evaluate the capital adequacy of regulated companies.
Our actuaries give different weights to each of these methods based upon the amount of historical experience data by line of business and by accident year, and based on judgment as to what method is believed to result in the most accurate estimate.
Our actuaries give different weights to each of these methods based upon the amount of historical experience data by line of business and by accident year, and based on judgment as to what method is believed to result in the most accurate 39 estimate.
We organize our operations in three insurance businesses: commercial insurance lines, personal lines, and agency business. Together, the commercial and personal lines refer to “underwriting” operations that take insurance risk, and the agency business refers to non-risk insurance business. 38 Through our commercial insurance lines, we offer coverage for both commercial property and commercial liability.
We organize our operations in three insurance businesses: commercial insurance lines, personal lines, and agency business. Together, the commercial and personal lines refer to “underwriting” operations that take insurance risk, and the agency business refers to non-risk insurance business. Through our commercial insurance lines, we offer coverage for both commercial property and commercial liability.
Interest expense includes the amortization of debt issuance costs relating to the Notes which is $260,000 per annum over the 5-year life of the Notes. The interest expense relating to the amortization of debt issuance costs for the existing $10.5 million of the Subordinated Notes is $51,000 per annum over the 20-year life of the Subordinated Notes.
Interest expense includes the amortization of debt issuance costs relating to the old notes which is $260,000 per annum over the 5-year life of the Notes. The interest expense relating to the amortization of debt issuance costs for the existing $10.5 million of the subordinated notes is $51,000 per annum over the 20-year life of the subordinated notes.
These estimates, which are referred to as unallocated loss adjustment expense 40 ("ULAE") reserves, are based on internal cost studies and analyses reflecting the relationship of ULAE paid to actual paid and incurred losses.
These estimates, which are referred to as unallocated loss adjustment expense ("ULAE") reserves, are based on internal cost studies and analyses reflecting the relationship of ULAE paid to actual paid and incurred losses.
The fair value of the equity interest of VSRM immediately prior to the acquisition by Sycamore was $10.1 million. The fair value techniques used to measure the fair value of VSRM included using the carrying value of all current assets and liabilities as their carrying values approximated their fair values.
The fair value of the equity interest of VSRM immediately prior to the acquisition by CIS was $10.1 million. The fair value techniques used to measure the fair value of VSRM included using the carrying value of all current assets and liabilities as their carrying values approximated their fair values.
We applied the sensitivity factors to each accident year amount and have calculated the amount of potential net loss and LAE reserve change and the impact on 2022 reported pre-tax income and on net income and shareholders’ equity at December 31, 2022.
We applied the sensitivity factors to each accident year amount and have calculated the amount of potential net loss and LAE reserve change and the impact on 2023 reported pre-tax income and on net income and shareholders’ equity at December 31, 2023.
While inquiries from regulators are not uncommon, our Insurance Company Subsidiaries have not experienced any regulatory actions due to their IRIS ratio results or otherwise. Recently Issued Accounting Pronouncements Refer to Note 1 ~ Summary of Significant Accounting Policies: Recently Issued Accounting Guidance of the Notes to the Consolidated Financial Statements for detailed information. 58
While inquiries from regulators are not uncommon, our Insurance Company Subsidiaries have not experienced any regulatory actions due to their IRIS ratio results. Recently Issued Accounting Pronouncements Refer to Note 1 ~ Summary of Significant Accounting Policies: Recently Issued Accounting Guidance of the Notes to the Consolidated Financial Statements for detailed information.
Secondarily, 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.
Secondarily, the Parent Company may receive dividends from the Insurance Company Subsidiaries and wholesale agency; 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.
The Company had a $10.0 million line of credit during 2022 and 2021, which it drew upon and paid down at various times. This contributed to the interest expense in 2022 and 2021. The Company had no outstanding balance on its line of credit on December 31, 2022, as the line of credit agreement matured on December 1, 2022.
The Company had a $10.0 million line of credit during 2022, which it drew upon and paid down at various times. This contributed to the interest expense in 2022. The Company had no outstanding balance on its line of credit on December 31, 2022, as the line of credit agreement matured on December 1, 2022, and was not renewed.
Our ability to service debt, and pay administrative expenses is primarily reliant upon our intercompany service fees paid by the Insurance Company Subsidiaries to the holding company for management, administrative, and information technology services provided to the Insurance Company Subsidiaries by the Parent Company.
Our ability to service debt, and pay administrative expenses is primarily reliant upon our intercompany service fees paid by the Insurance Company Subsidiaries and wholesale agency to the holding company for management, administrative, and information technology services provided to the Insurance Company Subsidiaries and the wholesale agency by the Parent 51 Company.
The Company also recorded a tax benefit of $9.4 million from the utilization of net operating loss tax carryforwards ("NOLs") applied against the taxable gain on the transaction. The deferred tax assets associated with the NOLs had a valuation allowance against it, and thus there was the recognition of the benefit in the period it was used.
The Company also recorded a tax benefit of $9.4 million from the utilization of NOL carryforwards applied against the taxable gain on the transaction. The deferred tax assets associated with the NOLs had a valuation allowance against it, and thus there was the recognition of the benefit in the period it was used.
The following table displays ultimate net loss and LAE and net loss and LAE reserves by accident year for the year ended December 31, 2022.
The following table displays ultimate net loss and LAE and net loss and LAE reserves by accident year for the year ended December 31, 2023.
Of the federal NOL amount, $7.6 million are subject to limitations under Section 382 of the Internal Revenue Code. These net NOL carryforwards are limited in the amount that can be utilized in any one year and may expire before they are realized.
Of the federal NOL amount, $19.5 million are subject to limitations under Section 382 of the Internal Revenue Code. These net NOL carryforwards are limited in the amount that can be utilized in any one year and may expire before they are realized.
The Company entered into a loss portfolio transfer reinsurance agreement on November 1, 2022 with Fleming Re in order to reduce its exposure to future unfavorable development on its reserves. The Company was charged a one-time risk fee of $5.4 million, which was reflected as a non-operating loss.
The Company entered into a loss portfolio transfer reinsurance agreement on November 1, 2022 with Fleming Re in order to reduce its exposure to future unfavorable development on its reserves. The Company was charged a one-time risk fee of $5.4 million.
Accordingly, the ultimate settlement of losses and the related LAE may vary significantly from the estimates included in our financial statements. We continually review our estimates and adjust them as we believe appropriate as our experience develops or new information becomes known to us.
Accordingly, the ultimate settlement of losses and the related LAE may vary significantly from the estimates included in our financial statements. We continually review our estimates and adjust them as we believe appropriate as our experience develops or new information becomes known to us. Such adjustments are included in current operations.
A valuation allowance of $21.7 million and $14.6 million has been recorded against the gross deferred tax assets as of December 31, 2022 and 2021, respectively, as the Company has recognized a three-year cumulative loss as of December 31, 2022 which is significant negative evidence to support the lack of recoverability of those deferred tax assets in accordance 43 with ASC 740, Income Taxes .
A valuation allowance of $28.0 million and $21.7 million has been recorded against the gross deferred tax assets as of December 31, 2023 and 2022, respectively, as the Company has recognized a three-year cumulative loss as of December 31, 2023 which is significant negative evidence to support the lack of recoverability of those deferred tax assets in accordance with ASC 740, Income Taxes .
We believe that it is useful for investors to evaluate adjusted operating income and adjusted operating income per share, along with net income and net income per share, when reviewing and evaluating our performance. 44 Executive Overview The Company's gross written premiums increased $5.9 million, or 4.5%, to $138.0 million in 2022, compared to $132.1 million in 2021.
We believe that it is useful for investors to evaluate adjusted operating income and adjusted operating income per share, along with net income and net income per share, when reviewing and evaluating our performance. 44 Executive Overview The Company's gross written premiums increased $5.8 million, or 4.2%, to $143.9 million in 2023, compared to $138.0 million in 2022.
As of December 31, 2022, the Company has recorded losses through the $5.5 million corridor and $644,000 into the $20.0 million layer. The Company paid $25.0 million in cash on October 14, 2022, which was netted down for claims paid through September 30, 2022 and $13.6 million of funds withheld.
As of December 31, 2023, the Company has recorded losses through the $5.5 million corridor and $9.1 million into the $20.0 million layer. The Company paid $25.0 million in cash on October 14, 2022, which was netted down for claims paid through September 30, 2022, totaling $7.6 million, and $13.6 million of funds withheld.
Fleming Re is then responsible to cover paid losses in excess of $46.3 million up to $66.3 million. As of December 31, 2022, the Company has recorded losses through the $5.5 million corridor and $644,000 into the $20.0 million layer.
Fleming Re is then responsible to cover paid losses in excess of $46.3 million up to $66.3 million. As of December 31, 2023, the Company has recorded losses through the $5.5 million corridor and $9.1 million into the $20.0 million layer.
Such adjustments are included in current operations. 41 Our loss and LAE reserves do not represent an exact measurement of liability, but are estimates. The most significant assumptions affecting our IBNR reserve estimates are the loss development factors applied to paid losses and case reserves to develop IBNR by line of business and accident year.
Our loss and LAE reserves do not represent an exact measurement of liability, but are estimates. The most significant assumptions affecting our IBNR reserve estimates are the loss development factors applied to paid losses and case reserves to develop IBNR by line of business and accident year.
Our revenues are primarily derived from premiums earned from our insurance operations. We also generate other revenues through investment income and other income which mainly consists of: installment fees and policy issuance fees generally related to the policies we write. Our expenses consist primarily of losses and loss adjustment expenses, agents’ commissions, and other underwriting and administrative expenses.
We also generate other revenues through investment income and other income which mainly consists of: installment fees and policy issuance fees generally related to the policies we write. Our expenses consist primarily of losses and loss adjustment expenses, agents’ commissions, and other underwriting and administrative expenses.
Investment Valuation and Impairment We carry debt securities classified as available‑for‑sale at fair value, and unrealized gains and losses on such securities, net of any deferred taxes, are reported as a separate component of accumulated other comprehensive income.
Investment Valuation and Credit Losses We carry debt securities classified as available-for-sale at fair value, and unrealized gains and losses on such securities, totaled $13.3 million as of December 31, 2023, net of any deferred taxes, are reported as a separate component of accumulated other comprehensive income.
We carry other equity investments that do not have a readily 42 determinable fair value at cost, less impairment and adjusted for observable price changes under the measurement alternative provided under GAAP. We review these investments for impairment during each reporting period. We do not have any securities classified as trading or held to maturity.
We carry other equity investments that do not have a readily determinable fair value at cost, less impairment and adjusted for observable price changes under the measurement alternative provided under GAAP. We review the equity securities and other equity investments for impairment during each reporting period.
Gross written premiums for our small business programs increased by $4.5 million, or 5.3%, to $89.9 million, for the year ended December 31, 2022, compared to $85.4 million for the year ended December 31, 2021.
Gross written premiums for our small business programs decreased by $4.3 million, or 4.7%, to $85.6 million, for the year ended December 31, 2023, compared to $89.9 million for the year ended December 31, 2022.
The wholesale agency business segment provides our agents with more insurance product options. However, as a result of the sale of certain agency business on June 30, 2021, going forward, our agency segment will not be producing any significant amounts of business for third party insurers and will produce approximately 50% less business for the Insurance Company Subsidiaries.
The wholesale agency business segment provides our agents 37 with more insurance product options. As a result of the sale of certain agency business on June 30, 2021, more recently our agency segment was not producing significant amounts of business for third party insurers and produced approximately 50% less business for the Insurance Company Subsidiaries.
This increase was due to an increase in interest income in our debt securities due to higher interest rates in 2022. Average invested assets during 2022 were $160.1 million compared to $183.0 million for the same period in 2021. The investment portfolio was comprised of 81.2% debt securities, 3.5% equity securities, and 15.3% short-term investments as of December 31, 2022.
This increase was due to an increase in interest income in our debt securities due to higher interest rates in 2023. Average invested assets during 2023 were $141.7 million compared to $160.1 million for the same period in 2022. The investment portfolio was comprised of 84.1% debt securities, 1.6% equity securities, and 14.3`% short-term investments as of December 31, 2023.
The expense ratio excludes wholesale agency and Corporate expenses. 48 The table below provides the expense ratio by major component: Years Ended December 31, 2022 2021 Commercial Lines Policy acquisition costs 21.8 % 29.2 % Operating expenses 16.1 % 13.2 % Total 37.9 % 42.4 % Personal Lines Policy acquisition costs 28.8 % 29.6 % Operating expenses 12.2 % 12.1 % Total 41.0 % 41.7 % Total Underwriting Policy acquisition costs 23.0 % 29.3 % Operating expenses 15.4 % 13.1 % Total 38.4 % 42.4 % Our expense ratio decreased by 4.0% to 38.4% for the year ended December 31, 2022, as compared to the same period in 2021.
The table below provides the expense ratio by major component: Years Ended December 31, 2023 2022 Commercial Lines Policy acquisition costs 15.3 % 21.8 % Operating expenses 20.2 % 16.1 % Total 35.5 % 37.9 % Personal Lines Policy acquisition costs 26.8 % 28.8 % Operating expenses 13.9 % 12.2 % Total 40.7 % 41.0 % Total Underwriting Policy acquisition costs 18.8 % 23.0 % Operating expenses 18.3 % 15.4 % Total 37.1 % 38.4 % Our expense ratio decreased by 1.3% to 37.1% for the year ended December 31, 2023, as compared to the same period in 2022.
If the $21.7 million valuation allowance as of December 31, 2022 were reversed in the future, it would increase book value by $1.77 per share. The net deferred tax assets were zero as of December 31, 2022 and 2021.
If the $28.0 million valuation allowance as of December 31, 2023 were reversed in the future, it would increase book value by $2.29 per share. The net deferred tax assets were zero as of December 31, 2023 and 2022.
Of the $24.3 million of adverse development, $23.9 million was related to the Company's commercial lines of business, while $406,000 was related to the Company's personal lines of business.
The Company experienced $24.3 million of adverse development for the year ended December 31, 2022. Of the $24.3 million of adverse development, $23.9 million was related to the Company's commercial lines of business, while $406,000 was related to the Company's personal lines of business.
Non-GAAP Financial Measures Adjusted Operating Income (Loss) and Adjusted Operating Income (Loss) Per Share Adjusted operating income (loss) and adjusted operating income (loss) per share are non-GAAP measures that represent net income allocable to common shareholders excluding net realized investment gains and losses, net of tax, change in fair value of equity securities, net of tax, the gain from VSRM Transaction, net of tax, the loss portfolio transfer risk fee, net of tax, and other gains and losses, net of tax.
Changes in tax laws and rates may affect recorded deferred tax assets and liabilities and our effective tax rate in the future. 43 Non-GAAP Financial Measures Adjusted Operating Income (Loss) and Adjusted Operating Income (Loss) Per Share Adjusted operating income (loss) and adjusted operating income (loss) per share are non-GAAP measures that represent net income allocable to common shareholders excluding net realized investment gains (losses), change in fair value of equity securities, the gain from sale of renewal rights, the gain from VSRM Transaction, the loss portfolio transfer risk fee and other gains (losses).
Unpaid Loss and Loss Adjustment Expense Reserves Our recorded loss and loss adjustment expenses ("LAE") reserves represent management’s best estimate of unpaid loss and LAE at each balance sheet date, based on information, facts and circumstances known at such time.
See the Consolidated Financial Statements Note 1 ~ Summary of Significant Accounting Policies, for further details. Unpaid Loss and Loss Adjustment Expense Reserves Our recorded loss and loss adjustment expenses ("LAE") reserves represent management’s best estimate of unpaid loss and LAE at each balance sheet date, based on information, facts and circumstances known at such time.
Commercial lines gross written premiums decreased $207,000, or 0.2%, to $116.9 million, for the year ended December 31, 2022, compared to $117.1 million for the year ended December 31, 2021.
Commercial lines gross written premiums decreased $9.8 million, or 8.4%, to $107.1 million, for the year ended December 31, 2023, compared to $116.9 million for the year ended December 31, 2022.
The Company also experienced an increase of $32.8 million from its sale of agency business in 2022, compared to the same period in 2021. Cash provided by investing activities for the year ended December 31, 2021 was $1.4 million. Cash used in investing activities was $7.3 million in 2020.
The $55.1 million increase in cash provided by investing activities over the prior year was driven by $34.3 million increase in net proceeds from sale of investments in 2022, compared to the same period in 2021. The Company also experienced an increase of $32.8 million from its sale of agency business in 2022, compared to the same period in 2021.
Currently, we are authorized to write insurance as an excess and surplus lines carrier in 45 states, including the District of Columbia. We are licensed to write insurance as an admitted carrier in 42 states, including the District of Columbia, and we offer our insurance products in all 50 states.
We are licensed to write insurance as an admitted carrier in 42 states, including the District of Columbia, and we offer our insurance products in all 50 states. Our revenues are primarily derived from premiums earned from our insurance operations.
While the ratios, individually and collectively, are useful tools for identifying companies that may be experiencing financial difficulty, they are only a guide for regulators and should not be considered an absolute indicator of a Company's financial condition.
State insurance regulators review the IRIS ratio results to determine if an insurer is in need of further regulatory scrutiny or action. While the ratios, individually and collectively, are useful tools for identifying companies that may be experiencing financial difficulty, they are only a guide for regulators and should not be considered an absolute indicator of a Company's financial condition.
Critical Accounting Policies and Estimates General We identified the accounting estimates below as critical to the understanding of our financial position and results of operations. Critical accounting estimates are defined as those estimates that are both important to the portrayal of our financial condition and results of operations and which require us to exercise significant judgment.
Critical accounting estimates are defined as those estimates that are both important to the portrayal of our financial condition and results of operations and which require us to exercise significant judgment. We use significant judgment concerning future results and developments in applying these critical accounting estimates and in preparing our consolidated financial statements.
The Company maintained a $10.0 million line of credit with a national bank (the “Lender”) that matured on December 1, 2022. The line of credit was not renewed after it matured.
The Company maintained a $10.0 million line of credit with a national bank that matured on December 1, 2022. The line of credit was not renewed after it matured. The line of credit contained interest at the London Interbank rate ("LIBOR") plus 2.75% per annum, payable monthly.
As of December 31, 2021, the Company has net operating loss carryforwards for federal income tax purposes of $59.7 million, of which $49.8 million expire in tax years 2028 through 2041 and $9.9 million never expire.
As of December 31, 2023, the Company has net operating loss carryforwards for federal income tax purposes of $80.8 million, of which $78.2 million expire in tax years 2030 through 2043 and $10.3 million will never expire.
This increase was offset by our hospitality programs gross written premiums, which decreased by $4.7 million, or 14.9%, to $27.0 million, for the year ended December 31, 2022, compared to $31.7 million for the year ended December 31, 2021.
Gross written premiums for our hospitality programs decreased by $5.5 million, or 20.5%, to $21.5 million for the year ended December 31, 2023, compared to $27.0 million for the year ended December 31, 2022.
The Company reported a deferred tax benefit of $9.4 million and $0 for the years ended December 31, 2022 and 2021, respectively. There is a $21.7 million valuation allowance against 100% of the net deferred tax assets at December 31, 2022, which would increase book value by $1.77 per share if reversed in the future.
The Company reported a deferred tax benefit of $17,000 and $9.4 million for the years ended December 31, 2023 and 2022, respectively. There is a $28.0 million valuation allowance against 100% of the net deferred tax assets at December 31, 2023. The valuation allowance was $21.7 million as of December 31, 2022.
Cash used by operating activities for the year ended December 31, 2022 was $40.5 million compared to cash provided by operating activities of $5.4 million for the same period in 2021. The $45.9 million decrease was primarily due to a $45.2 million increase in paid losses and $8.0 million decrease in premiums collected, net of reinsurance premiums.
Cash used in operating activities for the year ended December 31, 2022 was $40.5 million compared to cash provided by operating activities of $5.4 million for the same period in 2021.
This resulted in the recognition of an $8.8 million non-operating gain reported in the Consolidated Statements of Operations as Gain from VSRM Transaction in the fourth quarter of 2022.
The Company recognized CIS' purchase of the individual's shares of VSRM as a step acquisition and revalued all assets and liabilities upon the acquisition date. This resulted in the recognition of an $8.8 million non-operating gain reported in the Consolidated Statements of Operations as Gain from VSRM Transaction in the fourth quarter of 2022.
Generally, the limitations are based on the greater of statutory net income for the preceding year or 10% of statutory surplus at the end of the preceding year. No dividends were paid from our Insurance Company Subsidiaries in 2022, 2021 or 2020.
Generally, the limitations are based on the greater of statutory net income for the preceding year or 10% of statutory surplus at the end of the preceding year. We received $1.4 million in dividends paid from RCIC in 2023.
Of this amount, $7.6 million are limited in the amount that can be utilized in any one year and may expire before they are realized under Section 382 of the Internal Revenue Code.
Of this amount, $19.5 million are limited in the amount that can be utilized in any one year and may expire before they are realized under Section 382 of the Internal Revenue Code. The Company has state net operating loss carryforwards of $120.3 million, which expire in tax years 2024 through 2043.
The Company's borrowings under debt arrangements were also $2.7 million less in 2021 compared to 2020. Outstanding Debt On April 24, 2020, the Company received a $2.7 million PPP loan from the line of credit Lender pursuant to the Paycheck Protection Program of the CARES Act administered by the SBA.
On April 24, 2020, the Company received a $2.7 million PPP loan from the line of credit lender pursuant to the Paycheck Protection Program of the CARES Act administered by the SBA. The Company received notice from the SBA that the loan was 100% forgiven, including accrued interest, on July 8, 2021.
The investment portfolio was comprised of 82.5% debt securities, 7.6% equity securities, and 9.9% short-term investments as of December 31, 2021. The debt securities portfolio had an average credit quality was AA+ and AA at December 31, 2022 and 2021, respectively.
The investment portfolio was comprised of 81.2% debt securities, 3.5% equity securities, and 15.3% short-term investments as of December 31, 2022. The debt securities portfolio had an average credit quality was AA+ at December 31, 2023 and 2022, respectively. The portfolio produced a tax-equivalent book yield of 3.3% and 2.3% for the years ended December 31, 2023 and 2022, respectively.
The $2.4 million increase was primarily due to a $12.4 million increase in premiums collected, net of reinsurance premiums. This increase was offset by a $6.6 million increase in paid claims, a $2.7 million increase in acquisition costs paid, and a $1.4 million decrease in investment income received. Investing Activities.
The $45.9 million decrease was primarily due to a $45.2 million increase in paid losses and $8.0 million decrease in premiums collected, net of reinsurance premiums and a $5.4 million risk fee paid. This decrease was offset by a $6.9 million decrease in the amount of acquisition costs paid during 2022 compared to 2021. Investing Activities.
Year Ended December 31, 2022 Commercial Lines Personal Lines Total Accident year net losses and LAE $ 46,884 $ 10,272 $ 57,156 Net (favorable) adverse development 23,878 406 24,284 Calendar year net loss and LAE $ 70,762 $ 10,678 $ 81,440 Accident year loss ratio 57.9 % 64.3 % 58.9 % Net (favorable) adverse development 29.4 % 2.6 % 25.0 % Calendar year loss ratio 87.3 % 66.9 % 83.9 % Year Ended December 31, 2021 Commercial Lines Personal Lines Total Accident year net losses and LAE $ 45,393 $ 5,036 $ 50,429 Net (favorable) adverse development 18,475 957 19,432 Calendar year net loss and LAE $ 63,868 $ 5,993 $ 69,861 Accident year loss ratio 51.6 % 45.0 % 50.9 % Net (favorable) adverse development 21.0 % 8.6 % 19.6 % Calendar year loss ratio 72.6 % 53.6 % 70.5 % Net losses and LAE increased by $11.5 million, or 16.6%, to $81.4 million for the year ended December 31, 2022, compared to $69.9 million for the year ended December 31, 2021.
Year Ended December 31, 2023 Commercial Lines Personal Lines Total Accident year net losses and LAE $ 43,622 $ 20,958 $ 64,580 Net (favorable) adverse development 19,206 (1,373 ) 17,833 Calendar year net loss and LAE $ 62,828 $ 19,585 $ 82,413 Accident year loss ratio 73.4 % 84.5 % 76.6 % Net (favorable) adverse development 32.3 % (5.6 )% 21.2 % Calendar year loss ratio 105.7 % 78.9 % 97.8 % Year Ended December 31, 2022 Commercial Lines Personal Lines Total Accident year net losses and LAE $ 46,884 $ 10,272 $ 57,156 Net (favorable) adverse development 23,878 406 24,284 Calendar year net loss and LAE $ 70,762 $ 10,678 $ 81,440 Accident year loss ratio 57.9 % 64.3 % 58.9 % Net (favorable) adverse development 29.4 % 2.6 % 25.0 % Calendar year loss ratio 87.3 % 66.9 % 83.9 % Net losses and LAE increased by $973,000, or 1.2%, to $82.4 million for the year ended December 31, 2023, compared to $81.4 million for the year ended December 31, 2022.
Income Taxes As of December 31, 2022, we have federal and state income tax NOL carryforwards of $65.6 million and $107.2 million, respectively. Of the NOL carryforwards, $50.4 million will expire in tax years 2030 through 2042 and $15.2 million will never expire.
Income Taxes As of December 31, 2023, we have federal and state income tax net operating loss ("NOL") carryforwards of $80.8 million and $120.3 million, respectively. Of the NOL carryforwards, $78.2 million will expire in tax years 2030 through 2043 and $10.3 million will never expire.
Actual results may differ materially from the estimates and assumptions used in preparing the consolidated financial statements. We evaluate our estimates regularly using information that we believe to be relevant. See the Consolidated Financial Statements Note 1 ~ Summary of Significant Accounting Policies, for further details.
These judgments and estimates affect the reported amounts of assets, liabilities, revenues and expenses and the disclosure of material contingent assets and liabilities. Actual results may differ materially from the estimates and assumptions used in preparing the consolidated financial statements. We evaluate our estimates regularly using information that we believe to be relevant.
The carrying value of the Notes and Subordinated Notes are offset by $1.0 million of debt issuance costs that will be amortized through interest expense over the life of the loans. Refer to Note 9 ~ Debt of the Notes to the Consolidated Financial Statements, for additional information regarding our outstanding debt.
As of December 31, 2023, the carrying value of the New Public Notes and Senior Secured Notes were offset by $1.7 million and $897,000 of capitalized debt issuance costs, respectively. The debt issuance costs are amortized through interest expense over the life of the loans. Refer to Note 10 ~ Debt for additional information regarding our outstanding debt.
Losses and Loss Adjustment Expenses The tables below detail our losses and LAE and loss ratios for the years ended December 31, 2022 and 2021 (dollars in thousands).
This homeowners business was contributed to SSU in December of 2022, resulting in a significant decline in other income during 2023. Losses and Loss Adjustment Expenses The tables below detail our losses and LAE and loss ratios for the years ended December 31, 2023 and 2022 (dollars in thousands).
This was due to a substantial increase in gross written premiums in our personal lines of business, specifically low-value dwelling. This increase was primarily due to additional exposures and increased rates. Our personal lines gross written premium increased $6.1 million, or 40.8%, to $21.1 million in 2022, compared to $15.0 million in 2021.
This was primarily due to increased gross written premiums in our personal lines of business from increases in exposure units and, to a lesser degree, increased rates. Our personal lines gross written premium increased $15.6 million, or 73.8%, to $36.8 million in 2023, compared to $21.2 million in 2022.
It is calculated by dividing the sum of policy acquisition costs and other underwriting expenses by the sum of net earned premiums and other income of the underwriting business. Costs that cannot be readily identifiable as a direct cost of a segment or product line remain in Corporate for segment reporting purposes.
Costs that cannot be readily identifiable as a direct cost of a segment or product line remain in Corporate for segment reporting purposes. The expense ratio excludes wholesale agency and Corporate expenses.
Interest expense includes the amortization of debt issuance costs relating to the Notes which is $260,000 per annum over the 5-year life of the Notes. The interest expense relating to the amortization of debt issuance costs for the existing $10.5 million of the Subordinated Notes is $51,000 per annum over the 20-year life of the Subordinated Notes.
The interest expense relating to the amortization of debt issuance costs on the new notes is $353,000 per annum over the 5-year life of the new notes. The interest expense relating to the amortization of debt issuance costs on the senior secured notes is $189,000 per annum over the 5-year life of the senior secured notes.
("Venture") and has accounted for its ownership under the equity method of accounting. On October 13, 2022, Sycamore purchased the other 50% of Venture from an individual for $9.7 million. Following this purchase, Sycamore owned 100% of Venture, which was then renamed to VSRM, Inc. ("VSRM"). VRSM and its two wholly owned subsidiaries, The Roots Insurance Agency, Inc.
See Note 10 ~ Debt for further details. VSRM Transaction Prior to October 13, 2022, CIS, formally known as Sycamore, owned 50% of Venture Agency Holdings, Inc. ("Venture") and has accounted for its ownership under the equity method of accounting. On October 13, 2022, CIS purchased the other 50% of Venture from an individual for $9.7 million.
Cash used by financing activities for the years ended December 31, 2021, was $5.0 million compared to $5.1 million of cash provided by financing activities for years ended December 31, 2020. The $10.1 million decrease in cash provided by financing activities was mostly due to the Company paying down $8.0 million on its line of credit during 2021.
Financing Activities . Cash used in financing activities for the years ended December 31, 2023, was $3.2 million compared to $2.1 million of cash provided by financing activities for years ended December 31, 2022. The $5.3 million decrease was largely attributed to the Company paying down $13.9 million of its existing public debt that was due on September 30, 2023.
We do not believe the rating changes will have a material effect on our business. Business Overview We are an insurance holding company that markets and services our product offerings through specialty commercial and specialty personal insurance business lines. Our growth has been significant since our founding in 2009.
Business Overview We are an insurance holding company that markets and services our product offerings through specialty commercial and specialty personal insurance business lines. Our growth has been significant since our founding in 2009. Currently, we are authorized to write insurance as an excess and surplus lines carrier in 45 states, including the District of Columbia.
However, going forward, we would expect to see higher ceded earned premiums and lower acquisition costs as a result of this treaty. 52 Other Income Other income consists primarily of fees charged to policyholders by the Company for services outside of the premium charge, such as installment billings and policy issuance costs.
In 2023, the Company recorded $5.2 million of commission revenue and $5.2 million of commission expense as a result of this arrangement. Other Income Other income consists primarily of fees charged to policyholders by the Company for services outside of the premium charge, such as installment billings and policy issuance costs.
The Company reported a net loss of $10.7 million, or $1.00 per share, in 2022, compared to a net loss of $1.1 million, or $0.11 per share, in 2021.
The Company reported a net loss of $25.9 million, or $2.12 per share, in 2023, compared to a net loss of $10.7 million, or $1.00 per share, in 2022. Adjusted operating loss, a non-GAAP measure, was $28.8 million, or $2.36 per share, in 2023, compared to $13.0 million, or $1.22 per share, in 2022.
The following table provides the underwriting gain or loss for the years ended December 31, 2022 and 2021 (dollars in thousands): Underwriting Gain (Loss) Years Ended December 31, 2022 2021 Change Commercial Lines $ (25,845 ) $ (13,229 ) $ (12,616 ) Personal Lines (1,248 ) 529 (1,777 ) Total Underwriting (27,093 ) (12,700 ) (14,393 ) Wholesale Agency (554 ) (261 ) (293 ) Corporate (921 ) (757 ) (164 ) Eliminations 239 370 (131 ) Total underwriting income (loss) $ (28,329 ) $ (13,348 ) $ (14,981 ) 49 Investment Income Net investment income increased by $1.0 million, or 54.6%, to $3.0 million for the year ended December 31, 2022, compared to $2.0 million for the year ended December 31, 2021.
The following table provides the underwriting gain or loss for the years ended December 31, 2023 and 2022 (dollars in thousands): Underwriting Gain (Loss) Years Ended December 31, 2023 2022 Change Commercial Lines $ (24,512 ) $ (25,845 ) $ 1,333 Personal Lines (4,882 ) (1,248 ) $ (3,634 ) Total Underwriting (29,394 ) (27,093 ) (2,301 ) Wholesale Agency (495 ) (553 ) 58 Corporate (1,067 ) (921 ) (146 ) Eliminations 69 238 (169 ) Total underwriting income (loss) $ (30,887 ) $ (28,329 ) $ (2,558 ) Investment Income Net investment income increased by $2.5 million, or 81.6%, to $5.5 million for the year ended December 31, 2023, compared to $3.0 million for the year ended December 31, 2022.
Operating expenses consist primarily of employee compensation, information technology and occupancy costs, such as rent and utilities. Operating expenses as a percent of net earned premiums and other income was 13.1% and 15.3% for the years ended December 31, 2021 and 2020, respectively.
Operating expenses consist primarily of employee compensation, information technology and occupancy costs, such as rent and utilities. Operating expenses as a percent of net earned premiums and other income increased by 2.9%, from 15.4% in 2022, to 18.3% in 2023.
Cash provided by investing activities for the year ended December 31, 2022 was $56.5 million compared to $1.4 million in 2021. The $55.1 million increase in cash provided by investing activities over the prior year was 56 driven by $34.3 million increase in net proceeds from sale of investments in 2022, compared to the same period in 2021.
These decreases were offset by an $83.4 million decrease in cash used for purchases of investments in 2023 compared to 2022. Cash provided by investing activities for the year ended December 31, 2022 was $56.5 million compared to $1.4 million in 2021.
Policy acquisition costs are costs we incur to issue policies, which include commissions, premium taxes, underwriting reports and underwriter compensation costs. The Company offsets direct commissions with ceded commissions from reinsurers. The percentage of policy acquisition costs to net earned premiums and other income decreased by 1.0%, from 30.3% in 2020, to 29.3% in 2021.
The decrease was driven by a reduction in the policy acquisition costs ratio and was partially offset by an increase in the operating expense ratio. 49 Policy acquisition costs are costs we incur to issue policies, which include commissions, premium taxes, underwriting reports and underwriter compensation costs. The Company offsets direct commissions with ceded commissions from reinsurers.
The resulting net earned premiums are impacted by the gross and ceded written premiums, earned ratably over the terms of the policies. 46 Our premiums are presented below for the years ended December 31, 2022 and 2021 (dollars in thousands): Summary of Premium Revenue Years Ended December 31, 2022 2021 $ Change % Change Gross written premiums Commercial lines $ 116,868 $ 117,075 $ (207 ) (0.2 %) Personal lines 21,151 15,020 6,131 40.8 % Total $ 138,019 $ 132,095 $ 5,924 4.5 % Net written premiums Commercial lines $ 72,318 $ 87,307 $ (14,989 ) (17.2 %) Personal lines 18,914 14,122 4,792 33.9 % Total $ 91,232 $ 101,429 $ (10,197 ) (10.1 %) Net Earned premiums Commercial lines $ 80,823 $ 87,759 $ (6,936 ) (7.9 %) Personal lines 15,888 11,043 4,845 43.9 % Total $ 96,711 $ 98,802 $ (2,091 ) (2.1 %) Gross written premiums increased by $5.9 million, or 4.5%, to $138.0 million, for the year ended December 31, 2022, compared to $132.1 million for the year ended December 31, 2021.
The resulting net earned premiums are impacted by the gross and ceded written premiums, earned ratably over the terms of the policies. 46 Our premiums are presented below for the years ended December 31, 2023 and 2022 (dollars in thousands): Summary of Premium Revenue Years Ended December 31, 2023 2022 $ Change % Change Gross written premiums Commercial lines $ 107,078 $ 116,868 $ (9,790 ) (8.4 %) Personal lines 36,756 21,151 15,605 73.8 % Total $ 143,834 $ 138,019 $ 5,815 4.2 % Net written premiums Commercial lines $ 36,580 $ 72,318 $ (35,738 ) (49.4 %) Personal lines 32,108 18,914 13,194 69.8 % Total $ 68,688 $ 91,232 $ (22,544 ) (24.7 %) Net Earned premiums Commercial lines $ 59,221 $ 80,823 $ (21,602 ) (26.7 %) Personal lines 24,714 15,888 8,826 55.6 % Total $ 83,935 $ 96,711 $ (12,776 ) (13.2 %) Gross written premiums increased by $5.8 million, or 4.2%, to $143.8 million for the year ended December 31, 2023, compared to $138.0 million for the year ended December 31, 2022.
The Company had $86,000 of reinsurance reinstatement costs relating to Hurricane Irma in 2021. 45 Results of Operations - 2022 Compared to 2021 The following table summarizes our operating results for the years indicated (dollars in thousands): Summary Operating Results Years Ended December 31, 2022 2021 $ Change % Change Gross written premiums $ 138,019 $ 132,095 $ 5,924 4.5 % Net written premiums $ 91,232 $ 101,429 $ (10,197 ) (10.1 %) Net earned premiums $ 96,711 $ 98,802 $ (2,091 ) (2.1 %) Other income 2,768 2,671 97 3.6 % Losses and loss adjustment expenses, net 81,440 69,861 11,579 16.6 % Policy acquisition costs 22,179 28,451 (6,272 ) (22.0 %) Operating expenses 18,789 16,509 2,280 13.8 % Loss portfolio transfer risk fee 5,400 — 5,400 * Underwriting gain (loss) (28,329 ) (13,348 ) (14,981 ) (112.2 %) Net investment income 3,043 1,968 1,075 54.6 % Net realized investment gains (losses) (1,505 ) 2,878 (4,383 ) * Change in fair value of equity securities 403 (2,020 ) 2,423 * Gain from VSRM Transaction 8,810 — 8,810 * Other gains (losses) 59 11,664 (11,605 ) * Interest expense 2,971 2,852 119 4.2 % Income (loss) before income taxes (20,490 ) (1,710 ) (18,780 ) * Equity earnings in Affiliate, net of tax 368 824 (456 ) (55.3 %) Income tax expense (9,441 ) 208 (9,649 ) * Net income (loss) $ (10,681 ) $ (1,094 ) $ (9,587 ) * Underwriting Ratios: Loss ratio (1) 83.9 % 70.5 % Expense ratio (2) 38.4 % 42.4 % Combined ratio (3) 122.3 % 112.9 % (1) The loss ratio is the ratio, expressed as a percentage, of net losses and loss adjustment expenses to net earned premiums and other income from underwriting operations.
In the fourth quarter of 2022, the Company incurred $2.0 million of losses and $1.6 million reinsurance reinstatement costs related to Hurricane Ian. 45 Results of Operations - 2023 Compared to 2022 The following table summarizes our operating results for the years indicated (dollars in thousands): Summary Operating Results Years Ended December 31, 2023 2022 $ Change % Change Gross written premiums $ 143,834 $ 138,019 $ 5,815 4.2 % Net written premiums $ 68,688 $ 91,232 $ (22,544 ) (24.7 %) Net earned premiums $ 83,935 $ 96,711 $ (12,776 ) (13.2 %) Agency commission income 5,680 1,414 4,266 * Other income 694 1,354 (660 ) (48.7 %) Losses and loss adjustment expenses, net 82,413 81,440 973 1.2 % Policy acquisition costs 20,892 22,179 (1,287 ) (5.8 %) Operating expenses 17,891 18,789 (898 ) (4.8 %) Loss portfolio transfer risk fee — 5,400 (5,400 ) * Underwriting gain (loss) (30,887 ) (28,329 ) (2,558 ) (9.0 %) Net investment income 5,526 3,043 2,483 81.6 % Net realized investment gains (losses) (20 ) (1,505 ) 1,485 * Change in fair value of equity securities 608 403 205 * Gain from sale of renewal rights 2,335 — 2,335 * Gain from VSRM Transaction — 8,810 (8,810 ) * Other gains (losses) — 59 (59 ) * Interest expense 3,206 2,971 235 7.9 % Income (loss) before income taxes (25,644 ) (20,490 ) (5,154 ) * Equity earnings in Affiliate, net of tax (251 ) 368 (619 ) (168.2 %) Income tax expense 9 (9,441 ) 9,450 * Net income (loss) $ (25,904 ) $ (10,681 ) $ (15,223 ) * Underwriting Ratios: Loss ratio (1) 97.8 % 83.9 % Expense ratio (2) 37.1 % 38.4 % Combined ratio (3) 134.9 % 122.3 % (1) The loss ratio is the ratio, expressed as a percentage, of net losses and loss adjustment expenses to net earned premiums and other income from underwriting operations.
The Company received notice from the SBA that the loan was 100% forgiven, including accrued interest, on July 8, 2021. This resulted in a $2.8 million gain that is included in Other Gains on the Consolidated Statement of Operations. In 2018, the Company issued $25.3 million of Notes.
This resulted in a $2.8 million gain that is included in Other Gains on the Consolidated Statement of Operations.
The Notes bear an interest rate of 6.75% annum, payable quarterly at the end of March, June, September and December and mature on September 30, 2023. Proceeds from the Notes were used to pay down $19.5 million of the $30.0 million of subordinated notes that were issued in the third quarter of 2017.
Outstanding Debt The Company issued $17.9 million of public senior unsecured notes ("New Public Notes") during the third quarter of 2023. The New Public Notes bear an interest rate of 9.75% per annum, payable quarterly at the end of March, June, September and December and mature on September 30, 2028.
The calendar year loss ratios were 70.5% and 62.8% for the years ended December 31, 2021 and 2020, respectively. The $19.4 million of adverse development in 2021 consisted of $18.5 million from commercial lines and $957,000 from personal lines and mostly related to the 2019 and prior accident years.
Of the $19.2 million of adverse development for the Company's commercial lines for year ended December 31, 2023, $7.2 million was related to accident year 2022, $6.9 million was related to accident year 2021, and $4.9 million was related to accident year 2020 and $173,000 was 2019 and prior years.
The valuation included significant estimates and assumptions related to (i) forecasted revenue and EBITDA and (ii) the selection of the EBITDA multiple and discount rate.
The valuation included significant estimates and assumptions related to (i) forecasted revenue and EBITDA and (ii) the selection of the EBITDA multiple and discount rate. 36 Loss Portfolio Transfer On November 1, 2022, the Company entered into a loss portfolio transfer (“LPT”) reinsurance agreement with Fleming Reinsurance Ltd (“Fleming Re”).
Personal lines gross written premiums increased $6.1 million, or 40.8%, to $21.1 million, for the year ended December 31, 2022, compared to $15.0 million for the year ended December 31, 2021. This increase was largely driven by our low-value dwelling business.
Personal lines gross written premiums increased $15.6 million, or 73.8%, to $36.8 million for the year ended December 31, 2023, compared to $21.2 million for the year ended December 31, 2022. The increase was largely driven by increased policy counts in Texas and Oklahoma. The Company is expected to discontinue writing in Oklahoma in the second quarter of 2024.
The note payable was an obligation that originated as part of the Venture Transaction described below, and is payable to CIC.
The note payable was an obligation that originated as part of the Venture Transaction. See Note 4 ~ Sale of Certain Agency Business for further details .
This decrease was offset by a $6.9 million decrease in the amount of acquisition costs paid during 2022 compared to 2021. Cash provided by operating activities for the year ended December 31, 2021 was $5.4 million, compared to $3.0 million for the same period in 2020.
Cash used in operating activities for the year ended December 31, 2023 was $13.6 million compared to $40.5 million for the same period in 2022.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

7 edited+1 added−0 removed7 unchanged
Biggest changeWe attempt to mitigate interest rate risks by investing in securities with varied maturity dates and by managing the duration of our investment portfolio to a defined range of three to four years. The option adjusted duration of the debt securities portfolio was 3.5 and 3.6 years as of December 31, 2022 and 2021, respectively.
Biggest changeWe attempt to mitigate interest rate risks by investing in securities with varied maturity dates and by managing the duration of our investment portfolio to a defined range of three to four years.
The following is a discussion of our primary risk exposures and how those exposures are currently managed as of December 31, 2022. Our market risk sensitive instruments are primarily related to fixed income securities, which are available-for-sale and not held for trading purposes.
The following is a discussion of our primary risk exposures and how those exposures are currently managed as of December 31, 2023. Our market risk sensitive instruments are primarily related to fixed income securities, which are available-for-sale and not held for trading purposes.
Interest Rate Risk At December 31, 2022 and 2021, the fair value of our investment portfolio, excluding cash and cash equivalents, was $137.4 million and $182.7 million, respectively. Our investment portfolio consists principally of investment-grade, fixed-income securities, classified as debt securities. Accordingly, the primary market risk exposure to our debt portfolio is interest rate risk.
Interest Rate Risk At December 31, 2023 and 2022, the fair value of our investment portfolio, excluding cash and cash equivalents, was $146.0 million and $137.4 million, respectively. Our investment portfolio consists principally of investment-grade, fixed-income securities, classified as debt securities. Accordingly, the primary market risk exposure to our debt portfolio is interest rate risk.
The table below summarizes our interest rate risk. The table also illustrates the sensitivity of the fair value of our investments, classified as debt securities and short-term investments, to selected hypothetical changes in interest rates as of December 31, 2022.
The table also illustrates the sensitivity of the fair value of our investments, classified as debt securities and short-term investments, to selected hypothetical changes in interest rates as of December 31, 2023.
We believe all amounts recorded as due from reinsurers are recoverable. 59 Effects of Inflation We do not believe that inflation has a material effect on our results of operations, except for the effect that inflation may have on interest rates and claims costs. We consider the effects of inflation in pricing and estimating reserves for unpaid losses and LAE.
Effects of Inflation We do not believe that inflation has a material effect on our results of operations, except for the effect that inflation may have on interest rates and claims costs. We consider the effects of inflation in pricing and estimating reserves for unpaid losses and LAE.
At December 31, 2022 and 2021, the net amount due to the Company from reinsurers, including prepaid reinsurance, was $105.7 million and $50.0 million, respectively.
At December 31, 2023 and 2022, the net amount due to the Company from reinsurers, including prepaid reinsurance, was $112.3 million and $99.6 million, respectively. We believe all amounts recorded as due from reinsurers are recoverable.
Hypothetical Percentage Increase (Decrease) in Hypothetical Change in Interest Rates As of December 31, 2022 Estimated Fair Value Estimated Change in Fair Value Fair Value Shareholders' Equity 200 basis point increase 127,404 $ (8,726 ) (6.4 )% (46.0 )% 100 basis point increase 131,597 (4,533 ) (3.3 )% (23.9 )% No change 136,130 — — — 100 basis point decrease 141,044 4,914 3.6 % 25.9 % 200 basis point decrease 146,299 10,169 7.5 % 53.7 % Credit Risk An additional exposure to our debt securities portfolio is credit risk.
Hypothetical Percentage Increase (Decrease) in Hypothetical Change in Interest Rates As of December 31, 2023 Estimated Fair Value Estimated Change in Fair Value Fair Value Shareholders' Equity 200 basis point increase 135,941 $ (7,714 ) (5.4 )% (267.0 )% 100 basis point increase 139,647 (4,008 ) (2.8 )% (138.7 )% No change 143,655 — — — 100 basis point decrease 147,979 4,324 3.0 % 149.7 % 200 basis point decrease 152,590 8,935 6.2 % 309.3 % Credit Risk An additional exposure to our debt securities portfolio is credit risk.
Added
The option adjusted duration of the debt securities portfolio was 2.9 and 3.5 years as of December 31, 2023 and 2022, respectively. 55 The table below summarizes our interest rate risk.

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