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What changed in Presurance Holdings, Inc.'s 10-K — 2023 vs 2024

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Paragraph-level year-over-year comparison of Presurance Holdings, Inc.'s 2023 and 2024 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 2024 report.

+410 added−474 removedSource: 10-K (2025-03-28) vs 10-K (2024-04-01)

Top changes in Presurance Holdings, Inc.'s 2024 10-K

410 paragraphs added · 474 removed · 207 edited across 6 sections

Item 1. Business

Business — how the company describes what it does

43 edited+49 added−41 removed43 unchanged
Biggest changeYear 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.
Biggest changeYear Ended December 31, 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 (1) 2024 (1) Net liability for losses and loss expenses $ 28,307 $ 30,017 $ 47,993 $ 67,830 $ 63,122 $ 84,667 $ 87,052 $ 98,741 $ 82,888 $ 103,805 $ 104,795 Liability re-estimated as of: One year later 29,321 40,239 57,452 71,186 79,351 100,261 106,482 123,668 100,698 111,090 Two years later 33,274 52,321 60,453 87,536 94,786 118,116 129,665 144,116 154,900 Three years later 38,569 58,251 69,833 95,367 108,022 137,327 143,307 148,435 Four years later 40,822 62,185 74,381 102,335 117,607 146,027 145,961 Five years later 42,274 64,547 76,860 106,705 122,597 122,635 Six years later 42,967 66,072 79,622 109,865 110,310 Seven years later 43,341 66,883 80,235 80,639 Eight years later 43,771 67,020 67,678 Nine years later 43,712 44,378 Ten years later 30,085 Net cumulative redundancy (deficiency) $ (1,778 ) $ (14,361 ) $ (19,685 ) $ (12,809 ) $ (47,188 ) $ (37,968 ) $ (58,909 ) $ (49,694 ) $ (72,012 ) $ (7,285 ) — Cumulative amount of net liability paid as of: One year later 16,091 $ 20,200 $ 29,533 $ 44,521 $ 29,520 $ 40,244 $ 39,187 $ 51,129 $ 57,963 $ 52,897 Two years later 24,060 35,972 56,962 62,369 57,864 70,478 79,965 95,765 93,994 Three years later 32,699 50,676 61,168 77,409 78,861 103,770 114,622 110,729 Four years later 37,474 58,317 66,556 87,587 100,377 128,772 121,339 Five years later 40,438 61,349 70,945 99,544 114,346 111,559 Six years later 41,979 63,814 76,563 106,535 105,956 Seven years later 42,428 65,654 78,821 78,513 Eight years later 43,025 66,238 66,342 Nine years later 43,148 43,383 Ten years later 29,518 Gross liability-end of year 31,531 35,422 54,651 87,896 92,807 107,246 111,270 139,085 165,539 174,612 189,285 Reinsurance recoverable on unpaid losses 3,224 5,405 6,658 20,066 29,685 22,579 24,218 40,344 82,651 70,807 84,490 Net liability-end of year 28,307 30,017 47,993 67,830 63,122 84,667 87,052 98,741 82,888 103,805 104,795 Gross liability re-estimated - latest 36,180 53,162 85,435 116,114 179,028 183,142 180,494 199,540 219,312 227,005 Reinsurance recoverable on unpaid losses re-estimated - latest 6,095 8,784 17,757 35,475 68,718 60,507 34,533 51,105 64,412 115,915 Net liability re-estimated - latest 30,085 44,378 67,678 80,639 110,310 122,635 145,961 148,435 154,900 111,090 Gross cumulative redundancy (deficiency) $ (4,649 ) $ (17,740 ) $ (30,784 ) $ (28,218 ) $ (86,221 ) $ (75,896 ) $ (69,224 ) $ (60,455 ) $ (53,773 ) $ (52,393 ) (1) The 2024 and 2023 column includes $10.6 million and $10.9 million of reinsurance recoverables on unpaid losses from the loss portfolio transfer (“LPT”), respectively.
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 intermediaries are 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.
Loss ratio The ratio of incurred losses and loss adjustment expenses to net earned premiums plus other income. Loss reserves Liabilities established by insurers and reinsurers to reflect the estimated cost of claims incurred that the insurer or reinsurer will ultimately be required to pay in respect of insurance or reinsurance it has written.
Loss ratio The ratio of incurred losses and loss adjustment expenses to net earned premiums plus other income. 14 Loss reserves Liabilities established by insurers and reinsurers to reflect the estimated cost of claims incurred that the insurer or reinsurer will ultimately be required to pay in respect of insurance or reinsurance it has written.
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.
Case reserves Estimates of anticipated future payments to be made on each specific reported claim, which are exclusive of any IBNR estimated reserves. 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.
We focus on tailoring our business to concentrate on the geographic markets and regulatory environments with the greatest opportunities for growth and profitability. Our business plan centers on identification of market opportunities in jurisdictions where our insurance products can profitably suit the needs of our potential customers. • Emphasis on flexibility.
We focus on tailoring our business to concentrate on the geographic markets and regulatory environments with the greatest opportunities for 7 growth and profitability. Our business plan centers on identification of market opportunities in jurisdictions where our insurance products can profitably suit the needs of our potential customers. • Emphasis on flexibility.
Once initial reserves have been set, reserves are evaluated periodically as specific claim information changes to generate management’s overall best estimate of reserves. In addition, claim reviews with in‑house adjusters and attorneys provide a regular opportunity to review the adequacy of reserves.
Once initial reserves have been set, reserves are evaluated periodically as specific claim information changes to generate management’s overall best estimate of reserves. In addition, claim reviews with adjusters and attorneys provide a regular opportunity to review the adequacy of 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.
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 10 establishing our loss and LAE reserves.
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.
The Company's assessments from insolvency funds were minimal for the years ended December 31, 2024 and 2023. 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.
All previous years do not reflect any recoverables from the LPT. The first line of the table presents the unpaid loss and LAE reserves at December 31 for each year, net of reinsurance recoverables, including the incurred but not reported ("IBNR") reserve.
All of the years before 2022 do not reflect any reinsurance recoverables from the LPT. The first line of the table presents the unpaid loss and LAE reserves at December 31 for each year, net of reinsurance recoverables, including the incurred but not reported ("IBNR") reserve.
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).
Information relating to our reinsurance structure and treaty information is included within Note 8 ~ Reinsurance. 9 Loss Reserve Development The following table presents the development of our loss and loss adjustment expenses ("LAE") reserves from 2014 through 2024, net of reinsurance recoverables (dollars in thousands).
We employ internal product managers to review our position relative to our competition, create better segmentation of pricing and originate premium rate changes as appropriate. Consistent with industry practice, we grant our personal lines agents limited binding authority within our specific guidelines.
Underwriting We employ product managers to review our position relative to our competition, create better segmentation of pricing and originate premium rate changes as appropriate. Consistent with industry practice, we grant our personal lines MGA binding authority within our specific guidelines.
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.
We underwrite substantially all policies to our specific guidelines. 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. • Proactive claims handling.
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.
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.
Changes to claims reserves are made by senior management based on claim developments and input from these attorneys and adjusters. We utilize an in‑house actuary to support our financial efforts. Reinsurance We routinely purchase reinsurance for our commercial and personal lines to reduce volatility by limiting our exposure to large losses and to provide capacity for growth.
Changes to claims reserves are made by senior management based on claim developments and input from these attorneys and adjusters. Reinsurance We routinely purchase reinsurance to reduce volatility by limiting our exposure to large losses and to provide capacity for growth.
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.
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"), until August 30, 2024, and as of October 13, 2022, VSRM, Inc.
("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").
("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 owned a 50% non-controlling interest in Sycamore Specialty Underwriters, LLC ("SSU" or "Affiliate") until August 30, 2024, when VSRM sold its interest in SSU.
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 .
For the years ended December 31, 2024 and 2023, total assessments paid to all such facilities were minimal. 12 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 .
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.
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, other gains (losses0 and net income from discontinued operations.
These ratios differ from statutory ratios to reflect GAAP accounting, as management evaluates the performance of our underwriting operations using the GAAP combined ratio. Combined Ratio based on statutory accounting practices (“SAP”) The combined ratio based on SAP, expressed as a percentage, is the key measure of underwriting profitability traditionally used in the property and casualty insurance business.
Combined Ratio based on statutory accounting practices (“SAP”) The combined ratio based on SAP, expressed as a percentage, is the key measure of underwriting profitability traditionally used in the property and casualty insurance business.
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 .
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 and Reinsurance Recoverables on Unpaid Loss and Loss Adjustment Expenses section of Item 7, Management’s Discussion and Analysis .
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 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 view our agents as key partners in risk selection.
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.
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.
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.
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.
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.
Adjusted operating income (loss) represents net income (loss) excluding net realized investment gains (losses), change in fair value of equity securities, other gains (losses) and net income from discontinued operations. 13 Adjusted operating income (loss), per share Adjusted operating income (loss) per share is a non-GAAP measure.
We are also 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.
We are licensed to write insurance as an admitted carrier in 42 states, including the District of Columbia. As of December 31, 2024, we offer insurance products primarily in Texas, Illinois and Indiana, for homeowners lines and Nevada and Michigan for other lines. Our revenues are primarily derived from premiums earned from our insurance operations.
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.
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.
Various State and Federal Regulations Insurance companies are also affected by a variety of state and federal legislative and regulatory measures and judicial decisions that define and extend the risks and benefits for which insurance is sought and provided.
In addition, a change of control of a domestic insurer or of any controlling person requires the prior approval of the state of domicile insurance regulator. 11 Various State and Federal Regulations Insurance companies are also affected by a variety of state and federal legislative and regulatory measures and judicial decisions that define and extend the risks and benefits for which insurance is sought and provided.
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.
Business Overview We are an insurance holding company that markets and services our product offerings through specialty personal insurance business lines. Currently, we are authorized to write insurance as an excess and surplus lines carrier in 44 states, including the District of Columbia.
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.
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.
The 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.
The following tables summarize our gross written premiums by segment and state for the years indicated therein (dollars in thousands): Gross Written Premium by Segment 2024 % 2023 % Commercial $ 26,686 37 % $ 107,078 74 % Personal 45,367 63 % 36,756 26 % Total $ 72,053 100 % $ 143,834 100 % Gross Written Premiums by State 2024 % 2023 % Texas $ 36,450 50.6 % $ 21,783 15.1 % Michigan 15,628 21.7 % 34,996 24.3 % Oklahoma 5,884 8.2 % 17,972 12.5 % Nevada 3,017 4.2 % 12,967 9.0 % Indiana 2,558 3.6 % 3,422 2.4 % Illinois 1,628 2.3 % 3,839 2.7 % Ohio 1,386 1.9 % 4,996 3.5 % Pennsylvania 843 1.2 % 4,314 3.0 % Kentucky 701 1.0 % 1,922 1.3 % West Virginia 653 0.9 % 2,276 1.6 % Colorado 608 0.8 % 2,723 1.9 % All Other States 2,697 3.6 % 32,624 22.7 % Total $ 72,053 100.0 % $ 143,834 100.0 % 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.
In addition, our claims professionals utilize a network of independent local adjusters and appraisers to assist with specific aspects of claims investigations, such as securing witness statements and conducting initial appraisals in states where it is practical to do so. These outside vendors are mainly compensated based on pre‑negotiated fee schedules to control overall costs.
Our daily oversight ensures we can quickly assess claims, improve communication with our policyholders and claimants and better control our claims management costs. 8 In addition, our claims professionals utilize a network of independent local adjusters and appraisers to assist with specific aspects of claims investigations, such as securing witness statements and conducting initial appraisals in states where it is practical to do so.
Initial claim reserves are determined and set using our statistical averages of paid indemnity and loss adjustment expenses by line of business. After reviewing statistical data and consulting with our internal actuary, our Senior Vice President of claims, together with other members of management, set initial reserves by line of business.
Those limits of authority are integrated into our claims information technology systems to ensure strict compliance. Initial claim reserves are determined and set using our statistical averages of paid indemnity and loss adjustment expenses by line of business. After reviewing statistical data and consulting with our actuary, we set initial reserves by line of business.
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.
To the extent that reinsurance treaties do not cover these assessments, they may have an adverse effect on the Company.
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.
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 us to focus on capital management and profitability. Marketing and Distribution We sell all homeowners insurance through an independent MGA. The commercial lines previously written through CIS is now in run off.
The following highlights key aspects of our model that contribute to our balanced approach: • Focus on under-served markets. We focus on providing specialty insurance products to targeted policyholders in under-served markets. We believe that most of our small business customers, many of which are owner‑operated, value the efficiency of dealing with a single insurer for multiple products.
The following highlights key aspects of our model that contribute to our balanced approach: • Focus on under-served markets. We focus on providing specialty insurance products to targeted policyholders in under-served markets. • Deep understanding of the business and regulatory landscapes of our markets. The competition for insurance business and the regulatory operating environment vary significantly from state to state.
Our personal lines products primarily include low-value dwelling insurance tailored for owners of lower valued homes, which we currently offer in Illinois, Indiana, Louisiana and Texas.
Our specialty homeowners insurance product line is primarily comprised of low-value dwelling insurance tailored for owners of lower valued homes, which we offer in Illinois, Indiana and Texas. Geographic Diversity and Mix of Business We have ceased writing almost all commercial lines of business, shifting our focus to mostly low-value dwelling and homeowners lines of business.
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.
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. • Ability to leverage technology to drive efficiency.
Claims personnel are organized by line of business, with specific managers assigned as supervisors for each line of business. Reserving and payment authority levels of claims personnel are set by our Senior Vice President of claims and our Executive Vice President. Those limits of authority are integrated into our claims information technology systems to ensure strict compliance.
These outside vendors are mainly compensated based on pre‑negotiated fee schedules to control overall costs. Claims personnel are organized by line of business, with specific managers assigned as supervisors for each line of business. Reserving and payment authority levels of claims personnel are set by our CEO.
For example, premium growth, alone, can trigger one or more unusual values. Refer to the Regulatory and Rating Issues section within Item 7, Management’s Discussion and Analysis . 11 Effect of Federal Legislation The Terrorism Risk Insurance Act (“TRIA”) was enacted in November 2002. After several extensions, Congress enacted the Terrorism Risk Insurance Program Reauthorization of 2015 (“Act”).
For example, premium growth, alone, can trigger one or more unusual values. Refer to the Regulatory and Rating Issues section within Item 7 ~ Management’s Discussion and Analysis . Employees At December 31, 2024, we had nine full-time employees.
Our corporate structure allows us to offer both admitted and E&S products in select markets through either CIC or WPIC. Our experience with specialty insurance products enables us to react to new market opportunities and underwrite multiple specialty lines. The wholesale agency business provides non-risk bearing revenue through commissions and policy fees.
Our corporate structure allows us to offer both admitted and E&S products in select markets through either CIC or WPIC. Through our personal insurance lines, we offer homeowners insurance and dwelling fire insurance products to individuals in several states.
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.
We no longer directly market and sell our insurance products through a network of over 4,400 independent agents that distribute our policies through approximately 950 sales offices as stated in that filing. Those relationships are now owned by unrelated third parties (CIS and SSU). This greatly amplifies our concentration of risk relative to our marketing and distribution network.
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 employ a proactive claims handling philosophy that utilizes an experienced team 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.
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.
Claims We believe that effective claims management is vitally important to our success, allowing us to effectively pay valid claims, while vigorously defending those claims that lack merit. With our oversight, we employ a third party claims service which consists of experienced claims professionals located in Michigan, Florida, Oklahoma, Pennsylvania and Texas.
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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.
Added
Recent Developments Premium Revenue Reductions In January 2024, the Company's premium revenues from underwriting operations began to be reduced due to a lack of adequate statutory capital and surplus in its Insurance Company Subsidiaries. The Company ceased writing almost all commercial lines premiums by August 30, 2024.
Removed
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. Prior to June 30, 2021, we also generated commission and fee revenue in our wholesale agency business from third-party insurers.
Added
We expect minimal premiums from commercial lines in the near term with no current plans to re-establish commercial lines premium volumes in the future.
Removed
We are focused on growing our business in non‑commoditized property and casualty insurance markets, while maintaining underwriting discipline and a conservative investment strategy.
Added
The Company expects to continue to directly write the Midwest and Texas homeowners business going forward, however, the Company is subject to significant concentration of risk because all of the homeowners business is produced by one agency, SSU, and as we no longer have any ownership interest or control over SSU, we cannot control where SSU places its business and cannot assure that SSU will place its business with the Company.
Removed
We have substantial expertise in serving the unique commercial insurance needs of owner‑operated businesses in the following markets: • Hospitality, such as restaurants, bars, taverns, and bowling centers (that require, among other lines, liquor liability insurance), as well as small grocery and convenience stores; • Artisan contractors, such as plumbers, painters, carpenters, electricians and other independent contractors; and • Security service providers, such as companies that provide security guard services, security alarm products and services, and private investigative services.
Added
To provide ongoing capital support for the Insurance Company Subsidiaries, the Company sold its agency operations.
Removed
In our commercial lines business, we seek to differentiate ourselves and provide value to small business owner‑operators by bundling different insurance products that meet a significant portion of their insurance needs. For example, in the hospitality market we offer property, casualty, and liquor liability, as well as, in some jurisdictions, workers’ compensation coverage.
Added
Sale and Disposal of Agency Business 3 On August 30, 2024 the Company completed the sale of all of the issued and outstanding membership interests of CIS to BSU Leaf Holdings LLC, a Delaware limited liability company ("Buyer"), pursuant to the Interest Purchase Agreement, dated as of August 30, 2024 (the "CIS Agreement"), by and among the Company, Buyer and Buyer's parent (the "CIS Sale").
Removed
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.
Added
CIS comprised the Company’s MGA business and was the legal entity used to implement the strategic shift to non-risk bearing revenue from an underwriting-based model as described in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023. CIS also represented almost all of the wholesale agency segment.
Removed
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.
Added
CIS and the related wholesale agency segment are now reported as discontinued operations for all periods presented. The Company sold CIS in order to generate liquidity to pay down debt and provide capital to the Insurance Company Subsidiaries. The CIS Sale had and will have a significant negative impact on revenues for the Company going forward.
Removed
In our personal lines business, we largely target homeowners in need of dwelling insurance that is currently under-served by the insurance market, due to the modest value of their homes or the exposure to natural catastrophes in their geographic area.
Added
With the previously disclosed strategic shift away from underwriting revenues, the Company was relying on the growth of commission revenue to replace the lost revenue from underwriting. Now that the wholesale agency segment has been sold, the Company will need to rely entirely on underwriting revenues. These revenues have reduced significantly in the past year.
Removed
Because these homeowners are under-served, this portion of the market is typically subject to less pricing pressure from larger nationwide insurers that offer a more commoditized product. We believe our underwriting expertise enables us to compete effectively in these markets by evaluating and appropriately pricing risk.
Added
For example, gross written premiums were $24.4 million in the fourth quarter of 2023, as compared to only $13.7 million in the fourth quarter of 2024. Homeowners gross written premiums was $10.6 million in the fourth quarter of 2024.
Removed
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.
Added
The remaining premium in the fourth quarter of 2024 was generated from commercial lines, which is expected to reduce to a very small amount in the next year.
Removed
Overall, we structure the multi-line distribution of our premium between commercial and personal lines to better diversify our business and mitigate the potential cyclical nature of either market. In serving these markets, we write business on both an admitted and excess and surplus lines (“E&S”) basis.
Added
In connection with the CIS Sale, 68 of the Company’s 77 employees were transferred to the Buyer, including Nicholas Petcoff, the Company’s then current Chief Executive Officer, as well as all of the underwriting, claims and IT teams, and a portion of the finance staff and other operating staff. As part of the completion of the CIS Sale, Mr.
Removed
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.
Added
Petcoff resigned from his role as Chief Executive Officer and as a director on August 30, 2024. Concurrently, Brian Roney, President of the Company, was appointed as the Company’s Chief Executive Officer.
Removed
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.
Added
The Company entered into a transition services agreement with the buyer to allow both parties to share resources for a certain period of time, generally less than twelve months, to effectuate an orderly separation of the internal systems and operations. The net cost to the Company was $225,000 which expense will be recognized over the period the services are provided.
Removed
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.
Added
The Company also entered into a producer administration agreement with CIS with regards to the current books of business requiring CIS to support any underwriting and related system obligations of the run-off book of business.
Removed
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.
Added
Separately, the Company entered into a claims administration agreement with CIS, to handle all commercial lines claims run-off or any other claims generated from business produced by CIS. The initial purchase price of CIS was $45.0 million, subject to purchase price adjustments.
Removed
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.
Added
In addition, during the three years ending on the third anniversary of the Closing Date, the Company is eligible under the CIS Agreement to receive up to three contingent payments based on performance thresholds of the gross revenue earned by CIS in the applicable quarter, with the aggregate amount of contingent capped at $25.0 million.
Removed
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.
Added
Consideration paid in cash to the Company was $46.6 million on August 30, 2024, which is comprised of the $45.0 million initial purchase price, plus $1.6 million of cash in CIS in excess of the working capital deficiency (as defined in the CIS Agreement). The contingent consideration payments, in order of achievability are $5.0 million, $10.0 million and $10.0 million.
Removed
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.
Added
The contingent consideration included in the gain on sale was calculated based on the fair value of the three contingent payments as of September 30, 2024, in accordance with ASC 820 - Fair Value Measurement. The first contingent payment was earned as of September 30, 2024, and received in December 2024.
Removed
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.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

70 edited+75 added−104 removed58 unchanged
Biggest changeIn addition, elevated inflationary conditions would, among other things, drive loss costs to increase; • When we enter new lines of business, or encounter new theories of claims liability, we may encounter an increase in claims frequency and greater claims handling costs than we had anticipated; and • Estimation of IBNR losses is a complex and inherently uncertain process which involves a considerable degree of judgment and expertise, which adds to the overall difficulty of estimating loss reserves.
Biggest changeWe have currently utilized $14.0 million of that limit and have $6.0 million of coverage remaining; • When we enter new lines of business, or encounter new theories of claims liability, we may encounter an increase in claims frequency and greater claims handling costs than we had anticipated; and • Estimation of IBNR losses is a complex and inherently uncertain process which involves a considerable degree of judgment and expertise, which adds to the overall difficulty of estimating loss reserves. 16 If any of our insurance reserves should prove to be inadequate, including reinsurance recoverables on reserves, for the reasons discussed above, or for any other reason, we will be required to increase reserves, resulting in a reduction in our net income and shareholders’ equity in the period in which the deficiency is identified.
If we fail to satisfy the continued listing requirements of The Nasdaq Capital Market, The Nasdaq Capital Market may take steps to delist our common stock, which could have a materially adverse effect on our ability to raise additional funds as well as the price and liquidity of our common stock.
If we fail to satisfy the continued listing requirements of The Nasdaq Capital Market, Nasdaq may take steps to delist our common stock, which could have a materially adverse effect on our ability to raise additional funds as well as the price and liquidity of our common stock.
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.
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.
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.
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.
In some instances, these changes may not become apparent until sometime after we have issued insurance policies 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. As a result, the full extent of liability under our insurance contracts may not be known for many years after a contract is issued.
The trading price of our common stock may be highly volatile and could be subject to wide fluctuations in response to various factors, some of which are beyond our control and may not be related to our operating performance. These fluctuations could be significant and could cause a loss in the amount invested in our shares of common stock.
The trading price of our common stock is highly volatile and could be subject to wide fluctuations in response to various factors, some of which are beyond our control and may not be related to our operating performance. These fluctuations could be significant and could cause a loss in the amount invested in our shares of common stock.
Third parties with whom we do business, including vendors that provide services or security solutions for our operations, could also be sources of operational and information security risk to us, including from breakdowns, failures, or capacity constraints of their own systems or employees.
Third parties with whom we do business, including vendors that provide services or security solutions for our operations, could be sources of operational and information security risk to us, including from breakdowns, failures, or capacity constraints of their own systems or employees.
Failure to maintain adequate RBC at the required levels could adversely affect the ability of our Insurance Company Subsidiaries to maintain regulatory authority to conduct their business. The State of Michigan has adopted the NAIC’s holding company act and regulations.
Failure to maintain adequate RBC at the required 23 levels could adversely affect the ability of our Insurance Company Subsidiaries to maintain regulatory authority to conduct their business. The State of Michigan has adopted the NAIC’s holding company act and regulations.
Investment Risks Our investment portfolio is subject to significant market and credit risks, which could result in an adverse impact on our financial conditions or results of operations. Our results of operations depend, in part, on the performance of our investment portfolio.
Investment Risks 20 Our investment portfolio is subject to significant market and credit risks, which could result in an adverse impact on our financial conditions or results of operations. Our results of operations depend, in part, on the performance of our investment portfolio.
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.
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 regulatory capital requirements; or • Respond to competitive pressures.
A BB- and a B rating indicates that the insurer's financial condition is low quality. Concurrently, the Company withdrew its participation in the rating process, and shall be non-rated by Kroll going forward. On March 14, 2024, A.M. Best downgraded the financial strength ratings of CIC and WPIC to C. A rating of C means A.M.
A BB- and a B rating indicates that the insurer’s financial condition is low quality. Concurrently, the Company withdrew its participation from the rating process, and shall be non-rated by Kroll going forward. On March 14, 2024, A.M. Best downgraded the financial strength ratings of CIC and WPIC to C. A rating of C means A.M.
Any significant reduction in the intercompany service fees we receive, and any regulatory and other limitations on the payment of dividends to us by our Insurance Company Subsidiaries, may adversely affect our ability to pay interest on the Notes as it comes due and the principal of the Notes at their maturity.
Any significant reduction in the intercompany service fees we receive, and any regulatory and other limitations on the payment of dividends to us by our Insurance Company Subsidiaries, may adversely affect our ability to pay interest on the New Public Notes as it comes due and the principal of the New Public Notes at their maturity.
Moreover, the Indenture does not require us to maintain any financial ratios or specific levels of net worth, revenues, income, cash flow or liquidity and, accordingly, does not protect holders of the Notes in the event that we experience material adverse changes in our financial condition or results of operations.
Moreover, the Indenture does not require us to maintain any financial ratios or specific levels of net worth, revenues, income, cash flow or liquidity and, accordingly, does not protect holders of the New Public Notes in the event that we experience material adverse changes in our financial condition or results of operations.
Holders of the Notes have limited protection under the Indenture in the event of a highly leveraged transaction, reorganization, default under our existing indebtedness, restructuring, merger or similar transaction. For these reasons, you should not consider the covenants in the Indenture a significant factor in evaluating whether to invest in the Notes.
Holders of the New Public Notes have limited protection under the Indenture in the event of a highly leveraged transaction, reorganization, default under our existing indebtedness, restructuring, merger or similar transaction. For these reasons, you should not consider the covenants in the Indenture a significant factor in evaluating whether to invest in the New Public Notes.
The Notes may trade at a discount to their face value depending on access to markets, prevailing interest rates, the market for similar securities, our credit ratings, general economic conditions, our financial condition, performance and prospects and other factors.
The New Public Notes may trade at a discount to their face value depending on access to markets, prevailing interest rates, the market for similar securities, our credit ratings, general economic conditions, our financial condition, performance and prospects and other factors.
Our ability to meet our obligations on our outstanding debt, including making principal and interest payments on the New Public Notes and the Senior Secured Notes, may be limited by our holding company structure and regulatory constraints restricting dividends or other distributions by our Insurance Company Subsidiaries.
Our ability to meet our obligations on our outstanding debt, including making principal and interest payments on the New Public Notes, may be limited by our holding company structure and regulatory constraints restricting dividends or other distributions by our Insurance Company Subsidiaries.
Our ability to meet our obligations on our outstanding debt obligations, including making principal and interest payments on the Notes, depends on continuing to receive sufficient funds from our Insurance Company Subsidiaries. We have met our outstanding debt obligations primarily through intercompany service fees we receive.
Our ability to meet our obligations on our outstanding debt obligations, including making principal and interest payments on the New Public Notes, depends on continuing to receive sufficient funds from our Insurance Company Subsidiaries. We have met our outstanding debt obligations primarily through intercompany service fees we receive.
Although the Notes are currently listed on Nasdaq, we cannot provide any assurances that it will remain on Nasdaq or that an active trading market will exist for the Notes or that you will be able to sell your Notes.
Although the New Public Notes are currently listed on Nasdaq, we cannot provide any assurances that it will remain on Nasdaq or that an active trading market will exist for the New Public Notes or that you will be able to sell your New Public Notes.
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.
Our indebtedness, including the indebtedness we or our Insurance Company Subsidiaries may incur in the future, could have important consequences for the holders of the New Public Notes, including: • limiting our ability to satisfy our obligations with respect to the New Public 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 28 • 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.
We cannot assure you that a liquid trading market will be available for the Notes, that you will be able to sell the Notes at a particular time or that the price you receive when you sell will be favorable.
We cannot assure you that a liquid trading market will be available for the New Public Notes, that you will be able to sell the New Public Notes at a particular time or that the price you receive when you sell will be favorable.
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.
We are subject to risks typically associated with debt financing, such as insufficient cash flow to meet required debt service payment obligations. 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.
A decrease in the market price of our common stock could adversely impact the trading price of the Notes. We may redeem the Notes before maturity, and holders of the redeemed Notes may be unable to reinvest the proceeds at the same or a higher rate of return. We may redeem all or a portion of the Notes.
A decrease in the market price of our common stock could adversely impact the trading price of the New Public Notes. We may redeem the New Public Notes before maturity, and holders of the redeemed New Public Notes may be unable to reinvest the proceeds at the same or a higher rate of return.
General Risk Factors The price of our common stock may be volatile and limited public float and low trading volume for our shares may have an adverse impact on the share price or make it difficult to liquidate.
General Risk Factors The price of our common stock is highly volatile and a limited public float and low trading volume for our shares may have an adverse impact on the share price or make it difficult to liquidate.
Volatility in the market price and trading volume of our common stock could adversely impact the trading price of the Notes.
Volatility in the market price and trading volume of our common stock could adversely impact the trading price of the New Public Notes.
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.
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. As of December 31, 2024, CIC fell within the Company Action Level of the RBC formula.
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.
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, 2024, our executive officers, directors, 5% shareholders and their affiliates owned approximately 68.9% of our voting stock. Therefore, these shareholders have the ability to influence us through their ownership position.
Insurance companies’ financial condition and results of operations depend upon their ability to accurately assess the potential losses and loss adjustment expenses under the terms of the insurance policies they underwrite. Reserves do not represent an exact calculation of liability.
Insurance companies’ financial condition and results of operations depend upon their ability to accurately assess the potential losses and loss adjustment expenses under the terms of the insurance policies they underwrite. Reserves and related estimates of reinsurance recoverables on reserves do not represent an exact calculation of liability.
Consequently, the Notes are structurally subordinated to all indebtedness and other liabilities of any of our subsidiaries and any subsidiaries that we may in the future acquire or establish. Our subsidiaries may incur substantial indebtedness in the future, all of which would be structurally senior to the Notes.
The New Public Notes are structurally subordinated to all future indebtedness and other liabilities of any of our Insurance Company Subsidiaries and any subsidiary that we may in the future acquire or establish. Our Insurance Company Subsidiaries may incur substantial indebtedness in the future, all of which would be structurally senior to the New Public Notes.
In addition, our exposure to severe losses from localized perils, such as earthquakes, hurricanes, tropical storms, tornadoes, wind, ice storms, hail, fires, terrorism, riots and explosions, is increased in those areas where we have written significant numbers of insurance policies. We are subject to credit risk with regard to our reinsurance counterparties.
In addition, our exposure to severe losses from localized perils, such as earthquakes, hurricanes, tropical storms, tornadoes, wind, ice storms, hail, fires, terrorism, riots and explosions, is increased in those areas where we have written significant numbers of insurance policies.
If we are unable to generate sufficient cash flow and are otherwise unable to obtain funds necessary to meet required payments of principal and interest on our indebtedness, or if we otherwise fail to comply with the various covenants, including financial and operating covenants, in the instruments governing our indebtedness, we could be in default under the terms of the agreements governing such indebtedness.
If we are unable to generate sufficient cash flow and are otherwise unable to obtain funds necessary to meet required payments of principal and interest on the New Public Notes, or if we otherwise fail to comply with the various covenants, including certain operating covenants, we could be in default under the terms of the agreements governing the New Public Notes.
In the event of a delisting, we can provide no assurance that any action taken by us to restore compliance with listing requirements would allow our common stock to become listed again, stabilize the market price or improve the liquidity of our common stock, prevent our common stock from dropping below the Nasdaq minimum bid price requirement, or prevent future non-compliance with The Nasdaq Capital Market’s listing requirements. 26 We may require additional capital in the future, which may not be available or available only on unfavorable terms.
In the event of a delisting, we can provide no assurance that any action taken by us to restore compliance with listing requirements would allow our common stock to become listed again, stabilize the market price or improve the liquidity of our common stock, prevent our common stock from dropping below the Nasdaq Minimum Bid Price Requirement, or prevent future non-compliance with The Nasdaq Capital Market’s listing requirements.
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
We may redeem all or a portion of the New Public Notes. If redemption does occur, holders of the redeemed New Public 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 New Public Notes.
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.
In addition, certain legislation proposing greater regulation of the industry is periodically considered by governing bodies of some jurisdictions. 24 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.
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.
To the extent an active trading market does not exist, the liquidity and trading price for the New Public Notes may be harmed. We may not be able to make payments on the New Public Notes.
We may also use dividends from our Insurance Company Subsidiaries, however, insurance regulations limit such dividend payments. Dividend payments may be further constrained by rating agency capital requirements or other business considerations. As a result, our ability to use dividends as a source of funds to meet our debt obligations may be significantly limited.
We may also use dividends from our Insurance Company Subsidiaries, however, insurance regulations limit such dividend payments. As a result, our ability to use dividends as a source of funds to meet our debt obligations may be significantly limited.
Legal and Regulatory Risks We are subject to extensive regulation, which may adversely affect our ability to achieve our business objectives. In addition, if we fail to comply with these regulations, we may be subject to penalties, including fines and suspensions, which may adversely affect our financial condition and results of operations.
In addition, if we fail to comply with these regulations, we may be subject to penalties, including fines and suspensions, which may adversely affect our financial condition and results of operations.
Changes in any of these conditions could make it less attractive for us to do business in such states and would have a more pronounced effect on us compared to companies that are more geographically diversified.
We currently only write in Indiana, Illinois and Texas, with most of the writings occurring in Texas. Changes in any of these conditions could make it less attractive for us to do business in such states and would have a more pronounced effect on us compared to companies that are more geographically diversified.
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.
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. Following the sale of Conifer Insurance Services (“CIS”), we distribute our insurance products through only two agents.
We may not be able to effect any of these actions on a timely basis, on commercially reasonable terms or at all, and these actions may not be sufficient to meet our capital requirements. In addition, the terms of our existing or future debt arrangements may restrict us from effecting any of these alternatives.
We may not be able to effect any of these actions on a timely basis, on commercially reasonable terms or at all, and these actions may not be sufficient to meet our capital requirements.
However, the outcomes of lawsuits cannot be predicted and, if determined adversely, could require us to pay significant damage amounts or to change aspects of our operations, which could have a material adverse effect on our financial results. Our geographic concentration ties our performance to the business, economic, natural perils, man-made perils, and regulatory conditions within our most concentrated region.
However, the outcomes of lawsuits cannot be predicted and, if determined adversely, could require us to pay significant damage amounts or to change aspects of our operations, which could have a material adverse effect on our financial results.
There has been considerable adverse development reported by the Company in recent years. We base our estimates on our assessment of known facts and circumstances, as well as estimates of future trends in claim severity, claim frequency, judicial theories of liability and other factors.
We base our estimates on our assessment of known facts and circumstances, as well as estimates of future trends in claim severity, claim frequency, judicial theories of liability and other factors.
As an insurance holding company, our Subsidiaries are named as defendants in various legal actions in the ordinary course of business. We believe that the outcome of presently pending matters, individually and in the aggregate, will not have a material adverse effect on our consolidated financial position, operating results or liquidity.
We believe that the outcome of presently pending matters, individually and in the aggregate, will not have a material adverse effect on our consolidated financial position, operating results or liquidity.
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.
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. Catastrophe models may not accurately predict future losses.
Our revenues and profitability are subject to the prevailing regulatory, legal, economic, political, demographic, competitive, weather and other conditions in the principal states in which we do business.
Our geographic concentration ties our performance to the business, economic, natural perils, man-made perils, catastrophes, severe weather and regulatory conditions within our most concentrated region. Our revenues and profitability are subject to the prevailing regulatory, legal, economic, political, demographic, competitive, weather and other conditions in the principal states in which we do 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. In setting their ratings, A.M.
Rating Agency Risks Withdrawing our participation from rating agencies may result in an adverse effect on our business, financial condition and operating results. Participants in the insurance industry use ratings from independent ratings agencies, such as A.M. Best and Kroll as an important means of assessing the financial strength and quality of insurers. In setting their ratings, A.M.
Any of these occurrences could diminish our ability to operate our business, or cause financial loss, potential liability to insureds, inability to secure insurance, reputational damage or regulatory intervention, which could materially adversely affect us. Litigation and legal proceedings against our subsidiaries could have a material adverse effect on our business, financial condition and/or results of operations.
Any of these occurrences could diminish our ability to operate our business, or cause financial loss, potential liability to insureds, inability to secure insurance, reputational damage or regulatory intervention, which could materially adversely affect us. An increased inflation rate or a period of sustained inflation may adversely impact our results of operations.
Best considers both companies to have a "weak" ability to meet ongoing financial obligations. Concurrently, the Company withdrew its participation in the rating process, and shall be non-rated by A.M. Best going forward. A.M.
Best considers both companies to have a “weak” ability to meet ongoing financial obligations. Concurrently, the Company withdrew its participation from the rating process, and shall be non-rated by A.M. Best going forward. 25 Claims-paying and financial strength ratings are important to an insurer’s competitive position. Our withdrawal of our participation from A.M.
If we incur additional debt or liabilities, our ability to pay the obligations on the Notes could be adversely affected.
The Indenture does not restrict us or our Insurance Company Subsidiaries from incurring additional debt or other liabilities. If we incur additional debt or liabilities, our ability to pay the obligations on the New Public Notes could be adversely affected.
As a result of these factors, investors in our common stock may not be able to resell their shares at or above their purchase price or may not be able to resell them at all. These market and industry factors may materially reduce the market price of our common stock, regardless of our operating performance.
Several factors contribute to this discrepancy, including market conditions, intangible assets, depreciation and amortization, contingent liabilities, and transaction costs. As a result of these factors, investors in our common stock may not be able to resell their shares at or above their purchase price or may not be able to resell them at all.
The termination of a relationship with one or more significant agents could result in lower premium revenue and could have a material adverse effect on our results of operations or business prospects. Certain premiums from policyholders, where the business is produced by agents, are collected directly by the agents and forwarded to our Insurance Company Subsidiaries.
The termination of a relationship with one or more significant agents could result in lower premium revenue and could have a material adverse effect on our results of operations or business prospects. We will no longer have non risk-bearing agency revenue and must rely almost entirely on insurance premium revenue generated from our Insurance Company Subsidiaries.
The Notes are structurally subordinated to the indebtedness and other liabilities of our subsidiaries. The Notes are obligations exclusively of Conifer Holdings, Inc. and not of any of our subsidiaries. None of our subsidiaries is a guarantor of the Notes and the Notes are not guaranteed by any subsidiary we may acquire or create in the future.
The New Public Notes are structurally subordinated to any future indebtedness and other liabilities of our Insurance Company Subsidiaries. The New Public Notes are obligations exclusively of Conifer Holdings, Inc. and not of any of our Insurance Company Subsidiaries.
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.
These material risks include, but are not limited to, the following: • Operational Risks 15 • Investment Risks • Liquidity Risks • Legal and Regulatory Risks • Rating Agency Risks • General Risk Factors Operational Risks 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.
Rather, reserves represent an estimate of what the expected ultimate settlement and administration of claims will cost, and the ultimate liability may be greater or less than the current estimate. In the insurance industry, there is always the risk that reserves may prove inadequate as it is possible for insurance companies to underestimate the cost of claims.
Rather, reserves and reinsurance recoverables on reserves represent an estimate of what the expected ultimate settlement and administration of claims will cost, and the ultimate liability may be greater or less than the current estimate. Our ultimate reinsurance recoverable may be greater or less than the current estimate.
Any such breach could cause significant disruption to our operations, including a requirement to immediately repay our indebtedness, and would have severe adverse effects on our liquidity and financial flexibility.
In addition, the terms of our existing or future debt arrangements may restrict us from effecting any of these alternatives which could cause significant disruption to our operations, including a requirement to immediately repay our indebtedness. The occurrence of any of these events would have severe adverse effects on our liquidity and financial flexibility.
In addition, price volatility may be greater if the public float and the trading volume of our common stock remain low. Our common stock may be delisted from The Nasdaq Stock Market if we cannot maintain compliance with Nasdaq’s continued listing requirements.
These market and industry factors may materially reduce the market price of our common stock, regardless of our operating performance. In addition, price volatility may be greater if the public float and the trading volume of our common stock remain low.
Severe weather conditions and other catastrophes are inherently unpredictable and may have a material adverse effect on our financial results and financial condition. Our property insurance business is exposed to the risk of severe weather conditions and other catastrophes.
Severe weather conditions and other catastrophes are inherently unpredictable and may have a material adverse effect on our financial results and financial condition. Our insurance operations expose us to claims arising from unpredictable catastrophe events, such as earthquakes, hurricanes, tornadoes, windstorms, floods and other severe events.
See Item 7A ~ Qualitative and Quantitative Disclosures About Market Risk for further discussion on interest rate risk. Liquidity Risks Any debt service obligations will reduce the funds available for other business purposes, and the terms and covenants relating to our current and future indebtedness could adversely impact our financial performance and liquidity.
Any debt service obligations will reduce the funds available for other business purposes, and the terms and covenants relating to our current and future indebtedness could adversely impact our financial performance and liquidity. As of December 31, 2024, the Company had $12.9 million of New Public Notes outstanding. See Note 9 ~ Debt for additional details.
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.
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 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.
Any assets of our subsidiaries will not be directly available to satisfy the claims of our creditors, including holders of the Notes.
None of our Insurance Company Subsidiaries is a guarantor of the New Public Notes and the New Public Notes are not guaranteed by any subsidiary we may acquire or create in the future. Any assets of our Insurance Company Subsidiaries will not be directly available to satisfy the claims of our creditors, including holders of the New Public Notes.
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.
We may become subject to additional government or market regulation which may have a material adverse impact on our business.
Our future capital requirements depend on many factors, including our ability to grow premium volume and underwrite the business profitably.
We may require additional capital in the future, which may not be available or may only be available on unfavorable terms. Our future capital requirements depend on many factors, including our ability to sell third party insurance products under our commercial lines business as well as grow premium volume and underwrite the personal lines business profitably.
The extent of losses from a catastrophe is a function of both the total amount of insured exposure in the area affected by the event and the severity of the event. Severe weather conditions and catastrophes can cause greater losses in our property lines and cause our liquidity and financial condition to deteriorate.
The occurrence of a natural disaster or other catastrophe loss could materially adversely affect our business, financial condition, and results of operations. The extent of losses from catastrophes is a function of both the frequency and severity of the insured events and the total amount of insured exposure in the areas affected.
In addition, losses in our investment portfolio may occur at the same time as underwriting losses and, therefore, exacerbate the adverse effect of the losses on us. We may be adversely affected by interest rate changes . Our investment portfolio is predominantly comprised of fixed income securities. These securities are sensitive to changes in interest rates.
In addition, losses in our investment portfolio may occur at the same time as underwriting losses and, therefore, exacerbate the adverse effect of the losses on us. Liquidity Risks The sale of our insurance agency operations will cause a significant decline in our revenue and adversely affect our financial performance and liquidity.
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 the event of such default, the holders of the New Public Notes could elect to declare all the funds borrowed thereunder to be due and payable, together with accrued and unpaid interest. There are limited financial covenants in the Indenture relating to our New Public Notes.
We distribute our insurance products through a select group of agents, several of which account for a significant portion of our business, and there can be no assurance that such relationships will continue, or if they do continue, that the relationship will be on favorable terms to us. In addition, reliance on agents subjects us to their credit risk.
There can be no assurance that such relationships will continue, or if they do continue, that the relationship will be on favorable terms to us. Our distribution model has changed drastically since the sale of CIS on August 30, 2024.
We cannot assure you that these relationships, or our relationships with any of our agencies will continue. Even if the relationships do continue, they may not be on terms that are profitable for us.
Therefore, even if SSU would desire to use our Insurance Company Subsidiaries, SSU may not be able to continue to attract and retain independent agents to sell our insurance products. Even if the relationships do continue, they may not be on terms that are profitable for us.
Any default under the agreements governing our indebtedness, including other indebtedness to which we may be a party that is not waived by the required lenders, and the remedies sought by the holders of such indebtedness could make us unable to pay principal and interest on the Notes and substantially decrease the market value of the Notes.
We may be unable to pay the principal and interest on the New Public Notes which will substantially decrease the market value of the New Public Notes.
If we are unable to collect premiums from agents, underwriting profits may decline and our financial condition and results of operations could be materially and adversely affected. The property and casualty insurance business is historically cyclical in nature, and we may experience periods with excess underwriting capacity and unfavorable premium rates, which could adversely affect our business.
If we are unable to collect premiums from agents, underwriting profits may decline and our financial condition and results of operations could be materially and adversely affected. 17 Significant staff reduction and heavy reliance on third party vendors increases operational risks and may adversely impact our results of operations, reporting abilities and reputation. 68 of our 77 employees conveyed with the sale of CIS, including the entire underwriting, claims, and information technology teams.
We are exposed to many types of operational risk, including the risk of fraud by employees and outsiders, clerical and recordkeeping errors and computer or telecommunications systems malfunctions. Our business depends on our ability to process a large number of increasingly complex transactions.
This could result in more significant operational errors and a diminished control environment. We are exposed to many types of operational risk, including the risk of fraud by employees and outsiders, clerical and recordkeeping which can be heightened when third party vendors are heavily relied upon.
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.
The domiciliary regulator requires that CIC maintain an RBC level above the Company Action Level. Management has provided a plan to its domiciliary regulator that showed how CIC will get above the minimum level requirements.
Removed
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.
Added
In the insurance industry, there is always the risk that reserves may prove inadequate as it is possible for insurance companies to underestimate the cost of claims. There has been considerable adverse development reported by the Company in recent years.
Removed
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.
Added
In addition, elevated inflationary conditions would, among other things, drive loss costs to increase; • Anticipated reinsurance recoverables on reserves could be negatively impacted by contractual limits of coverage. For example, the loss portfolio transfer which covers the potential for future adverse development on commercial lines for accident years prior to 2020, has a $20.0 million limit.
Removed
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.
Added
Our direct relationships with commercial retail and third party wholesale agencies are owned by CIS and our direct relationships with homeowners retail and third party wholesale agencies are owned by Sycamore Specialty Underwriters (“SSU”).
Removed
If any of our insurance reserves should prove to be inadequate for the reasons discussed above, or for any other reason, we will be required to increase reserves, resulting in a reduction in our net income and shareholders’ equity in the period in which the deficiency is identified.
Added
Upon the sale of CIS and the sale of our 50% ownership interest in SSU on August 30, 2024, we no longer have any control or ability to direct relationships with the retail or third party wholesale agencies.
Removed
If we are unable to underwrite risks accurately and charge competitive yet profitable rates to our policyholders, our business, financial condition and results of operations will be adversely affected. In general, the premiums for our insurance policies are established at the time a policy is issued and, therefore, before all of our underlying costs are known.
Added
In addition, we already only receive a small amount of commercial business from CIS, and expect any remaining business in CIS to ultimately be transferred to another insurer. Our current plan is to write substantially only homeowners’ insurance going forward, and we will be relying entirely on just one agent for that premium channel.

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Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

1 edited+0 added−0 removed0 unchanged
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
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. 30 PART II

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

5 edited+1 added−5 removed9 unchanged
Biggest changeThe 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.
Biggest changeThe repurchase program does not include specific 31 price targets or timetables. The company did not repurchase any shares of stock for the quarter ended December 31, 2024 related to the stock repurchase program.
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”).
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, 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”).
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.
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 2024 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.
Such a plan would enable the Company to repurchase its shares during periods outside of its normal trading windows, when the Company typically would not be active in the market. The timing of purchases, and the exact number of any shares to be purchased, will depend on market conditions. The repurchase program does not include specific price targets or timetables.
Such a plan would enable the Company to repurchase its shares during periods outside of its normal trading windows, when the Company typically would not be active in the market. The timing of purchases, and the exact number of any shares to be purchased, will depend on market conditions.
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.
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 March 28, 2025, there were 24 shareholders of record of our common stock.
Removed
Upon the repurchase of the Company's shares, the shares remain authorized, but not issued or outstanding.
Added
On August 30, 2024, the Company redeemed all of the $6.0 million of its outstanding Series A Preferred Stock. ITEM 6. [Reserved] 32
Removed
The Series A Preferred Stock shall only be convertible for shares of the Company’s common stock, no par value, at the Maturity Date.
Removed
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”).
Removed
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.
Removed
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

Item 7. Management's Discussion & Analysis

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

82 edited+77 added−116 removed53 unchanged
Biggest changeIn 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.
Biggest changeAdjusted operating loss, a non-GAAP measure, was $34.6 million, or $2.83 per share in 2024, compared to $27.9 million, or $2.28 per share in 2023. 42 Results of Operations - 2024 Compared to 2023 The following table summarizes our operating results for the years indicated (dollars in thousands): Summary Operating Results Years Ended December 31, 2024 2023 $ Change % Change Gross written premiums $ 72,053 $ 143,834 $ (71,781 ) (49.9 %) Net written premiums $ 49,338 $ 68,688 $ (19,350 ) (28.2 %) Net earned premiums $ 60,862 $ 83,935 $ (23,073 ) (27.5 %) Other income 328 552 (224 ) (40.6 %) Losses and loss adjustment expenses, net 73,302 82,413 (9,111 ) (11.1 %) Policy acquisition costs 13,335 15,797 (2,462 ) (15.6 %) Operating expenses 11,831 16,738 (4,907 ) (29.3 %) Underwriting gain (loss) (37,278 ) (30,461 ) (6,817 ) 22.4 % Net investment income 5,763 5,447 316 5.8 % Net realized investment gains (losses) (125 ) (20 ) (105 ) * Change in fair value of equity securities (203 ) 608 (811 ) * Other gains (losses) 646 — 646 * Interest expense 4,883 3,206 1,677 52.3 % Income (loss) from continuing operations before income taxes (36,080 ) (27,632 ) (8,448 ) 30.6 % Income tax expense (benefit) (1,840 ) (353 ) (1,487 ) * Net income (loss) from continuing operations (34,240 ) (27,279 ) (6,961 ) 25.5 % Net income from discontinued operations 58,587 1,375 57,212 * Net income (loss) $ 24,347 $ (25,904 ) $ 50,251 Book value per common share outstanding $ 1.76 $ 0.24 Underwriting Ratios: Loss ratio (1) 120.2 % 97.8 % Expense ratio (2) 35.8 % 37.1 % Combined ratio (3) 156.0 % 134.9 % (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.
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.
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; 36 • 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.
Losses are charged against the allowance when management believes the uncollectability of an available-for-sale 42 security is confirmed or when either of the criteria regarding intent or requirement to sell is met. Our outside investment managers assist us in this evaluation. Fair values are measured in accordance with ASC 820, Fair Value Measurements .
Losses are charged against the allowance when management believes the uncollectability of an available-for-sale security is confirmed or when either of the criteria regarding intent or requirement to sell is met. Our outside investment managers assist us in this evaluation. Fair values are measured in accordance with ASC 820, Fair Value Measurements .
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.
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.
The prices provided by the independent pricing services are generally based on observable market data in active markets (e.g., broker quotes and prices observed for comparable securities). The values for publicly‑traded equity securities are generally based on Level 1 inputs which use the market approach valuation technique. The values for debt securities generally incorporate significant Level 2 inputs.
The prices provided by the independent pricing services are generally based on observable market data in active markets (e.g., broker quotes and prices observed for comparable securities). 40 The values for publicly‑traded equity securities are generally based on Level 1 inputs which use the market approach valuation technique. The values for debt securities generally incorporate significant Level 2 inputs.
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 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.
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.
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.
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.
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 37 and incurred losses.
Adjusted operating income and adjusted operating income per share should be read in conjunction with the GAAP financial results. Our definition of adjusted operating income may be different from that used by other companies.
Adjusted operating income and adjusted operating income per share should be read in conjunction with the GAAP financial results. Our definition of adjusted operating income may be 41 different from that used by other companies.
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.
We use adjusted operating income (loss) and adjusted operating income (loss) per share, in conjunction with other financial measures, to assess our performance and to evaluate the results of our business.
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.
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 2024 reported pre-tax income and on net income and shareholders’ equity at December 31, 2024.
The three levels of the fair value hierarchy are: (1) Level 1: inputs are based on quoted prices (unadjusted) in active markets for identical assets or liabilities, (2) Level 2: inputs are other than quoted prices that are observable for the asset or liabilities, either directly or indirectly, for substantially the full term of the asset or liability and (3) Level 3: unobservable inputs that are supported by little or no market activity.
The three levels of the fair value hierarchy are: (1) Level 1: inputs are based on quoted prices (unadjusted) in active markets for identical assets or liabilities at the measurement date, (2) Level 2: inputs are other than quoted prices that are observable for the asset or liabilities, either directly or indirectly, for substantially the full term of the asset or liability and (3) Level 3: unobservable inputs that are supported by little or no market activity.
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.
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.
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.
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 specialty homeowners insurance product line is primarily comprised of low-value dwelling insurance tailored for owners of lower valued homes, which we offer in Illinois, Indiana and Texas. Through our wholesale agency business segment, we offer commercial and personal lines insurance products for our Insurance Company Subsidiaries as well as third-party insurers.
Our specialty homeowners insurance product line is primarily comprised of low-value dwelling insurance tailored for owners of lower valued homes, which we offer in Illinois, Indiana and Texas. Our MGA, CIS, operated through our wholesale agency business segment. Through CIS, we historically offered commercial and personal lines insurance products for our Insurance Company Subsidiaries as well as third-party insurers.
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.
The following table displays ultimate net loss and LAE and net loss and LAE reserves by accident year for the year ended December 31, 2024.
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.
Of the federal NOL amount, $6.8 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.
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.
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 $12.3 million as of December 31, 2024, net of any deferred taxes, which are reported as a separate component of accumulated other comprehensive income.
If, in the future, we determine we can support the recoverability of a portion or all of the deferred tax assets under the guidance, the tax benefits relating to any reversal of the valuation allowance on deferred tax assets will be accounted for as a reduction of income tax expense and result in an increase in equity.
If, in the future, we determine we can support the recoverability of a portion or all of the deferred tax assets under the guidance, the tax benefits relating to any reversal of the valuation allowance on deferred tax assets will be accounted for as a reduction of income tax expense and result in an increase in equity in the period of change if such judgment occurs.
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 .
A valuation allowance of $19.7 million and $28.0 million has been recorded against the gross deferred tax assets as of December 31, 2024 and 2023, respectively, as the Company has recognized a three-year cumulative loss from continuing operations as of December 31, 2024 which is significant negative evidence to support the lack of recoverability of those deferred tax assets in accordance with ASC 740, Income Taxes .
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.
Historically, we have organized 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 historically offered coverage for both commercial property and commercial liability.
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 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 debt securities portfolio had an average credit quality was AA+ at December 31, 2024 and 2023, respectively. The portfolio produced a tax-equivalent book yield of 3.2% and 3.3% for the years ended December 31, 2024 and 2023, respectively.
Best downgraded the financial strength ratings of CIC and WPIC to C. A rating of C means A.M. Best considers both companies to have a "weak" ability to meet ongoing financial obligations. Concurrently, the Company withdrew its participation in the rating process, and shall be non-rated by A.M. Best going forward.
Best considers both companies to have a "weak" ability to meet ongoing financial obligations. Concurrently, the Company withdrew its participation in the rating process, and shall be non-rated by A.M. Best going forward.
IBNR reserves are determined by subtracting case reserves and paid loss and LAE from the estimated ultimate loss and LAE. Our actuarial department develops estimated ultimate loss and LAE on a quarterly basis.
IBNR reserves, on both a gross basis, and net of reinsurance recoverables basis, are determined by subtracting case reserves and paid loss and LAE from the estimated ultimate loss and LAE. Our actuarial department develops estimated ultimate loss and LAE on a quarterly basis.
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.
However, future payments may be different than historical payment patterns. 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.
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.
This increase was due to an increase in interest income in our debt securities due to higher interest rates in 2024. Average invested assets during 2024 were $136.9 million compared to $141.7 million for the same period in 2023. The investment portfolio was comprised of 82.3% debt securities, 1.2% equity securities, and 16.5% short-term investments as of December 31, 2024.
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.
Of this amount, $6.8 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 $82.4 million, which expire in tax years 2025 through 2044.
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.
Business Overview We are an insurance holding company that markets and services our product offerings through specialty personal insurance business lines. We are authorized to write insurance as an excess and surplus lines carrier in 44 states, including the District of Columbia.
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.
As of December 31, 2024, the Company has net operating loss carryforwards for federal income tax purposes of $65.0 million, of which $62.2 million expire in tax years 2030 through 2043 and $10.5 million will never expire.
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.
If the $19.7 million valuation allowance as of December 31, 2024 were reversed in the future, it would increase book value by $1.62 per share. The net deferred tax assets were zero as of December 31, 2024 and 2023.
Kroll has given WPIC an insurance financial strength rating of B with a negative outlook. A BB- and a B rating indicates that the insurer's financial condition is low quality. Concurrently, the Company withdrew its participation in the rating process, and shall be non-rated by Kroll going forward. On March 14, 2024, A.M.
A BB- and a B rating indicates that the insurer's financial condition is low quality. Concurrently, the Company withdrew its participation in the rating process, and shall be non-rated by Kroll going forward. On March 14, 2024, A.M. Best downgraded the financial strength ratings of CIC and WPIC to C. A rating of C means A.M.
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.
Income Taxes As of December 31, 2024, we have federal and state income tax net operating loss ("NOL") carryforwards of $65.0 million and $82.4 million, respectively. Of the NOL carryforwards, $62.2 million will expire in tax years 2030 through 2043 and $10.5 million will never expire.
The Company repaid $24.4 million of its 6.75% public senior unsecured notes (the "old notes") and issued $17.9 million of 9.75% public senior unsecured notes (the "new notes") during the third quarter of 2023, which mature on September 30, 2028.
Interest Expense Interest expense was $4.9 million and $3.2 million for the years ended December 31, 2024 and 2023, respectively. The Company repaid $24.4 million of its 6.75% public senior unsecured notes and issued $17.9 million of 9.75% public senior unsecured notes (the "New Public Notes") during the third quarter of 2023, which mature on September 30, 2028.
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.
Income Tax Expense For the year ended December 31, 2024 and 2023, the Company reported a tax benefit of $1.8 million and $353,000, respectively. There is a $19.7 million valuation allowance against 100% of the net deferred tax assets at December 31, 2024. The valuation allowance was $28.0 million as of December 31, 2023.
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.
Cash used in operating activities from for the year ended December 31, 2024 was $32.7 million compared to $13.4 million for the same period in 2023.
We also offer coverage for commercial automobiles and workers’ compensation. Our insurance policies are sold to targeted small and mid-sized businesses on a single or multiple-coverage basis. Through our personal insurance lines, we offer homeowners insurance and dwelling fire insurance products to individuals in several states.
We also offered coverage for commercial automobiles and workers’ compensation. Our insurance policies are sold to targeted small and mid-sized businesses on a single or multiple-coverage basis.
We will evaluate any such transactions in light of then-existing market conditions, taking into account our current liquidity and prospects for future access to capital. The amounts involved in such transactions, individually or in the aggregate, may be material. Cash Flows Operating Activities.
We will evaluate any such transactions in light of then-existing market conditions, taking into account our current liquidity and prospects for future access to capital. The amounts involved in such transactions, individually or in the aggregate, may be material. In March 2025, the Company issued $7.5 million of its newly designated Series B Preferred Stock.
The option adjusted duration of the debt securities portfolio was 2.9 years and 3.5 years at December 31, 2023 and 2022, respectively. Realized Investment Gains (Losses) Net realized investment losses were $20,000 during 2023, compared to $1.5 million of losses during 2022.
The option adjusted duration of the debt securities portfolio was 2.7 years and 2.9 years at December 31, 2024 and 2023, respectively. Realized Investment Gains (Losses) Net realized investment losses were $125,000 during 2024, compared to $20,000 of losses during 2023. The Company had minimal activity related to selling equity securities in 2024 and 2023.
Liquidity and Capital Resources Sources and Uses of Funds At December 31, 2023, the Company had $32.0 million in cash, cash equivalents, and short-term investments, of which, $16.8 million was unrestricted. Our principal sources of funds have historically been insurance premiums, investment income, proceeds from maturity and sale of invested assets and other income.
Liquidity and Capital Resources Sources and Uses of Funds At December 31, 2024, the Company had $48.8 million in cash, cash equivalents, and short-term investments. Our principal sources of funds are insurance premiums, investment income and proceeds from maturities and sales of invested assets.
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.
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.
Cash used to fund the transaction was generated from the existing investment portfolios held by CIC and WPIC. A.M. Best and Kroll 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.
Best and Kroll 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.
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.
Unpaid Loss and Loss Adjustment Expense Reserves and Reinsurance Recoverables on Unpaid Loss and Loss Adjustment Expenses Our recorded loss and loss adjustment expenses ("LAE") reserves represent management’s best estimate of unpaid loss and LAE, and related reinsurance recoverables, at each balance sheet date, based on information, facts and circumstances known at such time.
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.
The table below provides the expense ratio by major component: Years Ended December 31, 2024 2023 Commercial Lines Policy acquisition costs 15.3 % 15.3 % Operating expenses 14.5 % 20.2 % Total 29.8 % 35.5 % Personal Lines Policy acquisition costs 27.5 % 26.8 % Operating expenses 13.6 % 13.9 % Total 41.1 % 40.7 % Total Underwriting Policy acquisition costs 21.8 % 18.8 % Operating expenses 14.0 % 18.3 % Total 35.8 % 37.1 % Our expense ratio decreased by 1.3% to 35.8% in 2024, compared to 37.1% the same period in 2023. 45 Policy acquisition costs are costs we incur to issue policies, which include commissions, premium taxes, underwriting reports and underwriter compensation costs.
The Company also restructured its existing $10.5 million of 7.5% subordinated notes to $10.0 million of new 12.5% senior secured notes on September 30, 2023. The senior secured notes mature on September 30, 2028. 50 Interest expense includes the amortization of debt issuance costs relating to the new notes and the senior secured notes.
The Company amortized through interest expense $379,000 of debt issuance costs related to the $5.0 million buyback of New Public Notes. The Company also restructured its existing $10.5 million of 7.5% subordinated notes to $10.0 million of new 12.5% Senior Secured Notes on September 30, 2023, which required quarterly principal payments of $250,000.
We use several generally accepted actuarial methods to develop estimated ultimate loss and LAE estimates by line of business and accident year. This process relies on the basic assumption that past experience, adjusted for the effects of current developments and likely trends, is a reasonable basis for predicting future outcomes.
This process relies on the basic assumption that past experience, adjusted for the effects of current developments and likely trends, is a reasonable basis for predicting future outcomes.
Realized investment gains and losses may vary significantly between periods and are generally driven by external economic developments, such as capital market conditions. Accordingly, adjusted operating income excludes the effect of items that tend to be highly variable from period to period and highlights the results from our ongoing business operations and the underlying loss or profitability of our business.
Accordingly, adjusted operating income (loss) excludes the effect of items that tend to be highly variable from period to period and highlights the results from our ongoing business operations and the underlying loss or profitability of our business.
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.
Year Ended December 31, 2024 Commercial Lines Personal Lines Total Accident year net losses and LAE $ 18,692 $ 20,895 $ 39,587 Net (favorable) adverse development 33,463 252 33,715 Calendar year net loss and LAE $ 52,155 $ 21,147 $ 73,302 Accident year loss ratio 66.3 % 63.8 % 64.9 % Net (favorable) adverse development 118.5 % 0.8 % 55.3 % Calendar year loss ratio 184.8 % 64.6 % 120.2 % 44 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 % Net losses and LAE decreased by $9.1 million, or 11.1%, to $73.3 million for the year ended December 31, 2024, compared to $82.4 million for the year ended December 31, 2023.
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.
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.
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.
We are licensed to write insurance as an admitted carrier in 42 states, including the District of Columbia, and we used to offer our insurance products in almost all 50 states. As of December 31, 2024, we offer insurance products primarily in Texas, Illinois and Indiana for homeowners lines and Nevada and Michigan for other lines.
Best and Kroll downgraded the financial strength ratings of both companies and we terminated the rating relationship. Therefore, neither company is currently rated by a nationally recognized statistical rating organization which can have an impact on the ability to market to policyholders.
Therefore, neither company is currently rated by a nationally recognized statistical rating organization which can have an impact on the ability to market to policyholders. These circumstances could jeopardize the ability of the Company to generate insurance underwriting revenues.
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).
Losses and Loss Adjustment Expenses The tables below detail our losses and LAE and loss ratios for the years ended December 31, 2024 and 2023 (dollars in thousands).
The 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.
The 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, 2024 2023 Net income (loss) $ 24,347 $ (25,904 ) Less: Net realized investment gains (losses) (125 ) (20 ) Change in fair value of equity securities (203 ) 608 Other gains 646 — Net income from discontinued operations 58,587 1,375 Impact of income tax expense (benefit) from adjustments * — — Adjusted operating income (loss) $ (34,558 ) $ (27,867 ) Weighted average common shares, diluted 12,222,881 12,220,511 Diluted income (loss) per common share: Net income (loss) $ 1.99 $ (2.12 ) Less: Net realized investment gains (losses) (0.01 ) — Change in fair value of equity securities (0.02 ) 0.05 Other gains 0.06 — Net income from discontinued operations 4.79 0.11 Impact of income tax expense (benefit) from adjustments * — — Adjusted operating income (loss) per share $ (2.83 ) $ (2.28 ) * The Company has recorded a full valuation allowance against its deferred tax assets as of December 31, 2024 and 2023.
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.
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.
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.
As of December 31, 2024, the carrying value of the New Public Notes was offset by $955,000 of capitalized debt issuance costs, respectively. The debt issuance costs are amortized through interest expense over the life of the loans.
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).
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, other gains (losses) and net income from discontinued operations.
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 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 Company may redeem the New Public Notes, in whole or in part, at face value at any time after September 30, 2025.
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.
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. There were no dividends paid from our Insurance Company Subsidiaries for the years ended December 31, 2024 and 2023.
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.
The following table provides the underwriting gain or loss for the years ended December 31, 2024 and 2023 (dollars in thousands): Underwriting Gain (Loss) Years Ended December 31, 2024 2023 Change Commercial Lines $ (32,329 ) $ (24,512 ) $ (7,817 ) Personal Lines (1,853 ) (4,882 ) $ 3,029 Total Underwriting (34,182 ) (29,394 ) (4,788 ) Corporate (3,096 ) (1,067 ) (2,029 ) Total underwriting income (loss) $ (37,278 ) $ (30,461 ) $ (6,817 ) Investment Income Net investment income increased by $316,000, or 5.8%, to $5.8 million for the year ended December 31, 2024, compared to $5.4 million for the year ended December 31, 2023.
Our Reserve Review Committee (which includes our Chief Executive Officer, President, Chief Financial Officer, other members of executive management, and key actuarial, underwriting and claims personnel) meets each quarter to review our actuaries’ estimated ultimate expected loss and LAE.
Our Reserve Review Committee (which includes our Chief Executive Officer and our Chief Financial Officer) meets each quarter to review our actuaries’ estimated ultimate expected loss and LAE. We use several generally accepted actuarial methods to develop estimated ultimate loss and LAE estimates by line of business and accident year.
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.
We believe that it is useful for investors to evaluate adjusted operating income (loss) and adjusted operating income (loss) per share, along with net income (loss) and net income (loss) per share, when reviewing and evaluating our performance.
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 resulting net earned premiums are impacted by the gross and ceded written premiums, earned ratably over the terms of the policies. 43 Our premiums are presented below for the years ended December 31, 2024 and 2023 (dollars in thousands): Summary of Premium Revenue Years Ended December 31, 2024 2023 $ Change % Change Gross written premiums Commercial lines $ 26,686 $ 107,078 $ (80,392 ) (75.1 %) Personal lines 45,367 36,756 8,611 23.4 % Total $ 72,053 $ 143,834 $ (71,781 ) (49.9 %) Net written premiums Commercial lines $ 14,541 $ 36,580 $ (22,039 ) (60.2 %) Personal lines 34,797 32,108 2,689 8.4 % Total $ 49,338 $ 68,688 $ (19,350 ) (28.2 %) Net Earned premiums Commercial lines $ 28,160 $ 59,221 $ (31,061 ) (52.4 %) Personal lines 32,702 24,714 7,988 32.3 % Total $ 60,862 $ 83,935 $ (23,073 ) (27.5 %) Gross written premiums decreased by $71.8 million, or 49.9%, to $72.1 million in for the year ended December 31, 2024, compared to $143.8 million for the year ended December 31, 2023.
Cash used in investing activities for the year ended December 31, 2023 was $272,000 compared to $56.5 million of cash provided by investing activities in 2022.
Cash provided by investing activities for the year ended December 31, 2024 was $70.3 million compared to $272,000 of cash used in investing activities in 2023. The $70.6 million increase in cash provided by investing activities was largely driven by $58.3 million in cash received from the sale of CIS and SSU during 2024. Financing Activities from Continuing Operations .
Expense Ratio Our expense ratio is a measure of the efficiency and performance of the commercial and personal lines of business (our risk-bearing underwriting operations). 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.
The adverse development in this program was partially offset by favorable development in other programs. Expense Ratio Our expense ratio is a measure of the efficiency and performance of the commercial and personal lines of business (our risk-bearing underwriting operations).
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.
Personal lines gross written premiums increased $8.6 million, or 23.4%, to $45.4 million for the year ended December 31, 2024, compared to $36.8 million for the year ended December 31, 2023. The increase was due to the organic growth in the low-value dwelling book of business in Texas, which grew by $13.6 million in 2024.
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.
Our revenues are primarily derived from premiums earned from our insurance operations. We also generate other revenues through investment income. Prior to the sale of CIS we also generated other income mainly from installment fees and policy issuance fees related to the policies we wrote.
As of December 31, 2023 Impact Net Ultimate Loss and LAE (1) Net Loss and LAE Reserves (1) Ultimate Loss and LAE Sensitivity Factor Pre- Tax Income (2) Shareholders' Equity (2) Increased Ultimate Losses & LAE Accident Year 2023 $ 64,579 $ 37,578 10.0 % $ (6,458 ) $ (5,102 ) Accident Year 2022 62,985 28,804 5.0 % (3,149 ) (2,488 ) Accident Year 2021 58,958 19,666 2.5 % (1,474 ) (1,164 ) Prior to 2021 Accident Years — 17,757 — % — — Decreased Ultimate Losses & LAE Accident Year 2023 64,579 37,578 (10.0 )% 6,458 5,102 Accident Year 2022 62,985 28,804 (5.0 )% 3,149 2,488 Accident Year 2021 58,958 19,666 (2.5 )% 1,474 1,164 Prior to 2021 Accident Years — 17,757 — % — — (1) Represents amounts as of December 31, 2023.
As of December 31, 2024 Impact Net Ultimate Loss and LAE (1) Net Loss and LAE Reserves (1) Ultimate Loss and LAE Sensitivity Factor Pre- Tax Income (2) Shareholders' Equity (2) Increased Ultimate Losses & LAE Accident Year 2024 $ 39,152 $ 15,077 10.0 % $ (3,915 ) $ (3,093 ) Accident Year 2023 71,906 34,965 5.0 % (3,595 ) (2,840 ) Accident Year 2022 75,449 29,244 2.5 % (1,886 ) (1,490 ) Prior to 2022 Accident Years — 25,509 — % — — Decreased Ultimate Losses & LAE Accident Year 2024 39,152 15,077 (10.0 )% 3,915 3,093 Accident Year 2023 71,906 34,965 (5.0 )% 3,595 2,840 Accident Year 2022 75,449 29,244 (2.5 )% 1,886 1,490 Prior to 2022 Accident Years — 25,509 — % — — 39 (1) Represents amounts as of December 31, 2024.
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.
Executive Overview The Company's gross written premiums decreased $71.8 million, or 49.9%, to $72.1 million in 2024, compared to $143.9 million in 2023. Our commercial lines gross written premiums decreased $80.4 million, or 75.1%, to $26.7 million in 2024, compared to $107.1 million in 2023.
These laws require increasing degrees of regulatory oversight and intervention as an insurance company’s RBC declines. At December 31, 2023, CIC fell within the Company Action Level of the RBC formula and WPIC fell within the Regulatory Action Level of the RBC formula. WPIC also fell below two other regulatory thresholds which are necessary to stay in compliance.
These laws require increasing degrees of regulatory oversight and intervention as an insurance company’s RBC declines. At December 31, 2024, CIC fell within the Company Action Level with an RBC ratio of 156%. Management is required to provide a plan to its domiciliary regulator that shows how CIC will get above the minimum level requirements.
The Insurance Company Subsidiaries are currently both required to provide an action plan with the state of domicile insurance regulator to remediate certain statutory capital and surplus regulatory deficiencies. If we do not remediate the regulatory deficiencies the insurance regulator could suspend or terminate the insurers’ authority to write business. Also, A.M.
If we do not remediate the regulatory deficiency the insurance regulator could suspend or terminate CIC’s authority to write business. Also, A.M. Best and Kroll downgraded the financial strength ratings of both companies and we terminated the rating relationship.
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.
The $19.3 million increase in cash used in operating activities was primarily due to a $36.4 million decrease in premiums received, net of ceded premiums paid, while there was no commensurate decrease in losses paid. This decrease in cash received from premiums was partially offset by a $6.4 million decrease in acquisition costs paid. Investing Activities from Continuing Operations.
Contractual Obligations and Commitments The following table is a summary of our contractual obligations and commitments as of December 31, 2023 (dollars in thousands): Payments due by period Total Less than one year One to three years Three to five years More than five years Senior unsecured notes $ 17,887 $ — $ — $ 17,887 $ — Interest on senior unsecured notes 8,284 1,744 3,488 3,052 — Senior secured notes 9,750 1,000 2,000 6,750 — Interest on senior secured notes 4,453 1,172 1,969 1,312 — Lease obligations 1,302 274 460 390 178 Unpaid loss and loss adjustment expense (1) 174,612 50,948 68,901 37,081 17,682 Purchase Obligations (2) 1,020 360 660 — — Total $ 217,308 $ 55,498 $ 77,478 $ 66,472 $ 17,860 (1) The estimated unpaid loss and loss adjustment expense payments were made using estimates based on historical payment patterns.
Refer to Note 9 ~ Debt for additional information regarding our outstanding debt. 49 Contractual Obligations and Commitments The following table is a summary of our contractual obligations and commitments as of December 31, 2024 (dollars in thousands): Payments due by period Total Less than one year One to three years Three to five years More than five years Senior unsecured notes $ 12,887 $ — $ — $ 12,887 $ — Interest on senior unsecured notes 6,174 1,646 3,293 1,235 — Lease obligations 212 84 128 — — Unpaid loss and loss adjustment expense (1) 189,285 59,733 76,820 36,963 15,769 Total $ 208,558 $ 61,463 $ 80,241 $ 51,085 $ 15,769 (1) The estimated unpaid loss and loss adjustment expense payments were made using estimates based on historical payment patterns.
The operating expense ratios were higher primarily due to increased reinsurance costs due to the new quota share reinsurance treaty mentioned above, which lowered net earned premiums. Underwriting Results We measure the performance of our consolidated results, in part, based on our underwriting gain or loss.
Underwriting Results We measure the performance of our consolidated results, in part, based on our underwriting gain or loss.
Management is required to provide a plan to its domiciliary regulator that shows how the Companies will get above the minimum level requirements. In the event the Companies do not regain compliance, the director may suspend, revoke, or limit the certificate of authority of the Companies.
In the event CIC does not regain compliance, the director may suspend, revoke, or limit the certificate of authority of the Companies.
No dividends were paid from our Insurance Company Subsidiaries in 2022, and do not anticipate any dividends being paid to us from our insurance subsidiaries during 2024 and 2025. We contributed $400,000, $6.8 million and $11.4 million to our Insurance Company Subsidiaries in 2023 and 2022, respectively.
We do not anticipate any dividends being paid to us from our insurance subsidiaries in the near term.
Oklahoma homeowners represented $17.1 million of the Company’s gross written premium in 2023. Texas homeowners is expected to continue to grow. Net written premiums decreased $22.5 million, or 24.7%, to $68.7 million, for the year ended December 31, 2023, compared to $91.2 million for the year ended December 31, 2022.
Net written premiums decreased $19.4 million, or 28.2%, to $49.3 million, for the year ended December 31, 2024, compared to $68.7 million for the year ended December 31, 2023. Net written premiums declined during the year as a result of the Company's reduction in commercial lines business.
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.
Cash used in financing activities for the year ended December 31, 2024, was $21.1 million compared to $3.2 million used in 2023. The $17.8 million increase in cash used in was primarily due to the Company repaying its $6.0 million of Series A Preferred Stock in 2024 and $14.3 million of long-term debt.
These funds are primarily used to pay claims, commissions, employee compensation, taxes and other operating expenses, and service debt. In December 2023, the Company issued $6.0 million of Series A Preferred Stock. The Company intends to use the proceeds for working capital and general corporate purposes.
These funds are primarily used to pay claims, commissions, employee compensation, taxes and other operating expenses, and service debt. We conduct our business operations primarily through our Insurance Company Subsidiaries.
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.
Commercial lines gross written premiums decreased $80.4 million, or 75.1%, to $26.7 million for the year ended December 31, 2024, compared to $107.1 million, for the year ended December 31, 2023. We ceased writing substantially all commercial lines during 2024. As of September 1, 2024, we no longer write any hospitality or small business commercial lines business.
This resulted in a $2.8 million gain that is included in Other Gains on the Consolidated Statement of Operations.
The Company recognized a $500,000 gain from the buyback that is included in Other Gains on the Consolidated Statement of Operations. The Company amortized through interest expense $379,000 of debt issuance costs related to the $5.0 million buyback of New Public Notes.
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.
Our personal lines gross written premiums increased $8.6 million, or 23.4%, to $45.4 million in 2024, compared to $36.8 million in 2023. The Company reported a net loss from continuing operations of $34.2 million, or $2.87 per share in 2024, compared to a net loss from continuing operations of $27.3 million, or $2.23 per share in 2023.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Biggest changeInterest 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.
Biggest changeOur 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.
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.
At December 31, 2024 and 2023, the net amount due to the Company from reinsurers, including prepaid reinsurance, was $97.5 million and $112.3 million, respectively. We believe all amounts recorded as due from reinsurers are recoverable.
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.
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, 2024.
We 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.
We 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 2.7 and 2.9 years as of December 31, 2024 and 2023, respectively.
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.
Hypothetical Percentage Increase (Decrease) in Hypothetical Change in Interest Rates As of December 31, 2024 Estimated Fair Value Estimated Change in Fair Value Fair Value Shareholders' Equity 200 basis point increase 120,488 $ (6,328 ) (5.0 )% (29.4 )% 100 basis point increase 123,531 (3,285 ) (2.6 )% (15.3 )% No change 126,816 — — — 100 basis point decrease 130,354 3,538 2.8 % 16.4 % 200 basis point decrease 134,121 7,305 5.8 % 33.9 % Credit Risk An additional exposure to our debt securities portfolio is credit risk.
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.
The following is a discussion of our primary risk exposures and how those exposures are currently managed as of December 31, 2024.
Removed
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.
Added
Our market risk sensitive instruments are primarily related to fixed income securities, which are available-for-sale and not held for trading purposes. 50 Interest Rate Risk At December 31, 2024 and 2023, the fair value of our investment portfolio, excluding cash and cash equivalents, was $128.4 million and $145.3 million, respectively.

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