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Conifer (CNFR) Q2 Earnings call transcript Aug 14, 2024

AInvestThursday, Aug 15, 2024 9:04 pm ET
2min read

In the recent earnings call for Conifer Holdings, the company highlighted a significant shift in its revenue model towards a commission-based approach, with a focus on channeling premiums through its wholly-owned managing general agency, Conifer Insurance Services. This strategic decision, aimed at achieving more stable and predictable revenue streams, comes with short-term challenges but promises long-term benefits in terms of improved profitability and a more scalable and sustainable business model.

A Pivot to a Commission-Based Revenue Model

Conifer Holdings' top line figures showed a deliberate decline, a result of the company's strategic decision to shift towards a commission-based revenue model. This move aligns with the company's long-term strategy to enhance overall profitability and create a more scalable business model. By running gross written premiums through its MGA, Conifer is optimizing its commercial lines, leveraging the expertise and network of its agency partners to expand its reach in key markets. This commission-based approach, while resulting in lower top line figures initially, is a critical step towards a more sustainable and profitable future.

Expanding into New Markets and Enhancing Distribution Channels

One of the notable achievements in the second quarter of 2024 was the acceleration of premium transfers to capacity partners, particularly in the cannabis industry. This strategic move has enabled Conifer to expand into new markets and solidify its position as a leading provider of cannabis-related coverage across the U.S. The company's focus on optimizing its commercial lines and leveraging third-party A-rated capacity providers not only expands its reach but also provides insurers with superior coverage and risk management, all while operating within a scalable and sustainable production-based revenue model.

Navigating Personal Lines Challenges

The second quarter of 2024 was marked by significant challenges in the personal lines segment, particularly due to spring storms. Conifer expects the run-off process to be completed by year-end, after which personal lines production will primarily come from low-valued homeowners business in Texas and the Midwest. Despite these challenges, the company remains confident in its ability to achieve profitability and is committed to preserving a strong and consistent top line while streamlining expenses and generating operational profitability over the long term.

Financial Results and Future Outlook

The financial results for the second quarter of 2024 reflected a decrease in overall gross written premium of 58%, reflecting the strategic decision to reduce premium leverage on operating subsidiaries and focus on commission-based revenue through the MGA. Despite this decrease, Conifer's expense ratio continued to improve, demonstrating the success of the company's ongoing expense reduction efforts. The company reported a net loss for the quarter, but remains committed to achieving profitability through its strategic shift towards a commission-based revenue model.

Looking Ahead

Conifer Holdings' strategic shift towards a commission-based revenue model positions the company for stronger, more sustainable growth. The company remains confident in its ability to achieve profitability more quickly than in its carrier-based model, particularly with the support of A-rated paper and the improved weather results in the personal lines segment. Despite the challenges faced in the second quarter, Conifer remains optimistic about its future and is committed to delivering long-term value to its shareholders.

Investor Questions and Management's Response

During the Q&A session, management addressed investor concerns about the company's path to profitability and its sources of liquidity in case additional capital is needed. The company expressed confidence in its ability to achieve profitability through its commission-based model and its strategic pivot towards a managing general agency business model. Additionally, management mentioned the possibility of asset sales as a potential source of liquidity if needed.

Conclusion

Conifer Holdings' strategic shift towards a commission-based revenue model, as discussed in its second quarter 2024 earnings call, represents a bold move towards sustainable growth and profitability. Despite the short-term challenges, the company remains confident in its ability to navigate these changes and deliver long-term value to its shareholders. As Conifer continues to optimize its commercial lines, expand into new markets, and manage its personal lines challenges, it is poised for a more stable and profitable future.

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