Good morning and welcome to Conifer Holdings Third Quarter 2021 Investor Conference Call. All participants will be in a listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. Please note, this event is being recorded. I would now like to turn the conference over to Adam Prior of The Equity Group. Please go ahead.

Thank you and good morning, everyone. Conifer issued it's 2021 third quarter financial results after the close of market yesterday on the company's website, ir.cnfrh.com. You can find copies of the earnings release as well as the slide presentation that accompanies management's discussion today which is available to view or download via webcast or from the Investor Relations portion of Conifer's website. Before we get started, the company has asked that I note that except with respect to historical information, statements made in this conference call may constitute forward-looking statements within the meaning of the federal securities laws including statements related to trends, the company's operations and financial results and the business and the product of the company and it's subsidiaries. Actual results from Conifer may differ materially from the results anticipated in these forward-looking statements as a result of various risks and uncertainties underlying our forward-looking statements, including risks and uncertainties associated with COVID-19 and it's impact on the economy and on our business as well as those risks described from time to time in Conifer's filings with the SEC, including our latest Form 10-K and subsequent reports. Conifer specifically disclaims any obligation to update or revise any forward-looking statements, whether as a result of new information, future developments or otherwise. In addition, a replay of this call will be provided through a link on the Investor Relations section of our website. During this call, we'll also discuss non-GAAP financial measures as defined by SEC Regulation G. Reconciliation of these non-GAAP financial measures to the comparable GAAP financial measures are included when possible in our earnings release and our historical SEC filings. Statutory accounting data is prepared in accordance with statutory accounting rules and is therefore not reconciled to GAAP. We will conduct a Q&A session after management's prepared remarks this morning. With that, I'd now like to turn the call over to Mr. Jim Petcoff, Chairman and Chief Executive Officer. Please go ahead, Jim.

Thank you, Adam. Good morning, everyone. On the call with me today is Nick, Harold and Brian. On today's call, I'd like to provide a brief overview. Nick will discuss the underwriting results in greater detail and Harold will cover the financials. In the third quarter, I was pleased to see continued gross written premium growth, up almost 13% quarter-over-quarter and up just over 20% for the nine month period. Both Commercial and Personal Lines reported meaningful growth in gross written premiums leading to another quarter of double-digit growth for Conifer. With the changes we have been successfully implementing for several years now, our business mix is largely where we'd like it to be. And we are solely focused on growing deeper in our established specialty lines. In addition, a major component of our top line growth in the quarter came from significant rate increases in the select lines that we serve. In general, we continue to push rate wherever possible. Nick will have a little bit more on this later. With the general business enhancements that we continue to roll through our book, we are excited about the positive impact for the future. The ongoing top line growth will definitely drive fundamental economics -- economies of scale, helping reduce our overall cost structure and increasing operating efficiency as well. After several years of optimizing our business mix, we see promising signs for a very favorable growth trend going forward. For the remainder of 2021, our focus will continue to be on generating profitable premium growth in our best performing lines. In our core specialty markets, our growth continued -- remains sustainable and has significant runway. We will greatly enhance Conifer's ability to report consistent operating profit going forward. With that, I turn it over to Nick.

Thank you, Jim. Echoing Jim's comments on growth, we are pleased to see the consistent underwriting effort made over the last several years coming to successful fruition in the form of favorable top line growth. Commercial Lines represented 88% of our total production for the period, where we saw substantial growth from our small business group. Our Personal Lines which consists largely of low-value dwelling business, represented 12% of written premiums for the quarter. Commercial Lines gross written premiums were up over 9% to almost $30 million in the quarter and up over 15% for the nine month period as well, continuing a very positive growth trend overall. During the third quarter, our new business submissions continued to grow and we are still benefiting from high existing renewal retention levels at approximately 90%. As we expand our premium base, we are further developing market share in many of our key geographies, including our home state of Michigan. In addition to continued positive performance, Michigan business presents many other opportunities for us and remains a significant driver of our expected future growth. Looking at our book more closely, hospitality premiums were down in the quarter, largely due to ongoing COVID impacts combined with selective planned non-renewals. On the other hand, we achieved 28% growth in our small business group. This equates to an increase of roughly $5 million in additional premium for the quarter alone which helped drive our top line Commercial Lines premium growth. As hospitality normalizes over time, we do expect positive premium contributions there as well. We also reported a 52% increase in Personal Lines premium to roughly $4 million as well as a profitable 88% combined ratio for the period. Our Personal Lines consists largely of low-value dwelling products, where our underwriting teams have established strong relationships…

Thank you, Nick. I'll provide a quick review of the results and I also encourage investors to review our filings and presentation on the company's website for greater detail. Specifically, I'll go through a more thorough discussion of our underwriting results, including an improving expense ratio. Conifer's combined ratio was 107% in the third quarter compared to 111% in the same period last year. Our overall loss ratio was 64.6% and is down slightly compared to 65.2% for the third quarter last year. The loss ratio in Commercial Lines was 67% this quarter compared to 69% in the prior year period, while the Personal Lines loss ratio was 49% for the quarter. In this quarter, we were particularly pleased with the underwriting performance of an 88% combined ratio in our Personal Lines, especially considering an otherwise difficult cap period for several of our peers. When we began to shift away from wind-exposed business several years ago, our goal was to reduce the possible storm impact to our future results. The third quarter proved to be an excellent example of this shifted -- planned shift away from wind-exposed Personal Lines sector. Our current accident year combined ratio was 92% in the quarter compared to 90% in the prior year period. Moving to our expense ratio; we continue to see improvement resulting from planned expense reductions and premium growth. Accordingly, our expense ratio improved to 42.3% this quarter from 45.5% for the same period last year, down 320 basis points. As we scale up our net earned premiums, continue to implement cost-cutting measures and further leverage the investments that we have made in technology, we believe a sub-40 expense ratio is very achievable in the near future. Investment income was $514,000 during the third quarter, compared to $776,000 in the same --…

Thanks, Harold. I am pleased to see execution of our business plan as we grow our top line 13% in the quarter and 20% for the nine month period, all while reducing exposure to lines that have generated the greatest impact to our reserves overall. We continue to refine our business mix and effectively grow our top line. Our primary focus remains achieving efficient and operating scale and driving bottom line profitability going forward. With that, I'd like to ask if there's any questions. Operator?

[Operator Instructions] The first question comes from Bob Farnam of Boenning & Scattergood. Please go ahead.

Yes. Hey, there. Just a couple of questions here. In terms of the premium growth that you're hoping for to kind of rightsize based on the infrastructure you have. I'm looking at your -- kind of your net written premium leverage to policyholders' surplus and it's $1.8 million now. So I'm trying to figure out how much leverage you still have to put more growth on to keep your -- but -- balancing that with keeping your rating intact?

Yes. Thanks, Bob. That's a great question. We haven't used any of our reinsurance or anything along those lines to deleverage the company and it's been pretty straightforward. But there's plenty of availability of additional capital or either reinsurance-wise, et cetera, if we needed to raise capital to grow. But our growth rate is not like 50% a quarter, it's only 10% to 15%. And we think hopefully as the development subsides, we'll be posting earnings and that will help in that growth. But Brian, do you have any comments or...

I think actually as we look at the top line and where we are, I echo kind of Jim's comments that our top line growth and our percentage is off of a smaller base give us, obviously, a little bit of room from where we are right now. But obviously, if we see more anticipated growth, we'll be obviously looking for other ways to supplement that.

Yes, just to the question -- my question was almost -- is there still a possibility you're going to have to kind of reduce that infrastructure further in order to get that expense ratio kind of where you want it to be if the top line is kind of under pressure, maybe you have to address the expense ratio with lowering the cost of the whole infrastructure?

We've been continuing to lower the cost of the infrastructure. And if you look at our operating expenses, they go down in real dollar values even as their ratings are going up. So I don't -- I think we've focused quite a bit on that. The -- we're hampered somewhat by our rating because we have front-end costs which are hurting our expense ratio. In addition, the lines of business that have caused us some problem in '15, '16, '17, '18 are still reverberating through our reinsurance costs. We expect that to mitigate as well. So as time goes on, with a little bit of growth, better current year operating results, we anticipate a little growth in earned premium more than offset that. And we expect our expense ratio to continue to decline. It's hit a little bit this quarter by catch-up on some minimum premiums on reinsurance that lowered our earned premium, otherwise, the expense ratio would be even better which I guess is kind of cryptic to a certain extent but we had a minimum premium. It wasn't significant but it's few basis points on our expense ratio. We really feel that's going in the right direction. And as the growth continues, the earned premium is catching up. And as the earned premium goes upward, we're getting that. We expect to get sub-40 in the next few quarters -- couple of quarters and we see it continuing that way.

Okay. All right. And the second question I have, I know I've asked before but I have questions from the senior noteholders. The notes mature in little under two years now. So you have $24 million outstanding. Just what are your plans to be able to pay that down when they mature?

Well, actually, obviously, as you point out, there's two more years. I think probably the most important thing for your people is how do they feel about the dividends? We feel confident about our ability to refi back into the market. But right now, with the top line premium growing, that gives obviously more coverage, if you will, interest coverage for the underlying payments. But we feel comfortable as to where we are with refi that. We're actually out refi the subdebt right now. So as far as we're concerned, we see a favorable trend with interest rates and an opportunity to hopefully lower our interest costs going forward.

Okay, thanks guys.

[Operator Instructions] The next question comes from Greg Peters with Raymond James. Please go ahead.

Good morning, everyone. This is Alex Bolton calling in for Greg Peters. Maybe touching on the restaurant and bar business, being in Florida, you don't get the best understanding of how restaurant and bars are doing in other states in the U.S. Maybe you can touch on the COVID impact? What's that looking like elsewhere and the outlook? I mean, maybe when this COVID impact turns from a tailwind to a headwind -- I mean, from a headwind to a tailwind?

Nick?

Sure. So it varies quite a bit sort of to your initial comments on geography in terms of the market out there for the restaurant, bar, tavern business. We did actually see some growth in our independent restaurant, bar, tavern book. Even though hospitality was down overall, a big portion of that decline was our own reunderwriting efforts on the QSR book, in particular. So we are starting to see, I'd say, things stabilize in the restaurant, bar, tavern world. We -- you still have an issue in -- especially less so on the franchise side but more so on the independent side of labor shortages and the issues created by that. So it's not as much maybe directly tied to COVID but labor shortages are impacting those businesses and reducing hours and -- hours of operation and capacity, that obviously lower sales, especially in liquor-driven businesses in the bar, tavern side. So it's sort of a mixed bag but I do think we're starting to see that stabilize outside of places like Florida where, as you mentioned, it's been a little bit more vibrant. In some of the other states like Michigan and some of the other Midwestern states, we are starting to see things stabilize there. And I think moving into 2022, particularly in the spring, I think we'll be pretty close to normal, especially if labor shortages and supply chains are back to normal as well.

Okay, great. And then, I guess on net investment income, I guess there's some subsequential rise in net investment income. I guess, going forward, I think -- I would think it would be coming down. Maybe you can talk about that subsequent increase and maybe thoughts going forward?

Yes. I mean, if you look at, obviously, annualized book income and tax equivalent book yield as Harold talked about in his section. I mean, for us, with floaters cash and short term being roughly 50% of the portfolio, while the book yield is low, we're keeping the duration short. So, I think as we look at it, we see opportunities with interest rates rising going forward but we're trying to take less exposure from a principal perspective, so there perhaps is less income. So I think as you look at it that way, the income has been down as we kind of pulled our horns in a little bit. But we've been pretty conservative in that respect going forward. But like I said, with half the book of three years and less, we see opportunities for more investment income on an annualized book yield going forward as interest rates rise.

Okay, great. Thanks for the answers.

[Operator Instructions] This concludes our question-and-answer session. I would like to turn the conference back over to management for any closing remarks.

Thank you. I really don't have much to say. I think we covered everything here. We're growing. We're growing in the areas we want. Our current accident year's loss ratios are excellent. We still have a little bit of development to probably work through and we've delevered our book from a care-risk standpoint. And we feel pretty good about where we're going. So thank you for your continued interest and we look forward to talking to you next quarter.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.