UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

☑ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Fiscal Year Ended December 31, 2021

OR 

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                 to

Commission file number 001-37536

Conifer Holdings, Inc.

(Exact name of registrant as specified in its charter)

Michigan	27-1298795
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
550 West Merrill Street, Suite 200
Birmingham, Michigan	48009
(Address of principal executive offices)	(Zip code)

(248) 559-0840

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, no par value	CNFR	The Nasdaq Stock Market LLC

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  Yes ☐ No ☑

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☑

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑ No ☐  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☐ Accelerated filer ☐ Non-accelerated filer ☐ Smaller reporting company ☑ Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑

The aggregate market value of the registrant’s Common Stock held by non-affiliates at June 30, 2021 was approximately $10.1 million, based on the Nasdaq closing price for such shares on that date.  The registrant has no non-voting common equity.

The number of outstanding shares of the registrant’s common stock, no par value, as of March 10, 2022, was 9,707,817.

Auditor Firm Id: 34 Auditor Name: Deloitte & Touche LLP Auditor Location: Detroit, MI

CONIFER HOLDINGS, INC. AND SUBSIDIARIES

Form 10-K

INDEX

		Page No.
Part I
Item 1.	Business	3
Item 1A.	Risk Factors	15
Item 1B.	Unresolved Staff Comments	31
Item 2.	Properties	31
Item 3.	Legal Proceedings	31
Item 4.	Mine Safety Disclosures	31
Part II
Item 5.	Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	32
Item 6.	Selected Consolidated Financial Data	34
Item 7.	Management's Discussion and Analysis of Financial Condition and Results of Operations	36
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	58
Item 8.	Financial Statements and Supplementary Data	59
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	59
Item 9A.	Controls and Procedures	59
Item 9B.	Other Information	59
Part III
Items 10-14.		60
Part IV
Item 15.	Exhibits and Financial Statement Schedules	61
Signatures		107

CONIFER HOLDINGS, INC. AND SUBSIDIARIES

PART I

ITEM 1. BUSINESS

Legal Organization

Conifer Holdings, Inc. (Nasdaq: CNFR) is a Michigan‑domiciled insurance holding company formed in 2009.  Our principal executive offices are located at 550 W. Merrill, Suite 200, Birmingham, MI 48009 (telephone number: (248) 559-0840).  Our corporate website address is www.cnfrh.com.

As used in this Form 10-K, references to “Conifer,” “Conifer Holdings,” “the Company,” “our Company,” “we,” “us,” and “our” refer to Conifer Holdings, Inc., a Michigan corporation, and its wholly owned subsidiaries Conifer Insurance Company (“CIC”), Red Cedar Insurance Company (“RCIC”), White Pine Insurance Company (“WPIC”), and Sycamore Insurance Agency, Inc. (“SIA”).  CIC, RCIC and WPIC are collectively referred to as the "Insurance Company Subsidiaries."  On a stand-alone basis Conifer Holdings, Inc. is referred to as the "Parent Company."  

Business Overview

The Company is engaged in the sale of property and casualty insurance products and has organized its business model around three classes of insurance businesses: commercial lines, personal lines, and wholesale agency business.  Within these three businesses, the Company offers various insurance products and insurance agency services.  

Through our Insurance Company Subsidiaries, we offer insurance coverage in specialty commercial and specialty personal product lines.  Currently, we are authorized to write insurance as an excess and surplus lines (“E&S”) carrier in 45 states including the District of Columbia.  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 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, as well as commission revenue to our wholesale agency business from third-party insurers.

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 growing network of over 4,600 independent agents that distribute our policies through approximately 900 sales offices.  We are focused on growing our business in non‑commoditized property and casualty insurance markets, while maintaining underwriting discipline and a conservative investment strategy.

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.

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.  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

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compete for commercial lines business based on our flexible product offerings and customer service, rather than on pricing alone.  Our target commercial lines customer has an average account size of $5,800 in premium.

We also have substantial expertise in providing specialty homeowners insurance products to targeted customers that are often under-served by other homeowners' insurance carriers.  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.

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.  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.  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.  Our target personal lines customer has an average account size of $1,100 in premium.

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.  As of December 31, 2021, approximately 45.5% of our gross written premiums were admitted, and approximately 54.5% 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.  Carriers writing in the E&S market are not bound by most of the rate and form regulations imposed on standard market companies, allowing them the flexibility to change the coverage offered and the rate charged without the time constraints and financial costs associated with the filing process.  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.  The wholesale agency business increases the product options to the Company’s independent retail agents by offering both insurance products from the Insurance Company Subsidiaries as well as products offered by other insurers.  

Geographic Diversity and Mix of Business

Over the past several years, we have increased our focus on specific core commercial lines of business.  As part of this business strategy, we have deemphasized our Florida homeowners' business and other wind-exposed business in Texas and Hawaii.  We plan to continue to shift focus to low-value dwelling lines of business in order to bring personal lines premium levels back up and to maintain a strategic balance of commercial and personal lines of business.

While we pursue top line premium growth, we do not do so at the expense of losing underwriting discipline.  Our underwriters have the experience and institutional flexibility to recognize when to exit certain products in favor of more profitable opportunities as insurance market conditions dictate.  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
	2021		%			2020		%			2019		%
Commercial	$	117,075		89	%	$	102,763		92	%	$	94,391		93	%
Personal		15,020		11	%		8,572		8	%		7,462		7	%
Total	$	132,095		100	%	$	111,335		100	%	$	101,853		100	%

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	Gross Written Premiums by State
	2021		%			2020		%			2019		%
Michigan	$	29,314		22.2	%	$	23,304		20.9	%	$	19,346		19.0	%
Florida		13,727		10.4	%		13,573		12.2	%		16,993		16.7	%
Texas		12,062		9.1	%		10,243		9.2	%		8,236		8.1	%
California		11,805		8.9	%		8,140		7.3	%		7,037		6.9	%
New York		7,893		6.0	%		6,386		5.7	%		7,955		7.8	%
Oklahoma		7,695		5.8	%		2,264		2.2	%		912		0.9	%
Pennsylvania		4,863		3.7	%		4,846		4.4	%		6,015		5.9	%
Mississippi		4,674		3.5	%		4,612		4.1	%		639		0.6	%
Ohio		4,123		3.1	%		3,823		3.4	%		4,129		4.1	%
Indiana		3,692		2.8	%		3,559		3.2	%		3,937		3.9	%
Colorado		2,917		2.2	%		2,832		2.5	%		3,044		3.0	%
All Other States		29,330		22.3	%		27,753		24.9	%		23,610		23.2	%
Total	$	132,095		100.0	%	$	111,335		100.0	%	$	101,853		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.  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.  By targeting small- to medium-sized accounts, we add value to the business owner directly without competing solely on price.

• Strong relationships with our agents.  We develop strong relationships with our independent agents providing them with responsive service, attractive commissions and competitive products to offer policyholders.  We believe our agents understand that we view them as key partners in risk selection that help us serve our ultimate client-the insured.

• 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.  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 offer coverage to our insureds both on an E&S and admitted basis.  We believe this flexibility enables us to pivot effectively between E&S and admitted policies as customer needs and regulatory conditions dictate.

• Conservative risk management with an emphasis on lowering volatility.  We focus on the risk/reward of insurance underwriting, while maintaining a prudent investment policy.  We employ conservative risk management practices and opportunistically purchase reinsurance to minimize our exposure to liability for individual risks.  In addition, we seek to maintain a diversified liquid investment portfolio to reduce overall balance sheet volatility.  As of December 31, 2021, our investments primarily consisted of fixed income investments with an average credit rating of “AA” and an option adjusted duration of 3.6 years.

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Our Competitive Strengths

We believe the following competitive strengths have allowed us to grow our business and will continue to support our strategic growth initiatives:

• Talented underwriters with broad expertise.  Our underwriters have significant experience managing account profitability across market cycles.  With an average of over 28 years of experience, our senior underwriters possess the required expertise to respond appropriately to market forces.

• Controlled and disciplined underwriting.  We underwrite substantially all policies to our specific guidelines with our experienced, in-house underwriting team.  We customize the coverages we offer, and continually monitor our markets and respond to changes in our markets by adjusting our pricing, product structures and underwriting guidelines.  By tailoring the terms and conditions of our policies, we align our actual underwriting risk with the profit of each insurance account that we write.

• Proactive claims handling.  We employ a proactive claims handling philosophy that utilizes an internal team of experienced in-house attorneys to manage and supervise our claims from inception until resolution.  We pay what we owe, contest what we don't, and make sound judgment for those claims that fall in between.  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 28 years of experience in the insurance industry.  Our senior management team has successfully created, managed and grown numerous insurance companies and books of business, and has longstanding relationships with many independent agents and policyholders in our targeted markets.

• Ability to leverage technology to drive efficiency.  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 believe this capability reduces our time to market for new products, enhances services for insureds, increases our ability to capture data, and reduces cost.

Marketing and Distribution

Independent agents are our main distribution source.  The selection of an insurance company by a business or individual is strongly influenced by the business or individual’s agent.  We seek to maintain favorable relationships with our select group of agents.  Our distribution philosophy is to treat our agents as partners, and we provide them with competitive products, personal service and attractive commissions.  We believe these factors contribute to our positive agency retention.

In 2021, our top six independent agencies accounted for approximately 36% of our gross written premiums in our commercial lines, and our top four independent agencies accounted for approximately 17% of our gross written premiums in our personal lines.  We have long term relationships with each of these agencies.  We anticipate our concentration in these agencies will decrease in future periods as we establish relationships with additional agencies, as part of our strategic growth plan.  Our Insurance Company Subsidiaries market and distribute their products mainly through an independent agency network, however we utilize managing general agents and certain key wholesalers when appropriate.

We recruit our producers through referrals from our existing network of agents, word‑of‑mouth, advertisement, as well as direct contacts initiated by potential agents.  Our marketing efforts are directed through our offices in Michigan, Florida and Pennsylvania.

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.  Controls include frequent review of the quality of business, loss experience and other mechanisms.  We retain sole binding authority on the majority of our business.  Binding authority is only granted to select long-term agents.  When binding authority is granted, we restrict this authority to a specific set of guidelines that are provided to each agent.  Moreover, our experienced underwriters review each risk to ensure the guidelines are followed.

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In addition to marketing to individual agents, our Sycamore Insurance Agency reviews specific opportunities to write select business on a direct basis.  SIA also owns 50% of an insurance agency that places small commercial risks, mainly for alarm and security guard markets.

Underwriting

We are focused on underwriting profitability and effective enterprise risk management.  With an average of over 28 years of experience, our senior underwriters have the experience to properly manage account profitability across market cycles.

Our underwriting philosophy for our specialty commercial risks in the hospitality industry is to look at each risk individually and selectively before writing any policies.  We remain focused on small- to medium-sized businesses where the owner is often on site and in a better position to efficiently and safely run the overall operations.  We understand the risks associated with the smaller enterprises and, due to lighter competition, believe we can receive a fair premium to compensate for the risk taken.

With respect to commercial property coverages, we believe it is important to focus on the profitability of the insureds’ business, as well as the traditional risk factors.  Therefore, in addition to obtaining inspections on commercial risks, we strive to understand the insureds’ business operations and bottom line to verify the underlying business is an acceptable risk.

All commercial and personal policy applications are underwritten according to established guidelines that have been provided to our independent agency force.  These guidelines have been integrated into our information technology system framework and only policies that meet our guidelines are accepted by our system.  Our underwriting staff has substantial industry experience in matching policy terms, conditions, and pricing to the risk profiles of our policyholders and therefore strengthens our ability to achieve profitability in the product lines we write.

Commercial Lines.  In writing commercial lines policies, we frequently employ tailored limiting endorsements, rating surcharges and customized limits to align our product offerings to the risk profile of the class and the specific policyholder being underwritten.  Furthermore, we consistently monitor our markets so that we are able to quickly implement changes in pricing, underwriting guidelines and product offerings as necessary to remain competitive.  We do not pursue commercial product lines where competition is based primarily on price.  We augment our own internally developed pricing models with benchmark rates and policy terms set forth by the Insurance Services Office, or ISO.  The ISO system is a widely recognized industry resource for common and centralized rates and forms.  It provides advisory ratings, statistical and actuarial services, sample policy provisions and other services to its members.

Personal Lines.  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.  Once a completed application and premium payment are submitted to us, the application is placed in a bound status, and reviewed for final approval.  If the agent has underwritten and submitted the account according to our guidelines, we process the application as complete.  If our guidelines have not been followed, the application may be cancelled or updated and re‑submitted for further underwriting review.

Claims

We believe that effective claims management is vitally important to our success, allowing us to cost effectively pay valid claims, while vigorously defending those claims that lack merit.  Our claims department consists of experienced claims professionals located in Michigan, Florida, Pennsylvania and Texas. We utilize a proactive claims handling philosophy to internally manage or supervise all of our claims from inception through final disposition. By handling our claims internally, we can quickly assess claims, improve communication with our policyholders and claimants and better control our claims management costs.

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We have several in‑house attorneys with considerable legal experience in trying cases in the lines of business we write.  Included among these attorneys is our head in‑house litigator, who consults on all trials and has 27 years of litigation experience.  We also have numerous seasoned property and liability adjusters which allow us to manage our claims exposures more carefully, across all markets.  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.

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.

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.  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.  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, experienced and fully credentialed 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.  In a reinsurance transaction, an insurance company transfers, or cedes, all or part of its exposure in return for a portion of the premium.  We remain legally responsible for the entire obligation to policyholders, irrespective of any reinsurance coverage we may purchase.

Information relating to our reinsurance structure and treaty information is included within Note 7 ~ Reinsurance.

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Loss Reserve Development

The following table presents the development of our loss and loss adjustment expenses ("LAE") reserves from 2011 through 2021, net of reinsurance recoverables (dollars in thousands).

			Year Ended December 31,
	2011		2012		2013			2014			2015			2016			2017			2018			2019			2020			2021
Net liability for losses and loss expenses	$	17,164	$	17,547	$	24,956		$	28,307		$	30,017		$	47,993		$	67,830		$	63,122		$	84,667		$	87,052		$	98,741
Liability re-estimated as of:
One year later		12,807		13,508		23,763			29,321			40,239			57,452			71,186			79,351			100,261			106,482
Two years later		9,870		13,601		25,521			33,274			52,321			60,453			87,536			94,786			118,116
Three years later		10,038		13,821		26,560			38,569			58,251			69,833			95,367			108,022
Four years later		10,064		13,860		27,784			40,822			62,185			74,381			102,335
Five years later		10,227		13,980		27,920			42,274			64,547			76,860
Six years later		10,414		14,048		28,339			42,967			66,072
Seven years later		10,471		13,982		28,655			43,341
Eight years later		10,404		14,050		28,880
Nine years later		10,450		14,133
Ten years later		10,523
Net cumulative redundancy (deficiency)	$	6,641	$	3,414	$	(3,924	)	$	(15,034	)	$	(36,055	)	$	(28,867	)	$	(34,505	)	$	(44,900	)	$	(33,449	)	$	(19,430	)
Cumulative amount of net liability paid as of:
One year later		3,383	$	5,186	$	13,245		$	16,091		$	20,200		$	29,533		$	44,521		$	29,520		$	40,244		$	39,187
Two years later		6,092		9,106		19,711			24,060			35,972			56,962			62,369			57,864			70,478
Three years later		7,917		11,444		23,241			32,699			50,676			61,168			77,409			78,861
Four years later		8,788		13,015		26,056			37,474			58,317			66,556			87,587
Five years later		9,730		13,522		27,217			40,438			61,349			70,945
Six years later		10,167		13,903		27,780			41,979			63,814
Seven years later		10,398		13,878		28,384			42,428
Eight years later		10,373		13,923		28,555
Nine years later		10,380		13,927
Ten years later