Conifer Holdings, Inc. - Quarter Report: 2023 June (Form 10-Q)

10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the Quarterly Period Ended June 30, 2023

☐ 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.)

3001 West Big Beaver Road, Suite 200
Troy, Michigan		48084
(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 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 number of outstanding shares of the registrant’s common stock, no par value, as of August 9, 2023, was 12,222,881.

CONIFER HOLDINGS, INC. AND SUBSIDIARIES

Form 10-Q

INDEX


	Page No.
Part I — Financial Information
Item 1 — Financial Statements	3
Consolidated Balance Sheets (Unaudited)	3
Consolidated Statements of Operations (Unaudited)	4
Consolidated Statements of Comprehensive Income (Loss) (Unaudited)	5
Consolidated Statements of Changes in Shareholders’ Equity (Unaudited)	6
Consolidated Statements of Cash Flows (Unaudited)	7
Notes to Consolidated Financial Statements (Unaudited)	8
Item 2 — Management’s Discussion and Analysis of Financial Condition and Results of Operations	24
Item 3 — Quantitative and Qualitative Disclosures about Market Risk	36
Item 4 — Controls and Procedures	38
Part II — Other Information
Item 1 — Legal Proceedings	39
Item 1A — Risk Factors	39
Item 2 — Unregistered Sales of Equity Securities and Use of Proceeds	39
Item 6 — Exhibits	40
Signatures	41

PART 1 - FINANCIAL INFORMATION

ITEM 1 - FINANCIAL STATEMENTS

CONIFER HOLDINGS, INC. AND SUBSIDIARIES

Consolidated Balance Sheets

(dollars in thousands)


	June 30, 2023			December 31, 2022
	(Unaudited)
Assets
Investment securities:
Debt securities, at fair value (amortized cost of $121,367 and $127,119, respectively)	$	105,996		$	110,201
Equity securities, at fair value (cost of $2,282 and $1,905, respectively)		2,326			1,267
Short-term investments, at fair value		39,564			25,929
Total investments		147,886			137,397

Cash and cash equivalents		18,765			28,035
Premiums and agents' balances receivable, net		25,895			21,802
Receivable from Affiliate		933			1,261
Reinsurance recoverables on unpaid losses		56,505			82,651
Reinsurance recoverables on paid losses		5,828			6,653
Prepaid reinsurance premiums		24,444			16,399
Deferred policy acquisition costs		9,500			10,290
Other assets		6,767			7,862
Total assets	$	296,523		$	312,350

Liabilities and Shareholders' Equity
Liabilities:
Unpaid losses and loss adjustment expenses	$	145,004		$	165,539
Unearned premiums		78,468			67,887
Reinsurance premiums payable		12,023			6,144
Debt		34,031			33,876
Accounts payable and accrued expenses		10,140			19,954
Total liabilities		279,666			293,400

Commitments and contingencies

Shareholders' equity:
Common stock, no par value (100,000,000 shares authorized; 12,222,881 and 12,215,849 issued and outstanding, respectively)		98,013			97,913
Accumulated deficit		(64,498	)		(60,760	)
Accumulated other comprehensive income (loss)		(16,658	)		(18,203	)
Total shareholders' equity		16,857			18,950
Total liabilities and shareholders' equity	$	296,523		$	312,350

The accompanying notes are an integral part of the Consolidated Financial Statements.

CONIFER HOLDINGS, INC. AND SUBSIDIARIES

Consolidated Statements of Operations (Unaudited)

(dollars in thousands, except per share data)


	Three Months Ended June 30,						Six Months Ended June 30,
	2023			2022			2023			2022
Revenue and Other Income
Premiums
Gross earned premiums	$	36,013			33,782		$	70,307		$	66,546
Ceded earned premiums		(12,830	)		(9,206	)		(25,172	)		(18,015	)
Net earned premiums		23,183			24,576			45,135			48,531
Net investment income		1,354			564			2,661			1,071
Net realized investment gains (losses)		—			(1,436	)		—			(1,505	)
Change in fair value of equity securities		(12	)		317			682			597
Other gains (losses)		—			(1	)		—			(6	)
Other income		398			663			1,024			1,361
Total revenue and other income		24,923			24,683			49,502			50,049

Expenses
Losses and loss adjustment expenses, net		19,319			22,251			33,032			40,269
Policy acquisition costs		4,413			5,725			9,134			11,189
Operating expenses		5,114			4,470			9,393			8,630
Interest expense		820			727			1,506			1,438
Total expenses		29,666			33,173			53,065			61,526

Income (loss) before equity earnings in Affiliate and income taxes		(4,743	)		(8,490	)		(3,563	)		(11,477	)
Equity earnings (loss) in Affiliate, net of tax		4			93			(175	)		169
Income tax expense (benefit)		—			2			—			(39	)

Net income (loss)	$	(4,739	)	$	(8,399	)	$	(3,738	)	$	(11,269	)

Earnings (loss) per common share, basic and diluted	$	(0.39	)	$	(0.86	)	$	(0.31	)	$	(1.16	)

Weighted average common shares outstanding, basic and diluted		12,220,331			9,712,602			12,218,102			9,710,223

The accompanying notes are an integral part of the Consolidated Financial Statements.

CONIFER HOLDINGS, INC. AND SUBSIDIARIES

Consolidated Statements of Comprehensive Income (Loss) (Unaudited)

(dollars in thousands)


	Three Months Ended June 30,						Six Months Ended June 30,
	2023			2022			2023			2022
Net income (loss)	$	(4,739	)	$	(8,399	)	$	(3,738	)	$	(11,269	)

Other comprehensive income (loss), net of tax:
Unrealized investment gains (losses):
Unrealized investment gains (losses) during the period		(741	)		(5,007	)		1,545			(12,294	)
Income tax (benefit) expense		—			—			—			—
Unrealized investment gains (losses), net of tax		(741	)		(5,007	)		1,545			(12,294	)

Less: reclassification adjustments to:
Net realized investment gains (losses) included in net income (loss)		—			70			—			70
Income tax (benefit) expense		—			—			—			—
Total reclassifications included in net income (loss), net of tax		—			70			0			70

Other comprehensive income (loss)		(741	)		(5,077	)		1,545			(12,364	)

Total comprehensive income (loss)	$	(5,480	)	$	(13,476	)	$	(2,193	)	$	(23,633	)

The accompanying notes are an integral part of the Consolidated Financial Statements.

CONIFER HOLDINGS, INC. AND SUBSIDIARIES

Consolidated Statements of Changes in Shareholders' Equity (Unaudited)

(dollars in thousands)


	No Par, Common Stock						Accumulated			Accumulated Other Comprehensive			Total Shareholders'
	Shares			Amount			Deficit			Income (Loss)			Equity
Balances at March 31, 2023		12,215,849		$	97,968		$	(59,759	)	$	(15,917	)	$	22,292
Net income (loss)		—			—			(4,739	)		—			(4,739	)
Repurchase of common stock		(1,968	)		(3	)		—			—			(3	)
Issuance of common stock private placement		—			—			—			—			—
Stock-based compensation expense		9,000			48			—			—			48
Other comprehensive income (loss)		—			—			—			(741	)		(741	)
Balances at June 30, 2023		12,222,881		$	98,013		$	(64,498	)	$	(16,658	)	$	16,857


Balances at March 31, 2022		9,707,817		$	92,730		$	(52,949	)	$	(9,397	)	$	30,384
Net income (loss)		—			—			(8,399	)		—			(8,399	)
Repurchase of common stock		(1,493	)		11			—			—			11
Stock-based compensation expense		9,000			58			—			—			58
Other comprehensive income (loss)		—			—			—			(5,077	)		(5,077	)
Balances at June 30, 2022		9,715,324		$	92,799		$	(61,348	)	$	(14,474	)	$	16,977


	No Par, Common Stock						Accumulated			Accumulated Other Comprehensive			Total Shareholders'
	Shares			Amount			Deficit			Income (Loss)			Equity
Balances at December 31, 2022		12,215,849		$	97,913		$	(60,760	)	$	(18,203	)	$	18,950
Net income (loss)		—			—			(3,738	)		—			(3,738	)
Repurchase of common stock		(1,968	)		(3	)		—			—			(3	)
Issuance of common stock private placement		—			—			—			—			—
Stock-based compensation expense		9,000			103			—			—			103
Other comprehensive income (loss)		—			—			—			1,545			1,545
Balances at June 30, 2023		12,222,881		$	98,013		$	(64,498	)	$	(16,658	)	$	16,857


Balances at December 31, 2021		9,707,817		$	92,692		$	(50,079	)	$	(2,110	)	$	40,503
Net income (loss)		—			—			(11,269	)		—			(11,269	)
Repurchase of common stock		(1,493	)		11			—			—			11
Stock-based compensation expense		9,000			96			—			—			96
Other comprehensive income (loss)		—			—			—			(12,364	)		(12,364	)
Balances at June 30, 2022		9,715,324		$	92,799		$	(61,348	)	$	(14,474	)	$	16,977

The accompanying notes are an integral part of the Consolidated Financial Statements.

CONIFER HOLDINGS, INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows (Unaudited)

(dollars in thousands)


	Six Months Ended June 30,
	2023			2022
Cash Flows From Operating Activities
Net income (loss)	$	(3,738	)	$	(11,269	)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation and amortization		193			205
Amortization of bond premium and discount, net		(362	)		217
Net realized investment (gains) losses		—			1,505
Change in fair value of equity securities		(682	)		(597	)
Stock-based compensation expenses		103			96
Equity loss (earnings) in Affiliate, net of tax		175			(169	)
Changes in operating assets and liabilities:
(Increase) decrease in:
Premiums and agents' balances and other receivables		(3,961	)		(2,936	)
Reinsurance recoverables		26,971			(557	)
Prepaid reinsurance premiums		(8,045	)		(7,080	)
Deferred policy acquisition costs		790			1,520
Other assets		64			(454	)
Increase (decrease) in:
Unpaid losses and loss adjustment expenses		(20,535	)		1,911
Unearned premiums		10,581			3,835
Reinsurance premiums payable		(207	)		(1,607	)
Accounts payable and other liabilities		(2,794	)		(94	)
Net cash provided by (used in) operating activities		(1,447	)		(15,474	)
Cash Flows From Investing Activities
Purchase of investments		(120,578	)		(151,809	)
Proceeds from maturities and redemptions of investments		5,651			15,015
Proceeds from sales of investments		108,041			150,492
Obligation to SSU		(934	)		—
Net cash provided by (used in) investing activities		(7,820	)		13,698
Cash Flows From Financing Activities
Proceeds received from common stock subscription agreement		—			5,000
Repurchase of common stock		(3	)		11
Borrowings under line of credit		—			5,000
Repayment of borrowings under debt arrangements		—			(5,000	)
Net cash provided by (used in) financing activities		(3	)		5,011
Net increase (decrease) in cash		(9,270	)		3,235
Cash at beginning of period		28,035			9,913
Cash at end of period	$	18,765		$	13,148
Supplemental Disclosure of Cash Flow Information:
Interest paid	$	1,506		$	1,429
Income taxes paid (refunded), net		(17	)		(12	)

The accompanying notes are an integral part of the Consolidated Financial Statements.

CONIFER HOLDINGS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

1. Summary of Significant Accounting Policies

Basis of Presentation and Management Representation

The consolidated financial statements include accounts, after elimination of intercompany accounts and transactions, of Conifer Holdings, Inc. (the “Company” or “Conifer”), 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. ("Sycamore"), and 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").

The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”), which differ from statutory accounting practices prescribed or permitted for insurance companies by regulatory authorities. The Company has applied the rules and regulations of the United States Securities and Exchange Commission (“SEC”) regarding interim financial reporting and therefore the consolidated financial statements do not include all of the information and notes required by GAAP for annual financial statements. In the opinion of management, all adjustments, consisting of items of a normal recurring nature, necessary for a fair presentation of the consolidated interim financial statements, have been included.

These consolidated financial statements and the notes thereto should be read in conjunction with the Company's audited consolidated financial statements and related notes included in its Annual Report on Form 10-K for the year ended December 31, 2022, as filed with the SEC.

The results of operations for the six months ended June 30, 2023, are not necessarily indicative of the results expected for the year ended December 31, 2023.

Business

The Company is engaged in the sale of property and casualty insurance products and has organized its principal operations into three types of insurance businesses: commercial lines, personal lines, and agency business. The Company underwrites a variety of specialty insurance products, including property, general liability, liquor liability, automobile, and homeowners and dwelling policies. The Company markets and sells its insurance products through a network of independent agents, including managing general agents, whereby policies are written in all 50 states in the United States of America (“U.S.”). The Company’s corporate headquarters are located in Troy, Michigan with additional office facilities in Florida and Michigan.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. While management believes the amounts included in the consolidated financial statements reflect management's best estimates and assumptions, actual results may differ from these estimates.

Cash, Cash Equivalents, and Short-term Investments

Cash consists of cash deposits in banks, generally in operating accounts. Cash equivalents consist of money-market funds that are specifically used as overnight investments tied to cash deposit accounts. Short-term investments, consisting of money market funds, are classified as investments in the consolidated balance sheets as they relate to the Company’s investment activities.

Recently Adopted Accounting Pronouncements

Effective January 1, 2023, the Company adopted ASU 2016-13 Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, as amended, which introduces a new process for recognizing credit losses on financial instruments based on expected credit losses. This new standard replaces the incurred loss methodology and the concept of Other-than-Temporary Impairment (or “OTTI”) with an expected credit loss methodology that is sometimes referred to as the Current Expected Credit Loss (CECL) methodology. The guidance applies to Conifer's reinsurance

recoverables, premium receivable, and debt securities. Results for reporting periods beginning after January 1, 2023 are presented under ASC 326, while prior period amounts continue to be reported in accordance with previously applicable U.S. GAAP. The adoption of ASC 326 did not have any impact on the Company's financial statements.

Among other updates which management deems to have no material impact, ASC 326 made changes to the accounting for available-for-sale debt securities. At each quarter-end, for available-for-sale debt securities in an unrealized loss position, the Company first assesses whether it intends to sell or it is more likely than not that it will be required to sell the security before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the security’s amortized cost basis is written down to fair value through income.

For debt securities available-for-sale that do not meet the aforementioned criteria, the Company evaluates whether the decline in fair value has resulted from credit losses or other factors. In making this assessment, management considers the extent to which fair value is less than amortized cost, any changes to the rating of the security by a rating agency, and adverse conditions specifically related to the security, among other factors. If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the security are compared to the amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an allowance for credit losses is recorded for the credit loss, limited by the amount that the fair value is less than the amortized cost basis. Any impairment that has not been recorded through an allowance for credit losses is recognized in other comprehensive income. Changes in the allowance for credit losses are recorded as provision for (or reversal of) credit loss expense. 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.

Recently Issued Accounting Guidance

In January 2021, the FASB issued ASU 2022-06, Reference Rate Reform (Topic 848). This guidance provides optional expedients and exceptions that are intended to ease the burden of updating contracts to contain a new reference rate due to the discontinuation of the London Inter-Bank Offered Rate (LIBOR). This guidance is available immediately and may be implemented in any period prior to the guidance expiration on December 31, 2024. Management does not expect the new guidance to have a material impact on the Company’s consolidated financial statements.

2. Investments

Results for reporting periods occurring before January 1, 2023 continue to be reported in accordance with previously applicable U.S. GAAP and note presented under ASC 326, which was adopted by the Company on January 1, 2023. The Company analyzed its investment portfolio in accordance with its credit loss review policy and determined it did not need to record a credit loss for the three and six months ended June 30, 2023. The Company holds only investment grade securities from high credit quality issuers. The gross unrealized losses of $15.4 million as of June 30, 2023, from the Company's available-for-sale securities are due to market conditions and interest rate changes.

The cost or amortized cost, gross unrealized gains or losses, and estimated fair value of the investments in securities classified as available for sale at June 30, 2023 and December 31, 2022 were as follows (dollars in thousands):


	June 30, 2023
	Cost or		Gross Unrealized					Estimated
	Amortized Cost		Gains		Losses			Fair Value
Debt Securities:
U.S. Government	$	6,228	$	—	$	(278	)	$	5,950
State and local government		25,650		1		(3,953	)		21,698
Corporate debt		34,046		—		(4,434	)		29,612
Asset-backed securities		20,550		—		(1,027	)		19,523
Mortgage-backed securities		27,879		—		(4,994	)		22,885
Commercial mortgage-backed securities		3,410		—		(151	)		3,259
Collateralized mortgage obligations		3,604		—		(535	)		3,069
Total debt securities available for sale	$	121,367	$	1	$	(15,372	)	$	105,996


	December 31, 2022
	Cost or		Gross Unrealized					Estimated
	Amortized Cost		Gains		Losses			Fair Value
Debt Securities:
U.S. Government	$	7,833	$	—	$	(335	)	$	7,498
State and local government		25,487		1		(4,672	)		20,816
Corporate debt		35,347		—		(4,788	)		30,559
Asset-backed securities		21,742		—		(1,246	)		20,496
Mortgage-backed securities		29,194		—		(5,157	)		24,037
Commercial mortgage-backed securities		3,414		—		(186	)		3,228
Collateralized mortgage obligations		4,102		—		(535	)		3,567
Total debt securities available for sale	$	127,119	$	1	$	(16,919	)	$	110,201

The following table summarizes the aggregate fair value and gross unrealized losses, by security type, of the available-for-sale securities in unrealized loss positions. The table segregates the holdings based on the length of time that individual securities have been in a continuous unrealized loss position (dollars in thousands):


	June 30, 2023
	Less than 12 months							Greater than 12 months							Total
	No. of Issues		Fair Value of Investments with Unrealized Losses		Gross Unrealized Losses			No. of Issues		Fair Value of Investments with Unrealized Losses		Gross Unrealized Losses			No. of Issues		Fair Value of Investments with Unrealized Losses		Gross Unrealized Losses
Debt Securities:
U.S. Government		3	$	1,882	$	(35	)		9	$	4,068	$	(243	)		12	$	5,950	$	(278	)
State and local government		9		2,643		(40	)		114		18,879		(3,913	)		123		21,522		(3,953	)
Corporate debt		2		346		(4	)		64		29,266		(4,430	)		66		29,612		(4,434	)
Asset-backed securities		—		—		—			25		19,523		(1,027	)		25		19,523		(1,027	)
Mortgage-backed securities		22		140		(5	)		48		22,746		(4,989	)		70		22,886		(4,994	)
Commercial mortgage-backed securities		—		—		—			4		3,238		(151	)		4		3,238		(151	)
Collateralized mortgage obligations		7		137		(7	)		26		2,953		(528	)		33		3,090		(535	)
Total debt securities available for sale		43	$	5,148	$	(91	)		290	$	100,673	$	(15,281	)		333	$	105,821	$	(15,372	)


	December 31, 2022
	Less than 12 months							Greater than 12 months							Total
	No. of Issues		Fair Value of Investments with Unrealized Losses		Gross Unrealized Losses			No. of Issues		Fair Value of Investments with Unrealized Losses		Gross Unrealized Losses			No. of Issues		Fair Value of Investments with Unrealized Losses		Gross Unrealized Losses
Debt Securities:
U.S. Government		8	$	3,534	$	(135	)		5	$	3,964	$	(200	)		13	$	7,498	$	(335	)
State and local government		77		12,966		(2,318	)		45		7,147		(2,354	)		122		20,113		(4,672	)
Corporate debt		27		10,069		(1,373	)		42		20,890		(3,415	)		69		30,959		(4,788	)
Asset-backed securities		6		3,188		(76	)		20		17,308		(1,170	)		26		20,496		(1,246	)
Mortgage-backed securities		57		4,006		(573	)		12		20,031		(4,584	)		69		24,037		(5,157	)
Commercial mortgage-backed securities		4		3,205		(186	)		—		—		—			4		3,205		(186	)
Collateralized mortgage obligations		26		1,789		(196	)		9		1,802		(339	)		35		3,591		(535	)
Total debt securities available for sale		205	$	38,757	$	(4,857	)		133	$	71,142	$	(12,062	)		338	$	109,899	$	(16,919	)

The Company’s sources of net investment income and losses are as follows (dollars in thousands):


	Three Months Ended June 30,						Six Months Ended June 30,
	2023			2022			2023			2022
Debt securities	$	1,026		$	596		$	1,879		$	1,178
Equity securities		7			10			18			38
Cash, cash equivalents and short-term investments		381			36			884			37
Total investment income		1,414			642			2,781			1,253
Investment expenses		(60	)		(78	)		(120	)		(182	)
Net investment income	$	1,354		$	564		$	2,661		$	1,071

The following table summarizes the gross realized gains and losses from sales, calls and maturities of available-for-sale debt and equity securities (dollars in thousands):


	Three Months Ended June 30,					Six Months Ended June 30,
	2023		2022			2023		2022
Debt securities:
Gross realized gains	$	—	$	6		$	—	$	6
Gross realized losses		—		(155	)		—		(155	)
Total debt securities		—		(149	)		—		(149	)
Equity securities:
Gross realized gains	$	—		356		$	—		375
Gross realized losses		—		(1,643	)		—		(1,731	)
Total equity securities		—		(1,287	)		—		(1,356	)
Total net realized investment gains (losses)	$	—	$	(1,436	)	$	—	$	(1,505	)

Proceeds from available-for-sale debt securities were $51.2 million and $27.2 million for the six months ended June 30, 2023 and 2022, respectively.

There were no gross realized gains or losses from the sale of available-for-sale debt securities for the three and six months ended June 30, 2023. The gross realized gains and losses from the sale of available-for-sale debt securities for three and six months ended June 30, 2022, were $5,000 and $155,000, respectively.

As of June 30, 2023 and 2022, there were $0 of payables from securities purchased, respectively. There were $0 and $6.9 million of receivables from securities sold as of June 30, 2023, and 2022, respectively.

The Company's gross unrealized gains related to its equity investments were $494,000 and $0 as of June 30, 2023 and December 31, 2022, respectively. The Company’s gross unrealized losses related to its equity investments were $450,000 and $638,000 as of June 30, 2023 and December 31, 2022, respectively. The Company also carries other equity investments that do not have a readily determinable fair value at cost, less impairment or observable changes in price. We review these investments for impairment during each reporting period. There were no impairments or observable changes in price recorded during 2023 related to the Company's equity securities without readily determinable fair value. These investments are included in Other Assets in the Consolidated Balance Sheets and amounted to $1.5 million as of June 30, 2023 and $1.8 million as of December 31, 2022.

The table below summarizes the amortized cost and fair value of available-for-sale debt securities by contractual maturity at June 30, 2023. Actual maturities may differ from contractual maturities because certain borrowers have the right to call or prepay obligations with or without call or prepayment penalties (dollars in thousands):


	Amortized Cost		Estimated Fair Value
Due in one year or less	$	3,444	$	3,389
Due after one year through five years		30,690		28,173
Due after five years through ten years		20,645		17,160
Due after ten years		11,145		8,538
Securities with contractual maturities		65,924		57,260
Asset-backed securities		20,550		19,523
Mortgage-backed securities		27,879		22,885
Commercial mortgage-backed securities		3,410		3,259
Collateralized mortgage obligations		3,604		3,069
Total debt securities	$	121,367	$	105,996

At June 30, 2023 and December 31, 2022, the Insurance Company Subsidiaries had $7.7 million and $8.0 million, respectively, on deposit in trust accounts to meet the deposit requirements of various state insurance departments. At June 30, 2023 and December 31, 2022, the Company had $102.8 million and $95.7 million, respectively, held in trust accounts to meet collateral requirements with other third-party insurers, relating to various fronting arrangements. There are withdrawal and other restrictions on these deposits, including the type of investments that may be held, however, the Company may generally invest in high-grade bonds and short-term investments and earn interest on the funds.

3. Fair Value Measurements

The Company’s financial instruments include assets carried at fair value, as well as debt carried at face value, net of unamortized debt issuance costs, and are disclosed at fair value in this note. All fair values disclosed in this note are determined on a recurring basis other than the debt which is a non-recurring fair value measure. Fair value is defined as the price that would be received for an asset or paid to transfer a liability in the principal most advantageous market for the asset or liability in an orderly transaction between market participants. In determining fair value, the Company applies the market approach, which uses prices and other relevant data based on market transactions involving identical or comparable assets and liabilities. The inputs to valuation techniques used to measure fair value are prioritized into a three-level hierarchy. The hierarchy gives the highest priority to quoted prices from sources independent of the reporting entity (“observable inputs”) and the lowest priority to prices determined by the reporting entity’s own assumptions about market participant assumptions developed based on the best information available in the circumstances (“unobservable inputs”). The fair value hierarchy is as follows:

Level 1 - Valuations that are based on quoted prices (unadjusted) in active markets for identical assets or liabilities.

Level 2 - Valuations that are based on observable inputs (other than Level 1 prices) such as quoted prices for similar
assets or liabilities at the measurement date; quoted prices in markets that are not active; or other inputs that are observable,
either directly or indirectly, for substantially the full term of the asset or liability.

Level 3 - Unobservable inputs that are supported by little or no market activity. The unobservable inputs represent the
Company’s best assumption of how market participants would price the assets or liabilities.

Net Asset Value (NAV) - The fair values of investment company limited partnership investments and mutual funds are
based on the capital account balances reported by the investment funds subject to their management review and adjustment.
These capital account balances reflect the fair value of the investment funds.

The following tables present the Company’s assets and liabilities measured at fair value, classified by the valuation hierarchy as of June 30, 2023 and December 31, 2022 (dollars in thousands):


	June 30, 2023
	Fair Value Measurements
	Total		Level 1		Level 2		Level 3
Assets:
Debt Securities:
U.S. Government	$	5,950	$	—	$	5,950	$	—
State and local government		21,698		—		21,698		—
Corporate debt		29,612		—		29,612		—
Asset-backed securities		19,523		—		19,523		—
Mortgage-backed securities		22,885		—		22,885		—
Commercial mortgage-backed securities		3,259		—		3,259		—
Collateralized mortgage obligations		3,069		—		3,069		—
Total debt securities		105,996		—		105,996		—
Equity Securities		879		122		757		—
Short-term investments		39,564		39,564		—		—
Total marketable investments measured at fair value	$	146,439	$	39,686	$	106,753	$	—

Investments measured at NAV:
Investment in limited partnership		1,447
Total assets measured at fair value	$	147,886

Liabilities:
Senior Unsecured Notes *	$	23,386	$	—	$	23,386	$	—
Subordinated Notes *		11,737		—		—		11,737
Total Liabilities (non-recurring fair value measure)	$	35,123	$	—	$	23,386	$	11,737

* Carried at face value of debt net of unamortized debt issuance costs on the consolidated balance sheets


	December 31, 2022
	Fair Value Measurements
	Total		Level 1		Level 2		Level 3
Assets:
Debt Securities:
U.S. Government	$	7,498	$	—	$	7,498	$	—
State and local government		20,816		—		20,816		—
Corporate debt		30,559		—		30,559		—
Asset-backed securities		20,496		—		20,496		—
Mortgage-backed securities		24,037		—		24,037		—
Commercial mortgage-backed securities		3,228		—		3,228		—
Collateralized mortgage obligations		3,567		—		3,567		—
Total debt securities		110,201		—		110,201		—
Equity securities		917		160		757		—
Short-term investments		25,929		25,929		—		—
Total marketable investments measured at fair value	$	137,047	$	26,089	$	110,958	$	—

Investments measured at NAV:
Investment in limited partnership		350
Total assets measured at fair value	$	137,397

Liabilities:
Senior Unsecured Notes *	$	22,430	$	—	$	22,430	$	—
Subordinated Notes *		11,300		—		—		11,300
Total Liabilities (non-recurring fair value measure)	$	33,730	$	—	$	22,430	$	11,300

* Carried at face value of debt net of unamortized debt issuance costs on the consolidated balance sheets

Level 1 investments consist of equity securities traded in an active exchange market. The Company uses unadjusted quoted prices for identical instruments to measure fair value. Level 1 also includes money market funds and other interest-bearing deposits at banks, which are reported as short-term investments. The fair value measurements that were based on Level 1 inputs comprise 27% and 18% of the fair value of the total marketable investments measured at fair value as of June 30, 2023 and December 31, 2022, respectively.

Level 2 investments include debt securities and equity securities, which consist of U.S. government agency securities, state and local municipal bonds (including those held as restricted securities), corporate debt securities, mortgage-backed and asset-backed securities. The fair value of securities included in the Level 2 category were based on the market values obtained from a third-party pricing service that were evaluated using pricing models that vary by asset class and incorporate available trade, bid and other observable market information. The third-party pricing service monitors market indicators, as well as industry and economic events. The fair value measurements that were based on Level 2 inputs comprise 73% and 82% of the fair value of the total marketable investments measured at fair value as of June 30, 2023 and December 31, 2022, respectively.

The Company obtains pricing for each security from independent pricing services, investment managers or consultants to assist in determining fair value for its Level 2 investments. To validate that these quoted prices are reasonable estimates of fair value, the Company performs various quantitative and qualitative procedures, such as (i) evaluation of the underlying methodologies, (ii) analysis of recent sales activity, (iii) analytical review of our fair values against current market prices and (iv) comparison of the pricing services’ fair value to other pricing services’ fair value for the same investment. No markets for the investments were determined to be inactive at period-ends. Based on these procedures, the Company did not adjust the prices or quotes provided from independent pricing services, investment managers or consultants.

As of June 30, 2023 and December 31, 2022, the fair value of the subordinated debt reported at amortized cost was considered a Level 3 liability in the fair value hierarchy and is entirely comprised of the Company's Subordinated Notes. In determining the fair value of the Subordinated Notes outstanding at June 30, 2023 and December 31, 2022, the security attributes (issue date, maturity, coupon, calls, etc.) and market rates on September 24, 2018 (the date of the restated and amended agreement which was repriced at that time) were entered into a valuation model. A lognormal trinomial interest rate lattice was created within the model to compute the option adjusted spread (“OAS”) which is the amount, in basis points, of interest rate required to be paid under the debt agreement over the risk-free U.S. Treasury rates. The OAS was then entered

back into the model along with the June 30, 2023 and December 31, 2022 U.S. Treasury rates, respectively. A new lattice was generated and the fair value was computed from the OAS. There were no changes in assumptions of credit risk from the issuance date.

The Company's policy on recognizing transfers between hierarchies is applied at the end of each reporting period. There were no transfers in or out of Level 3 for the three and six months ended June 30, 2023 and 2022.

4. Deferred Policy Acquisition Costs

The Company defers costs incurred which are incremental and directly related to the successful acquisition of new or renewal insurance business, net of corresponding amounts of ceded reinsurance commissions. Net deferred policy acquisition costs are amortized and charged to expense in proportion to premium earned over the estimated policy term. The Company anticipates that its deferred policy acquisition costs will be fully recoverable and there were no premium deficiencies for the six months ended June 30, 2023 and 2022. The activity in deferred policy acquisition costs, net of reinsurance transactions, is as follows (dollars in thousands):


	Three Months Ended June 30,						Six Months Ended June 30,
	2023			2022			2023			2022
Balance at beginning of period	$	8,326		$	10,124		$	10,290		$	12,267

Deferred policy acquisition costs		5,587			6,348			8,344			9,669
Amortization of policy acquisition costs		(4,413	)		(5,725	)		(9,134	)		(11,189	)
Net change		1,174			623			(790	)		(1,520	)

Balance at end of period	$	9,500		$	10,747		$	9,500		$	10,747

5. Unpaid Losses and Loss Adjustment Expenses

The Company establishes reserves for unpaid losses and loss adjustment expenses ("LAE") which represent the estimated ultimate cost of all losses incurred that were both reported and unreported (i.e., incurred but not yet reported losses; or “IBNR”) and LAE incurred that remain unpaid at the balance sheet date. The Company’s reserving process takes into account known facts and interpretations of circumstances and factors including the Company’s experience with similar cases, actual claims paid, historical trends involving claim payment patterns and pending levels of unpaid claims, loss management programs, product mix and contractual terms, changes in law and regulation, judicial decisions, and economic conditions. In the normal course of business, the Company may also supplement its claims processes by utilizing third-party adjusters, appraisers, engineers, inspectors, and other professionals and information sources to assess and settle catastrophe and non-catastrophe related claims. The effects of inflation are implicitly considered in the reserving process.

Reserves are estimates of unpaid portions of losses that have occurred, including IBNR losses; therefore, the establishment of appropriate reserves is an inherently uncertain and complex process. The ultimate cost of losses may vary materially from recorded amounts, which are based on management’s best estimates. The highest degree of uncertainty is associated with reserves for losses incurred in the current reporting period as it contains the greatest proportion of losses that have not been reported or settled. The Company regularly updates its reserve estimates as new information becomes available and as events unfold that may affect the resolution of unsettled claims. Changes in reserve estimates, which may be material, are reported in the results of operations in the period such changes are determined to be needed and recorded.

Management believes that the reserve for losses and LAE is appropriately established in the aggregate and adequate to cover the ultimate net cost of reported and unreported claims arising from losses which had occurred by the date of the consolidated financial statements based on available facts and in accordance with applicable laws and regulations.

The table below provides the changes in the reserves for losses and LAE, net of reinsurance recoverables, for the periods indicated as follows (dollars in thousands):


	Three months ended June 30,						Six months ended June 30,
	2023			2022			2023			2022
Gross reserves - beginning of period	$	145,362		$	140,938		$	165,539		$	139,085
Less: reinsurance recoverables on unpaid losses		(61,101	)		(40,605	)		(82,651	)		(40,344	)
Net reserves - beginning of period		84,261			100,333			82,888			98,741
Add: incurred losses and LAE, net of reinsurance:
Current period		18,797			12,727			33,723			25,224
Prior period		522			9,524			(691	)		15,045
Total net incurred losses and LAE		19,319			22,251			33,032			40,269
Deduct: loss and LAE payments, net of reinsurance:
Current period		7,454			5,167			9,441			7,679
Prior period		7,627			14,190			17,980			28,104
Total net loss and LAE payments		15,081			19,357			27,421			35,783
Net reserves - end of period		88,499			103,227			88,499			103,227
Plus: reinsurance recoverables on unpaid losses		56,505			37,769			56,505			37,769
Gross reserves - end of period	$	145,004		$	140,996		$	145,004		$	140,996

Net losses and LAE decreased by $3.0 million, or 13.2%, to $19.3 million during the second quarter of 2023, compared to $22.3 million for the same period in 2022. The decrease in losses were attributable to the Company experiencing net adverse development of $522,000 in the second quarter of 2023, compared to $9.5 million of net adverse development in the same period in 2022. The Company had less-than-expected loss emergence during the second quarter of 2023, and recognized $411,000 of favorable development in its personal lines of business for accident year 2022. The decrease in net losses and LAE was offset by $1.0 million and $4.5 million of current accident year losses in the Company's commercial lines and personal lines losses, respectively, which were a result of storm activity in the southwest during the second quarter of 2023.

There was $2.2 million of adverse development relating to 2019 and prior accident years that was covered under the Loss Portfolio Transfer ("LPT") during the second quarter of 2023, resulting in no net development. As of June 30, 2023, the Company was $4.6 million into the $20.0 million adverse development cover provided by the LPT.

The Company’s incurred losses during the three and six months ended June 30, 2022 included prior-year adverse reserve development of $9.5 million and $15.0 million, respectively. Of the $9.5 million of adverse development, $4.3 million was related to 2018 and prior accident years, $3.6 million was related to the 2019 accident year, and $1.6 million was related to the 2020 accident year, substantially all attributable to the commercial lines of business.

Of the $15.0 million of adverse development for the six months ended June 30, 2022, $7.1 million was related to 2018 and prior accident years, $4.9 million was related to 2019 accident year, and $3.1 million was related to the 2020 accident year, substantially all attributable to the commercial lines of business.

6. Reinsurance

In the normal course of business, the Company participates in reinsurance agreements in order to limit losses that may arise from catastrophes or other individually severe events. The Company ceded primarily all specific commercial liability risks in excess of $400,000 in 2023, and $340,000 in 2022. The Company ceded specific commercial property risks in excess of $400,000 in 2023, and $300,000 in 2022. The Company ceded homeowners specific risks in excess of $300,000 in both 2023 and 2022.

A "treaty" is a reinsurance agreement in which coverage is provided for a class of risks and does not require policy by policy underwriting of the reinsurer. "Facultative" reinsurance is where a reinsurer negotiates an individual reinsurance agreement for every policy it will reinsure on a policy by policy basis. A loss is covered under a reinsurance contract if the loss occurs within the effective dates of the agreement notwithstanding when the loss is reported.

Reinsurance does not discharge the direct insurer from liability to its policyholders. Failure of reinsurers to honor their obligations could result in losses to the Company. The Company evaluates the financial condition of its reinsurers and monitors the concentration of credit risk arising from similar geographic regions, activities, or economic characteristics of the reinsurers to minimize its exposure to significant losses from reinsurer insolvencies. To date, the Company has not experienced any significant difficulties in collecting reinsurance recoverables.

The Company assumes written premiums under a few fronting arrangements. The fronting arrangements are with unaffiliated insurers who write on behalf of the Company in markets that require a higher A.M. Best rating than the Company’s current rating, where the policies are written in a state where the Company is not licensed or for other strategic reasons.

On November 1, 2022, the Company entered into a loss portfolio transfer (“LPT”) reinsurance agreement with Fleming Reinsurance Ltd (“Fleming Re”). Under the agreement, Fleming Re will cover an aggregate limit of $66.3 million of paid losses on $40.8 million of stated net reserves as of June 30, 2022, relating to accident years 2019 and prior. This covers substantially all of the commercial liability lines underwritten by the Company. Within the aggregate limit, there is a $5.5 million loss corridor in which the Company retains losses in excess of $40.8 million. Fleming Re is then responsible to cover paid losses in excess of $46.3 million up to $66.3 million. Accordingly, there is $20.0 million of adverse development cover for accident years 2019 and prior. Under the agreement, Fleming Re was compensated with $40.8 million for stated net reserves as of June 30, 2022, plus a one-time risk fee of $5.4 million. Recoverables due to the Company under this agreement are recorded as reinsurance recoverables. The agreement is between CIC and WPIC and Fleming Re.

As of June 30, 2023, the Company has recorded losses through the $5.5 million corridor and $4.6 million into the $20.0 million layer. As of December 31, 2022, the Company recorded losses through the $5.5 million corridor and $644,000 into the $20.0 million layer.

As of June 30, 2023, the Consolidated Balance Sheet included $2.6 million of reinsurance recoverables on paid losses related to the LPT, and $18.3 million of reinsurance recoverables on unpaid losses related to the LPT. As of December 31, 2022, the Consolidated Balance Sheet included $3.8 million of reinsurance recoverables on paid losses related to the LPT, and $25.9 million of reinsurance recoverables on unpaid losses related to the LPT.

The following table presents the effects of reinsurance and assumption transactions on written premiums, earned premiums and losses and LAE (dollars in thousands):


	Three Months Ended June 30,						Six months ended June 30,
	2023			2022			2023			2022
Written premiums:
Direct	$	27,183		$	26,311		$	51,524		$	51,107
Assumed		17,491			11,107			29,364			19,275
Ceded		(15,346	)		(10,152	)		(33,218	)		(25,095	)
Net written premiums	$	29,328		$	27,266		$	47,670		$	45,287

Earned premiums:
Direct	$	23,597		$	24,865		$	46,912		$	48,988
Assumed		12,416			8,917			23,395			17,558
Ceded		(12,830	)		(9,206	)		(25,172	)		(18,015	)
Net earned premiums	$	23,183		$	24,576		$	45,135		$	48,531

Losses and LAE:
Direct	$	24,570		$	17,472		$	26,539		$	30,538
Assumed		4,261			11,503			5,758			18,911
Ceded		(9,512	)		(6,724	)		735			(9,180	)
Net Losses and LAE	$	19,319		$	22,251		$	33,032		$	40,269

7. Debt

As of June 30, 2023, the Company's debt is comprised of two instruments: $24.3 million of publicly traded senior unsecured notes (the "Notes") which were issued in 2018 and $10.5 million of privately placed subordinated notes (the "Subordinated Notes"). A summary of the Company's outstanding debt is as follows (dollars in thousands):


	June 30, 2023		December 31, 2022
Senior unsecured notes	$	24,316	$	24,186
Subordinated notes		9,715		9,690
Total	$	34,031	$	33,876

Senior unsecured notes

The Company issued $25.3 million of public senior unsecured notes (the "Notes") in 2018. The Notes bear an interest rate of 6.75% per annum, payable quarterly at the end of March, June, September and December and mature on September 30, 2023. The Company may redeem the Notes, in whole or in part, at face value at any time after September 30, 2021.

The Company did not repurchase any of the Notes for the three and six months ended June 30, 2023 and 2022.

On August 8, 2023, the Company closed on the issuance of new public debt (the “New Notes”) both through an exchange offering of the existing debt as well as an offering to new participants. This new public debt has substantially the same terms as the existing Notes other than the new interest rate is at 9.75% and the new maturity is September 30, 2028. The Company raised $7.2 million net of $691,000 of debt issuance costs.

Management had previously anticipated that the proceeds from the public debt offering and the potential sale of certain assets would be sufficient sources of liquidity to fund repayment of the $24.4 million of existing Notes which become due on September 30, 2023. Based on a current assessment of available sources of liquidity available to repay the notes, the Company will need to seek additional sources of cash in order to have sufficient resources to repay the Notes by maturity. This circumstance has presented additional challenges on the Company's short-term liquidity. As of the filing of this 10-Q, the Company has $12.5 million of cash on hand available to repay the existing Notes. The Company anticipates a current liquidity shortfall of approximately $12.2 million.

In order to alleviate any concern as to whether the Company will have enough funds to pay off the existing Notes, certain members of the Company’s board of directors have committed to fund up to $12.5 million in capital in the form of debt or equity financing, or a combination thereof which would be applied directly to paying down the existing Notes. Management also continues to pursue other initiatives, including asset sales, refinancing of other existing debt or private capital raises that may produce sufficient cash to pay off all or a portion of the existing Notes. The success of any such other initiatives may reduce the amount required to be funded by the board members. Management believes these sources of potential liquidity will provide adequate cash resources to fund repayment of the debt by their scheduled maturity of September 30, 2023.

Subordinated notes

The Company also has outstanding $10.5 million of Subordinated Notes maturing on September 30, 2038. The Subordinated Notes bear an interest rate of 7.5% per annum until September 30, 2023, and 12.5% thereafter, and allow for four quarterly interest payment deferrals. Interest is payable quarterly at the end of March, June, September and December. Beginning September 30, 2021, the Company may redeem the Subordinated Notes, in whole or in part, for a call premium of $1.1 million. The call premium escalates each quarter to ultimately $1.75 million on September 30, 2023, then steps up to $3.05 million on December 31, 2023, and increases quarterly at a 12.5% per annum rate thereafter.

As of June 30, 2023, the carrying value of the Notes and Subordinated Notes are offset by $65,000 and $785,000 of debt issuance costs, respectively. The debt issuance costs are being amortized through interest expense over the life of the loans.

The Subordinated Notes contain various restrictive financial debt covenants that relate to the Company’s minimum tangible net worth, minimum fixed-charge coverage ratios, dividend paying capacity, reinsurance retentions, and risk-based capital ratios. As of June 30, 2023, the Company was in compliance with all of its financial covenants.

8. Shareholder’s Equity

On August 10, 2022, the Company issued $5.0 million of equity through a private placement for 2,500,000 shares priced at $2.00 per share. The participants in the private placement consisted of members of the Company's Board of Directors. The Company used the proceeds for growth capital in the Company's specialty core business segments.

For the three and six months ended June 30, 2023 and 2022, the Company repurchased 1,968 and 1,493 shares of stock valued at approximately $3,000 and $3,000, respectively, related to the vesting of the Company's restricted stock units. The Company made no repurchases of stock relating to the vesting of restricted stock units during the first quarters 2023 and 2022. Upon the repurchase of the Company's shares, the shares remain authorized, but not issued or outstanding.

As of June 30, 2023 and December 31, 2022, the Company had 12,222,881 and 12,215,849 issued and outstanding shares of common stock, respectively. Holders of common stock are entitled to one vote per share and to receive dividends only when and if declared by the board of directors. The holders have no preemptive, conversion or subscription rights.

9. Earnings Per Share

Basic and diluted earnings (loss) per share are computed by dividing net income (loss) by the weighted average number of common shares outstanding during the period. The following table presents the calculation of basic and diluted earnings (loss) per common share, as follows (dollars in thousands, except per share and share amounts):


	Three Months Ended June 30,						Six months ended June 30,
	2023			2022			2023			2022
Net income (loss)	$	(4,739	)	$	(8,399	)	$	(3,738	)	$	(11,269	)

Weighted average common shares, basic and diluted *		12,220,331			9,712,602			12,218,102			9,710,223

Earnings (loss) per common share, basic and diluted	$	(0.39	)	$	(0.86	)	$	(0.31	)	$	(1.16	)

* The non-vested shares of the restricted stock units and stock options were anti-dilutive as of June 30, 2023 and 2022. Therefore, the basic and diluted weighted average common shares are equal for the three and six months ended June 30, 2023 and 2022.

10. Stock-based Compensation

On March 8, 2022, the Company issued options to purchase 630,000 shares of the Company’s common stock to two named executive officers. The right to exercise the options will vest over a five-year period on a straight-line basis. The options have a strike price of $4.53 per share and will expire on March 8, 2032. The estimated value of these options is $612,000, which is being expensed ratably over the vesting period. A Black Scholes model was used to determine the fair value of the options at the time the options were issued, using the Company’s historical 5-year market price of its stock to determine volatility (equating to 65.04%), an estimated 5-year term to exercise the options, a 5-year risk-free rate of return of 1.8%, and the market price for the Company’s stock of $2.40 per share.

On June 30, 2020, the Company issued options to purchase 280,000 shares of the Company’s common stock, to certain executive officers and other employees. The right to exercise the options will vest over a five-year period on a straight-line basis. The options have a strike price of $3.81 per share and expire on June 30, 2030. The estimated value of these options is $290,000, which is being expensed ratably over the vesting period.

In 2016 and 2018, the Company issued 111,281 and 70,000, respectively, of restricted stock units (“RSUs”) to various employees to be settled in shares of common stock, which were valued at $909,000 and $404,000, respectively, on the dates of grant.

The Company recorded $17,000 and $29,000 of compensation expense related to the RSUs for six months ended June 30, 2023 and 2022, respectively. There were no unvested RSUs remaining as of June 30, 2023.

The Company recorded $86,000 and $67,000 of compensation expense related to the stock options for the six months ended June 30, 2023 and 2022, respectively. There were 604,000 unvested options as of June 30, 2023, which will generate an estimated future expense of $552,000 through February 2027.

11. Commitments and Contingencies

Legal proceedings

The Company and its subsidiaries are subject at times to various claims, lawsuits and proceedings relating principally to alleged errors or omissions in the placement of insurance, claims administration, and other business transactions arising in the ordinary course of business. Where appropriate, the Company vigorously defends such claims, lawsuits and proceedings. Some of these claims, lawsuits and proceedings seek damages, including consequential, exemplary or punitive damages, in amounts that could, if awarded, be significant. Most of the claims, lawsuits and proceedings arising in the ordinary course of business are covered by the insurance policy at issue. We account for such activity through the establishment of unpaid losses and LAE reserves. In accordance with accounting guidance, if it is probable that a liability has been incurred as of the date of the financial statements and the amount of loss is reasonably estimable; then an accrual for the costs to resolve these claims is recorded by the Company in the accompanying consolidated financial statements. Periodic expenses related to the defense of such claims are included in the accompanying consolidated statements of operations. On the basis of current information, the Company does not believe that there is a reasonable possibility that any material loss exceeding amounts already accrued, if any, will result from any of the claims, lawsuits and proceedings to which the Company is subject to, either individually or in the aggregate.

12. Segment Information

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. Such insurance businesses are engaged in underwriting and marketing insurance coverages, and administering claims processing for such policies. The Company views the commercial and personal lines segments as underwriting business (business that takes on insurance underwriting risk). 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.

The Company defines its operating segments as components of the business where separate financial information is available and used by the co-chief operating decision makers in deciding how to allocate resources to its segments and in assessing its performance. In assessing performance of its operating segments, the Company’s co-chief operating decision makers, the Co-Chief Executive Officers, review a number of financial measures including gross written premiums, net earned premiums, losses and LAE, net of reinsurance recoveries, and other revenue and expenses. The primary measure used for making decisions about resources to be allocated to an operating segment and assessing its performance is segment underwriting gain or loss which is defined as segment revenues, consisting of net earned premiums and other income, less segment expenses, consisting of losses and LAE, policy acquisition costs and operating expenses of the operating segments. Operating expenses primarily include compensation and related benefits for personnel, policy issuance and claims systems, rent and utilities. The Company markets, distributes and sells its insurance products through its own insurance agencies and a network of independent agents. All of the Company’s insurance activities are conducted in the United States with a concentration of activity in Michigan, Texas, Oklahoma and Florida. For the six months ended June 30, 2023 and 2022, gross written premiums attributable to these four states were 52.9% and 53.9%, respectively, of the Company’s total gross written premiums.

The Wholesale Agency business sells insurance products on behalf of the Company’s commercial and personal lines businesses as well as to third-party insurers. Certain acquisition costs incurred by the commercial and personal lines businesses are reflected as commission revenue for the Wholesale Agency business and are eliminated in the Eliminations category.

In addition to the reportable operating segments, the Company maintains a Corporate category to reconcile segment results to the consolidated totals. The Corporate category includes: (i) corporate operating expenses such as salaries and related benefits of the Company’s executive management team and finance and information technology personnel, and other corporate headquarters expenses, (ii) interest expense on the Company’s debt obligations; (iii) depreciation and amortization on property and equipment, and (iv) all investment income activity. All investment income activity is reported within net investment income, net realized investment gains, and change in fair value of equity securities on the consolidated statements of operations. The Company’s assets on the consolidated balance sheet are not allocated to the reportable segments.

The following tables present information by reportable operating segment (dollars in thousands):


Three months ended June 30, 2023	Commercial Lines			Personal Lines			Total Underwriting			Wholesale Agency			Corporate			Eliminations			Total

Gross written premiums	$	34,761		$	9,913		$	44,674		$	—		$	—		$	—		$	44,674

Net written premiums	$	20,485		$	8,843		$	29,328		$	—		$	—		$	—		$	29,328

Net earned premiums	$	17,487		$	5,696		$	23,183		$	—		$	—		$	—		$	23,183
Other income		56			23			79			594			74			(349	)		398
Segment revenue		17,543			5,719			23,262			594			74			(349	)		23,581

Losses and LAE, net		13,597			5,722			19,319			—			—			—			19,319
Policy acquisition costs		2,966			1,453			4,419			349			—			(355	)		4,413
Operating expenses		3,600			792			4,392			365			357			—			5,114
Segment expenses		20,163			7,967			28,130			714			357			(355	)		28,846

Segment gain (loss)	$	(2,620	)	$	(2,248	)	$	(4,868	)	$	(120	)	$	(283	)	$	6		$	(5,265	)
Investment income														1,354						1,354
Net realized investment gains (losses)														—						—
Change in fair value of equity securities														(12	)					(12	)
Other gains (losses)														—						—
Interest expense														(820	)					(820	)
Income (loss) before equity earnings in Affiliate and income taxes	$	(2,620	)	$	(2,248	)	$	(4,868	)	$	(120	)	$	239		$	6		$	(4,743	)


Three months ended June 30, 2022	Commercial Lines			Personal Lines			Total Underwriting			Wholesale Agency		Corporate			Eliminations			Total

Gross written premiums	$	32,076		$	5,342		$	37,418		$	—	$	—		$	—		$	37,418

Net written premiums	$	22,386		$	4,880		$	27,266		$	—	$	—		$	—		$	27,266

Net earned premiums	$	20,784		$	3,792		$	24,576		$	—	$	—		$	—		$	24,576
Other income		67			26			93			1,064		147			(641	)		663
Segment revenue		20,851			3,818			24,669			1,064		147			(641	)		25,239

Losses and LAE, net		19,906			2,345			22,251			—		—			—			22,251
Policy acquisition costs		4,410			1,223			5,633			770		—			(678	)		5,725
Operating expenses		3,508			484			3,992			274		204			—			4,470
Segment expenses		27,824			4,052			31,876			1,044		204			(678	)		32,446

Segment gain (loss)	$	(6,973	)	$	(234	)	$	(7,207	)	$	20	$	(57	)	$	37		$	(7,207	)
Investment income													564						564
Net realized investment gains (losses)													(1,436	)					(1,436	)
Change in fair value of equity securities													317						317
Other gains													(1	)					(1	)
Interest expense													(727	)					(727	)
Income (loss) before equity earnings in Affiliate and income taxes	$	(6,973	)	$	(234	)	$	(7,207	)	$	20	$	(1,340	)	$	37		$	(8,490	)


Six months ended June 30, 2023	Commercial Lines			Personal Lines			Total Underwriting			Wholesale Agency			Corporate			Eliminations			Total

Gross written premiums	$	63,736		$	17,152		$	80,888		$	—		$	—		$	—		$	80,888

Net written premiums	$	32,726		$	14,944		$	47,670		$	—		$	—		$	—		$	47,670

Net earned premiums	$	34,610		$	10,525		$	45,135		$	—		$	—		$	—		$	45,135
Other income		108			46			154			1,473			146			(749	)		1,024
Segment revenue		34,718			10,571			45,289			1,473			146			(749	)		46,159

Losses and LAE, net		24,144			8,888			33,032			—			—			—			33,032
Policy acquisition costs		6,162			2,842			9,004			897			—			(767	)		9,134
Operating expenses		6,628			1,384			8,012			717			664			—			9,393
Segment expenses		36,934			13,114			50,048			1,614			664			(767	)		51,559

Segment gain (loss)	$	(2,216	)	$	(2,543	)	$	(4,759	)	$	(141	)	$	(518	)	$	18		$	(5,400	)
Investment income														2,661						2,661
Net realized investment gains (losses)														0						—
Change in fair value of equity securities														682						682
Other gains														—						—
Interest expense														(1,506	)					(1,506	)
Income (loss) before equity earnings in Affiliate and income taxes	$	(2,216	)	$	(2,543	)	$	(4,759	)	$	(141	)	$	1,319		$	18		$	(3,563	)


Six months ended June 30, 2022	Commercial Lines			Personal Lines		Total Underwriting			Wholesale Agency		Corporate			Eliminations			Total

Gross written premiums	$	60,662		$	9,720	$	70,382		$	—	$	—		$	—		$	70,382

Net written premiums	$	36,726		$	8,561	$	45,287		$	—	$	—		$	—		$	45,287

Net earned premiums	$	41,308		$	7,223	$	48,531		$	—	$	—		$	—		$	48,531
Other income		138			32		170			2,176		294			(1,279	)		1,361
Segment revenue		41,446			7,255		48,701			2,176		294			(1,279	)		49,892

Losses and LAE, net		36,516			3,753		40,269			—		—			—			40,269
Policy acquisition costs		8,767			2,316		11,083			1,528		—			(1,422	)		11,189
Operating expenses		6,669			886		7,555			566		509			—			8,630
Segment expenses		51,952			6,955		58,907			2,094		509			(1,422	)		60,088

Segment gain (loss)	$	(10,506	)	$	300	$	(10,206	)	$	82	$	(215	)	$	143		$	(10,196	)
Investment income												1,071						1,071
Net realized investment gains (losses)												(1,505	)					(1,505	)
Change in fair value of equity securities												597						597
Other gains												(6	)					(6	)
Interest expense												(1,438	)					(1,438	)
Income (loss) before equity earnings in Affiliate and income taxes	$	(10,506	)	$	300	$	(10,206	)	$	82	$	(1,496	)	$	143		$	(11,477	)

13. Subsequent Events

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

For the Periods Ended June 30, 2023 and 2022

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the Consolidated Financial Statements (Unaudited), related notes and other financial information appearing elsewhere in this Quarterly Report on Form 10-Q and the audited consolidated financial statements and related notes included in our Annual Report on Form 10-K, filed on March 27, 2023 with the U. S. Securities and Exchange Commission.

Forward-Looking Statements

Certain statements contained in this Quarterly Report on Form 10-Q, which are not statements of historical fact, are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, as Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements give current expectations or forecasts of future events or our future financial or operating performance. Words such as “anticipate,” “believe,” “estimate,” “expect,” “intend,” “may,” “plan,” “seek” and similar terms and phrases, or the negative thereof, may be used to identify forward-looking statements.

The forward-looking statements contained in this report are based on management’s good-faith belief and reasonable judgment based on current information. The forward-looking statements are qualified by important factors, risks and uncertainties, many of which are beyond our control, that could cause our actual results to differ materially from those in the forward-looking statements, including those described in our Form 10-K (“Item 1A Risk Factors”) filed with the SEC on March 27, 2023 and subsequent reports filed with or furnished to the SEC. Any forward-looking statement made by us in this report speaks only as of the date hereof or as of the date specified herein. We undertake no obligation to publicly update any forward-looking statement, whether as a result of new information, future developments or otherwise, except as may be required by any applicable laws or regulations.

Recent Developments

VSRM Transaction

Prior to October 13, 2022, Sycamore owned 50% of Venture Agency Holdings, Inc. ("Venture") and has accounted for its ownership under the equity method of accounting. On October 13, 2022, Sycamore purchased the other 50% of Venture from an individual for $9.7 million. Following this purchase, Sycamore owned 100% of Venture, which was then renamed to VSRM, Inc. ("VSRM"). VRSM and its two wholly owned subsidiaries, The Roots Insurance Agency, Inc. ("Roots") and Mitzel Insurance Agency, Inc. ("Mitzel") were incorporated into the Company's consolidated financial statements as of the date of the acquisition.

The Company recognized Sycamore's purchase of the individual's shares of VSRM as a step acquisition and revalued all assets and liabilities upon the acquisition date.

On October 14, 2022, VSRM sold all of its security guard and alarm installation insurance brokerage business (the "Security & Alarm Business") to a third party insurance brokerage firm for $38.2 million. As part of the transaction, the individual who previously owned 50% of VSRM transitioned employment to the buyer, along with a team of approximately eight other employees of VSRM. The Company recognized this transaction as the sale of a business.

On December 30, 2022, VSRM contributed its remaining business, including its two wholly owned subsidiaries (Mitzel and Roots) to a new wholly owned subsidiary, Sycamore Specialty Underwriters, LLC ("SSU"). The business contributed to SSU consisted of customer accounts of substantially all of the personal lines business and a small subset of the commercial lines business underwritten by the Insurance Company Subsidiaries, and all of the customer accounts VSRM produced for third-party insurers, other than the security guard and alarm installation brokerage business previously sold.

On December 31, 2022, Andrew D. Petcoff purchased 50% of SSU from VSRM, Inc. for $1,000. As a result, SSU and its two wholly owned subsidiaries, Roots and Mitzel, are no longer consolidated in the Company's consolidated financial statements as of December 31, 2022, and VSRM's investment in SSU is accounted for using the equity method.

Loss Portfolio Transfer

corridor in which the Company retains losses in excess of $40.8 million. Fleming Re is then responsible to cover paid losses in excess of $46.3 million up to $66.3 million. Accordingly, there is $20.0 million of adverse development cover for accident years 2019 and prior. Under the agreement, Fleming Re was paid $40.8 million for stated net reserves as of June 30, 2022, plus a one-time risk fee of $5.4 million. Recoverables due to the Company under this agreement are recorded as reinsurance recoverables. The agreement is between CIC and WPIC and Fleming Re.

The Company paid $25.0 million in cash on October 14, 2022, which was offset for claims paid through September 30, 2022 and $13.6 million of funds withheld.

A.M. Best

On April 21, 2022, A.M. Best downgraded the Company’s Long-Term Issuer Credit Rating (Long-Term ICR) from “bb” (Fair) to “bb-” (Fair), and downgraded the Company’s insurance subsidiaries Financial Strength Rating from “B++” (Good) to “B+” (Good) and the Long-Term ICR from “bbb” (Good) to “bbb-” (Good). The outlook assigned to all these ratings by A.M. Best was Stable. We do not believe the rating changes will have a material effect on our business.

Business Overview

We are an insurance holding company that markets and services our product offerings through specialty commercial and specialty personal insurance business lines. Our growth has been significant since our founding in 2009. Currently, we are authorized to write insurance as an excess and surplus lines carrier in 45 states, including the District of Columbia. We are licensed to write insurance as an admitted carrier in 42 states, including the District of Columbia, and we offer our insurance products in all 50 states.

Our revenues are primarily derived from premiums earned from our insurance operations. We also generate other revenues through investment income and other income which mainly consists of: installment fees and policy issuance fees generally related to the policies we write.

Our expenses consist primarily of losses and loss adjustment expenses, agents’ commissions, and other underwriting and administrative expenses. We 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. 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. 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 a small number of third-party insurers. The wholesale agency business segment provides our agents with more insurance product options.

Critical Accounting Policies and Estimates

In certain circumstances, we are required to make estimates and assumptions that affect amounts reported in our consolidated financial statements and related footnotes. We evaluate these estimates and assumptions periodically on an on-going basis based on a variety of factors. There can be no assurance, however, that actual results will not be materially different than our estimates and assumptions, and that reported results of operations will not be affected by accounting adjustments needed to reflect changes in these estimates and assumptions. During the six months ended June 30, 2023, there were no material changes to our critical accounting policies and estimating methodologies, which are disclosed in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in the Company’s Annual Report on Form 10-K filed with the SEC on March 27, 2023.

Executive Overview

The Company reported $44.7 million of gross written premiums in the second quarter of 2023, representing a 19.4% increase as compared to the same period in 2022. Our commercial lines gross written premiums increased by $2.7 million, or 8.4%, to $34.8 million in the second quarter of 2023, compared to $32.1 million for the same period in 2022. Personal lines gross written premiums increased by $4.6 million, or 85.6%, to $9.9 million in the second quarter of 2023, compared to $5.3 million for the same period in 2022.

The Company reported $80.9 million of gross written premiums for the six months ended June 30, 2023, compared to $70.4 million for the same period in 2022.

The Company reported a net loss of $4.7 million, or $0.39 per share, and a net loss of $3.7 million, or $0.31 per share, for the three and six months ended June 30, 2023, respectively. The Company reported a net loss of $8.4 million, or $0.86 per share, and a net loss of $11.3 million, or $1.16 per share, for the three and six months ended June 30, 2022, respectively.

Adjusted operating loss per share is a non-GAAP measure that represent net loss allocable to common shareholders excluding net realized investment gains or losses, other gains or losses, and changes in fair value of equity securities; all net of tax. Adjusted operating loss was $4.7 million, or $0.39 per share, for the three months ended June 30, 2023. Adjusted operating loss was $4.4 million, or $0.36 per share, for the six months ended June 30, 2023. Adjusted operating loss was $7.3 million, or $0.75 per share, for the three months ended June 30, 2022. Adjusted operating loss was $10.4 million, or $1.07 per share for the six months ended June 30, 2022.

Our underwriting combined ratio was 120.9% and 110.5% for the three and six months ended June 30, 2023, compared to 129.2% and 121.0% for the three and six months ended June 30, 2022.

Results of Operations For The Three Months Ended June 30, 2023 and 2022

The following table summarizes our operating results for the periods indicated (dollars in thousands):

Summary of Operating Results


	Three Months Ended June 30,
	2023			2022			$ Change			% Change
Gross written premiums	$	44,674		$	37,418		$	7,256			19.4	%

Net written premiums	$	29,328		$	27,266		$	2,062			7.6	%

Net earned premiums	$	23,183		$	24,576		$	(1,393	)		(5.7	)%
Other income		398			663			(265	)		(40.0	%)
Losses and loss adjustment expenses, net		19,319			22,251			(2,932	)		(13.2	)%
Policy acquisition costs		4,413			5,725			(1,312	)		(22.9	)%
Operating expenses		5,114			4,470			644			14.4	%
Underwriting gain (loss)		(5,265	)		(7,207	)		1,942		*
Net investment income		1,354			564			790			140.1	%
Net realized investment gains (losses)		—			(1,436	)		1,436		*
Change in fair value of equity securities		(12	)		317			(329	)		(103.8	)%
Other gains (losses)		—			(1	)		1		*
Interest expense		820			727			93			12.8	%
Income (loss) before equity earnings in Affiliate, net of tax		(4,743	)		(8,490	)		3,747		*
Equity earnings (loss) in Affiliate, net of tax		4			93			(89	)	*
Income tax expense		—			2			(2	)	*
Net income (loss)	$	(4,739	)	$	(8,399	)	$	3,660		*

Book value per common share outstanding	$	1.38		$	1.75

Underwriting Ratios:
Loss ratio (1)		83.0	%		90.2	%
Expense ratio (2)		37.9	%		39.0	%
Combined ratio (3)		120.9	%		129.2	%

(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.

(2)

The expense ratio is the ratio, expressed as a percentage, of policy acquisition costs and other underwriting expenses to net earned premiums and other income from underwriting operations.

(3)

The combined ratio is the sum of the loss ratio and the expense ratio. A combined ratio under 100% indicates an underwriting profit. A combined ratio over 100% indicates an underwriting loss.

* Percentage change is not meaningful.

Premiums

Premiums are earned ratably over the term of the policy, whereas written premiums are reflected on the effective date of the policy. Almost all commercial lines and homeowners products have annual policies, under which premiums are earned evenly over one year. The resulting net earned premiums are impacted by the gross and ceded written premiums, earned ratably over the terms of the policies.

Our premiums are presented below for the three months ended June 30, 2023 and 2022 (dollars in thousands):

Summary of Premium Revenue


	Three Months Ended June 30,
	2023		2022		$ Change			% Change
Gross written premiums
Commercial lines	$	34,761	$	32,076	$	2,685			8.4	%
Personal lines		9,913		5,342		4,571			85.6	%
Total	$	44,674	$	37,418	$	7,256			19.4	%

Net written premiums
Commercial lines	$	20,485	$	22,386	$	(1,901	)		(8.5	)%
Personal lines		8,843		4,880		3,963			81.2	%
Total	$	29,328	$	27,266	$	2,062			7.6	%

Net earned premiums
Commercial lines	$	17,487	$	20,784	$	(3,297	)		(15.9	)%
Personal lines		5,696		3,792		1,904			50.2	%
Total	$	23,183	$	24,576	$	(1,393	)		(5.7	)%

Gross written premiums increased $7.3 million, or 19.4%, to $44.7 million for the three months ended June 30, 2023, as compared to $37.4 million for the same period in 2022.

Commercial lines gross written premiums increased $2.7 million, or 8.4%, to $34.8 million in the second quarter of 2023, as compared to $32.1 million for the second quarter of 2022. The increased gross written premiums were due to $4.1 million of quarter-over-quarter premium growth in the Company's small business programs. This increase was offset by a $1.4 million quarter-over-quarter decrease in the Company's hospitality programs.

Personal lines gross written premiums increased $4.6 million, or 85.6%, to $9.9 million in the second quarter of 2023, as compared to $5.3 million for the same period in 2022. The increased gross written premiums were primarily due to $2.6 million of quarter-over-quarter premium growth in the Company’s low-value dwelling book of business as we continue to expand in Texas and Oklahoma.

Net written premiums increased $2.1 million, or 7.6%, to $29.3 million for the three months ended June 30, 2023, as compared to $27.3 million for the same period in 2022. Commercial lines net written premiums decreased due to more ceded premiums as a result of a higher reinsurance costs and the Company entered into a new quota share reinsurance agreement, effective January 1, 2023. The new quota share treaty applies to a subset of our commercial business that represents approximately 9.4% of our gross written premiums in the second quarter of 2023. The Company ceded $1.7 million of written premium related to this quota share reinsurance agreement during the second quarter of 2023.

Other Income

Other income consists primarily of fees charged to policyholders by the Company for services outside of the premium charge, such as installment billings and policy issuance costs. Commission income is also received by the Company’s insurance agency for writing policies for third-party insurance companies. Other income decreased by $265,000, or 40.0%, to $398,000 for the three months ended June 30, 2023, compared to $663,000 for the same period in 2022. The decrease was due to the Company's Wholesale Agency business revenue decreasing by $470,000, or 44.2%, to $594,000 for three months ended June 30, 2023, compared to $1.1 million for the same period in 2022. A majority of the decrease in Wholesale Agency revenue was because of the business contributed to SSU, which was then deconsolidated as of December 31, 2022, and thus not reflected in the Company's consolidated income.

Losses and Loss Adjustment Expenses

The tables below detail our losses and loss adjustment expenses and loss ratios in our underwriting business for the three months ended June 30, 2023 and 2022 (dollars in thousands):


Three months ended June 30, 2023	Commercial Lines			Personal Lines			Total
Accident year net losses and LAE	$	12,710		$	6,087		$	18,797
Net (favorable) adverse development		887			(365	)		522
Calendar year net losses and LAE	$	13,597		$	5,722		$	19,319

Accident year loss ratio		72.5	%		106.5	%		80.8	%
Net (favorable) adverse development		5.0	%		(6.4	)%		2.2	%
Calendar year loss ratio		77.5	%		100.1	%		83.0	%


Three months ended June 30, 2022	Commercial Lines			Personal Lines			Total
Accident year net losses and LAE	$	10,650		$	2,077		$	12,727
Net (favorable) adverse development		9,256			268			9,524
Calendar year net losses and LAE	$	19,906		$	2,345		$	22,251

Accident year loss ratio		51.1	%		54.4	%		51.6	%
Net (favorable) adverse development		44.4	%		7.0	%		38.6	%
Calendar year loss ratio		95.5	%		61.4	%		90.2	%

Net losses and LAE decreased by $3.0 million, or 13.2%, to $19.3 million during the second quarter of 2023, compared to $22.3 million for the same period in 2022. The decrease in losses was mainly driven by a $9.0 million decrease in adverse development in 2023 as compared to 2022. The decrease was partially offset by increases in current accident year losses mostly driven by storm activity in the southwest. The current accident year losses for the quarter included approximately $1.0 million and $4.5 million of commercial lines and personal lines losses, respectively, which were a result of storm activity.

There was $2.2 million of adverse development in accident years 2019 and prior that was covered under the LPT. Of the $522,000 of adverse development, net of the LPT, the majority stemmed from loss emergence in the hospitality liability coverages in the 2022 accident year that was higher than expected.

Net losses and LAE were $22.3 million during the second quarter of 2022. Of the $9.5 million of adverse development that occurred for the three months ended June 30, 2022, 4.3 million, $3.6 million, and $1.6 million of the development occurred in the 2018 and prior, 2019 and 2020 accident years, respectively.

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. 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.

The table below provides the expense ratio by major component.


	Three Months Ended June 30,
	2023			2022
Commercial Lines
Policy acquisition costs		16.9	%		21.2	%
Operating expenses		20.5	%		16.8	%
Total		37.4	%		38.0	%
Personal Lines
Policy acquisition costs		25.4	%		32.0	%
Operating expenses		13.8	%		12.7	%
Total		39.2	%		44.7	%
Total Underwriting
Policy acquisition costs		19.0	%		22.8	%
Operating expenses		18.9	%		16.2	%
Total		37.9	%		39.0	%

Our expense ratio decreased by 1.1% during the second quarter of 2023, compared to the same period in 2022.

Policy acquisition costs are costs we incur to issue policies, which include commissions, premium taxes, underwriting reports and underwriter compensation costs. The Company offsets direct commissions with ceding commissions from reinsurers. The percentage of policy acquisition costs to net earned premiums and other income decreased by 3.8%, from 22.8% in the second quarter of 2022, to 19.0% for the same period in 2023. The decrease was primarily related to additional ceding commissions, which reduces commission expense, as a result of the new quota share reinsurance treaty mentioned above.

Operating expenses consist primarily of employee compensation, information technology and occupancy costs, such as rent and utilities. Operating expenses as a percent of net earned premiums and other underwriting income increased by 2.7% during the second quarter of 2023 to 18.9%, compared to 16.2% for the same period in 2022. The main reason for the increase was due to a combination of some higher non-recurring expenses and lower net earned premiums as a result of the increased reinsurance costs.

Segment Results

We measure the performance of our consolidated results, in part, based on our underwriting gain or loss. The following table provides the underwriting gain or loss for the three months ended June 30, 2023 and 2022 (dollars in thousands):

Segment Gain (Loss)


	Three Months Ended June 30,
	2023			2022			$ Change
Commercial Lines	$	(2,620	)	$	(6,973	)	$	4,353
Personal Lines		(2,248	)		(234	)		(2,014	)
Total Underwriting		(4,868	)		(7,207	)		2,339
Wholesale Agency		(120	)		20			(140	)
Corporate		(283	)		(57	)		(226	)
Eliminations		6			37			(31	)
Total segment gain (loss)	$	(5,265	)	$	(7,207	)	$	1,942

Results of Operations For The Six Months Ended June 30, 2023 and 2022

The following table summarizes our operating results for the periods indicated (dollars in thousands):


	Six months ended June 30,
	2023			2022			$ Change			% Change
Gross written premiums	$	80,888		$	70,382		$	10,506			14.9	%

Net written premiums	$	47,670		$	45,287		$	2,383			5.3	%

Net earned premiums	$	45,135		$	48,531		$	(3,396	)		(7.0	)%
Other income		1,024			1,361			(337	)		(24.8	)%
Losses and loss adjustment expenses, net		33,032			40,269			(7,237	)		(18.0	)%
Policy acquisition costs		9,134			11,189			(2,055	)		(18.4	)%
Operating expenses		9,393			8,630			763			8.8	%
Underwriting gain (loss)		(5,400	)		(10,196	)		4,796			47.0	%
Net investment income		2,661			1,071			1,590			148.5	%
Net realized investment gains (losses)		—			(1,505	)		1,505		*
Change in fair value of equity securities		682			597			85			14.2	%
Other gains		—			(6	)		6		*
Interest expense		1,506			1,438			68			4.7	%
Income (loss) before equity earnings in Affiliate and income taxes		(3,563	)		(11,477	)		7,914		*
Equity earnings in Affiliate, net of tax		(175	)		169			(344	)	*
Income tax expense		—			(39	)		39		*
Net income (loss)	$	(3,738	)	$	(11,269	)	$	7,531		*

Book value per common share outstanding	$	1.38		$	1.75

Underwriting Ratios:
Loss ratio (1)		72.9	%		82.7	%
Expense ratio (2)		37.6	%		38.3	%
Combined ratio (3)		110.5	%		121.0	%

(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.

(2)

The expense ratio is the ratio, expressed as a percentage, of policy acquisition costs and other underwriting expenses to net earned premiums and other income from underwriting operations.

(3)

The combined ratio is the sum of the loss ratio and the expense ratio. A combined ratio under 100% indicates an underwriting profit. A combined ratio over 100% indicates an underwriting loss.

* Percentage change is not meaningful.

Premiums

Our premiums are presented below for the six months ended June 30, 2023 and 2022 (dollars in thousands):


	Six months ended June 30,
	2023		2022		$ Change			% Change
Gross written premiums
Commercial lines	$	63,736	$	60,662	$	3,074			5.1	%
Personal lines		17,152		9,720		7,432			76.5	%
Total	$	80,888	$	70,382	$	10,506			14.9	%
Net written premiums
Commercial lines	$	32,726	$	36,726	$	(4,000	)		(10.9	)%
Personal lines		14,944		8,561		6,383			74.6	%
Total	$	47,670	$	45,287	$	2,383			5.3	%
Net earned premiums
Commercial lines	$	34,610	$	41,308	$	(6,698	)		(16.2	)%
Personal lines		10,525		7,223		3,302			45.7	%
Total	$	45,135	$	48,531	$	(3,396	)		(7.0	)%

Gross written premiums increased $10.5 million, or 14.9%, to $80.9 million for the six months ended June 30, 2023, as compared to $70.4 million for the same period in 2022.

Commercial lines gross written premiums increased $3.0 million, or 5.1%, to $63.7 million for the six months ended June 30, 2023, as compared to $60.7 million in the same period of 2022. The increase was due to $6.3 million of premium growth in the Company’s small business programs, partially offset by a $3.2 million reduction of gross written premium in the Company’s hospitality programs.

Personal lines gross written premiums increased $7.4 million, or 76.5%, to $17.2 million for the six months ended June 30, 2023, as compared to $9.7 million for the same period in 2022. The increased gross written premiums were due to $4.4 million of premium growth in the Company’s low-value dwelling book of business.

Net written premiums increased $2.4 million, or 5.3%, to $47.7 million for the six months ended June 30, 2023, as compared to $45.3 million for the same period in 2022. The increase was due to a $6.4 million increase in the Company's personal lines of business. This increase was offset by a $4.0 million decrease in the Company's commercial lines. Commercial lines net written premiums decreased due to more ceded premiums as a result of a higher reinsurance cost and the Company entered into a new quota share reinsurance agreement, effective January 1, 2023. The new quota share treaty applies to a subset of our commercial business that represents approximately 11.3% of our gross written premiums for the six months ended June 30, 2023. The Company ceded $7.0 million of written premium related to this quota share reinsurance agreement for the six months ended June 30, 2023.

Other Income

Other income consists primarily of fees charged to policyholders by the Company for services outside of the premium charge, such as installment billings and policy issuance costs. Commission income is also received by the Company’s insurance agency for writing policies for third-party insurance companies. Other income decreased by $337,000, or 24.8%, to $1.0 million, for the six months ended June 30, 2023, compared to $1.4 million for the same period in 2022. The decrease was due to the Company's Wholesale Agency business revenue decreasing by $703,000, or 32.3%, to $1.5 million for six months ended June 30, 2023, compared to $2.2 million for the same period in 2022. A majority of the decrease in Wholesale Agency revenue was because of the business contributed to SSU, which was then deconsolidated as of December 31, 2022, and thus not reflected in the Company's consolidated income.

Losses and Loss Adjustment Expenses

The tables below detail our losses and loss adjustment expenses and loss ratios in our underwriting business for the six months ended June 30, 2023 and 2022(dollars in thousands).


Six months ended June 30, 2023	Commercial Lines			Personal Lines			Total
Accident year net losses and LAE	$	24,075		$	9,648		$	33,723
Net (favorable) adverse development		69			(760	)		(691	)
Calendar year net losses and LAE	$	24,144		$	8,888		$	33,032

Accident year loss ratio		69.3	%		91.3	%		74.4	%
Net (favorable) adverse development		0.2	%		(7.2	)%		(1.5	)%
Calendar year loss ratio		69.5	%		84.1	%		72.9	%


Six months ended June 30, 2022	Commercial Lines			Personal Lines			Total
Accident year net losses and LAE	$	21,520		$	3,704		$	25,224
Net (favorable) adverse development		14,996			49			15,045
Calendar year net losses and LAE	$	36,516		$	3,753		$	40,269

Accident year loss ratio		52.0	%		51.1	%		51.8	%
Net (favorable) adverse development		36.1	%		0.6	%		30.9	%
Calendar year loss ratio		88.1	%		51.7	%		82.7	%

Net losses and LAE decreased by $7.3 million, or 18.0%, to $33.0 million for the six months ended June 30, 2023, compared to $40.3 million for the same period in 2022. The decrease in losses was driven by $691,000 of net favorable development from prior accident years as compared to $15.0 million of adverse development for the first six months of 2022. This decrease was partially offset by the current quarter's storm losses described above.

Of the $15.0 million of adverse development experienced in the first six months of 2022, $7.1 million was related to 2018 and prior accident years, $4.9 million was related to the 2019 accident year, and $3.1 million was related to the 2020 accident year. Substantially all of the $15.0 million of adverse development was related to the Company’s commercial lines of business.

Expense Ratio

The table below provides the expense ratio by major component.


	Six months ended June 30,
	2023			2022
Commercial Lines
Policy acquisition costs		17.7	%		21.1	%
Operating expenses		19.1	%		16.1	%
Total		36.8	%		37.2	%
Personal Lines
Policy acquisition costs		26.9	%		31.9	%
Operating expenses		13.1	%		12.2	%
Total		40.0	%		44.1	%
Total Underwriting
Policy acquisition costs		19.9	%		22.8	%
Operating expenses		17.7	%		15.5	%
Total		37.6	%		38.3	%

Our expense ratio decreased 0.7% during the first six months of 2023, compared to the same period in 2022.

Policy acquisition costs are costs we incur to issue policies, which include commissions, premium taxes, underwriting reports and underwriter compensation costs. The Company offsets direct commissions with ceded commissions from reinsurers. The percentage of policy acquisition costs to net earned premiums and other income decreased by 2.9%, from 22.8% in the first six months of 2022, to 19.9% for the same period in 2022. The decrease was primarily related to additional ceding commissions, which reduces commission expense, as a result of the new quota share reinsurance treaty mentioned above.

Operating expenses consist primarily of employee compensation, information technology and occupancy costs, such as rent and utilities. Operating expenses as a percent of net earned premiums and other underwriting income increased by 2.2% to 17.7% for the six months ended June 30, 2023, as compared to 15.5% for the same period in 2022. The operating expense ratios are higher primarily due to increased reinsurance costs which have lowered net earned premiums.

Segment Results

We measure the performance of our consolidated results, in part, based on our underwriting gain or loss. The following table provides the underwriting gain or loss for the six months ended June 30, 2023 and 2022 (dollars in thousands):


	Six months ended June 30,
	2023			2022			$ Change
Commercial Lines	$	(2,216	)	$	(10,506	)	$	8,290
Personal Lines		(2,543	)		300			(2,843	)
Total Underwriting		(4,759	)		(10,206	)		5,447
Wholesale Agency		(141	)		82			(223	)
Corporate		(518	)		(215	)		(303	)
Eliminations		18			143			(125	)
Total segment gain (loss)	$	(5,400	)	$	(10,196	)	$	4,796

Liquidity and Capital Resources

Sources and Uses of Funds

At June 30, 2023, the Company had $58.3 million in cash, cash equivalents and short-term investments. Our principal sources of funds are insurance premiums, investment income, proceeds from maturities and sales of invested assets and installment fees. These funds are primarily used to pay claims, commissions, employee compensation, taxes and other operating expenses, and service debt.

Management had previously anticipated that the proceeds from the public debt offering and the potential sale of certain assets would be sufficient sources of liquidity to fund repayment of the $24.4 million of existing Notes which become due on September 30, 2023. Based on a current assessment of available sources of liquidity available to repay the Notes, the Company will need to seek additional sources of cash in order to have sufficient resources to repay the Notes by maturity. This circumstance has presented additional challenges on the Company's short-term liquidity. As of the filing of this 10-Q, the Company has $12.5 million of cash on hand available to repay the existing Notes. The Company anticipates a current liquidity shortfall of approximately $12.2 million.

We believe that our existing cash, cash equivalents, short-term investments and investment securities balances will be adequate to meet our operating liquidity needs and the needs of our subsidiaries over the next twelve months. With the expected

execution of management’s plans discussed above, plus the commitment of certain board members to provide additional funding needed to pay of the existing Notes, we believe we will repay the existing Notes on time and meet our other capital needs over the next twelve months.

We conduct our business operations primarily through our Insurance Company Subsidiaries. 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. 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. Generally, the limitations are based on the greater of statutory net income for the preceding year or 10% of statutory surplus at the end of the preceding year. No dividends were paid from our Insurance Company Subsidiaries during the six months ended June 30, 2023 and 2022.

Cash Flows

Operating Activities. Cash used in operating activities for the six months ended June 30, 2023 was $1.4 million compared to $15.5 million for the same period in 2022. The $14.1 million decrease in cash used in operating activities was primarily due a $9.9 million increase in net written premiums received, and a $12.3 million decrease in net losses paid during the period. These amounts were partially offset by a $6.1 million increase in cash paid to reinsurers during the first six months of 2023, compared to the same period in 2022.

Investing Activities. Cash used by investing activities for the six months ended June 30, 2023 was $7.8 million, compared to $13.7 million of cash provided by investing activities for the same period in 2022. The $21.5 million decrease in cash provided by investing activities was driven by a $42.5 million decrease in proceeds from sales of investments. This was partially offset by $31.2 million decrease in purchases of investments during the first six months of 2023.

Financing Activities. Cash provided by financing activities for the six months ended June 30, 2023 was $0 compared to $5.0 million in the same period of 2022. The Company has not received any proceeds from common equity during the first six months of 2023. The Company received proceeds of $5.0 million of common equity during the first six months of 2022.

Statutory Capital and Surplus

Our Insurance Company Subsidiaries are required to file quarterly and annual financial reports with state insurance regulators. These financial reports are prepared using statutory accounting practices promulgated by the Insurance Company Subsidiaries’ state of domiciliary, rather than GAAP. The Insurance Company Subsidiaries’ aggregate statutory capital and surplus (which is a statutory measure of equity) was $53.3 million and $59.9 million at June 30, 2023 and December 31, 2022, respectively.

Non-GAAP Financial Measures

Adjusted Operating Income and Adjusted Operating Income Per Share

Adjusted operating income and adjusted operating income per share are non-GAAP measures that represent net income allocable to common shareholders excluding net realized investment gains or losses, other gains or losses, and changes in fair value of equity securities; all net of tax. The most directly comparable financial GAAP measures to adjusted operating income and adjusted operating income per share are net income and net income per share, respectively. Adjusted operating income and adjusted operating income per share are intended as supplemental information and are not meant to replace net income or net income per share. 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. The

following is a reconciliation of net income (loss) to adjusted operating income (loss) (dollars in thousands), as well as net income (loss) per share to adjusted operating income (loss) per share:


	Three Months Ended June 30,						Six months ended June 30,
	2023			2022			2023			2022
Net income (loss)	$	(4,739	)	$	(8,399	)	$	(3,738	)	$	(11,269	)
Exclude:
Net realized investment gains (losses), net of tax		—			(1,436	)		—			(1,505	)
Other gains (losses), net of tax		—			(1	)		—			(6	)
Change in fair value of equity securities, net of tax		(12	)		317			682			597
Adjusted operating income (loss)	$	(4,727	)	$	(7,279	)	$	(4,420	)	$	(10,355	)

Weighted average common shares diluted		12,220,331			9,712,602			12,218,102			9,710,223
Diluted income (loss) per common share:
Net income (loss)	$	(0.39	)	$	(0.86	)	$	(0.31	)	$	(1.16	)
Exclude:
Net realized investment gains (losses), net of tax		—			(0.14	)		—			(0.15	)
Other gains (losses), net of tax		—			—			—			—
Change in fair value of equity securities, net of tax		—			0.03			0.05			0.06
Adjusted operating income (loss) per share	$	(0.39	)	$	(0.75	)	$	(0.36	)	$	(1.07	)

We use adjusted operating income and adjusted operating income per share to assess our performance and to evaluate the results of our overall business. We believe these measures provide investors with valuable information relating to our ongoing performance that may be obscured by the net effect of realized gains and losses as a result of our market risk sensitive instruments, which primarily relate to debt securities that are available for sale and not held for trading purposes. The change in fair value of equity securities and realized 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 results of our business. 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.

Recently Issued Accounting Pronouncements

Refer to Note 1 ~ Summary of Significant Accounting Policies – Recently Issued Accounting Guidance of the Notes to the Consolidated Financial Statements for detailed information regarding recently issued accounting pronouncements.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market risk is the risk of loss arising from adverse changes in market rates and prices such as interest rates, other relevant market rates or price changes. The volatility and liquidity in the markets in which the underlying assets are traded directly influence market risk. The following is a discussion of our primary market risk exposures and how those exposures are currently managed as of June 30, 2023. Our market risk sensitive instruments are primarily related to fixed income securities, which are available-for-sale and not held for trading purposes.

Interest Rate Risk

At June 30, 2023, the fair value of our investment portfolio, excluding cash and cash equivalents, was $147.9 million. Our investment portfolio consists principally of investment-grade, fixed-income securities, all of which are classified as available for sale. Accordingly, the primary market risk exposure to our debt securities is interest rate risk. In general, the fair market value of a portfolio of debt securities increases or decreases inversely with changes in market interest rates, while net investment income realized from future investments in debt securities increases or decreases along with interest rates. 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 effective duration of our portfolio as of June 30, 2023 and December 31, 2022 was 3.1 and 3.5 years, respectively.

The table below illustrates the sensitivity of the fair value of our debt investments, classified as debt securities and short-term investments, to selected hypothetical changes in interest rates as of June 30, 2023. The selected scenarios are not

predictions of future events, but rather illustrate the effect that events may have on the fair value of the debt portfolio and shareholders’ equity (dollars in thousands).


			Estimated			Hypothetical Percentage Increase (Decrease) in
Hypothetical Change in Interest Rates	Estimated		Change in						Shareholders'
As of June 30, 2023	Fair Value		Fair Value			Fair Value			Equity
200 basis point increase	$	137,263	$	(8,297	)		(5.70	)%		(49.22	)%
100 basis point increase		141,251		(4,309	)		(2.96	)%		(25.56	)%
No change		145,560		—			—			—
100 basis point decrease		150,203		4,643			3.19	%		27.55	%
200 basis point decrease		155,152		9,592			6.59	%		56.90	%

Credit Risk

An additional exposure to our debt securities portfolio is credit risk. We manage our credit risk by investing only in investment-grade securities. In addition, we comply with applicable statutory requirements, which limit the portion of our total investment portfolio that we can invest in any one security.

We are subject to credit risks with respect to our reinsurers. Although a reinsurer is liable for losses to the extent of the coverage which it assumes, our reinsurance contracts do not discharge our insurance companies from primary liability to each policyholder for the full amount of the applicable policy, and consequently our insurance companies remain obligated to pay claims in accordance with the terms of the policies regardless of whether a reinsurer fulfills or defaults on its obligations under the related reinsurance agreement. To mitigate our credit risk to reinsurance companies, we attempt to select financially strong reinsurers with an A.M. Best rating of “A-” or better and continue to evaluate their financial condition throughout the duration of our agreements.

At June 30, 2023, the net amount due to the Company from reinsurers, including prepaid reinsurance premiums, was $74.8 million. We believe all amounts recorded as due from reinsurers are recoverable.

Effects of Inflation

We do not believe that inflation has a material effect on our results of operations, except for the effect that inflation may have on interest rates and claims costs. We consider the effects of inflation in pricing and estimating reserves for unpaid losses and LAE. The actual effects of inflation on our results are not known until claims are ultimately settled. In addition to general price inflation, we are exposed to a long-term upward trend in the cost of judicial awards for damages.

ITEM 4. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

The Company’s management, including its Co-Chief Executive Officers and Chief Financial Officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures, as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange Act") as of June 30, 2023. Based on such evaluations, the Co-Chief Executive Officers and Chief Financial Officer have concluded the Company’s disclosure controls and procedures are effective in recording, processing, summarizing, and reporting, on a timely basis, information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act, and that information is accumulated and communicated to the Company’s management, including the Co-Company’s Chief Executive Officers and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting

For the three months ended June 30, 2023, there were no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) of the Exchange Act) that have materially affected, or are reasonably likely to materially affect the Company's internal control over financial reporting.

PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

The information required by this item is included under Note 12 ~ Commitments and Contingencies of the Notes to the Consolidated Financial Statements of the Company’s Form 10-Q for the six months ended June 30, 2023, which is hereby incorporated by reference.

ITEM 1A. RISK FACTORS

The $24.4 million existing Notes come due on September 30, 2023. Net of the $7.2 million raised, above, plus another $5.0 million that the company has on hand that is available to pay down the existing Notes, as of the filing of this 10-Q, the Company needs to raise an additional $12.2 million to be able to pay down the existing Notes. In order to alleviate any concern as to whether the Company will have enough funds to pay off the existing Notes, certain members of the Company’s board of directors have pledged to fund up to $12.5 million in capital which would be applied directly to paying down the existing Notes. Management also has other initiatives, including asset sales, refinancing of other existing debt or private capital raises that may produce sufficient cash to pay off all or a portion of the existing Notes. The success of any such other initiatives may reduce the amount required to be funded by the board members. See Note 7 ~ Debt for further details.

There is a risk the Company will not be able to repay the Notes in full before they mature on September 30, 2023.

There were no material changes to the risk factors disclosed in our Annual Report on Form 10-K (“Item 1A Risk Factors”) filed with the SEC on March 27, 2023.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None.

ITEM 6. EXHIBITS


		Incorporated by Reference
Exhibit Number	Exhibit Description	Form	Period Ending	Exhibit / Appendix Number	Filing Date

31.1	Section 302 Certification — Co-CEO

31.2	Section 302 Certification — Co-CEO

31.3	Section 302 Certification — CFO

32.1*	Section 906 Certification — Co-CEO

32.2*	Section 906 Certification — Co-CEO

32.3*	Section 906 Certification — CFO

101.INS	inline XBRL Instance Document

101.SCH	inline XBRL Taxonomy Extension Schema Document

101.CAL	inline XBRL Taxonomy Extension Calculation Linkbase

101.DEF	inline XBRL Taxonomy Extension Definition Linkbase

101.LAB	inline XBRL Taxonomy Extension Label Linkbase

101.PRE	inline XBRL Taxonomy Extension Presentation Linkbase

104	Cover Page Interactive Date File (embedded within the Inline XBRL document)

* This certification is deemed not filed for purposes of section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liability of that section, nor shall it be deemed incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


	CONIFER HOLDINGS, INC.

	By:	/s/ Harold J. Meloche
		Harold J. Meloche
		Chief Financial Officer,
		Principal Financial Officer,
		Principal Accounting Officer

Dated: August 9, 2023