The National Association of Insurance Commissioners’ (“NAIC”) Insurance Regulatory Information System (“IRIS”) was developed by a committee of state insurance regulators and is primarily intended to assist state insurance departments in executing their statutory mandates to oversee the financial condition of insurance companies operating in their respective states. IRIS identifies thirteen industry ratios and specifies “usual values” for each ratio. Departure from the usual values on four or more ratios generally leads to inquiries or possible further review from individual state insurance commissioners. However, the generation of ratios outside of the usual values does not necessarily indicate a financial problem. For example, premium growth, alone, can trigger one or more unusual values. Refer to the Regulatory and Rating Issues section within Item 7, Management’s Discussion and Analysis.

Effect of Federal Legislation

The Terrorism Risk Insurance Act (“TRIA”), was enacted in November 2002. After several extensions, Congress enacted the Terrorism Risk Insurance Program Reauthorization of 2015 (“Act”). The Act ~~extends the Federal Terrorism Insurance Program until~~was extended through December 31, ~~2020.~~2027 in December of 2019. The Act continues to require insurance companies to offer terrorism coverage. There is minimal exposure to this coverage as most of our policyholders decline this coverage option.

Employees

At December 31, ~~2017,~~2023, we had ~~143~~94 employees. ~~Substantially all~~All of our employees ~~are full-time.~~were full-time as of December 31, 2023. Our employees are not subject to any collective bargaining agreement, and we are not aware of any current efforts to implement such an agreement. We believe we have good working relations with our employees.

Effective March 13, 2017, the Company entered into employment agreements (the “Employment Agreements”) with each of Mr. James G. Petcoff, the Company’s Chairman and CEO, Mr. Brian J. Roney, the Company’s President, Mr. Nicholas J. Petcoff, the Company’s Executive Vice President, and Mr. Andrew D. Petcoff, the Company’s Senior Vice President. The Employment Agreements are the same except for the individuals’ titles and annual base salaries, which are $550,000 for Mr. James G. Petcoff; $425,000 for Mr. Brian J. Roney; $425,000 for Mr. Nicholas J. Petcoff; and $375,000 for Mr. Andrew D. Petcoff. The initial term for each of the Employment Agreements ends on March 13, 2018, with unlimited one-year automatic extensions unless the Employee gives written notice of non-extension, not less than 30 days prior to the expiration of the term, or the Company gives written notice of non-extension prior to the expiration of the term. The Employment Agreements provide for an annual base salary, participation in the annual bonus plan, participation in any long-term incentive plan made generally available to senior executive officers of the Company and other fringe benefits and perquisites as are generally made available to the Company’s executives.

If any of the executives’ employment is terminated for cause, the executive will receive the accrued and unpaid portion of base salary. If any of the executives’ employment is terminated due to death or permanent disability, the executive (or his legal representative or beneficiary) will receive the accrued and unpaid portion of base salary and any earned but not yet paid incentive awards for already completed years or award cycles. If any of the executives’ employment is terminated without cause or if he terminates his employment for good reason (assuming the change of control provisions below do not apply), the executive will receive the accrued and unpaid portion of base salary, any earned but not yet paid incentive awards for already completed years or award cycles, plus one times his annual base salary. In addition, any unvested equity awards will immediate vest. If any of the executives’ employment is terminated without cause (other than due to death or permanent disability) or he terminates such employment for good reason, in each case within 24 months after a change of control, the executive will receive the accrued and unpaid portion of base salary, any earned but not yet paid incentive awards for already completed years or award cycles and 2.99 times the sum of (i) his annual base salary and (ii) the greater of his annual target bonus or his average bonus for the prior three years. In addition, any unvested equity awards will immediate vest.

~~The employment agreements also provide for confidentiality and non-solicitation provisions, the latter for one year after termination of employment.~~

Available Information

We maintain an internet website at http://www.cnfrh.com, where we make available, free of charge, our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, Statements of Beneficial Ownership (Forms 3, 4, and 5), and any amendments to those reports, as soon as reasonably practicable after we electronically file such material with, or furnish to, the SEC. In addition, the SEC maintains an Internet site that contains reports, proxy statements, and other information that we file at www.sec.gov. The public may read and copy any materials we file with the Commission at the SEC's Public Reference Room at 100 F Street, NE., Washington, DC 20549, on official business days during the hours of 10 a.m. to 3 p.m. The public may obtain information on the operation of the Public Reference Room by calling the Commission at 1-800-SEC-0330. Information found on our website or any other website is not part of this annual report on Form 10-K or any other report we file with, or furnish to the SEC.

Glossary



Accident year	The annual calendar accounting period in which loss events occurred, regardless of when the losses are actually reported, booked or paid.
Accident year combined ratio	The accident year combined ratio is an insurance industry measure that excludes changes in net ultimate loss estimates from prior accident year loss reserves. The accident year combined ratio provides management with an assessment of the specific policy year’s profitability (which matches policy pricing with related losses) and assists management in their evaluation of product pricing levels and quality of business written. Management uses accident year combined ratio as one component to assess the Company's current year performance and as a measure to evaluate, and if necessary, adjust current year pricing and underwriting.
Adjusted operating income (loss)	~~Net~~ Adjusted operating income (loss) is a non-GAAP measure. Adjusted operating income (loss) represents net income (loss) excluding ~~the after-tax impact of~~ net realized investment gains (losses), change in fair value of equity securities, the gain from sale of renewal rights, the gain from VSRM Transaction, the loss portfolio transfer risk fee and other gains (losses)~~, the tax effect of changes in unrealized gains (to the extent included in net income), and cumulative effect of changes in accounting principles when applicable.~~.
Adjusted operating income (loss), per share	Adjusted operating income (loss) per share is a non-GAAP measure. Adjusted operating income (loss) on a per share ~~basis.~~represents the net income (loss) allocable to common shareholders excluding net realized investment gains (losses) per share, change in fair value of equity securities per share, the gain from sale of renewal rights per share, the gain from VSRM Transaction per share, the loss portfolio transfer risk fee per share and other gains (losses) per share.
~~Amended Credit Agreement / Amended and Restated Credit Agreement~~	The Amended and Restated Credit Agreement, dated September 29, 2014, is between the Company and Comerica Bank, N.A. (refer to the exhibits hereto, as amended from time to time). The Agreement defines our previous credit facility and its terms; it was terminated in September 2017 (refer to the exhibit listing for details of the term changes, maturity dates, etc.).
Assignment of Benefits	A legal tool that allows a third party to assert a claim and be paid for services performed for an insured who would normally be reimbursed directly by the insurance company after making a claim themselves.
Book value per share	Total common shareholders' equity divided by the number of common shares outstanding.
Case reserves	Estimates of anticipated future payments to be made on each specific ~~individual known, or~~ reported ~~claim.~~claim, which are exclusive of any IBNR estimated reserves.


Combined Ratio based on accounting principles generally accepted in the United States of America (“GAAP”)	The ~~Combined Ratio~~combined ratio is the sum of the ~~Loss and LAE Ratio~~loss ratio and the ~~Expense Ratio as defined below.~~expense ratio. These ratios differ from statutory ratios to reflect GAAP accounting, as management evaluates the performance of our underwriting operations using the GAAP combined ratio.
Combined Ratio based on statutory accounting practices (“SAP”)	The combined ~~loss and expense~~ ratio ~~(or combined ratio),~~based on SAP, expressed as a percentage, is the key measure of underwriting profitability traditionally used in the property and casualty insurance business. The combined ratio is a statutory accounting measurement, which represents the sum of (i) the ratio of losses and loss expenses to net earned premiums (loss ratio), plus (ii) the ratio of underwriting expenses to net written premiums (expense ratio).
Combined Ratio (Overall)	When the combined ratio is under 100%, underwriting results are generally considered profitable; when the combined ratio is over 100%, underwriting results are generally considered unprofitable.
Deferred policy acquisition costs	Primarily commissions and premium-related taxes that vary with, and are primarily related to, the production of new contracts and are deferred and amortized to achieve a matching of revenues and expenses when reported in financial statements prepared in accordance with GAAP.


Deficiency
~~Deficiency~~	With regard to reserves for a given liability, a deficiency exists when it is estimated or determined that the reserves are insufficient to pay the ultimate settlement value of the related liabilities. Where the deficiency is the result of an estimate, the estimated amount of deficiency (or even the finding of whether or not a deficiency exists) may change as new information becomes available.
Expense Ratio	For GAAP, it is the ratio of GAAP underwriting expenses incurred to net earned premiums plus other income. For SAP, it is the ratio of Statutory underwriting expenses incurred to net written premiums.
Incurred but not reported (IBNR) reserves	Reserves for estimated losses and LAE that have been incurred but not yet reported to the insurer. This includes amounts for unreported claims, development on known cases, and re-opened claims.
Loss	An occurrence that is the basis for submission and/or payment of a claim. Losses may be covered, limited or excluded from coverage, depending on the terms of the policy.
Loss adjustment expenses (LAE)	The expenses of settling claims, including legal and other fees and the portion of general expenses allocated to claim settlement costs.
Loss ~~and LAE~~ ratio	The ratio of incurred losses and loss adjustment expenses to net earned premiums plus other income.
Loss reserves	Liabilities established by insurers and reinsurers to reflect the estimated cost of claims incurred that the insurer or reinsurer will ultimately be required to pay in respect of insurance or reinsurance it has written. Reserves are established for losses and for LAE, and consist of case reserves and IBNR reserves. As the term is used in this document, “loss reserves” is meant to include reserves for both losses and LAE, unless stated otherwise.
Loss reserve development	The increase or decrease in ~~Loss~~Losses or LAE as a result of the re-estimation of claims and claim adjustment expense reserves at successive valuation dates for a given group of claims. Loss reserve development may be related to prior year or current year development.
Losses incurred	The total losses sustained by an insurance company under a policy or policies, whether paid or unpaid. Incurred losses include a provision for IBNR.
NAIC-IRIS ratios	Financial ratios calculated by the NAIC to assist state insurance departments in monitoring the financial condition of insurance companies.


Policyholders' surplus	As determined under SAP, the amount remaining after all liabilities ~~including loss reserves,~~ are subtracted from all admitted assets. Admitted assets are assets of an insurer prescribed or permitted by a state to be recognized on the statutory balance sheet. Policyholders' surplus is also referred to as “surplus” or “statutory surplus” for statutory accounting purposes.
Premium leverage ratio	The ratio of written premium (gross or net) to consolidated statutory surplus.
Redundancy	With regard to reserves for a given liability, a redundancy exists when it is estimated or determined that the reserves are greater than what will be needed to pay the ultimate settlement value of the related liabilities. Where the redundancy is the result of an estimate, the estimated amount of redundancy (or even the finding of whether or not a redundancy exists) may change as new information becomes available.
Risk-Based Capital (RBC)	A measure adopted by the NAIC and enacted by states for determining the minimum statutory policyholders' surplus requirements of insurers. Insurers having total adjusted capital less than that required by the RBC calculation will be subject to varying degrees of regulatory action.
Statutory accounting practices (SAP)	The practices and procedures prescribed or permitted by domiciliary state insurance regulatory authorities in the United States for recording transactions and preparing financial statements.
Underwriting gain or loss	Net earned premiums plus other income, less losses, LAE, commissions, and operating expenses.

ITEM 1A. RISK FACTORS

~~Summary~~

Risk Factors

You should read the following risk factors carefully in connection with evaluating our business and the forward-looking information contained in this Annual Report on Form 10-K. Any of the following risks could materially and adversely affect our business, operating results, financial condition and the actual outcome of matters as to which forward-looking statements are made in this Annual Report on Form 10-K. While we believe we have identified and discussed below the key risk factors affecting our business, there may be additional risks and uncertainties that are not presently known or that are not currently believed to be significant that may adversely affect our business, operating results or financial condition in the future.

Summary Risk Factors

Our business is subject to numerous risks and uncertainties. We have listed below the material risk factors applicable to us. These material risks include, but are not limited to, the following:

•

Operational Risks

•

Investment Risks

•

Liquidity Risks

•

Legal and Regulatory Risks

•

Rating Agency Risks

•

General Risk Factors

Operational Risks

We may not be able to extend or repay our indebtedness owed to our secured lenders, which would have a material adverse effect on our financial condition and ability to continue as a going concern.

If we are unable to service or repay these obligations at maturity and we are otherwise unable to extend the maturity dates or refinance these obligations, we would be in default. We cannot provide any assurances that we will be able to raise

the necessary amount of capital to service these obligations. Upon a default, our secured lenders would have the right to exercise their rights and remedies to collect, which would include foreclosing on our assets. Accordingly, a default would have a material adverse effect on our business, and we would likely be forced to seek bankruptcy protection.

Our various loan agreements contain financial and non-financial covenants and provisions providing for cross-default. The evaluation of compliance with these provisions is subject to interpretation and the exercise of judgment.

Our actual incurred losses may be greater than our loss and loss adjustment expense reserves, which could have a material adverse effect on our financial condition and results of operations.

Insurance companies’ financial condition and results of operations depend upon their ability to accurately assess the potential losses and loss adjustment expenses under the terms of the insurance policies they underwrite. Reserves do not represent an exact calculation of liability. Rather, reserves represent an estimate of what the expected ultimate settlement and administration of claims will cost, and the ultimate liability may be greater or less than the current estimate. In the insurance industry, there is always the risk that reserves may prove inadequate as it is possible for insurance companies to underestimate the cost of claims.

There has been considerable adverse development reported by the Company in recent years.

We base our estimates on our assessment of known facts and circumstances, as well as estimates of future trends in claim severity, claim frequency, judicial theories of liability and other factors. These variables are affected by both internal and external events that could increase our exposure to losses, including changes in actuarial projections, claims handling procedures, inflation, severe weather, climate change, economic and judicial trends, and legislative changes. We continually monitor reserves using new information on reported claims and a variety of statistical techniques to update our current estimate. Our estimates could prove to be inadequate, and this underestimation could have a material adverse effect on our financial strength.

~~Among the~~

The uncertainties we encounter in establishing our loss reserves ~~for losses and related expenses in connection with~~include:

•

For the majority of our ~~insurance businesses are as follows:~~

~~When we write “occurrence”~~ policies, we are obligated to pay ~~covered claims, up to the contractually agreed amount, for~~ any covered loss that occurs while the policy is in force. Accordingly, claims may be reported and develop many years after a policy has lapsed;

•

Even when a claim is received, ~~(irrespective of whether the policy is a "claims-made”, which requires claims to be reported during the policy period, or an “occurrence” based form),~~ it may take considerable time to fully appreciate the extent of the covered loss suffered by the insured and, consequently, estimates of loss associated with specific claims can increase over time;

•

New theories of liability are enforced retroactively from time to time by courts;

•

Volatility in the financial markets, economic events, weather events and other external factors may result in an increase in the number of claims and the severity of the claims reported. In addition, elevated inflationary conditions would, among other things, drive loss costs to increase;

~~If claims became more frequent, even if we had no liability for those claims, the cost of evaluating these potential claims could escalate beyond the amount of the reserves we have established. If~~•

When we enter new lines of business, or encounter new theories of claims liability, we may encounter an increase in claims frequency and greater claims handling costs than we had anticipated; and

•

Estimation of ~~“IBNR”~~IBNR losses is a complex and inherently uncertain process which involves a considerable degree of judgment and expertise, which adds to the overall difficulty of estimating loss reserves.

If any of our insurance reserves should prove to be inadequate for the reasons discussed above, or for any other reason, we will be required to increase reserves, resulting in a reduction in our net income and shareholders’ equity in the period in which the deficiency is identified. ~~Future~~Such adverse development can result in the unplanned need for additional capital, which may need to be obtained through the sale of assets or additional issuance of common stock or preferred stock which could dilute current shareholder value.

If we are unable to underwrite risks accurately and charge competitive yet profitable rates to our policyholders, our business, financial condition and results of operations will be adversely affected.

premium rates. Establishing adequate premium rates is necessary, together with investment income, to generate sufficient revenue to offset losses, LAE and other underwriting costs and to earn a profit. If we do not accurately assess the risks that we underwrite, we may not charge adequate premiums to cover our losses and expenses, which would adversely affect our results of operations and our profitability. Alternatively, we could set our premiums too high, which could reduce our competitiveness and lead to lower revenues.

Pricing involves the acquisition and analysis of historical loss data and the projection of future trends, loss costs and expenses, and inflation trends, among other factors, for each of our products in multiple risk tiers and many different markets. In order to accurately price our policies, we must:

•

Collect and properly analyze a substantial volume of data from our insureds;

•

Develop, test and apply appropriate actuarial projections and rating formulas;

•

Closely monitor and timely recognize changes in trends; and

•

Project both frequency and severity of our insureds’ losses with reasonable accuracy.

We seek to implement our pricing accurately in accordance with our assumptions. Our ability to undertake these efforts successfully and, as a result, accurately price our policies, is subject to a number of risks and uncertainties, including:

•

Insufficient or unreliable data;

•

Incorrect or incomplete analysis of available data;

•

Uncertainties generally inherent in estimates and assumptions;

•

Our failure to implement appropriate actuarial projections and rating formulas or other pricing methodologies;

•

Regulatory constraints on rate increases; and

•

Our failure to accurately estimate investment yields and the duration of our liability for loss and loss adjustment expenses, as well as unanticipated court decisions, legislation or regulatory action.

In addition, as a result of current industry non-weather factors, such as the increase in litigation surrounding the Assignment of Benefits claims and lawsuits in Florida, in particular, we may experience additional losses that could adversely affect our financial position and results of operations.

There may be limited capacity from third party insurers to support the business produce by our MGA.

As discussed in Item 1 ~ Business, the Company is making a strategic shift wherein our Insurance Company Subsidiaries will underwrite significantly less business. The Company’s earned premium and investment income revenues will be substantially ~~in excess of established reserves~~replaced with commission revenue generated by CIS, our MGA, producing premiums for third-party insurers. We cannot assure that we will be able to locate third party insurers to underwrite the business our MGA can produce. The failure to obtain sufficient third party underwriting capacity could ~~also~~ have a material adverse effect on ~~future earnings~~our business, financial condition and ~~liquidity~~results of operations.

We operate in a highly competitive environment and we may not continue to be able to compete effectively against larger or more well‑established business rivals.

We compete with a large number of other companies in our selected lines of business. Many of our competitors are substantially larger and may enjoy better name recognition, substantially greater financial resources, higher financial strength ratings by rating agencies, broader and more diversified product lines and more widespread agency relationships than we do. Insurers in our markets generally compete on the basis of price, consumer recognition, coverages offered, claims handling, financial stability, customer service and geographic coverage. Although pricing is influenced to some degree by that of our competitors, it is not in our best interests to compete solely on price, and we may from time-to-time experience a loss of market share during periods of intense price competition. A number of new, proposed or potential legislative or industry developments could further increase competition in our industry including, but not limited to:

•

An increase in capital‑raising by companies in our lines of business, which ~~would~~could result in new entrants to our markets and an excess of capital in the industry;

•

The deregulation of commercial insurance lines in certain states and the possibility of federal regulatory reform of the insurance industry, which could increase competition from standard carriers for our E&S lines of insurance business; and

•

Changing practices caused by the Internet may lead to greater competition in the insurance business. Among the possible changes are shifts in the way insurance is purchased. If our distribution model were to be significantly altered by changes in the way products are marketed, including, without limitation, through use of the Internet, it could have a material adverse effect on our premiums, underwriting results and profits.

There is no assurance that we will be able to continue to compete successfully in the insurance markets in which we participate. Increased competition in our market could result in a change in the supply and/or demand for insurance, affect our ability to ~~attract~~price our products at risk‑adequate rates and retain existing business, ~~and could affect~~or underwrite new business on favorable terms. If this increased competition so limits our ability to ~~retain~~transact business, our operating results could be adversely affected.

Increased information technology security threats and more sophisticated computer crimes pose a risk to our systems, networks, products and services.

Our systems may be damaged, disrupted, or ~~hire qualified personnel.~~

shut down due to unauthorized access, malicious software, undetected intrusion, hardware failures, or other events, and in these circumstances our disaster recovery planning may be ineffective or inadequate. Information technology security threats from user error to cybersecurity attacks are increasing in frequency and sophistication. These threats pose a risk to the security of our systems and networks and the confidentiality, availability and integrity of our data. The potential consequences of a material cybersecurity attack include reputational damage, litigation with third parties, and increased cybersecurity protection and remediation costs. A sustained business interruption or system failure could adversely impact our ability to process our business, provide customer service, pay claims in a timely manner or perform other necessary business functions. We could also be subject to fines and penalties related to a security breach. The cost to remedy a severe breach could be substantial.

Severe weather conditions and other catastrophes are inherently unpredictable and may have a material adverse effect on our financial results and financial condition.

Our property insurance business is exposed to the risk of severe weather conditions and other catastrophes. Catastrophes can be caused by various events, including natural events such as hurricanes, winter weather, tornadoes, windstorms, earthquakes, hailstorms, severe thunderstorms, fires and other non-natural events such as explosions or riots.

The incidence and severity of catastrophes and severe weather conditions are inherently unpredictable. The extent of losses from a catastrophe is a function of both the total amount of insured exposure in the area affected by the event and the severity of the event. Severe weather conditions and catastrophes can cause greater losses in our property lines and cause our liquidity and financial condition to deteriorate. In addition, our inability to obtain reinsurance coverage at reasonable rates and in amounts adequate to mitigate the risks associated with severe weather conditions and other catastrophes could have a material adverse effect on our business and results of ~~operation.~~operations.

~~Our investment portfolio is subject~~

We may be unable to ~~significant market and credit risks, which could result~~obtain reinsurance coverage at reasonable prices or on terms that provide us adequate protection.

We purchase reinsurance in ~~an adverse impact on our financial conditions or results of operations.~~

~~Our results of operations depend, in part, on the performance~~many of our ~~investment portfolio. We seek~~lines of business to ~~hold a diversified portfolio~~help manage our exposure to insurance risks that we underwrite and to reduce volatility in our results.

The availability and cost of ~~investments that is managed by professional investment advisory management firms in accordance with our investment policy and routinely reviewed by our Investment Committee. However, our investments~~reinsurance are subject to ~~general economic~~prevailing market conditions, both in terms of price and ~~market risks as well as risks inherent to particular securities.~~

available capacity, each of which can affect our business volume and profitability. The ~~value~~availability of reasonably affordable reinsurance is a critical element of our ~~investment portfolio~~business plan. One important way we utilize reinsurance is ~~subject~~ to ~~the risk that certain investments may default or become impaired due~~reduce volatility in claims payments by limiting our exposure to ~~deterioration in the financial condition of one or more issuers of the securities held, or due~~losses from large risks. Another way we use reinsurance is to ~~deterioration in the financial condition of an insurer that guarantees an issuer’s payments of such investments. Such defaults and impairments could reduce~~purchase substantial protection against concentrated losses when we enter new markets. As a result, our ~~net investment income and result in realized investment losses.~~

Risks for all types of securities are managed through application of our investment policy, which establishes investment parameters that include but are not limited to maximum percentages of investment in certain types of securities and minimum levels of credit quality, which we believe are within guidelines established by the NAIC and various state insurance departments, as applicable.

~~Although we seek~~manage volatility and avoid significant losses, expand into new markets or grow by offering insurance to preserve our capital, we cannot be certain that our investment objectives will be achieved, and results may vary substantially over time. In addition, although we seek to employ investment strategies that are not correlated with our insurance exposures, losses in our investment portfolio may occur at the same time as underwriting losses and, therefore, exacerbate the adverse effectnew kinds of ~~the losses on us.~~

~~Our ability to meet ongoing cash requirements, service debt and pay dividends~~enterprises may be limited by ~~our holding company structure and regulatory constraints restricting dividends or other distributions by our Insurance Company Subsidiaries.~~

~~We are a holding company that transacts~~ the ~~majority~~unavailability of our business through our Insurance Company Subsidiaries. Our ability to meet our obligations on our outstanding debt, and to pay our expenses and shareholder dividends, depends upon the dividend paying capacity of our Insurance Company Subsidiaries.reasonably priced reinsurance. We will be limited by the earnings of our Insurance Company Subsidiaries, and the distribution or other payment of such earnings to it in the form of dividends, loans, advances or the reimbursement of expenses. Payments of dividends to us by our Insurance Company Subsidiaries are subject to various business considerations and restricted by state insurance laws, including laws establishing minimum solvency and liquidity thresholds, and could be subject to revised restrictions in the future. The ability to pay ordinary and extraordinary dividends must be reviewed in relation to the impact on key financial measurement ratios, including RBC ratios. The Insurance Company Subsidiaries’ ability to pay future dividends without advance regulatory approval is dependent upon maintaining a positive level of unassigned surplus. As a result, at times, we may not be able to ~~receive dividends~~obtain reinsurance on acceptable terms or from ~~our Insurance Company Subsidiaries in amounts necessary~~entities with satisfactory creditworthiness. Under such circumstances, we may have to ~~meet our debt obligations, to pay shareholder dividends on our capital stock or to pay corporate expenses. Therefore,~~reduce the ~~inability~~level of our ~~Insurance Company Subsidiaries~~underwriting commitments, which would reduce our revenues.

Many reinsurance companies have begun to ~~pay dividends~~exclude certain coverages from, or ~~make other distributions could have a material adverse effect on our business and financial condition.~~

~~The price of our common stock may be volatile and limited public float and low trading volume for our shares may have an adverse impact on the share price or make it difficult to liquidate.~~

The trading price of our common stock is likely to be highly volatile and could be subject to wide fluctuations in response to various factors, some of which are beyond our control and may not be related to our operating performance. These fluctuations could be significant and could cause a lossalter terms in, the ~~amount invested in our shares of common stock. Factors~~reinsurance contracts we enter into with them. Some exclusions relate to risks that ~~could cause fluctuation are listed in~~we cannot exclude from the “~~Industry Risks” and “Risks Related~~policies we write due to ~~our Business” listed above.~~

business or regulatory constraints. In addition, reinsurers are imposing terms, such as lower per occurrence and aggregate limits, on direct insurers that do not wholly cover the stock market in general, and the market for insurance companies in particular, has experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of those companies. Securities class action litigation has often been instituted against companies following periods of volatility in the overall market and in the market price of a company’s securities. This litigation, if instituted against us, could result in substantial costs, divert our management’s attention and resources, and harm our business, operating results, and financial condition.

risks written. As a result, ~~of these factors, investors in our common stock may~~we, like other direct insurance companies, write insurance policies which, to some extent, do not ~~be able to resell their shares at or above their purchase price or may not be able to resell them at all. These market and industry factors may materially reduce~~have the ~~market price of our common stock, regardless of our operating performance. In addition, price volatility may be greater if the public float and the trading volume of our common stock remain low.~~

~~We may be adversely affected by interest rate changes~~.

Our investment portfolio is predominantly comprised of fixed income securities. These securities are sensitive to changes in interest rates. An increase in interest rates typically reduces the fair market value of fixed income securities. In addition, if interest rates decline, investment income earned from future investments in fixed income securities will be lower. We generally hold our fixed income securities to maturity, so our interest rate exposure does not usually result in realized losses. However, as noted above, rising interest rates could result in a significant reduction of our book value. A low investment yield environment could adversely impact our net earnings, as a result of fixed income securities maturing and being replaced with lower yielding securities which impact investing results.

Interest rates are highly sensitive to many factors beyond our control including general economic conditions, governmental monetary policy, and political conditions. As discussed above, fluctuations in interest rates may adversely impact our business. See ~~“Item 7A. Qualitative and Quantitative Disclosures About Market Risk”~~ ~~for further discussion on interest rate risk.~~

~~A decline in our financial strength rating may result in a reduction of new or renewal business.~~

Participants in the insurance industry use ratings from independent ratings agencies, such as A.M. Best Company, Inc. (“A.M. Best”), Demotech, Inc. (“Demotech”), and Kroll Bond Rating Agency ("Kroll") as an important means of assessing the financial strength and quality of insurers. In setting their ratings, A.M. Best, Demotech and Kroll utilize a quantitative and qualitative analysis of a company’s balance sheet strength, operating performance and business profile. These analyses include comparisons to peers and industry standards as well as assessments of operating plans, philosophy and management. For A.M. Best, the ratings range from A++, or superior, to F for in liquidation. Demotech’s ratings range from “A” (unsurpassed) to M (moderate). Kroll's ratings range from AAA (extremely strong) to R (under regulatory supervision). As of the date of this Form 10-K, A.M. Best has assigned financial strength ratings of B++ with a negative outlook to CIC (the fifth highest rating level out of sixteen rating levels) and B+ with a stable outlook for WPIC (the sixth highest out of sixteen). A rating of B++ for CIC and a rating of B+ for WPIC means A.M. Best considers both companies to have a “good” ability to meet ongoing financial obligations. Both CIC, WPIC are rated “A” by Demotech (the third highest rating level out of six rating levels) as of the date of this Form 10-K. A financial stability rating of “A” from Demotech indicates “exceptional” financial stability related to maintaining surplus at an acceptable level. Kroll has given CIC and WPIC an insurance financial strength rating of BBB+ with a stable outlook (fourth highest rating level out of eleven) as of the date of this Form 10-K. A BBB+ rating indicates that the insurer's financial condition is adequate.

A.M. Best, Demotech and Kroll assign ratings that are intended to provide an independent opinion of an insurance company’s ability to meet its financial obligations to policyholders and such ratings are not evaluations directed to investors. A.M. Best, Demotech and Kroll periodically review our ratings and may revise ratings downward or revoke them at their sole discretion based primarily on their analyses of our balance sheet strength (including capital adequacy and loss and loss adjustment expense reserve adequacy), operating performance and business profile. Factors that could affect such analyses include but are not limited to:

~~If we change our business practices from our organizational business plan in a manner that no longer supports A.M. Best’s, Demotech’s or Kroll's rating;~~

~~If unfavorable financial, regulatory or market trends affect us, including excess market capacity;~~

~~If we incur operating losses;~~

~~If we have unresolved issues with government regulators;~~

~~If we are unable to retain our senior management or other key personnel;~~

~~If our investment portfolio incurs significant losses; or~~

~~If A.M. Best, Demotech or Kroll alters its capital adequacy assessment methodology in a manner that would adversely affect our rating.~~

These and other factors could result in a downgrade of our rating. A downgrade of our rating could cause our current and future agents, retail brokers and insureds to choose other, more highly‑rated competitors. A downgrade of this rating could also increase the cost or reduce the availabilitybenefit of reinsurance protection. These gaps in reinsurance protection expose us to ~~us.~~

~~In addition, in view of the earnings~~greater risk and ~~capital pressures recently experienced by many financial institutions, including insurance companies, it is possible that rating organizations will heighten the level of scrutiny that they apply to~~greater potential losses. For example, certain reinsurers have excluded coverage for terrorist acts or priced such institutions and may increase the capital and other requirements employed in the rating organizations’ models for maintenance of certain ratings levels. It is possible that such reviews of us may result in adverse ratings consequences, which could have a material adverse effect on our financial condition and results of operations. A downgrade or withdrawal of any rating could severely limit or prevent us from writing new and renewal insurance contracts.

coverage at unreasonably high rates.

We distribute our insurance products through a select group of agents, several of which account for a significant portion of our business, and there can be no assurance that such relationships will continue, or if they do continue, that the relationship will be on favorable terms to us. In addition, reliance on agents subjects us to their credit risk.

Our distribution model depends almost entirely on the agencies that distribute our products. In ~~2017, our top~~2023, six independent agencies accounted for approximately ~~33%~~40% of our gross written premiums in our commercial lines, and ~~our top~~ four independent agencies, accounted for approximately ~~41%~~62% of our gross written premiums in our personal lines. We cannot assure you that these relationships, or our relationships with any of our agencies will continue. Even if the relationships do continue, they may not be on terms that are profitable for us. The termination of a relationship with one or more significant agents could result in lower ~~direct written premiums~~premium revenue and could have a material adverse effect on our results of operations or business prospects.

Certain premiums from policyholders, where the business is produced by agents, are collected directly by the agents and forwarded to our Insurance Company Subsidiaries. In certain jurisdictions, when the insured pays its policy premium to these agents for payment on behalf of our Insurance Company Subsidiaries, the premiums might be considered to have been paid under applicable insurance laws and regulations. Accordingly, the insured would no longer be liable to us for those amounts, whether or not we have actually received the premiums from that agent. Consequently, we assume a degree of credit risk associated with agents. There may be instances where agents collect premiums but do not remit them to us and we may be required ~~under applicable law~~ to provide the coverage set forth in the policy despite the absence of premiums. If we are unable to collect premiums from agents, ~~in the future,~~ underwriting profits may decline and our financial condition and results of operations could be materially and adversely affected.

The property and casualty insurance business is historically cyclical in nature, and we may experience periods with excess underwriting capacity and unfavorable premium rates, which could adversely affect our business.

Historically, insurers have experienced significant fluctuations in operating results due to competition, frequency and severity of catastrophic events, levels of capacity, adverse litigation trends, regulatory constraints, general economic conditions and other factors. The supply of insurance is related to prevailing prices, the level of insured losses and the level of capital available to the industry that, in turn, may fluctuate in response to changes in rates of return on investments being earned in the insurance industry. As a result, the insurance business historically has been a cyclical industry characterized by

periods of intense price competition due to excessive underwriting capacity as well as periods when shortages of capacity increased premium levels. Demand for insurance depends on numerous factors, including the frequency and severity of catastrophic events, levels of capacity, the introduction of new capital providers, and general economic conditions. All of these factors fluctuate and may contribute to price declines generally in the insurance industry.

We cannot predict with certainty whether market conditions will improve, remain constant or deteriorate. Negative market conditions may impair our ability to underwrite insurance at rates we consider appropriate and commensurate relative to the risk assumed. If we cannot underwrite insurance at appropriate rates, our ability to transact business will be materially and adversely affected. Any of these factors could lead to an adverse effect on our business, financial condition and results of operations.

In general, the premiums for our insurance policies are established at the time a policy is issued and, therefore, before all of our underlying costs are known. Like other insurance companies, we rely on estimates and assumptions in setting our premium rates. Establishing adequate premium rates is necessary, together with investment income, to generate sufficient revenue to offset losses, LAE and other underwriting costs and to earn a profit. If we do not accurately assess the risks that we underwrite, we may not charge adequate premiums to cover our losses and expenses, which would adversely affect our results of operations and our profitability. Alternatively, we could set our premiums too high, which could reduce our competitiveness and lead to lower revenues.

~~Collect and properly analyze a substantial volume of data from our insureds;~~

~~Develop, test and apply appropriate actuarial projections and rating formulas;~~

~~Closely monitor and timely recognize changes in trends; and~~

~~Project both frequency and severity of our insureds’ losses with reasonable accuracy.~~

~~Insufficient or unreliable data;~~

~~Incorrect or incomplete analysis of available data;~~

~~Uncertainties generally inherent in estimates and assumptions;~~

~~Our failure to implement appropriate actuarial projections and rating formulas or other pricing methodologies;~~

~~Regulatory constraints on rate increases; and~~

~~We operate in a highly competitive environment and we may not continue to be able to compete effectively against larger or more well‑established business rivals.~~

We compete with a large number of other companies in our selected lines of business. Many of our competitors are substantially larger and may enjoy better name recognition, substantially greater financial resources, higher financial strength ratings by rating agencies, broader and more diversified product lines and more widespread agency relationships than us. Insurers in our markets generally compete on the basis of price, consumer recognition, coverages offered, claims handling, financial stability, customer service and geographic coverage. Although pricing is influenced to some degree by that of our competitors, it is not in our best interests to compete solely on price, and we may from time-to-time experience a loss of market share during periods of intense price competition. A number of new, proposed or potential legislative or industry developments could further increase competition in our industry including, but not limited to:

~~An increase in capital‑raising by companies in our lines of business, which could result in new entrants to our markets and an excess of capital in the industry;~~

Changing practices caused by the Internet may lead to greater competition in the insurance business. Among the possible changes are shifts in the way insurance is purchased. If our distribution model was to be significantly altered by changes in the way products were marketed, including, without limitation, through use of the Internet, it could have a material adverse effect on our premiums, underwriting results and profits.

There is no assurance that we will be able to continue to compete successfully in the insurance market. Increased competition in our market could result in a change in the supply and/or demand for insurance, affect our ability to price our products at risk‑adequate rates and retain existing business, or underwrite new business on favorable terms. If this increased competition so limits our ability to transact business, our operating results could be adversely affected.

Adverse economic factors, including recession, inflation, periods of high unemployment or lower economic activity could result in the sale of fewer policies than expected or an increase in the infrequency or severity of claims and premium defaults or both, which, in turn, could affect our growth and profitability.

Factors, such as business revenue, economic conditions, the volatility and strength of the capital markets and inflation can all affect the business and economic environment in which we operate. These same factors affect our ability to generate revenue and profits. In an economic downturn that is characterized by higher unemployment, declining spending and reduced corporate revenues, the demand for insurance products is adversely affected, which directly affects our premium levels and profitability. Negative economic factors may also affect our ability to receive the appropriate rate for the risk we insure with our policyholders and may adversely affect the number of policies we can write, including with respect to our opportunities to underwrite profitable business. In an economic downturn, our customers may have less need for insurance coverage, cancel existing insurance policies, modify their coverage or not renew with us. ~~Existing policyholders may exaggerate or even falsify claims to obtain higher claims payments.~~ These outcomes would reduce our underwriting profit to the extent these factors are not reflected in the rates we charge.

The failure of any of the loss limitations or exclusions we employ, or changes in other claims or coverage issues, could have a material adverse effect on our financial condition or results of operations.

Our policies include provisions to limit our exposure to known risks. In addition, we design our policy terms to manage our exposure to expanding theories of legal liability like those which have given rise to claims for lead paint, asbestos, mold, construction defects and environmental matters. Many of the policies we issue also include conditions requiring the prompt reporting of claims to us and entitle us to decline coverage in the event of a violation of that condition. Also, many of our policies limit the period during which a policyholder may bring a claim under the policy, which in many cases is shorter than the statutory period under which such claims can be brought against our policyholders.

As industry practices and legal, judicial, social and other conditions change, unexpected and unintended issues related to claims and coverage may emerge. These issues may adversely affect our business by either extending coverage beyond the underwriting intent or by increasing the size or number of claims.

It is possible that a court or regulatory authority could nullify or void any number of the provisions we put in place to limit our exposure. Regulatory authorities or courts may not interpret the limitations or exclusions that we included in the policies in the manner we intended. Or legislation could be enacted modifying or barring the use of such endorsements and limitations. These types of governmental actions could result in higher than anticipated losses and loss adjustment expenses, which could have a material adverse effect on our financial condition or results of operations. In some instances, these changes may not become apparent until sometime after we have issued insurance policies that are affected by the changes. As a result, the full extent of liability under our insurance contracts may not be known for many years after a contract is issued.

If we are unable to retain key management and employees or recruit other qualified personnel, we may be adversely affected.

We believe that our future success depends, in large part, on our ability to retain our experienced management team and key employees, particularly our chief executive officer, Nicholas J. Petcoff. There can be no assurance that we can attract and retain the necessary employees to conduct our business activities on a timely basis or at all. Our competitors may offer more favorable compensation arrangements to our key management or employees to incentivize them to leave our Company.

Furthermore, our competitors may make it more difficult for us to hire their personnel by offering excessive compensation arrangements to certain employees to induce them not to leave their current employment and bringing litigation against employees who do leave (and possibly us as well) to join us. The loss of any of our executive officers or other key personnel, or our inability to recruit and retain additional qualified personnel as we grow, could materially and adversely affect our business and results of operations, and could prevent us from fully implementing our growth strategies.

We rely on our systems and employees, and those of certain third‑party vendors and service providers in conducting our operations, and certain failures, including internal or external fraud, operational errors, or systems malfunctions, could materially adversely affect our operations.

We are exposed to many types of operational risk, including the risk of fraud by employees and outsiders, clerical and recordkeeping errors and computer or telecommunications systems malfunctions. Our business depends on our ability to process a large number of increasingly complex transactions. If any of our operational, accounting, or other data processing systems fail or have other significant shortcomings, we could be materially adversely affected. Similarly, we depend on our employees. We could be materially adversely affected if one or more of our employees cause a significant operational breakdown or failure, either as a result of human error or intentional sabotage or fraudulent manipulation of our operations or systems.

Third parties with whom we do business, including vendors that provide services or security solutions for our operations, could also be sources of operational and information security risk to us, including from breakdowns, failures, or capacity constraints of their own systems or employees. Any of these occurrences could diminish our ability to operate our business, or cause financial loss, potential liability to insureds, inability to secure insurance, reputational damage or regulatory intervention, which could materially adversely affect us.

Litigation and legal proceedings against our subsidiaries could have a material adverse effect on our business, financial condition and/or results of operations.

As an insurance holding company, our Subsidiaries are named as defendants in various legal actions in the ordinary course of business. We believe that the outcome of presently pending matters, individually and in the aggregate, will not have a material adverse effect on our consolidated financial position, operating results or liquidity. However, the outcomes of lawsuits cannot be predicted and, if determined adversely, could require us to pay significant damage amounts or to change aspects of our operations, which could have a material adverse effect on our financial results.

Our geographic concentration ties our performance to the business, economic, natural perils, man-made perils, and regulatory conditions within our most concentrated region.

Our revenues and profitability are subject to the prevailing regulatory, legal, economic, political, demographic, competitive, weather and other conditions in the principal states in which we do business. Changes in any of these conditions could make it less attractive for us to do business in such states and would have a more pronounced effect on us compared to companies that are more geographically diversified. In addition, our exposure to severe losses from localized perils, such as earthquakes, hurricanes, tropical storms, tornadoes, wind, ice storms, hail, fires, terrorism, riots and explosions, is increased in those areas where we have written significant numbers of insurance policies.

We are subject to credit risk with regard to our reinsurance counterparties.

Although reinsurance makes the assuming reinsurer liable to us to the extent of the risk ceded, we are not relieved of our primary liability to our insureds as the direct insurer. We cannot be sure that our reinsurers will pay all reinsurance claims on a timely basis or at all. For example, reinsurers may default in their financial obligations to us as the result of insolvency, lack of liquidity, operational failure, fraud, asserted defenses based on agreement wordings or the principle of utmost good faith, asserted deficiencies in the documentation of agreements or other reasons. The failure of a reinsurer to pay us does not lessen our contractual obligations to insureds. If a reinsurer fails to pay the expected portion of a claim or claims, our net losses might increase substantially and adversely affect our financial condition. Any disputes with reinsurers regarding coverage under reinsurance contracts could be time‑consuming, costly and uncertain of success.

Downgrades to the credit ratings of our reinsurance counterparties may result in the reduction of rating agency capital credit provided by those reinsurance contracts and could, therefore, result in a downgrade of our own credit ratings. We evaluate each reinsurance claim based on the facts of the case, historical experience with the reinsurer on similar claims and existing case law and include any amounts deemed uncollectible from the reinsurer in our reserve for uncollectible reinsurance.

Damage to our reputation could have a material adverse effect on our business.

Our reputation is one of our key assets. Our ability to attract and retain policyholders is highly dependent upon the external perceptions of our level of service, trustworthiness, business practices, financial condition and other subjective qualities. Negative perceptions or publicity regarding these or other matters, including from actual or alleged conduct by us or our employees, could damage our reputation. Any resulting erosion of trust and confidence among existing and potential policyholders, regulators and other parties important to the success of our business could make it difficult for us to attract new policyholders and maintain existing ones, which could have a material adverse effect on our business, financial condition and results of operations.

Investment Risks

Our investment portfolio is subject to significant market and credit risks, which could result in an adverse impact on our financial conditions or results of operations.

Our results of operations depend, in part, on the performance of our investment portfolio. We seek to hold a diversified portfolio of investments that is managed by professional investment advisory management firms in accordance with our investment policy and routinely reviewed by our Investment Committee. However, our investments are subject to general economic conditions and market risks as well as risks inherent to particular securities.

The value of our investment portfolio is subject to the risk that certain investments may default or become impaired due to deterioration in the financial condition of one or more issuers of the securities held, or due to deterioration in the financial condition of an entity that guarantees an issuer’s payments of such investments. Such defaults and impairments could reduce our net investment income and result in realized investment losses.

A severe economic downturn could cause us to incur substantial realized and unrealized investment losses in future periods, which would have an adverse impact on our financial condition, results of operations, debt and financial strength ratings, Insurance Company Subsidiaries’ capital liquidity and ability to access capital markets. In addition, losses in our investment portfolio may occur at the same time as underwriting losses and, therefore, exacerbate the adverse effect of the losses on us.

We may be adversely affected by interest rate changes.

Our investment portfolio is predominantly comprised of fixed income securities. These securities are sensitive to changes in interest rates. An increase in interest rates typically reduces the fair market value of fixed income securities. In addition, if interest rates decline, investment income earned from future investments in fixed income securities will be lower. Rising interest rates could result in a significant reduction of our book value. A low investment yield environment could adversely impact our net earnings, as a result of fixed income securities maturing and being replaced with lower yielding securities which impact investing results.

Interest rates are highly sensitive to many factors beyond our control including general economic conditions, governmental monetary policy, and political conditions. See Item 7A ~ Qualitative and Quantitative Disclosures About Market Risk for further discussion on interest rate risk.

Liquidity Risks

Any debt service obligations will reduce the funds available for other business purposes, and the terms and covenants relating to our current and future indebtedness could adversely impact our financial performance and liquidity.

As of December 31, 2023, the Company had $17.9 million of 9.75% public senior unsecured notes outstanding and $9.8 million of senior secured notes outstanding. The Company's line of credit matured on December 1, 2022, and was not

renewed. See Note 10 ~ Debt for additional details. We are subject to risks typically associated with debt financing, such as insufficient cash flow to meet required debt service payment obligations and the inability to refinance existing indebtedness.

Our ability to make payments on our indebtedness is subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond our control. If we are unable to generate sufficient cash flow to service our debt and meet our other commitments, we may need to restructure or refinance all or a portion of our debt, sell material assets or operations or raise additional debt or equity capital. We may not be able to effect any of these actions on a timely basis, on commercially reasonable terms or at all, and these actions may not be sufficient to meet our capital requirements. In addition, the terms of our existing or future debt arrangements may restrict us from effecting any of these alternatives. For example, the senior secured notes contain various restrictive covenants that relate to the Company’s tangible net worth, fixed-charge coverage ratios, dividend paying capacity, reinsurance retentions, and risk-based capital ratios. If we are unable to meet debt covenant requirements or to obtain future waivers regarding such failures, we could be in breach of our credit agreement. Any such breach could cause significant disruption to our operations, including a requirement to immediately repay our indebtedness, and would have severe adverse effects on our liquidity and financial flexibility.

As of December 31, 2023, the Company was not in compliance with the tangible net worth, dividend paying capacity, risk-based capital and consolidated debt to capital covenants on its senior secured notes. On March 27, 2024, the holders of the senior secured notes waived the December 31, 2023 covenants and modified the minimum requirements of the financial debt covenants beginning with the first quarter ending March 31, 2024. Management expects to be in compliance with all debt covenants in future periods.

Our ability to meet ongoing cash requirements, service debt and pay dividends may be limited by our holding company structure and regulatory constraints restricting dividends or other distributions by our Insurance Company Subsidiaries.

We are a holding company that transacts the majority of our business through our Insurance Company Subsidiaries and, as a result, our principal sources of funds are payments from our Insurance Company Subsidiaries, including intercompany service fees and dividends. Our ability to meet our obligations on our outstanding debt and pay our expenses, depends on continuing to receive sufficient funds from our Insurance Company Subsidiaries. We have met our outstanding cash flow obligations at the holding company level primarily through intercompany service fees we receive as well as direct expense reimbursements. We may also use dividends from our Insurance Company Subsidiaries, however, insurance regulations limit such dividend payments. At this time any dividend payment from our Insurance Company Subsidiaries would need prior regulatory approval. Any significant reduction in the intercompany service fees we receive, and any regulatory or other limitations on the payment of dividends to us from our Insurance Company Subsidiaries, may adversely affect our ability to meet our debt obligations and pay our expenses.

Legal and Regulatory Risks

We are subject to extensive regulation, which may adversely affect our ability to achieve our business objectives. In addition, if we fail to comply with these regulations, we may be subject to penalties, including fines and suspensions, which may adversely affect our financial condition and results of operations.

As a holding company which owns insurance companies domiciled in the United States, we and our admitted Insurance Company Subsidiaries are subject to extensive regulation, primarily by Michigan (the domiciliary state for CIC and WPIC) and to a lesser degree, the other jurisdictions in which we operate. Most insurance regulations are designed to protect the interests of insurance policyholders, as opposed to the interests of shareholders. These regulations generally are administered by a department of insurance in each state and relate to, among other things, authorizations to write certain lines of business, capital and surplus requirements, reserve requirements, rate and form approvals, investment and underwriting limitations, affiliate transactions, dividend limitations, cancellation and non‑renewal of policies, changes in control, solvency and a variety of other financial and non‑financial aspects of our business. These laws and regulations are regularly re‑examined and any changes in these laws and regulations or new laws may be more restrictive, could make it more expensive to conduct business or otherwise adversely affect our operations. State insurance departments also conduct periodic examinations of the affairs of insurance companies and require the filing of annual and other reports relating to financial condition, holding

company issues and other matters. These regulatory requirements may impose timing and expense or other constraints that could adversely affect our ability to achieve some or all of our business objectives.

In addition, regulatory authorities have broad discretion to deny or revoke licenses for various reasons, including the violation of regulations. In some instances, where there is uncertainty as to applicability, we follow practices based on our interpretations of regulations or practices that we believe are generally followed by the industry. These practices may turn out to be different from the interpretations of regulatory authorities. If we do not have the requisite licenses and approvals or do not comply with applicable regulatory requirements, insurance regulatory authorities could preclude or temporarily suspend us from carrying on some or all of our activities or otherwise penalize us. This could adversely affect our ability to operate our business.

The admitted market is subject to more state regulation than the E&S market, particularly with regard to rate and form filing requirements, restrictions on the ability to exit lines of business, premium tax payments and membership in various state associations, such as guaranty associations. Some states have deregulated their commercial insurance markets. We cannot predict the effect that further deregulation would have on our business, financial condition or results of operations.

The ~~NAIC~~State of Michigan has ~~developed a system~~adopted the NAIC’s calculation to ~~test~~measure the adequacy of statutory capital of U.S.‑based insurers, known as ~~Risk-Based Capital ("RBC"), that many states have adopted. This system~~RBC. The RBC calculation establishes the minimum amount of ~~RBC~~capital necessary for a company to support its overall business operations. ~~It identifies property‑casualty insurers that may be inadequately capitalized by looking at certain inherent risks of each insurer’s assets and liabilities and its mix of premiums.~~ Insurers falling below a calculated threshold may be subject to varying degrees of regulatory action, including supervision, rehabilitation or liquidation. Failure to maintain adequate ~~risk‑based capital~~RBC at the required levels could adversely affect the ability of our Insurance Company Subsidiaries to maintain regulatory authority to conduct their business.

~~In addition,~~

The State of Michigan has adopted the various state insurance regulators have increased their focus on risks within an insurer’s holding company system that may pose enterprise risk to the insurer. In 2012, the NAIC adopted significant changes to the insurance

NAIC’s holding company act and regulations (the “NAIC Amendments”). The NAIC Amendments, when adopted by the various states, are designed to respond to perceived gaps in the regulation of insurance holding company systems in the United States. One of the major changes is a requirement that anregulations. This act requires, among other things, that:

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An insurance holding company system’s ultimate controlling person submit ~~annually~~an annual enterprise risk report to its ~~lead~~domiciliary state insurance regulator ~~an “enterprise risk report” that~~which identifies activities, circumstances or events involving one or more affiliates of an insurer that ~~if not remedied properly, are likely to~~may have a material adverse effect upon the financial condition or liquidity of the insurer or its insurance holding company system as a ~~whole. Other changes include requiring a~~whole,

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A controlling person to submit prior notice to its domiciliary insurance regulator of a divestiture of control, ~~having detailed~~and

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Insurers comply with certain minimum requirements for cost sharing and management agreements between anthe insurer and its ~~affiliates and expanding~~affiliates.

The State of the agreements between an insurer and its affiliates to be filed with its domiciliary insurance regulator. The NAIC Amendments must be adopted by the individual state legislatures and insurance regulators in order to be effective. Michigan ~~(i.e., our main domiciliary state for both our CIC and WPIC subsidiaries), requires a form of the enterprise risk report.~~

~~In 2012, the NAIC~~ also adopted the NAIC’s Risk Management and Own Risk and Solvency Assessment Model Act (the “ORSA Model Act”). The ORSA Model Act ~~when adopted by the various states, will require~~requires that an insurance holding company system’s Chief Risk Officer to submit annually to its ~~lead state insurance~~domiciliary regulator an Own Risk and Solvency Assessment Summary Report (“ORSA”). The ORSA is a confidential internal assessment ~~appropriate to the nature, scale and complexity of an insurer,~~ conducted by that insurer of the material and relevant risks identified by the insurer associated with anthe insurer’s current business plan and the sufficiency of capital resources to support those risks. The ORSA Model Act must be adopted by the individual state legislature and insurance regulators in order to be effective. Michigan has adopted the ORSA Model Act. ORSA filings will be required in Michigan starting in 2018. The Company is currently exempt from providing an ORSA summary report as it does not meet the minimum premium requirements.

We may be required to comply with this requirement in the future if our gross written premium exceeds $500 million annually.

We cannot predict the impact ~~if any, that the NAIC Amendments, compliance with the ORSA Model Act~~these requirements or any other regulatory requirements may have on our business, financial condition or results of operations.

Our Insurance Company Subsidiaries are subject to minimum capital and surplus requirements. Failure to meet these requirements could subject us to regulatory action.

Our Insurance Company Subsidiaries are subject to minimum capital and surplus requirements imposed under the laws of their respective states of domicile and each state in which they issue policies. Any failure by one of our Insurance Company Subsidiaries to meet minimum capital and surplus requirements will subject it to corrective action. This may include requiring the adoption of a comprehensive financial plan, revocation of its license to sell insurance products or placing the subsidiary under state regulatory control. It may also result in our Insurance Company Subsidiaries being limited in their ability to make a dividend to us and could be a factor in causing rating agencies to downgrade our ratings. Any new

minimum capital and surplus requirements adopted in the future may require us to increase the capital and surplus of our Insurance Company Subsidiaries, which we may not be able to do.

As of December 31, 2023, CIC fell within the Company Action Level and WPIC fell within the Regulatory Action Level of the RBC formula. WPIC also fell below two other regulatory thresholds which are necessary to stay in compliance. Management is required to provide a plan to its domiciliary regulator that shows how the Companies will get above the minimum level requirements. Management believes that the planned reduction in premium anticipated by a strategic shift to use third-party insurers for substantially all of its commercial lines business will be sufficient to bring the Companies back into compliance by December 31, 2024. Management expects to substantially cease all writings in WPIC by the end of the second quarter of 2024. For more information about Management's strategic shift to non-risk bearing revenue, see Item 1 ~ Business and Item 7 ~ Management's Discussion and Analysis of Financial Condition and Results of Operations.

We may become subject to additional government or market regulation which may have a material adverse impact on our business.

Market disruptions like those experienced during the credit‑driven financial market collapse in 2008, as well as the dramatic increase in the capital allocated to alternative asset management during recent years, have led to increased governmental as well as self‑regulatory scrutiny of the insurance industry in general. In addition, certain legislation proposing greater regulation of the industry is periodically considered by governing bodies of some ~~jurisdictions, and the credit‑driven equity market collapse may increase the likelihood that some increased regulation of the industry is mandated.~~

jurisdictions.

Our business could be adversely affected by changes in state laws, including those relating to asset and reserve valuation requirements, surplus requirements, limitations on investments and dividends, enterprise risk and ~~risk‑based capital~~RBC requirements and, at the federal level, by laws and regulations that may affect certain aspects of the insurance industry, including proposals for preemptive federal regulation. The U.S. federal government generally has not directly regulated the insurance industry except for certain areas of the market, such as insurance for flood, nuclear and terrorism risks. However, the federal government has undertaken initiatives or considered legislation in several areas that may affect the insurance industry, including tort reform and corporate governance. The Dodd‑Frank Wall Street Reform and Consumer Protection Act (the “Dodd‑Frank Act”) also established the Federal Insurance Office, which is authorized to study, monitor and report to Congress on the insurance industry and to recommend that the Financial Stability Oversight Council (the “FSOC”) designate an insurer as an entity posing risks to U.S. financial stability in the event of the insurer’s material financial distress or failure. In December 2013, the Federal Insurance Office issued a report on alternatives to modernize and improve the system of insurance regulation in the United States, including increasing national uniformity through either a federal charter or effective action by the states. Any additional regulations established as a result of the Dodd‑Frank Act or actions in response to the Federal Insurance Office Report could increase our costs of compliance or lead to disciplinary action. In addition, legislation has been introduced from time to time that, if enacted, could result in the federal government assuming a more direct role in the regulation of the insurance industry, including federal licensing in addition to or in lieu of state licensing and reinsurance for natural catastrophes. We are unable to predict whether any legislation will be enacted or any regulations will be adopted, or the effect any such developments could have on our business, financial condition or results of operations.

It is impossible to predict what, if any, changes in the regulations applicable to us, the markets in which we operate, trade and invest or the counterparties with which we do business may be instituted in the future. Any such regulation could have a material adverse impact on our business.

The effect of emerging claim and coverage issues on our business is uncertain.

As industry practices and legal, judicial, social and other environmental conditions change, unexpected and unintended issues related to claims and coverage may emerge. These issues may adversely affect our business by either broadening coverage beyond our underwriting intent or by increasing the number or size of claims. In some instances, these changes may not become apparent until sometime after we have issued insurance contracts that are affected by the changes. As a result, the full extent of liability under our insurance contracts may not be known for many years after a contract is issued.

Rating Agency Risks

A decline in our financial strength rating may ~~not be able to manage our growth effectively.~~

~~We intend to continue to grow~~result in an adverse effect on our business, financial condition and operating results.

Participants in the insurance industry use ratings from independent ratings agencies, such as A.M. Best Company, Inc. (“A.M. Best”) and Kroll Bond Rating Agency ("Kroll") as an important means of assessing the financial strength and quality of insurers. In setting their ratings, A.M. Best and Kroll utilize a quantitative and qualitative analysis of a company’s balance sheet strength, operating performance and business profile. These analyses include comparisons to peers and industry standards as well as assessments of operating plans, philosophy and management. For A.M. Best, the ratings range from A++, or superior, to F for in liquidation. Kroll's ratings range from AAA (extremely strong) to R (under regulatory supervision).

On March 25, 2024, Kroll downgraded the financial strength ratings of CIC and WPIC. Kroll has given CIC an insurance financial strength rating of BB- with a negative outlook. Kroll has given WPIC an insurance financial strength rating of B with a negative outlook. A BB- and a B rating indicates that the insurer's financial condition is low quality. Concurrently, the Company withdrew its participation in the rating process, and shall be non-rated by Kroll going forward.

On March 14, 2024, A.M. Best downgraded the financial strength ratings of CIC and WPIC to C. A rating of C means A.M. Best considers both companies to have a "weak" ability to meet ongoing financial obligations. Concurrently, the Company withdrew its participation in the rating process, and shall be non-rated by A.M. Best going forward.

A.M. Best and Kroll assign ratings that are intended to provide an independent opinion of an insurance company’s ability to meet its financial obligations to policyholders and such ratings are not evaluations directed to investors. A.M. Best and Kroll periodically review our ratings and may revise ratings downward or revoke them at their sole discretion based primarily on their analyses of our balance sheet strength (including capital adequacy and loss and loss adjustment expense reserve adequacy), operating performance and business profile. Factors that could affect such analyses include but are not limited to:

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If unfavorable financial, regulatory or market trends affect us, including excess market capacity;

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If we incur operating losses or significant investment portfolio losses;

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If we have unresolved issues with government regulators;

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If we are unable to retain our senior management or other key personnel;

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If A.M. Best or Kroll alters its capital adequacy assessment methodology in a manner that would adversely affect our rating.

In addition, with a heightened level of scrutiny placed on many financial institutions (including insurance companies) in recent years, rating agencies may increase the capital and other requirements to maintain certain ratings levels. These and other factors could result in a downgrade of our rating. The recent downgrade and withdrawal of our rating could cause our current and future agents, retail brokers and insureds to choose other, more highly‑rated competitors and could also increase the cost or reduce the availability of reinsurance to us. Furthermore, these recent developments could severely limit or prevent us from writing new and renewal insurance contracts and may have a material adverse effect on our financial condition and results of operations.

We are subject to assessments and other surcharges from state guaranty funds, and mandatory state insurance facilities, which ~~could require additional capital, systems development~~may reduce our profitability.

Our Insurance Company Subsidiaries are subject to assessments in most states where we are licensed for the provision of funds necessary for the settlement of covered claims under certain policies provided by impaired, insolvent or failed insurance companies. These assessments are levied by guaranty associations within the state in proportion to the premiums written by member insures in the lines of business in which the impaired, insolvent or failed insurer was engaged. Maximum contributions required by law in any one year vary by state, and ~~skilled personnel.~~have historically been less than one percent of annual premiums written. We cannot ~~assure you that we will be able to locate profitable business opportunities, meet~~ predict with certainty the amount of future assessments because they depend on factors outside

our ~~capital needs, expand our systems and our internal controls effectively, allocate our human resources optimally, identify qualified employees or agents or incorporate effectively the components~~control, such as insolvencies of ~~any businesses we may acquire in our effort to achieve growth. The failure to manage our growth effectively and maintain underwriting discipline~~other insurance companies. Significant assessments could have a material adverse effect on our ~~business,~~ financial condition and results of operations.

General Risk Factors

The price of our common stock may be ~~unable~~volatile and limited public float and low trading volume for our shares may have an adverse impact on the share price or make it difficult to ~~obtain reinsurance coverage at reasonable prices or on terms that provide us adequate protection.~~

~~We purchase reinsurance in many~~liquidate.

The trading price of our ~~lines~~common stock may be highly volatile and could be subject to wide fluctuations in response to various factors, some of ~~business~~which are beyond our control and may not be related to ~~help manage~~ our ~~exposure~~operating performance. These fluctuations could be significant and could cause a loss in the amount invested in our shares of common stock.

In addition, the stock market in general, and the market for insurance companies in particular, has experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to ~~insurance risks that we underwrite and to reduce~~the operating performance of those companies. At times, securities class action litigation has been instituted against companies following periods of volatility in the overall market and in the market price of a company’s securities. This litigation, if instituted against us, could result in substantial costs, divert our ~~results.~~

~~The availability~~management’s attention and ~~cost of reinsurance are subject to prevailing market conditions, both in terms of price~~resources, and ~~available capacity, each of which can affect~~harm our business, ~~volume~~operating results, and profitability. The availability of reasonably affordable reinsurance is a critical element of our business plan. One important way we utilize reinsurance is to reduce volatility in claims payments by limiting our exposure to losses from large risks. Another way we use reinsurance is to purchase substantial protection against concentrated losses when we enter new markets. financial condition.

As a result of these factors, investors in our ability to manage volatility and avoid significant losses, expand into new markets or grow by offering insurance to new kinds of enterprises may be limited by the unavailability of reasonably priced reinsurance. Wecommon stock may not be able to ~~obtain reinsurance on acceptable terms~~resell their shares at or above their purchase price or may not be able to resell them at all. These market and industry factors may materially reduce the market price of our common stock, regardless of our operating performance. In addition, price volatility may be greater if the public float and the trading volume of our common stock remain low.

Our common stock may be delisted from ~~entities with satisfactory creditworthiness. In such event,~~The Nasdaq Stock Market if we ~~are unwilling~~cannot maintain compliance with Nasdaq’s continued listing requirements.

On October 23, 2023, the Company received a letter from the Listing Qualifications Department of The Nasdaq Stock Market LLC (“Nasdaq”) indicating that, based upon the closing bid price of the Company’s common stock for the last 30 consecutive business days and its number of publicly held shares, the Company no longer met Nasdaq Listing Rule 5450(b)(1)(C), which requires listed companies to ~~accept~~maintain a minimum market value of publicly held shares (“MVPHS”) of at least $5.0 million.

Nasdaq Listing Rule 5810(c)(3)(D) provides a compliance period of 180 calendar days, or until April 22, 2024 (the “First Compliance Date”), in which to regain compliance with this requirement. In March 2024, we applied to transfer the ~~terms or credit risk of potential reinsurers, we would have to reduce the level~~listing of our ~~underwriting commitments, which would reduce our revenues.~~

Many reinsurance companies have begun to exclude certain coverages from, or alter terms in, the reinsurance contracts we enter into with them. Some exclusions relate to risks that we cannot in turn excludecommon stock from the ~~policies we write due~~Nasdaq Global Market to the Nasdaq Capital Market. Nasdaq approved our application effective on March 19, 2024, and the listing of our common stock transferred to the Nasdaq Capital Market effective as of the opening of business ~~or regulatory constraints. In addition, reinsurers are imposing terms, such as lower per occurrence and aggregate limits,~~ on direct insurers that do not wholly cover the risks written by these direct insurers. As a result, we, like other direct insurance companies, write insurance policies which to some extent do not have the benefit of reinsurance protection. These gaps in reinsurance protection expose us to greater risk and greater potential losses. For example, certain reinsurers have excluded coverage for terrorist acts or priced such coverage at unreasonably high rates.

March 21, 2024. Our common stock is currently listed on The Nasdaq Capital Market.

If we ~~are unable~~fail to ~~retain key management and employees or recruit other qualified personnel, we~~satisfy the continued listing requirements of The Nasdaq Capital Market, The Nasdaq Capital Market may ~~be adversely affected.~~

~~We believe that~~take steps to delist our ~~future success depends, in large part,~~common stock, which could have a materially adverse effect on our ability to ~~retain~~raise additional funds as well as the price and liquidity of our ~~experienced management team~~common stock. Such a delisting would likely have a negative effect on the price of our common stock and ~~key employees, particularly~~would impair our ~~chairman and chief executive officer, James G. Petcoff. There~~stockholders’ ability to sell or purchase our common stock when they wish to do so. In the event of a delisting, we can beprovide no assurance that we can attract and retain the necessary employees to conduct our business activities on a timely basis or at all. Our competitors may offer more favorable compensation arrangements to our key management or employees to incentivize them to leave our Company. Furthermore, our competitors may make it more difficult forany action taken by us to ~~hire their personnel by offering excessive compensation arrangements~~restore compliance with listing requirements would allow our common stock to ~~certain employees to induce them not to leave their current employment and bringing litigation against employees who do leave (and possibly us as well) to join us. The loss of any~~become listed again, stabilize the market price or improve the liquidity of our ~~executive officers~~common stock, prevent our common stock from dropping below the Nasdaq minimum bid price requirement, or ~~other key personnel, or our inability to recruit and retain additional qualified personnel as we grow, could materially and adversely affect our business and results of operations, and could~~ prevent ~~us from fully implementing our growth strategies.~~future non-compliance with The Nasdaq Capital Market’s listing requirements.

We may require additional capital in the future, which may not be available or available only on unfavorable terms.

Our future capital requirements depend on many factors, including our ability to ~~write new~~grow premium volume and ~~renewal~~underwrite the business successfully and to establish premium rates and reserves at levels sufficient to cover losses. Our ability to underwrite depends largely upon the expected quality of our claims paying process and our perceived financial strength as estimated by potential insureds, agents, brokers, other intermediaries and independent rating agencies.profitably. To the extent that our existing capital is insufficient, ~~to fund our future operating requirements, cover claim losses, or satisfy ratings agencies in order to maintain a~~

~~satisfactory rating,~~ we may need to raise additional capital in the future through offerings of debt or equity securities or otherwise to:

•

Fund liquidity needs caused by underwriting or investment losses;

•

Replace capital lost in the event of significant ~~reinsurance~~ losses or adverse reserve ~~developments;~~development;

•

Satisfy letters of credit or guarantee bond requirements that may be imposed by our clients or by regulators;

•

Meet rating agency or regulatory capital requirements; or

•

Respond to competitive pressures.

Additionally, since the Company is no longer rated by Kroll or A.M. Best, following the Company’s withdrawal from the rating process, the absence of credit ratings on our outstanding securities could impact our ability to obtain additional debt or hybrid capital at reasonable terms or at all. Credit ratings are an opinion by third parties of our financial strength and ability to meet ongoing obligations to our future policyholders. The lack of a credit rating may make it difficult for investors to evaluate an investment in our securities and for us to raise additional capital in the future on acceptable terms or at all.

Any equity or debt financing, if available at all, may be on terms that are unfavorable to us. ~~Further,~~Furthermore, any additional capital raised through the sale of equity could dilute your ownership interest in the Company and may cause the value of our shares to decline. Additional capital raised through the issuance of debt may result in creditors having rights, preferences and privileges senior or otherwise superior to those of the holders of our shares and may limit our flexibility in operating our business and make it more difficult to obtain capital in the future. Disruptions, uncertainty, or volatility in the capital and credit markets may also limit our access to capital required to operate our business. If we are not able to obtain adequate capital, our business, financial condition and results of operations could be materially adversely affected.

~~We are subject to credit risk with regard to our reinsurance counterparties.~~

~~Although reinsurance makes the assuming reinsurer liable to us to the extent of the risk ceded, we are not relieved of our primary liability to our insureds as the direct insurer.~~

We cannot ~~be sure~~assure you that we will declare or pay dividends on our reinsurers will pay all reinsurance claims on a timely basis or at all. For example, reinsurers may default in their financial obligations to us as the result of insolvency, lack of liquidity, operational failure, fraud, asserted defenses based on agreement wordings or the principle of utmost good faith, asserted deficiencies in the documentation of agreements or other reasons. The failure of a reinsurer to pay us does not lessen our contractual obligations to insureds. If a reinsurer fails to pay the expected portion of a claim or claims, our net losses might increase substantially and adversely affect our financial condition. Any disputes with reinsurers regarding coverage under reinsurance contracts could be time‑consuming, costly and uncertain of success.

~~Our Insurance Company Subsidiaries are subject to minimum capital and surplus requirements. Failure to meet these requirements could subject us to regulatory action.~~

Our Insurance Company Subsidiaries are subject to minimum capital and surplus requirements imposed under the laws of their respective states of domicile and each state in which they issue policies. As of December 31, 2017, our Insurance Company Subsidiaries were in compliance with all such reserves. Any failure by one of our Insurance Company Subsidiaries to meet minimum capital and surplus requirements imposed by applicable state law will subject it to corrective action. This may include requiring adoption of a comprehensive financial plan, revocation of its license to sell insurance products or placing the subsidiary under state regulatory control. A decline in the risk based capital ratios of our Insurance Company Subsidiaries could limit their ability to make a dividend to us and could be a factor in causing rating agencies to downgrade our ratings. Any new minimum capital and surplus requirements adoptedcommon shares in the future so any returns may ~~require us~~be limited to ~~increase~~ the ~~capital and surplus~~value of our ~~Insurance Company Subsidiaries, which~~stock.

We currently anticipate that we ~~may~~will retain future earnings for the development, operation and expansion of our business and do not anticipate declaring or paying any cash dividends for the foreseeable future. Any return to shareholders will therefore be ~~able~~limited to ~~do.~~

~~Any debt service obligations will reduce the funds available for other business purposes, and the terms and covenants relating~~appreciation in value of their stock, if any.

In addition, any determination to declare or pay future dividends to our ~~current and future indebtedness could adversely impact our financial performance and liquidity.~~

As of December 31, 2017, we had $30 million of interest-only Subordinated Notes ("Notes") outstanding. We are subject to risks typically associated with debt financing, such as insufficient cash flow to meet required debt service payment obligations andshareholders will be at the ~~inability to refinance existing indebtedness.~~

~~The Notes contain various restrictive covenants that relate to the Company’s tangible net worth, fixed-charge coverage~~

ratios, dividend paying capacity, reinsurance retentions, and risk-based capital ratios. If we are unable to meet debt covenant requirements or to obtain future waivers regarding such failures, we could be in breachdiscretion of our ~~credit agreement. Any such breach could cause significant disruption to our operations,~~board of directors ("Board") and will depend on a variety of factors, including ~~a requirement to immediately repay our indebtedness, and would have severe adverse effects on our liquidity and financial flexibility.~~

~~The failure of any of the loss limitations or exclusions we employ, or changes in other claims or coverage issues, could have a material adverse effect on~~(1) our financial condition, ~~or results of operations.~~

Although we seek to mitigate our loss exposure through a variety of methods, the future is inherently unpredictable. It is difficult to predict the timing, frequency and severity of losses with statistical certainty. It is not possible to completely eliminate our exposure to un‑forecasted or unpredictable events and, to the extent that losses from such risks occur, our financial condition andliquidity, results of operations ~~could be materially adversely affected.~~

For instance, various provisions of our policies, such as limitations or exclusions from coverage or choice of forum, which have been negotiated to limit our risks, may not be enforceable in the manner we intend. At the present time, we employ a variety of endorsements to our policies that limit exposure to known risks. As industry practices and legal, judicial, social and other conditions change, unexpected and unintended issues related to claims and coverage may emerge. These issues may adversely affect our business by either extending coverage beyond the underwriting intent or by increasing the size or number of claims.

In addition, we design our policy terms to manage our exposure to expanding theories of legal liability like those which have given rise to claims for lead paint, asbestos, mold, construction defects and environmental matters. Many of the policies we issue also include conditions requiring the prompt reporting of claims to us and entitle us to decline coverage in the event of a violation of that condition. Also, many of our policies limit the period during which a policyholder may bring a claim under the policy, which in many cases is shorter than the statutory period under which such claims can be brought against our policyholders. While these exclusions and limitations help us assess and reduce our loss exposure and help eliminate known exposures to certain risks, it is possible that a court or regulatory authority could nullify or void an exclusion or legislation could be enacted modifying or barring the use of such endorsements and limitations. These types of governmental actions could result in higher than anticipated losses and loss adjustment expenses, which could have a material adverse effect on our financial condition or results of operations. In some instances, these changes may not become apparent until sometime after we have issued insurance policies that are affected by the changes. As a result, the full extent of liability under our insurance contracts may not be known for many years after a contract is issued.

~~Increased information technology security threats and more sophisticated computer crimes pose a risk to our systems, networks, products and services.~~

Our business is dependent upon the uninterrupted functioning of our information technology and telecommunication systems. We rely upon our systems, as well as the systems of our vendors, to underwrite and process our business; make claim payments; provide customer service; provide policy administration services, such as endorsements, cancellations and premium collections; comply with insurance regulatory requirements; and perform actuarial and other analytical functions necessary for pricing and product development. We have established security policies, processes and layers of defense designed to help identify and protect against intentional and unintentional misappropriation or corruption of our systems and information and disruption of our operations. Our security measures are focused on the prevention, detection and remediation of damage from computer viruses, natural disasters, unauthorized access, cyber attack and other similar disruptions.

Despite these efforts, our systems may be damaged, disrupted, or shut down due to attacks by unauthorized access, malicious software, undetected intrusion, hardware failures, or other events, and in these circumstances our disaster recovery planning may be ineffective or inadequate. Information technology security threats from user error to cybersecurity attacks are increasing in frequency and sophistication. Cybersecurity attacks may range from random attempts to coordinated and targeted attacks, including sophisticated computer crime and advanced threats. These threats pose a risk to the security of our systems and networks and the confidentiality, availability and integrity of our data. The potential consequences of a material cybersecurity attack include reputational damage, litigation with third parties, and increased cybersecurity protection and remediation costs. A sustained business interruption or system failure could adversely impact(including our ability to ~~process~~generate cash flow in excess of expenses and our expected or actual net income), retained earnings and collateral and capital requirements, (2) general business provide customer service, pay claims in a timely manner or perform other necessary business functions. We could also be subject to fines and penalties from a security breach. The cost to remedy a severe breach could be substantial.

~~breakdown or failure, either as a result of human error or intentional sabotage or fraudulent manipulation of our operations or systems.~~

~~Our geographic concentration ties our performance to the business, economic, natural perils, man-made perils,~~conditions, (3) legal, tax and regulatory ~~conditions within our most concentrated region.~~

~~Our revenues and profitability are subject to the prevailing regulatory, legal, economic, political, demographic, competitive, weather~~limitations, (4) contractual prohibitions and other ~~conditions in~~restrictions, (5) the ~~principal states in which we do business. Changes in any~~effect of ~~these conditions could make it less attractive for us to do business in such states and would have~~ a more pronounced effect on us compared to companies that are more geographically diversified. In addition, our exposure to severe losses from localized perils, such as earthquakes, hurricanes, tropical storms, tornadoes, wind, ice storms, hail, fires, terrorism, riots and explosions, is increased in those areas where we have written significant numbers of insurance policies.

~~Litigation and legal proceedings against our subsidiaries could have a material adverse effect on our business, financial condition and/~~dividend or ~~results of operations.~~

As an insurance holding company, our subsidiaries are named as defendants in various legal actions in the ordinary course of business. We believe that the outcome of presently pending matters, individually and in the aggregate, will not have a material adverse effect on our consolidated financial position, operating results or liquidity. However, the outcomes of lawsuits cannot be predicted and, if determined adversely, could require us to pay significant damage amounts or to change aspects of our operations, which could have a material adverse effect ondividends upon our financial ~~results.~~

~~We are subject to assessments~~strength ratings and (6) any other ~~surcharges from state guaranty funds, and mandatory state insurance facilities, which may reduce~~factors that our ~~profitability.~~

Our Insurance Company Subsidiaries are subject to assessments in most states where we are licensed for the provision of funds necessary for the settlement of covered claims under certain policies provided by impaired, insolvent or failed insurance companies. These assessments, which are levied by guaranty associations within the state in proportion to premiums written by member insures in the lines of business in which the impaired, insolvent or failed insurer was engaged. Maximum contributions required by law in any one year vary by state, and have historically been less than one percent of annual premiums written. We cannot predict with certainty the amount of future assessments because they depend on factors outside our control, such as insolvencies of other insurance companies. Significant assessments could have a material adverse effect on our financial condition and results of operations.

~~Risks Related to Ownership of Our Common Stock~~

Board deems relevant.

Our principal shareholders and management own a significant percentage of our stock and ~~will be~~are able to exert significant control over matters subject to shareholder approval.

As of December 31, ~~2017,~~2023, our executive officers, directors, 5% shareholders and their affiliates owned approximately ~~45.8%~~71.7% of our voting stock. Therefore, these shareholders ~~will~~ have the ability to influence us through their ownership position. These shareholders may be able to significantly influence all matters requiring shareholder approval. For example, these shareholders may be able to significantly influence elections of directors, amendments of our organizational documents, or approval of any merger, sale of assets, or other major corporate transaction. This may prevent or discourage unsolicited acquisition proposals or offers for our common stock that you may feel are in your best interest as one of our shareholders.

~~We cannot assure you that we will declare or pay dividends on our common shares in the future so any returns may be limited to the value of our stock.~~

We currently anticipate that we will retain future earnings for the development, operation and expansion of our business and do not anticipate declaring or paying any cash dividends for the foreseeable future. Any return to shareholders will therefore be limited to appreciation in value of their stock, if any.

In addition, any determination to declare or pay future dividends to our shareholders will be at the discretion of our board of directors and will depend on a variety of factors, including (1) our financial condition, liquidity, results of operations (including our ability to generate cash flow in excess of expenses and our expected or actual net income), retained earnings and collateral and capital requirements, (2) general business conditions, (3) legal, tax and regulatory limitations,

(4) contractual prohibitions and other restrictions, (5) the effect of a dividend or dividends upon our financial strength ratings and (6) any other factors that our board of directors deems relevant. See “Dividend Policy.”

We incur significant ~~increased~~ costs as a result of operating as a public company, and our management ~~will be~~is required to devote substantial time to ~~new~~related compliance initiatives.

As a public company, we incur significant legal, accounting and other expenses that we did not incur as a private company. In addition, we are subject to the reporting requirements of the Exchange Act, which require, among other things, that we file with the SEC, annual, quarterly and current reports with respect to our business and financial condition. We are also subject to other reporting and corporate governance requirements, including certain requirements of Nasdaq and ~~certain~~ provisions of the Sarbanes‑Oxley Act and the regulations promulgated thereunder, which ~~will impose~~imposes significant compliance obligations upon us.

The Sarbanes‑Oxley Act and the Dodd‑Frank Act, as well as ~~new~~ rules subsequently implemented by the SEC and Nasdaq, have increased regulation of, and imposed enhanced disclosure and corporate governance requirements on, public companies. Our efforts to comply with these ~~evolving~~ laws, regulations and standards have increased our operating costs and may divert management’s time and attention from revenue‑generating activities.

Other expenses associated with being a public company include increases in auditing, accounting and legal fees and expenses, investor relations expenses, increased directors’ fees and director and officer liability insurance costs, registrar and transfer agent fees and listing fees, as well as other expenses.

Certain provisions of our corporate governance documents and Michigan law could discourage, delay or prevent a merger or acquisition at a premium price.

Our amended and restated articles of incorporation and bylaws ~~will~~ contain provisions that may make the acquisition of our Company more difficult without the approval of our ~~board of directors (our “Board”).~~Board. These include provisions that, among other things:

•

Permit the Board to issue up to 10 million shares of preferred stock, with any rights, preferences and privileges as they may determine (including the right to approve an acquisition or other change in control);

•

Provide that the authorized number of directors may be fixed only by the Board in accordance with our amended and restated bylaws;

•

Do not provide for cumulative voting rights (therefore allowing the holders of a majority of the shares entitled to vote in any election of directors to elect all of the directors standing for election);

•

Provide that all vacancies and newly created directorships may be filled by the affirmative vote of a majority of directors then in office, even if less than a quorum;

•

Prohibit removal of directors without cause;

•

Prohibit shareholders from calling special meetings of shareholders;

•

Requires unanimous consent for shareholders to take action by written consent without approval of the action by our Board;

•

Provide that shareholders seeking to present proposals before a meeting of shareholders or to nominate candidates for election as directors at a meeting of shareholders must provide advance notice in writing and also comply with specified requirements related to the form and content of a shareholder’s notice;

•

Require at least 80% supermajority shareholder approval to alter, amend or repeal certain provisions of our amended and restated articles of incorporation; and

•

Require at least 80% supermajority shareholder approval in order for shareholders to adopt, amend or repeal our amended and restated bylaws.

These provisions may frustrate or prevent any attempts by our shareholders to replace or remove our current management by making it more difficult for shareholders to replace members of the Board, ~~of Directors,~~ which is responsible for appointing members of our management.

In addition, ~~the~~our 2015 Omnibus Incentive Plan permits the Board or a committee thereof to accelerate, vest or cause the restrictions to lapse with respect to outstanding equity awards, in the event of, or immediately prior to, a change in control. Such vesting or acceleration could discourage the acquisition of our Company.

We could also become subject to certain anti‑takeover provisions under Michigan law which may discourage, delay or prevent someone from acquiring us or merging with us, whether or not an acquisition or merger is desired by or beneficial to our shareholders. If a corporation’s board of directors chooses to “opt in” to certain provisions of Michigan Law, such corporation may not, in general, engage in a business combination with any beneficial owner, directly or indirectly, of 10% of the corporation’s outstanding voting shares unless the holder has held the shares for five years or more or, among other things, the board of directors has approved the business combination. Our Board ~~of Directors~~ has not elected to be subject to this provision, but could do so in the future. Any provision of our amended and restated articles of incorporation or bylaws or Michigan law that has the effect of delaying or deterring a change in control could limit the opportunity for our shareholders to receive a premium for their shares, and could also affect the price that some investors are willing to pay for our common stock otherwise.

Our ability to meet our obligations on our outstanding debt, including making principal and interest payments on the New Public Notes and the Senior Secured Notes, may be limited by our holding company structure and regulatory constraints restricting dividends or other distributions by our Insurance Company Subsidiaries.

We are a holding company that transacts the majority of our business through our Insurance Company Subsidiaries and, as a result, our principal sources of funds are payments from our Insurance Company Subsidiaries, including intercompany service fees and dividends. Our ability to meet our obligations on our outstanding debt obligations, including making principal and interest payments on the Notes, depends on continuing to receive sufficient funds from our Insurance Company Subsidiaries. We have met our outstanding debt obligations primarily through intercompany service fees we receive. We may also use dividends from our Insurance Company Subsidiaries, however, insurance regulations limit such dividend payments. Dividend payments may be further constrained by rating agency capital requirements or other business considerations. As a result, our ability to use dividends as a source of funds to meet our debt obligations may be significantly limited. Any significant reduction in the intercompany service fees we receive, and any regulatory and other limitations on the payment of dividends to us by our Insurance Company Subsidiaries, may adversely affect our ability to pay interest on the Notes as it comes due and the principal of the Notes at their maturity.

Although the New Public Notes are currently listed on Nasdaq, the trading market for the New Public Notes may be limited, which could affect the market price of the New Public Notes or your ability to sell them.

Although the Notes are currently listed on Nasdaq, we cannot provide any assurances that it will remain on Nasdaq or that an active trading market will exist for the Notes or that you will be able to sell your Notes. The Notes may trade at a discount to their face value depending on access to markets, prevailing interest rates, the market for similar securities, our credit ratings, general economic conditions, our financial condition, performance and prospects and other factors. We cannot assure you that a liquid trading market will be available for the Notes, that you will be able to sell the Notes at a particular time or that the price you receive when you sell will be favorable. To the extent an active trading market does not exist, the liquidity and trading price for the Notes may be harmed.

If we default on our obligations to pay our other indebtedness, we may not be able to make payments on the New Public Notes.

Any default under the agreements governing our indebtedness, including other indebtedness to which we may be a party that is not waived by the required lenders, and the remedies sought by the holders of such indebtedness could make us unable to pay principal and interest on the Notes and substantially decrease the market value of the Notes. If we are unable to generate sufficient cash flow and are otherwise unable to obtain funds necessary to meet required payments of principal and interest on our indebtedness, or if we otherwise fail to comply with the various covenants, including financial and operating covenants, in the instruments governing our indebtedness, we could be in default under the terms of the agreements governing such indebtedness. In the event of such default, the holders of such indebtedness could elect to declare all the funds borrowed thereunder to be due and payable, together with accrued and unpaid interest, the lenders under any other debt

we may incur in the future could elect to terminate their commitments, cease making further loans and institute foreclosure proceedings against our assets, and we could be forced into bankruptcy or liquidation.

There are limited covenants in the Indenture relating to our Notes.

In addition to our currently outstanding indebtedness and other liabilities, the Indenture does not restrict us or our subsidiaries from incurring additional debt or other liabilities, including additional senior debt or secured debt under our secured credit facilities. If we incur additional debt or liabilities, our ability to pay the obligations on the Notes could be adversely affected.

Our indebtedness, including the indebtedness we or our subsidiaries may incur in the future, could have important consequences for the holders of the Notes, including:

•

limiting our ability to satisfy our obligations with respect to the Notes;

•

increasing our vulnerability to general adverse economic and industry conditions;

•

limiting our ability to obtain additional financing to fund future working capital, capital expenditures, and other general corporate requirements;

•

requiring a substantial portion of our cash flow from operations for the payment of principal of, and interest on, our indebtedness and thereby reducing our ability to use our cash flow to fund working capital, capital expenditures and general corporate requirements; and

•

limiting our flexibility in planning for, or reacting to, changes in our business and the industry; and putting us at a disadvantage compared to competitors with less indebtedness.

In addition, we have limited restrictions under the Indenture from granting security interests in our assets, paying dividends or issuing or repurchasing securities.

Moreover, the Indenture does not require us to maintain any financial ratios or specific levels of net worth, revenues, income, cash flow or liquidity and, accordingly, does not protect holders of the Notes in the event that we experience material adverse changes in our financial condition or results of operations. Holders of the Notes have limited protection under the Indenture in the event of a highly leveraged transaction, reorganization, default under our existing indebtedness, restructuring, merger or similar transaction.

For these reasons, you should not consider the covenants in the Indenture a significant factor in evaluating whether to invest in the Notes.

The Notes are structurally subordinated to the indebtedness and other liabilities of our subsidiaries.

The Notes are obligations exclusively of Conifer Holdings, Inc. and not of any of our subsidiaries. None of our subsidiaries is a guarantor of the Notes and the Notes are not guaranteed by any subsidiary we may acquire or create in the future. Any assets of our subsidiaries will not be directly available to satisfy the claims of our creditors, including holders of the Notes. Even if we are recognized as a creditor of one or more of our subsidiaries, our claims would still be effectively subordinated to any security interests in the assets of any such subsidiary and to any indebtedness or other liabilities of any such subsidiary senior to our claims. Consequently, the Notes are structurally subordinated to all indebtedness and other liabilities of any of our subsidiaries and any subsidiaries that we may in the future acquire or establish. Our subsidiaries may incur substantial indebtedness in the future, all of which would be structurally senior to the Notes.

Volatility in the market price and trading volume of our common stock could adversely impact the trading price of the Notes.

The market price of our common stock could fluctuate significantly for many reasons, including in response to the risks described in this section or any number of our financial filings or disclosures or for reasons unrelated to our operations, such as reports by industry analysts, investor perceptions or negative announcements by our customers, competitors or suppliers

regarding their own performance, as well as industry conditions and general financial, economic and political instability. A decrease in the market price of our common stock could adversely impact the trading price of the Notes.

We may redeem the Notes before maturity, and holders of the redeemed Notes may be unable to reinvest the proceeds at the same or a higher rate of return.

We may redeem all or a portion of the Notes. If redemption does occur, holders of the redeemed Notes may be unable to reinvest the money received in the redemption at a rate that is equal to or higher than the rate of return on the Notes.

ITEM 1B. UNRESOLVED STAFF COMMENTS

None.

ITEM 1C. CYBERSECURITY

Identifying, assessing and managing cybersecurity risks is an important component of Conifer’s overall enterprise risk management program. As with the management of risks generally, given our holding company structure, the management of cybersecurity risks involves coordination between the Company and its consolidated subsidiaries.

The Company and each of its consolidated subsidiaries are responsible for developing a cybersecurity program appropriate for their respective businesses. The design of these cybersecurity programs is informed by the Center for Internet Security Critical Security Controls framework (“CISCSC”). This does not imply that these programs meet all specifications of CISCSC, but rather that we use them as a guide to help us identify, assess and manage cybersecurity risks relevant to our business. The cybersecurity programs developed by the Company and its consolidated subsidiaries include, among other things, (i) advanced threat protection and detection systems; (ii) vulnerability scanning and testing of network defenses; (iii) user authentication, role-based access, and privileged access management; (iv) data encryption, loss prevention, backup and recovery mechanisms; (v) employee training; (vi) disaster recovery testing and (vii) security assessments of third-party service providers.

Our cybersecurity risk management program is part of our overall enterprise risk management program, and shares common methodologies, reporting channels and governance processes that apply across the enterprise risk management program to other legal, compliance, strategic, operational, and financial risk areas.

We have not identified risks from known cybersecurity threats, including as a result of any prior cybersecurity incidents in the past three fiscal years, that have materially affected or are reasonably likely to materially affect us, including our operations, business strategy, results of operations, or financial condition.

Cybersecurity Governance

Our Board considers cybersecurity risk as part of its risk oversight function and has delegated to the Audit Committee oversight of cybersecurity and other information technology risks. The Audit Committee oversees management’s implementation of our cybersecurity risk management program.

Our management team, including our Chief Information Officer, is responsible for assessing and managing our material risks from cybersecurity threats.

ITEM 2. PROPERTIES

We lease office space in ~~Birmingham,~~Troy, Michigan, where our principal executive office is located. We also lease offices in Southfield, Michigan; ~~Jacksonville, Orlando~~ and Miami, ~~Florida; Somerset, Pennsylvania; and Brentwood, Tennessee.~~Florida. We believe that our facilities are adequate for our current needs and that suitable additional or substitute space will be available as needed.

ITEM 3. LEGAL PROCEEDINGS

We are party to legal proceedings which arise in the ordinary course of business. We believe that the outcome of such matters, individually and in the aggregate, will not have a material adverse effect on our consolidated financial position, operating results or liquidity.

ITEM 4. MINE SAFETY DISCLOSURES

Not Applicable.

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.



Shareholder Information Corporate Headquarters	Transfer Agent & Registrar
~~550~~ 3001 W. ~~Merrill Street~~Big Beaver Rd., Suite 200	~~American Stock Transfer &~~ Equiniti Trust ~~Co,~~Company, LLC
~~Birmingham,~~ Troy, MI ~~48009~~48084	~~6201 15~~^th ~~Avenue~~ 48 Wall Street
Phone: (248) 559-0840	~~Brooklyn,~~ New York, NY ~~11219~~10005

~~Independent Registered~~ ~~Public Accounting Firm~~ Corporate Counsel
~~Deloitte & Touche,~~ Honigman, LLP	~~Stock Listing~~
~~200 Renaissance Center~~ 660 Woodward Avenue	~~Nasdaq~~
~~Suite 3900~~	~~Symbol: CNFR~~
~~Detroit, MI 48243~~

~~Corporate Counsel~~
~~Honigman Miller Schwartz and Cohn, LLP~~
~~600 Woodward Avenue~~
2290 First National Building
Detroit, MI 48226-3506

Shareholder Relations and Form 10-K

A copy of our ~~2017~~2023 Annual Report and Form 10-K, as filed with the Securities and Exchange Commission, may be obtained upon written request to our Financial Reporting Department at our corporate headquarters at ir@cnfrh.com.

~~Share Price and~~

Dividend ~~Information~~

~~Our common stock is traded on the Nasdaq under the symbol “CNFR.” The following table sets forth the high and low sale prices of our common shares as reported by the Nasdaq for each period shown:~~

High Low
2017
First Quarter 7.75 6.55
Second Quarter 8.05 6.75
Third Quarter 7.30 6.05
Fourth Quarter 7.15 5.55

2016
First Quarter 9.22 6.04
Second Quarter 7.00 6.27
Third Quarter 8.59 7.15
Fourth Quarter 8.55 6.65

Policy

Neither Michigan law nor our amended and restated articles of incorporation requires our ~~board of directors~~Board to declare dividends on our common stock. Conifer Holdings, Inc. is a holding company that has no substantial revenues of its own, and relies primarily on intercompany service fees, cash dividends or distributions from its subsidiaries to pay operating expenses, service debts, and pay dividends to shareholders. The payment of dividends by the Insurance Company Subsidiaries is limited

under the laws and regulations of their respective state of domicile. These regulations stipulate the maximum amount of annual dividends or other distributions available to shareholders without prior approval of the relevant regulatory authorities. Any future determination to declare cash dividends on our common stock will be made at the discretion of the board of directors and will depend on the financial condition, results of operations, capital requirements, general business conditions and other factors that the ~~board of directors~~Board may deem relevant. The Parent Company has not historically paid dividends and does not anticipate paying cash dividends on its common stock for the foreseeable future.

~~For additional information regarding dividend restrictions, refer to the~~ ~~Liquidity and Capital Resources~~ ~~section of~~ ~~Management’s Discussion and Analysis.~~

Shareholders of Record

Our common stock is traded on The Nasdaq Capital Market under the symbol "CNFR." As of ~~March 15, 2018,~~April 1, 2024, there were 3526 shareholders of record of our common stock. A substantially greater number of holders are beneficial owners whose shares are held of record by banks, brokers and other nominees.

~~Recent Sales~~

Repurchases of ~~Unregistered Securities~~

~~In the past three years, we have sold and issued the following unregistered securities:~~

Company's Stock

On September 27, 2017, the Company’s Board of Directors authorized a private placement stock purchase offering wherein the Company was authorized to sell a maximum of $7.0 million of the Company’s common stock, no par value per share, pursuant to Section 4(a)(2) of the Securities Act of 1933, as amended, and Rule 506(b) of Regulation D as promulgated under the Securities Act and in accordance with applicable federal securities laws, including Rule 10b5-1 and 10b-18 of the Securities Exchange Act of 1934 as amended. The participants in the private placement consisted mainly of members of the Company’s management team and Board of Directors, including the Company’s Chairman and CEO, James Petcoff.

Under this private placement offering, the Company issued $5.0 million of common equity consisting of 800,000 shares at the price of $6.25 per share on September 28, 2017. The Company’s common stock closing market price on the Nasdaq Stock Market on September 28, 2017, was $6.05 per share. The offering was made to accredited investors only. No commissions or other remuneration were paid in connection with the issuance. The actual timing, number and value of shares to be issued under the private placement offering was determined by management in its discretion and depended on a number of factors, including the market price of the Company’s stock, general marketing conditions, and other factors. The Company used the proceeds from the issuance to strengthen its balance sheet through contributions to the Insurance Company Subsidiaries to support future growth, as well as to cover the cost of the ADC and reserve strengthening.

~~On February 25, 2016,~~December 5, 2018, the Company's Board ~~of Directors~~ authorized a stock repurchase program, under which the Company may repurchase up to ~~$2.1~~one million shares of the Company's common stock. Shares may be purchased in the open market or through negotiated transactions. The program may be terminated or suspended at any time, at the discretion of the Company. The Company may in the future enter into a Rule 10b5-1 trading plan to effect a portion of the authorized purchases, if criteria set forth in the plan are met. Such a plan would enable the Company to repurchase its shares during periods outside of its ~~outstanding common stock. Under this program, management was authorized to repurchase shares at prevailing market prices through open market~~normal trading windows, when the Company typically would not be active in the market. The timing of purchases, ~~privately negotiated transactions, block purchases or otherwise in accordance with applicable federal securities laws, including Rule 10b5-1~~ and ~~10b-18 of~~ the ~~Securities Exchange Act of 1934, as amended. The actual timing, number and value of shares repurchased under the program was determined by management in its discretion and depended on a~~exact number of ~~factors, including the~~any shares to be purchased, will depend on market conditions. The repurchase program does not include specific price ~~of the Company’s stock, general market conditions, and other factors.~~targets or timetables. The ~~Company~~company did not repurchase any shares of stock for the year ended December 31,

2023 related to the stock repurchase program. For the year ended December 31, 2023, the Company repurchased 1,968 shares of stock valued at approximately $3,000 related to the vesting of the Company’s restricted stock units. Upon the repurchase of the Company's shares, the shares remain authorized, but not issued or outstanding.

Recent Sales of Unregistered Securities

On December 20, 2023 (the “Initial Issue Date”), the Company issued $6.0 million of its ~~outstanding~~newly designated Series A Preferred Stock (the "Series A Preferred Stock"), no par value, through a private placement of 1,000 shares of Series A Preferred Stock priced at $6,000 per share that matures on June 30, 2026 (the “Maturity Date”). The Series A Preferred Stock was sold to Clarkston 91 West LLC (the "Purchaser"), an entity affiliated with Gerald and Jeffrey Hakala, members of the Board of the Company. The sale of the Series A Preferred Stock was not registered under the Securities Act of 1933, as amended (the “Securities Act”), in reliance on the exemption from registration provided by Section 4(a)(2) of the Securities Act and certain rules and regulations promulgated thereunder. The Series A Preferred Stock shall only be convertible for shares of the Company’s common stock, ~~during 2017.~~

Inno par value, at the ~~fourth quarter~~Maturity Date.

On the Maturity Date, each outstanding share of ~~2014, in a series of transactions ranging from September 30, 2014 through January 16, 2015, we sold an aggregate of 1,535,814~~the Series A Preferred Stock, that has not otherwise been redeemed, shall automatically convert into 4,000 shares of ~~our~~the Company’s common stock, ~~at a per share price of $13.63, resulting in aggregate gross proceeds of $20.9 million. These shares were sold~~subject to ~~certain of our officers~~adjustment for reverse and ~~directors~~forward stock splits, stock dividends, stock combinations and other ~~third party accredited investors.~~

similar transactions of the common stock that occur after the Initial Issue Date (the “Automatic Conversion”). Upon the Automatic Conversion, the holder shall be deemed to be the holder of record of the Company’s common stock issuable upon such conversion.

In August 2022, the Company issued $5.0 million of common equity through a private placement of 2,500,000 shares priced at $2.00 per share. The participants in the private placement consisted of members of the Company's Board.

No underwriters were involved in the foregoing ~~sales~~sale of securities. The issuances of the securities described above were deemed to be exempt from registration under the Securities Act in reliance on Section 4(2) of the Securities Act as transactions by an issuer not involving a public offering.

ITEM 6. ~~SELECTED CONSOLIDATED FINANCIAL DATA~~[Reserved]

The following tables set forth selected consolidated historical financial information of Conifer Holdings, Inc. and Subsidiaries as of the dates and for the periods indicated. The selected financial data for the years ended December 31, 2017, 2016, 2015, 2014 and 2013 were derived from our audited consolidated financial statements and related notes thereto.

These historical results are not necessarily indicative of results to be expected for any future period. The following financial information should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and the related notes thereto included elsewhere in this report (dollars in thousands, except for per share data).

Year Ended December 31,
2017 2016 2015 2014 2013
Operating Results:
Gross written premiums $ 114,284
$ 114,923
$ 93,750
$ 83,847
$ 44,087
Ceded written premiums (23,044 ) (14,994)
(14,076)
(17,548)
(6,439)
Net written premiums $ 91,240
$ 99,929
$ 79,674
$ 66,299
$ 37,648

Net earned premiums $ 91,729
$ 89,627
$ 66,765
$ 57,528
$ 27,629
Net investment income 2,728
2,173
1,902
1,175
1,000
Net realized investment gains 70
1,365
285
417
299
Other gains (losses) (1) 750
(400)
104
—
3,714
Other income 1,560
1,118
1,667
1,809
834
Total revenue 96,837
93,883
70,723
60,929
33,476
Losses and loss adjustment expenses, net 73,917
59,003
38,882
40,730
15,824
Policy acquisition costs 26,245
25,280
16,183
14,696
7,667
Operating expenses 17,367
17,596
14,806
12,139
9,161
Interest expense 1,362
647
769
584
541
Total expenses 118,891
102,526
70,640
68,149
33,193
Income (loss) before income taxes (22,054)
(8,643)
83
(7,220)
283
Income tax expense (benefit) (447 ) (77)
48
(281)
3
Equity earnings (losses) in affiliates, net of tax 65
129
(52)
—
—
Net income (loss) (21,542)
(8,437)
(17)
(6,939)
280
Less net income (loss) attributable to non-controlling interest —
—
(81)
(4)
(69)
Net income (loss) attributable to Conifer $ (21,542 ) $ (8,437 ) $ 64
$ (6,935 ) $ 349
Net income (loss) allocable to common shareholders
$ (21,542 ) $ (8,437 ) $ (476 ) $ (7,200 ) $ 349
Net income (loss) per share allocable to common shareholders, basic and diluted $ (2.74 ) $ (1.11 ) $ (0.09 ) $ (2.69 ) $ 0.20
Weighted average common shares outstanding, basic and diluted 7,867,344
7,618,588
5,369,960
2,672,440
1,749,626

Year Ended December 31,
2017 2016 2015 2014 2013
Balance Sheet Data:
Cash and invested assets $ 169,518
$ 141,023
$ 130,427
$ 123,726
$ 68,445
Reinsurance recoverables 24,539
7,498
7,044
5,139
4,394
Total assets 239,032
203,701
177,927
163,738
96,856
Unpaid losses and loss adjustment expenses 87,896
54,651
35,422
31,531
28,908
Unearned premiums 57,672
58,126
47,916
43,381
26,505
Debt 29,027
17,750
12,750
27,562
13,087
Total liabilities 186,206
135,907
100,665
113,460
75,605
Preferred stock (2) —
—
—
6,119
—
Total shareholders’ equity attributable to Conifer 52,826
67,794
77,262
44,182
21,270
Other Data:
Shareholders’ equity per common share outstanding $ 6.20
$ 8.88
$ 10.11
$ 11.06
$ 12.16
Regulatory capital and surplus (3) 62,451
62,189
71,153
65,974
34,817

Year Ended December 31,
2017 2016 2015 2014 2013
Underwriting Ratios:
Loss ratio 79.2 % 65.0 % 56.8 % 68.6 % 55.6 %
Expense ratio 46.8 % 47.2 % 45.3 % 45.2 % 59.1 %
Combined ratio 126.0 % 112.2 % 102.1 % 113.8 % 114.7 %

~~(1)~~

In 2017, the Company recognized a $750,000 gain on the sale of the renewal rights of a portion of the low value dwelling book of business to another insurer. In 2016, as a result of the merger of ACIC into WPIC, the value of intangible assets recorded for insurance licenses on ACIC were written off resulting in a loss. In 2015, the Company recognized a gain as a result of the deconsolidation of an affiliate. In 2013, the Company recognized a gain on the acquisitions of EGI Insurance Services, Inc. and MLBA Mutual Insurance Company. The acquisitions were accounted for as bargain purchases.


~~(2)~~	In March 2015, the Company reclassified the then carrying amount of its preferred stock of $6,180 from temporary equity to permanent equity as the redemption of the preferred stock became within the Company’s control as a result of the amendments to the preferred stock designations.


~~(3)~~	For our Insurance Company Subsidiaries, the excess of assets over liabilities are determined in accordance with statutory accounting principles as determined by the domiciliary state for each Insurance Company Subsidiary.

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following Management’s Discussion and Analysis of financial condition and results of operations should be read in conjunction with the Consolidated Financial Statements, related notes and other financial information appearing elsewhere in this Annual Report on Form 10-K, filed with the U. S. Securities and Exchange Commission (“SEC”).

~~Forward-Looking Statements~~

~~Certain statements contained~~

Recent Developments and Significant Transactions

Strategic Shift to Non Risk-Bearing Revenue

Historically, our wholesale agency segment produced only a small portion of our gross written premiums. Beginning in ~~this Annual Report on Form 10-K, which are not statements of historical fact, are forward-looking statements within the meaning of Section 27A~~2024, our wholesale agency segment is being converted into a full managing general agency ("MGA") and is expected to produce almost 100% of the ~~Securities Act of 1933, as amended, as Section 21E~~Company’s gross written premiums. As a result of the ~~Securities Exchange Act~~Insurance Company Subsidiaries lacking sufficient capital to continue to underwrite the volume of ~~1934,~~business they have historically written, we plan to utilize third-party insurers and rely mostly on commission revenues in our MGA, CIS. Substantially all of the Company's commercial lines business will be directly written by third-party insurers with A.M. Best ratings of A- or better by the end of the second quarter of 2024. We expect to continue to underwrite the low-value homeowners business written in Texas and Midwest, however, we will be non-renewing all homeowners business written in Oklahoma by the end of the second half of 2024.

Utilizing third-party insurers as ~~amended. Forward-looking statements give current expectations or forecasts~~underwriters of ~~future events or~~ our ~~future financial or operating performance. Words such as “anticipate,” “believe,” “estimate,” “expect,” "will," “intend,” “may,” “plan,” “seek”~~MGA-produced business will provide a much broader reach for our existing profitable programs and ~~similar terms and phrases, or the negative thereof, may be used~~we expect this 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, which could cause our actual results to differ materially from thoseresult in the ~~forward-looking statements, including those described above~~production of substantially more premium volume for the agency segment generating more commission revenue. This shift will significantly reduce revenues from earned premiums in ~~Item 1A Risk Factors~~the near term and ~~subsequent reports filed with or furnished~~investment income, over time, for the Insurance Company Subsidiaries. Cash from operating activities will shift from premiums and investment income to revenues from commissions. Over time, cash from operating activities will be reduced as losses are paid on existing loss reserves which will be offset by cash flows increasing from investing activities as we sell investments to fund the loss payments. We believe this strategic shift is the best path forward to profitability for the Company.

Sale of Renewal Rights

In September 2023, the Company sold the renewal rights of one of its insurance programs to another insurer for $2.5 million in cash in addition to also agreeing to participate in the Company's issuance of new public debt in September 2023, by purchasing $5.0 million of the new debt. The program renewal rights which were sold and transferred provided mostly liability insurance to the ~~SEC. Any forward-looking statement made by us~~security guard and alarm installation industries ("Security Program"). The program produced gross earned premiums of $55.9 million and $41.0 million in 2023 and 2022, respectively. The buyer began writing new and renewal policies for this ~~report speaks only~~program as of September 15, 2023. On September 30, 2023, the Company ceded 100% of its gross unearned premium of $30.9 million in the program to the buyer in return for an $8.4 million ceding commission. As of December 31, 2023, the Company retained $24.1 million of net cash owed to the buyer under a funds withheld provision which is recorded as a liability on the Consolidated Balance Sheets. The funds withheld balance is expected to be paid out as premiums are earned and related claims are paid. The Company incurred $135,000 in expense related to this transaction. As part of this transaction, five claims staff transferred employment to the buyer. The buyer will handle all of the Company’s run-off claims for this program under a related claims administration agreement.

The Company recognized a net gain of $2.3 million, which is reflected in Gain from sale of renewal rights on the Consolidated Statements of Operations. As a result of the sale of renewal rights, the Company is no longer providing liability insurance to the security guard and alarm installation industries.

Debt Restructuring

The Company repaid all of the $24.4 million of public senior secured notes, issued in 2018, that matured on September 30, 2023. The Company funded the repayment of the senior unsecured notes through a combination of newly issued public notes which totaled $6.7 million, as well as exchanging a portion of the maturing notes for new notes totaling $11.2 million. The Company also restructured its $10.5 million subordinated debt into senior secured notes, paying down $500,000 of the outstanding debt. The maturity of the new senior secured notes was shortened to five years from September 30, 2038,

to September 30, 2028, and there are now required quarterly principal payments of $250,000 with the balance due upon maturity, in addition to a requirement that net proceeds from any asset sales be applied against the principal balance of the senior secured notes. See Note 10 ~ Debt for further details.

VSRM Transaction

Prior to October 13, 2022, CIS, formally known as 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, CIS purchased the other 50% of Venture from an individual for $9.7 million. Following this purchase, CIS 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 ~~hereof or~~of the acquisition.

The Company recognized CIS' purchase of the individual's shares of VSRM as a step acquisition and revalued all assets and liabilities upon the acquisition date. This resulted in the recognition of an $8.8 million non-operating gain reported in the Consolidated Statements of Operations as Gain from VSRM Transaction in the fourth quarter of 2022. The Company also utilized $12.5 million of federal tax net operating losses carried forward and $14.8 million state tax net operating losses carried forward, for a net-of-tax benefit of $9.4 million. VSRM retained $8.9 million of debt, and $9.4 million of tax liabilities, as well as other smaller assets and liabilities that did not go with the transaction.

The fair value of the equity interest of VSRM immediately prior to the acquisition by CIS was $10.1 million. The fair value techniques used to measure the fair value of VSRM included using the carrying value of all current assets and liabilities as their carrying values approximated their fair values. Intangible assets were reviewed based on recent valuations performed by third party valuation experts and the net realized proceeds received upon the sale of the Security & Alarm Business sold the following day.

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. Because all assets and liabilities were just adjusted to fair value from the step acquisition described above, the basis of the net assets sold equaled the net proceeds from the sale, thus there was no gain recognized upon the sale of the Security & Alarm 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 ~~date specified herein. We undertake~~equity method. The net assets transferred to SSU had a fair value of $0 at the time of the contribution. There was no gain or loss recognized upon the sale of half of SSU to Mr. Petcoff. Included in the net assets transferred to SSU was a $1.0 million promissory note payable, a liability that was assumed by SSU. The note payable was an obligation that originated as part of the Venture Transaction. See Note 4 ~ Sale of Certain Agency Business for further details.

In order to ~~publicly update any forward-looking statement, whether~~determine the value of the portion of the business contributed to SSU, the Company obtained a third party valuation based on a weighting of discounted cash flows and earnings before interest, taxes, depreciation and amortization (EBITDA) multiple valuation methods. The valuation included significant estimates and assumptions related to (i) forecasted revenue and EBITDA and (ii) the selection of the EBITDA multiple and discount rate.

Loss Portfolio Transfer

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 ~~result~~$5.5 million loss corridor in which the Company retains losses in excess of ~~new information, future developments or otherwise, except~~$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 ~~may~~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 December 31, 2023, the Company has recorded losses through the $5.5 million corridor and $9.1 million into the $20.0 million layer.

The Company paid $25.0 million in cash on October 14, 2022, which was netted down for claims paid through September 30, 2022, totaling $7.6 million, and $13.6 million of funds withheld. Cash used to fund the transaction was generated from the existing investment portfolios held by CIC and WPIC.

A.M. Best and Kroll

Kroll going forward.

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 4445 states, including the District of Columbia. We are licensed to write insurance as an admitted carrier in 42 states, including the District of Columbia, ~~as an admitted carrier~~ 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 and commission income from SIA's 50% owned agency (the "Affiliate"). The Affiliate places small commercial risks mainly for alarm and security guard markets.~~

write.

Our expenses consist primarily of losses and loss adjustment expenses, agents’ commissions, and other underwriting and administrative expenses. We organize our operations in ~~two~~three insurance businesses: commercial insurance lines, personal lines, and agency business. Together, the commercial and personal lines refer to “underwriting” operations that take insurance ~~lines.~~

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 ~~either wind-exposed homeowners insurance providing hurricane and wind coverage to underserved homeowners in Texas, Hawaii and Florida or~~ low-value dwelling insurance tailored for owners of lower valued homes, which we offer in Illinois, Indiana ~~Louisiana~~ and Texas. ~~Due~~

Through our wholesale agency business segment, we offer commercial and personal lines insurance products for our Insurance Company Subsidiaries as well as third-party insurers. The wholesale agency business segment provides our agents

with more insurance product options. As a result of the sale of certain agency business on June 30, 2021, more recently our agency segment was not producing significant amounts of business for third party insurers and produced approximately 50% less business for the Insurance Company Subsidiaries. However, as discussed above, we expect the wholesale agency segment to become more prominent going forward as substantially all of our commercial lines business will be produced by the wholesale agency segment and underwritten by third-party insurers.

An advantage of using these third-party insurers is they will both have a minimum of an A- A.M. Best rating greatly improving our competitive edge in the marketplace.

As we transition to more of a MGA operation, revenues will be derived from commissions while insurance premiums and investment income will diminish over time. Cash flows from written premiums will decline quickly over the next two quarters and will be almost entirely comprised of the homeowners business by the third quarter of 2024. Concurrently, cash flows from commissions revenues will increase. As claims are settled, claim payments will be funded from the sale of investments within the Insurance Company Subsidiaries. Such claims payments will reduce cash flows provided by operating activities and will be offset by an increase in cash flows from investing activities as the investment portfolio is liquidated over time to fund the claim payments. Management may consider the sale of other assets to generate additional cash resources available to the Company.

There will be fewer claim payments as loss reserves run off. Other operating costs and commissions to retail agencies will fluctuate relatively similarly to the premiums produced by the MGA as they did when the premiums were written by the insurance companies. However, certain ~~Florida-based industry events, we have been de-emphasizing our Florida homeowners' business~~insurance company specific costs will decrease as the premium volume in the insurance company subsidiaries decreases. We expect that the net revenues generated in the MGA will provide the majority of the cash flows needed to cover operating and ~~reducing our exposures in that state. Otherwise, there has been little change in our approach to managing or evaluating these lines.~~

debt service costs going forward.

Critical Accounting Policies and Estimates

General

We identified the accounting estimates below as critical to the understanding of our financial position and results of operations. Critical accounting estimates are defined as those estimates that are both important to the portrayal of our financial condition and results of operations and which require us to exercise significant judgment. We use significant judgment concerning future results and developments in applying these critical accounting estimates and in preparing our consolidated financial statements. These judgments and estimates affect the reported amounts of assets, liabilities, revenues and expenses and the disclosure of material contingent assets and liabilities. Actual results may differ materially from the estimates and assumptions used in preparing the consolidated financial statements. We evaluate our estimates regularly using information that we believe to be relevant. See the Consolidated Financial Statements Note 1 – ~ Summary of Significant Accounting Policies, for further details.

Unpaid Loss and Loss Adjustment Expense Reserves

Our recorded loss and loss adjustment expenses ("LAE") reserves represent management’s best estimate of unpaid loss and LAE at each balance sheet date, based on information, facts and circumstances known at such time. Our loss and LAE reserves reflect our estimates at the balance sheet date of:

•

Case reserves, which are unpaid loss and LAE amounts that have been reported; and

•

Incurred but not reported ("IBNR") reserves, which are (1) unpaid loss and LAE amounts that have been incurred but not yet reported; and (2) the expected development on case reserves.

We do not discount the loss and LAE reserves for the time value of money.

Case reserves are initially set by our claims personnel. When a claim is reported to us, our claims department completes a case‑basis valuation and establishes a case reserve for the estimated amount of the probable ultimate losses and LAE

associated with that claim. Our claims department updates their case‑basis valuations upon receipt of additional information and reduces case reserves as claims are paid. The case reserve is based primarily upon an evaluation of the following factors:

•

The type of loss;

•

The severity of injury or damage;

•

Our knowledge of the circumstances surrounding the claim;

•

The jurisdiction of the occurrence;

•

Policy provisions related to the claim;

•

Expenses intended to cover the ultimate cost of settling claims, including investigation and defense of lawsuits resulting from such claims, costs of outside adjusters and experts, and all other expenses which are identified to the case; and

•

Any other information considered pertinent to estimating the indemnity and expense exposure presented by the claim.

IBNR reserves are determined by subtracting case reserves and paid loss and LAE from the estimated ultimate loss and LAE. Our actuarial department develops estimated ultimate loss and LAE on a quarterly basis. Our Reserve Review Committee (which includes our Chief Executive Officer, President, Chief Financial Officer, other members of executive management, and key actuarial, underwriting and claims personnel) meets each quarter to review our actuaries’ estimated ultimate expected loss and LAE.

We use several generally accepted actuarial methods to develop estimated ultimate loss and LAE estimates by line of business and accident year. This process relies on the basic assumption that past experience, adjusted for the effects of current developments and likely trends, is a reasonable basis for predicting future outcomes. These methods utilize various inputs, including:

•

Written and earned premiums;

•

Paid and reported losses and LAE;

•

Expected initial loss and LAE ratio, which is the ratio of incurred losses and LAE to earned premiums; and

•

Expected claim reporting and payout patterns based on our own loss experience and supplemented with insurance industry data where applicable.

The principal standard actuarial methods used by our actuaries for their comprehensive reviews include:

•

Loss ratio method—This method uses loss and LAE ratios for prior accident years, adjusted for current trends, to determine an appropriate expected loss and LAE ratio for a given accident year;

•

Loss development methods—Loss development methods assume that the losses and LAE yet to emerge for an accident year are proportional to the paid or reported loss and LAE amounts observed to‑date. The paid loss development method uses losses and LAE paid to date, while the reported loss development method uses losses and LAE reported to date;

•

Bornheutter‑Ferguson method—This method is a combination of the loss ratio and loss development methods, where the loss development factor is given more weight as an accident year matures; and

•

Frequency/severity method—This method projects claim counts and average cost per claim on a paid or reported basis for high frequency, low severity products.

Our actuaries give different weights to each of these methods based upon the amount of historical experience data by line of business and by accident year, and based on judgment as to what method is believed to result in the most accurate

estimate. The application of each method by line of business and by accident year may change in the future if it is determined that a different emphasis for each method would result in more accurate estimates.

Our actuaries also analyze several diagnostic measures by line of business and accident year, including but not limited to: reported and closed frequency and severity, claim reporting and claim closing patterns, paid and incurred loss ratio development, and ratios of paid loss and LAE to incurred loss and LAE. After the actuarial methods and diagnostic measures have been performed and analyzed, our actuaries use their judgment and expertise to select an estimated ultimate loss and LAE by line of business and by accident year.

Our actuaries estimate an IBNR reserve for our unallocated LAE not specifically identified to a particular claim, namely our internal claims department salaries and associated general overhead and administrative expenses associated with the adjustment and processing of claims. These estimates, which are referred to as unallocated loss adjustment expense ("ULAE") reserves, are based on internal cost studies and analyses reflecting the relationship of ULAE paid to actual paid and incurred losses. We select factors that are applied to case reserves and IBNR reserve estimates in order to estimate the amount of ULAE reserves applicable to estimated loss reserves at the balance sheet date.

We allocate the applicable portion of our estimated loss and LAE reserves to amounts recoverable from reinsurers under reinsurance contracts and report those amounts separately from our loss and LAE reserves as an asset on our balance sheet.

The estimation of ultimate liability for losses and LAE is a complex, imprecise and inherently uncertain process, and therefore involves a considerable degree of judgment and expertise. Our loss and LAE reserves do not represent an exact measurement of liability, but are estimates based upon various factors, including but not limited to:

•

Actuarial projections of what we, at a given time, expect to be the cost of the ultimate settlement and administration of claims reflecting facts and circumstances then known;

•

Estimates of future trends in claims severity and frequency;

•

Assessment of asserted theories of liability; and

•

Analysis of other factors, such as variables in claims handling procedures, economic factors, and judicial and legislative trends and actions.

Most or all of these factors are not directly or precisely quantifiable, particularly on a prospective basis, and are subject to a significant degree of variability over time. In addition, the establishment of loss and LAE reserves makes no provision for the broadening of coverage by legislative action or judicial interpretation or for the extraordinary future emergence of new types of losses not sufficiently represented in our historical experience or which cannot yet be quantified. As a result, an integral component of our loss and LAE reserving process is the use of informed subjective estimates and judgments about our ultimate exposure to losses and LAE. Accordingly, the ultimate liability may vary significantly from the current estimate. The effects of change in the estimated loss and LAE reserves are included in the results of operations in the period in which the estimate is revised.

Our reserves consist entirely of reserves for property and liability losses, consistent with the coverages provided for in the insurance policies directly written or assumed by us under reinsurance contracts. ~~Occasionally, several~~Several years may elapse

between the occurrence of an insured loss, the reporting of the loss to us and our payment of the loss. The level of IBNR reserves in relation to total reserves depends upon the characteristics of the specific line of business, particularly related to the speed with which claims are reported and outstanding claims are paid. Lines of business for which claims are reported slowly will have a higher percentage of IBNR reserves than lines of business that report and settle claims more quickly.

The following table shows the ratio of IBNR reserves to total reserves net of reinsurance recoverables as of December 31, ~~2017~~2023 (dollars in thousands):

Line of Business
Case
Reserves

IBNR
Reserves

Total
Reserves

Ratio of
IBNR to
Total
Reserves

Commercial Lines $ 32,280
$ 27,041
$ 59,321
45.6 %
Personal Lines 5,569
2,940
8,509
34.6 %
Total Lines $ 37,849
$ 29,981
$ 67,830
44.2 %


Reserves	Commercial Lines			Personal Lines			Total Lines
Gross case reserves	$	69,380		$	4,318		$	73,698
Ceded case reserves		(19,001	)		(1,826	)		(20,827	)
Net case reserves		50,379			2,492			52,871

Gross IBNR		99,658			1,256			100,914
Ceded IBNR		(49,980	)		—			(49,980	)
Net IBNR		49,678			1,256			50,934

Unpaid losses and loss adjustment expenses		169,038			5,574			174,612
Reinsurance recoverables on unpaid losses		(68,981	)		(1,826	)		(70,807	)
Net unpaid losses and loss adjustment expenses	$	100,057		$	3,748		$	103,805

Ratio of Gross IBNR to Unpaid losses and loss adjustment expenses		59.0	%		22.5	%		57.8	%

Included in the reinsurance recoverables were reinsurance recoverables from the LPT which were $10.9 million of reinsurance recoverables on case reserves. All of the reinsurance recoverables from the LPT are included in commercial lines.

Although we believe that our reserve estimates are reasonable, it is possible that our actual loss and LAE experience may not conform to our assumptions and may, in fact, vary significantly from our assumptions. Accordingly, the ultimate settlement of losses and the related LAE may vary significantly from the estimates included in our financial statements. We continually review our estimates and adjust them as we believe appropriate as our experience develops or new information becomes known to us. Such adjustments are included in current operations.

Our loss and LAE reserves do not represent an exact measurement of liability, but are estimates. The most significant assumptions affecting our IBNR reserve estimates are the loss development factors applied to paid losses and case reserves to develop IBNR by line of business and accident year. Although historical loss development provides us with an indication of future loss development, it typically varies from year to year. Thus, for each accident year within each line of business we select one loss development factor out of a range of historical factors.

We generated a sensitivity analysis of our net reserves which represents reasonably likely levels of variability in our selected loss development factors. We believe the most meaningful approach to the sensitivity analysis is to vary the loss development factors that drive the ultimate loss and LAE estimates. We applied this approach on an accident year basis, reflecting the reasonably likely differences in variability by level of maturity of the underlying loss experience for each accident year. Generally, the most recent accident years are characterized by more unreported losses and less information available for settling claims, and have more inherent uncertainty than the reserve estimates for more mature accident years. Therefore, we used variability factors of plus or minus 10% for the most recent accident year, 5% for the preceding accident year, and 2.5% for the second preceding accident year. There is minimal expected variability for accident years at four or more years’ maturity.

The following table displays ultimate net loss and LAE and net loss and LAE reserves by accident year for the year ended December 31, ~~2017.~~2023. We applied the sensitivity factors to each accident year amount and have calculated the amount of potential net loss and LAE reserve change and the impact on ~~2017~~2023 reported pre-tax income and on net income and shareholders’ equity at December 31, ~~2017.~~2023. We believe it is not appropriate to sum the illustrated amounts as it is not reasonably likely that each accident year’s reserve estimate assumptions will vary simultaneously in the same direction to the full extent of the sensitivity factor. ~~We also believe that such changes to our reserve balance would not have a material impact on our operating results, financial position, or liquidity.~~ The ~~net income and~~ shareholders' equity amounts include an income tax rate assumption of 21%., however due to the net operating losses (“NOL”) available to use against taxable income and the offsetting valuation

allowance, there is no difference between pre-tax income and shareholders’ equity in this schedule. The dollar amounts in the table are in thousands.

Ultimate
Loss and LAE
Sensitivity
Factor

December 31, 2017
Ultimate
Loss and LAE

December 31, 2017
Loss and LAE
Reserves

Potential
Impact on
2017 Pre-
Tax Income

Potential
Impact on 2017
Net Income and
December 31, 2017
Shareholders'
Equity

Increased Ultimate Losses & LAE
Accident Year 2017 10.0 % $ 63,785
$ 39,910
$ 6,379
$ 5,039
Accident Year 2016 5.0 % 45,599
11,571
2,280
1,801
Accident Year 2015 2.5 % 49,709
10,479
1,243
982
Prior to 2015 Accident Years — % —
5,870
—
—

Decreased Ultimate Losses & LAE
Accident Year 2017 (10.0 )% 63,785
39,910
(6,379 ) (5,039 )
Accident Year 2016 (5.0 )% 45,599
11,571
(2,280 ) (1,801 )
Accident Year 2015 (2.5 )% 49,709
10,479
(1,243 ) (982 )
Prior to 2015 Accident Years — % —
5,870
—
—


	As of December 31, 2023							Impact
	Net Ultimate Loss and LAE (1)		Net Loss and LAE Reserves (1)		Ultimate Loss and LAE Sensitivity Factor			Pre- Tax Income (2)			Shareholders' Equity (2)
Increased Ultimate Losses & LAE
Accident Year 2023	$	64,579	$	37,578		10.0	%	$	(6,458	)	$	(5,102	)
Accident Year 2022		62,985		28,804		5.0	%		(3,149	)		(2,488	)
Accident Year 2021		58,958		19,666		2.5	%		(1,474	)		(1,164	)
Prior to 2021 Accident Years		—		17,757		—	%		—			—

Decreased Ultimate Losses & LAE
Accident Year 2023		64,579		37,578		(10.0	)%		6,458			5,102
Accident Year 2022		62,985		28,804		(5.0	)%		3,149			2,488
Accident Year 2021		58,958		19,666		(2.5	)%		1,474			1,164
Prior to 2021 Accident Years		—		17,757		—	%		—			—

(1) Represents amounts as of December 31, 2023.

(2) Represents how pre-tax income and shareholders' equity would change if the Net Ultimate Loss and LAE were to change by the percentage in the Ultimate Loss and LAE Sensitivity Factor column.

Investment Valuation and ~~Impairment~~

Credit Losses

We carry debt ~~and equity~~ securities classified as ~~available‑for‑sale~~available-for-sale at fair value, and unrealized gains and losses on such securities, totaled $13.3 million as of December 31, 2023, net of any deferred taxes, are reported as a separate component of accumulated other comprehensive income. Our equity securities that do not result in consolidation and are not accounted for under the equity method are measured at fair value and any changes in fair value are recognized in net income. We carry other equity investments that do not have a readily determinable fair value at cost, less impairment and adjusted for observable price changes under the measurement alternative provided under GAAP. We review the equity securities and other equity investments for impairment during each reporting period.

We review available-for-sale debt securities for credit losses based on current expected credit loss methodology at the end of each reporting period. We do not have any securities classified as trading or ~~held‑to‑maturity.~~

~~We evaluate our available‑for‑sale investments regularly~~held to ~~determine~~maturity.

At each quarter-end, for available-for-sale debt securities in an unrealized loss position, the Company first assesses whether ~~there have~~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 earnings.

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 ~~declines~~recorded through an allowance for credit losses is recognized in ~~value that~~other comprehensive income. Changes in the allowance for credit losses are ~~other‑than‑temporary.~~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. Our outside investment managers assist us in this evaluation. ~~When we determine that a security has experienced an other‑than‑temporary impairment, the impairment loss is recognized as a realized investment loss.~~

We consider a number of factors in assessing whether an impairment is other‑than‑temporary, including (1) the amount and percentage that current fair value is below cost or amortized cost, (2) the length of time that the fair value has been below cost or amortized cost and (3) recent corporate developments or other factors that may impact an issuer’s near term prospects. In addition, for debt securities, we consider the credit quality ratings for the securities, with a special emphasis on securities downgraded to below investment grade. We also consider our intent to sell available‑for‑sale debt securities in an unrealized loss position, and if it is more likely than not that we will be required to sell these securities before a recovery in fair value to their cost or amortized cost basis. For equity securities, we evaluate the near‑term prospect of these investments in relation to the severity and duration of the impairment, and we consider our ability and intent to hold these investments until they recover their fair value.

Fair values are measured in accordance with ASC 820, Fair Value Measurements. The guidance establishes a framework for measuring fair value and a three‑level hierarchy based upon the quality of inputs used to measure fair value. The three levels of the fair value hierarchy are: (1) Level 1: inputs are based on quoted prices (unadjusted) in active markets for identical assets or liabilities, (2) Level 2: inputs are other than quoted prices that are observable for the asset or liabilities, either directly or indirectly, for substantially the full term of the asset or liability and (3) Level 3: unobservable inputs that are

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

The Company also has investment company limited partnership investments, which are measured at net asset value (NAV). The fair value of these investments is based on the capital account balances reported by the investment funds subject to their management review and adjustment. The capital account balances reflect the fair value of the investment funds.

The fair values of debt and equity securities have been determined using fair value prices provided by our investment managers, who utilize internationally recognized independent pricing services. The prices provided by the independent pricing services are generally based on observable market data in active markets (e.g., broker quotes and prices observed for comparable securities).

The values for publicly‑traded equity securities are generally based on Level 1 inputs which use the market approach valuation technique. The values for debt securities generally incorporate significant Level 2 inputs. The carrying value of cash and short‑term investments approximate their fair values due to their short‑term maturity.

We review fair value prices provided by our outside investment managers for reasonableness by comparing the fair values provided by the managers to those provided by our investment custodian. We also review and monitor changes in unrealized gains and losses. We obtain an understanding of the methods, models and inputs used by our investment managers and independent pricing services, and controls are in place to validate that prices provided represent fair values. Our control process includes initial and ongoing evaluation of the methodologies used, a review of specific securities and an assessment for proper classification within the fair value hierarchy.

Income Taxes

Our income tax expense, deferred tax assets and liabilities, and liabilities for unrecognized tax benefits reflect management’s best assessment of estimated current and future taxes to be paid. We are subject to income taxes in the United States and numerous state jurisdictions. Significant judgment is required in determining the consolidated income tax expense.

On December 22, 2017, the U.S. federal government enacted H.R.1, “An Act to Provide for Reconciliation Pursuant to Titles II and V of the Concurrent Resolution on the Budget for Fiscal Year 2018” (the “Act”). The Act provides for significant changes to corporate taxation including the decrease of the corporate tax rate from 34% to 21%. We have completed an analysis of the impact of the Act and has followed the additional guidance provided by the Security and Exchange Commission's Staff Accounting Bulletin No. 118. We believe there are no material provisional balances as of December 31, 2017.

Deferred income taxes arise from temporary differences between the tax basis of assets and liabilities and their reported amounts in the financial statements, which will result in taxable or deductible amounts in the future. In evaluating our ability to recover our deferred tax assets within the jurisdiction from which they arise, we consider all available positive and negative evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income, tax‑planning strategies, and results of recent operations. In projecting future taxable income, we begin with historical results and incorporate assumptions about the amount of future state and federal pretax operating income adjusted for items that do not have tax consequences. The assumptions about future taxable income require significant judgment and are consistent with the plans and estimates we are using to manage the underlying businesses. In evaluating the objective evidence that historical results provide, we consider three years of cumulative operating income or loss.

As of December 31, ~~2017,~~2023, we have federal and state income tax net operating loss ~~(“NOL”~~("NOL") carryforwards of ~~$43.6~~$80.8 million and ~~$11~~$120.3 million, ~~respectively, which~~respectively. Of the NOL carryforwards, $78.2 million will expire ~~at various dates from 2029~~in tax years 2030 through ~~2037.~~2043 and $10.3 million will never expire. Of the federal NOL amount, ~~$15.1~~$19.5 million are subject to limitations under Section 382 of the Internal Revenue Code. These net NOL carryforwards are limited in the amount that can be utilized in any one year and may expire before they are realized. At this time we do not expect that any of the remaining NOL carryforwards will expire before utilized.

The carrying value of our gross deferred tax asset for the NOL carryforwards is equal to the total NOL carryforward amount times the applicable federal and state tax rates, and was $9.5 million and $8.0 million as of December 31, 2017 and 2016, respectively. Total gross deferred tax assets were $13.3 million and $13.0 million as of December 31, 2017 and 2016.

A valuation allowance of ~~$9.9~~$28.0 million and ~~$8.4~~$21.7 million has been recorded against the gross deferred tax assets as of December 31, ~~2017~~2023 and ~~2016,~~2022, respectively, as the Company has recognized a ~~three year~~three-year cumulative loss as of December 31, ~~2017~~2023 which is significant negative evidence to support the lack of recoverability of those deferred tax assets in accordance with ASC 740, Income Taxes. If the $28.0 million valuation allowance as of December 31, 2023 were reversed in the future, it would increase book value by $2.29 per share. The net deferred tax ~~liability was $115,000 and $179,000~~assets were zero as of December 31, ~~2017~~2023 and ~~2016, respectively.~~

2022.

If, in the future, we determine we can support the recoverability of a portion or all of the deferred tax assets under the guidance, the tax benefits relating to any reversal of the valuation allowance on deferred tax assets will be accounted for as a reduction of income tax expense and result in an increase in equity. Changes in tax laws and rates may affect recorded deferred tax assets and liabilities and our effective tax rate in the future.

Non-GAAP Financial Measures

Adjusted Operating Income (Loss) and Adjusted Operating Income (Loss) Per Share

Adjusted operating income (loss) and adjusted operating income (loss) per share are non-GAAP measures that represent net income allocable to common shareholders excluding net realized investment gains (losses), change in fair value of equity securities, the gain from sale of renewal rights, the gain from VSRM Transaction, the loss portfolio transfer risk fee and other gains (losses)~~, net of tax, the effects of tax reform, and the tax effect of changes in unrealized gains to the extent included in net income.~~. 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 to adjusted operating income (dollars in thousands), as well as net income per share to adjusted operating income per share:

For the Years Ended December 31,
2017 2016 2015

Net income (loss) allocable to common shareholders $ (21,542 ) $ (8,437 ) $ (476 )
Less:
Net realized investment gains and other gains (losses) 820
965
389
Effect of tax law change 63
—
—
Tax effect of unrealized gains and losses on investments 356
147
—
Adjusted operating income (loss) $ (22,781 ) $ (9,549 ) $ (865 )

Weighted average common shares, diluted 7,867,344
7,618,588
5,369,960

Diluted (loss) per common share:
Net income (loss) allocable to common shareholders $ (2.74 ) $ (1.11 ) $ (0.09 )
Net realized investment gains and other gains (losses) per share 0.10
0.13
0.07
Effect of tax law change 0.01
—
—
Tax effect of unrealized gains and losses on investments 0.05
0.02
—
Adjusted operating (loss) per share $ (2.90 ) $ (1.26 ) $ (0.16 )


	For the Years Ended December 31,
	2023			2022
Net income (loss)	$	(25,904	)	$	(10,681	)
Less:
Net realized investment gains (losses)		(20	)		(1,505	)
Change in fair value of equity securities		608			403
Gain from VSRM Transaction		—			8,810
Loss portfolio transfer risk fee		—			(5,400	)
Gain from sale of renewal rights		2,335			—
Other gains (losses)		—			59
Impact of income tax expense (benefit) from adjustments *		—			—
Adjusted operating income (loss)	$	(28,827	)	$	(13,048	)

Weighted average common shares, diluted		12,220,511			10,692,090

Diluted income (loss) per common share:
Net income (loss)	$	(2.12	)	$	(1.00	)
Less:
Net realized investment gains (losses)		—			(0.14	)
Change in fair value of equity securities		0.05			0.04
Gain from VSRM Transaction		—			0.82
Loss portfolio transfer risk fee		—			(0.51	)
Gain from sale of renewal rights		0.19			—
Other gains (losses)		—			0.01
Impact of income tax expense (benefit) from adjustments *		—			—
Adjusted operating income (loss) per share	$	(2.36	)	$	(1.22	)

* The Company has recorded a full valuation allowance against its deferred tax assets as of December 31, 2023 and 2022. As a result, there were no taxable impacts to adjusted operating income from the adjustments to net income (loss) in the table above after taking into account the use of NOLs and the change in the valuation allowance.

We use adjusted operating income and adjusted operating income per share, in conjunction with other financial measures, to assess our performance and to evaluate the results of our business. We believe these measures provide investors with valuable information relating to our ongoing performance that may be obscured by the effect of investment gains and losses as a result of our market risk sensitive instruments, which primarily relate to fixed income securities that are ~~available for sale~~available-for-sale and not held for trading purposes. Realized investment gains and losses may vary significantly between periods and are generally driven by external economic developments, such as capital market conditions. Accordingly, adjusted operating income excludes the effect of items that tend to be highly variable from period to period and highlights the results from our ongoing business operations and the underlying loss or profitability of our business. 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.

Executive Overview

~~In 2017, we continued~~

The Company's gross written premiums increased $5.8 million, or 4.2%, to ~~expand our commercial lines and reposition~~$143.9 million in 2023, compared to $138.0 million in 2022. This was primarily due to increased gross written premiums in our personal lines of ~~business.~~business from increases in exposure units and, to a lesser degree, increased rates. Our ~~commercial~~personal lines gross written ~~premiums grew by 4.4%~~premium increased $15.6 million, or 73.8%, to $36.8 million in ~~2017, and personal line gross written premiums decreased by 16.9% in 2017, as~~2023, compared to ~~2016.~~

~~In September 2017, we entered into an adverse development cover reinsurance agreement (the "ADC") to protect against loss development of up to $17.5~~$21.2 million in excess of stated reserves as of June 30, 2017. The agreement provides up to $17.5 million of reinsurance for adverse net loss reserve development for accident years 2005 through 2016. The agreement attaches when net losses exceed $1.4 million of the $36.6 million carried reserves at June 30, 2017, and extends to $19.5 million in coverage up to $57.5 million (inclusive of a 10% co-participation).

~~The 2017 results were mainly driven by adverse development on prior-year reserves which were incurred through September 30, 2017, the cost of the ADC, and losses from hurricanes Irma and Harvey.~~

Our expense ratio continues to improve as we have executed on rationalizing costs with growing earned premiums. In the fourth quarter of 2017, the expense ratio was 41.4%, down 4.2 percentage points from the fourth quarter of 2016.

2022.

The Company reported a net loss of ~~$21.5~~$25.9 million, or ~~$2.74~~$2.12 per share, ~~for the year ended December 31, 2017,~~in 2023, compared to a net loss of ~~$8.4~~$10.7 million, or ~~$1.11~~$1.00 per share, ~~for the year ended December 31, 2016.~~

in 2022.

Adjusted operating loss, a non-GAAP measure, was ~~$22.8~~$28.8 million, or ~~$2.90~~$2.36 per share, ~~for the year ended December 31, 2017,~~in 2023, compared to ~~an adjusted operating loss of $9.5~~$13.0 million, or ~~$1.26~~$1.22 per share, in 2022.

The 2023 results included a non-operating net gain of $2.3 million from the sale of its Security Program. See Note 2 ~ Sale of Renewal Rightsfor ~~the year ended December 31, 2016.~~

~~Potential impact of ADC on future periods~~

~~We purchased the ADC to greatly reduce our exposure to prior-year adverse development.~~ further detail.

The ~~benefits of the ADC can be seen~~2022 results included an $8.8 million non-operating gain in the fourth quarter ~~wherein we experienced $2.1~~of 2022 from the step acquisition of VSRM and subsequent sale of its security guard and alarm installation insurance brokerage business to a third party insurance brokerage firm. The Company also recorded a tax benefit of $9.4 million from the utilization of NOL carryforwards applied against the taxable gain on the transaction. The deferred tax assets associated with the NOLs had a valuation allowance against it, and thus there was the recognition of the benefit in the period it was used.

The Company entered into a loss portfolio transfer reinsurance agreement on November 1, 2022 with Fleming Re in order to reduce its exposure to future unfavorable development on its reserves. The Company was charged a one-time risk fee of $5.4 million. Fleming Re will cover an aggregate limit of $66.3 million of ~~adverse development, but retained only $33,000 of that development. In 2017, we~~ paid ~~$7.20 million in ceded premiums under the ADC, and ceded $7.19 million in losses. There remains available $10.3~~losses on $40.8 million of stated net reserves as of June 30, 2022, relating to accident years 2019 and prior. 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. As of December 31, 2023, the ~~event of additional adverse development.~~

Company has recorded losses through the $5.5 million corridor and $9.1 million into the $20.0 million layer.

In the ~~event there is additional adverse development that exceeds~~fourth quarter of 2022, the ~~cost~~Company incurred $2.0 million of ~~the ADC, that excess amount will be deemed a gain under retroactive~~losses and $1.6 million reinsurance ~~accounting rules and is required~~reinstatement costs related to be deferred and only recognized in earnings in proportion to the actual paid recoveries under the ADC. Over the life of the contract, the accounting benefit will align with economic benefit of the ADC, however we may be required to recognize losses in near-term future periods, only to recognize offsetting gains in periods further out.Hurricane Ian.

Results of Operations - ~~2017~~2023 Compared to ~~2016~~

2022

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

Summary Operating Results


	Years Ended December 31,
	2023			2022			$ Change			% Change
Gross written premiums	$	143,834		$	138,019		$	5,815			4.2	%

Net written premiums	$	68,688		$	91,232		$	(22,544	)		(24.7	%)

Net earned premiums	$	83,935		$	96,711		$	(12,776	)		(13.2	%)
Agency commission income		5,680			1,414			4,266		*
Other income		694			1,354			(660	)		(48.7	%)
Losses and loss adjustment expenses, net		82,413			81,440			973			1.2	%
Policy acquisition costs		20,892			22,179			(1,287	)		(5.8	%)
Operating expenses		17,891			18,789			(898	)		(4.8	%)
Loss portfolio transfer risk fee		—			5,400			(5,400	)	*
Underwriting gain (loss)		(30,887	)		(28,329	)		(2,558	)		(9.0	%)
Net investment income		5,526			3,043			2,483			81.6	%
Net realized investment gains (losses)		(20	)		(1,505	)		1,485		*
Change in fair value of equity securities		608			403			205		*
Gain from sale of renewal rights		2,335			—			2,335		*
Gain from VSRM Transaction		—			8,810			(8,810	)	*
Other gains (losses)		—			59			(59	)	*
Interest expense		3,206			2,971			235			7.9	%
Income (loss) before income taxes		(25,644	)		(20,490	)		(5,154	)	*
Equity earnings in Affiliate, net of tax		(251	)		368			(619	)		(168.2	%)
Income tax expense		9			(9,441	)		9,450		*
Net income (loss)	$	(25,904	)	$	(10,681	)	$	(15,223	)	*
Underwriting Ratios:
Loss ratio (1)		97.8	%		83.9	%
Expense ratio (2)		37.1	%		38.4	%
Combined ratio (3)		134.9	%		122.3	%

(1)

The loss ratio is the ratio, expressed as a percentage, of net losses and loss adjustment expenses to net earned premiums and other income from underwriting operations.

Years Ended December 31,
2017 2016 $ Change % Change

Gross written premiums $ 114,284
$ 114,923
$ (639 ) (0.6 %)
Net written premiums $ 91,240
$ 99,929
$ (8,689 ) (8.7 %)
Net earned premiums $ 91,729
$ 89,627
$ 2,102
2.3 %
Other income 1,560
1,118
442
39.5 %
Losses and loss adjustment expenses, net 73,917
59,003
14,914
25.3 %
Policy acquisition costs 26,245
25,280
965
3.8 %
Operating expenses 17,367
17,596
(229 ) (1.3 %)
Underwriting gain (loss) (24,240 ) (11,134 ) (13,106 ) *
Net investment income 2,728
2,173
555
25.5 %
Net realized investment gains 70
1,365
(1,295 ) (94.9 %)
Other gains (losses) 750
(400 ) 1,150
*
Interest expense 1,362
647
715
110.5 %
Income (loss) before income taxes (22,054 ) (8,643 ) (13,411 ) *
Income tax expense (benefit) (447 ) (77 ) (370 ) *
Equity earnings (losses) in affiliates, net of tax 65
129
(64 ) *
Net income (loss) $ (21,542 ) $ (8,437 ) $ (13,105 ) *

Underwriting Ratios:
Loss ratio 79.2 % 65.0 %
Expense ratio 46.8 % 47.2 %
Combined ratio 126.0 % 112.2 %
(2)

The expense ratio is the ratio, expressed as a percentage, of policy acquisition costs and operating 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

~~Earned premiums~~

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

Our premiums are presented below for the years ended December 31, ~~2017~~2023 and ~~2016~~2022 (dollars in thousands):

Summary of Premium Revenue

Years Ended December 31,
2017 2016 $ Change % Change

Gross written premiums
Commercial lines $ 92,112
$ 88,242
$ 3,870
4.4 %
Personal lines 22,172
26,681
(4,509 ) (16.9 %)
Total $ 114,284
$ 114,923
$ (639 ) (0.6 %)

Net written premiums
Commercial lines $ 78,217
$ 78,439
$ (222 ) (0.3 %)
Personal lines 13,023
21,490
(8,467 ) (39.4 %)
Total $ 91,240
$ 99,929
$ (8,689 ) (8.7 %)

Net Earned premiums
Commercial lines $ 76,786
$ 68,921
$ 7,865
11.4 %
Personal lines 14,943
20,706
(5,763 ) (27.8 %)
Total $ 91,729
$ 89,627
$ 2,102
2.3 %


	Years Ended December 31,
	2023		2022		$ Change			% Change
Gross written premiums
Commercial lines	$	107,078	$	116,868	$	(9,790	)		(8.4	%)
Personal lines		36,756		21,151		15,605			73.8	%
Total	$	143,834	$	138,019	$	5,815			4.2	%

Net written premiums
Commercial lines	$	36,580	$	72,318	$	(35,738	)		(49.4	%)
Personal lines		32,108		18,914		13,194			69.8	%
Total	$	68,688	$	91,232	$	(22,544	)		(24.7	%)

Net Earned premiums
Commercial lines	$	59,221	$	80,823	$	(21,602	)		(26.7	%)
Personal lines		24,714		15,888		8,826			55.6	%
Total	$	83,935	$	96,711	$	(12,776	)		(13.2	%)

Gross written premiums remained flat for the year ended December 31, 2017, as compared to 2016. These results reflect our continued execution of our growth initiatives in the niche commercial insurance markets and our strategic change in the mix of business of our personal lines.

~~Commercial lines gross written premiums~~ increased ~~$3.9~~by $5.8 million, or ~~4.4%~~4.2%, to ~~$92.1~~$143.8 million for the year ended December 31, ~~2017, as~~2023, compared to ~~$88.2~~$138.0 million for the year ended December 31, ~~2016. This increase was seen across almost every commercial product line as a result of our continued strategic expansion efforts.~~

~~Personal~~2022.

Commercial lines gross written premiums decreased ~~$4.5~~$9.8 million,, or ~~16.9%~~8.4%, to ~~$22.2~~ $107.1 million, for the year ended December 31, ~~2017, as~~2023, compared to ~~$26.7~~$116.9 million for the ~~same period~~year ended December 31, 2022. Gross written premiums for our hospitality programs decreased by $5.5 million, or 20.5%, to $21.5 million for the year ended December 31, 2023, compared to $27.0 million for the year ended December 31, 2022. Gross written premiums for our small business programs decreased by $4.3 million, or 4.7%, to $85.6 million, for the year ended December 31, 2023, compared to $89.9 million for the year ended December 31, 2022. In both the hospitality and small business programs, the reductions in ~~2016. This~~premiums were due to the Company’s concerted efforts to reduce writings in individual lines of business and jurisdictions that were the least profitable.

Personal lines gross written premiums increased $15.6 million, or 73.8%, to $36.8 million for the year ended December 31, 2023, compared to $21.2 million for the year ended December 31, 2022. The increase was largely driven by ~~a reduction~~increased policy counts in ~~wind-exposed~~Texas and Oklahoma. The Company is expected to discontinue writing in Oklahoma in the second quarter of 2024. Oklahoma homeowners ~~business~~represented $17.1 million of the Company’s gross written premium in ~~both Florida and Texas.~~

2023. Texas homeowners is expected to continue to grow.

Net written premiums decreased ~~$8.7~~$22.5 million, or ~~8.7%~~24.7%, to $68.7 million, for the year ended December 31, 2023, compared to $91.2 million for the year ended December 31, ~~2017,~~2022.

As part of the Security Program transaction, the Company ceded 100% of its gross unearned premium related to the program as ~~compared~~of September 30, 2023. This increased the Company's net ceded written premium by $18.8 million in its commercial lines of business for the year ended December 31, 2023. Commercial lines net written premiums further decreased due to ~~$99.9~~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 50% quota share treaty applies to a subset of our commercial business that represents approximately 12.0% of our gross written premiums for the year ended December 31, 2023. The Company ceded $10.3 million of written premium related to this quota share reinsurance agreement for the twelve months ended December 31, 2023.

Agency Commission Income

Commission income is received by the Company’s insurance agency for writing policies for third-party insurance companies. Agency commission income increased by $4.3 million to $5.7 million for the year ended December 31, ~~2016.~~2023, compared to $1.4 million for the year ended December 31, 2022. The ~~decrease~~increase was ~~primarily~~ due to ~~$7.2~~the Company's Security Program

transaction in September of 2023. As part of the arrangement with the buyer, our managing general agency, CIS, is appointed as the producer for this business, for approximately a two-year transition period. During this time our wholesale agency segment will receive a commission from the buyer, and pay a sub-producer substantially the same commission. This will result in higher consolidated other income for the Company. Policy acquisition costs will remain substantially the same amount for the period of this agreement. In 2023, the Company recorded $5.2 million of ~~ceded written premium recorded in the third quarter~~commission revenue and $5.2 million of ~~2017 relating to the ADC.~~

commission expense as a result of this arrangement.

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 orand policy issuance costs. ~~Commission~~Other income ~~is also received~~decreased by ~~the Company’s insurance agencies for writing policies for third party insurance companies. Other income~~$660,000, or 48.7%, to $694,000 for the year ended December 31, ~~2017 increased $442,000, or 39.5%, to $1.5 million as~~2023, compared to ~~$1.1~~$1.4 million for the year ended December 31, ~~2016.~~2022. The ~~increase~~decrease in other income was ~~due to continued expansion into lines of business in which various fees are charged~~mostly related to the ~~policyholders.~~

homeowners business that was originally produced within the consolidated Company during 2022. This homeowners business was contributed to SSU in December of 2022, resulting in a significant decline in other income during 2023.

Losses and Loss Adjustment Expenses

The tables below detail our losses and LAE and loss ratios for the years ended December 31, ~~2017~~2023 and ~~2016~~2022 (dollars in thousands).

Year Ended December 31, 2017
Commercial
Lines

Personal
Lines
Total

Accident year net losses and LAE $ 48,520
$ 15,937
$ 64,457
Net (favorable) adverse development 7,181
2,279
9,460
Calendar year net loss and LAE $ 55,701
$ 18,216
$ 73,917

Accident year loss ratio 62.7 % 101.4 % 69.1 %
Net (favorable) adverse development 9.3 % 14.5 % 10.1 %
Calendar year loss ratio 72.0 % 115.9 % 79.2 %

Year Ended December 31, 2016
Commercial
Lines

Personal
Lines
Total

Accident year net losses and LAE $ 35,652
$ 13,130
$ 48,782
Net (favorable) adverse development 6,789
3,432
10,221
Calendar year net loss and LAE $ 42,441
$ 16,562
$ 59,003

Accident year loss ratio 51.4 % 61.8 % 53.7 %
Net (favorable) adverse development 9.8 % 16.1 % 11.3 %
Calendar year loss ratio 61.2 % 77.9 % 65.0 %


Year Ended December 31, 2023	Commercial Lines			Personal Lines			Total
Accident year net losses and LAE	$	43,622		$	20,958		$	64,580
Net (favorable) adverse development		19,206			(1,373	)		17,833
Calendar year net loss and LAE	$	62,828		$	19,585		$	82,413

Accident year loss ratio		73.4	%		84.5	%		76.6	%
Net (favorable) adverse development		32.3	%		(5.6	)%		21.2	%
Calendar year loss ratio		105.7	%		78.9	%		97.8	%


Year Ended December 31, 2022	Commercial Lines			Personal Lines			Total
Accident year net losses and LAE	$	46,884		$	10,272		$	57,156
Net (favorable) adverse development		23,878			406			24,284
Calendar year net loss and LAE	$	70,762		$	10,678		$	81,440

Accident year loss ratio		57.9	%		64.3	%		58.9	%
Net (favorable) adverse development		29.4	%		2.6	%		25.0	%
Calendar year loss ratio		87.3	%		66.9	%		83.9	%

Net losses and LAE increased by ~~$14.9~~$973,000, or 1.2%, to $82.4 million ~~or 25.3%,~~ for the year ended December 31, ~~2017, as~~2023, compared to $81.4 million for the ~~same period in 2016. The increase was due to a combination of $9.5 million of adverse reserve development from prior years and $5.4 million of net losses from Hurricanes Harvey and Irma.~~year ended December 31, 2022. The calendar year loss ratios were ~~79.2%~~97.8% and ~~65.0%~~83.9% for the years ended December 31, ~~2017~~2023 and ~~2016,~~2022, respectively. The ~~hurricanes contributed 6.4 percentage points to the 2017 loss ratio. The ADC resulted in approximately a 1.5 percentage point~~ increase in losses was attributable to both higher current accident year losses as well as reserve strengthening on prior year accident years.

Current accident year losses were higher mostly as a result of significant storm activity in the ~~loss ratio~~Oklahoma homeowners line in the spring and early summer of 2023. Commercial lines current accident year losses were lower mostly due to an improved mix of business in 2023 as ~~slightly~~compared to prior years. The Company's quick service restaurant program, which generated large losses in prior years and $2.7 million of accident year losses in 2022, only generated $270,000 of accident year losses in 2023. We would expect no more accident year losses from the quick service restaurant program going forward as the premiums were ~~ceded under~~fully earned out as of December 31, 2023. The sale of the ~~ADC than~~Security Program included ceding 100% of the unearned premiums on this program as of September 30, 2023, resulting in a significantly reduced amount of accident

year losses for this program in ~~2017.~~ the fourth quarter of 2023. This program represented 35.3% of the Company’s net earned premiums for the year-to-date period ending as of September 30, 2023, and zero percent in the fourth quarter of 2023.

The ~~14.2 percentage point increase in our loss ratio was primarily attributable to the reserve strengthening in our Florida homeowners, commercial automobile and commercial liability lines of business.~~

~~The $9.5~~Company experienced $19.2 million of adverse development in 2017 consisted of $7.18 million from commercial lines and $2.3 million from personal lines and mostly related to the 2016 and 2015 accident years. Substantially all of this development occurred in the first three quarters of 2017 and primarily consisted of $5.1 million from commercial liability business, $1.6 million from the commercial property, $1.7 million from Florida homeowners and $0.5 million from commercial auto business.

~~Overall reserve development on prior accident years~~ for the year ended December 31, ~~2016, was unfavorable by $10.2~~2023, related to the Company's commercial lines of business, while the Company experienced $1.4 million ~~or 11.3 percentage points~~ of favorable development in its personal lines of business.

Of the ~~loss ratio. The development included $2.7~~$19.2 million of adverse development for the Company's commercial lines for year ended December 31, 2023, $7.2 million was related to accident year 2022, $6.9 million was related to accident year 2021, and $4.9 million was related to accident year 2020 and $173,000 was 2019 and prior years. The development came primarily from commercial liability lines of business particularly in ~~both~~ the ~~wind-exposed homeowners and commercial auto~~longer tail lines of business, as a result of additional loss emergence primarily from the Security Program which represented 58% of the adverse development while the remainder was substantially in hospitality, most notably the quick service restaurant program. Both the Security Program and the quick service restaurant program are no longer written by the Company. As a result of this loss emergence, the Company increased its expected loss ratio selections on both prior accident years as well as ~~$2.6~~the current accident year, resulting in increases to our carried loss reserves.

The Company experienced $24.3 million ~~and $760,000~~ of adverse development infor the ~~hospitality line~~year ended December 31, 2022. Of the $24.3 million of ~~business and personal auto~~adverse development, $23.9 million was related to the Company's commercial lines of business, ~~respectively.~~

while $406,000 was related to the Company's personal lines of business. Of the $24.3 million of adverse development, $1.8 million was related to the 2021 accident year, $4.0 million was related to the 2020 accident year, $9.6 million was related to the 2019 accident year, $5.2 million was related to the 2018 accident year, and $3.7 million was related to 2017 and prior accident years. The adverse development was mostly related to the Company's commercial liability lines and was driven by multiple factors including significant social inflation generating higher severity than historical experience, and longer tail exposure than anticipated, particularly in certain jurisdictions.

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 ~~operating~~other underwriting expenses by the sum of net earned premiums and other ~~income. We use~~income of the ~~expense ratio to evaluate the operating efficiency of our consolidated operations and each segment.~~underwriting business. Costs that ~~are not~~cannot be readily identifiable as a direct cost of a segment or product line remain in Corporate ~~and Other~~ for segment reporting purposes.

The expense ratio excludes wholesale agency and Corporate expenses.

The table below provides the expense ratio by major component:

Years Ended December 31,
2017 2016
Before ADC or Reinstatement Costs Impact of ADC & Reinstatement Costs Total
Commercial Lines
Policy acquisition costs 24.7 % 1.7 % 26.4 % 26.8 %
Operating expenses 13.7 % 1.0 % 14.7 % 9.7 %
Total 38.4 % 2.7 % 41.1 % 36.5 %

Personal Lines
Policy acquisition costs 31.5 % 5.2 % 36.7 % 31.6 %
Operating expenses 14.0 % 2.3 % 16.3 % 13.7 %
Total 45.5 % 7.5 % 53.0 % 45.3 %

Corporate and Other
Operating expenses 3.7 % — % 3.7 % 8.7 %
Total 3.7 % — % 3.7 % 8.7 %

Consolidated
Policy acquisition costs 25.9 % 2.2 % 28.1 % 27.8 %
Operating expenses 17.2 % 1.4 % 18.6 % 19.4 %
Total 43.1 % 3.6 % 46.7 % 47.2 %


	Years Ended December 31,
	2023			2022

Commercial Lines
Policy acquisition costs		15.3	%		21.8	%
Operating expenses		20.2	%		16.1	%
Total		35.5	%		37.9	%

Personal Lines
Policy acquisition costs		26.8	%		28.8	%
Operating expenses		13.9	%		12.2	%
Total		40.7	%		41.0	%

Total Underwriting
Policy acquisition costs		18.8	%		23.0	%
Operating expenses		18.3	%		15.4	%
Total		37.1	%		38.4	%

Our expense ratio decreased by ~~half of a percentage point,~~1.3% to ~~46.7%~~37.1% for the year ended December 31, ~~2017,~~2023, as compared to the same period in ~~2016. The decrease in the ratio was primarily due to continued improvement in our operating efficiencies as our earned premium grew faster than our more fixed expense structure.~~2022. The decrease was ~~dampened~~driven by ~~the impact of both the hurricanes and ADC which occurred~~a reduction in the ~~third quarter of 2017. During 2017, $7.2 million~~policy acquisition costs ratio and was ceded to the ADC (a one-time charge) and $806,000 was ceded as reinstatement costs of catastrophe reinsurance relating to Hurricane Irma. Before these two costs, the expense ratio would have declined even further, to 43.1% for the year, and 41.1%partially offset by an increase in the ~~fourth quarter of 2017.~~operating expense ratio.

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 ~~increased~~decreased by 4.2%, from 23.0% in 2022, to ~~28.1% for the year ended December 31, 2017, compared to 27.8%~~18.8% in ~~2016.~~2023. The ~~increase~~decrease was primarily ~~due to the decrease in net earned premiums~~ related to the ADC and reinstatement ceded premiums. Before the $7.2 million and $806,000 of ceded earned premiums, the policy acquisition cost ratio in 2017, was 25.9%, a 1.9 percentage point reduction. Our directadditional ceding commissions, which reduces commission expense, ~~rate was consistent between 2016 and 2017.~~

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 income ~~was 18.6% and 19.4% for the years ended December 31, 2017 and 2016, respectively. Earned premium growth on a more fixed~~increased by 2.9%, from 15.4% in 2022, to 18.3% in 2023. The operating expense ~~structure has helped~~ratios were higher primarily due to ~~reduce~~increased reinsurance costs due to the ~~operating expense ratio,~~new quota share reinsurance treaty mentioned above, which ~~is expected to continue to decline as our~~lowered net earned ~~premium grows. In addition, there have been Company-wide efforts to reduce operating expenses even with growing earned~~ premiums. Dampening the effects of the growth in earned premium and expense reductions was the impact of the ADC and reinstatement premiums. Before the impact of the ADC and reinstatement premiums, the operating expense ratio was 17.2% for the year and only 15.4% in the fourth quarter of 2017.

Underwriting 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 years ended December 31, ~~2017~~2023 and ~~2016~~2022 (dollars in thousands):

Underwriting Gain (Loss)

Years Ended December 31,
2017 2016 $ Change % Change

Commercial Lines $ (10,096 ) $ 1,531
$ (11,627 ) (759.4 )%
Personal Lines (10,838 ) (4,929 ) (5,909 ) 119.9 %
Corporate and Other (3,306 ) (7,736 ) 4,430
(57.3 )%
Total $ (24,240 ) $ (11,134 ) $ (13,106 ) *

* Percentage change is not meaningful


	Years Ended December 31,
	2023			2022			Change
Commercial Lines	$	(24,512	)	$	(25,845	)	$	1,333
Personal Lines		(4,882	)		(1,248	)	$	(3,634	)
Total Underwriting		(29,394	)		(27,093	)		(2,301	)
Wholesale Agency		(495	)		(553	)		58
Corporate		(1,067	)		(921	)		(146	)
Eliminations		69			238			(169	)
Total underwriting income (loss)	$	(30,887	)	$	(28,329	)	$	(2,558	)

Investment Income

Net investment income increased by ~~$555,000,~~$2.5 million, or ~~25.5%~~81.6%, to ~~$2.7~~$5.5 million for the year ended December 31, ~~2017, as~~2023, compared to ~~$2.1~~$3.0 million for the year ended December 31, ~~2016.~~2022. This increase was ~~mainly~~ due to ~~the growth of the investment portfolio.~~an increase in interest income in our debt securities due to higher interest rates in 2023. Average invested assets during 2023 were $141.7 million compared to $160.1 million for the same period in 2022. The investment portfolio was comprised of 84.1% debt securities, 1.6% equity securities, and 14.3`% short-term investments as of December 31, ~~2017, were $143.1 million~~2023. The investment portfolio was comprised of 81.2% debt securities, 3.5% equity securities, and 15.3% short-term investments as ~~compared to $123.1 million~~of December 31, 2022.

The debt securities portfolio had an average credit quality was AA+ at December 31, ~~2016, an increase of $20.0 million, or 16.2%. As of December 31, 2017, the average invested asset balance was comprised of 87.3% debt securities, 5.0% equity securities~~2023 and ~~7.9% short-term investments, compared to the December 31, 2016 mix of 89.4% debt securities, 3.6% equity securities and 7.0% short term investments.~~

~~The portfolio’s average quality was AA at December 31, 2017 and 2016.~~2022, respectively. The portfolio produced a ~~tax equivalent~~tax-equivalent book yield of~~2.5%~~ 3.3% and ~~2.2%~~2.3% for the years ended December 31, ~~2017~~2023 and ~~2016~~,2022, respectively. The ~~duration-to-worst average~~option adjusted duration of the debt securities portfolio was ~~3.2~~2.9 years and 3.5 years at December 31, ~~2017~~2023 and ~~2016.~~

~~Other~~2022, respectively.

Realized Investment Gains (Losses)

~~In 2017, we recognized a $750,000 gain on the sale~~

Net realized investment losses were $20,000 during 2023, compared to $1.5 million of ~~the renewal rights~~losses during 2022. The Company repositioned most of ~~a portion of the low value dwelling book of business~~its equity portfolio in 2022, and had minimal activity related to ~~another insurer. In 2016, as a result of the merger of ACIC into WPIC, the value of intangible assets recorded for insurance licenses on ACIC were written off resulting~~selling equity securities in ~~a $400,000 loss.~~

2023.

Interest Expense

and Preferred Dividend

Interest expense was ~~$1.4~~$3.2 million and ~~$647,000~~$2.9 million for the years ended December 31, ~~2017~~2023 and ~~2016,~~2022, respectively. ~~Interest expense increased due to the increase in outstanding debt throughout the year. We issued $30.0~~The Company repaid $24.4 million of ~~subordinated~~its 6.75% public senior unsecured notes in(the "old notes") and issued $17.9 million of 9.75% public senior unsecured notes (the "new notes") during the third quarter of ~~2017, with a current interest rate~~2023, which mature on September 30, 2028. The Company also restructured its existing $10.5 million of ~~8.0% per annum. We paid off all~~7.5% subordinated notes to $10.0 million of ~~the~~new 12.5% senior ~~debt facility from the proceeds of the subordinated notes.~~ secured notes on September 30, 2023. The senior secured notes mature on September 30, 2028.

Interest expense includes the amortization of debt issuance costs relating to the new ~~subordinated~~ notes ~~which~~and the senior secured notes. The interest expense relating to the amortization of debt issuance costs on the new notes is ~~$66,000~~$353,000 per annum over the ~~15-year~~5-year life of the new notes.

~~Income Tax Expense (Benefit)~~

~~On December 22, 2017,~~ The interest expense relating to the ~~U.S. federal government enacted H.R.1, “An Act to Provide for Reconciliation Pursuant to Titles II and V~~amortization of debt issuance costs on the senior secured notes is $189,000 per annum over the 5-year life of the ~~Concurrent Resolution on~~senior secured notes.

The increase in interest rates and debt issuance costs from the ~~Budget for Fiscal Year 2018” (the “Act”). The Act provides for significant changes~~Company's new and restructured debt during the third quarter of 2023 contributed to ~~corporate taxation including~~ the ~~decrease~~$235,000 increase in interest expense during 2023, compared to 2022.

We issued $25.3 million of the ~~corporate tax rate from 34% to 21%. We have completed an analysis~~old notes in 2018, of the impact of the Act and have followed the additional guidance provided by the Security and Exchange Commission's Staff Accounting Bulletin No. 118. We believe there are no material provisional balanceswhich, $24.4 million was outstanding as of December 31, ~~2017.~~

~~We accounted for the impacts~~2022, due to Company repurchases of the ~~Act by remeasuring our deferred tax assets and liabilities at the 21% enacted tax rate.~~old notes during 2020. The ~~approximate impact~~Company did not repurchase any of the ~~change~~old notes in ~~tax rate was a decrease in net deferred tax assets (before valuation allowance)~~2022. Interest expense includes the amortization of $5.6 million with a corresponding deferred income tax expense of $5.6 million. The valuation allowance also decreased by $5.7 million with a corresponding deferred income tax benefit of $5.7 million. Accordingly, the net deferred income tax impact on the results of operationsdebt issuance costs relating to the ~~Act was a $63,000 deferred tax benefit in 2017.~~old notes which is $260,000 per annum over the 5-year life of the Notes. The ~~Company’s net deferred tax assets~~interest expense relating to the amortization of debt issuance costs for the ~~year ended~~existing $10.5 million of the subordinated notes is $51,000 per annum over the 20-year life of the subordinated notes.

The Company had a $10.0 million line of credit during 2022, which it drew upon and paid down at various times. This contributed to the interest expense in 2022. The Company had no outstanding balance on its line of credit on December 31, ~~2016, remain~~2022, as the line of credit agreement matured on December 1, 2022, and was not renewed.

The Company also pays a dividend on its $6.0 million preferred stock. Refer to Note 13 ~ Shareholders’ Equity for further details. The preferred stock dividend is not an expense and does not impact net income. However, it does reduce net income allocable to common shareholders, earnings per share and cash flows. The Company declared $19,000 of dividends in 2023, and would expect to pay $630,000 for a full year at the ~~previously enacted tax rate.~~

current dividend rate, which is variable.

Income Tax Expense

For the year ended December 31, ~~2017,~~2023, the Company reported ~~$16,000~~$26,000 of current federal income tax benefit and ~~$12,000~~$0 of current state income tax benefit. The Company ~~also~~ reported a deferred tax benefit of ~~$419,000 which was largely~~$17,000 and $9.4 million for the

~~result of changes in the net deferred tax asset valuation allowance related to changes in unrealized gains. For the year~~ years ended December 31, ~~2016, the Company reported $0 of current federal income tax expense~~2023 and $70,000 of current state income tax expense. The Company also reported a deferred tax benefit of $147,000 related to a $400,000 write-off of intangible assets resulting from the merger of ACIC into WPIC in 2016.

2022, respectively.

There is a ~~$9.9~~$28.0 million valuation allowance against 100% of the net deferred tax assets at December 31, ~~2017, which would increase book value by $1.16 per share if reversed in the future.~~2023. The valuation allowance was ~~$8.4~~$21.7 million ~~for 2016.~~as of December 31, 2022. As of December 31, ~~2017,~~2023, the Company has net operating loss carryforwards for federal income tax purposes of ~~$43.6~~$80.8 million, of which $78.2 million expire in tax years ~~2029~~2030 through ~~2037.~~2043 and $10.3 million will never expire. Of this amount, ~~$15.1~~$19.5 million are limited in the amount that can be utilized in any one year and may expire before they are realized under Section 382 of the Internal Revenue Code. The Company has state net operating loss carryforwards of ~~$11.0~~$120.3 million, which expire in tax years ~~2029~~2024 through ~~2037.~~

~~Results of Operations - 2016 Compared to 2015~~

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

~~Summary Operating Results~~

Years Ended December 31,
2016 2015 $ Change % Change

Gross written premiums $ 114,923
$ 93,750
$ 21,173
22.6 %
Net written premiums $ 99,929
$ 79,674
$ 20,255
25.4 %
Net earned premiums $ 89,627
$ 66,765
$ 22,862
34.2 %
Other income 1,118
1,667
(549 ) (32.9 %)
Losses and loss adjustment expenses, net 59,003
38,882
20,121
51.7 %
Policy acquisition costs 25,280
16,183
9,097
56.2 %
Operating expenses 17,596
14,806
2,790
18.8 %
Underwriting gain (loss) (11,134 ) (1,439 ) (9,695 ) *
Net investment income 2,173
1,902
271
14.2 %
Net realized investment gains 1,365
285
1,080
378.9 %
Other gains (400 ) 104
(504 ) *
Interest expense 647
769
(122 ) (15.9 %)
Income (loss) before income taxes (8,643 ) 83
(8,726 ) *
Income tax expense (benefit) (77 ) 48
(125 ) *
Equity earnings (losses) in affiliates, net of tax 129
(52 ) 181
*
Net income (loss) $ (8,437 ) $ (17 ) $ (8,420 ) *

Underwriting Ratios:
Loss ratio 65.0 % 56.8 %
Expense ratio 47.2 % 45.3 %
Combined ratio 112.2 % 102.1 %

* Percentage change is not meaningful

~~Premiums~~

Earned premiums are earned ratably over the term of the policy, whereas written premiums are reflected on the effective date of the policy. All commercial lines and homeowners products have annual policies, under which premiums are earned evenly over one year. Almost all personal automobile policies are six month term policies under which premiums are earned evenly over a six-month period. The resulting net earned premiums are impacted by the gross and ceded written premiums, earned ratably over time.

~~Our premiums are presented below for the years ended December 31, 2016 and 2015 (dollars in thousands):~~

~~Summary of Premium Revenue~~

Years Ended December 31,
2016 2015 $ Change % Change

Gross written premiums
Commercial lines $ 88,242
$ 68,197
$ 20,045
29.4 %
Personal lines 26,681
25,553
1,128
4.4 %
Total $ 114,923
$ 93,750
$ 21,173
22.6 %

Net written premiums

Commercial lines $ 78,439
$ 58,157
$ 20,282
34.9 %
Personal lines 21,490
21,517
(27 ) (0.1 %)
Total $ 99,929
$ 79,674
$ 20,255
25.4 %

Net Earned premiums

Commercial lines $ 68,921
$ 48,586
$ 20,335
41.9 %
Personal lines 20,706
18,179
2,527
13.9 %
Total $ 89,627
$ 66,765
$ 22,862
34.2 %

Gross written premiums increased $21.2 million, or 22.6%, to $114.9 million for the year ended December 31, 2016, as compared to $93.8 million for the same period in 2015. The increase was driven by continued growth in our commercial lines. These results reflect our continued execution of our growth initiatives in the niche commercial insurance markets and our strategic change in the mix of business of our personal lines.

Commercial lines gross written premiums increased $20.0 million, or 29.4%, to $88.2 million for the year ended December 31, 2016, as compared to $68.2 million for the year ended December 31, 2015. This increase was primarily driven by expansion in the hospitality and security services product lines.

Personal lines gross written premiums increased $1.1 million, or 4.4%, to $26.7 million for the year ended December 31, 2016, as compared to $25.6 million for the same period in 2015. This was largely driven by favorable growth of 38% in the Company’s low-value dwelling product line, partially offset by reduction in gross written premiums in the Florida homeowners business as well as the personal automobile business which is in runoff.

Net written premiums increased $20.3 million, or 25.4%, to $99.9 million for the year ended December 31, 2016, as compared to $79.7 million for the year ended December 31, 2015. This result is consistent with the 22.6% increase in gross written premiums.

~~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 or policy issuance costs. Commission income is also received by the Company’s insurance agencies for writing policies for third party insurance companies. Other income for the year December 31, 2016 decreased $549,000, or 32.9%, to $1.1 million as compared to $1.7 million for the year ended December 31, 2015. The decrease was primarily due to the deconsolidation of the Affiliate at September 30, 2015. Prior to the deconsolidation their income was recorded as other income, since then their net profit or loss has been recorded as equity earnings.

~~Losses and Loss Adjustment Expenses~~

~~The tables below detail our losses and LAE and loss ratios for the years ended December 31, 2016 and 2015 (dollars in thousands).~~

Year Ended December 31, 2015
Commercial
Lines

Personal
Lines
Total

Accident year net losses and LAE $ 25,365
$ 12,057
$ 37,422
Net (favorable) adverse development 365
1,095
1,460
Calendar year net loss and LAE $ 25,730
$ 13,152
$ 38,882

Accident year loss ratio 51.1 % 64.6 % 54.7 %
Net (favorable) adverse development 0.7 % 5.9 % 2.1 %
Calendar year loss ratio 51.8 % 70.5 % 56.8 %

Net losses and LAE increased by $20.1 million, or 51.7%, for the year ended December 31, 2016, as compared to the same period in 2015. The increase was primarily due to a 34.2% increase in net earned premiums and $10.2 million of unfavorable reserve development from prior years. The calendar year loss ratios were 65.0% and 56.8% for the years ended December 31, 2016 and 2015, respectively. The 8.2 percentage point increase in our loss ratio was primarily attributable to the reserve strengthening in our Florida homeowners, commercial automobile and commercial liability lines of business.

Overall reserve development on prior accident years for the year ended December 31, 2016 was unfavorable by $10.2 million, or 11.3 percentage points of the loss ratio. For the year ended December 31, 2016, this was made up of $2.7 million of adverse development in both the wind-exposed homeowners and commercial auto lines of business as well as $2.6 million and $760,000 of adverse development in the hospitality line of business and personal auto lines of business, respectively.

Total reserve development on prior accident years for the year ended December 31, 2015 was unfavorable by $1.5 million, or 2.1 percentage points of the loss ratio. For the year ended December 31, 2015, there was $1.2 million and $835,000 of unfavorable reserve development in the personal automobile and commercial automobile lines, respectively. This unfavorable development was partially offset by $320,000, $189,000, and $101,000 of favorable reserve development in the workers' compensation line, the low-value dwelling lines and the other liability line, respectively.

~~Expense Ratio~~

Our expense ratio is calculated by dividing the sum of policy acquisition costs and operating expenses by the sum of net earned premiums and other income. We use the expense ratio to evaluate the operating efficiency of our consolidated operations and each segment. Costs that are not readily identifiable as a direct cost of a segment or product line remain in Corporate and Other for segment reporting purposes.

~~The table below provides the expense ratio by major component:~~

Years Ended December 31,
2016 2015

Commercial Lines
Policy acquisition costs 26.8 % 24.0 %
Operating expenses 9.7 % 10.0 %
Total 36.5 % 34.0 %

Personal Lines
Policy acquisition costs 31.6 % 22.7 %
Operating expenses 13.7 % 17.7 %
Total 45.3 % 40.4 %

Corporate and Other
Operating expenses 8.7 % 9.5 %
Total 8.7 % 9.5 %

Consolidated
Policy acquisition costs 27.8 % 23.7 %
Operating expenses 19.4 % 21.6 %
Total 47.2 % 45.3 %

Our expense ratio increased by 1.9 percentage points for the year ended December 31, 2016, as compared to the same period in 2015. The increase in the ratio was primarily due to increased policy acquisition costs as ceding commissions from a quota share agreement reduced commission expense in the first seven months of 2015. This increase was partially offset by improved operating expense ratios as we gained efficiencies from an improved earned premium base.

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 increased to 27.8% for the year ended December 31, 2016, compared to 23.7% in 2015, primarily due to the termination of a quota share reinsurance agreement in August 2015, which had previously reduced commission expense from ceding commission received from the reinsurer. The Company's direct commission expense rate was consistent between 2015 and 2016.

~~Underwriting Results~~

~~Underwriting Gain (Loss)~~

Years Ended December 31,
2016 2015 $ Change % Change

Commercial Lines $ 1,531
$ 7,035
$ (5,504 ) (78.2 )%
Personal Lines (4,929 ) (2,035 ) (2,894 ) 142.2 %
Corporate and Other (7,736 ) (6,439 ) (1,297 ) 20.1 %
Total $ (11,134 ) $ (1,439 ) $ (9,695 ) *

* Percentage change is not meaningful

~~Investment Income~~

Net investment income increased by $271,000, or 14.2%, to $2.2 million for the year ended December 31, 2016, as compared to $1.9 million for the year ended December 31, 2015. This increase was the result of growth of the investment portfolio and a change in the mix of investments. Average invested assets as of December 31, 2016 were $123.1 million as compared to $111.5 million at December 31, 2015, an increase of $11.6 million, or 10.4%. As of December 31, 2016, the average invested asset balance was comprised of 89.4% fixed maturities, 3.6% equity securities and 7.0% short-term investments, compared to the December 31, 2015 mix of 85.8% fixed maturities, 3.8% equity securities and 10.4% short term investments.

The portfolio’s average quality was AA at December 31, 2016 and 2015. The portfolio produced a tax equivalent book yield of 2.2% and 2.1% for the years ended December 31, 2016 and 2015, respectively. The duration-to-worst average of the debt securities portfolio was 3.2 years and 3.1 years at December 31, 2016 and 2015.

~~Interest Expense~~

Interest expense was $647,000 and $769,000 for the years ended December 31, 2016 and 2015, respectively. Interest expense decreased primarily due to the decrease in outstanding borrowings in 2016 until the fourth quarter when the company drew $4.0 million on the Revolver. Prior to fourth quarter the borrowings were lower because the previously outstanding borrowings under the Revolver were repaid from the proceeds received from the Company’s IPO, in August 2015.

~~Income Tax Expense~~

For the year ended December 31, 2016, the Company had $0 of current federal income tax expense due to current year losses, which can provide no benefit, and $70,000 of state income tax expense. The Company also had a deferred tax benefit of $147,000 related to a $400,000 write-off of intangible assets resulting from the merger of ACIC into WPIC in 2016. For the year ended December 31, 2015, the Company had $0 of federal income tax expense and $48,000 of state income tax expense.

The Company has established an $8.4 million valuation allowance against 100% of the net deferred tax assets for 2016, which would increase book value per share by $1.10 if reversed in the future, based on current income tax rates. The valuation allowance was $5.2 million for 2015. As of December 31, 2016, the Company has net operating loss carryforwards for federal income tax purposes of $22.8 million, which expire in tax years 2029 through 2036. Of this amount, $15.1 million are limited in the amount that can be utilized in any one year and may expire before they are realized under Section 382 of the Internal Revenue Code. The Company has state net operating loss carryforwards of $8.7 million, which expire in tax years 2030 through 2036.

2043.

Liquidity and Capital Resources

Sources and Uses of Funds

At December 31, ~~2017, we~~2023, the Company had ~~$23.3~~$32.0 million in cash, cash equivalents, and short-term ~~investments.~~investments, of which, $16.8 million was unrestricted. Our principal sources of funds ~~excluding capital raises, are~~have historically been insurance premiums, investment income, proceeds from maturity and sale of invested assets and

~~installment fees.~~ other income. These funds are primarily used to pay claims, commissions, employee compensation, taxes and other operating expenses, and service debt.

~~We believe that our existing cash, short-term investments~~

In December 2023, the Company issued $6.0 million of Series A Preferred Stock. The Company intends to use the proceeds for working capital and ~~investment securities balances~~general corporate purposes.

During 2024, based on the capital structure as of December 31, 2023, the Company will be ~~adequate~~required to ~~meet our capital~~make $1.0 million of principal payments on the senior secured notes, $630,000 of preferred dividend payments and ~~liquidity needs and~~approximately $3.3 million of interest on all of the ~~needs~~Company's debt instruments, all of ~~our subsidiaries on a short-term and long-term basis.~~

which are paid quarterly.

We conduct our business operations primarily through our Insurance Company ~~Subsidiaries.~~Subsidiaries and our wholesale agency. Our ability to service debt, and pay administrative expenses is primarily reliant upon our intercompany service fees paid by the Insurance Company Subsidiaries and wholesale agency to the holding company for management, administrative, and information technology services provided to the Insurance Company Subsidiaries and the wholesale agency by the ~~holding company.~~Parent

Company. Secondarily, the ~~holding company~~Parent Company may receive dividends from the Insurance Company ~~Subsidiaries;~~Subsidiaries and wholesale agency; however, this is not the primary means in which the holding company supports its funding as state insurance laws restrict the ability of our Insurance Company Subsidiaries to declare dividends to the ~~holding company under certain circumstances.~~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. ~~There~~We received $1.4 million in dividends paid from RCIC in 2023. No dividends were ~~no dividends~~ paid from our Insurance Company Subsidiaries in 2022, and do not anticipate any dividends being paid to us from our insurance subsidiaries during ~~the year ended December 31, 2017. There were $5.5~~2024 and 2025.

We contributed $400,000, $6.8 million and ~~$3.1 million of dividends paid from our Insurance Company Subsidiaries to the holding company during the years ended December 31, 2016 and 2015, respectively.~~

~~We contributed $20.9~~$11.4 million to our Insurance Company Subsidiaries in ~~2017~~2023 and 2022, respectively.

Largely due to ~~increase their~~reserve strengthening during 2023 in our Insurance Company Subsidiaries, we incurred a consolidated net loss of $25.9 million. We used cash from operation activities of $13.6 million and our overall equity at December 31, 2023 totaled $2.9 million. As a result of these factors, we were out of compliance with several of our debt covenants and obtained a waiver from our lender. The aforementioned factors have presented additional liquidity and capital challenges on the Company’s financial condition.

Both Insurance Company Subsidiaries lack sufficient capital to continue to underwrite the volume of business they have historically written. As part of our strategic shift, going forward we plan to utilize third-party insurers and rely mostly on commission revenues in our managed general agency, CIS. Substantially all of our commercial lines business will be no longer be written by our insurance company subsidiaries by the end of the second quarter of 2024. However, we do plan to continue to write a limited amount of the personal lines on CIC. We do not expect to be writing any business in WPIC by the end of the second quarter of 2024.

As of the filing of this Form 10-K, the Insurance Company Subsidiaries are still the primary underwriters for the business produced by CIS and still the primary source of revenues and cash flows. The Insurance Company Subsidiaries are currently both required to provide an action plan with the state of domicile insurance regulator to remediate certain statutory capital and surplus ~~levels.~~regulatory deficiencies. If we do not remediate the regulatory deficiencies the insurance regulator could suspend or terminate the insurers’ authority to write business. Also, A.M. Best and Kroll downgraded the financial strength ratings of both companies and we terminated the rating relationship. Therefore, neither company is currently rated by a nationally recognized statistical rating organization which can have an impact on the ability to market to policyholders. We believe that the ~~current statutory surplus levels~~Insurance Company Subsidiaries will both regain compliance with the state insurance regulators, however, as part of the strategic shift, we no longer expect significant revenues to be generated through them after the second quarter of 2024. These circumstances could jeopardize the ability of the Company to generate insurance underwriting revenues which could raise substantial doubt on our ability to meet our obligations as they become due.

To alleviate these concerns the Company is in the process of implementing the strategic shift mentioned above which will not require the use of either Insurance Company Subsidiary to generate the majority of the Company’s revenues going forward. Rather, the Company will expect to generate the vast majority of its revenue from commissions from third-party insurers. In order to successfully implement the strategic shift the Company must have in place producer agreements with third-party insurers. Currently the Company has executed one producer agreement for approximately 25% of the existing commercial lines book of business and is expected to execute another producer agreement with a different third-party insurer for the ~~funds available at~~remaining commercial lines business within a a short period of time of filing this Form 10-K. We expect to continue to underwrite the ~~holding company level will provide~~existing personal lines business within our Insurance Company Subsidiaries.

With these producer agreements in place the ~~necessary statutory capital~~Company expects to ~~support~~be able to generate the needed revenues to meeting our ~~premium volume growth~~obligations as they become due over the next ~~two years.~~

~~On August 18, 2015,~~twelve months. In the event there are delays in implementing the strategic shift or other uncertainties arise with respect to completion of our strategic shift during 2024, these events could have a negative effect on our liquidity and ability to satisfy our obligations as they become due. If the Company ~~completed~~were to experience any such uncertainties, the Company believes it has alternative sources of liquidity available which are sufficient to cover any short-term needs as a result of any such uncertainties encountered. Management believes the current actions being executed to

implement the planned strategic shift coupled with additional availablesources of available liquidity, will be sufficient to enable the Company to meet its ~~IPO~~obligations for the foreseeable future.

Our outstanding public debt securities are currently trading at a discount to their face amount. In order to reduce future cash interest payments, as well as future amounts due at maturity or upon redemption, we may, from time to time, purchase such debt for cash, in ~~which it issued and sold 3,300,000 shares of~~exchange for common stock, ator for a ~~price~~combination of ~~$10.50 per share.~~cash and common stock, in open market or privately negotiated transactions. We will evaluate any such transactions in light of then-existing market conditions, taking into account our current liquidity and prospects for future access to capital. The ~~Company received net proceeds of $30.4 million after deducting underwriting discounts and commissions of $2.4 million and other offering expenses of $1.8 million.~~

amounts involved in such transactions, individually or in the aggregate, may be material.

Cash Flows

Operating ~~Activities~~.Activities. Cash ~~provided by~~used in operating activities for the year ended December 31, ~~2017,~~2023 was ~~$9.1~~$13.6 million as compared to $40.5 million for the same period in 2022. The $26.9 million decrease in cash used in operating activities ~~of $6.2~~was primarily due to a $35.1 million ~~for~~decrease in net losses paid, a $8.9 million decrease in acquisition costs paid on our underwriting business and a $1.0 million decrease in operating expenses paid. These decreases were offset by a $23.4 million decrease in net premiums collected during the ~~year ended~~year. Funds held under reinsurance agreements were $24.6 million and $11.0 million at December 31, ~~2016.~~2023 and 2022, respectively. The ~~increase~~impact of changes in funds held contributed $2.4 million to the decrease in cash ~~provided by operations was attributable to the overall growth of the business.~~

used in operating activities during 2023.

Cash ~~provided by~~used in operating activities for the year ended December 31, ~~2016,~~2022 was ~~$6.2~~$40.5 million as compared to cash ~~used in~~provided by operating activities of ~~$3.1~~$5.4 million for ~~December 31, 2015.~~the same period in 2021. The $45.9 million decrease was primarily due to a $45.2 million increase in ~~cash provided~~paid losses and $8.0 million decrease in premiums collected, net of reinsurance premiums and a $5.4 million risk fee paid. This decrease was offset by ~~operations was attributable~~a $6.9 million decrease in the amount of acquisition costs paid during 2022 compared to ~~the overall growth of the business.~~

2021.

Investing Activities. Cash used in investing activities for the year ended December 31, ~~2017,~~2023 was ~~$26.0 million as~~$272,000 compared to ~~$10.8~~$56.5 million ~~for the same period in 2016. The increase in funds used in~~of cash provided by investing activities in 2022. The $56.8 million decrease in cash provided by investing activities over the prior year was ~~due to~~driven by a $102.0 million decrease in proceeds from sales of investments, a $9.9 million decrease in proceeds from maturities and redemptions of investments and a $32.8 million decrease in proceeds from the sale of the agency business that occurred in 2022. These decreases were offset by an ~~increase~~$83.4 million decrease in ~~funds available to be invested in our investment portfolios in the insurance subsidiaries.~~

~~Net~~ cash used for purchases of investments in 2023 compared to 2022.

Cash provided by investing activities for the year ended December 31, ~~2015,~~2022 was ~~$15.3~~$56.5 million ~~and~~compared to $1.4 million in 2021. The $55.1 million increase in cash provided by investing activities over the prior year was ~~primarily attributable~~driven by $34.3 million increase in net proceeds from sale of investments in 2022, compared to ~~net investments into~~the same period in 2021. The Company also experienced an increase of $32.8 million from its sale of agency business in 2022, compared to the same period in 2021.

Financing Activities. Cash used in financing activities for the years ended December 31, 2023, was $3.2 million compared to $2.1 million of cash provided by financing activities for years ended December 31, 2022. The $5.3 million decrease was largely attributed to the Company paying down $13.9 million of its existing public debt ~~securities of $23.9 million,~~that was due on September 30, 2023. This was offset by the ~~sale~~Company borrowing an additional $6.7 million in debt and raising $6.0 million of ~~short-term investments~~preferred stock in December 2023, compared to $5.0 million of ~~$10.3 million.~~

~~Financing Activities.~~proceeds from common stock in 2022.

Cash provided by financing activities for the ~~year~~years ended December 31, ~~2017,~~2022, was ~~$16.2~~$2.1 million as compared to ~~$4.4~~$5.0 million ~~for the same period in 2016. The higher~~of cash ~~provided~~used by financing activities ~~in 2017~~for years ended December 31, 2021. The $7.1 million increase was ~~from~~largely attributed to the Company raising $5.0 million ~~of proceeds from~~through the issuance of additional common stock ~~and the issuance~~in August 2022.

Outstanding Debt

The Company issued $17.9 million of ~~a $30.0 million subordinated debt offering, offset by issuance costs and the payment in full of the~~public senior ~~debt facility.~~

In 2015, we received net funds of $30.4 million from our IPO and received proceeds of $3.1 million for common stock issued to former holders of preferred stock. We also received proceeds from our revolving line of creditunsecured notes ("New Public Notes") during the ~~year~~third quarter of ~~$4.4 million. In addition, we used $6.3 million~~2023. The New Public Notes bear an interest rate of the proceeds to repurchase outstanding shares of preferred stock, and pay preferred dividends. We also used $17.0 million to pay off our revolving line of credit, and used $1.8 million for our routine payments on our term loans.

~~Outstanding Debt~~

~~We are a party to $30.0 million in subordinated notes, effective September 29, 2017. The notes have a maturity date of September 29, 2032, bear interest,~~9.75% per annum, payable quarterly at ~~a fixed annual rate~~the end of ~~8.0%,~~March, June, September and ~~allows for up to four quarterly interest deferrals. On~~December and mature on September 30, 2028. The Company may redeem the ~~fifth and tenth anniversary of the notes, the interest rate resets to 1,250 basis points and 1,500 basis points, respectively, above the 5-year mid-swap rate. The~~New Public Notes, ~~include an issuer call option~~in whole or in part, at ~~par from July 31, 2018, through October 31, 2018, and~~face value at ~~105% of par~~ any time after September 30, 2025.

The Company paid down $500,000 of principal on its $10.5 million of subordinated notes on September 29, ~~2020.~~2023. The Company then restructured its existing $10.0 million of subordinated notes to senior secured notes ("Senior Secured Notes") with its lender on September 30, 2023. The Senior Secured Notes mature on September 30, 2028, and bear an interest rate of 12.5% per annum. Interest is payable quarterly at the end of March, June, September, and December. Quarterly principal payments of $250,000 are required starting on December 31, 2023 through September 30, 2028. The Company may redeem the Senior Secured Notes, in whole or in part, for a call premium of $1.8 million less 22% of the interest payment amounts that were paid prior to the date of redemption. As of December 31, 2023, the Company was not in compliance with the tangible net worth, dividend paying capacity, risk-based capital and consolidated debt to capital covenants on its Senior Secured Notes. On March 27, 2024, the holders of the senior secured notes waived the December 31, 2023 covenants, and waived any future instances of non-compliance with the same covenants going forward through May 31, 2025. Management expects to be in compliance with all debt covenants in future periods.

As of December 31, 2023, the carrying value of the New Public Notes isand Senior Secured Notes were offset

by ~~$973,000~~$1.7 million and $897,000 of capitalized debt issuance costs, ~~that will be~~respectively. The debt issuance costs are amortized through interest expense over the life of the ~~loan.~~loans. Refer to Note 710 ~ Debt ~~of the Notes to the consolidated financial statements,~~ for additional information regarding our outstanding debt.

The Company maintained a $10.0 million line of credit with a national bank that matured on December 1, 2022. The line of credit was not renewed after it matured. The line of credit contained interest at the London Interbank rate ("LIBOR") plus 2.75% per annum, payable monthly.

On April 24, 2020, the Company received a $2.7 million PPP loan from the line of credit lender pursuant to the Paycheck Protection Program of the CARES Act administered by the SBA. The Company received notice from the SBA that the loan was 100% forgiven, including accrued interest, on July 8, 2021. This resulted in a $2.8 million gain that is included in Other Gains on the Consolidated Statement of Operations.

Contractual Obligations and Commitments

The following table is a summary of our contractual obligations and commitments as of December 31, ~~2017~~2023 (dollars in thousands):


	Payments due by period
	Total		Less than one year		One to three years		Three to five years		More than five years
Senior unsecured notes	$	17,887	$	—	$	—	$	17,887	$	—
Interest on senior unsecured notes		8,284		1,744		3,488		3,052		—
Senior secured notes		9,750		1,000		2,000		6,750		—
Interest on senior secured notes		4,453		1,172		1,969		1,312		—
Lease obligations		1,302		274		460		390		178
Unpaid loss and loss adjustment expense (1)		174,612		50,948		68,901		37,081		17,682
Purchase Obligations (2)		1,020		360		660		—		—
Total	$	217,308	$	55,498	$	77,478	$	66,472	$	17,860

(1)

Payments due by period
Total Less than one year One to three years Three to five years More than five years

Subordinated debt $ 30,000
$ —
$ —
$ —
$ 30,000
Interest on subordinated debt 59,371
2,400
4,800
5,306
46,865
Operating Lease Obligations 5,083
940
1,702
1,362
1,079
Loss and loss adjustment expense (1) 87,896
33,323
33,845
15,238
5,490
Purchase Obligations (2) 1,710
360
720
630
—
Total $ 184,060
$ 37,023
$ 41,067
$ 22,536
$ 83,434

~~(1)~~ The estimated unpaid loss and loss adjustment expense payments were made using estimates based on historical payment patterns. However, future payments may be different than historical payment patterns.

(2)

Includes estimated future payments under the software license agreement relating to our policy issuance system. This agreement requires minimum monthly payments of $30,000, and is variable with premium volume. The future payment assumptions are based on the minimum monthly payments. The software license agreement expires on ~~September 30, 2022.~~November 1, 2026.

Regulatory and Rating Issues

The NAIC has a RBC formula to be applied to all property and casualty insurance companies. The formula measures required capital and surplus based on an insurance company’s products and investment portfolio and is used as a tool to

evaluate the capital adequacy of regulated companies. The RBC formula is used by state insurance regulators to monitor trends in statutory capital and surplus for the purpose of initiating regulatory action. In general, an insurance company must submit a calculation of its RBC formula to the insurance department of its state of domicile as of the end of the previous calendar year. These laws require increasing degrees of regulatory oversight and intervention as an insurance company’s RBC declines.

At December 31, ~~2017, both~~2023, CIC fell within the Company Action Level of ~~our Insurance Company Subsidiaries were in excess~~the RBC formula and WPIC fell within the Regulatory Action Level of ~~any minimum threshold at which corrective action would be required.~~

~~Insurance operations are subject to various leverage tests (e.g., premium-to-statutory surplus ratios),~~the RBC formula. WPIC also fell below two other regulatory thresholds which are ~~evaluated~~necessary to stay in compliance. Management is required to provide a plan to its domiciliary regulator that shows how the Companies will get above the minimum level requirements. In the event the Companies do not regain compliance, the director may suspend, revoke, or limit the certificate of authority of the Companies. Management believes that the reduction in premium anticipated by ~~regulators and rating agencies. As~~the strategic shift to use third-party insurers for substantially all of its commercial lines business will be sufficient to bring the Companies back into compliance by December 31, ~~2017, on a trailing twelve-month statutory combined basis,~~2024. Management expects to substantially cease all writings in WPIC by the ~~gross written and net written premium leverage ratios were 1.8 to 1.0 and 1.5 to 1.0, respectively.~~

end of the second quarter of 2024.

The NAIC’s ~~Insurance Regulatory Information System (“IRIS”)~~IRIS was developed to assist state insurance departments in executing their statutory mandates to oversee the financial condition of insurance companies operating in their respective states. IRIS identifies thirteen industry ratios and specifies “usual values” for each ratio. State insurance regulators review the IRIS ratio results to determine if an insurer is in need of further regulatory scrutiny or action. While the ratios, individually and collectively, are useful tools for identifying companies that may be experiencing financial difficulty, they are only a guide for regulators and should not be considered an absolute indicator of a Company's financial condition. While inquiries from regulators are not uncommon, our Insurance Company Subsidiaries have not experienced any regulatory actions due to their IRIS ratio ~~results or otherwise.~~

results.

Recently Issued Accounting Pronouncements

Refer to Note 1 ~ Summary of Significant Accounting ~~Policies –~~Policies: Recently Issued Accounting Guidance of the Notes to the Consolidated Financial Statements for detailed information.

ITEM 7A. 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, ~~as well as,~~ 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 risk exposures and how those exposures are currently managed as of December 31, ~~2017.~~2023. Our market risk sensitive instruments are primarily related to fixed income securities, which are ~~available for sale~~available-for-sale and not held for trading purposes.

Interest Rate Risk

At December 31, ~~2017~~2023 and ~~2016,~~2022, the fair value of our investment portfolio, excluding cash and cash equivalents, was ~~$157.7~~$146.0 million and ~~$128.5~~$137.4 million, respectively. Our investment portfolio consists principally of investment-grade, fixed-income securities, ~~all of which are~~ classified as debt securities. Accordingly, the primary market risk exposure to our debt ~~securities~~portfolio is interest rate risk. In general, the fair market value of a portfolio of fixed-income securities increases or decreases inversely with changes in market interest rates, while net investment income realized from future investments in fixed-income 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 ~~duration-to-worst average~~option adjusted duration of the debt securities portfolio was 2.9 and 3.5 years as of December 31, ~~2017~~2023 and ~~2016, was 3.2 years.~~2022, respectively.

The table below summarizes our interest rate risk. The table also illustrates the sensitivity of the fair value of our investments, classified as debt securities and short-term investments, to selected hypothetical changes in interest rates as of December 31, ~~2017.~~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 fixed-income portfolio and shareholders’ equity (dollars in thousands).

Hypothetical Percentage
Increase (Decrease) in
Hypothetical Change in Interest Rates
As of December 31, 2017

Estimated
Fair Value

Estimated
Change in
Fair Value
Fair Value
Shareholders'
Equity

200 basis point increase $ 138,789
$ (9,174 ) (6.2 )% (17.4 )%
100 basis point increase 143,376
(4,587 ) (3.1 )% (8.7 )%
No change 147,963
—
— % — %
100 basis point decrease 152,106
4,143
2.8 % 7.8 %
200 basis point decrease 155,805
7,842
5.3 % 14.8 %


						Hypothetical Percentage Increase (Decrease) in
Hypothetical Change in Interest Rates As of December 31, 2023	Estimated Fair Value		Estimated Change in Fair Value			Fair Value			Shareholders' Equity
200 basis point increase		135,941	$	(7,714	)		(5.4	)%		(267.0	)%
100 basis point increase		139,647		(4,008	)		(2.8	)%		(138.7	)%
No change		143,655		—			—			—
100 basis point decrease		147,979		4,324			3.0	%		149.7	%
200 basis point decrease		152,590		8,935			6.2	%		309.3	%

Credit Risk

An additional exposure to our debt securities portfolio is credit risk. We manage our credit risk by investing ~~only~~primarily 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.~~

security or issuer.

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 December 31, ~~2017~~2023 and ~~2016,~~2022, the net amount due to the Company from reinsurers, including prepaid reinsurance, was ~~$25.6~~$112.3 million and ~~$11.6~~$99.6 million, respectively. 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 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Refer to list of Financial Statement Schedules (including the Report of Independent Registered Public Accounting Firm referenced therein) set forth in Item 15 of this Annual Report on Form ~~10-K and Note 19 ~~~ ~~Quarterly Financial Data (Unaudited)~~ ~~of the Notes to the Consolidated Financial Statements.~~

10-K.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

ITEM 9A. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

The Company’s management, including its Chief Executive Officer 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 December 31, ~~2017.~~2023. Based on such evaluations, the Chief Executive Officer 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 Company’s Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

Management’s Annual Report on Internal Control over Financial Reporting

The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f). The Company’s management, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Company’s internal control over financial reporting based on the framework in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, the Company’s management has concluded that, as of December 31, ~~2017,~~2023, the Company’s internal control over financial reporting was effective.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

There was no change in internal controls over financial reporting during the quarter ended December 31, ~~2017~~2023 that has materially affected, or is reasonably likely to materially effect, our internal controls over financial reporting.

Attestation Report of the Registered Public Accounting Firm

This Annual Report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting as required by Section 404(c) of the Sarbanes Oxley Act of ~~2002. Because we qualify as an emerging growth~~2002 due to the Company’s small reporting company ~~under the JOBS Act, management's report was not subject to attestation by our independent registered public accounting firm.~~

status elected on Form 10-K.

ITEM 9B. OTHER INFORMATION

During the three months ended December 31, 2023, none of the Company’s directors or Section 16 officers adopted or terminated any contract, instruction or written plan for the purchase or sale of Company securities that was intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) of the Exchange Act or any “non-Rule 10b5-1 trading arrangement.”

ITEM 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections

Not applicable.

~~None.~~

PART III

Certain information required by Part III is omitted from this Report in that the Registrant will file a definitive Proxy Statement pursuant to Regulation 14A (the “Proxy Statement”) not later than 120 days after the end of the fiscal year covered by this report and certain information included therein is incorporated herein by reference. Only those sections of the Proxy Statement that specifically address the items set forth herein are incorporated by reference.

ITEMS 10 to 14

Items 10 through 14 (inclusive) of this Part III are not included herein because the Company will file a definitive Proxy Statement with the SEC that will include the information required by such Items, and such information is incorporated herein by reference. The Company’s Proxy Statement will be filed with the SEC and delivered to stockholders in connection with the Annual Meeting of Shareholders to be held on May ~~16, 2017~~22, 2024 and the information under the following captions is included in such incorporation by reference: “Information about the Nominees, the Incumbent Directors and Other Executive Officers,” “Corporate Governance,” “Code of Conduct,” “Report of the Audit Committee,” “Section 16(a) Beneficial Ownership Reporting Compliance,”~~“Compensation~~ “Compensation of Executive Officers,” “Director Compensation,” “Report of the Compensation Committee of the Board on Executive Compensation,”“Compensation Committee Interlocks and Insider ~~Participation”,“Security~~Participation,” “Security Ownership of Certain Beneficial Owners and ~~Management”,~~ Management,” “Certain Relationships and Related Party Transactions,”“Independence Determination,” and ~~“The~~“The Second Proposal on Which You are Voting on Ratification of Appointment of Independent Registered Public Accounting Firm."Our Code of Business Conduct and Ethics can be found on our website www.cnfrh.com.

CONIFER HOLDINGS, INC. AND SUBSIDIARIES

PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES

The following documents are filed as part of this Report:


		Page No.
1.	List of Financial Statements
	Report of Independent Registered Public Accounting Firm (PCAOB ID No. 166)	60
	Consolidated Balance Sheets – December 31, 2023 and 2022	63
	Consolidated Statements of Operations – For Years Ended December 31, 2023 and 2022	64
	Consolidated Statements of Comprehensive Income (Loss) – For Years Ended December 31, 2023 and 2022	65
	Consolidated Statement of Changes in Shareholders’ Equity – For Years Ended December 31, 2023 and 2022	66
	Consolidated Statements of Cash Flows – For Years Ended December 31, 2023 and 2022	67
	Notes to Consolidated Financial Statements	69
2.	Financial Statement Schedules
	Schedule I – Summary of Investments Other Than Investments in Related Parties – Omitted as information is included in the consolidated financial statements or notes thereto - See Note 5 ~ Investments
	Schedule II – Condensed Financial Information of Registrant	102
	Schedule III – Supplementary Insurance Information – Omitted as information is included in the consolidated financial statements or notes thereto - See Note 20 ~ Segment Information
	Schedule IV – Reinsurance – Omitted as information is included in the consolidated financial statements or notes thereto See Note 9 ~ Reinsurance
	Schedule V – Valuation and Qualifying Accounts	106
	Schedule VI – Supplemental Information Concerning Property and Casualty Insurance Operations – Omitted as information is included in the consolidated financial statements and notes thereto
3.	Exhibits – The Exhibits listed on the accompanying Exhibit Index immediately following the Financial Statement Schedules are filed as part of, or incorporated by reference into, this Form 10-K	107

Page No.
1. List of Financial Statements
Report of Independent Registered Public Accounting Firm on Financial Statements 54
Consolidated Balance Sheets – December 31, 2017 and 2016 55
Consolidated Statements of Operations – For Years Ended December 31, 2017, 2016 and 2015 56
Consolidated Statements of Comprehensive Income (Loss) – For Years Ended December 31, 2017, 2016 and 2015 57
Consolidated Statement of Changes in Redeemable Preferred Stock and Shareholders’ Equity – For Years Ended December 31, 2017, 2016 and 2015 58
Consolidated Statements of Cash Flows – For Years Ended December 31, 2017, 2016 and 2015 59
Notes to Consolidated Financial Statements 60
2. Financial Statement Schedules
Schedule I – Summary of Investments Other Than Investments in Related Parties – Omitted as information is included in the consolidated financial statements or notes thereto
Schedule II – Condensed Financial Information of Registrant 96
Schedule III – Supplementary Insurance Information – Omitted as information is included in the consolidated financial statements or notes thereto
Schedule IV – Reinsurance – Omitted as information is included in the consolidated financial statements or notes thereto
Schedule V – Valuation and Qualifying Accounts 100
Schedule VI – Supplemental Information Concerning Property and Casualty Insurance Operations – Omitted as information is included in the consolidated financial statements or notes thereto
3. Exhibits – The Exhibits listed on the accompanying Exhibit Index immediately following the financial statement schedule are filed as part of, or incorporated by reference into, this Form 10-K 101

~~REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM~~

Report of Independent Registered Public Accounting Firm

To the Shareholders and ~~the~~ Board of Directors of

Conifer Holdings, Inc.

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheets of Conifer Holdings, Inc. ~~and subsidiaries~~ (the ~~"Company"~~“Company”) as of December 31, ~~2017~~2023 and ~~2016,~~2022; the related consolidated statements of ~~operations,~~income, comprehensive income, ~~(loss), changes in redeemable preferred stock and shareholders'~~shareholders’ equity, and cash flows for ~~each of~~ the ~~three~~ years ~~in the period~~ ended December 31, ~~2017,~~2023 and 2022; and the related notes ~~and the schedules listed in the Index at Item 15~~ (collectively referred to as the ~~"financial statements"~~“financial statements”).

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, ~~2017~~2023 and ~~2016,~~2022 and the results of its operations and its cash flows for ~~each of~~ the ~~three~~ years ~~in the period~~ ended December 31, ~~2017,~~2023 and 2022 in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

~~These~~

The Company's management is responsible for these financial ~~statements are the responsibility of the Company's management.~~statements. Our responsibility is to express an opinion on the ~~Company's~~Company’s financial statements based on our ~~audits.~~audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ~~(PCAOB)~~(“PCAOB”) and are required to be independent with respect to the Company in accordance with ~~the~~ U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our ~~audits~~audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our ~~audits,~~audit, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the ~~Company’s~~Company's internal control over financial reporting. Accordingly, we express no such opinion.

Our ~~audits~~audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our ~~audits~~audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our ~~audits provide~~audit provides a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current year audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing a separate opinion on the critical audit matters or on the accounts or disclosures to which they relate.

Liability for Unpaid Losses and Loss Adjustment Expenses - Refer to Notes 1 and 8 to the Financial Statements

Critical Audit Matter Description

The Company’s estimated liability for unpaid losses and loss adjustment expense (LAE) totaled $175 million at December 31, 2023. The Company’s reserve for unpaid losses and LAE represents the estimated ultimate cost of settling all claims incurred related to insured events that have occurred as of the reporting date. The Company determines the reserve for unpaid losses and LAE on an individual-case basis for those claims reported as of December 31, 2023, with bulk reserves for additional development, if any, on the reported claims and an estimate for unpaid losses and LAE for all claims incurred related to insured events that have occurred as of December 31, 2023 but have not yet been reported by the policyholders to the Company (collectively referred to as incurred but not reported, or IBNR). The Company estimates IBNR reserves by projecting ultimate losses using industry-accepted actuarial methods. Management engages an independent actuarial firm to

prepare an actuarial analysis of unpaid losses and LAE and provides a statement of actuarial opinion on management’s estimate of unpaid losses and LAE.

Estimating the liability for unpaid losses and LAE requires significant judgment, relating to factors such as claim development patterns, severity, type and jurisdiction of loss, economic conditions, legislative development, and a variety of actuarial assumptions. Estimating the liability for unpaid losses and LAE is inherently uncertain, dependent on management’s judgment, and significantly impacted by claim and actuarial factors and conditions that may change over time. The ultimate settlement of unpaid losses and LAE may vary materially from the recorded liability, and such variance may adversely affect the Company’s financial results. For these reasons, we identified the estimate of unpaid losses and LAE as a critical audit matter, as it involved especially subjective auditor judgment.

How the Critical Audit Matter was Addressed in the Audit

Our audit procedures related to the unpaid losses and LAE reserve included the following, among others:

•

We obtained an understanding and evaluated the design of key controls over the process and data used by management to estimate the liability for unpaid losses and LAE, including those controls related to the estimation of and management’s review of the estimated liability of unpaid losses and LAE.

•

We tested the completeness, integrity, and accuracy of the underlying data used by the Company’s actuaries, such as paid loss data, case reserve data, loss adjustment expense data, and loss development tables.

•

With assistance from our engaged actuarial specialist, we reviewed the reasonableness of the methods and assumptions used by the Company and their engaged actuary to develop their unpaid losses and LAE reserve estimate.

•

We performed additional analysis over certain lines of business where historical development of losses could have a significant impact on the current estimate of unpaid losses.

•

We evaluated management’s prior year estimate for unpaid losses and LAE and the factors leading to changes in the estimate recognized in the current year.

Going Concern Analysis – Refer to Note 1 of the Financial Statements

Critical Audit Matter Description

As described in Note 1 to the Company’s consolidated financial statements, the Company has experienced continued net losses, negative operating cash flows, significant adverse claim development, and has breached multiple debt covenants (that have subsequently been waived through May 31, 2025). Management has developed cash flow projections based on management’s plans which they believe will allow the Company to meet its obligations for twelve months from the date of issuance of the consolidated financial statements.

Auditing management’s going concern analysis and the evaluation and disclosure of liquidity was challenging because of the subjectivity used by management when evaluating whether the Company will meet its obligations as they come due, which are based on significant future actions by management.

How the Critical Audit Matter was Addressed in the Audit

The primary procedures we performed to audit this critical audit matter included the following:

•

We obtained an understanding and evaluated the design of management’s internal controls over developing the Company's going concern analysis. We evaluated the design of controls over management's process to forecast financial results and liquidity for one year after the date the consolidated financial statements are issued, including management's review of significant assumptions and the completeness and accuracy of underlying data use in the forecast.

•

To assess the Company’s ability to forecast revenue, we compared historical revenue to actual results. We assessed the reasonableness of the Company’s assumptions related to forecasted revenue, including expected premium volume in comparison to historical experience and other sources of future revenue and considered whether the assumptions were consistent with evidence obtained in other areas of the audit.

•

We evaluated the sensitivity and impact of reasonably possible changes in the key assumptions and estimates, including management’s ability to execute a planned change in business strategy, potential uncertainty in timing of execution of such a transition in strategy, and management's projections of future claims expense, based on historical adverse development as well as other sources of liquidity available to the Company.

•

We addressed whether management plans were considered probable of being implemented, and when considered with other potential sources of liquidity available to the Company, were considered sufficient to overcome the current liquidity challenges present.

•

We also evaluated management's liquidity disclosures in the consolidated financial statements for accuracy and completeness.

/s/ ~~Deloitte~~Plante & ~~Touche LLP~~

~~Detroit, Michigan~~

~~March 15, 2018~~

Moran, PLLC

We have served as the ~~Company's~~Company’s auditor since ~~2010.~~2022.

East Lansing, Michigan

April 1, 2024

CONIFER HOLDINGS, INC. AND SUBSIDIARIES

Consolidated Balance Sheets

(dollars in thousands)

December 31,
2017 2016
Assets
Investment securities:
Debt securities, at fair value (amortized cost of $137,004 and $113,915, respectively) $ 136,536
$ 113,163
Equity securities, at fair value (cost of $8,629 and $4,283, respectively) 9,687
4,579
Short-term investments, at fair value 11,427
10,788
Total investments 157,650
128,530

Cash 11,868
12,493
Premiums and agents' balances receivable, net 22,845
24,538
Receivable from Affiliate 1,195
1,751
Reinsurance recoverables on unpaid losses 20,066
6,658
Reinsurance recoverables on paid losses 4,473
840
Prepaid reinsurance premiums 1,081
4,120
Deferred policy acquisition costs 12,781
13,290
Other assets 7,073
11,481
Total assets $ 239,032
$ 203,701

Liabilities and Shareholders' Equity
Liabilities:
Unpaid losses and loss adjustment expenses $ 87,896
$ 54,651
Unearned premiums 57,672
58,126
Reinsurance premiums payable 3,299
—
Debt 29,027
17,750
Accounts payable and accrued expenses 8,312
5,380
Total liabilities 186,206
135,907

Commitments and contingencies (Note 17) —
—

Shareholders' equity:
Common stock, no par value (100,000,000 shares authorized; 8,520,328 and 7,633,070 issued and outstanding, respectively) 86,199
80,342
Accumulated deficit (33,010 ) (11,468 )
Accumulated other comprehensive income (loss) (363 ) (1,080 )
Total shareholders' equity 52,826
67,794
Total liabilities and shareholders' equity $ 239,032
$ 203,701


	December 31,
	2023			2022
Assets
Investment securities:
Debt securities, at fair value (amortized cost of $135,370 and $127,119, respectively)	$	122,113		$	110,201
Equity securities, at fair value (cost of $2,385 and $1,905, respectively)		2,354			1,267
Short-term investments, at fair value		20,838			25,929
Total investments		145,305			137,397

Cash and cash equivalents		11,125			28,035
Premiums and agents' balances receivable, net		29,369			21,802
Receivable from Affiliate		1,047			1,261
Reinsurance recoverables on unpaid losses		70,807			82,651
Reinsurance recoverables on paid losses		12,619			6,653
Prepaid reinsurance premiums		28,908			16,399
Deferred policy acquisition costs		6,285			10,290
Other assets		6,339			7,862
Total assets	$	311,804		$	312,350
Liabilities and Shareholders' Equity
Liabilities:
Unpaid losses and loss adjustment expenses	$	174,612		$	165,539
Unearned premiums		65,150			67,887
Reinsurance premiums payable		246			6,144
Debt		25,061			33,876
Funds held under reinsurance agreements		24,550			11,084
Premiums payable to other insureds		13,986			—
Accounts payable and accrued expenses		5,310			8,870
Total liabilities		308,915			293,400

Commitments and contingencies		—			—

Shareholders' equity:
Preferred stock, no par value (10,000,000 shares authorized; 1,000 and 0 issued and outstanding, respectively)		6,000			—
Common stock, no par value (100,000,000 shares authorized; 12,222,881 and 12,215,849 issued and outstanding, respectively)		98,100			97,913
Accumulated deficit		(86,683	)		(60,760	)
Accumulated other comprehensive income (loss)		(14,528	)		(18,203	)
Total shareholders' equity		2,889			18,950
Total liabilities and shareholders' equity	$	311,804		$	312,350

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

CONIFER HOLDINGS, INC. AND SUBSIDIARIES

Consolidated Statements of Operations

(dollars in thousands, except per share data)

Year Ended December 31,
2017 2016 2015
Revenue
Gross earned premiums $ 114,737
$ 104,713
$ 89,216
Ceded earned premiums (23,008 ) (15,086 ) (22,451 )
Net earned premiums 91,729
89,627
66,765
Net investment income 2,728
2,173
1,902
Net realized investment gains 70
1,365
285
Other gains (losses) 750
(400 ) 104
Other income 1,560
1,118
1,667
Total revenue 96,837
93,883
70,723

Expenses
Losses and loss adjustment expenses, net 73,917
59,003
38,882
Policy acquisition costs 26,245
25,280
16,183
Operating expenses 17,367
17,596
14,806
Interest expense 1,362
647
769
Total expenses 118,891
102,526
70,640

Income (loss) before income taxes (22,054 ) (8,643 ) 83
Income tax expense (benefit) (447 ) (77 ) 48
Equity earnings (losses) in affiliates, net of tax 65
129
(52 )

Net income (loss) (21,542 ) (8,437 ) (17 )
Less net loss attributable to noncontrolling interest —
—
(81 )
Net income (loss) attributable to Conifer $ (21,542 ) $ (8,437 ) $ 64

Net income (loss) allocable to common shareholders $ (21,542 ) $ (8,437 ) $ (476 )

Net income (loss) allocable to common shareholders per share, basic and diluted
$ (2.74 ) $ (1.11 ) $ (0.09 )

Weighted average common shares outstanding, basic and diluted
7,867,344
7,618,588
5,369,960


	Year Ended December 31,
	2023			2022
Revenue and Other Income
Gross earned premiums	$	146,572		$	135,401
Ceded earned premiums		(62,637	)		(38,690	)
Net earned premiums		83,935			96,711
Net investment income		5,526			3,043
Net realized investment gains (losses)		(20	)		(1,505	)
Change in fair value of equity securities		608			403
Gain from VSRM Transaction		—			8,810
Loss portfolio transfer risk fee		—			(5,400	)
Gain from sale of renewal rights		2,335			—
Other gains (losses)		—			59
Agency commission income		5,680			1,414
Other income		694			1,354
Total revenue and other income		98,758			104,889

Expenses
Losses and loss adjustment expenses, net		82,413			81,440
Policy acquisition costs		20,892			22,179
Operating expenses		17,891			18,789
Interest expense		3,206			2,971
Total expenses		124,402			125,379

Income (loss) before income taxes		(25,644	)		(20,490	)
Equity earnings (losses) in Affiliate, net of tax		(251	)		368
Income tax expense (benefit)		9			(9,441	)

Net income (loss)	$	(25,904	)	$	(10,681	)
Preferred stock dividends		19			—
Net income (loss) allocable to common shareholders		(25,885	)		(10,681	)

Earnings (loss) per common share, basic and diluted	$	(2.12	)	$	(1.00	)

Weighted average common shares outstanding, basic and diluted		12,220,511			10,692,090

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

CONIFER HOLDINGS, INC. AND SUBSIDIARIES

Consolidated Statements of Comprehensive Income (Loss)

(dollars in thousands)

Year Ended December 31,
2017 2016 2015
Net income (loss) $ (21,542 ) $ (8,437 ) $ (17 )

Other comprehensive income (loss), net of tax:
Unrealized investment gains (losses):
Unrealized investment gains (losses) during the period 1,151
(2,139 ) (274 )
Income tax expense (benefit) 356
—
—
Unrealized investment gains (losses), net of tax 795
(2,139 ) (274 )

Less: reclassification adjustments to:
Net realized investment gains included in net income (loss) 78
(877 ) 702
Income tax expense —
—
—
Total reclassifications included in net income (loss), net of tax 78
(877 ) 702

Other comprehensive income (loss) 717
(1,262 ) (976 )

Total comprehensive income (loss) (20,825 ) (9,699 ) (993 )
Less comprehensive income (loss) attributable to noncontrolling interest —
—
(81 )
Comprehensive income (loss) attributable to Conifer $ (20,825 ) $ (9,699 ) $ (912 )


	Year Ended December 31,
	2023			2022
Net income (loss)	$	(25,904	)	$	(10,681	)

Other comprehensive income (loss), net of tax:
Unrealized investment gains (losses):
Unrealized investment gains (losses) during the period		3,624			(16,024	)
Income tax expense (benefit)		—			—
Unrealized investment gains (losses), net of tax		3,624			(16,024	)
Less: reclassification adjustments to:
Net realized investment gains (losses) included in net income (loss)		(51	)		69
Income tax expense (benefit)		—			—
Total reclassifications included in net income (loss), net of tax		(51	)		69

Other comprehensive income (loss)		3,675			(16,093	)

Total comprehensive income (loss)	$	(22,229	)	$	(26,774	)

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

~~Notes to Consolidated Financial Statements~~

CONIFER HOLDINGS, INC. AND SUBSIDIARIES

Consolidated Statement of Changes in ~~Redeemable Preferred Stock and~~ Shareholders' Equity

(dollars in thousands)

For the Years ended December 31, 2017, 2016 and 2015

Redeemable
Preferred Stock
Preferred Stock No Par, Common Stock
Retained
Earnings
(Accumulated
deficit)

Accumulated
Other
Comprehensive
Income (Loss)

Total Conifer
Holdings
Shareholders'
Equity

Shares Amount Shares Amount Shares Amount
Noncontrolling
Interest
Total Equity
Balances at December 31, 2014 60,600
$ 6,119
—
$ —
3,995,013
$ 46,119
$ (3,095 ) $ 1,158
$ 44,182
$ (23 ) $ 44,159
Net income (loss) —
—
—
—
—
—
64
—
64
(81 ) (17 )
Issuance of common stock (Pre IPO)* —
—
—
—
55,029
750
—
—
750
—
750
Paid-in-kind dividends —
61
—
95
—
(156 ) —
—
(61 ) —
(61 )
Cash dividends paid on preferred stock —
—
—
—
—
(384 ) —
—
(384 ) —
(384 )
Reclassification of redeemable preferred stock to permanent equity
(60,600 ) (6,180 ) 60,600
6,180
—
—
—
—
6,180
—
6,180
Issuance of common stock (IPO)* —
—
—
—
3,300,000
32,224
—
—
32,224
—
32,224
IPO Expenses* —
—
—
—
—
(1,837 ) —
—
(1,837 ) —
(1,837 )
Repurchase of preferred stock —
—
(60,600 ) (6,275 ) —
—
—
—
(6,275 ) —
(6,275 )
Issuance of common stock to former preferred stockholders
—
—
—
—
294,450
3,092
—
—
3,092
—
3,092
RSU expense ** —
—
—
—
—
303
—
—
303
—
303
Deconsolidation of affiliate —
—
—
—
—
—
—
—
—
104
104
Other comprehensive loss —
—
—
—
—
—
—
(976 ) (976 ) —
(976 )
Balances at December 31, 2015 —
$ —
—
$ —
7,644,492
$ 80,111
$ (3,031 ) $ 182
$ 77,262
$ —
$ 77,262
Net loss —
—
—
—
—
—
(8,437 ) —
(8,437 ) —
(8,437 )
Repurchase of common stock —
—
—
—
(88,650 ) (625 ) —
—
(625 ) —
(625 )
RSU expense ** —
—
—
—
77,228
856
—
—
856
—
856
Other comprehensive loss —
—
—
—
—
—
—
(1,262 ) (1,262 ) —
(1,262 )
Balances at December 31, 2016 —
$ —
—
$ —
7,633,070
$ 80,342
$ (11,468 ) $ (1,080 ) $ 67,794
$ —
$ 67,794
Net loss —
—
—
—
—
—
(21,542 ) —
(21,542 ) —
(21,542 )
Issuance of common stock in private placement —
—
—
—
800,000
5,000
—
—
5,000
—
5,000
Common stock issuance costs —
—
—
—
(38 ) —
—
(38 ) —
(38 )
RSU expense, net ** —
—
—
—
87,258
895
—
—
895
—
895
Other comprehensive income —
—
—
—
—
—
—
717
717
—
717
Balances at December 31, 2017 —
—
—
—
8,520,328
$ 86,199
$ (33,010 ) $ (363 ) $ 52,826
$ —
$ 52,826

* "IPO" - initial public offering

** "RSU" - restricted stock units


	No Par, Preferred Stock				No Par, Common Stock						Retained Earnings			Accumulated Other			Total
	Shares		Amount		Shares			Amount			(Accumulated deficit)			Comprehensive Income (Loss)			Shareholders' Equity
Balances at January 1, 2022		—		—		9,707,817			92,692			(50,079	)		(2,110	)		40,503
Net income (loss)		—		—		—			—			(10,681	)		—			(10,681	)
Repurchase of common stock		—		—		(1,968	)		10			—			—			10
Issuance of common stock private placement		—		—		2,500,000			5,000			—			—			5,000
Stock-based compensation expense		—		—		10,000			211			—			—			211
Other comprehensive income (loss)		—		—		—			—			—			(16,093	)		(16,093	)
Balances at December 31, 2022		—	$	—		12,215,849		$	97,913		$	(60,760	)	$	(18,203	)	$	18,950
Net income (loss)		—		—		—			—			(25,904	)		—			(25,904	)
Issuance of preferred stock		1,000		6,000		—			—			—			—			6,000
Repurchase of common stock		—		—		(1,968	)		(3	)		—			—			(3	)
Cash dividends paid on preferred stock		—		—		—			—			(19	)		—			(19	)
Stock-based compensation expense		—		—		9,000			190			—			—			190
Other comprehensive income (loss)		—		—		—			—			—			3,675			3,675
Balances at December 31, 2023		1,000	$	6,000		12,222,881		$	98,100		$	(86,683	)	$	(14,528	)	$	2,889

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

~~Notes to Consolidated Financial Statements~~

CONIFER HOLDINGS, INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(dollars in thousands)

Year Ended December 31,
2017 2016 2015
Cash Flows from Operating Activities
Net income (loss) $ (21,542 ) $ (8,437 ) $ (17 )
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:

Depreciation and amortization 372
401
398
Amortization of bond premium and discount, net 532
589
629
Net realized investment gains (70 ) (1,365 ) (285 )
Other (gains) losses —
400
(104 )
Restricted stock unit expenses 895
856
303
Other (484 ) (277 ) (53 )
Changes in operating assets and liabilities:
(Increase) decrease in:
Premiums, agents' balances and other receivables 2,249
(6,487 ) (3,765 )
Reinsurance recoverables (17,041 ) (454 ) (1,905 )
Prepaid reinsurance premiums 3,039
(637 ) 6,027
Deferred policy acquisition costs 509
(1,188 ) (6,423 )
Other assets 4,239
(7,139 ) (904 )
Increase (decrease) in:
Unpaid losses and loss adjustment expenses 33,245
19,229
3,891
Unearned premiums (454 ) 10,210
4,535
Reinsurance premiums payable 3,299
(1,069 ) (6,000 )
Accounts payable and other liabilities 302
1,534
537
Net cash provided by (used in) operating activities 9,090
6,166
(3,136 )
Cash Flows From Investing Activities
Purchases of investments (218,492 ) (166,965 ) (118,620 )
Proceeds from maturities and redemptions of investments 25,213
13,730
1,400
Proceeds from sales of investments 167,338
142,679
103,416
Purchases of property and equipment (13 ) (195 ) (167 )
Deconsolidation of affiliate —
—
(1,323 )
Net cash used in investing activities (25,954 ) (10,751 ) (15,294 )
Cash Flows From Financing Activities
Proceeds received from issuance of shares of common stock 5,000
—
36,066
Repurchase of common stock —
(625 ) —
Repurchase of preferred stock —
—
(6,275 )
Borrowings under debt arrangements 32,000
7,000
4,400
Repayment of borrowings under debt arrangements (19,750 ) (2,000 ) (19,212 )
Dividends paid to preferred shareholders —
—
(384 )
Payout of contingent consideration —
—
(113 )
Stock and debt issuance costs (1,011 ) —
(1,837 )
Net cash provided by financing activities 16,239
4,375
12,645
Net increase (decrease) in cash (625 ) (210 ) (5,785 )
Cash at beginning of period 12,493
12,703
18,488
Cash at end of period $ 11,868
$ 12,493
$ 12,703
Supplemental Disclosure of Cash Flow Information:
Interest paid $ 876
$ 641
$ 844
Net income taxes paid —
—
—
Paid-in-kind dividends —
—
61
Payable for securities - non cash item 2,691
486
20


	Year Ended December 31,
	2023			2022
Cash Flows from Operating Activities
Net income (loss)	$	(25,904	)	$	(10,681	)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Gain from sale of renewal rights		(2,335	)		—
Gain upon consolidation of VSRM (1) and sale of agency business		—			(10,052	)
Depreciation and amortization		545			417
Amortization of bond premium and discount, net		(871	)		320
Net realized investment (gains) losses		20			1,505
Change in fair value of equity securities		(608	)		(403	)
Loss on sale of fixed assets		—			33
Deferred Income tax expense		(17	)		(9,396	)
Stock-based compensation expenses		190			211
Equity (earnings) loss in Affiliate, net of tax		251			(368	)
Other		—			60
Changes in operating assets and liabilities:
(Increase) decrease in:
Premiums, agents' balances and other receivables		(7,549	)		(594	)
Reinsurance recoverables		5,878			(47,613	)
Prepaid reinsurance premiums		(12,509	)		(8,098	)
Deferred policy acquisition costs		4,005			1,977
Other assets		250			(138	)
Increase (decrease) in:
Unpaid losses and loss adjustment expenses		9,073			26,454
Unearned premiums		(2,737	)		2,618
Funds held under reinsurance agreements		13,450			11,100
Reinsurance premiums payable		(5,898	)		826
Premiums payable to other insureds		13,986			—
Accounts payable and other liabilities		(2,612	)		1,348
Net cash provided by operating activities		(13,392	)		(40,474	)
Cash Flows From Investing Activities
Purchases of investments		(234,869	)		(318,227	)
Proceeds from maturities and redemptions of investments		10,424			20,324
Proceeds from sales of investments		222,772			324,091
Proceeds from sale of renewal rights		2,335			—
Proceeds from sale of agency business, net of $271 of cash disposed of (1)		—			32,759
Purchase of VSRM, net of $3,920 cash acquired (1)		—			(1,947	)
Deconsolidation of SSU (1)		—			(497	)
Contribution to SSU (1)		(934	)		—
Net cash provided by (used in) investing activities		(272	)		56,503
Cash Flows From Financing Activities
Proceeds received from issuance of shares of preferred stock		6,000			—
Proceeds received from issuance of shares of common stock		—			5,000
Proceeds from issuance of long-term debt		6,727			—
Repurchase of common stock		(3	)		10
Borrowings under lines of credit		—			19,500
Repayment of lines of credit		—			(19,500	)
Paydown of long-term debt		(13,971	)		(2,917	)
Debt issuance costs		(1,999	)		—
Net cash provided by (used in) financing activities		(3,246	)		2,093
Net increase (decrease) in cash		(16,910	)		18,122
Cash at beginning of period		28,035			9,913
Cash at end of period	$	11,125		$	28,035

(1) See Note 3 ~ VSRM Transaction

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

CONIFER HOLDINGS, INC. AND SUBSIDIARIES

Supplemental Disclosure of Cash Flow Information

(dollars in thousands)


	Year Ended December 31,
	2023		2022
Supplemental Disclosure of Cash Flow Information:
Interest paid	$	3,077	$	2,979
Income taxes paid (refunded), net		1		(11	)
Exchanging of public senior unsecured notes		11,160		—
Preferred stock dividends declared but not paid at end of period		19		—

CONIFER HOLDINGS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

1. Summary of Significant Accounting Policies

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"), Red Cedar Insurance Company ("RCIC"), White Pine Insurance Company ("WPIC"), ~~and~~Conifer Insurance Services ("CIS") formerly known as Sycamore Insurance Agency, Inc. ("~~SIA"~~Sycamore"), and VSRM, Inc. ("VSRM"). VSRM has substantially no operations following the contribution to SSU as described in Note 3 ~ VSRM Transaction. CIC, WPIC, and RCIC are collectively referred to as the "Insurance Company Subsidiaries." On a stand-alone basis Conifer Holdings, ~~Inc~~Inc. is referred to as the "Parent Company." ~~On December 30, 2016, the Company's wholly owned subsidiary, American Colonial Insurance Company~~VSRM owns a 50% non-controlling interest in Sycamore Specialty Underwriters, LLC ("~~ACIC"~~SSU" or "Affiliate") ~~was merged into WPIC.~~

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.

Business

The Company is engaged in the sale of property and casualty insurance products and has organized its principal operations into ~~two~~three types of insurance businesses: commercial lines, personal lines, and ~~personal lines.~~agency business. The Company underwrites a variety of specialty insurance products, including property, general liability, ~~commercial multi-peril,~~ 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 (“U.S.”). The Company’s corporate headquarters are located in ~~Birmingham,~~Troy, Michigan with additional office facilities in Florida ~~Pennsylvania,~~ and ~~Tennessee.~~Michigan.

The Company discontinued offering nonstandard personal automobile policies in the first half of 2015. The Company will continue to pay claims and perform other administrative services until existing policies expire and all claims are paid (a process referred to as “run-off”). The run-off was substantially complete at the end of 2016.

~~Initial Public Offering~~

In August 2015, the Company completed its initial public offering (“IPO”) whereby it issued and sold 3,300,000 shares of common stock, which included 100,000 shares issued and sold to the Company’s Chief Executive Officer, at a public offering price of $10.50 per share. Refer to Note 10 ~ ~~Shareholders’ Equity~~ ~~for further details.~~

Summary of Significant Accounting Policies

~~Affiliate~~

Prior to September 30, 2015, the consolidated financial statements included a 50%-owned affiliate, Venture Holdings, Inc. (the “Affiliate”) which the Company controlled due to its majority representation on the entity’s board of directors. Consolidated net income or loss was allocated to the Company and noncontrolling interest in proportion to their percentage ownership interests. As of September 30, 2015, the Company no longer controlled the Affiliate but retained significant influence. As a result the entity was deconsolidated from the consolidated financial statements and recognized as an investment in an affiliate utilizing the equity method of accounting.

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. In applying these estimates, management makes subjective and complex judgments that frequently require assumptions about matters that are inherently uncertain, including uncertainties associated with the Pandemic. 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 short-term investments in the consolidated balance sheets as they relate ~~principally~~ to the Company’s investment activities.

LeaseAccounting

The Company ~~maintains its~~accounts for leases under FASB Accounting Standards Update ("ASU") No. 2016-02, Leases (Topic 842), which required the recognition of a right-of-use asset and a corresponding lease liability, discounted to the present value upon initial recognition, for all leases that extend beyond 12 months. For operating leases, the asset and liability are amortized over the lease term with expense recognized on a straight-line basis and all cash ~~deposits~~flows included in ~~major banks~~the operating section of the consolidated statement of cash flows. We do not have any financing leases. Our operating leases consist primarily of real

estate utilized in the operation of our businesses with lease terms ranging from 5 to 10 years. Management has determined the appropriate discount rate to use in calculating the right-to-use asset and ~~invests short-term funds~~lease liability is 9.5%. The Company records a right-of-use asset and lease liabilities included in ~~institutional money-market funds~~Other Assets and ~~short-term financial instruments. These securities typically mature within three months or less.~~Other Liabilities in the Consolidated Balance Sheets. As of December 31, 2023, the Company had a right-of-use asset of $960,000, and lease liabilities of $1.0 million. As of December 31, 2022, the Company had a right-of-use asset of $1.3 million, and lease liabilities of $1.3 million.

~~Notes to Consolidated Financial Statements~~

Investment Securities

~~Investment securities, consisting of debt and equity~~

Debt securities are classified as ~~available for sale~~available-for-sale and reported at fair value. The Company determines the fair value using the market approach, which uses quoted prices or other relevant data based on market transactions involving identical or comparable assets. The Company purchases ~~the~~ available-for-sale debt securities with the expectation that they will be held to maturity, ~~but~~however the Company may sell them if market conditions or credit‑related risk warrant earlier sales. The Company does not have any securities classified as held-to-maturity or trading.

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 earnings.

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. Our outside investment managers assist us in this evaluation.

The change in unrealized gain and loss on ~~the investment~~debt securities is recorded as a component of accumulated other comprehensive income (loss), net of the related deferred tax effect, until realized.

The debt securities portfolio includes ~~mortgage-backed and asset-backed~~structured securities. The Company recognizes income from these securities using a constant effective yield based on anticipated prepayments and the estimated economic life of the securities. When actual prepayments differ significantly from anticipated prepayments, the estimated economic life is recalculated and the remaining unamortized premium or discount is amortized prospectively over the remaining economic life. Premiums and discounts on ~~mortgage-backed and asset-backed~~structured securities are amortized or accreted over the life of the related available‑for‑sale security as an adjustment to yield using the effective interest method. Such amortization and accretion is included in interest income in the consolidated statements of operations. Dividend and interest income are recognized when earned.

Realized gains and losses from the sale of available-for-sale securities are determined on a specific-identification basis and included in earnings on the trade date.

Equity securities that do not result in consolidation and are not accounted for under the equity method are measured at fair value and any changes in fair value are recognized in net income in the Consolidated Statements of Operations.

Investment company limited partnerships are measured at their net asset value, which approximates fair value. Any changes in the net asset value are recognized in net income in the Consolidated Statements of Operations.

~~Other-than-Temporary Impairments~~

The Company ~~reviews its impaired securities for possible other-than-temporary impairment ("OTTI") at each quarter-end. A security has an impairment loss when its~~carries other equity investments that do not have a readily determinable fair value isat cost, less ~~than its cost~~impairment and adjusted for observable price changes under the measurement alternative provided under GAAP. We review these investments for impairment during each reporting period. These investments are a component of Other Assets in the Consolidated Balance Sheets. There were no observable prices changes to the Company's other equity investments during 2023 or amortized cost at the balance sheet date. The Company considers the following factors in performing its review: (i) the amount by which the security’s fair value is less than its cost, (ii) length of time the security has been impaired, (iii) whether management has the intent to sell the security, (iv) if it is more likely than not that management will be required to sell the security before recovery of its amortized cost basis, (v) whether the impairment is due to an issuer‑specific event, credit issues or change in market interest rates, (vi) the security’s credit rating and any recent downgrades or (vii) stress testing of expected cash flows under different scenarios. If2022.

Credit Losses

Effective January 1, 2023, the Company ~~determines~~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 ~~a security has experienced an OTTI, the impairment~~ is ~~recognized as a realized investment loss in the consolidated statements of operations.~~

For each impaired security, the Company determines if: (i) it does not intend to sell the security and (ii) it will more likely than not be required to sell the security before recovery of its amortized cost basis. If the Company cannot assert these conditions, an OTTI loss is recorded through the consolidated statements of operations in the current period. For all other impaired securities, except equity securities, the Company will assess whether the net present value of the cash flows expected to be collected from the security is less than its amortized cost basis. Such a shortfall in cash flows issometimes 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 a “credit loss.” For any such security, the Company separates the impairment loss into: (i) the credit loss and (ii) the non-credit loss, which is the amount related to all other factors such as interest rate changes, fluctuations in exchange rates and market conditions. The credit loss charge is recorded to the current period statements of operations and the non-credit loss is recorded to accumulated other comprehensive income (loss), within shareholders’ equity, on an after-tax basis. A security’s cost basis is permanently reduced by the amount of a credit loss. Income is accreted over the remaining life of a debt security basedmaterial impact on the interest rate necessary to discount the expected future cash flows to the new basis. If the security is non-income producing, any cash proceeds is applied as a reduction of principal when received. For equity securities, if the impairment is deemed an OTTI, the loss is recognized in the statements of operations.Company's financial statements.

Recognition of Premium Revenues

All of the property and casualty policies written by our insurance companies are considered short-duration contracts. These ~~policies~~policy premiums are earned on a daily pro-rata basis, net of reinsurance, over the term of the policy, which are ~~six or~~primarily twelve months in duration. The portion of premiums written that relate to the unexpired terms of policies in force are deferred and reported as unearned premium at the balance sheet date. ~~Premiums on reinsured business are accounted for on a basis consistent with that used in accounting for the original policies issued and terms of the reinsurance contracts.~~

Reinsurance

Reinsurance premiums, commissions, losses and loss adjustment expenses ("LAE") on reinsured business are accounted for on a basis consistent with that used in accounting for the original policies issued and the terms of the reinsurance contracts. The amounts reported as reinsurance recoverables include amounts billed to reinsurers on losses and LAE paid as

~~Notes to Consolidated Financial Statements~~

well as estimates of amounts expected to be recovered from reinsurers on insurance liabilities that have not yet been paid. Reinsurance recoverables on unpaid losses and LAE are estimated based upon assumptions consistent with those used in establishing ~~those~~the gross liabilities as they are applied to the underlying reinsured contracts. The Company records an allowance for uncollectible reinsurance recoverables based on an assessment of the reinsurer’s creditworthiness and collectability of the recorded amounts. Management believes an allowance for uncollectible ~~recoverable~~recoverables from its reinsurers was not necessary for the periods presented.

The Company receives ceding commissions in connection with certain ceded reinsurance. The ceding commissions are recorded as a reduction of ~~operating expenses.~~

policy acquisition costs.

In ~~2017,~~2022, the Company entered into ~~an adverse development cover~~a loss portfolio transfer ("LPT") reinsurance ~~agreement (the "ADC").~~agreement. The ~~ADC~~LPT is a retroactive reinsurance contract. IfSee Note 9 ~ Reinsurance for further details regarding the cumulative claim and allocated claim adjustment expenses ceded under the ADC exceed the consideration paid, the resulting gain from such excess is deferred and amortized into earnings in future periods in proportion to actual recoveries under the ADC. In any period in which there is a gain position and a revised estimate of claim and allocated claim adjustment expenses, a portion of the deferred gain is cumulatively recognized in earnings as if the revised estimate was available at the inception date of the ADC.LPT.

Deferred Policy Acquisition Costs

Costs incurred which are incremental and directly related to the successful acquisition of new or renewal insurance business isare deferred. These deferred costs consist of commissions paid to agents (net of ceding commissions), premium taxes, and underwriting costs, including compensation and payroll related benefits. Proceeds from reinsurance transactions that represent recovery of acquisition costs reduce applicable unamortized acquisition costs in such a manner that net acquisition costs are capitalized and charged to expense. Amortization of such policy acquisition costs is charged to expense in proportion to premium earned over the estimated policy term.

To the extent that unearned premiums on existing policies are not adequate to cover the sum of expected losses and LAE, unamortized acquisition costs and policy maintenance costs, unamortized deferred policy acquisition costs are charged to expense to the extent required to eliminate the premium deficiency. If the premium deficiency is greater than the unamortized policy acquisition costs, a liability is recorded for any such deficiency. As of December 31, 2023, there was no

premium deficiency reserve. The Company considers anticipated investment income in determining whether a premium deficiency exists. Management performs this evaluation at each insurance product line level.

Unpaid Losses and Loss Adjustment Expenses

The liability for unpaid losses and LAE in the ~~consolidated balance sheets~~Consolidated Balance Sheets represents the Company’s estimate of the amount it expects to pay for the ultimate cost of all losses and LAE incurred that remain unpaid at the balance sheet date. The liability is recorded on an undiscounted ~~basis, except for the liability for unpaid losses and LAE assumed related to acquired companies which are initially recorded at fair value.~~basis. The process of estimating the liability for unpaid losses and LAE is a complex process that requires a high degree of judgment.

The liability for unpaid losses and LAE ~~represent~~represents the accumulation of individual case estimates for reported losses and LAE, and actuarially determined estimates for incurred but not reported losses and ~~LAE.~~LAE and includes a provision for estimated costs to settle all outstanding claims at the balance sheet date. The liability for unpaid losses and LAE is intended to include the ultimate net cost of all losses and LAE incurred but unpaid as of the balance sheet date. The liability is stated net of anticipated deductibles, salvage and subrogation, and gross of reinsurance ceded. The estimate of the unpaid losses and LAE liability is continually reviewed and updated. Although management believes the liability for losses and LAE is reasonable, the ultimate liability may be more or less than the current estimate.

The estimation of ultimate liability for unpaid losses and LAE is a complex, imprecise and inherently uncertain process, and therefore involves a considerable degree of judgment and expertise. The Company utilizes various actuarially‑accepted reserving methodologies in deriving the continuum of expected outcomes and ultimately determining its estimated liability amount. These methodologies utilize various inputs, including but not limited to written and earned premiums, paid and reported losses and LAE, expected initial loss and LAE ratio, which is the ratio of incurred losses and LAE to earned premiums, and expected claim reporting and payout patterns (including company-specific and industry data). The liability for unpaid loss and LAE does not represent an exact measurement of liability, but is an estimate that is not directly or precisely quantifiable, particularly on a prospective basis, and is subject to a significant degree of variability over time. In addition, the establishment of the liability for unpaid losses and LAE makes no provision for the broadening of coverage by legislative action or judicial interpretation or for the extraordinary future emergence of new types of losses not sufficiently represented in the Company’s historical experience or which cannot yet be quantified. As a result, an integral component of estimating the liability for unpaid losses and LAE is the use of informed subjective estimates and judgments about the

~~Notes to Consolidated Financial Statements~~

ultimate exposure to unpaid losses and LAE. The effects of changes in the estimated liability are included in the results of operations in the period in which the estimates are revised.

The Company allocates the applicable portion of the unpaid losses and LAE to amounts recoverable from reinsurers under reinsurance contracts and reports those amounts separately as assets on the consolidated balance sheets.

Income Taxes

Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and ~~tax credit~~tax-credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

Deferred tax assets are recognized to the extent that there is sufficient positive evidence, as allowed under the Accounting Standard Codification ("ASC") 740, Income Taxes, to support the recoverability of those deferred tax assets. The Company establishes a valuation allowance to the extent that there is insufficient evidence to support the recoverability of the deferred tax asset under ASC 740. In making such a determination, management considers all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax‑planning strategies, and results of recent operations. If it is determined that the deferred tax assets would be realizable in the future in excess of their net recorded amount, an adjustment would be made to the deferred tax asset valuation allowance, which would reduce the provision for income taxes.

As of December 31, ~~2017~~2023 and ~~2016,~~2022, the Company did ~~not~~not have any unrecognized tax benefits and had no accrued interest or penalties related to uncertain tax positions.

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 or policy issuance costs. Commission income is also received by the Company’s insurance agencies for writing policies for third party insurance companies. The Company recognizes commission income on the later of the effective date of the policy, the date when the premium can be reasonably established, or the date when substantially all services related to the insurance placement have been rendered.

Agency Commission Income

Agency commission income is comprised of commissions earned on policies where the Company has no exposure to underlying risk on the policies written. Agency commission income is earned at the time the policy is written.

Operating Expenses

Operating expenses consist primarily of other underwriting, compensation and benefits, information technology, facility and other administrative expenses.

~~Recently Issued~~

Accounting Guidance

Not Yet Adopted

In January ~~2016,~~2021, the FASB issued ASU ~~No. 2016-01,~~ ~~Financial Instruments-Overall (Subtopic 825-10): Recognition~~2022-06, Reference Rate Reform (Topic 848). This guidance provides optional expedients and ~~Measurement~~exceptions that are intended to ease the burden of ~~Financial Assets and Financial Liabilities. The amendments in this update modify the requirements related~~updating contracts to contain a new reference rate due to the measurement of certain financial instruments in the statement of financial condition and results of operation. For equity investments (other than investments accounted for using the equity method), entities must measure such instruments at fair value with changes in fair value recognized in net income. Reporting entities may continue to elect to measure equity investments which do not have a readily determinable fair value at cost with adjustments for impairment and observable changes in price. In addition, for a liability (other than a derivative liability) that an entity measures at fair value, any change in fair value related to the instrument-specific credit risk, that is the entity’s own-credit, should be presented separately in other comprehensive income and not as a component of net income. The amendments are effective for the Company on January 1, 2018, with early adoption permitted solely for the instrument-specific credit risk for liabilities measured at fair value. The amendments must be applied on a modified retrospective basis with a cumulative effect adjustment asdiscontinuation of the ~~beginning of the fiscal year of initial adoption. For the year ended December 31, 2017, other comprehensive income includes $1.1 million of net unrealized gains on equity securities.~~

~~In February 2016, the FASB issued ASU No. 2016-02,~~ ~~Leases (Topic 842),~~ which addresses the financial reporting of leasing transactions. This update will require the recognition of a right-of-use asset and a corresponding lease liability, discounted to the present value, for all leases that extend beyond 12 months. For operating leases, the asset and liability will be expensed over the lease term on a straight-line basis, with all cash flows included in the operating section of the consolidated statement of cash flows. For finance leases, interest on the lease liability will be recognized separately from the amortization of the right-of-use asset in the consolidated statement of operations and the repayment of the principal portion of the lease liability will be classified as a financing activity while the interest component will be included in the operating

~~Notes to Consolidated Financial Statements~~

section of the consolidated statement of cash flows. This ASU is effective for annual and interim reporting periods beginning after December 15, 2018. Early adoption is permitted. Management is currently evaluating the impact of the guidance.

~~In June 2016, the FASB issued ASU No. 2016-13,~~ ~~Financial Instruments - Credit Losses (Topic 326),~~ which amends the current methodology and timing for recognizing credit losses. This amendment will replace the current GAAP "incurred loss" methodology for credit losses with a methodology based on expected credit losses. The new guidance will also require expanded consideration of a broader range of reasonable and increased supportable information for the credit loss estimates. This ASU is effective for annual and interim reporting periods beginning after December 15, 2019. Early adoption is permitted for years beginning after December 15, 2018. Management is currently evaluating the impact of the guidance.

~~In August 2016, the FASB issued ASU No. 2016-15,~~ ~~Statement of Cash Flows (Topic 230), which clarifies how certain cash receipts and cash payments should be presented and classified in the statement of cash flows under~~ ~~Topic 230, Statement of Cash Flows~~London Inter-Bank Offered Rate (LIBOR). This update addresses eight specific cash flow issues with the objective of reducing the existing diversity in practice. This ASU is effective for annual and interim reporting periods beginning after December 15, 2017. Early adoption is permitted. This guidance is available immediately and may be implemented in any period prior to the guidance expiration on December 31, 2024. Management does not ~~expected~~expect the new guidance to have a material impact on ~~our~~the Company’s consolidated ~~statement of cash flows.~~

financial statements.

In ~~February 2018,~~ November 2023, the FASB issued ASU ~~No. 2018-02,~~ ~~Income Statement -~~2023-07, Segment Reporting ~~Comprehensive Income~~ (Topic ~~220)~~280). This guidance is intended to improve reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses, allowing financial statement users to better understand the components of a segment's profit or loss to assess potential future cash flows for each reportable segment and the entity as a whole. The amendments expand a public entity's segment disclosures by requiring disclosure of significant segment expenses that are regularly provided to the chief operating decision maker ("CODM"), ~~Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income (“~~clarifying when an entity may report one or more additional measures to assess segment performance, requiring enhanced interim disclosures, providing new disclosure requirements for entities with a single reportable segment, and requiring other new disclosures. ASU ~~2018-02”), which provides guidance on adjusting~~2023-07 is effective for fiscal years beginning after December 31, 2024. Early adoption is permitted. the Company is currently evaluating the impact the adoption of ~~“stranded tax effects” in accumulated other comprehensive income (“AOCI”) due~~this standard will have on its consolidated financial statements.

In December 2023, the FASB issued ASU 2023-09,Income Taxes (Topic 740). ASU 2023-09 requires public business entities to disclose additional information with respect to the ~~U.S. federal government enacting H.R.1, “An Act to Provide for Reconciliation Pursuant to Titles II and V~~reconciliation of the ~~Concurrent Resolution~~effective tax rate to the statutory rate. Additionally, public business entities will need to disaggregate federal, state and foreign taxes paid in their financial statements. ASU 2023-09 is effective for public business entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2024.The Company is currently evaluating the impact the adoption of this standard will have on its consolidated financial statements.

Risks and Uncertainties

The Company is exposed to interest rate risks as it maintains a significant amount of its investment portfolio in debt securities. As of December 31, 2023, total net unrealized losses in the debt securities was $13.3 million. Management believes it will not need to sell debt securities at significant losses as it has the ability and intention to hold them until maturity or their values improve.

Company Liquidity

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. 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, and we do not anticipate any dividends being paid to us from our insurance subsidiaries during 2024 and 2025.

Due to significant losses in 2023, much of which is attributable to strengthening reserves and severe storm activity affecting the Oklahoma homeowners business, both Insurance Company Subsidiaries lack sufficient capital to continue to underwrite the volume of business they have historically written. We incurred a consolidated net loss of $25.9 million. We used cash from the operation activities of $13.6 million, and our overall equity at December 31, 2023 totaled $2.9 million. As a result of these factors, we were out of compliance with several of our debt covenants and obtained a waiver from our lender. The aforementioned factors have resented additional liquidity and capital challenges on the ~~Budget for Fiscal Year 2018”~~Company's financial condition. Accordingly, management is in the process of implementing a strategic shift in which the Company will utilize third-party insurers and rely mostly on commission revenues generated by our managed general agency. Management may also consider the sale of other assets to generate additional cash resources available to the Company.

In September 2023, the Company repaid its $24.4 million of 6.75% public senior unsecured notes (the ~~“Act”~~"Old Public Notes") and funded it, in part, with issuing 9.75% public senior unsecured notes (the "New Public Notes") in the amount of $17.9 million.

The Company also paid down $500,000 of principal on its subordinated notes on September 29, 2023. The Company then restructured its existing $10.0 million of subordinated notes to Senior Secure Notes with its lender on September 30, 2023. The Senior Secured Notes mature on September 30, 2028, and bear an interest rate of 12.5% per annum. Quarterly principal payments of $250,000 are required on the Senior Secured Notes starting on December ~~22, 2017 (see Note 8)~~31, 2023 through September 30, 2028. The requirements on the new Senior Secured Notes will result in $1.0 million per year of principal to be paid on the senior secured debt that previously was not required.

On December 20, 2023, the Company issued $6.0 million of its newly designated Series A Preferred Stock (the "Preferred Stock"). The Company intends to use the proceeds for working capital and general corporate purposes.

As of the filing of this Form 10-K, the Insurance Company Subsidiaries are still the primary underwriters for the business produced by CIS and still the primary source of revenues and cash flows. The Insurance Company Subsidiaries are currently both required to provide an action plan with the state of domicile insurance regulator to remediate certain statutory capital and surplus regulatory deficiencies. If we do not remediate the regulatory deficiencies the insurance regulator could suspend or terminate the insurers’ authority to write business. Also, A.M. Best and Kroll downgraded the financial strength ratings of both companies and we terminated the rating relationship. Therefore, neither company is currently rated by a nationally recognized statistical rating organization which can have an impact on the ability to market to policyholders. We believe that the Insurance Company Subsidiaries will both regain compliance with the state insurance regulators, however, as part of the strategic shift, we no longer expect significant revenues to be generated through them after the second quarter of 2024. These circumstances could jeopardize the ability of the Company to generate insurance underwriting revenues which could put into doubt our ability to meet our obligations as they become due.

for the remaining commercial lines business within a week of filing this Form 10-K. We expect to continue to underwrite the existing personal lines business within our Insurance Company Subsidiaries.

With these producer agreements in place the Company expects to be able to generate the needed revenues to meeting our obligations as they become due over the next twelve months. In the event there are delays in implementing the strategic shift or other uncertainties arise with respect to completion of our strategic shift during 2024, these events could have a negative effect on our liquidity and ability to satisfy our obligations as they become due. If the Company were to experience any such uncertainties the Company believes it has alternative sources of liquidity available which are sufficient to cover any short-term needs as a result of any such uncertainties encountered. Management believes the current actions being executed to implement the planned strategic shift coupled with additional available sources of available liquidity, will be sufficient to enable the Company to meet its obligations for the foreseeable future.

2. Sale of Renewal Rights

In September 2023, the Company sold the renewal rights of one of its insurance programs to another insurer for $2.5 million in cash in addition to agreeing to participate in the Company's issuance of new public debt in September 2023, by purchasing $5.0 million of new debt. The program provided mostly liability insurance to the security guard and alarm installation industries. The program produced gross earned premiums of $55.9 million and $41.0 million in 2023 and 2022, respectively. The buyer began writing new and renewal policies for this program as of September 15, 2023. On September 30, 2023, the Company ceded 100% of its gross unearned premium of $30.9 million in the program to the buyer in return for an $8.4 million ceding commission. As of December 31, 2023, the Company retained $24.1 million of net cash owed to the buyer under a funds withheld provision. This can be seen in the funds held under reinsurance agreements in the liability section of the Company's Consolidated Balance Sheets. The funds withheld balance is expected to be paid out as premiums are earned and related claims are paid. The Company incurred $135,000 in expense related to this transaction. As part of this transaction, five claims staff transferred employment to the buyer. The buyer will handle all of the Company’s run-off claims for this program under a related claims administration agreement.

3. VSRM Transaction

Prior to ~~ASU 2018-02,~~October 13, 2022, CIS, formerly known as 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, CIS purchased the other 50% of Venture from an individual for $9.7 million. Following this purchase, CIS obtained control and 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. CIS initially purchased the Venture shares with a promissory note for $9.7 million and ultimately settled the note with $5.9 million of cash received from the Security & Alarm Business sale, described below, and $3.8 million in the form of stock from the buyer of the Security & Alarm Business. The Company acquired the remaining outstanding shares of VSRM, in order to take advantage of net operating tax ~~effect~~losses as part of ~~unrealized gains~~a tax planning strategy to apply to the Security and Alarm Business sale described below, in addition to the strategic focus of getting out of the Security and Alarm line of business.

The Company recognized CIS's purchase of the individual's shares of VSRM as a step acquisition and revalued all assets and liabilities upon the acquisition date. This resulted in the recognition of an $8.8 million non-operating gain reported in the Consolidated Statement of Operations as Gain from VSRM Transaction in the fourth quarter of 2022. The Company also utilized $12.5 million of federal income tax net operating losses ~~were valued at 34%~~carried forward and ~~included~~$14.8 million state income tax net operating losses carried forward, for a total net-of-tax benefit of $9.4 million. VSRM retained $8.9 million of debt, and $9.4 million of tax liabilities, as well as other smaller assets and liabilities that did not go with the transaction.

A condensed schedule of assets and liabilities incorporated into the consolidated balance sheet from the VSRM acquisition is provided below:


Cash	$	3,921
Trade receivables		4,604
Customer relationship intangible assets		37,122
Other assets		574
Total assets	$	46,221

Trade and other payables		7,624
Deferred tax liability		9,407
Note payable to Affiliate		6,000
Senior debt		2,917
Total Liabilities	$	25,948

Fair value of net assets acquired	$	20,273

The following table presents the calculation of the $8.8 million revaluation gain related to the Company's equity method investment in ~~AOCI. When~~VSRM as a result of the ~~Act~~VSRM Transaction:


Carrying value of equity method investment in VSRM	$	1,773
Fair value of investment in VSRM		10,583
Gain on step acquisition	$	8,810

The fair value of the equity interest of VSRM immediately prior to the acquisition was ~~signed into law on December 22, 2017, it required companies~~$10.6 million. The fair value techniques used to ~~re-value~~measure the ~~tax effect~~fair value of ~~all unrealized gains and losses~~VSRM included using the ~~new federal statutory rate~~recent valuations performed by third party valuation experts and the net realized proceeds received upon the sale of ~~21% with~~ the ~~resulting change recorded~~Security & Alarm Business sold the following day.

There were no material transaction costs incurred in the current income tax provision thus creating a “stranded tax effect.” ASU 2018-02 allows companies to early adopt the standard for year ends prior to December 15, 2018, but is not required. The standard would allow companies to make a one-time reclassification from AOCI to retained earningsacquisition of VSRM. Additionally, no results of operations for the ~~stranded tax effects~~Security and Alarm business have been included the consolidated financial statements as that business was immediately disposed of. Results of operations for the retained business have been included from the date of acquisition.

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, of which $32.8 million was paid in cash and $3.8 million was in the form of the buyer's stock. The $3.8 million of buyer's stock was immediately used to settle a portion of the $9.7 million promissory note that was issued to buy the 50% of Venture and the remainder of the promissory note was settled with cash from the sale of business.

As part of the transaction, the individual who previously ~~noted~~owned 50% of VSRM transitioned employment to the buyer, along with a team of approximately eight other employees of VSRM. Also, the Company transferred to the buyer, $4.3 million of accounts receivable, $5.8 million of current liabilities, $271,000 in cash as well as all books and ~~requires certain other disclosures.~~records of the business being purchased. The buyer held back $75,000 of cash for a future true up of the trade balances which the Company reflected as a current receivable. The Company ~~has not elected~~recognized this transaction as the sale of a business. Because all assets and liabilities were just adjusted to ~~early adopt~~fair value from the step acquisition described above, the basis of the net assets sold equaled the net proceeds from the sale, thus there was no gain recognized upon the sale of the Security & Alarm Business.

The following table reconciles the net assets disposed of from this ~~standard~~transaction:


Cash at closing	$	32,759
Net liabilities transferred		1,499
Hold back		75
Stock of acquirer		3,822
Total purchase price	$	38,155

Cash	$	271
Premiums transferred to buyer		4,326
Intangible assets		38,154
Trade payables and accrued liabilities assumed by buyer		(5,838	)
Net assets disposed of		36,913
Gross gain		1,242
Broker fee transaction costs		(1,242	)
Net gain	$	—

The net gain on revaluation of the investment in VSRM and the disposal of the Security and Alarm Business line are summarized below:


Gross gains	$	10,052
Broker fee		(1,242	)
Net gain	$	8,810

On December 31, 2022, Sycamore Financial Group, LLC ("SFG"), wholly owned by 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, ~~2017. This guidance~~2022, and VSRM's investment in SSU is accounted for using the equity method. The net assets transferred to SSU had a fair value of $0 at the time of the contribution. There was no gain or loss recognized upon the sale of half of SSU to SFG. Included in the net assets transferred to SSU was a $1.0 million promissory note obligation of VSRM that originated as part of the Venture Transaction described below, and is payable to CIC. The $1.0 million promissory note was still outstanding and payable to CIC as of December 31, 2023. The $934,000 receivable from VSRM in the table below transferred as part of the deconsolidation resulted in the Company retaining an existing related payable for $934,000 which was repaid in 2023.

The following table provides the assets and liabilities deconsolidated as a result of this transaction:


Cash	$	497
Receivable from VSRM		934
Trade receivables		239
Intangible asset		196
Other assets		514
Total assets	$	2,380

Payable to Affiliates		286
Trade payables		193
Note payable		1,000
Other liabilities		901
Total Liabilities	$	2,380

In order to determine the value of the business contributed to SSU, the Company obtained a third party valuation based on a weighting of discounted cash flows and earnings before interest, taxes, depreciation and amortization (EBITDA) multiple valuation methods. The valuation included significant estimates and assumptions related to (i) forecasted revenue and EBITDA and (ii) the selection of the EBITDA multiple and discount rate.

4. Sale of Certain Agency Business

In June of 2021, CIS, formerly known as Sycamore, sold the customer accounts and other related assets of some of its personal and commercial lines of business to Venture. Two promissory notes were created as a result of the sale (one for $3.0 million and one for $6.0 million). In December 2021, Venture paid off the $3.0 million note. On October 20, 2022, Venture paid down $5.0 million of the $6.0 million note. The remaining $1.0 million promissory note was assumed by SSU as part of the contribution of business to SSU described in Note 3 ~ Acquisition of Joint Venture and Subsequent Sale of Business, and was still outstanding as a payable to CIC as of December 31, 2023.

5. Investments

Results for reporting periods occurring before January 1, 2023 continue to be reported in accordance with previously applicable U.S. GAAP and are 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 ~~expected~~need to ~~have~~record a ~~material impact on our consolidated balance sheets.~~

~~Notes~~credit loss for the twelve months ended December 31, 2023. The Company holds only investment grade securities from high credit quality issuers. The gross unrealized losses of $13.3 million as of December 31, 2023, from the Company's available-for-sale securities are due to ~~Consolidated Financial Statements~~

market conditions and interest rate changes. Management believes it will not need to sell its available-for-sale securities at significant losses as it has the ability and intention to hold them until maturity or until their values improve.

2.~~Investments~~

The cost or amortized cost, gross unrealized gain or loss, and estimated fair value of the investments in securities classified as ~~available for sale~~available-for-sale at December 31, ~~2017~~2023 and ~~2016~~2022 were as follows (dollars in thousands):


	December 31, 2023
	Cost or		Gross Unrealized
	Amortized Cost		Gains		Losses			Estimated Fair Value
Debt securities:
U.S. Government	$	5,405	$	3	$	(161	)	$	5,247
State and local government		24,274		—		(3,810	)		20,464
Corporate debt		34,002		—		(3,507	)		30,495
Asset-backed securities		38,289		47		(584	)		37,752
Mortgage-backed securities		26,768		—		(4,641	)		22,127
Commercial mortgage-backed securities		3,404		—		(160	)		3,244
Collateralized mortgage obligations		3,228		—		(444	)		2,784
Total debt securities available for sale	$	135,370	$	50	$	(13,307	)	$	122,113


	December 31, 2022
	Cost or		Gross Unrealized
	Amortized Cost		Gains		Losses			Estimated 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

December 31, 2017

Cost or
Amortized
Cost
Gross Unrealized
Estimated
Fair Value

Gains
Losses
Debt securities:
U.S. Government $ 17,179
$ 10
$ (99 ) $ 17,090
State and local government 17,302
255
(54 ) 17,503
Corporate debt 38,947
170
(209 ) 38,908
Asset-backed securities 23,539
36
(35 ) 23,540
Mortgage-backed securities 33,942
38
(522 ) 33,458
Commercial mortgage-backed securities 3,532
3
(44 ) 3,491
Collateralized mortgage obligations 2,563
19
(36 ) 2,546
Total debt securities available for sale 137,004
531
(999 ) 136,536
Equity securities: 8,629
1,240
(182 ) 9,687
Total securities available for sale $ 145,633
$ 1,771
$ (1,181 ) $ 146,223

December 31, 2016

Cost or
Amortized
Cost
Gross Unrealized
Estimated
Fair Value
Gains Losses
Debt securities:
U.S. Government $ 5,908
$ 31
$ (36 ) $ 5,903
State and local government 13,618
106
(205 ) 13,519
Corporate debt 34,105
205
(254 ) 34,056
Asset-backed securities 19,094
20
(13 ) 19,101
Mortgage-backed securities 33,423
64
(630 ) 32,857
Commercial mortgage-backed securities 4,760
14
(63 ) 4,711
Collateralized mortgage obligations 3,007
34
(25 ) 3,016
Total debt securities available for sale 113,915
474
(1,226 ) 113,163
Equity securities: 4,283
366
(70 ) 4,579
Total securities available for sale $ 118,198
$ 840
$ (1,296 ) $ 117,742

~~Notes to Consolidated Financial Statements~~

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 ~~as follows~~ (dollars in thousands):


	December 31, 2023
	Less than 12 months							12 months or More							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		1	$	649	$	(7	)		9	$	3,400	$	(154	)		10	$	4,049	$	(161	)
State and local government		3		1,193		(7	)		113		19,096		(3,803	)		116		20,289		(3,810	)
Corporate debt		-		-		-			66		30,495		(3,507	)		66		30,495		(3,507	)
Asset-backed securities		1		1,090		(1	)		21		16,270		(583	)		22		17,360		(584	)
Mortgage-backed securities		4		11		(1	)		64		22,116		(4,640	)		68		22,127		(4,641	)
Commercial mortgage -backed securities		-		-		-			4		3,225		(160	)		4		3,225		(160	)
Collateralized mortgage obligations		-		-		-			32		2,803		(444	)		32		2,803		(444	)
Total debt securities available for sale		9		2,943		(16	)		309		97,405		(13,291	)		318		100,348		(13,307	)


	December 31, 2022
	Less than 12 months							12 months or More							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	)

December 31, 2017
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 12
$ 11,555
$ (64 ) 7
$ 2,207
$ (35 ) 19
$ 13,762
$ (99 )
State and local government 10
3,511
(20 ) 7
1,424
(34 ) 17
4,935
(54 )
Corporate debt 38
15,236
(46 ) 10
6,555
(163 ) 48
21,791
(209 )
Asset-backed securities 20
13,948
(29 ) 3
915
(6 ) 23
14,863
(35 )
Mortgage-backed securities 6
4,935
(19 ) 26
24,939
(503 ) 32
29,874
(522 )
Commercial mortgage-backed securities 3
2,026
(12 ) 2
722
(32 ) 5
2,748
(44 )
Collateralized mortgage obligations 8
1,870
(36 ) —
—
—
8
1,870
(36 )
Total debt securities available for sale 97
53,081
(226 ) 55
36,762
(773 ) 152
89,843
(999 )
Equity securities:
Common stock 13
436
(75 ) 4
266
(107 ) 17
702
(182 )
Total equity securities available for sale 13
436
(75 ) 4
266
(107 ) 17
702
(182 )
Total securities 110
$ 53,517
$ (301 ) 59
$ 37,028
$ (880 ) 169
$ 90,545
$ (1,181 )

~~Notes to Consolidated Financial Statements~~

December 31, 2016
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 15
$ 4,539
$ (36 ) —
$ —
$ —
15
$ 4,539
$ (36 )
State and local government 29
8,217
(202 ) 1
104
(3 ) 30
8,321
(205 )
Corporate debt 22
9,031
(239 ) 7
3,369
(15 ) 29
12,400
(254 )
Asset-backed securities 10
4,612
(13 ) 2
118
—
12
4,730
(13 )
Mortgage-backed securities 41
30,330
(630 ) —
—
—
41
30,330
(630 )
Commercial mortgage-backed securities 5
1,432
(54 ) 3
684
(9 ) 8
2,116
(63 )
Collateralized mortgage obligations 3
1,674
(25 ) —
—
—
3
1,674
(25 )
Total debt securities available for sale 125
59,835
(1,199 ) 13
4,275
(27 ) 138
64,110
(1,226 )
Equity securities:
Common stock 76
2,472
(61 ) 2
66
(9 ) 78
2,538
(70 )
Total equity securities available for sale 76
2,472
(61 ) 2
66
(9 ) 78
2,538
(70 )
Total securities 201
$ 62,307
$ (1,260 ) 15
$ 4,341
$ (36 ) 216
$ 66,648
$ (1,296 )

The Company analyzed its investment portfolio in accordance with its OTTI review procedures and determined the Company did not need to record a credit-related OTTI loss, nor recognize a non credit-related OTTI loss in other comprehensive income for the years ended December 31, 2017 and 2016.

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


	December 31,
	2023			2022
Debt securities	$	4,121		$	2,517
Equity securities		36			52
Cash, cash equivalents, and short-term investments		1,603			776
Total investment income		5,760			3,345
Investment expenses		(234	)		(302	)
Net investment income	$	5,526		$	3,043

December 31,
2017 2016 2015
Debt securities $ 2,757
$ 2,370
$ 2,110
Equity securities 124
98
92
Cash and short-term investments 122
21
5
Total investment income 3,003
2,489
2,207
Investment expenses (275 ) (316 ) (305 )
Net investment income $ 2,728
$ 2,173
$ 1,902

~~Notes to Consolidated Financial Statements~~

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


	December 31,
	2023			2022
Debt securities:
Gross realized gains	$	—		$	6
Gross realized losses		(20	)		(155	)
Total debt securities		(20	)		(149	)
Equity securities:
Gross realized gains		—			375
Gross realized losses		—			(1,731	)
Total equity securities		—			(1,356	)
Total net realized investment gains	$	(20	)	$	(1,505	)

December 31,
2017 2016 2015
Debt securities:
Gross realized gains $ 32
$ 587
$ 92
Gross realized losses (8 ) (24 ) (6 )
Total debt securities 24
563
86
Equity securities:
Gross realized gains 76
1,198
290
Gross realized losses (30 ) (396 ) (91 )
Total equity securities 46
802
199
Total net investment realized gains $ 70
$ 1,365
$ 285

Proceeds from the sales of ~~debt and equity~~available-for-sale securities ~~available for sale, maturities and other redemptions (primarily the return of capital)~~ were ~~$10.9 million, $44.3~~$11.9 million and ~~$10.6~~$32.0 million for the years ended December 31, ~~2017, 2016~~2023 and ~~2015,~~2022, respectively.

The gross realized gains from sales of available-for-sale securities for the years ended December 31, 2023 and 2022 were $0 and $5,000, respectively. The gross realized losses from sales of available-for-sale securities for the years ended December 31, 2023 and 2022 were $18,000 and $155,000, respectively.

As of December 31, 2023 and 2022, there were $0 of payables from securities purchased, respectively. As of December 31, 2023 and 2022, there were $0 and $650,000 of receivables from securities sold, respectively.

The Company's gross unrealized losses related to its equity investments were $535,000 and $638,000 as of December 31, 2023 and 2022, respectively. The Company's gross unrealized gains related to its equity investments were $505,000 as of December 31, 2023. The Company had no gross unrealized gains related to its equity investments as of December 31, 2022.

The Company also carries other equity investments that do not have a readily determinable fair value and are recorded at cost, less impairment or observable changes in price. We review these investments for impairment during each reporting period. There was no impairment or observable changes in price recorded during 2023 related to the Company's equity securities without readily determinable fair value. These investments are a component of Other Assets in the Consolidated Balance Sheets. The value of these investments as of December 31, 2023 and December 31, 2022 were $1.4 million and $1.8 million, respectively.

The table below summarizes the amortized cost and fair value of available-for-sale debt securities by contractual maturity at December 31, ~~2017.~~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	$	3,212	$	3,175
Due after one year through five years		30,996		28,983
Due after five years through ten years		18,768		15,904
Due after ten years		10,705		8,144
Securities with contractual maturities		63,681		56,206
Asset-backed securities		38,289		37,752
Mortgage-backed securities		26,768		22,127
Commercial mortgage-backed securities		3,404		3,244
Collateralized mortgage obligations		3,228		2,784
Total debt securities	$	135,370	$	122,113

Amortized
Cost

Estimated
Fair Value
Due in one year or less $ 10,015
$ 10,016
Due after one year through five years 41,111
41,027
Due after five years through ten years 12,293
12,396
Due after ten years 10,009
10,062
Securities with contractual maturities 73,428
73,501
Commercial mortgage and asset backed 63,576
63,035
Total debt securities $ 137,004
$ 136,536

At December 31, ~~2017~~2023 and ~~2016,~~2022, the Insurance Companies Subsidiaries had an aggregate of ~~$8.2~~$8.2 million and ~~$9.6~~$8.0 million, respectively, on deposit in trust accounts to meet the deposit requirements of various state insurance departments. At December 31, ~~2017~~2023 and ~~2016,~~2022, the Company had ~~$18.4~~$123.5 million and ~~$10.3~~$95.7 million held in trust accounts to meet collateral

requirements with other third-party insurers, relating to various fronting arrangements. Approximately $111.3 million of the trust account balances are for collateral of gross unearned premiums and gross loss reserves of the fronted business on the Security Program and the quick service restaurant program. 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. As the unearned premiums run off to zero and loss reserves are paid on these programs, the trust balances will be released and available for general use.

~~Notes to Consolidated Financial Statements~~

~~Investment in Affiliate~~

The Company recognizes its 50%-ownership interest in the Affiliate under the equity method of accounting. The investment balance is included in Other assets in the consolidated balance sheets and activity is included in consolidated statement of operations as Equity earnings (losses) in affiliates, net of tax. A summary of key balances of the Affiliate are presented below (dollars in thousands):

December 31,
2017 2016 2015
Total assets $ 1,344
$ 3,516
$ 4,633
Total liabilities 1,310
3,612
4,944
Total shareholder's equity $ 34
$ (96 ) $ (311 )

For the year ended December 31,
Total Revenue $ (275 ) $ (316 ) $ (305 )
Net Income 2,728
2,173
1,902

~~Notes to Consolidated Financial Statements~~

6. Fair Value Measurements

The Company’s financial instruments include assets ~~and liabilities~~ carried at fair value, as well as ~~assets and liabilities~~debt carried at ~~cost or amortized cost but~~face value, net of unamortized debt issuance costs, which are also disclosed at fair value in ~~these consolidated financial statements.~~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 December 31, ~~2017~~2023 and ~~2016~~2022 (dollars in thousands):

~~Notes to Consolidated Financial Statements~~

December 31, 2017
Fair Value Measurements Using
Total
Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)

Significant
Other
Observable
Inputs
(Level 2)

Significant
Unobservable
Inputs
(Level 3)
Assets:
Debt Securities:
U.S. Government $ 17,090
$ —
$ 17,090
$ —
State and local government 17,503
—
17,503
—
Corporate debt 38,908
—
38,908
—
Asset-backed securities 23,540
—
23,540
—
Mortgage-backed securities 33,458
—
33,458
—
Commercial mortgage-backed securities 3,491
—
3,491
—
Collateralized mortgage obligations 2,546
—
2,546
—
Total debt securities 136,536
—
136,536
—
Equity Securities 5,627
5,381
246
—
Short-term investments 11,427
8,429
2,998
—
Total investments measured at fair value $ 153,590
$ 13,810
$ 139,780
$ —

Investments measured at NAV:
Investment in limited partnership $ 4,060

Total investments measured at NAV $ 4,060

Total assets measured at fair value $ 157,650

Liabilities:
Debt* $ 29,888
$ —
$ —
$ 29,888
Total Liabilities measured at fair value $ 29,888
$ —
$ —
$ 29,888


	December 31, 2023
	Fair Value Measurements Using
	Total		Level 1		Level 2		Level 3
Assets:
Debt Securities:
U.S. Government	$	5,247	$	—	$	5,247	$	—
State and local government		20,464		—		20,464		—
Corporate debt		30,495		—		30,495		—
Asset-backed securities		37,752		—		37,752		—
Mortgage-backed securities		22,127		—		22,127		—
Commercial mortgage-backed securities		3,244		—		3,244		—
Collateralized mortgage obligations		2,784		—		2,784		—
Total debt securities		122,113		—		122,113		—
Equity Securities		896		139		757		—
Short-term investments		20,838		20,838		—		—
Total marketable investments measured at fair value	$	143,847	$	20,977	$	122,870	$	—
Investments measured at NAV:
Investment in limited partnership		1,458
Total assets measured at fair value	$	145,305
Liabilities:
Senior Unsecured Notes *	$	11,791	$	—	$	11,791	$	—
Senior Secured Notes *		9,965		—		—		9,965
Total Liabilities (non-recurring fair value measure)	$	21,756	$	—	$	11,791	$	9,965

* Carried at ~~cost or amortized cost~~face value of debt net of unamortized debt issuance costs on the consolidated balance sheet

~~Notes to Consolidated Financial Statements~~

December 31, 2016
Fair Value Measurements Using
Total
Quoted Prices in Active Markets for
Identical Assets
(Level 1)

Significant Other Observable Inputs
(Level 2)

Significant Unobservable Inputs
(Level 3)
Assets:
Debt Securities:
U.S. Government $ 5,903
$ —
$ 5,903
$ —
State and local government 13,519
—
13,519
—
Corporate debt 34,056
—
34,056
—
Asset-backed securities 19,101
—
19,101
—
Mortgage-backed securities 32,857
—
32,857
—
Commercial mortgage-backed securities 4,711
—
4,711
—
Collateralized mortgage-backed securities 3,016
—
3,016
—
Total debt securities 113,163
—
113,163
—
Equity Securities 4,579
4,469
110
—
Short-term investments 10,788
10,788
—
—
Total assets measured at fair value $ 128,530
$ 15,257
$ 113,273
$ —

Liabilities:
Senior debt* $ 17,750
$ —
$ 17,750
$ —
Total Liabilities measured at fair value $ 17,750
$ —
$ 17,750
$ —


	December 31, 2022
	Fair Value Measurements Using
	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 ~~cost or amortized cost~~face value of debt net of unamortized debt issuance costs on the consolidated balance sheet

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 ~~8.8%~~15% and 18% of the fair value of the total ~~investment portfolio~~marketable investments measured at fair value as of December 31, ~~2017.~~

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 ~~88.7%~~85% and 82% of the fair value of the total ~~investment portfolio~~marketable investments measured at fair value as of December 31, ~~2017.~~

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 December 31, ~~2017,~~2023, the fair value of the Senior Secured Notes reported at amortized cost was considered a Level 3 liability in the fair value hierarchy and is entirely comprised of the Company's ~~subordinated debt.~~Senior Secured Notes. In determining the fair value of the ~~subordinated debt~~Senior Secured Notes outstanding at December 31, ~~2017,~~2023, the security attributes (issue date, maturity, coupon, calls, etc.) ~~and market rates on September 29, 2017 (the date of issuance)~~ were ~~fed~~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

~~Notes to Consolidated Financial Statements~~

was then ~~fed~~entered back into the model along with the December 31, ~~2017,~~2023 U.S. Treasury rates. 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.

As of 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 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 ~~Company’s~~OAS was then entered back into the model along with the December 31, 2022 U.S. Treasury rates. 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 ~~hierarchy levels~~hierarchies is applied at the end of each reporting period. There were no transfers ~~between Levels 1, 2 and~~in or out of Level 3 for the ~~years~~twelve months ended December 31, ~~2017~~2023 and ~~2016, respectively.~~2022.

7. 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 years December 31, ~~2017, 2016~~2023 and ~~2015.~~ 2022. The activity in deferred policy acquisition costs, net of reinsurance transactions, is as follows (dollars in thousands):


	December 31,
	2023			2022
Balance at beginning of period	$	10,290		$	12,267
Deferred policy acquisition costs		16,887			20,202
Amortization of policy acquisition costs		(16,589	)		(22,179	)
Impact from renewal rights sale		(4,303	)		—
Net change		(4,005	)		(1,977	)
Balance at end of period	$	6,285		$	10,290

December 31,
2017 2016 2015
Balance at beginning of period $ 13,290
$ 12,102
$ 5,679

Deferred policy acquisition costs 25,736
26,468
22,606
Amortization of policy acquisition costs (26,245 ) (25,280 ) (16,183 )
Net change (509 ) 1,188
6,423

Balance at end of period $ 12,781
$ 13,290
$ 12,102

8. Unpaid Losses and Loss Adjustment Expenses

The Company establishes reserves for unpaid losses and 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 as well as a provision for estimated future costs related to claim settlement for all claims 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 prior year 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, ~~net~~any related estimates of reinsurance recoverables, 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.

~~Notes to Consolidated Financial Statements~~

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


	December 31,
	2023		2022
Gross reserves - beginning of period	$	165,539	$	139,085
Less: reinsurance recoverables on unpaid losses		82,651		40,344
Net reserves - beginning of period		82,888		98,741
Add: incurred losses and loss adjustment expenses, net of reinsurance
Current period		64,580		57,156
Prior period		17,833		24,284
Total net incurred losses and loss adjustment expenses		82,413		81,440
Deduct: loss and loss adjustment expense payments, net of reinsurance
Current period		27,001		20,894
Prior period		34,495		76,399
Total net loss and loss adjustment expense payments		61,496		97,293
Net reserves - end of period		103,805		82,888
Plus: reinsurance recoverables on unpaid losses		70,807		82,651
Gross reserves - end of period	$	174,612	$	165,539

December 31,
2017 2016 2015
Gross reserves - beginning of period $ 54,651
$ 35,422
$ 31,531
Less: reinsurance recoverables on unpaid losses 6,658
5,405
3,224
Net reserves - beginning of period 47,993
30,017
28,307

Add: incurred losses and loss adjustment expenses, net of reinsurance
Current period 64,458
48,782
37,422
Prior period 9,459
10,221
1,460
Total net incurred losses and loss adjustment expenses 73,917
59,003
38,882

Deduct: loss and loss adjustment expense payments, net of reinsurance
Current period 24,547
20,828
20,635
Prior period 29,533
20,199
16,537
Total net loss and loss adjustment expense payments 54,080
41,027
37,172

Net reserves - end of period 67,830
47,993
30,017
Plus: reinsurance recoverables on unpaid losses 20,066
6,658
5,405
Gross reserves - end of period $ 87,896
$ 54,651
$ 35,422

There was ~~$9.5 million, $10.2~~$17.8 million and ~~$1.5~~$24.3 million of adverse development on prior accident year reserves in ~~2017, 2016~~2023 and ~~2015,~~2022, respectively. There were no significant changes in the key methods utilized in the analysis and calculations of the Company’s reserves during ~~2017, 2016 or 2015.~~

~~On September 28, 2017,~~2023 and 2022.

Of the Company entered into an adverse development cover reinsurance agreement to cover loss development of up to $17.5 million in excess of stated reserves as of June 30, 2017, for accident years 2005 through 2016. The agreement attaches when net losses exceed $1.4 million of the $36.6 million carried reserves at June 30, 2017, and extends to $19.5 million in coverage up to $57.5 million. The company retains a 10% co-participation for any development in excess of the retention.

In 2017, $7.19 million of adverse development was ceded to the ADC, which leaves $10.3 million of coverage in the event of additional adverse development. Due to the benefits of the ADC, the Company reported only $33,000 of adverse development in the fourth quarter of 2017, as it ceded $2.1 million of adverse development under the ADC. Discussion of adverse development, below, is net of amounts ceded to the ADC.

~~The $9.5~~$17.8 million of adverse development in ~~2017 consisted of $7.18~~2023, $5.9 million was related to the 2022 accident year, $6.8 million was related to the 2021 accident year, $4.9 million was related to the 2020 accident year, and $218,000 was related to the 2019 and prior accident years. The development came primarily from commercial liability lines of business particularly in the longer tail lines of business, as a result of additional loss emergence primarily from the Security Program which represented 58% of the adverse development while the remainder was substantially in hospitality, most notably the quick service restaurant program. Both the Security Program and ~~$2.3~~the quick service restaurant program are no longer written by the Company. As a result of this loss emergence, the Company increased its expected loss ratio selections on both prior accident years as well as the current accident year, resulting in increases to our carried loss reserves.

Of the $24.3 million ~~from personal lines~~of adverse development in 2022, $1.8 million was related to the 2021 accident year, $4.0 million was related to the 2020 accident year, $9.6 million was related to the 2019 accident year, $5.2 million was related to the 2018 accident year, and $3.7 million was related to 2017 and prior accident years. The adverse development was mostly related to the ~~2016 and 2015 accident years. Substantially all of this development occurred in the first three quarters of 2017 and primarily consisted of $5.1 million from the~~Company's commercial liability ~~business, $1.6 million from commercial property, $1.7 million from Florida homeowners~~lines and ~~$0.5 million from commercial auto business.~~

~~Incurred losses during 2017 also included $5.4 million~~was driven by multiple factors including significant social inflation generating higher severity than historical experience, and longer tail exposure than anticipated, particularly in net catastrophe losses in the current accident year related to Hurricane Harvey in Texas and Hurricane Irma in Florida. Approximately 34% of the losses were generated in Commercial Lines and 66% in Personal lines. Losses from Hurricane Irma were in excess of the Company’s $4.0 million retention on its catastrophe reinsurance treaty which resulted in $5.2 million of losses being ceded to the treaty as of December 31, 2017. This also resulted in a $806,000 charge for catastrophe reinstatement premiums which was recorded as ceded premiums in 2017.

In 2016, prior year net ultimate loss and LAE estimates increased $10.2 million. The $10.2 million increase reflects adverse development of $4.1 million in the commercial lines liability products, $2.7 million in the commercial automobile line, $2.7 million in the wind-exposed homeowners' line and $0.8 million in the run-off personal automobile line.

~~Notes to Consolidated Financial Statements~~

In 2015, prior year net ultimate loss and LAE estimates increased $1.5 million. The $1.5 million increase reflects adverse development of $1.2 million in the run-off personal automobile line, $835,000 in the commercial automobile line and $121,000 in the wind-exposed homeowners' line. These were partially offset by favorable development in all of the other lines totaling $660,000.

certain jurisdictions.

Loss Development Tables

The following tables represent cumulative incurred loss and allocated loss adjustment expenses ("ALAE"), net of reinsurance, by accident year and cumulative paid loss and ~~allocated loss adjustment expenses,~~ALAE, net of reinsurance, by accident year, for the years ended December 31, ~~2009~~2014 to ~~2017,~~2023, as well as total IBNR and the cumulative number of reported claims for the year ended December 31, ~~2017,~~2023, by reportable segment and accident year (dollars in thousands). The tables do not include reinsurance recoverables from the LPT. The 2023 and 2022 columns in the commercial lines incurred and paid loss tables below do not

Commercial Lines
Incurred loss and allocated loss adjustment expenses, net of reinsurance Total IBNR Cumulative number of reported claims
Accident Year For the years ended December 31,
2009* 2010* 2011* 2012* 2013* 2014* 2015* 2016 2017 2017 2017
2009 $11,400 $12,066 $10,312 $8,943 $8,232 $8,403 $8,359 $8,414 $8,442 $0 877
2010 7,346
8,568
7,255
6,357
6,170
6,074
6,207
6,292
—
771
2011 6,753
5,758
5,326
5,049
4,932
4,903
4,935
—
590
2012 7,745
6,421
6,288
6,384
6,253
6,190
40
560
2013 10,018
9,435
9,893
10,237
11,252
181
600
2014 19,709
19,907
22,711
26,367
754
1,740
2015 22,442
26,633
31,861
2,083
2,327
2016 32,396
34,935
6,078
3,462
2017
44,251
20,897
5,276
Total $174,525

Cumulative paid loss and allocated loss adjustment expenses, net of reinsurance
Accident Year For the years ended December 31,
2009* 2010* 2011* 2012* 2013* 2014* 2015* 2016 2017
2009 $4,436 $5,942 $6,410 $7,233 $7,800 $7,867 $7,933 $8,321 $8,441
2010 3,066
4,488
5,219
5,910
6,040
6,065
6,166
6,258

2011 2,645
3,534
3,964
4,449
4,641
4,744
4,872

2012 2,325
3,703
4,696
5,558
5,994
6,065

2013 3,979
6,211
7,643
8,622
10,147

2014 8,715
13,977
17,458
22,446

2015 10,470
17,817
22,549

2016 10,255
19,135

2017
12,448

Total 112,361

Unpaid losses and ALAE - years 2009 through 2017
62,164

Unpaid losses and ALAE - prior to 2009 (1)*
148

Unpaid ADC (6,065 )
Unpaid losses and ALAE, net of reinsurance
$56,247

include reinsurance recoverables on reserves of $10.9 million and $25.9 million and reinsurance recoverables on paid losses of $3.8 million and $3.9 million, respectively, related to the LPT.


Commercial Lines
			Incurred loss and allocated loss adjustment expenses, net of reinsurance																		Total IBNR		Cumulative number of reported claims
Accident
Year	2014*		2015*		2016*		2017*		2018*		2019*		2020*		2021*		2022*		2023		2023		2023
2014		19,709		19,907		22,711		26,367		28,145		28,766		29,045		29,175		29,011		29,093		—		1,755
2015				22,442		26,633		31,861		34,478		36,372		37,795		38,824		39,093		39,311		—		2,363
2016						32,396		34,935		40,440		44,355		46,089		46,993		48,677		49,162		19		3,559
2017								44,251		44,495		49,749		51,883		55,589		56,649		59,149		234		5,835
2018										42,624		42,432		49,741		55,261		60,102		61,881		568		6,128
2019												41,286		42,129		46,329		55,263		59,028		1,611		6,337
2020														33,867		35,328		39,193		43,918		3,012		3,866
2021																40,388		42,266		48,650		5,557		2,947
2022																		41,708		49,751		10,142		2,323
2023																				39,456		20,752		1,644
																	Total		$	479,399	$	41,895


Commercial lines
Cumulative paid loss and allocated loss adjustment expenses, net of reinsurance
Accident
Year	2014*		2015*		2016*		2017*		2018*		2019*		2020*		2021*		2022*		2023
2014		8,715		13,977		17,458		22,446		25,609		27,544		28,389		28,648		28,608		28,688
2015				10,470		17,817		22,549		30,475		34,497		35,833		37,563		38,685		39,116
2016						10,255		19,135		27,785		37,967		41,945		43,644		46,957		48,557
2017								12,448		23,020		34,205		42,308		47,148		52,800		57,304
2018										10,375		19,799		31,633		41,577		50,508		57,114
2019												10,078		20,462		28,958		39,893		50,369
2020														10,217		17,332		24,225		33,354
2021																12,870		21,313		30,478
2022																		12,839		22,892
2023																				8,486
																	Total		$	376,358


	Net Unpaid losses and ALAE, years 2014 through 2023																		$	103,041
	Unpaid losses and ALAE, prior to 2014*																			160
	Unpaid Losses, LPT																			(10,928	)
	Unpaid losses and ALAE, net of reinsurance																		$	92,273

* Presented as unaudited required supplementary information.


Personal Lines
			Incurred loss and allocated loss adjustment expenses, net of reinsurance																		Total IBNR		Cumulative number of reported claims
Accident					For the years ended December 31,
Year	2014*		2015*		2016*		2017*		2018*		2019*		2020*		2021*		2022*		2023		2023		2023
2014		17,951		17,471		17,735		17,880		17,929		18,082		18,095		18,097		18,052		18,028		—		3,737
2015				10,877		13,445		14,721		15,285		15,364		15,427		15,427		15,448		15,456		—		2,154
2016						11,619		13,418		14,949		15,550		15,655		15,634		15,679		15,681		—		1,815
2017								14,058		13,550		14,493		14,793		14,911		14,957		14,955		—		2,914
2018										5,893		6,378		6,283		6,382		6,298		6,336		—		803
2019												3,099		2,712		2,898		2,862		2,867		—		341
2020														2,339		2,590		2,636		2,619		—		324
2021																4,409		4,332		4,240		—		48
2022																		9,404		8,122		—		714
2023																				19,444		1,156		1,584
																	Total		$	107,748	$	1,156

~~Notes to Consolidated Financial Statements~~

~~(1) The Company's formation was in 2009, however, as a result of the acquisition of WPIC in 2010, incurred losses prior to the 2009 accident year remain outstanding.~~

Personal Lines
Incurred loss and allocated loss adjustment expenses, net of reinsurance Total IBNR Cumulative number of reported claims
Accident Year For the years ended December 31,
2009* 2010* 2011* 2012* 2013* 2014* 2015* 2016 2017 2017 2017
2009 $667 $639 $634 $634 $634 $634 $634 $634 $634 $0 65
2010 320
188
184
184
184
184
184
184
—
77
2011 1,678
1,758
1,981
2,031
2,030
2,045
2,027
1
717
2012 9,960
11,690
11,740
12,159
12,390
12,365
17
3,328
2013 18,034
17,996
18,925
19,138
19,167
43
5,138
2014 17,951
17,471
17,735
17,880
49
3,660
2015 10,877
13,445
14,721
71
2,120
2016 11,619
13,418
202
1,806
2017 14,058
3,190
2,450
Total $94,454

Cumulative paid loss and allocated loss adjustment expenses, net of reinsurance
Accident Year For the years ended December 31,
2009* 2010* 2011* 2012* 2013* 2014* 2015* 2016 2017
2009 $537 $634 $634 $634 $634 $634 $634 $634 $634
2010 151
174
184
184
184
184
184
184

2011 787
1,292
1,633
1,859
1,983
2,021
2,024

2012 5,665
9,251
10,844
11,777
12,202
12,306

2013 9,955
15,883
18,052
18,600
19,014

2014 12,819
16,515
17,260
17,746

2015 7,771
11,873
13,844

2016 7,119
11,238

2017 8,320

Total 85,310

Unpaid losses and ALAE - years 2009 through 2017 9,144

Unpaid losses and ALAE - prior to 2009 (1)* —

Unpaid ADC (1,132 )
Unpaid losses and ALAE, net of reinsurance $8,012


Personal lines
Cumulative paid loss and allocated loss adjustment expenses, net of reinsurance
Accident					For the years ended December 31,
Year	2014*		2015*		2016*		2017*		2018*		2019*		2020*		2021*		2022*		2023
2014		12,819		16,515		17,260		17,746		17,855		18,047		18,068		18,070		18,025		18,027
2015				7,771		11,873		13,844		15,159		15,250		15,290		15,416		15,444		15,452
2016						7,119		11,238		14,442		15,110		15,351		15,452		15,679		15,681
2017								8,320		12,944		14,004		14,526		14,866		14,957		14,955
2018										4,296		5,618		6,100		6,242		6,244		6,333
2019												2,119		2,604		2,692		2,850		2,859
2020														1,307		2,455		2,605		2,619
2021																3,022		3,980		4,081
2022																		5,397		7,923
2023																				16,170
																	Total		$	104,100


	Net Unpaid losses and ALAE, years 2014 through 2023																		$	3,648
	Unpaid losses and ALAE, prior to 2014*																			—
	Unpaid losses and ALAE, net of reinsurance																		$	3,648

* Presented as unaudited required supplementary information.


Total Lines
Incurred loss and allocated loss adjustment expenses, net of reinsurance																					Total IBNR		Cumulative number of reported claims
Accident	For the years ended December 31,
Year	2014*		2015*		2016*		2017*		2018*		2019*		2020*		2021*		2022*		2023		2023		2023
2014		37,660		37,378		40,446		44,247		46,074		46,848		47,140		47,272		47,063		47,121		—		5,492
2015				33,319		40,078		46,581		49,763		51,736		53,222		54,251		54,541		54,767		—		4,517
2016						44,015		48,353		55,389		59,905		61,744		62,627		64,356		64,843		19		5,374
2017								58,309		58,045		64,242		66,676		70,500		71,606		74,104		234		8,749
2018										48,517		48,810		56,024		61,643		66,400		68,217		568		6,931
2019												44,385		44,841		49,227		58,125		61,895		1,611		6,678
2020														36,206		37,918		41,829		46,537		3,012		4,190
2021																44,797		46,598		52,890		5,557		2,995
2022																		51,112		57,873		10,142		3,037
2023																				58,900		21,908		3,228
																	Total			587,147		43,051

~~Notes to Consolidated Financial Statements~~

Total Lines
Incurred loss and allocated loss adjustment expenses, net of reinsurance Total IBNR Cumulative number of reported claims
Accident Year For the years ended December 31,
2009* 2010* 2011* 2012* 2013* 2014* 2015* 2016 2017 2017 2017
2009 $12,066 $12,705 $10,946 $9,577 $8,866 $9,037 $8,993 $9,048 $9,076 $0 942
2010 7,666
8,756
7,439
6,541
6,354
6,258
6,391
6,476
—
848
2011 8,431
7,517
7,307
7,081
6,963
6,949
6,964
1
1,307
2012 17,705
18,111
18,028
18,544
18,642
18,554
57
3,888
2013 28,052
27,431
28,817
29,375
30,419
224
5,738
2014 37,660
37,378
40,446
44,247
803
5,400
2015 33,319
40,078
46,581
2,154
4,447
2016 44,015
48,353
6,280
5,268
2017 58,309
24,087
7,726
Total $268,979

Cumulative paid loss and allocated loss adjustment expenses, net of reinsurance
Accident Year For the years ended December 31,
2009* 2010* 2011* 2012* 2013* 2014* 2015* 2016 2017
2009 $4,973 $6,576 $7,043 $7,867 $8,434 $8,501 $8,567 $8,955 $9,075
2010 3,217
4,662
5,403
6,094
6,223
6,248
6,350
6,442

2011 3,432
4,826
5,597
6,308
6,624
6,766
6,897

2012 7,990
12,954
15,540
17,335
18,195
18,369

2013 13,934
22,094
25,695
27,223
29,162

2014 21,534
30,492
34,718
40,192

2015 18,241
29,690
36,393

2016 17,374
30,373

2017 20,768

Total 197,671

Unpaid losses and ALAE - years 2009 through 2017 71,308

Unpaid losses and ALAE - prior to 2009 (1)* 148

Unpaid ADC (7,197 )
Unpaid losses and ALAE, net of reinsurance $64,259


Total lines
Cumulative paid loss and allocated loss adjustment expenses, net of reinsurance
Accident			For the years ended December 31,
Year	2014*		2015*		2016*		2017*		2018*		2019*		2020*		2021*		2022*		2023
2014		21,534		30,492		34,718		40,192		43,464		45,591		46,457		46,718		46,633		46,715
2015				18,241		29,690		36,393		45,634		49,747		51,123		52,979		54,129		54,568
2016						17,374		30,373		42,227		53,077		57,296		59,096		62,636		64,238
2017								20,768		35,964		48,209		56,834		62,014		67,757		72,259
2018										14,671		25,417		37,733		47,819		56,752		63,447
2019												12,197		23,066		31,650		42,743		53,228
2020														11,524		19,787		26,830		35,973
2021																15,892		25,293		34,559
2022																		18,236		30,815
2023																		—		24,656
																	Total		$	480,458


	Net Unpaid losses and ALAE, years 2014 through 2023																		$	106,689
	Unpaid losses and ALAE, prior to 2014*																		160
	Unpaid losses, LPT																			(10,928	)
	Unpaid losses and ALAE, net of reinsurance																		$	95,921

* Presented as unaudited required supplementary information.

~~Notes to Consolidated Financial Statements~~

The following table reconciles the ~~claim~~loss development information to the consolidated balance sheet for the year ended December 31, ~~2017,~~2023, by reportable segment (dollars in thousands).


	December 31, 2023
Net unpaid losses claims and ALAE
Commercial Lines	$	92,273
Personal Lines		3,648
Total unpaid losses and LAE, net of reinsurance		95,921
Reinsurance recoverable on losses and LAE
Commercial Lines		68,981
Personal Lines		1,826
Total reinsurance recoverable on unpaid losses and LAE		70,807
ULAE expense		7,884
Total gross unpaid losses and LAE	$	174,612

December 31, 2017
Net outstanding liabilities for unpaid claims and ALAE
Commercial Lines $ 56,247
Personal Lines 8,012
Liabilities for unpaid claims and ALAE, net of reinsurance 64,259

Reinsurance recoverable on unpaid claims
Commercial Lines 17,265
Personal Lines 2,801
Total reinsurance recoverable on unpaid claims 20,066

ULAE Expense 3,571

Total gross liability for unpaid claims and LAE $ 87,896

Loss Duration Disclosure (unaudited)

The following table represents the average annual percentage payout of incurred losses by age, net of reinsurance, for each reportable segment.


	Average annual percentage payout of incurred losses by age, net of reinsurance
	Year 1	Year 2	Year 3	Year 4	Year 5	Year 6	Year 7	Year 8	Year 9	Year 10+
Commercial Lines	27.3%	21.6%	18.6%	12.8%	9.2%	4.9%	2.9%	1.5%	0.7%	0.5%
Personal Lines	83.1%	11.3%	5.3%	0.3%	0.0%	0.0%	0.0%	0.0%	0.0%	0.0%
Total Lines	29.2%	21.3%	18.2%	12.4%	8.9%	4.7%	2.8%	1.4%	0.7%	0.4%

Average annual percentage payout of incurred losses by age, net of reinsurance
Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10+
Commercial Lines 34.6 % 21.7 % 18.0 % 12.3 % 6.4 % 3.4 % 1.9 % 1.0 % 0.6 % 0.1 %
Personal Lines 60.8 % 19.3 % 10.8 % 4.9 % 2.6 % 1.5 % 0.1 % — % — % — %
Total Lines 37.9 % 21.4 % 17.1 % 11.4 % 6.0 % 3.1 % 1.7 % 0.8 % 0.5 % 0.1 %

~~Notes to Consolidated Financial Statements~~

9. 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 primarily ceded all specific loss commercial liability risks in excess of ~~$500,000~~$400,000 in ~~2017, 2016,~~2023 and ~~2015.~~ $340,000 in 2022. The Company ceded specific loss 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 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~~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.

The Company entered into new specific loss reinsurance treaties on December 31, 2021 and January 1, 2022 which included a 40% ceding commission. The reinsurance premiums related to these treaties increased by ~~policy basis.~~

the same amount as the ceding commission. The ceding commissions were carried forward under the 2023 treaties with substantially similar terms.

Reinsurance does not discharge the Company, as 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's current reinsurance structure includes the following primary categories:

Casualty Clash

~~The Company is party to a workers' compensation and casualty clash reinsurance treaty with limits up to $18.0 million in excess of a $2.0 million retention.~~ •

Clash coverage is a type of reinsurance that provides additional coverage in the event that one casualty loss event results in two or more claims and recovery under the reinsurance treaties may otherwise be limited due to the amount, type or number of claims. Clash reinsurance further protects the balance sheet as it reduces the potential maximum loss on either a single risk or a large number of risks.

•

Effective January 1, 2022 through December 31, 2023, the Company was party to a workers’ compensation and casualty clash reinsurance treaty with a limit of $29.0 million in excess of $1.0 million.

Facultative

•

The Company was party to a facultative reinsurance agreement with a large reinsurer for commercial auto physical damage risks primarily in excess of $400,000.

•

The Company ~~has~~was party to a facultative reinsurance agreement with a large reinsurer for property risks with total insured values above the other reinsurance treaty limits.

Liability

~~Property~~

•

Effective ~~November~~January 1, ~~2014,~~2019 through December 31, 2023, the Company ~~entered into~~was party to an excess of loss reinsurance treaty for commercial liability coverage with a limit of $600,000 in excess of $400,000.

Property

•

Effective January 1, 2020 through December 31, 2023, the Company was party to an excess of loss reinsurance treaty for personal property coverage with ~~limits up to $2.7~~a limit of $1.7 million in excess of ~~$300,000,~~$300,000, for homeowners' and dwelling fire business. ~~This treaty remained in effect~~

•

Effective January 1, 2023 through ~~2017.~~

~~Effective July 1, 2015,~~December 31, 2023, the Company ~~entered into~~was party to an excess of loss reinsurance treaty for commercial property ~~values from $2.0~~coverage with a limit of $7.6 million in excess of $400,000.

•

Effective January 1, 2022 through December 31, 2022, the Company was party to ~~$4.0~~an excess of loss reinsurance treaty for commercial property coverage with a limit of $7.7 million ~~to replace much~~in excess of ~~the facultative reinsurance cover. This treaty remained in effect throughout 2017.~~$300,000.

•

At December 31, ~~2017,~~2023, the Company iswas covered for property catastrophe losses up to ~~$106.0~~$27.0 million in excess of ~~a $4.0~~$3.0 million retention for the first event. ~~The~~This treaty ~~renews~~ terminates on June 1, ~~2018.~~2024.

~~Multiple Line~~

•

~~Effective January 1, 2015,~~At December 31, 2022, the Company ~~entered into an excess of loss multi-line treaty that covers commercial~~was covered for property ~~and casualty~~catastrophe losses up to ~~$1.5~~$28.0 million in excess of a ~~$500,000 retention.~~$2.0 million retention for the first event. This treaty ~~remained in effect through 2017.~~terminates on June 1, 2023.

Quota Share

~~The Company has commercial umbrella treaties for commercial lines business in the form of~~•

Under a ~~90% quota share. A~~ quota share agreement, ~~is an agreement between an insurer and a reinsurer whereby~~ the reinsurer pays ~~an agreed-upon~~a percentage of all losses the insurer ~~sustains. In turn, the insurer compensates the reinsurer~~sustains in return for ~~this agreement in the form of~~ a ~~percentage~~similar percent of the premiums ~~for~~written on that risk. A ceding commission is paid by the ~~applicable lines covered~~reinsurer to the insurer to cover acquisition and ~~reinsurance period.~~operating expenses.

~~Effective December 31, 2014, the~~•

The Company ~~entered into~~ceded 90% to 100% of its commercial umbrella coverages under a ~~25%~~ quota share ~~arrangement with a reinsurer for coverage net of the other reinsurance arrangements and within the Company's retention of $500,000 for commercial lines and $300,000 for personal homeowners lines.~~ treaty.

•

The Company ~~terminated the agreement on August 1, 2015. The purpose~~ceded 50% of ~~the~~its cannabis program net written premiums under a quota share arrangement was to reduce the capital requirements necessary to support premium growth initiatives. The IPO provided sufficient capital to support growth initiatives, and the quota share was no longer deemed necessary.

~~Adverse Development Cover~~

Effective September 28, 2017, the Company entered into an ADC to cover loss development of up to $17.5 million in excess of stated reserves as of June 30, 2017. The consideration for the ADC entered into in the third

~~Notes to Consolidated Financial Statements~~treaty.

•

quarter was $7.2 million, which resulted in a one-time charge to ceded premiums fully earned in the third quarter. The agreement provides up to $17.5 million of reinsurance for adverse net loss reserve development for accident years 2005 through 2016. The agreement attaches when net losses exceed $1.4 million of the $36.6 million carried reserves at June 30, 2017, and extends to $19.5 million in coverage up to $57.5 million (inclusive of a 10% co-participation). As of December 31, 2017, the Company has ceded $7.19 million of losses into the $17.5 million layer. There is a 35% contingent recovery depending on the performance of the reserves over time. No contingent recovery is currently reflected in the financial statements.

~~Equipment Breakdown, Employment Practice Liability, and Data Compromise and Identity Recovery~~

The Company ~~has a 100% quota share arrangement with another reinsurer for~~ceded 100% of a small number of equipment breakdown, employment practices liability, ~~and~~ data compromise, and cannabis cyber liability coverages that are occasionally bundled with other ~~products.~~products under separate quota share agreements.

Sale of Renewal Rights

•

On September 30, 2023, the Company entered into a 100% quota share reinsurance agreement with the buyer of the renewal rights described in Note 2 ~ Sale of Renewal Rights. The Company ceded $30.9 million of its gross unearned premiums relating to the security guard and alarm installation program in exchange for 22% - 27% ceding commission.

Loss Portfolio Transfer

•

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 December 31, 2022, the Company has recorded losses through the $5.5 million corridor and $644,000 into the $20.0 million layer. As of December 31, 2022, the Consolidated Balance Sheet included $3.9 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. As of December, 31, 2023, the Company has recorded losses through the $5.5 million corridor and $9.1 million into the $20.0 million layer. As of December 31, 2023, the Consolidated Balance Sheet included $3.8 million of reinsurance recoverables on paid losses related to the LPT, and $10.9 million of reinsurance recoverables on unpaid losses related to the LPT.

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 rating, or where the policies are written in a state where the Company is not licensed or for other strategic reasons. ~~Assumed premiums are comprised entirely of these arrangements other than where there are premiums assumed from Citizens Property and Casualty Corporation (“Citizens”).~~

Beginning in December 2014, the Company assumed written premium of $5.5 million under a policy assumption agreement with Citizens. Citizens is a Florida government-sponsored insurer that provides homeowners insurance to Florida residences that cannot find coverage in the voluntary market. Upon assuming this premium, the Company becomes the primary insurer to the policyholders. The Company is responsible for claims occurring on or after the effective date of the assumption.

In the first quarter of 2015, the Company assumed additional written premium from Citizens in the amount of $1.4 million. This assumption was offset during the year ended December 31, 2015 by a return of $1.3 million of assumed premiums from the 2014 assumption and $738,000 of assumed premiums from the 2015 assumption. The return premiums are related to the policyholders opting out of the related assumptions. The Company did not assume any Citizens business in 2016 or 2017.

The Company assumed ~~$28.0 million, $25.0~~$43.6 million and ~~$2.5~~$42.2 million of written premiums under the insurance fronting arrangements for the years ended ~~ended~~ December 31, ~~2017, 2016,~~2023 and ~~2015,~~2022, respectively.

~~Notes to Consolidated Financial Statements~~

The following table presents the effects of ~~such~~ reinsurance and ~~assumption~~assumed reinsurance transactions on written premiums, earned premiums and losses and LAE (dollars in thousands). ~~The 2017~~In 2023, ceded written and earned premium amounts ~~include $806,000~~included $91,000 of reinsurance reinstatement costs related to catastrophe losses. In 2022, ceded written and earned premium amounts included $1.6 million of reinsurance reinstatement costs relating to Hurricane ~~Irma:~~

Ian.


	Year Ended December 31,
	2023			2022
Written premiums:
Direct	$	100,214		$	95,832
Assumed		43,620			42,187
Ceded		(75,146	)		(46,787	)
Net written premiums	$	68,688		$	91,232

Earned premiums:
Direct	$	96,595		$	97,843
Assumed		49,977			37,558
Ceded		(62,637	)		(38,690	)
Net earned premiums	$	83,935		$	96,711

Loss and loss adjustment expenses:
Direct	$	75,175		$	73,000
Assumed		45,662			43,487
Ceded		(38,424	)		(35,047	)
Net loss and LAE	$	82,413		$	81,440

Year Ended December 31,
2017 2016 2015
Written premiums:
Direct $ 86,251
$ 89,915
$ 90,503
Assumed 28,033
25,008
3,247
Ceded (23,044 ) (14,994 ) (14,076 )
Net written premiums $ 91,240
$ 99,929
$ 79,674

Earned premiums:
Direct $ 87,656
$ 90,660
$ 82,614
Assumed 27,081
14,053
6,602
Ceded (23,008 ) (15,086 ) (22,451 )
Net earned premiums $ 91,729
$ 89,627
$ 66,765

Loss and loss adjustment expenses:
Direct $ 79,035
$ 59,940
$ 43,989
Assumed 19,524
11,955
2,756
Ceded (24,642 ) (12,892 ) (7,863 )
Net Loss and loss adjustment expenses $ 73,917
$ 59,003
$ 38,882

10. Debt

As of December 31, 2023, the Company’s debt was comprised of two instruments: $17.9 million of 9.75% public senior unsecured notes (the "New Public Notes") which were issued during the third quarter of 2023, and $9.8 million of privately placed 12.5% senior secured notes ("Senior Secured Notes"), which were issued on September 30, 2023. The New Public Notes ~~to Consolidated Financial Statements~~

7.~~Debt~~

On have substantially the same terms as the 6.75% public senior unsecured notes (the "Old Public Notes") which matured on September ~~29, 2017,~~30, 2023, except for the coupon. A summary of the Company's outstanding debt is as follows (dollars in thousands):


	As of December 31, 2023						As of December 31, 2022
	Gross Debt		Unamortized Debt Issuance Costs		Net Debt		Gross Debt		Unamortized Debt Issuance Costs		Net Debt
Public Notes	$	17,887	$	1,679	$	16,208	$	24,381	$	195	$	24,186
Senior Secured Notes		9,750		897		8,853		—		—		—
Subordinated notes		—		—		—		10,500		810		9,690
Total	$	27,637	$	2,576	$	25,061	$	34,881	$	1,005	$	33,876

Public Note repayment and new issuance

The Company repaid all the $24.4 million of its Old Public Notes which matured on September 30, 2023, by paying off $13.2 million in cash and exchanging $11.2 million for the New Public Notes. The New Public Notes have substantially the same terms as the Old Public Notes, except for the coupon.

The Company funded the repayment of the Old Public Notes with several different fundraising initiatives. In August and September of 2023, the Company ~~issued $30.0~~raised $6.7 million in ~~private placement~~cash under and S-1 registration statement for the New Public Notes.

The Company also raised $6.2 million under an S-4 registration statement exchange offering for the New Public Notes and the Company's lender of its subordinated notes ~~(the "Notes").~~also exchanged its $5.0 million holding of the Company's Old Public

Notes for $5.0 million of the New Public Notes under the S-1 registration statement. As such, there was a non-cash exchange of $11.2 million of Old Public Notes for New Public Notes. The remaining $6.5 million of cash needed to pay down the Old Public Notes ~~have a maturity date~~was provided with cash on hand.

New Public Notes

The Company issued $17.9 million of ~~September 29, 2032,~~New Public Notes during the third quarter of 2023. The new notes bear aninterest rate of 9.75% per annum, payable quarterly at ~~a fixed annual rate~~the end of ~~8.0%,~~March, June, September and ~~allow for up to four quarterly interest deferrals. On~~December and mature on September 30, 2028. The Company may redeem the ~~fifth and tenth anniversary of the~~new notes, ~~the interest rate resets to 1,250 basis points and 1,500 basis points, respectively, above the 5-year mid-swap rate. The Notes include an issuer call option~~in whole or in part, at ~~par from July 31, 2018, through October 31, 2018, and~~face value at ~~105% of par~~ any time after September 30, 2025.

Senior Secured Notes

The Company paid down $500,000 of principal on its subordinated notes on September 29, ~~2020.~~

2023. The Company then restructured its existing $10.0 million of subordinated notes to Senior Secured Notes with its lender on September 30, 2023. The Senior Secured Notes mature on September 30, 2028, and bear an interest rate of 12.5% per annum. Interest is payable quarterly at the end of March, June, September, and December. Quarterly principal payments of $250,000 are required starting on December 31, 2023 through September 30, 2028. The Company may redeem the senior secured notes, in whole or in part, for a call premium of $1.8 million less 22% of the interest payment amounts that were paid prior to the date of redemption. The Company accounted for this restructuring as a debt modification because there was no concession made to the lender.

Debt issuance costs

The Company incurred $173,000 of restructuring costs from the lender related to the Senior Secured Notes. These costs were capitalized as debt issuance costs as of September 30, 2023.

As of December 31, 2023, the carrying value of the New Public Notes isand Senior Secured Notes were offset by ~~$973,000~~$1.7 million and $897,000 of capitalized costs, respectively. The debt issuance costs ~~that will be~~are amortized through interest expense over the life of the ~~loan.~~

loans.

Debt covenants

The Notes replaced the Company's senior debt facility ("Credit Facility"), which was terminated upon execution of the Notes. The Credit Facility was comprised of three notes: a $17.5 million revolving line of credit ("Revolver") which commenced in October 2013; a $5.0 million five-year term note ("Term Note") which commenced in October 2013; and a $7.5 million five-year term note which commenced in September 2014 ("2014 Term Note"). A summary of the outstanding debt is as follows (dollars in thousands):

December 31,
2017 2016
Subordinated Debt $ 29,027
$ —
Revolver —
10,500
Term Note —
1,750
2014 Term Note —
5,500
Total $ 29,027
$ 17,750

~~The proceeds from the Notes were utilized to repay all of the outstanding balances on the Credit Facility and to contribute additional capital into the Insurance Company Subsidiaries.~~

~~The~~Senior Secured Notes contain various restrictive financial debt covenants that relate to the Company’s minimum tangible net worth, minimum fixed-charge coverage ratios, ~~dividend-paying~~dividend paying capacity, reinsurance retentions, and risk-based capital ratios. AtThe Senior Secured Notes also require that any proceeds the Company receives from asset sales be used to pay down the principal. As of December 31, ~~2017,~~2023, the Company was not in compliance with the tangible net worth, dividend paying capacity, risk-based capital and consolidated debt to capital covenants. On March 27, 2024, the holders of the Senior Secured Notes waived the December 31, 2023 covenants and modified the minimum requirements of the financial debt covenants. Management expects to be in compliance with all debt covenants in future periods.

The following table shows the scheduled principal payments of ~~its~~the Company's debt ~~financial covenants.~~as of December 31, 2023 (dollars in thousands):


Year	Senior unsecured notes		Senior secured notes
2024		1,000		—
2025		1,000		—
2026		1,000		—
2027		1,000		—
2028		5,750		17,887
Total	$	9,750	$	17,887

Line of credit

The Company maintained a $10.0 million line of credit with a national bank during 2022. The line of credit carried an interest rate at LIBOR plus 2.75% per annum, payable monthly. The line of credit agreement matured on December 1, 2022, and was not renewed.

11. Income Taxes

At December 31, ~~2017 and 2016,~~2023, the Company had current income ~~taxes~~tax receivable of ~~$214,000 and $110,000, respectively,~~$65,000 included in other assets in the consolidated balance sheets.

At December 31, 2022, the Company had current income tax receivable of $58,000 included in other assets in the consolidated balance sheets.

The income tax expense (benefit) is comprised of the following (dollars in thousands):


	Year Ended December 31,
	2023			2022
Current tax expense (benefit)	$	26		$	(45	)
Deferred tax expense (benefit)		(17	)		(9,396	)
Total income tax expense (benefit)	$	9		$	(9,441	)

Year Ended December 31,
2017 2016 2015
Current tax expense (benefit) $ (28 ) $ 70
$ 48
Deferred tax expense (benefit) (419 ) (147 ) —
Total income tax expense (benefit) $ (447 ) $ (77 ) $ 48

The income tax expense (benefit) differed from the amounts computed by applying the statutory U.S. federal income tax rate of ~~34%~~21% in 2023 and 2022 to pretax income as a result of the following (dollars in thousands):


	Year Ended December 31,
	2023			2022
Income (loss) before income taxes	$	(25,644	)	$	(20,490	)
Statutory U.S. federal income tax rate		(5,385	)		(4,303	)
State income taxes, net of federal benefit		(1,503	)		(5,984	)
Tax‑exempt investment income and dividend received deduction		(13	)		(22	)
Nondeductible meals and entertainment		73			79
Valuation allowance on deferred tax assets		7,254			3,715
Equity-earnings from Affiliate		—			195
Net gain from sale of agency assets		—			(2,848	)
Utilization of state NOLs		—			(386	)
Deferred corrections		(476	)		—
PPP Loan forgiveness		—			—
Other		59			113
Income tax expense (benefit)	$	9		$	(9,441	)
Effective tax rate		—			46.1	%

~~Notes to Consolidated Financial Statements~~

Year Ended December 31,
2017 2016 2015
Income (loss) before income taxes $ (22,054 ) $ (8,643 ) $ 83
Statutory U.S. federal income tax rate (7,498 ) (2,939 ) 28
State income taxes, net of federal benefit (106 ) (3 ) (72 )
Tax‑exempt investment income and dividend received deduction (123 ) (106 ) (116 )
Nondeductible meals and entertainment 54
61
45
Valuation allowance on deferred tax assets 1,515
2,808
(2,050 )
Net operating loss write-off —
—
2,150
Change in federal tax rate 5,612
—
—
Other 99
102
63
Income tax expense (benefit) $ (447 ) $ (77 ) $ 48
Effective tax rate 2.0 % 0.9 % 57.8 %

On December 22, 2017, the U.S. federal government enacted H.R.1, “An Act to Provide for Reconciliation Pursuant to Titles II and V of the Concurrent Resolution on the Budget for Fiscal Year 2018” (the “Act”). The Act provides for significant changes to corporate taxation including the decrease of the corporate tax rate from 34% to 21%. The Company has completed its analysis of the impact of the Act and has followed the additional guidance provided by the Security and Exchange Commission's Staff Accounting Bulletin No. 118. Management believes there are no material provisional balances as of December 31, 2017.

The Company has accounted for the impacts of the Act by remeasuring its deferred tax assets and liabilities at the 21% enacted tax rate. The approximate impact of the change in tax rate was a decrease in net deferred tax assets (before valuation allowance) of $5.6 million with a corresponding deferred income tax expense of $5.6 million. The valuation allowance also decreased by $5.7 million with a corresponding deferred income tax benefit of $5.7 million. Accordingly, the net deferred income tax impact on the results of operations relating to the Act was a $63,000 deferred tax benefit in 2017. The Company’s net deferred tax assets for the year ended December 31, 2016, remain at the previously enacted tax rate.

The Company has recorded a reasonable estimate for the impact of the Act on the discounted loss reserves included in the table, below. The Company will true-up the deferred tax asset for this item when the United States Treasury releases the 2018 discount factors. The corresponding deferred tax liability related to the transitional adjustment will be recognized over the next eight years beginning with the year ending December 31, 2018.

For the year ended December 31, 2015, the Company reconsidered how it presents deferred tax assets and the associated valuation allowance which are subject to permanent limitation and which will expire unused. As such, the 2015 valuation allowance and gross net operating loss deferred tax asset were reduced by $2.2 million to remove the deferred tax assets that would expire unused.

~~Notes to Consolidated Financial Statements~~

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities are presented below (dollars in thousands):


	December 31,
	2023			2022
Deferred tax assets:
Discounted unpaid losses and loss adjustment expenses	$	1,749		$	1,217
Unearned premiums		1,648			2,324
Net operating loss carryforwards		16,960			12,152
Net unrealized losses on investments		2,780			3,687
State net operating loss carryforwards		6,523			5,097
Other		112			403
Gross deferred tax assets		29,772			24,880
Less valuation allowance		(28,013	)		(21,663	)
Total deferred tax assets, net of allowance		1,759			3,217
Deferred tax liabilities:
Investment basis difference		208			23
Tax rate change transition discounting		92			137
Equity investment in Affiliate		—			691
Deferred policy acquisition costs		1,320			2,161
Intangible assets		115			115
Property and equipment		24			41
Other		—			49
Total deferred tax liabilities		1,759			3,217
Net deferred tax liability	$	—		$	—

December 31,
2017 2016
Deferred tax assets:
Discounted unpaid losses and loss adjustment expenses $ 1,026
$ 715
Unearned premiums 2,576
4,085
Net operating loss carryforwards 9,147
7,757
State net operating loss carryforwards 385
223
Other 135
203
Gross deferred tax assets 13,269
12,983
Less valuation allowance (9,904 ) (8,389 )
Total deferred tax assets, net of allowance 3,365
4,594
Deferred tax liabilities:
Investment basis difference 19
45
Unrealized gains on investments 124
(156 )
Deferred policy acquisition costs 2,684
4,519
Intangible assets 107
163
Property and equipment 85
202
Other 461
—
Total deferred tax liabilities 3,480
4,773
Net deferred tax liability $ (115 ) $ (179 )

The net deferred tax liability is recorded in ~~Accounts~~accounts payable and accrued expenses in the consolidated balance sheets.

As of December 31, ~~2017,~~2023, the Company has ~~net operating loss~~NOL carryforwards for federal income tax purposes of ~~$43.6~~$80.8 million, of which $78.2 million expire in tax years ~~2029~~2030 through ~~2037.~~2043 and $10.3 million never expire. Of this amount, ~~$15.1~~$19.5 million are limited in the amount that can be utilized in any one year and may expire before they are realized under Section 382 of the Internal Revenue Code. The Company has state net operating loss carryforwards of ~~$11.0~~$120.3 million, which expire in tax years ~~2029~~2024 through ~~2037.~~

2043.

Management assesses the available positive and negative evidence to estimate whether sufficient future taxable income will be generated to permit the use of the existing deferred tax assets under the guidance of ASC 740. A significant piece of objective negative evidence evaluated was the cumulative loss incurred over the three‑year period ended December 31, ~~2017.~~2023. Such objective evidence limits the Company's ability to consider other subjective evidence, such as management's projections for future growth.

Based on its evaluation, the Company has recorded a valuation allowance of ~~$9.9~~$28.0 million and ~~$8.4~~$21.7 million at December 31, ~~2017~~2023 and ~~2016,~~2022, respectively, to reduce the deferred tax assets to an amount that is more likely than not to be realized based on the provisions in ASC 740. The amount of the deferred tax assets considered realizable, however, could be adjusted if estimates of future taxable income during the carryforward period are reduced or if objective negative evidence in the form of cumulative losses is no longer present, and additional weight may be given to subjective evidence, such as the Company’s projections for growth.

The Company files consolidated federal income tax returns. For the years before ~~2014,~~2020, the Company is no longer subject to U.S. federal examinations; however, the Internal Revenue Service has the ability to review years prior to ~~2014~~2020 to the extent the Company utilized tax attributes carried forward from those prior years. The statute of limitations on state filings is generally three to four ~~years.~~

years.

~~Notes to Consolidated Financial Statements~~

12. Statutory Financial Data, Risk-Based Capital and Dividend Restrictions

U.S. state insurance laws and regulations prescribe accounting practices for determining statutory net income and capital and surplus for insurance companies. In addition, state regulators may permit statutory accounting practices that differ from prescribed practices. Statutory accounting practices prescribed or permitted by regulatory authorities for the Company’s Insurance Company Subsidiaries differ from GAAP. The principal differences between statutory accounting practices ("SAP") and GAAP as they relate to the financial statements of the Company’s Insurance Company Subsidiaries are (i) policy acquisition costs are expensed as incurred under SAP, whereas they are deferred and amortized under GAAP, (ii) deferred tax assets are subject to more limitations regarding what amounts can be recorded under SAP and (iii) bonds are recorded at amortized cost under SAP and fair value under GAAP.

Risk-Based Capital ("RBC") requirements as promulgated by the National Association of Insurance Commissioners (‘‘NAIC’’) require property and casualty insurers to maintain minimum capitalization levels determined based on formulas incorporating various business risks (e.g., investment risk, underwriting profitability, etc.) of the Insurance Company Subsidiaries. As of December 31, ~~2017, 2016~~2023, CIC fell within the Company Action Level and ~~2015,~~WPIC fell within the Regulatory Action Level of the RBC formula. WPIC also fell below two other regulatory thresholds which are necessary to stay in compliance. Management is required to provide a plan to its domiciliary regulator that shows how the Companies will get above the minimum level requirements. Management believes that the planned reduction in premium anticipated by a strategic shift to use third-party insurers for substantially all of its commercial lines business will be sufficient to bring the Companies back into compliance by December 31, 2024. Management expects to substantially cease all writings in WPIC by the end of the second quarter of 2024. In the event the Companies do not regain compliance, the director may suspend, revoke, or limit the certificate of authority of the Companies.

As of December 31, 2022, the Insurance Company Subsidiaries’ adjusted capital and surplus exceeded their authorized control level as determined by the NAIC’s risk-based capital models.

Summarized ~~2017, 2016~~2023 and ~~2015~~2022 statutory basis information for the non-captive Insurance Company Subsidiaries, which differs from generally accepted accounting principles, is as follows (dollars in thousands). On December 30, 2016, the Company's wholly owned subsidiary, ACIC was merged into WPIC. As a result, 2017 and 2016 statutory data is shown for the remaining two Insurance Company Subsidiaries, while 2015 data is shown for the prior three Insurance Company Subsidiaries, (dollars in thousands).


	CIC			WPIC
2023
Statutory capital and surplus	$	32,117		$	7,494
RBC authorized control level		19,050			5,268
Statutory net income (loss)		(14,014	)		(9,841	)
RBC %		169	%		142	%


	CIC			WPIC
2022
Statutory capital and surplus	$	47,827		$	20,651
RBC authorized control level		15,541			5,098
Statutory net income (loss)		(6,846	)		(4,171	)
RBC %		308	%		405	%

Conifer
White
Pine
2017:
Statutory capital and surplus $ 35,848
$ 26,075
RBC authorized control level 8,873
6,224
Statutory net income (loss) (6,993 ) (13,737 )
RBC % 404 % 419 %

Conifer
White
Pine
2016:
Statutory capital and surplus $ 29,539
$ 32,391
RBC authorized control level 6,676
6,583
Statutory net income (loss) (2,782 ) (1,209 )
RBC % 442 % 492 %

Conifer
American
Colonial

White
Pine
2015:
Statutory capital and surplus $ 30,637
$ 22,523
$ 17,452
RBC authorized control level 5,390
2,809
2,978
Statutory net income (loss) 387
(2,278 ) 784
RBC % 569 % 802 % 585 %

Dividend Restrictions

The state insurance statutes in which the Insurance Company Subsidiaries are domiciled limit the amount of dividends that they may pay annually without first obtaining regulatory approval. Generally, the limitations are based on the greater of statutory net income for the preceding year or ~~10%~~10% of statutory surplus at the end of the preceding year. The Insurance Company Subsidiaries must receive regulatory approval in order to pay dividends to the Parent Company from its Insurance Company ~~Subsidiaries in 2017.~~

Subsidiaries.

~~Notes to Consolidated Financial Statements~~

~~10.~~

13. Shareholders’ Equity

~~Common~~

Preferred Stock

~~In September 2017,~~

On December 20, 2023, the Company issued ~~$5.0~~$6.0 million of its newly designated Series A Preferred Stock (the "Preferred Stock"), no par value, through a private placement of 1,000 shares priced at $6,000 per share that matures on June 30, 2026. The Preferred Stock was sold to Clarkston 91 West LLC (the "Purchaser"), an entity affiliated with Gerald and Jeffrey Hakala, members of the Board of Directors of the Company. The Company intends to use the proceeds for working capital and general corporate purposes. Preferred Stock shareholders have no voting rights and optional redemption is only in the control of the Company.

The Preferred Stock requires quarterly dividend payments. The Preferred Stock dividend rate is equal to the prime rate of Waterford Bank, N.A. ("Waterford Bank"), or 8.0%, whichever is higher, plus 200 basis points. As of December 31, 2023, this equated to an annualized rate of 10.5%.

The Company has the option to redeem the Preferred Stock at the end of any fiscal quarter, in whole or in part, at a price equal to issue price, plus the amount that would result in a 20.0%, compounded annually, annualized return to the holder (inclusive of the dividends paid), on the portion being redeemed.

On the maturity date, each outstanding share of the Preferred Stock, that has not otherwise been redeemed, shall, without any further action by the holders, automatically convert into 4,000 shares of the Company's common stock, subject to adjustment for reverse and forward stock splits, stock dividends, stock combinations and other similar transactions of the common stock that occur after the initial issue date.

As of December 31, 2023 and 2022, the Company had 1,000 and 0 issued and outstanding shares of Preferred Stock, respectively.

Common Stock

On August 10, 2022, the Company issued $5.0 million of common equity through a private placement ~~for 800,000~~of 2,500,000 shares

priced at ~~$6.25.~~$2.00 per share. The participants in the private placement consisted ~~mainly~~ of members of the ~~Company’s management team~~

~~and insiders, including Chairman and CEO James Petcoff.~~Company's Board of Directors. The Company used the proceeds ~~to strengthen its balance sheet~~

~~through contributions to the Insurance Company Subsidiaries to support their future~~for growth ~~and to cover the cost of the ADC and reserve strengthening.~~

~~On February 25, 2016,~~capital in the Company's Board of Directors authorized a stock repurchase program, under which the Company may repurchase up to $2.1 million of its outstanding common stock. Under this program, management is authorized to repurchase shares at prevailing market prices through open market purchases, privately negotiated transactions, block purchases or otherwise in accordance with applicable federal securities laws, including Rule 10b5-1 and 10b-18 of the Securities Exchange Act of 1934, as amended. The actual timing, number and value of shares repurchased under the program was determined by management in its discretion and depended on a number of factors, including the market price of the Company’s stock, general market conditions, and other factors. specialty core business segments.

For the year ended December 31, ~~2017,~~2023, the Company ~~had not~~ repurchased ~~any shares of stock. For the year ended December 31, 2016, the Company had repurchased and retired 88,650~~1,968 shares of stock valued at approximately ~~$625,000. Repurchased~~$3,000 related to the vesting of the Company’s restricted stock units. Upon the repurchase of the Company’s shares, the shares remain authorized, but not issued or ~~outstanding, and are available~~outstanding.

For the year ended December 31, 2022, the Company repurchased 1,968 shares of stock valued at approximately $4,000 related to ~~be reissued in~~ the ~~future.~~

vesting of the Company’s restricted stock units. The Company's additional paid-in capital relating to the Company's stock repurchases was $10,000 for the year ended December 31, 2022. The capital increase was due to a $14,000 adjustment for cash returned related to the Company's stock repurchase program.

As of December 31, ~~2017~~2023 and ~~2016,~~2022, the Company had ~~8,520,328~~12,222,881 and ~~7,633,070~~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.

~~11.Redeemable Preferred Stock~~

At December 31, 2014, the Company had 60,600 shares of redeemable preferred stock outstanding. The shares of redeemable preferred stock were initially recorded at fair value and thereafter increased by accrued paid-in-kind dividends. The Company classified the shares of redeemable preferred stock within temporary equity on its consolidated balance sheet at December 31, 2014, due to its liquidation rights.

On March 25, 2015, the Company amended its articles of incorporation with the consent of more than 80% of the holders of the preferred stock and a majority of the holders of the common stock to restrict the liquidation rights to the liquidation, dissolution or winding up of the Company. It was previously more broadly defined. On the effective date of the modification, the Company reclassified the carrying amount of its redeemable preferred stock from temporary equity to permanent equity.

Pursuant to agreements effective on or before July 1, 2015, the holders of preferred stock agreed to allow the Company to repurchase their outstanding preferred shares at the original purchase price (i.e., $100 per share) plus all accrued and unpaid preferred dividends. In addition, the holders of 29,550 shares (or 49%) of preferred stock agreed to use such cash received from the Company’s repurchase of their preferred stock to purchase shares of common stock at the same per share price as the common stock offered in the Company’s IPO. The closing of these transactions were conditioned on the completion of the Company’s IPO.

Following the closing of the Company’s IPO on August 18, 2015, the Company paid $6.3 million to holders of shares of preferred stock to repurchase such shares and for the payment of accrued dividends. Additionally, the Company issued 294,450 shares of common stock to former holders of the preferred stock for proceeds of $3.1 million. There are no shares of redeemable preferred stock outstanding after the closing of the IPO.

~~Notes to Consolidated Financial Statements~~

~~12.~~

14. Accumulated Other Comprehensive Income (Loss)

The following table presents changes in accumulated other comprehensive income (loss) for unrealized gains and losses on available-for-sale securities ~~(in~~(dollars in thousands):


	Year Ended December 31,
	2023			2022
Balance at beginning of period	$	(18,203	)	$	(2,110	)
Other comprehensive income (loss) before reclassifications		3,624			(16,024	)
Less: amounts reclassified from accumulated other comprehensive income (loss)		(51	)		69
Net current period other comprehensive income (loss)		3,675			(16,093	)
Balance at end of period	$	(14,528	)	$	(18,203	)

Year Ended
December 31,
2017 2016
Balance at beginning of period $ (1,080 ) $ 182
Other comprehensive income (loss) before reclassifications 795
(2,139 )
Less: amounts reclassified from accumulated other comprehensive income (loss) 78
(877 )
Net current period other comprehensive income (loss) 717
(1,262 )
Balance at end of period $ (363 ) $ (1,080 )

~~13.~~

15. EarningsPer Share

Basic and diluted earnings (loss) per share are computed by dividing net income allocable to common shareholders by the weighted average number of common shares outstanding during the period. The dividends on preferred stock are deducted from the net income to arrive at net income allocable to common shareholders. ~~In the period of a net loss, the dividends on preferred stock are added to the net loss to arrive at net loss allocable to common shareholders.~~ The following table presents the calculation of basic and diluted earnings (loss) per common share, as follows ~~(in~~(dollars in thousands, except share and per share amounts):

Year Ended
December 31,
2017 2016 2015
Net income (loss) attributable to Conifer $ (21,542 ) $ (8,437 ) $ 64
Preferred stock dividends —
—
384
Paid-in-kind dividends —
—
156
Net income (loss) allocable to common shareholders $ (21,542 ) $ (8,437 ) $ (476 )

Weighted average common shares, basic and diluted* 7,867,344
7,618,588
5,369,960

Earnings (loss) per share allocable to common, basic and diluted $ (2.74 ) $ (1.11 ) $ (0.09 )


	Year Ended December 31,
	2023			2022
Net income (loss)	$	(25,904	)	$	(10,681	)
Preferred stock dividends		19			-
Net income (loss) allocable to common shareholders	$	(25,923	)	$	(10,681	)
Weighted average common shares, basic and diluted*		12,220,511			10,692,090
Earnings (loss) per share, basic and diluted	$	(2.12	)	$	(1.00	)

* The preferred shares that may be convertible into a total of 4,000,000 common shares were anti-dilutive and thus did not impact the diluted earnings per share calculation. There were no unvested restricted stock units as of December 31, 2023. The non-vested shares of the restricted stock units and stock options were anti-dilutive as of December 31, ~~2017, 2016, and 2015.~~2022. Therefore, the ~~basic and diluted weighted average common~~non-vested shares are ~~equal as of~~excluded from earnings (loss) per share for the years ended December 31, ~~2017, 2016, and 2015.~~ 2022.

~~14.~~

16. Stock-based Compensation

~~In 2015,~~

On March 8, 2022 the Company ~~established the~~ ~~Conifer Holdings, Inc. 2015 Omnibus Incentive Plan~~ ~~(“2015 Plan”), which permits the granting of stock~~issued options ~~stock appreciation rights, restricted stock units ("RSU") and other stock-based awards. The 2015 Plan authorizes up~~ to ~~1,377,000~~purchase 630,000 shares of the Company's common stock ~~for awards~~ to ~~be issued~~two named executive officers. The right to ~~employees, directors or consultants~~exercise the options will vest over a five-year period on a straight-line basis. The options have a strike price of ~~the Company.~~$4.53 per share and will expire on March 8, 2032. The RSUs are issued at no less than the market price on the date the awards are granted. The awards vest in five annual installments, commencing on the first anniversary from the date of grant. The Company will expense theestimated grant date fair value of these options is $612,000, which is being expensed ratably over the ~~RSUs as compensation expense~~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~~basis. The options have a strike price of $3.81 per share and expire on June 30, 2030. The estimated grant date fair value of these options is $290,000, which will be expensed ratably over the ~~requisite service~~vesting period. Upon vesting, each RSU will convert into one share of common stock. The unvested RSUs are subject to forfeiture in the event the employee is involuntarily or voluntarily terminated. If the employee is terminated by

In 2016 and 2018, the Company ~~for cause, the Company has the option to forfeit the terminated employees’ vested shares for no consideration~~issued 111,281 and ~~to cause the employee to have no further rights or interest in the vested RSUs.~~

~~The following summarizes our RSU activity (units in thousands):~~

~~Notes to Consolidated Financial Statements~~

Number of Units Weighted Average Grant-Date Fair Value
Outstanding at August 12, 2015 (IPO) —
$ —
Units granted 390
10.48
Outstanding at December 31, 2015 390
$ 10.48
Units granted 111
8.17
Units vested (77 ) 10.48
Units forfeited (8 ) 9.95
Outstanding at December 31, 2016 416
$ 9.87
Units granted —
—
Units vested (95 ) 9.97
Units forfeited (14 ) 9.94
Outstanding at December 31, 2017 307
$ 9.84

~~The scheduled vesting for the~~70,000, respectively, of restricted stock units ~~at December 31, 2017 was as follows (in thousands):~~

2018 2019 2020 2021 Total

Scheduled vesting - RSUs 95
95
95
22
307

~~In 2015, the Company issued 390,352 RSUs~~(“RSUs”) to ~~executive officers and other~~various employees to be settled in shares of common ~~stock. The total RSUs~~stock, which were valued at ~~$4.1 million~~$909,000, and $404,000, respectively, on the ~~date~~dates of grant. ~~In 2016, the Company issued 111,281 RSUs to executive officers and other employees valued at $909,000 on the date of grant.~~

The Company recorded ~~$948,000, $856,000~~$17,000 and ~~$303,000~~$56,000 of compensation expense related to the RSUs for the years ended December 31, ~~2017, 2016~~2023, and ~~2015,~~2022, respectively. ~~The total compensation cost related to the non-vested portion of the restricted stock units which has not been recognized~~There are no unvested RSUs as of December 31, ~~2017 was $3.0 million.~~2023.

The Company recorded $51,000 and $53,000 of compensation expense for the years ended December 31, 2023 and 2022, respectively, related to the stock options granted on June 30, 2020. There were 100,000 options outstanding and unvested as of December 31, 2023, which will generate an estimated future expense of $78,000.

The Company recorded $122,000 and $102,000 of compensation expense for the years ended December 31, 2023, and 2022, respectively, related to the stock options granted on March 8, 2022. There were 504,000 options outstanding and unvested as of December 31, 2023, which will generate an estimated future expense of $387,000.

~~15.~~

17. Related Party Transactions

~~In October 2015,~~

J. Grant Smith joined the Company’s Board on January 12, 2024. J. Grant Smith is the President and Chief Operating Officer of Waterford Bank. As of December 31, 2023, the Company ~~hired the brother~~owned $528,000 of the Chairman and Chief Executive Officer, James G. Petcoff, as the president of a newly created managing general agency, Blue Spruce Underwriters. In this capacity, B. Matthew Petcoff leads a team of agents in writing business in the hospitality industry, focusing on quick-service restaurants.

Waterford Bank's common stock.

The Company employs Nicholas J. Petcoff as its Chief Executive ~~Vice President~~Officer and a ~~director and~~Director of the Company's Board of Directors. Nicholas J. Petcoff became the Company's sole Chief Executive Officer on December 31, 2023. The Company employed Andrew D. Petcoff as its Senior Vice President of Personal ~~Lines; each~~Lines and as President of ~~those individuals have~~CIS, until June 30, 2021. The Company’s employment of Andrew D. Petcoff ended as the result of the Venture Transaction. See Note 4 ~ Sale of Certain Agency Business for additional details. Andrew D. Petcoff resigned from the Company's Board of Directors on December 31, 2022. Andrew D. Petcoff is now the President of Sycamore Specialty Underwriters, LLC ("SSU"), a related Affiliate to the Company as of December 31, 2022. See Note 3 ~ VSRM Transaction for additional details.

Nicholas J. Petcoff has been employed with the Company since 2009. Andrew D. Petcoff had formerly been employed with the Company since 2009. They are the sons of the Company's former Executive Chairman and ~~Chief~~Co-Chief Executive Officer, James G. Petcoff. James G. Petcoff stepped down as the Company's Executive Chairman and Co-Chief Executive Officer on December 31, 2023.

The Company employed B. Matthew Petcoff as Vice President of CIS until June 30, 2021. B. Matthew Petcoff is the brother of the Executive Chairman and Co-Chief Executive Officer, James G. Petcoff. The Company also employed Hilary Petcoff as its Vice President of Enterprise Risk Management until June 30, 2021. Ms. Petcoff is the daughter of the Company’s Executive Chairman and Co-Chief Executive Officer, James G. Petcoff. As a result of the transaction in Note 3 ~ VSRM Transaction, B. Matthew Petcoff and Hilary Petcoff are no longer employees of Venture Agency Holdings, Inc., and are no longer affiliated with the Company as of December 31, 2022.

In October 2022, the Company acquired control over Venture (a previous equity method investee) for total consideration of $9.7 million as further described in Note 3 ~ VRSM Transaction.

See Note 13 ~ Shareholders' Equity for the preferred and common stock issuances to members of the Company's Board.

~~16.~~

18. Employee Benefit Plans

~~In 2014, the~~

The Company ~~established~~maintains a retirement savings plan under section 401(k) of the Internal Revenue Code (the “Plan”) for certain eligible employees. Eligible employees electing to participate in the 401(k) plan may defer and contribute from 1%1% to ~~100%~~100% of their compensation on a pre‑tax or post-tax basis, subject to statutory limits. The Company will match the

~~Notes to Consolidated Financial Statements~~

employees’ contributions up to the first 4%4% of their compensation. The Company’s Plan expense amounted to ~~$432,000, $405,000~~$411,000 and ~~$346,000~~$457,000 for the years ended December 31, ~~2017, 2016~~2023 and ~~2015~~2022, respectively.

~~Notes to Consolidated Financial Statements~~

~~17.~~

19. 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 balance sheets. 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.

Commitments

~~In 2010, the~~

The Company ~~entered into~~is party to an agreement with an unaffiliated ~~party~~company to ~~design, develop, and implement~~provide a ~~new~~ policy administration, billing, and claims system for the Company. The scope of work and fee structure has changed over time. Currently, the agreement requires a minimum monthly payment of ~~$30,000~~$30,000 with a fee schedule that is scalable with the premium volume, and expires on ~~September 30, 2022.~~

~~Operating leases~~

November 1, 2026. The Company ~~leases administrative office facilities, including~~incurred $1.9 million of expenses from its corporate headquarters, and office equipment under operating leases that expire at various dates through 2024. The Company has the option to extend its corporate headquarters lease for two additional five‑year periods. The Company recognizes rent expense on a straight‑line basis over the termuse of the ~~lease. Rent expense under the operating leases totaled $961,000~~system in ~~2017, $915,000 in 2016,~~2023 and ~~$795,000 in 2015.~~2022, respectively.

~~The future minimum rental payments under non-cancelable operating leases as of December 31, 2017, are as follows (in thousands):~~

Years Ending December 31, Amount
2018 $ 940
2019 865
2020 837
2021 726
2022 636
2023 and thereafter 1,079
Total future minimum rental payments $ 5,083

~~18.~~

20. Segment Information

The Company is engaged in the sale of property and casualty insurance products and has organized its ~~principal operations into two types~~business model around three classes of insurance businesses: commercial lines, personal lines, and ~~personal lines.~~wholesale agency business. Within these ~~two insurance~~three businesses, the Company offers various insurance ~~products.~~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 chief operating ~~decision-making group~~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 chief operating ~~decision-making group, comprised of key senior executives, reviews~~decision makers, the Chief Executive Officer, review a number of financial measures including gross written premiums, net earned premiums, ~~and~~ losses and LAE, net of reinsurance ~~recoveries.~~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 ~~underwriting~~ personnel, policy issuance and claims systems, rent and

~~Notes to Consolidated Financial Statements~~

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 ~~Florida,~~ Michigan, Texas, Oklahoma and ~~Pennsylvania.~~California. For the years ended December 31, ~~2017, 2016~~2023 and ~~2015,~~2022, gross written premiums attributable to these four states were ~~60.8%, 56.7%,~~59.9% and ~~66.6%~~52.8%, respectively, of the Company’s total gross written premiums.

The following table summarizes our net earned premiums:

Net Earned Premium
2017 2016 2015
Commercial 84 % 77 % 73 %
Personal 16 % 23 % 27 %
Total 100 % 100 % 100 %


	Net Earned Premium
	2023			2022
Commercial		71	%		84	%
Personal		29	%		16	%
Total		100	%		100	%

The ~~following provides a description~~wholesale agency business sells insurance products on behalf of the Company’s ~~two insurance~~commercial and personal lines businesses as well as to third-party insurers. Certain acquisition costs incurred by the commercial and ~~product offerings within these businesses:~~

~~Commercial lines—offers coverage~~personal lines businesses are reflected as commission revenue for ~~property, liability, automobile~~the wholesale agency business and ~~other miscellaneous coverage primarily to owner-operated small and mid-sized businesses, professional organizations and hospitality businesses such as restaurants, bars and taverns.~~

~~Personal lines—offers coverage for low-value dwelling, and wind-exposed homeowners.~~

are eliminated in the Eliminations category.

In addition to the reportable segments, the Company maintains a Corporate and Other category to reconcile segment results to the consolidated totals. The Corporate and Other category includes: (i) corporate operating expenses such as salaries and related benefits of the Company’s executive management team, ~~and~~some finance and information technology personnel, and other corporate headquarters expenses, (ii) interest expense on the Company’s ~~senior~~ 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, ~~and~~ net realized investment gains, and change in fair value of equity securities on the consolidated statements of operations.

~~Notes~~ The Company’s assets on the consolidated balance sheet are not allocated to ~~Consolidated Financial Statements~~the reportable segments.

100

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


Year Ended December 31, 2023	Commercial Lines			Personal Lines			Under-writing			Wholesale Agency			Corp-orate			Elim-inations			Total
Gross written premiums	$	107,078		$	36,756		$	143,834		$	—		$	—		$	—		$	143,834

Net written premiums	$	36,580		$	32,108		$	68,688		$	—		$	—		$	—		$	68,688

Net earned premiums	$	59,221		$	24,714		$	83,935		$	—		$	—		$	—		$	83,935
Agency commission income		—			—			—			5,680			—			—			5,680
Other income		217			96			313			1,379			239			(1,237	)		694
Segment revenue		59,438			24,810			84,248			7,059			239			(1,237	)		90,309

Loss and loss adjustment expenses, net		62,828			19,585			82,413			—			—			—			82,413
Policy acquisition costs		9,134			6,663			15,797			6,401			—			(1,306	)		20,892
Operating expenses		11,988			3,444			15,432			1,153			1,306			—			17,891
Segment expenses		83,950			29,692			113,642			7,554			1,306			(1,306	)		121,196

Segment underwriting gain (loss)		(24,512	)		(4,882	)		(29,394	)		(495	)		(1,067	)		69			(30,887	)
Net investment income														5,526						5,526
Net realized investment gains (losses)														(20	)					(20	)
Change in fair value of equity securities														608						608
Gain on sale of renewal rights														2,335						2,335
Other gains														—						—
Interest expense														(3,206	)					(3,206	)
Income (loss) before income taxes	$	(24,512	)	$	(4,882	)	$	(29,394	)	$	(495	)	$	4,176		$	69		$	(25,644	)

Selected Balance Sheet Data:
Deferred policy acquisition costs	$	2,047		$	4,357											$	(119	)	$	6,285
Unearned premiums		45,494			19,656															65,150
Unpaid losses and loss adjustment expenses		169,039			5,573															174,612


Year Ended December 31, 2022	Commercial Lines			Personal Lines			Under-writing			Wholesale Agency			Corp-orate			Elim-inations			Total
Gross written premiums	$	116,868		$	21,151		$	138,019		$	—		$	—		$	—		$	138,019

Net written premiums	$	72,318		$	18,914		$	91,232		$	—		$	—		$	—		$	91,232

Net earned premiums	$	80,823		$	15,888		$	96,711		$	—		$	—		$	—		$	96,711
Agency commission income		—			—			—			1,414			—			—			1,414
Other income		245			82			327			4,298			271			(3,542	)		1,354
Segment revenue		81,068			15,970			97,038			5,712			271			(3,542	)		99,479

Loss and loss adjustment expenses, net		70,762			10,678			81,440			—			—			—			81,440
Policy acquisition costs		17,682			4,604			22,286			3,653			—			(3,760	)		22,179
Operating expenses		13,069			1,936			15,005			2,612			1,192			(20	)		18,789
Loss portfolio transfer risk fee		5,400			—			5,400			—			—			—			5,400
Segment expenses		106,913			17,218			124,131			6,265			1,192			(3,780	)		127,808

Segment underwriting gain (loss)		(25,845	)		(1,248	)		(27,093	)		(553	)		(921	)	$	238			(28,329	)
Net investment income											32			3,011						3,043
Net realized investment gains (losses)														(1,505	)					(1,505	)
Change in fair value of equity securities														403						403
Gain from VSRM Transaction														8,810						8,810
Other gains											(1	)		60						59
Interest expense											(42	)		(2,929	)					(2,971	)
Income (loss) before income taxes	$	(25,845	)	$	(1,248	)	$	(27,093	)	$	(564	)	$	6,929		$	238		$	(20,490	)

Selected Balance Sheet Data:
Deferred policy acquisition costs	$	7,683		$	2,796											$	(189	)	$	10,290
Unearned premiums		56,565			11,322															67,887
Unpaid losses and loss adjustment expenses		159,558			5,981															165,539

Year Ended December 31, 2017 Commercial Lines Personal Lines
Corporate
& Other
Total
Gross written premiums $ 92,112
$ 22,172
$ —
$ 114,284
Net written premiums $ 78,217
$ 13,023
$ —
$ 91,240
Net earned premiums $ 76,786
$ 14,943
$ —
$ 91,729
Other income 628
780
152
1,560
Segment revenue 77,414
15,723
152
93,289
Loss and loss adjustment expenses, net 55,701
18,216
—
73,917
Policy acquisition costs 20,470
5,775
—
26,245
Operating expenses 11,339
2,570
3,458
17,367
Segment expenses 87,510
26,561
3,458
117,529
Segment underwriting gain (loss)
$ (10,096 ) $ (10,838 ) $ (3,306 ) $ (24,240 )

Investment income

2,728
2,728
Net realized investment gains

70
70
Other gains (losses)

750
750
Interest expense

(1,362 ) (1,362 )
Income (loss) before income taxes

$ (1,120 ) $ (22,054 )

Selected Balance Sheet Data:
Deferred policy acquisition costs $ 10,116
$ 2,665
$ —
$ 12,781
Unearned premiums 45,951
11,721
—
57,672
Loss and loss adjustment expense reserves 76,586
11,310
—
87,896

21. Subsequent Events

101

~~Notes to Consolidated Financial Statements~~

Year Ended December 31, 2016 Commercial Lines Personal Lines
Corporate
& Other
Total
Gross written premiums $ 88,242
$ 26,681
$ —
$ 114,923
Net written premiums $ 78,439
$ 21,490
$ —
$ 99,929
Net earned premiums $ 68,921
$ 20,706
$ —
$ 89,627
Other income 378
558
182
1,118
Segment revenue 69,299
21,264
182
90,745
Loss and loss adjustment expenses, net 42,441
16,562
—
59,003
Policy acquisition costs 18,560
6,720
—
25,280
Operating expenses 6,767
2,911
7,918
17,596
Segment expenses 67,768
26,193
7,918
101,879
Segment underwriting gain (loss)
$ 1,531
$ (4,929 ) $ (7,736 ) $ (11,134 )

Investment income

2,173
2,173
Net realized investment gains

1,365
1,365
Other gains (losses)

(400 ) (400 )
Interest expense

(647 ) (647 )
Income (loss) before income taxes

$ (5,245 ) $ (8,643 )

Selected Balance Sheet Data:
Deferred policy acquisition costs $ 10,156
$ 3,134
$ —
$ 13,290
Unearned premiums 44,484
13,642
—
58,126
Loss and loss adjustment expense reserves 46,917
7,734
—
54,651

~~Notes to Consolidated Financial Statements~~

Year Ended December 31, 2015 Commercial Lines Personal Lines
Corporate
& Other
Total
Gross written premiums $ 68,197
$ 25,553
$ —
$ 93,750
Net written premiums $ 58,157
$ 21,517
$ —
$ 79,674
Net earned premiums $ 48,586
$ 18,179
$ —
$ 66,765
Other income 1,099
489
79
1,667
Segment revenue 49,685
18,668
79
68,432
Loss and loss adjustment expenses, net 25,730
13,152
—
38,882
Policy acquisition costs 11,937
4,246
—
16,183
Operating expenses 4,983
3,305
6,518
14,806
Segment expenses 42,650
20,703
6,518
69,871
Segment underwriting gain (loss)
$ 7,035
$ (2,035 ) $ (6,439 ) $ (1,439 )

Investment income

1,902
1,902
Net realized investment gains

285
285
Other gains (losses)

104
104
Interest expense

(769 ) (769 )
Income (loss) before income taxes

$ (4,917 ) $ 83

Selected Balance Sheet Data:
Deferred policy acquisition costs $ 8,401
$ 3,701
$ —
$ 12,102
Unearned premiums 33,337
14,579
—
47,916
Loss and loss adjustment expense reserves 29,739
5,683
—
35,422

~~Notes to Consolidated Financial Statements~~

~~19. Quarterly Financial Data (Unaudited)~~

The ~~following is a summary~~Company performed an evaluation of ~~quarterly results of operations for 2017~~subsequent events through the date the financial statements were issued and 2016 (in thousands, except per share and ratio data). The fluctuations between periods and changes in reserves, as disclosed in Note 5, are due to the normal fluctuations in operations from quarter to quarter.

1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
2017:
Gross written premiums $ 26,474
$ 26,981
$ 29,581
$ 31,247
Net written premiums $ 22,324
$ 23,082
$ 18,395
$ 27,439
Net earned premiums $ 24,140
$ 24,497
$ 17,659
$ 25,433
Net investment income 577
663
768
720
Net realized gains (8 ) —
39
39
Other gains (losses) —
750
—
—
Other income 354
372
477
357
Losses and loss adjustment expenses, net 15,733
16,674
26,468
15,042
Policy acquisition costs 6,472
6,428
6,655
6,690
Operating expenses 4,530
4,370
4,474
3,993
Interest expense 224
219
303
616
Income tax (benefit) expense 6
(282 ) (135 ) (36 )
Equity earnings (losses) in affiliates, net of tax 104
60
(76 ) (23 )
Net income (loss) $ (1,798 ) $ (1,067 ) $ (18,898 ) $ 221
Diluted earnings (loss) per common share (1) $ (0.24 ) $ (0.14 ) $ (2.46 ) $ 0.03
Combined ratio (2) 109.1 % 110.4 % 207.3 % 99.7 %

2016:
Gross written premiums $ 25,393
$ 29,725
$ 28,497
$ 31,308
Net written premiums $ 22,050
$ 26,176
$ 24,634
$ 27,069
Net earned premiums $ 20,109
$ 21,675
$ 23,380
$ 24,463
Net investment income 537
528
560
548
Net realized gains (8 ) 541
71
761
Other gains (losses) —
—
—
(400 )
Other income 245
283
303
287
Losses and loss adjustment expenses, net 12,699
13,541
14,582
18,181
Policy acquisition costs 6,003
6,014
6,266
6,997
Operating expenses 4,139
4,536
4,710
4,211
Interest expense 157
143
168
179
Income tax (benefit) expense —
(623 ) 16
530
Equity losses in affiliates, net of tax 87
71
(47 ) 18
Net income (loss) $ (2,028 ) $ (513 ) $ (1,475 ) $ (4,421 )
Diluted earnings (loss) per common share (1) $ (0.27 ) $ (0.07 ) $ (0.19 ) $ (0.58 )
Combined ratio (2) 112.2 % 109.7 % 107.9 % 118.7 %

~~(1) Due to the changes~~determined there were no recognized or unrecognized subsequent events that would require an adjustment or additional disclosure in the ~~equity structure~~condensed consolidated financial statements as of ~~the Company~~ ~~(Note ~ 10 Shareholders' Equity)~~ ~~the weighted average common shares outstanding has fluctuated over the past two years and therefore the quarterly diluted earnings (loss) per~~December 31, 2023.

~~Notes to Consolidated Financial Statements~~

~~common share does not total the full-year earnings (loss) per common share stated on the face of the Consolidated Statements of Operations.~~

(2) The combined ratio is the sum of the loss ratio and the expense ratio. The loss ratio is the ratio, expressed as a percentage, of net losses and LAE to net premiums earned and other income. The expense ratio is the ratio, expressed as a percentage, of policy acquisition costs and operating expenses to net earned premiums and other income.

Schedule II

Conifer Holdings, Inc.

Condensed Financial Information of Registrant

Balance Sheets – Parent Company Only

(dollars in thousands)


	December 31,
	2023			2022
Assets
Investment in subsidiaries	$	31,157		$	56,670
Cash		3,174			9,022
Due from Affiliate		33			113
Other assets		1,457			2,434
Total assets	$	35,821		$	68,239
Liabilities and Shareholders' Equity
Liabilities:
Debt	$	29,061		$	33,876
Due to subsidiaries		3,436			9,754
Other liabilities		1,798			5,659
Total liabilities		34,295			49,289
Shareholders' equity:
Preferred stock, no par value (10,000,000 shares authorized; 1,000 and 0 issued and outstanding, respectively)		6,000			—
Common stock, no par value (100,000,000 shares authorized; 12,222,881 and 12,215,849 issued and outstanding, respectively)		98,100			97,913
Accumulated deficit		(86,683	)		(60,760	)
Accumulated other comprehensive income (loss)		(15,891	)		(18,203	)
Total shareholders' equity		1,526			18,950
Total liabilities and shareholders' equity	$	35,821		$	68,239

The accompanying notes are an integral part of the Condensed Financial Information of Registrant.

102

December 31,
2017 2016

Assets
Investment in subsidiaries $ 77,657
$ 78,637
Equity securities 400
—
Cash 2,583
4,639
Due from subsidiaries 513
—
Due from affiliate 348
946
Other assets 1,271
2,009
Total assets $ 82,772
$ 86,231

Liabilities and Shareholders' Equity
Liabilities:
Debt $ 29,027
$ 17,750
Other liabilities 919
687
Total liabilities 29,946
18,437

Shareholders' equity:
Common stock, no par value (100,000,000 shares authorized; 8,520,328 and 7,633,070 issued and outstanding, respectively) 86,199
80,342
Accumulated deficit (33,010 ) (11,468 )
Accumulated other comprehensive income (loss) (363 ) (1,080 )
Total shareholders' equity 52,826
67,794
Total liabilities and shareholders' equity $ 82,772
$ 86,231

Schedule II

Conifer Holdings, Inc.

Condensed Financial Information of Registrant

Statements of Comprehensive Income (Loss) – Parent Company Only

(dollars in thousands)


	Year Ended December 31,
	2023			2022
Revenue
Management fees from subsidiaries	$	17,367		$	4,980
Other income		819			190
Total revenue		18,186			5,170
Expenses
Operating expenses		14,133			14,365
Interest expense		3,079			2,816
Total expenses		17,212			17,181
Income (loss) before equity in earnings (losses) of subsidiaries and income tax expense (benefit)		974			(12,011	)
Income tax expense (benefit)		73			(4,078	)
Income (loss) before equity earnings (losses) of subsidiaries		901			(7,933	)
Equity earnings (losses) in subsidiaries		(26,805	)		(2,748	)
Net income (loss)		(25,904	)		(10,681	)
Other Comprehensive Income
Equity in other comprehensive income (loss) of subsidiaries		2,312			(16,093	)
Total Comprehensive income (loss)	$	(23,592	)	$	(26,774	)

The accompanying notes are an integral part of the Condensed Financial Information of Registrant.

103

Year Ended December 31,
2017 2016 2015
Revenue
Management fees from subsidiaries $ 15,905
$ 9,911
$ 8,007
Other income 826
51
64
Total revenue 16,731
9,962
8,071

Expenses
Operating expenses 13,496
16,995
13,710
Interest expense 1,362
647
766
Total expenses 14,858
17,642
14,476

Income (loss) before equity in earnings (losses)
of subsidiaries and income tax benefit
1,873
(7,680 ) (6,405 )
Income tax benefit 859
(864 ) (1,025 )
Income (loss) before equity earnings (losses) of subsidiaries 1,014
(6,816 ) (5,380 )
Equity earnings (losses) in subsidiaries (22,556 ) (1,621 ) 5,363

Net income (loss) (21,542 ) (8,437 ) (17 )
Less net loss attributable to noncontrolling interest —
—
(81 )
Net income (loss) attributable to Conifer $ (21,542 ) $ (8,437 ) $ 64

Other Comprehensive Income
Equity in other comprehensive income (loss) of subsidiaries 717
(1,262 ) (976 )
Total Comprehensive income (loss) $ (20,825 ) $ (9,699 ) $ (912 )

Schedule II

Conifer Holdings, Inc.

Condensed Financial Information of Registrant

Statement of Cash Flows – Parent Company Only

(dollars in thousands)


	Year Ended December 31,
	2023			2022
Cash Flows from Operating Activities
Net income (loss)	$	(25,904	)	$	(10,681	)
Adjustments to reconcile net income (loss) to net cash used in operating activities:
Depreciation and amortization		545			436
Equity in undistributed (income) loss of subsidiaries		26,805			2,748
Stock-based compensation expense		190			211
Deferred income tax expense		(3,806	)		3,884
Other (gain) loss		—			—
Changes in operating assets and liabilities:
Due from subsidiaries		(6,318	)		2,699
Due from Affiliate		80			107
Current income tax recoverable		—			—
Other assets		860			62
Other liabilities		(73	)		(203	)
Net cash provided by (used in) operating activities		(7,621	)		(737	)
Cash Flows From Investing Activities
Contributions to subsidiaries		1,019			4,000
Dividends received from subsidiaries		—			—
Purchases of investments		—			—
Purchases of property and equipment		—			—
Net cash provided by (used in) investing activities		1,019			4,000
Cash Flows From Financing Activities
Proceeds received from issuance of shares of preferred stock		6,000			—
Proceeds received from issuance of shares of common stock		—			5,000
Proceeds from issuance of long-term debt		10,727			—
Repurchase of common stock		(3	)		10
Borrowings under debt arrangements		—			5,000
Repayment of borrowings under debt arrangements		—			(5,000	)
Paydown of long-term debt		(13,971	)		—
Debt issuance costs		(1,999	)		—
Net cash provided by financing activities		754			5,010
Net increase (decrease) in cash		(5,848	)		8,273
Cash at beginning of period		9,022			749
Cash at end of period	$	3,174		$	9,022
Supplemental Disclosure of Cash Flow Information:
Interest paid		2,949			2,979
Preferred stock dividends declared but not paid at end of period		19			—

The accompanying notes are an integral part of the Condensed Financial Information of Registrant.

104

Year Ended December 31,
2017 2016 2015
Cash Flows from Operating Activities
Net income (loss) $ (21,542 ) $ (8,437 ) $ (17 )
Adjustments to reconcile net income (loss) to net cash used in operating activities:
Depreciation and amortization 347
364
321
Deferred income taxes (485 ) 288
140
Equity in undistributed (income) loss of subsidiaries 22,556
1,621
(5,363 )
Incentive awards expenses - vesting of RSUs 895
856
303
Changes in operating assets and liabilities:
Due from subsidiaries (513 ) 150
(921 )
Due from affiliates 598
—
—
Other assets 532
(270 ) (396 )
Other liabilities 590
5
(500 )
Net cash provided by (used in) operating activities 2,978
(5,423 ) (6,433 )
Cash Flows From Investing Activities
Contributions to subsidiaries (20,860 ) (2,100 ) (7,500 )
Dividends received from subsidiaries —
5,450
2,700
Purchases of investments (400 ) —
—
Purchases of property and equipment (13 ) (192 ) (146 )
Net cash provided by (used in) investing activities (21,273 ) 3,158
(4,946 )
Cash Flows From Financing Activities
Proceeds received from issuance of shares of common stock 5,000
—
36,066
Repurchase of common stock —
(625 ) —
Repurchase of preferred stock —
—
(6,275 )
Borrowings under debt arrangements 32,000
7,000
4,400
Repayment of borrowings under debt arrangements (19,750 ) (2,000 ) (19,212 )
Dividends paid to preferred shareholders —
—
(384 )
Stock and debt issuance costs (1,011 ) —
(1,837 )
Net cash provided by financing activities 16,239
4,375
12,758
Net increase (decrease) in cash (2,056 ) 2,110
1,379
Cash at beginning of period 4,639
2,529
1,150
Cash at end of period $ 2,583
$ 4,639
$ 2,529

Supplemental Disclosure of Cash Flow Information:
Interest paid $ 876
$ 641
$ 844
Non-cash dividend received from subsidiaries —
—
400
Paid-in-kind dividends —
—
61

Conifer Holding, Inc.

Condensed Financial Information of Registrant

Parent Company Only

Notes to Condensed Financial Statements

1. Accounting Policies

Organization

Conifer Holdings, Inc. (the “Parent”) is a Michigan‑domiciled holding company organized for the purpose of managing its insurance entities. The Parent conducts its principal operations through these entities.

Basis of Presentation

The accompanying condensed financial information should be read in conjunction with the Consolidated Financial Statements and related Notes of Conifer Holdings, Inc. and Subsidiaries. Investments in subsidiaries are accounted for using the equity method. Under the equity method, the investment in subsidiaries is stated at cost plus contributions and equity in undistributed income (loss) of consolidated subsidiaries less dividends received since the date of acquisition.

The Parent’s operations consist of income earned from management and administrative services performed for the insurance entities pursuant to intercompany services agreements. These management and administrative services include providing management, marketing, offices and equipment, and premium collection, for which the insurance companies pay fees based on a percentage of gross premiums written. Also, the Parent receives commission income for performing agency services. The primary operating costs of the Parent are salaries and related costs of personnel, information technology, administrative expenses, and professional fees. The income received from the management and administrative services is used to cover operating costs, meet debt service requirements and cover other holding company obligations.

Estimates and Assumptions

Preparation of the condensed financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the condensed financial statements and accompanying disclosures. Those estimates are inherently subject to change, and actual results may ultimately differ from those estimates.

Dividends

The Parent received $1.4 million in cash dividends from ~~its subsidiaries~~RCIC in 2023. The Parent received a $10.8 million dividend from CIS during the fourth quarter of ~~$0.0, $5.5~~2022.

2. Guarantees

The Parent has guaranteed the principal and interest obligations of a $10.0 million surplus note issued by Conifer Insurance Company to White Pine Insurance Company (both wholly owned subsidiaries). The note pays interest annually at a per annum rate of 4% and ~~$2.7 million for the years ended~~has no maturity.

As of December 31, ~~2017, 2016 and 2015, respectively.~~2023, the surplus note was adjusted to a fair value of $6.8 million as a result of KBRA downgrading CIC's surplus note rating from BBB- to BB+. This change in CIC's rating required a change in the statutory statement presentation from a cost basis to a fair value basis of accounting.

105

Schedule V

Conifer Holdings, Inc.

and Subsidiaries

Valuation and Qualifying Accounts

For the Years Ended December 31, ~~2017, 2016~~2023 and ~~2015~~

2022

(dollars in thousands)


	Balance at Beginning of Period		Charged to Expense		Decrease to Other Comprehensive Income			Deductions from Allowance Account		Balance at End of Period
Valuation for Deferred Tax Assets
2023		21,663		7,254		(904	)		—		28,013
2022		14,594		3,715		3,354			—		21,663

106

Balance at Beginning of Period Charged to Expense Decrease to Other Comprehensive Income Deductions from Allowance Account Balance at End of Period
Valuation for Deferred Tax Assets
2017 $ 8,389
$ 1,515
$ —
$ —
$ 9,904
2016 5,160
2,808
421
—
8,389
2015 6,917
—
—
(1,757 ) 5,160

CONIFER HOLDINGS, INC.

Exhibit Index


		Incorporated by Reference
Exhibit Number	Exhibit Description	Form	Period Ending	Exhibit / Appendix Number	Filing Date	Filed / Furnished Herewith
3.1	Second Amended and Restated Articles of Incorporation of Conifer Holdings, Inc.	8-K	September 30, 2015	3.1	August 28, 2015

3.2	Amended and Restated Bylaws of Conifer Holdings, Inc.	S-1A	September 30, 2015	3.4	July 30, 2015

3.3	Certificate of Designation of Series A Preferred Stock	8-K		3.1	December 22, 2023

4.1	Description of Securities

4.2	Indenture dated September 24, 2018, by and between the Company and Wilmington Trust, National Association, as trustee	8-K		4.1	September 24, 2018

4.3	Form of Note (included in Exhibit A to the Second Supplemental Indenture)	8-K		4.3	August 8, 2023

4.4	Second Supplemental Indenture dated August 8, 2023, by and between the Company and Wilmington Trust, National Association, as trustee

10.6	2015 Omnibus Incentive Plan	S-1		10.2	July 2, 2015

10.7	Lease Agreement, dated June 14, 2022

10.8	Limited Waiver Regarding Second Amended and Restated Note Purchase Agreement

10.12	Employment agreement - Nicholas J. Petcoff

10.13	Employment agreements including Brian J. Roney	10-K	December 31, 2016	10.13	March 15, 2017

10.14	Note Purchase Agreement dated September 29, 2017 between the Company and Elanus Capital Investments Master SP Series 3	10-Q	September 30, 2017	10.14	November 11, 2017

10.15	Credit Agreement Dated as of June 21, 2018 with The Huntington National Bank	10-K	December 31, 2018	10.15	March 13, 2019

10.16	First Amendment to Note Purchase Agreement dated as of June 21, 2018 between the Company and Elanus Capital Investments Master SP Series 3	10-K	December 31, 2018	10.16	March 13, 2019

107


10.17	Amended and Restated Note Purchase Agreement dated September 25, 2018 between the Company and Elanus Capital Investments Master SP Series 3	10-K	December 31, 2018	10.17	March 13, 2019

10.18	Waiver and Consent from The Huntington National Bank dated as of October 31, 2018, regarding the Amended and Restated Note Purchase Agreement between the Company and Elanus Capital Investments Master SP Series 3	10-K	December 31, 2018	10.18	March 13, 2019

10.19	First Amendment to Amended and Restated Note Purchase Agreement dated as of December 13, 2018 between the Company and Elanus Capital Investments Master SP Series 3	10-K	December 31, 2018	10.19	March 13, 2019

10.20	First Amendment to Credit Agreement dated as of December 27, 2018 between the Company and The Huntington National Bank	10-K	December 31, 2018	10.20	March 13, 2019

10.21	Second Amendment to Amended and Restated Note Purchase Agreement dated as of June 21, 2019 between the Company and Elanus Capital Investments Master SP Series 3	10-K	December 31, 2019	10.21	March 12, 2020

10.22	Second Amendment to Credit Agreement dated as of June 21, 2019 between the Company and The Huntington National Bank	10-K	December 31, 2019	10.22	March 12, 2020

10.24	Third Amendment to Credit Agreement dated as of April 24, 2020 between the Company and The Huntington National Bank	10-Q	March 31, 2020	10.24	May 13, 2020

10.25	Amendment to Promissory Note dated as of June 19, 2020 between the Company and The Huntington National Bank	10-Q	June 30, 2020	10.25	August 12, 2020

10.26	Fourth Amendment to Credit Agreement dated as of June 19, 2020 between the Company and The Huntington National Bank	10-Q	June 30, 2020	10.26	August 12, 2020

10.27	Amendment to Promissory Note dated as of June 18, 2021 between the Company and The Huntington National Bank	10-Q	June 30, 2021	10.27	August 11, 2021

10.28	Fifth Amendment to Credit Agreement dated as of June 18, 2021	10-Q	June 30, 2021	10.28	August 11, 2021

108

Incorporated by Reference
Exhibit
Number Exhibit Description Form Period
Ending Exhibit /
Appendix
Number Filing Date Filed / Furnished Herewith
3.1
Second Amended and Restated Articles of Incorporation of Conifer Holdings, Inc.
8-K September 30, 2015 3.1 August 28, 2015

3.2
Amended and Restated Bylaws of Conifer Holdings, Inc.
S-1A September 30, 2015 3.4 July 30, 2015

10.6
2015 Omnibus Incentive Plan
S-1 10.2 July 2, 2015

10.7
Lease Agreement, dated September 18, 2013, as amended
S-1 10.3 July 2, 2015

10.13
Employment agreements - Nicholas J. Petcoff, James G. Petcoff Andrew D. Petcoff, Brian J. Roney
10-K December 31, 2016 10.13 March 15, 2017 *

10.14
Note Purchase Agreement dated September 29, 2017 between the Company and Elanus Capital Investments Master SP Series 3
10-Q September 30, 2017 10.14 November 11, 2017 *

21.1
List of Subsidiaries of the Company
*

23.1
Consent of Deloitte & Touche LLP, Independent Registered Public Accounting Firm
*

31.1
Section 302 Certification — CEO
*

31.2
Section 302 Certification — CFO
*

32.1*
Section 906 Certification — CEO
*

32.2*
Section 906 Certification — CFO
*

101.INS XBRL Instance Document *
101.SCH XBRL Taxonomy Extension Schema Document *
101.CAL XBRL Taxonomy Extension Calculation Linkbase *
101.DEF XBRL Taxonomy Extension Definition Linkbase *
101.LAB XBRL Taxonomy Extension Label Linkbase *
101.PRE XBRL Taxonomy Extension Presentation Linkbase *


	between the company and the Huntington National Bank

10.29	Six Amendment to Credit Agreement dated as of August 8, 2022 between the Company and the Huntington National Bank	10-Q	June 30, 2022	10.29	August 11, 2022

10.30	Purchase Agreement, dated December 20, 2023, by and between Conifer Holdings, Inc. and Clarkston Capital, LLC	8-K		10.1	December 22, 2023

10.31	Second Amended and Restated Note Purchase Agreement dated as of September 30, 2023 between the Company and Elanus Capital Investment Master SP Series 3	10-Q	September 30, 2023	10.1	November 11, 2023

21.1	List of Subsidiaries of the Company					*

23.1	Consent of Plante Moran PLLC, Independent Registered Public Accounting Firm					*

31.1	Section 302 Certification — CEO					*

31.2	Section 302 Certification — CFO					*

32.1*	Section 906 Certification — CEO					*

32.2*	Section 906 Certification — CFO					*

97	Conifer Clawback Policy					*

99.1	Report of Independent Registered Public Accounting Firm on Supplemental Information

101.INS	inline XBRL Instance Document					*
101.SCH	inline XBRL Taxonomy Extension Schema With Embedded Linkbases Document					*
104	Cover Page Interactive Data 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.

ITEM 16. Form 10-K Summary

None.

109

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities and 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/ ~~James G.~~Nicholas J. Petcoff
		~~James G.~~ Nicholas J. Petcoff
		~~Chairman and~~ Chief Executive Officer
		(Principal Executive Officer)

	By:	/s/ Harold J. Meloche
		Harold J. Meloche
		Chief Financial Officer and Treasurer
		(Principal Accounting and Financial Officer)

Dated: ~~March 15, 2018~~

April 1, 2024

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.


Signature	Title	Date

~~Signature~~	~~Title~~	~~Date~~

/s/ ~~James G.~~Nicholas J. Petcoff	~~Chairman and~~ Chief Executive Officer	~~March 15, 2018~~ April 1, 2024
~~James G.~~ Nicholas J. Petcoff	(Principal Executive Officer)

/s/ Harold J. Meloche	Chief Financial Officer and Treasurer	~~March 15, 2018~~ April 1, 2024
Harold J. Meloche	(Principal Accounting and Financial Officer)

/s/ ~~Mark McCammon~~Isolde O'Hanlon	Director, Board Chair	~~March 15, 2018~~ April 1, 2024
~~Mark McCammon~~ Isolde O'Hanlon

/s/ ~~Nicholas J. Petcoff~~Jeffrey Hakala	Director	~~March 15, 2018~~ April 1, 2024
~~Nicholas J. Petcoff~~ Jeffrey Hakala

/s/ ~~Jorge Morales~~Gerald W. Hakala	Director	~~March 15, 2018~~ April 1, 2024
~~Jorge Morales~~ Gerald W. Hakala

/s/ Timothy Lamothe	Director	April 1, 2024
Timothy Lamothe

/s/ Richard J. Williams, Jr.	Director	~~March 15, 2018~~ April 1, 2024
Richard J. Williams, Jr.

/s/ Joseph D. Sarafa	Director	~~March 15, 2018~~ April 1, 2024
Joseph D. Sarafa

/s/ ~~Isolde O'Hanlon~~J. Grant Smith	Director	~~March 15, 2018~~ April 1, 2024
~~Isolde O'Hanlon~~ J. Grant Smith

/s/ John Melstrom	Director	April 1, 2024
John Melstrom

/s/ James G. Petcoff	Director	April 1, 2024
James G. Petcoff

110

~~104~~


Michigan		27-1298795

~~Michigan~~		~~27-1298795~~
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

~~550~~ 3001 West ~~Merrill Street,~~ Big Beaver Road, Suite 200
~~Birmingham,~~ Troy, Michigan		~~48009~~ 48084
(Address of principal executive offices)		(Zip code)


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
9.75% Senior Notes due 2028	CNFRZ	The Nasdaq Stock Market LLC



Large accelerated filer ☐	Accelerated filer ☐	Non-accelerated filer ☐ ~~(Do not check if a smaller~~ ~~reporting company)~~ ☑	Smaller reporting company þ ☑	Emerging growth company þ
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. þ ☐


				Page No.
Part I
Item 1.		~~Page No.~~ Business		3
~~Part I~~ Item 1A.		Risk Factors		14
~~Item 1~~.	~~Business~~	1
~~Item 1~~A.	~~Risk Factors~~	12
Item 1B.		Unresolved Staff Comments	25	32
Item 2. 1C.	~~Properties~~	25 Cybersecurity		32
Item 3. 2.	~~Legal Proceedings~~	25 Properties		32
Item 4. 3.		Legal Proceedings		32
Item 4.		Mine Safety Disclosures	25	32
Part II
Item 5.		Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	26	33
Item 6.	~~Selected Consolidated Financial Data~~	28 [Reserved]		34
Item 7.		Management's Discussion and Analysis of Financial Condition and Results of Operations	30	35
Item 7A.		Quantitative and Qualitative Disclosures About Market Risk	50	55
Item 8.		Financial Statements and Supplementary Data	51	56
Item 9.		Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	51	56
Item 9A.		Controls and Procedures	51	56
Item 9B.		Other Information	51	57
~~Part II~~I Item 9C.		Disclosure Regarding Foreign Jurisdictions that Prevent Inspections		57
~~Item~~ ~~10-14.~~ Part III		52
~~Part I~~Items 10-14.V				58
Part IV
Item 15.		Exhibits and Financial Statement Schedules	53	59
~~Signatures~~ Item 16.		~~103~~ Form 10-K Summary		109
Signatures				110


				Year Ended December 31,
	2013			2014			2015			2016			2017			2018			2019			2020			2021			2022 (1)			2023 (1)
Net liability for losses and loss expenses	$	24,956		$	28,307		$	30,017		$	47,993		$	67,830		$	63,122		$	84,667		$	87,052		$	98,741		$	82,888		$	103,805
Liability re-estimated as of:
One year later		23,763			29,321			40,239			57,452			71,186			79,351			100,261			106,482			123,668			100,698
Two years later		25,521			33,274			52,321			60,453			87,536			94,786			118,116			129,665			144,116
Three years later		26,560			38,569			58,251			69,833			95,367			108,022			137,327			143,307
Four years later		27,784			40,822			62,185			74,381			102,335			117,607			146,027
Five years later		27,920			42,274			64,547			76,860			106,705			122,597
Six years later		28,339			42,967			66,072			79,622			109,865
Seven years later		28,655			43,341			66,883			80,235
Eight years later		28,880			43,771			67,020
Nine years later		29,487			43,712
Ten years later		29,396
Net cumulative redundancy (deficiency)	$	(4,440	)	$	(15,405	)	$	(37,003	)	$	(32,242	)	$	(42,035	)	$	(59,475	)	$	(61,360	)	$	(56,255	)	$	(45,375	)	$	(17,810	)	$	103,805

Cumulative amount of net liability paid as of:
One year later		13,245		$	16,091		$	20,200		$	29,533		$	44,521		$	29,520		$	40,244		$	39,187		$	51,129		$	57,963
Two years later		19,711			24,060			35,972			56,962			62,369			57,864			70,478			79,965			95,765
Three years later		23,241			32,699			50,676			61,168			77,409			78,861			103,770			114,622
Four years later		26,056			37,474			58,317			66,556			87,587			100,377			128,772
Five years later		27,217			40,438			61,349			70,945			99,544			114,346
Six years later		27,780			41,979			63,814			76,563			106,535
Seven years later		28,384			42,428			65,654			78,821
Eight years later		28,555			43,025			66,238
Nine years later		29,199			43,148
Ten years later		29,237

Gross liability-end of year		28,909			31,532			35,423			54,651			87,896			92,807			107,246			111,270			139,085			165,539			174,612
Reinsurance recoverable on unpaid losses		3,952			3,225			5,405			6,658			20,066			29,685			22,579			24,218			40,344			82,651			70,807
Net liability-end of year		24,957			28,307			30,018			47,993			67,830			63,122			84,667			87,052			98,741			82,888			103,805

Gross liability re-estimated - latest		35,911			53,611			85,551			115,849			176,969			182,121			186,956			186,015			204,735			200,159
Reinsurance recoverable on unpaid losses re-estimated - latest		6,515			9,899			18,530			35,613			67,104			59,524			40,929			42,708			60,619			99,460
Net liability re-estimated - latest		29,396			43,712			67,021			80,236			109,865			122,597			146,027			143,307			144,116			100,699
Gross cumulative redundancy (deficiency)	$	(7,002	)	$	(22,079	)	$	(50,128	)	$	(61,198	)	$	(89,073	)	$	(89,314	)	$	(79,710	)	$	(74,745	)	$	(65,650	)	$	(34,620	)


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


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


	Gross Written Premium by Segment
	2023		%			2022		%
Commercial	$	107,078		74	%	$	116,868		85	%
Personal		36,756		26	%		21,151		15	%
Total	$	143,834		100	%	$	138,019		100	%


	Gross Written Premiums by State
	2023		%			2022		%
Michigan	$	34,996		24.3	%	$	33,739		24.5	%
Texas		21,783		15.1	%		14,236		10.3	%
Oklahoma		17,972		12.5	%		11,882		8.6	%
California		11,479		8.0	%		12,967		9.4	%
New York		9,269		6.4	%		10,622		7.7	%
Florida		7,632		5.3	%		13,705		9.9	%
Ohio		4,996		3.5	%		4,378		3.2	%
Pennsylvania		4,314		3.0	%		4,499		3.3	%
Illinois		3,839		2.7	%		2,644		1.9	%
Indiana		3,422		2.4	%		3,232		2.3	%
Colorado		2,723		1.9	%		3,010		2.2	%
All Other States		21,409		14.9	%		23,105		16.7	%
Total	$	143,834		100.0	%	$	138,019		100.0	%



	Year Ended December 31,
	2009		2010		2011		2012		2013			2014			2015			2016			2017

Net liability for losses and loss expenses	$	911	$	18,795	$	17,164	$	17,547	$	24,956		$	28,307		$	30,017		$	47,993		$67,830
Liability re‑estimated as of:
One year later	764		16,565		12,807		13,508		23,763			29,321			40,239			57,452
Two years later	593		13,071		9,870		13,601		25,521			33,274			52,321
Three years later	495		10,300		10,038		13,821		26,560			38,569
Four years later	452		10,698		10,064		13,860		27,784
Five years later	434		10,926		10,227		13,980
Six years later	434		11,215		10,414
Seven years later	434		11,402
Eight years later	$	434

Net cumulative redundancy (deficiency)	$	477	$	7,393	$	6,750	$	3,567	$	(2,828	)	$	(10,262	)	$	(22,304	)	$	(9,459	)

Cumulative amount of net liability paid as of:
One year later	$	253	$	4,112	$	3,383	$	5,186	$	13,245		$	16,091		$	20,020		$	29,533
Two years later	315		6,277		6,092		9,106		19,711			24,060			35,972
Three years later	426		8,302		7,917		11,444		23,241			32,699
Four years later	434		9,372		8,788		13,015		26,056
Five years later	434		9,971		9,730		13,522
Six years later	434		10,799		10,167
Seven years later	434		11,219
Eight years later

Gross liability‑end of year	911		32,047		29,574		24,843		28,908			31,532			35,422			54,651			87,896
Reinsurance recoverable on unpaid losses	—		13,252		12,410		7,296		3,952			3,225			5,405			6,658			20,066
Net liability‑end of year	911		18,795		17,164		17,547		24,956			28,307			30,017			47,993			67,830

Gross liability re‑estimated‑latest	434		21,879		18,407		20,094		34,012			43,856			62,707			73,313
Reinsurance recoverable on unpaid losses re‑estimated‑latest	—		10,477		7,993		6,113		6,229			5,287			10,387			15,860
Net liability re‑estimated‑latest	434		11,402		10,414		13,981		27,783			38,569			52,320			57,453

Gross cumulative redundancy (deficiency)	$	477	$	10,168	$	11,167	$	4,749	$	(5,104	)	$	(12,324	)	$	(27,285	)	$	(18,662	)



	High	Low
2017
First Quarter	7.75	6.55
Second Quarter	8.05	6.75
Third Quarter	7.30	6.05
Fourth Quarter	7.15	5.55

2016
First Quarter	9.22	6.04
Second Quarter	7.00	6.27
Third Quarter	8.59	7.15
Fourth Quarter	8.55	6.65



Line of Business	Case Reserves		IBNR Reserves		Total Reserves		Ratio of IBNR to Total Reserves

Commercial Lines	$	32,280	$	27,041	$	59,321	45.6	%
Personal Lines	5,569		2,940		8,509		34.6	%
Total Lines	$	37,849	$	29,981	$	67,830	44.2	%



	Ultimate Loss and LAE Sensitivity Factor		December 31, 2017 Ultimate Loss and LAE		December 31, 2017 Loss and LAE Reserves		Potential Impact on 2017 Pre- Tax Income			Potential Impact on 2017 Net Income and December 31, 2017 Shareholders' Equity

Increased Ultimate Losses & LAE
Accident Year 2017	10.0	%	$	63,785	$	39,910	$	6,379		$	5,039
Accident Year 2016	5.0	%	45,599		11,571		2,280			1,801
Accident Year 2015	2.5	%	49,709		10,479		1,243			982
Prior to 2015 Accident Years	—	%	—		5,870		—			—

Decreased Ultimate Losses & LAE
Accident Year 2017	(10.0	)%	63,785		39,910		(6,379		)	(5,039		)
Accident Year 2016	(5.0	)%	45,599		11,571		(2,280		)	(1,801		)
Accident Year 2015	(2.5	)%	49,709		10,479		(1,243		)	(982		)
Prior to 2015 Accident Years	—	%	—		5,870		—			—



Year Ended December 31, 2017	Commercial Lines			Personal Lines			Total

Accident year net losses and LAE	$	48,520		$	15,937		$	64,457
Net (favorable) adverse development	7,181			2,279			9,460
Calendar year net loss and LAE	$	55,701		$	18,216		$	73,917

Accident year loss ratio	62.7		%	101.4		%	69.1		%
Net (favorable) adverse development	9.3		%	14.5		%	10.1		%
Calendar year loss ratio	72.0		%	115.9		%	79.2		%



Year Ended December 31, 2016	Commercial Lines			Personal Lines			Total

Accident year net losses and LAE	$	35,652		$	13,130		$	48,782
Net (favorable) adverse development	6,789			3,432			10,221
Calendar year net loss and LAE	$	42,441		$	16,562		$	59,003

Accident year loss ratio	51.4		%	61.8		%	53.7		%
Net (favorable) adverse development	9.8		%	16.1		%	11.3		%
Calendar year loss ratio	61.2		%	77.9		%	65.0		%



Year Ended December 31, 2015	Commercial Lines			Personal Lines			Total

Accident year net losses and LAE	$	25,365		$	12,057		$	37,422
Net (favorable) adverse development	365			1,095			1,460
Calendar year net loss and LAE	$	25,730		$	13,152		$	38,882

Accident year loss ratio	51.1		%	64.6		%	54.7		%
Net (favorable) adverse development	0.7		%	5.9		%	2.1		%
Calendar year loss ratio	51.8		%	70.5		%	56.8		%



	Payments due by period
	Total		Less than one year		One to three years		Three to five years		More than five years

Subordinated debt	$	30,000	$	—	$	—	$	—	$	30,000
Interest on subordinated debt	59,371		2,400		4,800		5,306		46,865
Operating Lease Obligations	5,083		940		1,702		1,362		1,079
Loss and loss adjustment expense (1)	87,896		33,323		33,845		15,238		5,490
Purchase Obligations (2)	1,710		360		720		630		—
Total	$	184,060	$	37,023	$	41,067	$	22,536	$	83,434



						Hypothetical Percentage Increase (Decrease) in
Hypothetical Change in Interest Rates As of December 31, 2017	Estimated Fair Value		Estimated Change in Fair Value			Fair Value		Shareholders' Equity

200 basis point increase	$	138,789	$	(9,174	)	(6.2	)%	(17.4	)%
100 basis point increase	143,376		(4,587		)	(3.1	)%	(8.7	)%
No change	147,963		—			—	%	—	%
100 basis point decrease	152,106		4,143			2.8	%	7.8	%
200 basis point decrease	155,805		7,842			5.3	%	14.8	%



For the Years ended December 31, 2017, 2016 and 2015
	Redeemable Preferred Stock					Preferred Stock					No Par, Common Stock					Retained Earnings (Accumulated deficit)			Accumulated Other Comprehensive Income (Loss)			Total Conifer Holdings Shareholders' Equity
	Shares		Amount			Shares		Amount			Shares		Amount			Retained Earnings (Accumulated deficit)			Accumulated Other Comprehensive Income (Loss)			Total Conifer Holdings Shareholders' Equity			Noncontrolling Interest			Total Equity
Balances at December 31, 2014	60,600		$	6,119		—		$	—		3,995,013		$	46,119		$	(3,095	)	$	1,158		$	44,182		$	(23	)	$	44,159
Net income (loss)	—		—			—		—			—		—			64			—			64			(81		)	(17		)
Issuance of common stock (Pre IPO)*	—		—			—		—			55,029		750			—			—			750			—			750
Paid-in-kind dividends	—		61			—		95			—		(156		)	—			—			(61		)	—			(61		)
Cash dividends paid on preferred stock	—		—			—		—			—		(384		)	—			—			(384		)	—			(384		)
Reclassification of redeemable preferred stock to permanent equity	(60,600	)	(6,180		)	60,600		6,180			—		—			—			—			6,180			—			6,180
Issuance of common stock (IPO)*	—		—			—		—			3,300,000		32,224			—			—			32,224			—			32,224
IPO Expenses*	—		—			—		—			—		(1,837		)	—			—			(1,837		)	—			(1,837		)
Repurchase of preferred stock	—		—			(60,600	)	(6,275		)	—		—			—			—			(6,275		)	—			(6,275		)
Issuance of common stock to former preferred stockholders	—		—			—		—			294,450		3,092			—			—			3,092			—			3,092
RSU expense **	—		—			—		—			—		303			—			—			303			—			303
Deconsolidation of affiliate	—		—			—		—			—		—			—			—			—			104			104
Other comprehensive loss	—		—			—		—			—		—			—			(976		)	(976		)	—			(976		)
Balances at December 31, 2015	—		$	—		—		$	—		7,644,492		$	80,111		$	(3,031	)	$	182		$	77,262		$	—		$	77,262
Net loss	—		—			—		—			—		—			(8,437		)	—			(8,437		)	—			(8,437		)
Repurchase of common stock	—		—			—		—			(88,650	)	(625		)	—			—			(625		)	—			(625		)
RSU expense **	—		—			—		—			77,228		856			—			—			856			—			856
Other comprehensive loss	—		—			—		—			—		—			—			(1,262		)	(1,262		)	—			(1,262		)
Balances at December 31, 2016	—		$	—		—		$	—		7,633,070		$	80,342		$	(11,468	)	$	(1,080	)	$	67,794		$	—		$	67,794
Net loss	—		—			—		—			—		—			(21,542		)	—			(21,542		)	—			(21,542		)
Issuance of common stock in private placement	—		—			—		—			800,000		5,000			—			—			5,000			—			5,000
Common stock issuance costs	—		—			—		—					(38		)	—			—			(38		)	—			(38		)
RSU expense, net **	—		—			—		—			87,258		895			—			—			895			—			895
Other comprehensive income	—		—			—		—			—		—			—			717			717			—			717
Balances at December 31, 2017	—		—			—		—			8,520,328		$	86,199		$	(33,010	)	$	(363	)	$	52,826		$	—		$	52,826



	December 31, 2017
	Cost or Amortized Cost		Gross Unrealized					Estimated Fair Value
			Gains		Losses
Debt securities:
U.S. Government	$	17,179	$	10	$	(99	)	$	17,090
State and local government	17,302		255		(54		)	17,503
Corporate debt	38,947		170		(209		)	38,908
Asset-backed securities	23,539		36		(35		)	23,540
Mortgage-backed securities	33,942		38		(522		)	33,458
Commercial mortgage-backed securities	3,532		3		(44		)	3,491
Collateralized mortgage obligations	2,563		19		(36		)	2,546
Total debt securities available for sale	137,004		531		(999		)	136,536
Equity securities:	8,629		1,240		(182		)	9,687
Total securities available for sale	$	145,633	$	1,771	$	(1,181	)	$	146,223



	December 31, 2017
	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	12	$	11,555	$	(64	)	7	$	2,207	$	(35	)	19	$	13,762	$	(99	)
State and local government	10	3,511		(20		)	7	1,424		(34		)	17	4,935		(54		)
Corporate debt	38	15,236		(46		)	10	6,555		(163		)	48	21,791		(209		)
Asset-backed securities	20	13,948		(29		)	3	915		(6		)	23	14,863		(35		)
Mortgage-backed securities	6	4,935		(19		)	26	24,939		(503		)	32	29,874		(522		)
Commercial mortgage-backed securities	3	2,026		(12		)	2	722		(32		)	5	2,748		(44		)
Collateralized mortgage obligations	8	1,870		(36		)	—	—		—			8	1,870		(36		)
Total debt securities available for sale	97	53,081		(226		)	55	36,762		(773		)	152	89,843		(999		)
Equity securities:
Common stock	13	436		(75		)	4	266		(107		)	17	702		(182		)
Total equity securities available for sale	13	436		(75		)	4	266		(107		)	17	702		(182		)
Total securities	110	$	53,517	$	(301	)	59	$	37,028	$	(880	)	169	$	90,545	$	(1,181	)



Commercial Lines
	Incurred loss and allocated loss adjustment expenses, net of reinsurance										Total IBNR	Cumulative number of reported claims
Accident Year	For the years ended December 31,
	2009*	2010*	2011*	2012*	2013*	2014*	2015*	2016	2017		2017	2017
2009	$11,400	$12,066	$10,312	$8,943	$8,232	$8,403	$8,359	$8,414	$8,442		$0	877
2010		7,346	8,568	7,255	6,357	6,170	6,074	6,207	6,292		—	771
2011			6,753	5,758	5,326	5,049	4,932	4,903	4,935		—	590
2012				7,745	6,421	6,288	6,384	6,253	6,190		40	560
2013					10,018	9,435	9,893	10,237	11,252		181	600
2014						19,709	19,907	22,711	26,367		754	1,740
2015							22,442	26,633	31,861		2,083	2,327
2016								32,396	34,935		6,078	3,462
2017									44,251		20,897	5,276
							Total		$174,525

Cumulative paid loss and allocated loss adjustment expenses, net of reinsurance
Accident Year	For the years ended December 31,
	2009*	2010*	2011*	2012*	2013*	2014*	2015*	2016	2017
2009	$4,436	$5,942	$6,410	$7,233	$7,800	$7,867	$7,933	$8,321	$8,441
2010		3,066	4,488	5,219	5,910	6,040	6,065	6,166	6,258
2011			2,645	3,534	3,964	4,449	4,641	4,744	4,872
2012				2,325	3,703	4,696	5,558	5,994	6,065
2013					3,979	6,211	7,643	8,622	10,147
2014						8,715	13,977	17,458	22,446
2015							10,470	17,817	22,549
2016								10,255	19,135
2017									12,448
							Total		112,361
		Unpaid losses and ALAE - years 2009 through 2017							62,164
Unpaid losses and ALAE - prior to 2009 (1)*									148
Unpaid ADC									(6,065	)
Unpaid losses and ALAE, net of reinsurance									$56,247



	December 31, 2017
Net outstanding liabilities for unpaid claims and ALAE
Commercial Lines	$	56,247
Personal Lines	8,012
Liabilities for unpaid claims and ALAE, net of reinsurance	64,259

Reinsurance recoverable on unpaid claims
Commercial Lines	17,265
Personal Lines	2,801
Total reinsurance recoverable on unpaid claims	20,066

ULAE Expense	3,571

Total gross liability for unpaid claims and LAE	$	87,896



	Conifer			White Pine
2017:
Statutory capital and surplus	$	35,848		$	26,075
RBC authorized control level	8,873			6,224
Statutory net income (loss)	(6,993		)	(13,737		)
RBC %	404		%	419		%



	Conifer			White Pine
2016:
Statutory capital and surplus	$	29,539		$	32,391
RBC authorized control level	6,676			6,583
Statutory net income (loss)	(2,782		)	(1,209		)
RBC %	442		%	492		%



	Conifer			American Colonial			White Pine
2015:
Statutory capital and surplus	$	30,637		$	22,523		$	17,452
RBC authorized control level	5,390			2,809			2,978
Statutory net income (loss)	387			(2,278		)	784
RBC %	569		%	802		%	585		%



	Number of Units		Weighted Average Grant-Date Fair Value
Outstanding at August 12, 2015 (IPO)	—		$	—
Units granted	390		10.48
Outstanding at December 31, 2015	390		$	10.48
Units granted	111		8.17
Units vested	(77	)	10.48
Units forfeited	(8	)	9.95
Outstanding at December 31, 2016	416		$	9.87
Units granted	—		—
Units vested	(95	)	9.97
Units forfeited	(14	)	9.94
Outstanding at December 31, 2017	307		$	9.84



Years Ending December 31,	Amount
2018	$	940
2019	865
2020	837
2021	726
2022	636
2023 and thereafter	1,079
Total future minimum rental payments	$	5,083



	1st Quarter			2nd Quarter			3rd Quarter			4th Quarter
2017:
Gross written premiums	$	26,474		$	26,981		$	29,581		$	31,247
Net written premiums	$	22,324		$	23,082		$	18,395		$	27,439
Net earned premiums	$	24,140		$	24,497		$	17,659		$	25,433
Net investment income	577			663			768			720
Net realized gains	(8		)	—			39			39
Other gains (losses)	—			750			—			—
Other income	354			372			477			357
Losses and loss adjustment expenses, net	15,733			16,674			26,468			15,042
Policy acquisition costs	6,472			6,428			6,655			6,690
Operating expenses	4,530			4,370			4,474			3,993
Interest expense	224			219			303			616
Income tax (benefit) expense	6			(282		)	(135		)	(36		)
Equity earnings (losses) in affiliates, net of tax	104			60			(76		)	(23		)
Net income (loss)	$	(1,798	)	$	(1,067	)	$	(18,898	)	$	221
Diluted earnings (loss) per common share (1)	$	(0.24	)	$	(0.14	)	$	(2.46	)	$	0.03
Combined ratio (2)	109.1		%	110.4		%	207.3		%	99.7		%

2016:
Gross written premiums	$	25,393		$	29,725		$	28,497		$	31,308
Net written premiums	$	22,050		$	26,176		$	24,634		$	27,069
Net earned premiums	$	20,109		$	21,675		$	23,380		$	24,463
Net investment income	537			528			560			548
Net realized gains	(8		)	541			71			761
Other gains (losses)	—			—			—			(400		)
Other income	245			283			303			287
Losses and loss adjustment expenses, net	12,699			13,541			14,582			18,181
Policy acquisition costs	6,003			6,014			6,266			6,997
Operating expenses	4,139			4,536			4,710			4,211
Interest expense	157			143			168			179
Income tax (benefit) expense	—			(623		)	16			530
Equity losses in affiliates, net of tax	87			71			(47		)	18
Net income (loss)	$	(2,028	)	$	(513	)	$	(1,475	)	$	(4,421	)
Diluted earnings (loss) per common share (1)	$	(0.27	)	$	(0.07	)	$	(0.19	)	$	(0.58	)
Combined ratio (2)	112.2		%	109.7		%	107.9		%	118.7		%



	Balance at Beginning of Period		Charged to Expense		Decrease to Other Comprehensive Income		Deductions from Allowance Account			Balance at End of Period
Valuation for Deferred Tax Assets
2017	$	8,389	$	1,515	$	—	$	—		$	9,904
2016	5,160		2,808		421		—			8,389
2015	6,917		—		—		(1,757		)	5,160