Unaudited Pro Forma Consolidated Financial Statements
On August 30, 2024, Conifer Holdings, Inc. (the “Company”), completed the sale of all of the issued and outstanding membership interests of Conifer Insurance Services, LLC (“CIS”) (the “CIS Sale”). CIS comprised the Company’s managing general agency “MGA” business and was the legal entity used to implement the strategic shift to non risk-bearing revenue from an underwriting-based model as described in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023. This represents the Company’s entire Wholesale Agency segment. Additionally, the Company repaid debt and redeemed its preferred stock from the net proceeds from the sale of CIS on August 30, 2024. In connection with the sale of CIS, the Company also disposed of its equity method investment in SSU on August 30, 2024.
The following unaudited pro forma consolidated financial statements and accompanying notes reflect the impact of the CIS Sale as if it occurred: a) on June 30, 2024, for the unaudited pro forma consolidated balance sheet; and b) on January 1, 2023 for the unaudited pro forma consolidated statements of operations for the six months ended June 30, 2024 and the year ended December 31, 2023. In accordance with Article 11 of Regulation S-X under the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended, the transaction accounting adjustments for the CIS Sale and the other transactions described above consist of those directly attributable to the disposal of CIS, the repayment of debt and the redemption of the preferred stock and the sale of our equity method investment in SSU.
The unaudited pro forma consolidated financial statements and accompanying notes are based on information currently available, are provided for illustrative purposes only and are not intended to reflect what the Company’s actual results of operations or financial position would have been had the CIS Sale and other related transactions occurred on the dates indicated above, nor is it necessarily indicative of the Company’s future results of operations or financial position after the occurrence of the transactions described above. Actual and future results may vary significantly from the results reflected in the unaudited pro forma consolidated financial statements.
The unaudited pro forma consolidated financial statements have been derived from and should be read in conjunction with the historical unaudited consolidated financial statements included in the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2024 and the historical audited consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023.
CONIFER HOLDINGS, INC. AND SUBSIDIARIES
Pro Forma Condensed Consolidated Balance Sheets (unaudited)
(dollars in thousands)
| | | As of June 30, 2024 | |
| | | Historical | | | Disposed CIS (a) | | | Transaction Accounting Adjustments | | | Other Adjust- ments (p) | | | Pro forma | |
| Assets | | | | | | | | | | | | | | | |
| Investment securities: | | | | | | | | | | | | | | | |
| Debt securities, at fair value | | $ | 119,371 | | | $ | — | | | $ | — | | | $ | — | | | $ | 119,371 | |
| Equity securities, at fair value | | | 1,660 | | | | — | | | | — | | | | — | | | | 1,660 | |
| Short-term investments, at fair value | | | 23,339 | | | | — | | | | — | | | | — | | | | 23,339 | |
| Total investments | | | 144,370 | | | | — | | | | — | | | | — | | | | 144,370 | |
| | | | | | | | | | | | | | | | | | | | | |
| Cash and cash equivalents | | | 9,697 | | | | (8,945 | ) | | | 43,401
| (b) | | | (13,400 | ) (d) | | | 30,753 | |
| Premiums and agents' balances receivable, net | | | 30,583 | | | | (14,464 | ) | | | — | | | | — | | | | 16,119 | |
| Receivable from Affiliate | | | 1,174 | | | | — | | | | — | | | | — | | | | 1,174 | |
| Reinsurance recoverables on unpaid losses | | | 74,358 | | | | — | | | | — | | | | — | | | | 74,358 | |
| Reinsurance recoverables on paid losses | | | 8,614 | | | | — | | | | — | | | | — | | | | 8,614 | |
| Prepaid reinsurance premiums | | | 13,494 | | | | — | | | | — | | | | — | | | | 13,494 | |
| Deferred policy acquisition costs | | | 4,606 | | | | — | | | | — | | | | — | | | | 4,606 | |
| Other assets | | | 6,038 | | | | (2,023 | ) | | | — | | | | 3,270 | (e) | | | 7,285 | |
| Total assets | | $ | 292,934 | | | $ | (25,432 | ) | | $ | 43,401 | | | $ | (10,130 | ) | | $ | 300,773
| |
| Liabilities and Shareholders' Equity | | | | | | | | | | | | | | | | | | | | |
| Liabilities: | | | | | | | | | | | | | | | | | | | | |
| Unpaid losses and loss adjustment expenses | | $ | 174,786 | | | $ | — | | | $ | — | | | $ | — | | | $ | 174,786 | |
| Unearned premiums | | | 44,820 | | | | — | | | | — | | | | — | | | | 44,820 | |
| Reinsurance premiums payable | | | 1,408 | | | | — | | | | — | | | | — | | | | 1,408 | |
| Debt | | | 24,832 | | | | — | | | | — | | | | (8,447 | ) (f) | | | 16,385 | |
| Funds held under reinsurance agreements | | | 23,602 | | | | — | | | | — | | | | — | | | | 23,602 | |
| Premiums payable to other insureds | | | 19,299 | | | | (19,288 | ) | | | — | | | | — | | | | 11 | |
| Accounts payable and accrued expenses | | | 5,352 | | | | (3,415 | ) | | | 250
| (b)
| | | — | | | | 2,187 | |
| Total liabilities | | | 294,099 | | | | (22,703 | ) | | | 250
| | | | (8,447 | ) | | | 263,199 | |
| | | | | | | | | | | | | | | | | | | | | |
| Commitments and contingencies | | | — | | | | — | | | | — | | | | — | | | | — | |
| | | | | | | | | | | | | | | | | | | | | |
| Shareholders' equity: | | | | | | | | | | | | | | | | | | | | |
| Preferred stock, no par value | | | 6,000 | | | | — | | | | — | | | | (6,000 | ) (g) | | | — | |
| Common stock, no par value | | | 98,170 | | | | — | | | | — | | | | — | | | | 98,170 | |
| Accumulated deficit | | | (90,559 | ) | | | — | | | | 40,422 | (c) | | | 4,317 | (h) | | | (45,820 | ) |
| Accumulated other comprehensive (loss) | | | (14,776 | ) | | | — | | | | — | | | | — | | | | (14,776 | ) |
| Total shareholders' equity | | | (1,165 | ) | | | — | | | | 40,422
|
| | | (1,683 | ) | | | 37,574 |
|
| Total liabilities and shareholders' equity | | $ | 292,934 | | | $ | (22,703 | ) | | $ | 40,672
|
| | $ | (10,130 | ) | | $ | 300,773
| |
CONIFER HOLDINGS, INC. AND SUBSIDIARIES
Pro Forma Condensed Stetements of Operations (unaudited)
(dollars in thousands, except per share data)
| | | Six Months Ended June 30, 2024 | |
| | | Historical | | | Disposed CIS (i) | | | Transaction Accounting Adjustments | | | Other Adjust- ments (p) | | | Pro forma | |
| Revenue and Other Income | | | | | | | | | | | | | | | |
| Gross earned premiums | | $ | 63,613 | | | $ | — | | | $ | — | | | $ | — | | | $ | 63,613 | |
| Ceded earned premiums | | | (30,060 | ) | | | — | | | | — | | | | — | | | | (30,060 | ) |
| Net earned premiums | | | 33,553 | | | | — | | | | — | | | | — | | | | 33,553 | |
| Net investment income | | | 3,057 | | | | (38 | ) | | | — | | | | — | | | | 3,019 | |
| Net realized investment gains (losses) | | | (118 | ) | | | — | | | | — | | | | — | | | | (118 | ) |
| Change in fair value of equity securities | | | (153 | ) | | | — | | | | — | | | | — | | | | (153 | ) |
| Gain on Sale of CIS | | | — | | | | — | | | | — | | | | — | | | | — | |
| Agency commission income | | | 13,167 | | | | (13,170 | ) | | | — | | | | — | | | | (3 | ) |
| Other income | | | 420 | | | | (124 | ) | | | — | | | | — | | | | 296 | |
| Total revenue and other income | | | 49,926 | | | | (13,332 | ) | | | — | | | | — | | | | 36,594 | |
| | | | | | | | | | | | | | | | | | | | | |
| Expenses | | | | | | | | | | | | | | | | | | | | |
| Losses and loss adjustment expenses, net | | | 25,801 | | | | — | | | | — | | | | — | | | | 25,801 | |
| Policy acquisition costs | | | 17,493 | | | | (10,738 | ) | | | — | | | | — | | | | 6,755 | |
| Operating expenses | | | 8,751 | | | | (2,441 | ) | | | — | | | | — | | | | 6,310 | |
| Interest expense | | | 1,746 | | | | — | | | | — | | | | (696 | ) (j)
| | | 1,050 | |
| Total expenses | | | 53,791 | | | | (13,179 | ) | | | — | | | | (696 | ) | | | 39,916 | |
| | | | | | | | | | | | | | | | | | | | | |
| Income (loss) before income taxes | | | (3,865 | ) | | | (153 | ) | | | — | | | | 696 | | | | (3,322 | ) |
| Equity earnings (losses) in Affiliate, net of tax | | | 286 | | | | — | | | | — | | | | (286 | ) (k) | | | — | |
| Income tax expense (benefit) | | | (18 | ) | | | — | | | | — | | | | — | | | | (18 | ) |
| | | | | | | | | | | | | | | | | | | | | |
| Net income (loss) | | $ | (3,561 | ) | | $ | (153 | ) | | $ | — | | | $ | 410 | | | $ | (3,304 | ) |
| Preferred stock dividends | | | 315 | | | | — | | | | — | | | | (315 | ) (l) | | | — | |
| Net income (loss) allocable to common shareholders | | | (3,876 | ) | | | (153 | ) | | | — | | | | 725 | | | | (3,304 | ) |
| | | | | | | | | | | | | | | | | | | | | |
| Earnings (loss) per common share, basic and diluted | | $ | (0.32 | ) | | $ | (0.01
| )
| | $ | — | | | $ | (0.06 | )
| | $ | (0.27 | ) |
| | | | | | | | | | | | | | | | | | | | | |
| Weighted average common shares outstanding, basic and diluted | | | 12,222,881 | | | | 12,222,881 | | | | — | | | | 12,222,881 | | | | 12,222,881 | |
CONIFER HOLDINGS, INC. AND SUBSIDIARIES
Pro Forma Condensed Stetements of Operations (unaudited)
(dollars in thousands, except per share data)
| | | Year Ended December 31, 2023 | |
| | | Historical | | | Disposed CIS (i) | | | Transaction Accounting Adjustments | | | Other Adjust- ments (p) | | | Pro forma | |
| Revenue and Other Income | | | | | | | | | | | | | | | |
| Gross earned premiums | | $ | 146,572 | | | $ | — | | | $ | — | | | $ | — | | | $ | 146,572 | |
| Ceded earned premiums | | | (62,637 | ) | | | — | | | | — | | | | — | | | | (62,637 | ) |
| Net earned premiums | | | 83,935 | | | | — | | | | — | | | | — | | | | 83,935 | |
| Net investment income | | | 5,526 | | | | (24 | ) | | | — | | | | — | | | | 5,502 | |
| Net realized investment gains (losses) | | | (20 | ) | | | — | | | | — | | | | — | | | | (20 | ) |
| Change in fair value of equity securities | | | 608 | | | | — | | | | — | | | | — | | | | 608 | |
| Gain from sale of renewal rights | | | 2,335 | | | | (2,335 | ) | | | — | | | | — | | | | — | |
| Gain on CIS Sale | | | — | | | | — | | | | 40,422
| (m) | | | — | | | | 40,422 | |
| Realized gain on sale of equity method investment | | | — | | | | — | | | | — |
| | | 6,500 | (n) | | | 6,500 | |
| Agency commission income | | | 5,680 | | | | (5,680 | ) | | | — | | | | — | | | | — | |
| Other income | | | 694 | | | | (138 | ) | | | — | | | | — | | | | 556 | |
| Total revenue and other income | | | 98,758 | | | | (8,177 | ) | | | 40,422 | | | | 6,500 | | | | 137,503 | |
| | | | | | | | | | | | | | | | | | | | | |
| Expenses | | | | | | | | | | | | | | | | | | | | |
| Losses and loss adjustment expenses, net | | | 82,413 | | | | (33 | ) | | | — | | | | — | | | | 82,380 | |
| Policy acquisition costs | | | 20,892 | | | | (5,680 | ) | | | — | | | | — | | | | 15,212 | |
| Operating expenses | | | 17,891 | | | | (483 | ) | | | 225 | (o) | | | — | | | | 17,633 | |
| Interest expense | | | 3,206 | | | | — | | | | — | | | | 1,234 | (j) | | | 4,440 | |
| Total expenses | | | 124,402 | | | | (6,196 | ) | | | 225 | | | | 1,234 | | | | 119,665 | |
| | | | | | | | | | | | | | | | | | | | | |
| Income (loss) before income taxes | | | (25,644 | ) | | | (1,981 | ) | | | 40,197 | | | | 5,266 | | | | 17,838 | |
| Equity earnings (losses) in Affiliate, net of tax | | | (251 | ) | | | — | | | | — | | | | 251 | (k) | | | — | |
| Income tax expense (benefit) | | | 9 | | | | (213 | ) | | | — | | | | — | | | | (204 | ) |
| | | | | | | | | | | | | | | | | | | | | |
| Net income (loss) | | $ | (25,904 | ) | | $ | (1,768 | ) | | $ | 40,197 | | | $ | 5,517 | | | $ | 18,042 | |
| Preferred stock dividends | | | 19 | | | | — | | | | — | | | | (19 | ) (l) | | | — | |
| Net income (loss) allocable to common shareholders | | | (25,885 | ) | | | (1,768 | ) | | | 40,197 | | | | 5,498 | | | | 18,042 | |
| | | | | | | | | | | | | | | | | | | | | |
| Earnings (loss) per common share, basic and diluted | | $ | (2.12 | ) | | $ | (0.14 | )
| | $ | 3.29 | | | $ | 0.45 | | | $ | 1.48 | |
| | | | | | | | | | | | | | | | | | | | | |
| Weighted average common shares outstanding, basic and diluted | | | 12,220,511 | | | | | | | | 12,220,551 | | | | | | | | 12,220,511 | |
Conifer Holdings, Inc.
Notes to Pro Forma Consolidated Financial Statements (unaudited)
| (a) | Reflects the disposition of assets and liabilities of the disposed CIS business as if the CIS Sale occurred on June 30, 2024.* |
| (b) | Reflects the aggregate purchase price at the closing of the CIS Sale of approximately $43.4 million in cash, which was comprised of a base purchase price of $45.0 million, adjusted for cash on hand, required minimum net working capital and deal expenses and estimated $250,000 of unpaid deal expenses are reflected in Accounts payable and accrued expenses. The purchase price is subject to a post-closing true-up mechanism which is expected to be determined within approximately 90 days from the date of the closing. |
| (c) | Reflects the estimated net gain on the CIS Sale of $40.4 million representing the net cash proceeds less the net asset of the disposed CIS business.* |
| (d) | Reflects the cash impact of other transactions that occur in concert with the CIS sale, including: A $6.4 million reduction for the Preferred Stock redemption, a $3.0 million increase in cash from Sale of SSU, and a $10.0 million decrease in cash for paying off the $9.3 million outstanding balance on the Senior Secured Note, inclusive of a call premium of $753,000. |
| (e) | Reflects increase in $3.5 million increase in other receivables for the installment payment owed to Company on the SSU sale and a $230,000 reduction from the write off of the book value of SSU. |
| (f) | Reflects the pay down of the Senior Secure Note, net of the write off of unamortized deferred issuance costs. |
| (g) | Reflects to redemption of the Preferred Stock |
| (h) | Reflects the $6.3 million estimated gain on sale of SSU, less the $803,000 write off of the unamortized deferred issuance costs from the Senior Secured Note, a $753,000 call premium from the Senior Secured Note and a $397,000 redemption premium on the Preferred Stock. |
| (i) | Reflects the elimination of the results of the disposed CIS business as if the CIS Sale occurred on January 1, 2023. |
| (j) | Reflects the assumption that the Senior Secured Notes were paid off on January 1, 2023, resulting in elimination of interest expense on those notes in 2023 and 2024. In addition, it reflects a call premium of $1.4 million in 2023. |
| (k) | Reflects the assumption that SSU would have been sold on January 1, 2023, resulting in the elimination of Equity Earnings from Affiliate in 2023 or 2024. |
| (l) | Reflects the assumption that the preferred shares would not have been issued in 2023 and not considered outstanding in 2024. In addition, the dividends of $19,000 and $315,000 would not have been declared in 2023 and 2024, respectively. |
| (m) | Reflects the estimated net gain on the CIS Sale. |
| (n) | Reflects the estimated net gain on the sale of SSU. |
| (o) | Reflects the cost of the transition services agreement established to allow both parties to share resources for a certain period of time, generally less than twelve months, in order to effectuate an orderly separation of the internal systems and operations. As this adjustment relates to a new contractual arrangement, the effects are limited in the unaudited pro forma consolidated statements of operations to the most recent full year presented. |
| (p) | The Other Adjustments column represents transactions that were not directly part of the CIS Sale but occurred in concert with the CIS Sale. This included the separate sale of SSU, the payoff of the Senior Secured Notes and the redemption of the Preferred Stock. |
* For the purposes of the unaudited pro forma consolidated balance the estimate gain recognized in accumulated deficit and related net gain on sale recognized in the 2023 unaudited pro forma consolidated income statement is based on the net carrying value of CIS as of June 30, 2024, rather than as of the closing date of the transaction. As a result, the estimated gain, reflected herein may differ materially from the actual gain on the sale of CIS as of the closing because of the differences in the carrying value of assets and liabilities at the closing date.
