What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-08-11 compared with 2022-05-12 · 184 added, 56 removed, 206 unchanged (54% of the section changed)

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

For the Periods Ended March 31, 2022 and 2021

For the Periods Ended June 30, 2022 and 2021

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the Consolidated Financial Statements (Unaudited), related notes and other financial information appearing elsewhere in this Quarterly Report on Form 10-Q and the audited consolidated financial statements and related notes included in our Annual Report on Form 10-K, filed on March 10, 2022 with the U.

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On December 14, 2021, Venture paid off the $3.0 million note.

The assets sold included the customer accounts (mainly agency-related new and renewal rights) of substantially all of the personal lines business and a small subset of the commercial lines business underwritten by our Insurance Company Subsidiaries, and all of the customer accounts Sycamore produced for third-party insurers.

Subsidiaries, and all of the customer accounts Sycamore produced for third-party insurers.

The Venture Transaction included the transition of 21 employees from Conifer to Venture as well as necessary systems and office functions to operate the business.

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We expect Venture to be able to grow both the business we underwrite as well as the third-party business more effectively as a separate entity outside of Conifer.

As of March 31, 2022 , the Company had a non-controlling 50% interest in Venture.

As of June 3 0 , 2022 , the Company had a non-controlling 50% interest in Venture.

On April 21, 2022, A.M.

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There can be no assurance, however, that actual results will not be materially different than our estimates and assumptions, and that reported results of operations will not be affected by accounting adjustments needed to reflect changes in these estimates and assumptions.

During the three months ended March 31, 2022, there were no material changes to our critical accounting policies and estimating methodologies, which are disclosed in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in the Company’s Annual Report on Form 10-K filed with the SEC on March 10, 2022.

During the six months ended June 30, 2022, there were no material changes to our critical accounting policies and estimating methodologies, which are disclosed in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in the Company’s Annual Report on Form 10-K filed with the SEC on March 10, 2022.

Executive Overview

The Company reported $33.0 million of gross written premiums in the first quarter of 2022, representing an 8.5% increase as compared to the same period in 2021.

Our commercial lines gross written premiums increased by $1.4 million, or 5.0%, to $28.6 million in the first quarter of 2022, compared to $27.2 million for the same period in 2021.

Personal lines gross written premiums increased by $1.2 million, or 38.9%, to $4.4 million in the first quarter of 2022, compared to $3.1 million for the same period in 2021.

The Company reported a net loss of $2.9 million, or $0.30 per share, for the three months ended March 31, 2022.

The Company reported a net loss of $4.6 million, or $0.48 per share, for the three months ended March 31, 2021.

Adjusted operating loss, a non-GAAP measure, was $3.1 million, or $0.32 per share for the three months ended March 31, 2022, compared to an adjusting operating loss of $7.0 million, or $0.72 per share for the same period in 2021.

Our underwriting combined ratio was 112.5% for the three months ended March 31, 2022, compared to 129.0% for the same period in 2021.

The expense ratio decreased 7.1% to 37.5% for the three months ended March 31, 2022, compared to 44.6% for the same period in 2021.

Results of Operations For The Three Months Ended March 31 , 20 2 2 and 20 2 1

The Company reported $37.4 million of gross written premiums in the second quarter of 2022, representing a 7.0% increase as compared to the same period in 2021.

Our commercial lines gross written premiums increased by $1.1 million, or 3.6%, to $32.1 million in the second quarter of 2022, compared to $30.9 million for the same period in 2021.

Personal lines gross written premiums increased by $1.3 million, or 32.4%, to $5.3 million in the second quarter of 2022, compared to $4.0 million for the same period in 2021.

The Company reported $70.4 million of gross written premiums for the six months ended June 30, 2022, compared to $65.4 million for the same period in 2021.

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

The Company reported net income of $5.6 million, or $0.57 per share, and net income of $916,000, or $0.09 per share, for the three and six months ended June 30, 2021, respectively.

Adjusted operating loss, a non-GAAP measure, was $7.3 million, or $0.75 per share for the three months ended June 30, 2022.

Adjusted operating loss was $10.4 million, or $1.07 per share for the six months ended June 30, 2022.

Adjusted operating loss, a non-GAAP measure, was $3.9 million, or $0.40 per share for the three months ended June 30, 2021.

Adjusted operating loss was $10.9 million, or $1.13 per share for the six months ended June 30, 2021.

Our underwriting combined ratio was 129.2% and 121.0% for the three and six months ended June 30, 2022, compared to 113.2% and 120.8% for the three and six months ended June 30, 2021, respectively.

Results of Operations For The Three Months Ended June 30, 2022 and 2021

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

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The resulting net earned premiums are impacted by the gross and ceded written premiums, earned ratably over the terms of the policies.

Our premiums are presented below for the three months ended March 3 1 , 20 2 2 and 20 2 1 (dollars in thousands):

Our premiums are presented below for the three months ended June 30, 2022 and 2021 (dollars in thousands):

Summary of Premium Revenue

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Personal lines

Gross written premiums increased $2.6 million, or 8.5%, to $33.0 million for the three months ended March 31, 2022, as compared to $30.4 million for the same period in 2021.

Commercial lines gross written premiums increased $1.4 million, or 5.0%, to $28.6 million in the first quarter of 2022, as compared to $27.2 million for the first quarter of 2021.

The increase was due to $2.2 million of premium growth in the small business programs, partially offset by a $861,000 reduction of gross written premium in the Company’s hospitality programs.

Personal lines gross written premiums increased $1.2 million, or 38.9%, to $4.4 million in the first quarter of 2022, as compared to $3.1 million for the same period in 2021.

Gross written premiums increased $2.4 million, or 7.0%, to $37.4 million for the three months ended June 30, 2022, as compared to $35.0 million for the same period in 2021.

Commercial lines gross written premiums increased $1.1 million, or 3.6%, to $32.1 million in the second quarter of 2022, as compared to $30.9 million for the second quarter of 2021.

Personal lines gross written premiums increased $1.3 million, or 32.4%, to $5.3 million in the second quarter of 2022, as compared to $4.0 million for the same period in 2021.

The increased gross written premiums were due to $950,000 of premium growth in the Company’s low-value dwelling book of business.

Net written premiums decreased $1.3 million, or 4.4%, to $27.3 million for the three months ended June 30, 2022, as compared to $28.5 million for the same period in 2021.

The Company entered into new specific loss reinsurance treaties on December 31, 2021 and January 1, 2022, which included a 40% ceding commission.

This increased ceded written premiums by $2.2 million in the second quarter of 2022.

There was no ceding commission on excess of loss treaties during 2021.

Ceded earned premiums also increased due to the new treaties by $2.1 million.

The increase in ceded earned premiums was offset by the same increase in ceding commissions, which reduced acquisition costs.

Ceded earned premiums also increased by $950,000 in the second quarter of 2022 as compared to 2021 due to growth in umbrella insurance premiums which are 94.0% ceded under existing quota share reinsurance agreements.

Other income consists primarily of fees charged to policyholders by the Company for services outside of the premium charge, such as installment billings and policy issuance costs.

Other income also includes the interest income from the $6.0 million promissory note receivable from Venture relating to the Venture Transaction.

Commission income is also received by the Company’s insurance agency for writing policies for third-party insurance companies.

All of the third-party business was sold to Venture at June 30, 2021.

Accordingly, other income from that business will diminish over the next few quarters as it transitions over to Venture, and will ultimately no longer occur.

Other income remained consistent quarter-over-quarter and was $663,000 and $666,000 for the three months ended June 30, 2022 and June 30, 2021, respectively.

Losses and Loss Adjustment Expenses

The tables below detail our losses and loss adjustment expenses and loss ratios in our underwriting business for the three months ended June 30, 2022 and 2021 (dollars in thousands).

Three months ended June 30, 2022

Accident year net losses and LAE

Net (favorable) adverse development

Calendar year net losses and LAE

Accident year loss ratio

Net (favorable) adverse development

Calendar year loss ratio

Three months ended June 30, 2021

Accident year net losses and LAE

Net (favorable) adverse development

Calendar year net losses and LAE

Accident year loss ratio

Net (favorable) adverse development

Calendar year loss ratio

Net losses and LAE increased by $4.3 million, or 24.1%, to $22.3 million during the second quarter of 2022, compared to $17.9 million for the same period in 2021.

The increase in losses was driven by adverse development in the commercial lines of business that occurred during the second quarter of 2022, of which $4.3 million, $3.6 million, and $1.6 million occurred in the 2018 and prior, 2019 and 2020 accident years, respectively.

The Company experienced $6.2 million of adverse development for the three months ended June 30, 2021.

Of the $6.2 million in adverse development, $1.9 million was related to 2017 and prior accident years, $2.4 million was related to the 2018 accident year, and $1.9 million was related to the 2019 and 2020 accident years.

Substantially all of the development was from the Company’s commercial lines of business.

Expense Ratio

Our expense ratio is a measure of the efficiency and performance of the commercial and personal lines of business (our risk-bearing underwriting operations).

It is calculated by dividing the sum of policy acquisition costs and other underwriting expenses by the sum of net earned premiums and other income of the underwriting business.

Costs that cannot be readily identifiable as a direct cost of a segment or product line remain in Corporate for segment reporting purposes.

The expense ratio excludes wholesale agency and Corporate expenses.

The table below provides the expense ratio by major component.

Three Months Ended

Commercial Lines

Policy acquisition costs

Operating expenses

Personal Lines

Policy acquisition costs

Operating expenses

Total Underwriting

Policy acquisition costs

Operating expenses

Our expense ratio decreased by 2.3 percentage points in the second quarter of 2022 as compared to the same period in 2021.

The decrease was largely due to a reduction in policy acquisition costs attributable to $2.1 million of ceding commission from new excess of loss reinsurance treaties.

There were no ceding commissions on excess of loss treaties in 2021.

Policy acquisition costs are costs we incur to issue policies, which include commissions, premium taxes, underwriting reports and underwriter compensation costs.

The Company offsets direct commissions with ceding commissions from reinsurers.

The percentage of policy acquisition costs to net earned premiums and other income decreased by 5.5%, from 28.3% in the second quarter of 2021, to 22.8% for the same period in 2022, mostly due to the new ceding commission mentioned above.

Operating expenses consist primarily of employee compensation, information technology and occupancy costs, such as rent and utilities.

Operating expenses as a percent of net earned premiums and other underwriting income increased by 3.2% during the second quarter of 2022 to 16.2%, compared to 13.0% for the same period in 2021.

While overall operating expenses were fairly consistent quarter-over-quarter, the new excess of loss reinsurance treaties with the ceding commission drove net earned premiums lower, resulting in a slightly higher operating expense ratio.

The personal lines operating expense ratio was lower in the second quarter of 2022 due to significant growth in premium volume on substantially the same operating expense base.

Segment Results

We measure the performance of our consolidated results, in part, based on our underwriting gain or loss.

The following table provides the underwriting gain or loss for the three months ended June 30, 2022 and 2021 (dollars in thousands):

Segment Gain (Loss)

Three Months Ended

Commercial Lines

Personal Lines

Total Underwriting

Wholesale Agency

Total segment gain (loss)

Results of Operations For The Six Months Ended June 30, 2022 and 2021

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

Six months ended

Gross written premiums

Net written premiums

Net earned premiums

Losses and loss adjustment expenses, net

Policy acquisition costs

Operating expenses

Underwriting gain (loss)

Net investment income

Net realized investment gains

Change in fair value of equity securities

Interest expense

Income (loss) before equity earnings in Affiliate and income taxes

Equity earnings in Affiliate, net of tax

Income tax expense

Net income (loss)

Book value per common share outstanding

Underwriting Ratios:

Loss ratio (1)

Expense ratio (2)

Combined ratio (3)

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.

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

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 are earned ratably over the term of the policy, whereas written premiums are reflected on the effective date of the policy.

Almost all commercial lines and homeowners products have annual policies, under which premiums are earned evenly over one year.

The resulting net earned premiums are impacted by the gross and ceded written premiums, earned ratably over the terms of the policies.

Our premiums are presented below for the six months ended June 30, 2022 and 2021 (dollars in thousands):

Six months ended

Gross written premiums

Commercial lines

Personal lines

Net written premiums

Commercial lines

Personal lines

Net earned premiums

Commercial lines

Personal lines

Gross written premiums increased $5.0 million, or 7.7%, to $70.4 million for the six months ended June 30, 2022, as compared to $65.4 million for the same period in 2021.

Commercial lines gross written premiums increased $2.5 million, or 4.3%, to $60.7 million for the six months ended June 30, 2022, as compared to $58.2 million in the same period of 2021.

The increase was due to $4.0 million of premium growth in the Company’s small business programs, partially offset by a $1.5 million reduction of gross written premium in the Company’s hospitality programs.

Personal lines gross written premiums increased $2.5 million, or 35.3%, to $9.7 million for the six months ended June 30, 2022, as compared to $7.2 million for the same period in 2021.

The increased gross written premiums were due to $2.0 million of premium growth in the Company’s low-value dwelling book of business.

Net written premiums decreased $6.5 million, or 26.4%, to $18.0 million for the three months ended March 31, 2022, as compared to $24.5 million for the same period in 2021.

Net written premiums decreased $7.7 million, or 14.6%, to $45.3 million for the six months ended June 30, 2022, as compared to $53.0 million for the same period in 2021.

The Company entered into new specific loss reinsurance treaties on December 31, 2021 and January 1, 2022, which included a 40% ceding commission.

This increased ceded written premiums by approximately $4.5 million in the first quarter of 2022.

This increased ceded written premiums by approximately $6.6 million for the six months ended June 30, 2022.

There was no ceding commission on excess of loss treaties during 2021.

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The increase in ceded earned premiums was offset by the same increase in ceding commissions, which reduced acquisition costs.

Ceded earned premiums also increased by $1.1 million in the first quarter of 2022 as compared to 2021 due to growth in umbrella insurance premiums which are 94.0% ceded under existing quota share reinsurance agreements.

Ceded earned premiums also increased by $7.2 million for the six months ended June 30, 2022, as compared to the same period in 2021 due to growth in umbrella insurance premiums which are 94.0% ceded under existing quota share reinsurance agreements.

Other income consists primarily of fees charged to policyholders by the Company for services outside of the premium charge, such as installment billings and policy issuance costs.

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Accordingly, other income from that business will diminish over the next few quarters as it transitions over to Venture, and will ultimately no longer occur.

Other income for the three months ended March 31, 2022, increased by $142,000, or 25.5%, to $698,000 as compared to $556,000 for the same period in 2021.

Other income relating to installment billings and policy issuance costs was lower in the first quarter of 2022, as the business that was sold to Venture at June 30, 2021, no longer produces other income for the Company.

This was more than offset by an increase in the interest income from the notes payable of $105,000 in the first quarter of 2022.

Other income for the six months ended June 30, 2022, increased by $139,000, or 11.4%, to $1.4 million as compared to $1.2 million for the same period in 2021.

Other income relating to installment billings and policy issuance costs was lower in the first six months of 2022, as the business that was sold to Venture at June 30, 2021, no longer produces other income for the Company.

This was more than offset by an increase in the interest income of $210,000 for the six months ended June 30, 2022, from the $6.0 promissory note receivable from Venture from the Venture Transaction.

Losses and Loss Adjustment Expenses

The tables below detail our losses and loss adjustment expenses and loss ratios in our underwriting business for the three months ended March 31, 2022 and 2021 (dollars in thousands).

Three months ended March 31, 2022

The tables below detail our losses and loss adjustment expenses and loss ratios in our underwriting business for the six months ended June 30, 2022 and 2021 (dollars in thousands).

Six months ended June 30, 2022

Accident year net losses and LAE

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Calendar year loss ratio

Three months ended March 31, 2021

Six months ended June 30, 2021

Accident year net losses and LAE

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Calendar year loss ratio

Net losses and LAE decreased by $1.3 million, or 6.9%, to $18.0 million during the first quarter of 2022, compared to $19.4 million for the same period in 2021.

The decrease in losses was driven by current accident year losses decreasing by $1.1 million to $12.5 million for the three months ended March 31, 2022, compared to $13.6 million for the same period in 2021.

The Company experienced $5.5 million of adverse development for the three months ended March 31, 2022, of which $1.5 million was related to 2017 and prior accident years, $1.3 million was related to the 2018 accident year, $1.3 million was related to the 2019 accident year, and $1.5 million was related to the 2020 accident year.

Of the $5.5 million of adverse development, $5.7 million was related to the Company’s commercial lines of business, while the Company’s personal lines of business experienced $219,000 of favorable development in the first quarter of 2022.

Net losses and LAE increased were $19.4 million for the first three months in 2021.

Net losses and LAE decreased by $3.0 million, or 8.0%, to $40.3 million for the six months ended June 30, 2022, compared to $37.3 million for the same period in 2021.

The increase in losses was driven by adverse development that occurred during the first six months of 2022.

The Company experienced $15.0 million of adverse development for the six months ended June 30, 2022, as compared to $12.0 million of adverse development for the same period in 2021.

Of the $15.0 million of adverse development experienced in the first six months of 2022, $7.1 million was related to 2018 and prior accident years, $4.9 million was related to the 2019 accident year, and $3.1 million was related to the 2020 accident year.

Substantially all of the $15.0 million of adverse development was related to the Company’s commercial lines of business.

Net losses and LAE increased were $37.3 million for the six months ended June 30, 2021.

The Company experienced $2.0 million of catastrophe losses, net of reinsurance recoverables, during the first quarter of 2021 from Winter Storm Uri.

In addition to these losses, the Company experienced $5.8 million of adverse development for the three months ended March 31, 2021.

Of the $5.8 million in adverse development, $5.2 million was related to commercial lines, and $612,000 was related to personal lines.

The Company also experienced $12.0 million of adverse development for the six months ended June 30, 2021, which increased losses further.

Of the $12.0 million in adverse development, $11.4 million was related to commercial lines, while $636,000 was related to personal lines.

The adverse development was mostly attributable to the 2018 and 2017 and prior accident years.

Expense Ratio

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The table below provides the expense ratio by major component.

Three Months Ended

Six months ended

Commercial Lines

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Operating expenses

Our expense ratio decreased by 7.1 percentage points in the first quarter of 2022 as compared to the same period in 2021.

Our expense ratio decreased by 4.6 percentage points for the six months ended June 30, 2022, as compared to the same period in 2021.

The decrease was largely due to a reduction in policy acquisition costs attributable to $4.3 million of ceding commission from new excess of loss reinsurance treaties.

There were no commissions on excess of loss treaties in 2021.

The expense ratio also decreased as a result of a $1.3 million increase in underwriting revenue in the first quarter of 2022 as compared to a first quarter in 2021, while operating expenses were slightly lower in 2022.

The expense ratio also decreased as a result of a $836,000 increase in underwriting revenue for the six months ended June 30, 2022, as compared to the same period in 2021, while operating expenses were slightly higher in 2022.

Policy acquisition costs are costs we incur to issue policies, which include commissions, premium taxes, underwriting reports and underwriter compensation costs.

The Company offsets direct commissions with ceded commissions from reinsurers.

The percentage of policy acquisition costs to net earned premiums and other income decreased by 7.5%, from 30.2% in the first three months of 2021, to 22.7% for the same period in 2022, mostly due to the new ceding commission mentioned above.

The percentage of policy acquisition costs to net earned premiums and other income decreased by 6.4%, from 29.2% in the first six months of 2021, to 22.8% for the same period in 2022, mostly due to the new ceding commission mentioned above.

Operating expenses consist primarily of employee compensation, information technology and occupancy costs, such as rent and utilities.

Operating expenses as a percent of net earned premiums and other underwriting income were 14.8% and 14.4% for the three months ended March 31, 2022 and 2021, respectively.

While overall operating expenses were lower in 2022, the new excess of loss reinsurance treaties with the ceding commission drove net earned premiums lower, resulting in a slightly higher operating expense ratio.

The personal lines operating expense ratio was lower in 2022 due to significant growth in premium volume on substantially the same operating expense base.

Operating expenses as a percent of net earned premiums and other underwriting income increased by 1.8% to 15.5% for the six months ended June 30, 2022, as compared to 13.7% for the same period in 2021.

The new excess of loss reinsurance treaties with the ceding commission drove net earned premiums lower, resulting in a slightly higher operating expense ratio.

The personal lines operating expense ratio was lower for the six months ended June 30, 2022 due to significant growth in premium volume on substantially the same operating expense base.

Segment Results

We measure the performance of our consolidated results, in part, based on our underwriting gain or loss.

The following table provides the underwriting gain or loss for the three months ended March 31, 2022 and 2021 (dollars in thousands):

The following table provides the underwriting gain or loss for the six months ended June 30, 2022 and 2021 (dollars in thousands):

Segment Gain (Loss)

Three Months Ended

Six months ended

Commercial Lines

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Sources and Uses of Funds

At March 31, 2022, we had $26.0 million in cash, cash equivalents and short-term investments.

At June 30, 2022, we had $41.1 million in cash, cash equivalents and short-term investments.

Our principal sources of funds are insurance premiums, investment income, proceeds from maturities and sales of invested assets and installment fees.

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however, this is not the primary means in which the Parent Company supports its funding as state insurance laws restrict the ability of our Insurance Company Subsidiaries to declare dividends to the Parent Company.

There were no dividends paid from our Insurance Company Subsidiaries during the three months ended March 31, 2022 and 2021.

There were no dividends paid from our Insurance Company Subsidiaries during the six months ended June 30, 2022 and 2021.

Operating Activities .

Cash used in operating activities for the three months ended March 31, 2022 was $8.5 million, compared to $3.5 million for the same period in 2021.

The $5.0 million increase was primarily due to a $9.2 million increase in ceded premiums paid during the first quarter of 2022, compared to the same period in 2021.

Cash used in operating activities for the six months ended June 30, 2022 was $15.5 million compared to $4.5 million for the same period in 2021.

The $11.0 million increase was primarily due to a $8.1 million increase in ceded premiums paid during the six months ended June 30, 2022, compared to the same period in 2021.

This was due to the new specific commercial liability treaty the Company entered into as of December 31, 2021, which includes a 40% ceding commission.

The increase in ceded premiums paid was offset by a $4.0 million decrease in acquisition costs paid in the first quarter of 2022, compared to the same period in 2021.

The increase in ceded premiums paid was offset by a $5.1 million decrease in acquisition costs paid for the six months ended June 30, 2022, compared to the same period in 2021.

This decrease was also related to the new specific commercial liability treaty the Company entered into on December 31, 2021.

There was also an $8.5 million increase in paid losses as the Company has accelerated closing claims which resulted in a significant decline in outstanding cases.

Investing Activities.

Cash provided by investing activities for the three months ended March 31, 2022 was $1.5 million, compared to $1.7 million in the same period in 2021.

The $278,000 decrease of cash provided by investing activities was driven by a $6.7 million increase in purchases of investments during the first quarter of 2022, compared to the same period in 2021.

This was offset by an increase of $5.3 million in proceeds from sales of investments and a $1.2 million increase in proceeds from maturities and redemptions of investments during the first quarter of 2022, compared to the same period in 2021.

Cash provided by investing activities for the six months ended June 30, 2022 was $13.7 million, compared to $4.9 million in the same period in 2021.

The $8.8 million increase of cash provided by investing activities was driven by a $46.4 million increase in the sales of investment during the first six months of 2022, compared to the same period in 2021.

This was offset by an increase of $39.0 million increase in the purchases of investment for the six months ended June 30, 2022, compared to the same period in 2021.

Financing Activities.

Cash provided by financing activities for the three months ended March 31, 2022 was $5.0 million, compared to $2.0 million of cash used in the same period in 2021.

The $7.0 million increase was primarily driven by the Company borrowing $5.0 million on its line of credit during the first quarter of 2022, while the Company paid down a net amount of $2.0 million on its outstanding balance on its line of credit during the first quarter of 2021.

Cash provided by financing activities for the six months ended June 30, 2022 was $5.0 million compared to $4.0 million of cash used in the same period in 2021.

The $9.0 million increase was driven by the Company paying down a net amount of $0 on the line of credit during the first six months of 2022, compared to the Company paying down a net amount of $4.0 million during the first six months of 2021.

The Company also received proceeds of $5.0 million of common equity which was effective on August 10, 2022.

The was no balance outstanding on the line of credit as of June 30, 2022.

Statutory Capital and Surplus

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These financial reports are prepared using statutory accounting practices promulgated by the Insurance Company Subsidiaries’ state of domiciliary, rather than GAAP.

The Insurance Company Subsidiaries’ aggregate statutory capital and surplus (which is a statutory measure of equity) was $62.4 million and $63.9 million at March 31, 2022 and December 31, 2021, respectively.

The Insurance Company Subsidiaries’ aggregate statutory capital and surplus (which is a statutory measure of equity) was $58.0 million and $63.9 million at June 30, 2022 and December 31, 2021, respectively.

Non-GAAP Financial Measures

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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.

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 .

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

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

Three Months Ended

Six months ended

Net income (loss)

18 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis