Presurance Holdings, Inc.

Previous wording

On August 30, 2024 the Company completed the sale of all of the issued and outstanding membership interests of Conifer Insurance Services ("CIS") to BSU Leaf Holdings LLC, a Delaware limited liability company, pursuant to the Interest Purchase Agreement, dated as of the Closing Date (the "CIS Agreement"), by and among the Company, Buyer and Buyer's parent (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. CIS also represented almost all of the Wholesale Agency segment. CIS and the related Wholesale Agency segment are now reported as discontinued operations for all periods presented. The Company sold CIS in order to generate liquidity to pay down debt and provide capital to the Insurance Company Subsidiaries.

Current wording

On August 30, 2024 the Company completed the sale of all of the issued and outstanding membership interests of Conifer Insurance Services ("CIS") to BSU Leaf Holdings LLC, a Delaware limited liability company, pursuant to the Interest Purchase Agreement, dated as of the Closing Date (the "CIS Agreement"), by and among the Company, Buyer and Buyer's parent (the "CIS Sale"). CIS comprised the Company’s managing general agency “MGA” business. CIS also represented almost all of the Wholesale Agency segment. CIS and the related Wholesale Agency segment are now reported as discontinued operations for all periods presented. The Company sold CIS in order to generate liquidity to pay down debt and provide capital to the Insurance Company Subsidiaries.

Previous wording

The CIS Sale will have a significant negative impact on revenues for the Company going forward. With the previously mentioned strategic shift away from underwriting revenues, the Company was relying on the growth of commission revenue to replace the lost revenue from underwriting. Now that the Wholesale Agency segment has been sold, the Company will need to rely entirely on underwriting revenues. These revenues have reduced significantly in the past year. For example, gross written premiums were $38.5 million in the third quarter of 2023, as compared to only $15.1 million in the third quarter of 2024. Homeowners gross written premiums comprised $11.1 million of that premium volume with the remainder generated from commercial lines which is expected to reduce to a very small amount in the next year.

Current wording

The CIS Sale will have a significant negative impact on revenues for the Company going forward. With the previously mentioned strategic shift away from underwriting revenues, the Company was relying on the growth of commission revenue to replace the lost revenue from underwriting. Now that the Wholesale Agency segment has been sold, the Company will need to rely entirely on underwriting revenues. These revenues have reduced significantly in the past year. For example, gross written premiums were $24.3 million in the first quarter of 2024, as compared to only $16.2 million in the first quarter of 2025.

Previous wording

In connection with the CIS Sale, approximately 67 of the Company’s 77 employees were transferred to the Buyer, including Nicholas Petcoff, the Company’s then current Chief Executive Officer, as well as all of the underwriting, claims and IT teams, and a portion of the finance staff and other operating staff. As part of the completion of t the CIS Sale, Mr. Petcoff resigned from his role as Chief Executive Officer and as a director on August 30, 2024. Concurrently, Brian Roney, President of the Company, was appointed as the Company’s new Chief Executive Officer. The Company entered into a transition services agreement with the buyer 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. The net cost to the Company was $225,000 which expense will be recognized over the period the services are provided.

Current wording

In connection with the CIS Sale, 68 of the Company’s 77 employees were transferred to the Buyer, including Nicholas Petcoff, the Company’s then current Chief Executive Officer, as well as all of the underwriting, claims and IT teams, and a portion of the finance staff and other operating staff. As part of the completion of the CIS Sale, Mr. Petcoff resigned from his role as Chief Executive Officer and as a director on August 30, 2024. Concurrently, Brian Roney, President of the Company, was appointed as the Company’s new Chief Executive Officer. The Company entered into a transition services agreement with the buyer 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. The net cost to the Company was $225,000 which expense will be recognized over the period the services are provided.

Previous wording

The initial purchase price of CIS was $45.0 million, subject to purchase price adjustments. In addition, during the three years ending on the third anniversary of the Closing Date, the Company is eligible under the CIS Agreement to receive up to three contingent payments based on performance thresholds of the gross revenue earned by CIS in the applicable quarter, with the aggregate amount of contingent capped at $25.0 million. Consideration paid in cash to the Company was $46.6 million on August 30, 2024, which is comprised of the $45.0 million initial purchase price, plus $1.6 million of cash in CIS in excess of the working capital deficiency (as defined in the CIS Agreement). The contingent consideration payments, in order of achievability are $5.0 million, $10.0 million and $10.0 million. The contingent consideration included in the gain on sale was calculated based on the fair value of the three contingent payments as of September 30, 2024, in accordance with ASC 820 - Fair Value Measurement. The first contingent payment was earned as of September 30, 2024, and was reported at a fair value of $4.9 million value. The full $5.0 million contingent payment is expected to be received in December 2024. The second and third $10.0 million contingent payments are not expected to be earned until the end of 2025 or later, if at all. The Company determined the combined fair value of the second and third contingent payments to be $8.0 million as of September 30, 2024. The fair values of all contingent payments increased the gain on the sale of CIS as of September 30, 2024. As fair value estimates change over time, subsequent measurement adjustments will be reflected in income or loss in the period of change.

Current wording

The contingent consideration payments, in order of achievability are $5.0 million, $10.0 million and $10.0 million. The contingent consideration included in the gain on sale was calculated based on the fair value of the three contingent payments as of September 30, 2024, in accordance with ASC 820 - Fair Value Measurement. The first contingent payment was earned as of September 30, 2024, and received in December 2024. The second contingent payment, equaling $10.0 million, was expected to be earned as of March 31, 2025 and paid on June 1, 2025, however the buyer has not agreed to the final calculation as of the filing of this 10-Q, which could delay the payment, but most likely no later than the end of 2025. The third contingent payment, equaling $10.0 million, was not expected to be earned until 2027, if at all. The Company determined the combined fair value of the second and third contingent payments to be $12.5 million, as of March 31, 2025. As fair value estimates change over time, subsequent measurement adjustments will be reflected in income or loss in the period of change. See Note 3 ~Fair Value Measurementsfor further details.

Previous wording

On August 30, 2024, the Company completed the sale of its 50% ownership interest in SSU to an entity owned by Andrew Petcoff. Pursuant to the Membership Interest Purchase Agreement, dated as of August 30, 2024 (the “SSU Agreement”) among Sycamore Financial Group, LLC, Andrew Petcoff and VSRM Insurance Agency, Inc., the aggregate purchase price was $6.5 million, with $3.0 million paid in cash to the Company at the time of the closing and $3.5 million due throughout the balance of 2024. A gain of $6.5 million was recognized on the sale of SSU.

Current wording

On August 30, 2024, the Company completed the sale of its 50% ownership interest in SSU to an entity owned by Andrew Petcoff. Pursuant to the Membership Interest Purchase Agreement, dated as of August 30, 2024 (the “SSU Agreement”) among Sycamore Financial Group, LLC, Andrew Petcoff and VSRM Insurance Agency, Inc., the aggregate purchase price was $6.5 million with $3.0 million paid in cash to the Company at the time of the closing and the remaining $3.5 million was paid to the Company during the fourth quarter of 2024. A gain of $6.5 million was recognized on the sale of SSU.

Previous wording

With the completion of the disposal of the agency business, we have just two agency relationships; with CIS and SSU. CIS has control over almost all of our commercial lines premium volume and it is expected that CIS will remove all of the remaining commercial lines business to another insurer as some point in the future. SSU has control of our remaining homeowners book of business and could move that business to another insurer or insurers. This is a significantly different structure from when we filed our Annual Report on Form 10-K, on April 1, 2024 with the U. S. Securities and Exchange Commission. We no longer directly “market and sell our insurance products through a network of over 4,400 independent agents that distribute our policies through approximately 950 sales offices” as stated in that filing. Those relationships are now owned by unrelated third parties (CIS and SSU). This greatly amplifies our concentration of risk relative to our marketing and distribution network.

Current wording

With the completion of the disposal of the agency business, we have just two agency relationships; with CIS and SSU. CIS has control over almost all of our commercial lines premium volume and it is expected that CIS will remove all of the remaining commercial lines business to another insurer as some point in the future. SSU has control of our remaining homeowners book of business and could move that business to another insurer or insurers. We no longer directly “market and sell our insurance products through a network of over 4,400 independent agents that distribute our policies through approximately 950 sales offices” as stated in that filing. Those relationships are now owned by unrelated third parties (CIS and SSU). This greatly amplifies our concentration of risk relative to our marketing and distribution network. Refer to the Company's 2024 Annual Report on Form 10-K, filed on March 28, 2025 for further details on the Company's structure.

Previous wording

Our staff is now only approximately ten people. We are relying heavily upon the CIS and SSU teams to handle underwriting, claims, and information technology services. Much of this is managed either through program administration agreements with CIS and SSU or a claims administration agreement with CIS. The policy management system also conveyed with CIS, which we can continue to use for our existing business, but may not be available for any new programs we may consider. CIS and SSU also handle all billing and collections. We no longer have the capacity to operate a direct bill process.

Current wording

Our staff is now only nine people. We are relying heavily upon the CIS and SSU teams to handle underwriting, claims, and information technology services. Much of this is managed either through program administration agreements with CIS and SSU or a claims administration agreement with CIS. The policy management system also conveyed with CIS, which we can continue to use for our existing business, but may not be available for any new programs we may consider. CIS and SSU also handle all billing and collections. We no longer have the capacity to operate a direct bill process.

Previous wording

Redemption of Preferred Stock and payoff of Senior Secured Debt

Current wording

Redemption of the Series A Preferred Stock and payoff of Senior Secured Debt

Previous wording

On August 30, 2024 with a portion of the proceeds from the sale of CIS, the Company paid off all $9.3 million of its privately placed 12.5% Senior Secured Notes which were outstanding at August 30, 2024 (the "Senior Secured Notes"), and redeemed all of the $6.0 million of its outstanding Series A Preferred Stock. The Company incurred a redemption premium of $397,000 from the Preferred Stock, and recorded the premium as additional dividends paid on the Preferred Stock. See Note 8 ~Debt and Note 10 ~Shareholders Equityof the Notes to the Consolidated Financial Statements for further details.

Current wording

On August 30, 2024 with a portion of the proceeds from the sale of CIS, the Company paid off all $9.3 million of its privately placed 12.5% Senior Secured Notes which were outstanding at August 30, 2024 (the "Senior Secured Notes"), and redeemed all of the $6.0 million of its outstanding Series A Preferred Stock. The Company incurred a redemption premium of $397,000 from the Series A Preferred Stock, and recorded the premium as additional dividends paid on the Series A Preferred Stock. See Note 7 ~Debt and Note 8 ~Shareholders Equityof the Notes to the Consolidated Financial Statements for further details.

Previous wording

In certain circumstances, we are required to make estimates and assumptions that affect amounts reported in our consolidated financial statements and related footnotes. We evaluate these estimates and assumptions periodically on an on-going basis based on a variety of factors. There can be no assurance, however, that actual results will not be materially different than our estimates and assumptions, and that reported results of operations will not be affected by accounting adjustments needed to reflect changes in these estimates and assumptions. During the nine months ended September 30, 2024, 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 April 1, 2024.

Current wording

In certain circumstances, we are required to make estimates and assumptions that affect amounts reported in our consolidated financial statements and related footnotes. We evaluate these estimates and assumptions periodically on an on-going basis based on a variety of factors. There can be no assurance, however, that actual results will not be materially different than our estimates and assumptions, and that reported results of operations will not be affected by accounting adjustments needed to reflect changes in these estimates and assumptions. During the three months ended March 31, 2025, 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 28, 2025.

Previous wording

The Company reported $15.1 million of gross written premiums in the third quarter of 2024, representing a 60.9% decrease as compared to the same period in 2023. Our commercial lines gross written premiums decreased by $24.5 million, or 85.9%, to $4.0 million in the third quarter of 2024, compared to $28.5 million for the same period in 2023. Personal lines gross written premiums increased by $1.0 million, or 10.1%, to $11.1 million in the third quarter of 2024, compared to $10.1 million for the same period in 2023. However, there was a significant shift in business out of Oklahoma and into Texas.

Current wording

The Company reported $16.2 million of gross written premiums in the first quarter of 2025, representing a 33.5% decrease as compared to the same period in 2024. Our commercial lines gross written premiums decreased by $10.8 million, or 84.0%, to $2.0 million in the first quarter of 2025, compared to $12.8 million for the same period in 2024. Personal lines gross written premiums increased by $2.5 million, or 22.3%, to $14.1 million in the first quarter of 2024, compared to $11.6 million for the same period in 2024.

Previous wording

The Company reported net income allocable to common shareholders of $52.8 million, or $4.32 per share for the three months ended September 30, 2024, compared to a net loss of $2.7 million, or $0.22 per share, for the same period in 2023.

Current wording

The Company reported net income allocable to common shareholders of $522,000, or $0.04 per share, for the three months ended March 31, 2025, compared to net income of $74,000, or $0.01 per share, for the same period in 2024.

Previous wording

Adjusted operating income per share is a non-GAAP measure that represents net income allocable to common shareholders excluding net realized investment gains or losses, change in fair value of equity securities and net income from discontinued operations. Adjusted operating loss was $7.4 million, or $0.60 per share for the three months ended September 30, 2024, compared to $4.3 million or $0.35 for the same period in 2023.

Current wording

Adjusted operating income per share is a non-GAAP measure that represents net income allocable to common shareholders excluding net realized investment gains or losses, change in fair value of equity securities and net income from discontinued operations. Adjusted operating loss was $3.7 million, or $0.30 per share for the three months ended March 31, 2025, compared to an adjusted operating income of $1.3 million, or $0.11 per share, for the same period in 2024.

Previous wording

Personal lines gross written premiums increased $1.0 million, or 10.1%, to $11.1 million in the third quarter of 2024, as compared to $10.1 million for the same period in 2023. The increase was due to the organic growth in the low-value dwelling book of business in Texas and in the Midwest which, combined, grew by $5.6 million or 100.0%. However, this growth was offset from our exit of Oklahoma homeowners which declined by $4.6 million in the third quarter. We are no longer writing any Oklahoma homeowners business. We plan to continue to write the Midwest and Texas homeowners programs but we do not expect continued growth to be significant.

Current wording

Personal lines gross written premiums increased $2.5 million, or 22.3%, to $14.1 million in the first quarter of 2025, as compared to $11.6 million for the same period in 2024. The increase was due to the organic growth in the low-value dwelling book of business in Texas and in the Midwest which, combined, grew by $5.0 million in the first quarter of 2025, compared to the same period in 2024. This increase was offset by our exit in Oklahoma homeowners business. We plan to continue to write the Midwest and Texas homeowners programs but we do not expect continued growth to be significant.

Previous wording

Net written premiums decreased $13.5 million, or 25.4%, to $39.8 million for the nine months ended September 30, 2024, as compared to $53.4 million for the same period in 2023. Net written premiums declined during the first nine months of 2024 as a result of the Company's reduction in gross written premiums due to its MGA shift, and also due to the sale of the Security Program in September 2023.

Current wording

Net written premiums decreased $4.6 million, or 29.6%, to $10.8 million for the three months ended March 31, 2025, as compared to $15.4 million for the same period in 2024. Net written premiums declined during the quarter as a result of the Company's reduction in commercial lines business.

Previous wording

Net losses and LAE decreased by $5.8 million, or 27.5%, to $15.2 million during the third quarter of 2024, compared to $20.9 million for the same period in 2023. The decrease was mostly attributable to a $10.0 million decrease in current accident year losses due to a significant reduction in net earned premiums described above. The decrease in current accident year losses was partially offset by a $4.2 million increase in adverse development on prior-year loss reserves.

Current wording

Net losses and LAE decreased by $1.2 million, or 11.8%, to $9.3 million during the first quarter of 2025, compared to $10.5 million for the same period in 2024. The decrease was mostly attributable to a $1.9 million decrease in current accident year losses due to a significant reduction in net earned premiums described above. The decrease in current accident year losses was partially offset by a $605,000 increase in adverse development on prior-year loss reserves.

Previous wording

Our expense ratio increased by 5.4% during the third quarter of 2024, compared to the same period in 2023.

Current wording

Our expense ratio increased by 16.1% during the first quarter of 2025, compared to the same period in 2024.

Previous wording

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 1.4% during the third quarter of 2024 to 17.1%, compared to 15.7% for the same period in 2023. The increase in the ratio was mostly due to significantly lower net earned premiums. Accordingly, even though operating expenses decreased significantly they did not completely offset the reduction in net earned premiums. We believe that while the Company absorbs the significant changes in operations resulting from the disposal of the agency business, this ratio will be somewhat volatile.

Current wording

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 8.9% during the first quarter of 2025 to 24.9%, compared to 16.0% for the same period in 2024. The increase in the ratio was mostly due to significantly lower net earned premiums, while legacy operational costs related to the run off books of business still exist. Such legacy costs are expected to reduce over the next year.

Previous wording

At September 30, 2024, the Company had $53.6 million in cash, cash equivalents and short-term investments. Our principal sources of funds are insurance premiums, investment income and proceeds from maturities and sales of invested assets. These funds are primarily used to pay claims, commissions, employee compensation, taxes and other operating expenses, and service debt.

Current wording

At March 31, 2025, the Company had $52.3 million in cash, cash equivalents and short-term investments. Our principal sources of funds are insurance premiums, investment income and proceeds from maturities and sales of invested assets. These funds are primarily used to pay claims, commissions, employee compensation, taxes and other operating expenses, and service debt and mandatorily redeemable preferred stock.

Previous wording

We conduct our business operations primarily through our Insurance Company Subsidiaries. Our ability to service debt, and pay administrative expenses is primarily reliant upon our intercompany service fees paid by the Insurance Company Subsidiaries to the holding company for management, administrative, and information technology services provided to the Insurance Company Subsidiaries by the Parent Company. Secondarily, the Parent Company may receive dividends from the Insurance Company Subsidiaries; however, this is not the primary means in which the holding company supports its funding as state insurance laws restrict the ability of our Insurance Company Subsidiaries to declare dividends to the Parent Company. Generally, the limitations are based on the greater of statutory net income for the preceding year or 10% of statutory surplus at the end of the preceding year. There were no dividends paid from our Insurance Company Subsidiaries for the nine months ended September 30, 2024 and 2023. We do not anticipate any dividends being paid to us from our insurance subsidiaries in the near term.

Current wording

We conduct our business operations primarily through our Insurance Company Subsidiaries. Our ability to service debt and mandatorily redeemable preferred stock, and pay administrative expenses is primarily reliant upon our intercompany service fees paid by the Insurance Company Subsidiaries to the holding company for management, administrative, and information technology services provided to the Insurance Company Subsidiaries by the Parent Company. Secondarily, the Parent Company may receive dividends from the Insurance Company Subsidiaries; however, this is not the primary means in which the holding company supports its funding as state insurance laws restrict the ability of our Insurance Company Subsidiaries to declare dividends to the Parent Company. Generally, the limitations are based on the greater of statutory net income for the preceding year or 10% of statutory surplus at the end of the preceding year. There were no dividends paid from our Insurance Company Subsidiaries for the three months ended March 31, 2025 and 2024. We do not anticipate any dividends being paid to us from our insurance subsidiaries in the near term.

Previous wording

The book value per share reflected in our financial statements, which have been prepared in accordance with generally accepted accounting principles (“GAAP”), may not represent the amount that shareholders would receive if the Company were liquidated or sold.

Current wording

The book value per share reflected in our financial statements, which have been prepared in accordance with GAAP, may not represent the amount that shareholders would receive if the Company were liquidated or sold.

Previous wording

The book value per share is calculated based on the historical cost of our assets, less accumulated depreciation and liabilities. This value does not account for the current market conditions, potential future earnings or expenses, or the fair market value of our assets and liabilities. As a result, the book value per share may differ significantly from the actual proceeds that could be realized in a liquidation or sale.

Current wording

The book value per share is calculated based on the historical cost of our assets, less accumulated depreciation and liabilities. This value does not account for the current market conditions, potential future earnings or expenses, or the fair market value of our assets (exclusive of equity security investments) and liabilities. As a result, the book value per share may differ significantly from the actual proceeds that could be realized in a liquidation or sale.

Previous wording

Operating Activities. Cash used in operating activities for the nine months ended September 30, 2024 was $12.7 million compared to cash used in operating activities of $729,000 for the same period in 2023. The $12.0 million increase in cash used in operating activities was primarily due to a $21.8 million increase in paid losses, partially offset by a $8.4 million decrease in paid acquisition costs and a $2.0 million in premiums collected.

Current wording

Operating Activities. Cash used in operating activities for the three months ended March 31, 2025 was $15.3 million, compared to $8.2 million of cash provided by operating activities for the same period in 2024. The $23.5 million increase in cash used in operating activities was primarily driven by an increase of $20.0 million in net losses paid during the first quarter of 2025, compared to the same period in 2024. The Company also experienced a $3.2 million decrease in net premiums collected during the first quarter of 2025, compared to the same period in 2024.

Previous wording

Our Insurance Company Subsidiaries are required to file quarterly and annual financial reports with state insurance regulators. These financial reports are prepared using statutory accounting practices promulgated by the Insurance Company

Current wording

Our Insurance Company Subsidiaries are required to file quarterly and annual financial reports with state insurance regulators. These financial reports are prepared using statutory accounting practices promulgated by the Insurance Company Subsidiaries’ state of domiciliary, rather than GAAP. The Insurance Company Subsidiaries’ aggregate statutory capital and surplus (which is a statutory measure of equity) was $35.3 million and $41.1 million at March 31, 2025 and December 31, 2024, respectively.