Conifer Holdings, Inc.

Previous wording

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 28, 2025 with the U. S. Securities and Exchange Commission.

Current wording

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the Condensed 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 28, 2025 with the U. S. Securities and Exchange Commission.

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 $24.3 million in the first quarter of 2024, as compared to only $16.2 million in the first quarter of 2025.

Current wording

The CIS Sale has had and will continue to 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 continued to decline in the past year. For example, gross written premiums were $37.2 million for the six months ended June 30, 2025, compared to $43.3 million for the six months ended June 30, 2024.

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).

Current 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 consideration capped at $25.0 million. Consideration paid in cash to the Company was

Previous 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.

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 August 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 was earned and received during the second quarter of 2025. The third contingent payment, equaling $10.0 million, is expected to be earned by December 2025, but is still subject to uncertainty. The Company determined the fair value of the third contingent payments to be $7.8 million, as of June 30, 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

There was significant judgment in deriving the fair value of the final two $10.0 million contingent payments, including estimating the extent of time it will take to achieve the earnout, the credit quality of the buyer and, most importantly, the risk that the contingent payments may not be achieved at all. There is greater than an insignificant chance that we do not receive one or both of these contingent payments. There are no provisions allowing for a partial payment of the earnout.

Current wording

There was significant judgment in deriving the fair value of the final $10.0 million contingent payment, including estimating the extent of time it will take to achieve the earnout, the credit quality of the buyer and, most importantly, the risk that the contingent payment may not be achieved at all. There is greater than an insignificant chance that we do not receive the final contingent payment. There are no provisions allowing for a partial payment of the earnout.

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. 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.

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. 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 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.

Current wording

Our staff is now only eleven 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

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.

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 9 ~Shareholders Equityof the Notes to the Condensed Consolidated Financial Statements for further details.

Previous wording

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.

Current wording

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 is no longer rated by Kroll.

Previous wording

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.

Current wording

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 is no longer rated by A.M. Best.

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 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.

Current wording

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

Current wording

The Company reported $21.1 million of gross written premiums in the second quarter of 2025, representing a 11.1% increase as compared to the same period in 2024. Our personal lines gross written premiums increased by $5.7 million, or 46.8%, to $17.9 million in the second quarter of 2025, compared to $12.2 million for the same period in 2024. Commercial lines gross written premiums decreased by $3.6 million, or 53.0%, to $3.2 million in the second quarter of 2025, compared to $6.8 million for the same period in 2024.

Previous wording

The Company reported net income from continuing operations of $522,000, or $0.04 per share for the three months ended March 31, 2025, compared to net income from continuing operations of $1.4 million, or $0.11 per share for the same period in 2024.

Current wording

The Company reported net income from continuing operations of $2.1 million, or $0.17 per share for the three months ended June 30, 2025, compared to a net loss from continuing operations of $3.7 million, or $0.31 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 $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.

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, change in fair value of contingent considerations, gain on CIS sale and net income from discontinued operations. Adjusted operating loss was $2.1 million, or $0.17 per share for the three months ended June 30, 2025, compared to an adjusted operating loss of $3.4 million, or $0.28 per share for the same period in 2024.

Previous wording

Our underwriting combined ratio was 140.5% and 96.7% for the three months ended March 31, 2025 and 2024, respectively.

Current wording

Our underwriting combined ratio was 121.1% and 123.6% for the three months ended June 30, 2025 and 2024, respectively.

Previous wording

Commercial lines gross written premiums decreased $10.8 million, or 84.0%, to $2.0 million in the first quarter of 2025, as compared to $12.8 million for the first quarter of 2024. As of September 1, 2024, we no longer write any hospitality or small business commercial lines business. These lines are in run off, and earned a small amount of premium during the first quarter of 2025. We currently do not expect to write a significant amount of other commercial lines in the near term.

Current wording

Commercial lines gross written premiums decreased $3.6 million, or 53.0%, to $3.2 million in the second quarter of 2025, as compared to $6.8 million for the second quarter of 2024. As of September 1, 2024, we no longer write any hospitality or small business commercial lines business. These lines are in run-off, and earned a small amount of premium during the second quarter of 2025. We currently do not expect to write a significant amount of other commercial lines in the near term.

Previous 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.

Current wording

Personal lines gross written premiums increased $5.7 million, or 46.8%, to $17.9 million in the second quarter of 2025, as compared to $12.2 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 $7.3 million in the second 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 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.

Current wording

Net losses and LAE decreased by $8.7 million, or 57.0%, to $6.6 million during the second quarter of 2025, compared to $15.3 million for the same period in 2024. The decrease was mostly attributable to a $6.5 million decrease in current accident year losses due to a significant reduction in net earned premiums as shown above. The decrease in current accident year losses was further added to by a $2.3 million decrease in adverse development on prior-year loss reserves.

Previous wording

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 Corporate expenses.

Current wording

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 Corporate expenses. Due to the run-off nature of the commercial lines segment, with revenues being very small, the expense ratios for commercial lines are not deemed to be meaningful.

Previous wording

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

Current wording

Our expense ratio increased by 20.2% during the second quarter of 2025, compared to the same period in 2024.

Previous wording

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 increased by 7.2% during the first quarter of 2025 to 25.9%, compared to 18.7% during the same period in 2024. The increase was primarily related to the increased commission rates under new producer agreements concurrent with the sale of CIS and SSU. Particularly for SSU, which is producing substantially all go-forward business, SSU took on the responsibility of managing the policy issuance, premium collections and systems of the homeowners book of business. This resulted in increased commission rates of approximately 6.0% to SSU to cover those costs.

Current wording

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 increased by 3.6% during the second quarter of 2025 to 23.9%, compared to 20.3% during the same period in 2024. The increase was primarily related to the increased commission rates under new producer agreements concurrent with the sale of CIS and SSU. Particularly for SSU, which is producing substantially all go-forward business, SSU took on the responsibility of managing the policy issuance, premium collections and systems of the homeowners book of business. This resulted in increased commission rates of approximately 6.0% to SSU to cover those costs.

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 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.

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 16.6% during the second quarter of 2025 to 28.4%, compared to 11.8% 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 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.

Current wording

At June 30, 2025, the Company had $58.3 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 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.

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 six months ended June 30, 2025 and 2024. We do not anticipate any dividends being paid to us from our insurance subsidiaries in the near term.

Previous wording

CIC’s estimated RBC as of March 31, 2025, is approximately 160%. As part of the plan to get CIC’s RBC ratio above 200% in the near term, CIC is not expected to pay CHI any intercompany service fees for the duration of 2025 but is expected to resume such fees in 2026. CIC may also enter into a quota share agreement with its homeowners book of business as a method of increasing the RBC ratio. It also may take additional contributions to CIC to ensure its RBC gets above 200% in the near term.

Current wording

To help support CIC’s RBC remediation plan, CHI contributed an additional $6.5 million to CIC in June 2025. CIC’s estimated RBC as of June 30, 2025, is now approximately 247%. As part of the plan to keep CIC’s RBC ratio above 200% in the near term, CIC is not expected to pay CHI any intercompany service fees for the duration of 2025 but is expected to resume such fees in 2026. CIC also entered into a quota share agreement with its homeowners book of business in June 2025 as a method of increasing the RBC ratio. It also may take additional contributions to CIC to fully remediate CIC’s RBC position by December 31, 2025.

Previous wording

CIC is also subject to additional regulatory monitoring requirements as a result of the Company not being above the minimum required RBC levels as of December 31, 2024. To fund these additional contributions, CHI utilized proceeds from the CIS Sale and raised $7.5 million from the issuance of the Series B Preferred Stock. WPIC no longer writes any business and CIC’s writings are significantly constrained by its diminished capital position.

Current wording

CIC is also subject to additional regulatory monitoring requirements as a result of the Company not being above the minimum required RBC levels as of December 31, 2024. WPIC no longer writes any business and CIC’s writings are significantly constrained by its diminished capital position.

Previous wording

If we do not remediate the regulatory deficiency the insurance regulator could suspend or terminate CIC’s 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 negatively impact their ability to market to policyholders. These circumstances could jeopardize the ability of the Company to generate insurance underwriting revenues.

Current wording

If we do not remediate the regulatory deficiency the insurance regulator could suspend or terminate CIC’s authority to write business. Also, A.M. Best and Kroll downgraded the financial strength ratings of both companies and we terminated the rating relationship in early 2024. Therefore, neither company is currently rated by a nationally recognized statistical rating organization which can negatively impact their ability to market to policyholders. These circumstances could jeopardize the ability of the Company to generate insurance underwriting revenues.

Previous wording

CHI had $2.5 million of cash as of March 31, 2025. CHI is required to make quarterly interest payments on its public debt of $412,000 and quarterly dividend payments of $253,000 on its mandatorily redeemable preferred stock. CHI is also currently bearing much of the operating costs of the organization because no management fee is being paid by either insurance company during 2025. CHI’s cash obligations are expected to be funded with cash on hand, the expected receipt of a $10.0 million second earnout payment sometime during 2025, the potential sale of available assets and additional short-term financing available from existing investors. Management believes the Company has the ability to meet its obligations as they become due over the next twelve months.

Current wording

CHI had $2.2 million of cash as of June 30, 2025. CHI is required to make quarterly interest payments on its public debt of $412,000 and quarterly dividend payments of $253,000 on its mandatorily redeemable preferred stock. CHI is also currently bearing much of the operating costs of the organization because no management fee is being paid by either insurance company during 2025. CHI’s cash obligations are expected to be funded with cash on hand, the expected receipt of a $10.0 million third earnout payment in late 2025, the potential sale of available assets and additional short-term financing available from existing investors. Management believes the Company has the ability to meet its obligations as they become due over the next twelve months.

Previous wording

In February and March of 2025, the Company issued $7.5 million of its newly designated Series B Preferred Stock. The Company intends to use the proceeds for working capital and general corporate purposes. With the recent capital raise, anticipated go-forward revenues, the likelihood that we will receive a $10.0 million earnout during 2025 and the potential for further asset sales, management believes the Company has the ability to meet its obligations as they become due over the next twelve months.

Current wording

In February and March of 2025, the Company issued $7.5 million of its newly designated Series B Preferred Stock. The Company intends to use the proceeds for working capital and general corporate purposes. With the recent capital raise, anticipated go-forward revenues, the Company receiving its second $10.0 million earnout, the possibility of receiving the third $10.0 million earnout during 2025 and the potential for further asset sales, management believes the Company has the ability to meet its obligations as they become due over the next twelve months.

Previous 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.

Current wording

Operating Activities. Cash used in operating activities for the six months ended June 30, 2025 was $18.0 million, compared to $2.0 million of cash used in operating activities for the same period in 2024. The $16.0 million increase in cash used in operating activities was primarily driven by an increase of $12.1 million in net losses paid during the first six months of 2025, compared to the same period in 2024. The Company also experienced a $5.8 million decrease in net premiums collected during the first six months of 2025, compared to the same period in 2024.

Previous wording

Investing Activities. Cash used in investing activities for the three months ended March 31, 2025 was $9.6 million, compared to cash used in investing activities of $1.6 million for the same period in 2023. The $8.0 million increase in cash used in investing activities was driven by an increase of $11.7 million in purchases of investments during the first quarter of 2025, compared to the same period in 2024. In addition, the Company had $2.1 million less of proceeds from sales of investments during the first quarter of 2025, compared to the same period in 2024. These amounts were offset by a $5.7 million increase in proceeds for maturities and redemptions of investments during the first quarter of 2025, compared to the same period in 2024.

Current wording

Investing Activities. Cash provided by investing activities for the six months ended June 30, 2025 was $4.8 million, compared to $1.4 million for the same period in 2024. The $3.5 million increase in cash provided by investing activities was driven by a $33.3 million increase in proceeds from sales of investments during the first six months of 2025, compared to the same period in 2024. This was offset by a $44.3 million increase in purchases of investments during the first six months of 2025, compared to the same period in 2024. Additionally, the Company received $10.0 million in proceeds from its contingent consideration in the CIS sale for the first six months of 2025.

Previous wording

Financing Activities. Cash provided by financing activities for the three months ended March 31, 2025 was $7.5 million compared to $426,000 of cash used in financing activities for the same period in 2024. The $7.9 million increase in cash provided by financing activities was mostly attributed to the $5.6 million of Series B Preferred Stock issued and the $1.9 million of stock warrants issued from the Series B Preferred Stock during the first quarter of 2025.

Current wording

Financing Activities. Cash provided by financing activities for the six months ended June 30, 2025 was $7.5 million compared to $834,000 of cash used in financing activities for the same period in 2024. The $8.3 million increase in cash provided by financing activities was attributed to the $5.6 million of Series B Preferred Stock issued and the $1.9 million of stock warrants issued from the Series B Preferred Stock during the first six months of 2025.

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 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.

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 $50.0 million and $41.1 million at June 30, 2025 and December 31, 2024, respectively.

Previous wording

Adjusted operating income and adjusted operating income per share are non-GAAP measures that represent net income allocable to common shareholders excluding net realized investment gains or losses, changes in fair value of equity securities and net income from discontinued operations. The most directly comparable financial GAAP measures to adjusted operating income and adjusted operating income per share are net income allocable to common shareholders and net income allocable to common shareholders 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 allocable to common shareholders or net income allocable to common shareholders per share. Adjusted operating income and adjusted operating income per share should be read in conjunction with the GAAP financial results. Our definition of adjusted operating income may be different from that used by other companies. The following is a reconciliation of net income (loss) allocable to common shareholders to adjusted operating income (loss) (dollars in thousands), as well as net income (loss) allocable to common shareholders per share to adjusted operating income (loss) per share:

Current wording

Adjusted operating income and adjusted operating income per share are non-GAAP measures that represent net income allocable to common shareholders excluding net realized investment gains or losses, changes in fair value of equity securities and net income from discontinued operations. The most directly comparable financial GAAP measures to adjusted operating income and adjusted operating income per share are net income allocable to common shareholders and net income allocable to common shareholders 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 allocable to common shareholders or net income allocable to common shareholders per share. Adjusted operating income and adjusted operating income per share should be read in conjunction with the GAAP financial results. Our definition of adjusted operating income may be different from that used by other companies. The following is a reconciliation of net income (loss) to adjusted operating income (loss) (dollars in thousands), as well as net income (loss) allocable to common shareholders per share to adjusted operating income (loss) per share:

Previous wording

Refer to Note 1 ~Summary of Significant Accounting Policies –Accounting Guidance Not Yet Adopted of the Notes to the Consolidated Financial Statements for detailed information regarding recently issued accounting pronouncements.

Current wording

Refer to Note 1 ~Summary of Significant Accounting Policies –Accounting Guidance Not Yet Adopted of the Notes to the Condensed Consolidated Financial Statements for detailed information regarding recently issued accounting pronouncements.