Conifer Holdings, Inc. — Q3 2023 Form 10-Q
Issuer identification: The request metadata names Presurance Holdings, Inc., but the supplied filing is for Conifer Holdings, Inc. The summary below reflects the filing.
Business context and reporting period
Conifer is a property-and-casualty insurance holding company with commercial lines, personal lines, and wholesale agency operations. This unaudited quarterly report covers the three and nine months ended September 30, 2023; balance-sheet comparisons are to December 31, 2022.
Financial performance and position
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Gross written premiums | $38.5 million | $33.1 million | $119.4 million | $103.5 million |
| Net earned premiums | $24.0 million | $25.0 million | $69.1 million | $73.5 million |
| Net income (loss) | $(2.7) million | $(1.5) million | $(6.4) million | $(12.8) million |
| Loss per share | $(0.22) | $(0.14) | $(0.53) | $(1.26) |
| Underwriting combined ratio | 120.8% | 106.5% | 114.1% | 116.0% |
Q3 total revenue and other income was $28.1 million, including a $2.3 million gain from selling renewal rights. Q3 underwriting loss was $5.6 million. Adjusted operating loss, a non-GAAP measure, was $5.0 million ($0.41 per share) for Q3 and $9.4 million ($0.77 per share) year to date.
For the nine months, net investment income rose to $4.1 million from $1.9 million. Net cash used in operations was $0.7 million, compared with $14.1 million used in the prior-year period; investing activities used $4.0 million, and financing activities used $8.9 million. Cash and cash equivalents were $14.4 million at September 30, versus $28.0 million at year-end. Cash, cash equivalents, and short-term investments totaled $54.9 million, though some assets are restricted or held in trust.
Total assets were $293.4 million; total liabilities were $281.7 million; and shareholders’ equity was $11.8 million, down from $19.0 million at year-end. Debt, net of issuance costs, was $25.3 million, compared with $33.9 million. Insurance subsidiaries’ statutory capital and surplus was $53.2 million, down from $59.9 million at year-end.
Material changes versus comparable periods
- Q3 gross written premiums grew 16.5%, led by 84.4% growth in personal lines; commercial lines grew 3.1%. However, net written premiums fell 76.0% to $5.7 million, principally reflecting the renewal-rights transaction and increased ceded reinsurance.
- Q3 net earned premiums fell 3.9%. Losses and loss adjustment expenses rose 25.4% to $20.9 million, and the combined ratio deteriorated to 120.8%, indicating an underwriting loss. Year-to-date underwriting loss improved by $0.9 million, while the combined ratio improved from 116.0% to 114.1%.
- Q3 included $3.6 million of adverse prior-year reserve development, mainly in commercial liability, and $2.5 million of additional homeowners losses associated with earlier storm activity. Year-to-date adverse development was $2.9 million, versus $18.2 million in the prior-year period.
- Available-for-sale debt securities had $17.8 million of gross unrealized losses at quarter-end, attributed by management to market conditions and interest-rate changes; the company reported no credit-loss allowance for the period.
Outlook, liquidity, debt, and risks
In September, Conifer sold renewal rights for a security-guard and alarm-industry insurance program for $2.5 million cash and recognized a $2.3 million net gain. The program had generated $41.4 million of gross earned premiums in the first nine months of 2023. Conifer ceded $30.9 million of gross unearned premiums under a related 100% quota-share agreement; $22.6 million was retained under a funds-withheld arrangement and is expected to be paid over the following four quarters.
The company refinanced maturing public notes and restructured subordinated debt. At September 30, debt comprised $17.9 million of 9.75% senior unsecured notes and $10.0 million of 12.5% senior secured notes, both maturing in 2028. The secured notes require quarterly $250,000 principal payments beginning December 31, 2023. Management said the refinancing increases annual principal payments and interest costs; the secured notes also carry financial covenants. The company reported covenant compliance at quarter-end.
Management disclosed a potential parent-company cash shortfall over the following several months and certain intercompany obligations due before December 31, 2023. A board member pledged up to $6.0 million of capital, subject to conditions including preferred-stock dividends at prime plus 2%, a $1.5 million redemption premium if redeemed after 24 months, possible conversion to common stock at $1.25 per share, and a board-nomination right. Management said this commitment supports adequate parent-company cash flow through at least November 2024. The filing also reports a subsequent $4.0 million purchase of new public notes by an insurance subsidiary on November 2, 2023; it is not outstanding debt on a consolidated basis.
Key risks include reserve-estimate uncertainty, storm and claims-cost developments, higher reinsurance costs, reinsurer collectability, interest-rate exposure, and the parent company’s dependence on intercompany service fees. Reinsurance does not release the insurers from obligations to policyholders if reinsurers fail to pay. The company reported ordinary-course legal claims and said it did not expect material losses beyond amounts accrued. No material risk-factor changes were reported, and management concluded disclosure controls were effective.
Important facts for investors to verify
- Confirm the correct issuer: the supplied filing is for Conifer Holdings, Inc., not Presurance Holdings, Inc.
- Monitor whether the pledged up-to-$6.0 million capital contribution was completed on its stated terms and whether the parent met near-term obligations.
- Track liquidity, restricted and trust-held assets, and cash available at the parent company versus insurance subsidiaries.
- Assess commercial-liability reserve development, storm-related homeowners losses, and the adequacy and collectability of reinsurance recoverables.
- Review the effect of the renewal-rights sale and increased reinsurance on future premiums, underwriting results, and funds-withheld payments.
- Verify debt-service capacity, covenant compliance, and the effects of higher interest costs and required principal repayments.