Business context and reporting period
The supplied filing is Conifer Holdings, Inc.’s unaudited Form 10-Q for the quarter ended March 31, 2022, not a filing for Presurance Holdings, Inc. Conifer is a U.S. property and casualty insurer with commercial lines, personal lines, and wholesale agency operations.
Financial results and position
Unless otherwise noted, amounts are in millions of dollars.
| Metric | Q1 2022 | Q1 2021 / prior date |
|---|---|---|
| Gross written premiums | $33.0 | $30.4; up 8.5% |
| Net written premiums | $18.0 | $24.5; down 26.4% |
| Net earned premiums | $24.0 | $22.8; up 4.9% |
| Total revenue and other income | $25.4 | $26.3 |
| Net loss / diluted loss per share | $(2.9) / $(0.30) | $(4.6) / $(0.48) |
| Adjusted operating loss / per share (non-GAAP) | $(3.1) / $(0.32) | $(7.0) / $(0.72) |
| Combined ratio | 112.5% | 129.0% |
| Operating cash flow | $(8.5) | $(3.5) |
The loss ratio improved to 75.0% from 84.4%, and the expense ratio to 37.5% from 44.6%; the combined ratio remained above 100%, indicating an underwriting loss. The expense-ratio improvement was substantially associated with $2.2 million of ceding commissions under new reinsurance treaties. Prior-year adverse reserve development was $5.5 million, primarily in commercial lines.
At March 31, 2022, total assets were $284.9 million, total liabilities $254.5 million, and shareholders’ equity $30.4 million, down from $40.5 million at year-end. The quarter included a $7.3 million unrealized investment loss in other comprehensive income, bringing accumulated other comprehensive loss to $9.4 million. Total investments were $173.1 million; cash and cash equivalents were $7.8 million and short-term investments $18.2 million. Management reported $26.0 million in cash, cash equivalents, and short-term investments.
Debt was $38.6 million, including $24.0 million of senior unsecured notes, $9.7 million of subordinated notes, and $5.0 million drawn on a $10.0 million line of credit. The line matures December 1, 2022; senior notes mature September 30, 2023. Statutory capital and surplus of insurance subsidiaries was $62.4 million, versus $63.9 million at December 31, 2021.
Material changes versus the prior comparable period
- Gross written premiums grew, with commercial lines up 5.0% and personal lines up 38.9%; personal growth was led by low-value dwelling business. Hospitality premiums declined.
- Net written premiums fell because ceded premiums increased under new reinsurance arrangements, including a 40% ceding commission. Net earned premiums nevertheless rose.
- Net loss improved, but results still included material adverse development. Q1 2021 also included $2.0 million of net catastrophe losses from Winter Storm Uri.
- Operating cash use increased by $5.0 million, principally due to higher ceded premium payments, partly offset by lower acquisition-cost payments.
- Debt increased by $5.0 million from a line-of-credit draw. Equity declined, largely reflecting the investment portfolio’s unrealized losses.
Outlook, risks, contingencies, and unusual items
- Covenants and capital: At quarter-end, the company was not in compliance with tangible-net-worth and debt-to-total-capital covenants. Subordinated-note holders waived the quarter-end breaches on May 9, and line-of-credit holders did so on May 11. A May 9 amendment excluded post-December 31, 2021 unrealized debt-security changes from subordinated-note covenant calculations. On May 11, the company entered an agreement to issue $5.0 million of equity, with pricing still pending; it received $1.5 million and used that amount to reduce the line of credit. Management expected future covenant compliance.
- Ratings: On April 21, 2022, A.M. Best downgraded the parent’s Long-Term ICR from “bb” to “bb-” and the insurance subsidiaries’ Financial Strength Rating from “B++” to “B+”; outlooks were stable. Management did not expect a material business effect.
- Reserves and reinsurance: Claims reserves are estimates subject to uncertainty; adverse development could recur. Reinsurance recoverables, including prepaid premiums, totaled $57.3 million net due from reinsurers. Reinsurer default could leave the company liable to policyholders.
- Investments and rates: The available-for-sale debt portfolio had $8.3 million of gross unrealized losses at quarter-end; the company recorded no credit-related other-than-temporary impairment. Management disclosed interest-rate sensitivity and a 3.7-year portfolio duration.
- Business conditions: Management cited ongoing hospitality-sector stress, possible COVID-19 resurgence, and resource shortages, but said it had not experienced major pandemic-related disruption and did not expect a material negative impact. It also noted exposure to inflation in claims costs and rising judicial awards.
- Guidance and legal matters: No specific financial guidance was provided. The company said ordinary-course claims and proceedings were not expected to result in material losses beyond amounts accrued. Management stated that existing liquid assets and investments were expected to meet short- and long-term liquidity needs.
Most important facts for investors to verify
- Confirm the issuer: the supplied document identifies Conifer Holdings, Inc., although the request metadata names Presurance Holdings, Inc.
- Track the equity issuance’s final pricing, completion, and use of proceeds, and confirm covenant compliance after the waivers and amendments.
- Monitor commercial-lines reserve development, especially liability claims, and changes in loss reserves and reinsurance recoverables.
- Assess liquidity and debt refinancing needs, including the December 2022 line-of-credit maturity and September 2023 senior-note maturity.
- Review whether underwriting performance improves sustainably; the reported combined ratio remained above 100% and benefited from ceded commissions.