Filing summary
Entity discrepancy: The request identifies Presurance Holdings, Inc., but the supplied Form 10-Q is for Conifer Holdings, Inc. and subsidiaries. The summary below reflects the filing text.
Business context and reporting period
This unaudited quarterly report covers the three and nine months ended September 30, 2017, with comparisons to the same 2016 periods. Conifer sells specialty property and casualty insurance through commercial and personal lines, primarily via independent agents and managing general agents.
Financial results and position
- Revenue: Third-quarter total revenue was $18.9 million, down from $24.3 million. Nine-month revenue was $70.3 million, up from $68.2 million. Nine-month net earned premiums increased 1.7% to $66.3 million; third-quarter net earned premiums fell 24.5% to $17.7 million.
- Profit: Net loss was $18.9 million ($2.46 per share) for the quarter and $21.8 million ($2.85 per share) for nine months, compared with losses of $1.5 million and $4.0 million in the respective 2016 periods. Nine-month adjusted operating loss, a non-GAAP measure, was $22.9 million ($3.00 per share).
- Underwriting and margins: The combined ratio was 207.3% for the quarter and 136.0% for nine months, versus 107.9% and 109.9% in 2016. A ratio above 100% indicates an underwriting loss. Nine-month underwriting loss was $24.3 million, versus $6.5 million. Commercial and personal lines both reported underwriting losses.
- Cash flow: Nine-month operating cash flow was positive $17.5 million, compared with $6.2 million in 2016; investing cash flow was negative $14.8 million and financing cash flow positive $15.6 million. Cash ended the period at $30.8 million, up from $12.5 million at year-end 2016. Operating cash flow benefited in part from increases in unpaid loss reserves and other liabilities.
- Liquidity and capital: Cash and short-term investments totaled $44.7 million at September 30. Management said available cash and investments should meet short- and long-term liquidity needs. Shareholders’ equity was $52.5 million, down from $67.8 million at year-end; book value per share was $6.16, versus $9.76 a year earlier.
- Debt: Debt was $29.0 million, versus $17.8 million at year-end. In September, the company issued $30 million of 15-year subordinated notes at a fixed 8% annual rate, used proceeds to repay and terminate its senior credit facility, and reported compliance with debt covenants. The notes permit up to four quarterly interest deferrals and have rate resets in years five and ten.
- Reserves: Unpaid losses and loss adjustment expenses were $82.8 million, versus $54.7 million at year-end 2016. Insurance subsidiaries’ aggregate statutory capital and surplus was $61.2 million, versus $62.2 million.
Material changes and unusual items
- Third-quarter results included a one-time $7.2 million ceded-premium charge for an adverse development cover (ADC), which covers up to $17.5 million of adverse reserve development for accident years 2005–2016, subject to the contract’s attachment and co-participation terms. A 35% contingent recovery depends on reserve performance; no recovery was recorded.
- Third-quarter incurred losses included $5.0 million of net catastrophe losses from Hurricanes Harvey and Irma. Management separately reported approximately $5.6 million of pre-tax hurricane losses and reinsurance reinstatement costs, net of expected recoveries, including $0.6 million of reinstatement costs.
- Nine-month prior-year reserve development was adverse by $9.4 million, compared with $5.7 million in 2016. The company cited commercial liability, commercial property, Florida homeowners, and commercial auto development. Management described reserves as adequate but noted that ultimate losses can differ materially from estimates.
- Management said the transactions were intended to strengthen the balance sheet and support a return to profitability in coming quarters. No quantified earnings or premium guidance was provided.
- Nine-month net earned premiums rose in commercial lines but declined in personal lines as the company reduced Florida homeowners exposure and stopped writing a Texas wind-exposed homeowners product through one agent. Gross written premiums were nearly flat; net written premiums declined, partly due to the ADC charge and higher catastrophe reinsurance costs.
- Other gains of $0.75 million reflected the sale of renewal rights for part of the low-value dwelling book. Management reported no material change to previously disclosed risk factors. It did not expect material loss from pending ordinary-course legal proceedings based on information then available.
Risks, liquidity and management commentary
Key risks include uncertainty in loss reserving, catastrophe exposure, reinsurance recoverability, and investment-market movements. The company remains liable to policyholders if reinsurers fail to pay. At September 30, the net amount due from reinsurers, including ceded unearned premiums, was $16.9 million; management believed recorded amounts were recoverable. Investments were primarily investment-grade fixed-income securities, with an average portfolio quality of AA and duration of approximately 3.1 years. A hypothetical 100-basis-point increase in interest rates was estimated to reduce fixed-income portfolio fair value by $4.1 million. Insurance-subsidiary dividends are restricted by state law; no subsidiary dividends were paid during the nine-month period. Disclosure controls were assessed as effective at the reasonable-assurance level.
Most important facts for investors to verify
- Confirm the correct issuer: the provided filing is for Conifer Holdings, Inc., not Presurance Holdings, Inc.
- Track reserve adequacy, subsequent adverse development, and the ADC’s actual recoveries, limits, and co-participation.
- Assess catastrophe claims and reinsurance recoveries related to Hurricanes Harvey and Irma, including reinstatement costs.
- Review whether underwriting performance improves from the 136.0% nine-month combined ratio and whether management’s stated profitability objective is achieved.
- Monitor liquidity, statutory capital, debt service and covenant compliance, and any constraints on moving funds from insurance subsidiaries to the parent.