Business context and reporting period
The supplied filing is Conifer Holdings, Inc. and subsidiaries’ Form 10-K for the fiscal year ended December 31, 2015, filed March 15, 2016. This does not match the request metadata naming Presurance Holdings, Inc.; verify the issuer before relying on this summary. Conifer is a property-and-casualty insurance holding company focused on specialty commercial and personal lines, distributed mainly through independent agents. It completed its IPO in August 2015.
Financial performance and position
Amounts are in U.S. dollars; financial statement amounts are generally in millions unless stated otherwise.
- Premiums and revenue: Gross written premiums rose 11.8% to $93.8 million; net written premiums increased 20.2% to $79.7 million; net earned premiums increased 16.1% to $66.8 million. Total revenue was $70.7 million, up from $60.9 million.
- Profitability: Net loss was $17,000, versus a $6.9 million loss in 2014. Net income attributable to Conifer was $64,000, but preferred dividends and related items left a $476,000 loss allocable to common shareholders, or $0.09 per share. The non-GAAP operating loss allocable to common shareholders was $865,000, or $0.16 per share.
- Underwriting and margins: The combined ratio improved to 102.1% from 113.8% (below 100% generally indicates underwriting profit). The loss ratio declined to 56.8% from 68.6%; the expense ratio was nearly unchanged at 45.3% versus 45.2%. Underwriting loss narrowed to $1.4 million from $8.2 million.
- Cash flow and liquidity: Operating cash flow was negative $3.1 million, compared with positive $6.3 million in 2014. Cash was $12.7 million and short-term investments were $6.4 million at year-end. Total investments were $117.7 million; cash and invested assets were $130.4 million. Management stated available cash, investments, and revolving credit capacity were adequate for anticipated needs.
- Debt and equity: Senior debt fell to $12.75 million from $27.56 million. The $17.5 million revolver had $3.5 million drawn and $14.0 million available at year-end. Shareholders’ equity attributable to Conifer was $77.3 million, up from $44.2 million. The IPO generated $30.4 million of net proceeds; proceeds were used in part to repay $17.0 million of revolver borrowings and repurchase preferred stock for $6.3 million.
- Investments: Net investment income increased 61.9% to $1.9 million. The fixed-income portfolio had an average credit quality of AA and duration of 3.1 years. A hypothetical 200-basis-point rate increase would reduce fixed-income portfolio fair value by $6.8 million, according to the filing’s sensitivity analysis.
Material changes versus 2014
- Commercial gross written premiums grew 23.9% to $68.2 million, while personal lines declined 11.2% to $25.6 million. Commercial lines represented 73% of net earned premiums, up from 62%.
- Personal automobile business entered run-off; the company stopped writing new policies in January 2015 and ceased renewals by June. Management expected run-off to be substantially complete by the end of 2016.
- Personal homeowners premiums increased, including 40% growth in wind-exposed business. The filing attributes improved underwriting results partly to a more favorable business mix and lower weather-related property losses than in 2014.
- The 2015 calendar-year result included $1.5 million of adverse prior-year reserve development, versus $1.2 million of favorable development in 2014. The 2015 adverse development included $1.2 million in personal auto and $835,000 in commercial auto, partly offset by favorable development in other lines.
- The company terminated a 25% quota-share reinsurance arrangement effective August 1, 2015, citing capital raised in the IPO. The termination contributed to higher net written premiums; excluding its effect, net written premiums grew $6.1 million.
- Operating expenses increased 22.0% to $14.8 million, reflecting new underwriting teams, added corporate staffing, public-company costs, and expenses from the auto run-off.
Outlook, risks and unusual items
- No specific earnings or premium guidance was provided. Management said statutory surplus and parent-company funds were expected to support premium growth over the next two years, and expected run-off expenses to decline significantly in 2016.
- The company was below the credit facility’s fixed-charge coverage covenant at year-end (0.9:1.0 versus a 1.20:1.0 requirement); it received a waiver. A January 2016 amendment revised the covenant calculation, and management expected future compliance. The revolver was due to expire August 1, 2016; management intended to renew it.
- Key risks include catastrophe exposure, especially in Florida, Hawaii, and Texas; uncertainty in loss reserves; pricing and competitive pressures; reinsurance availability and counterparty credit; investment and interest-rate risk; and reliance on a concentrated agent network. The top six commercial agencies generated about 48% of commercial gross written premiums, while the top four personal agencies generated about 64% of personal premiums.
- Gross unpaid losses and loss-adjustment expense reserves were $35.4 million, including $5.4 million of reinsurance recoverables. Reserve estimates are inherently uncertain; the filing reports 40.7% of net reserves as IBNR.
- A $104,000 gain arose from deconsolidating an affiliate. A $2.1 million stock repurchase program was authorized in February 2016; it was discretionary and no 2015 common-stock repurchases occurred.
- The financial statements received an unqualified audit opinion. Management concluded disclosure controls were effective; the filing did not include management’s internal-control assessment or auditor attestation under the transition relief for newly public companies.
Important facts to verify
- Confirm the issuer: the source filing names Conifer Holdings, Inc., not Presurance Holdings, Inc.
- Review the detail and subsequent development of auto and other prior-year reserve strengthening, along with the filing’s reserve sensitivity analysis.
- Verify the fixed-charge covenant waiver, the effect of the January 2016 amendment, and renewal of the revolver before its August 2016 expiry.
- Assess catastrophe exposure, reinsurance protection and recoverability, and whether agent concentration has changed.
- Track whether the personal-auto run-off and new underwriting teams deliver the expense reductions and profitability management anticipated.