Filing summary
Registrant note: The supplied filing is Conifer Holdings, Inc. and subsidiaries’ Form 10-Q, not a filing identified as Presurance Holdings, Inc. It covers the quarter and six months ended June 30, 2022; financial amounts below are in U.S. dollars.
Business context and reporting period
Conifer is a property-and-casualty insurance holding company operating commercial lines, personal lines, and a wholesale agency business. It sells specialty coverage through independent agents across the United States. Its exposure includes hospitality, and it has been reducing homeowners exposure in Florida and other wind-exposed states.
Financial performance and position
| Metric | Q2 2022 | Six months 2022 |
|---|---|---|
| Gross written premiums | $37.4 million | $70.4 million |
| Net earned premiums | $24.6 million | $48.5 million |
| Total revenue and other income | $24.7 million | $50.0 million |
| Net income (loss) | $(8.4) million | $(11.3) million |
| Net loss per share | $(0.86) | $(1.16) |
| Adjusted operating loss, non-GAAP | $(7.3) million | $(10.4) million |
| Combined ratio | 129.2% | 121.0% |
Q2’s loss ratio was 90.2% and expense ratio 39.0%; for the first half, they were 82.7% and 38.3%, respectively. Combined ratios above 100% indicate underwriting losses. Net losses and loss adjustment expenses were $22.3 million in Q2 and $40.3 million in the first half.
At June 30, total assets were $275.1 million, total liabilities $258.1 million, shareholders’ equity $17.0 million, and debt $33.7 million. Cash and cash equivalents were $13.1 million; cash, cash equivalents, and short-term investments totaled $41.1 million. Statutory capital and surplus of the insurance subsidiaries was $58.0 million.
First-half operating cash flow was negative $15.5 million, investing cash flow positive $13.7 million, and financing cash flow positive $5.0 million; cash ended the period at $13.1 million. Management stated that available cash and investments should meet short- and long-term capital and liquidity needs.
Material changes versus comparable periods
- Q2 gross written premiums rose 7.0% year over year; personal lines grew 32.4% and commercial lines 3.6%. First-half gross written premiums increased 7.7%.
- Net written premiums fell 4.4% in Q2 and 14.6% for the first half, primarily reflecting higher ceded premiums under new reinsurance treaties. Net earned premiums were down 1.1% in Q2 but up 1.8% for the first half.
- Q2 net loss worsened from $5.6 million income in 2021; first-half net result shifted from $0.9 million income to an $11.3 million loss. First-half 2021 included an $8.9 million gain on the sale of agency assets, which makes the comparison less representative of ongoing operations.
- Prior-year adverse reserve development was $9.5 million in Q2 and $15.0 million in the first half of 2022, substantially from commercial lines. First-half 2021 development was $12.0 million. The 2022 development materially contributed to the higher Q2 loss ratio.
- Unrealized investment losses reduced accumulated other comprehensive income to $(14.5) million from $(2.1) million at year-end 2021; the filing attributes investment fair-value sensitivity primarily to rising interest rates.
Outlook, risks, contingencies, and unusual items
- The filing provides no specific earnings or premium guidance. Management said it does not currently expect a material financial impact from COVID-19, while noting hospitality-sector stress and the possibility of a resurgence.
- Conifer breached tangible-net-worth and debt-to-total-capital covenants at June 30 on its subordinated notes and line of credit. Noteholders waived the relevant breach; the bank subsequently waived the line-of-credit breach, eliminated its financial covenants going forward, and requires approval before future draws. Management expects future compliance.
- After quarter-end, the company issued $5.0 million of common equity—2.5 million shares at $2.00 per share, principally to accredited investors including board members. The cash had been received by June 30, but terms were finalized and shares issued August 10; the filing says this raises June 30 equity from $17.0 million to $22.0 million. The August 9 market closing price was $1.51 per share.
- An insurance subsidiary borrowed $14.5 million from the Federal Home Loan Bank of Indiana on July 7, maturing January 9, 2023, at an initially floating rate of 1.93%. The fully collateralized borrowing was described as a short-term liquidity measure to avoid statutory realized losses amid interest-rate volatility.
- A.M. Best downgraded the parent’s Long-Term Issuer Credit Rating and the insurance subsidiaries’ Financial Strength and Long-Term Issuer Credit Ratings in April 2022; outlooks were Stable. The company said it did not expect a material business effect.
- Management considers loss reserves adequate, but states that reserve estimates are inherently uncertain and actual claims costs may differ materially. The company also faces reinsurer credit exposure; it reported $61.3 million due from reinsurers, including prepaid reinsurance premiums, and believes these amounts are recoverable.
- Ordinary-course legal claims include insurance placement and claims-administration matters. Management did not believe material losses beyond amounts accrued were reasonably possible based on information available. No material changes to previously disclosed risk factors were reported.
Important facts for investors to verify
- Confirm the filing entity: the source document names Conifer Holdings, Inc., despite the request metadata naming Presurance Holdings, Inc.
- Track adverse development, reserve adequacy, and commercial-lines loss experience in subsequent filings.
- Review the effect of reinsurance costs, ceding commissions, and ceded premium growth on net premiums and underwriting results.
- Verify the impact of the equity issuance, dilution, and the $14.5 million FHLB borrowing on liquidity, capital, and statutory surplus.
- Monitor debt maturities, covenant status, rating changes, and the company’s ability to maintain adequate capital and liquidity.