Conifer Holdings, Inc. — Form 10-Q Summary
Entity note: The supplied filing is for Conifer Holdings, Inc., not Presurance Holdings, Inc. Verify that this is the intended filing.
Business context and reporting period
Quarter ended September 30, 2019; results cover the three and nine months ended that date. Conifer sells specialty property and casualty insurance through commercial, personal and wholesale agency businesses, with operations across the United States and exposure concentrated in Florida, Michigan, Texas and Pennsylvania.
Financial results and position
Amounts below are in millions, except per-share data and ratios.
- Third quarter: Total revenue was $23.9, down 3.6% year over year; net earned premiums were $22.8, down 2.9%. Net loss was $1.2, or $0.13 per share, compared with a $3.6 loss, or $0.42 per share, in Q3 2018.
- First nine months: Revenue was $71.0, down 5.2%; net earned premiums were $65.8, down 7.6%. Net loss was $4.8, or $0.55 per share, versus a $4.5 loss, or $0.52 per share, in 2018. Adjusted operating loss, a non-GAAP measure, was $11.7 versus adjusted operating income of $0.4.
- Underwriting: Combined ratio improved to 109.2% from 118.2% in Q3, but worsened to 110.0% from 108.6% for nine months. Ratios above 100% indicate underwriting losses. Nine-month prior-year adverse reserve development was $7.1, versus $4.9 in 2018.
- Cash flow: Nine-month operating cash flow was positive $7.3, compared with cash used of $7.5 in 2018. Investing activities provided $8.4 and financing activities provided $4.3. Cash increased to $30.9 from $10.8 at year-end 2018.
- Balance sheet and liquidity: Total assets were $238.5, liabilities $193.0 and shareholders’ equity $45.5 at September 30. Cash, cash equivalents and short-term investments totaled $34.4; total investments were $136.2. Management said existing liquidity and investments should meet near- and longer-term needs. Insurance subsidiaries’ statutory capital and surplus was $60.6, down from $64.0 at year-end 2018.
- Debt: Debt was $33.7, including $24.2 of senior unsecured notes and $9.5 of subordinated notes; the $10.0 revolving credit line was undrawn. The company was compliant with debt covenants at quarter-end after a prior covenant waiver and amendments.
Material changes and management commentary
- Q3 underwriting loss narrowed to $2.1 from $4.3, supported by lower losses and expenses. For nine months, underwriting loss widened to $7.2 from $5.3, despite lower total losses and acquisition costs.
- Commercial lines gross written premiums grew 0.9% in Q3 but declined 0.8% over nine months. Management attributed the year-to-date decline to reductions in higher-loss areas and expects commercial premium growth as it expands existing lines and adds programs. Personal lines growth was concentrated in low-value dwellings.
- Conifer is reducing wind-exposed business, including Florida homeowners exposure. New catastrophe reinsurance treaties effective June 1, 2019 were expected to lower the average property catastrophe reinsurance cost from 12.2% to 4.2% of gross earned premiums.
- The adverse development cover (ADC) had reached its coverage limit; its deferred gain was fully recognized by September 30. Q3 and nine-month reserve development therefore included $2.7 and $7.1 of adverse development, respectively, net of ADC gain recognition. Management stated that reserves were adequate, while acknowledging actual ultimate losses may differ materially from estimates.
- Management reported progress in reducing overhead and expects moderate growth in low-value dwelling lines and growth in commercial lines. No quantified earnings or revenue guidance was provided.
Risks, contingencies and unusual items
- Claims reserve estimates are inherently uncertain. Adverse development primarily involved commercial hospitality liability and Florida homeowners business, including prior accident years.
- Reinsurance recoverables, including amounts due from reinsurers and prepaid premiums, were $28.0 net. Reinsurance does not release Conifer from its obligations to policyholders if a reinsurer fails to pay.
- Investment portfolio exposure includes interest-rate and credit risk. Portfolio duration was 3.6 years; the filing estimates a 100-basis-point rate increase would reduce debt investment fair value by $4.1.
- The company disclosed ordinary-course legal claims and proceedings, but management did not believe a material loss beyond amounts accrued was reasonably possible. It reported no material changes to previously disclosed risk factors.
- A $5.0 private placement to directors and other participants issued 1,176,471 shares at $4.25 per share. The company also repurchased shares during the period.
Most important facts for investors to verify
- Confirm the issuer identity: the filing is for Conifer Holdings, Inc., despite the request naming Presurance Holdings, Inc.
- Review reserve adequacy and the implications of the ADC reaching its limit, particularly the $7.1 nine-month adverse development.
- Assess whether underwriting profitability can improve: the nine-month combined ratio was 110.0%, and adjusted operating loss was $11.7.
- Check statutory capital, liquidity, and debt covenant headroom, including the earlier covenant waiver and subsequent amendments.
- Evaluate the assumptions behind management’s premium-growth outlook, reduced catastrophe reinsurance costs, and planned reduction in wind-exposed business.