Business context and reporting period
This is Conifer Holdings, Inc.’s unaudited Form 10-Q for the quarter and nine months ended September 30, 2018. The filing describes a property and casualty insurer focused on specialty commercial and personal lines, selling through independent agents and managing general agents. The request metadata names Presurance Holdings, Inc.; the filing itself identifies Conifer Holdings, Inc., so the entity should be verified.
Financial performance
| Metric | Q3 2018 | Q3 2017 | Nine months 2018 | Nine months 2017 |
|---|---|---|---|---|
| Net earned premiums | $23.45 million | $17.66 million | $71.19 million | $66.30 million |
| Total revenue | $24.77 million | $18.94 million | $74.86 million | $70.29 million |
| Net loss | $3.55 million | $18.90 million | $4.45 million | $21.76 million |
| Loss per diluted share | $0.42 | $2.46 | $0.52 | $2.85 |
| Combined ratio | 116.5% | 207.3% | 107.3% | 136.0% |
Underwriting remained unprofitable: combined ratios exceeded 100% in both 2018 periods. Adjusted operating results, a non-GAAP measure, were a $1.16 million loss for Q3 and $446,000 income for the nine months, versus losses of $19.05 million and $22.94 million in the respective 2017 periods. Net investment income was $786,000 in Q3 and $2.43 million year to date.
For the nine months, operating cash flow was negative $7.51 million, versus positive $17.51 million in 2017. Investing activities provided $11.42 million; financing activities provided $674,000. Cash at September 30 was $16.46 million, and cash plus short-term investments was $26.4 million. Total assets were $233.0 million, liabilities $186.5 million, and shareholders’ equity $46.5 million. Debt carrying value was $29.75 million; insurance subsidiaries’ aggregate statutory capital and surplus was $65.8 million.
Material changes versus prior periods
- Year-to-date net loss improved by $17.31 million, while the combined ratio improved 28.7 percentage points. The filing attributes much of the comparison to lower losses, including the absence of the $5.0 million of Q3 2017 net catastrophe losses from Hurricanes Harvey and Irma, and to the prior-year $7.2 million one-time ADC reinsurance charge.
- Gross written premiums fell 7.4% year to date to $76.93 million. Commercial lines grew 8.1%, while personal lines declined 68.3%, primarily reflecting the planned reduction of Florida homeowners and other wind-exposed business. Q3 gross written premiums declined 10.0%.
- Net losses and loss adjustment expenses declined 23.7% year to date. However, prior-year reserve development was adverse by $4.9 million year to date, including $2.3 million in personal lines and $2.6 million in commercial lines.
- Debt and interest expense increased following financing changes. In September, the company issued $22 million of 6.75% senior notes due 2023 and used $20 million of proceeds to repay subordinated notes. Year-to-date interest expense rose to $1.83 million from $745,000.
- Debt securities’ net unrealized losses contributed to accumulated other comprehensive loss, which was $3.39 million at September 30 versus $363,000 at year-end 2017. Equity fair-value changes began flowing through earnings after adoption of ASU 2016-01.
Outlook, risks and unusual items
Management provided no quantified earnings or premium guidance. It said existing cash and investments should meet short- and long-term liquidity needs. The company continued to deemphasize wind-exposed homeowners business and described growth in commercial hospitality and small-business programs.
The adverse development cover (ADC) provided $14.5 million of recoverables by September 30, leaving $3.0 million of coverage remaining; $4.9 million of deferred gain was recorded and is to be recognized over future claims settlements. The ADC favorably affected prior-year development by $2.4 million for the nine months, while $4.9 million of adverse prior-year development was reported overall. Reserve estimates are inherently uncertain and may change materially. Reinsurance recoverables also expose the company to reinsurer credit risk; management believes recorded amounts are recoverable.
Subsequent events: underwriters exercised an option for an additional $3.3 million of senior notes on October 12, bringing total principal issued to $25.3 million. On November 2, subordinated-note terms were amended: $10.5 million principal, maturity extended to 2038, interest of 7.5% through September 2023 and 12.5% thereafter, with escalating call premiums. Interest-rate sensitivity disclosures show an estimated 3.1% decline in investment fair value under a 100-basis-point rate increase. The company reported compliance with debt covenants and effective disclosure controls; it reported no material change in risk factors beyond those noted in its prior quarterly filing. Ordinary-course legal claims are disclosed, with management stating it does not believe material losses beyond amounts accrued are reasonably possible.
Investor verification points
- Confirm the correct issuer: the supplied metadata says Presurance Holdings, Inc., but this filing is for Conifer Holdings, Inc.
- Assess whether adverse reserve development persists and whether the remaining $3.0 million ADC coverage and deferred gain are realized as expected.
- Track underwriting profitability, especially the combined ratio above 100%, and whether commercial-line growth can offset the deliberate personal-lines contraction.
- Review cash generation and liquidity alongside the new senior notes, amended subordinated debt terms, interest costs, and covenant requirements.
- Evaluate exposure to catastrophe claims, wind-exposed markets, reinsurance recoverability, and interest-rate-driven investment valuation changes.