Filing summary
Registrant: The filing is for Conifer Holdings, Inc. and subsidiaries, not Presurance Holdings, Inc. It is a Form 10-Q for the quarter ended June 30, 2017; financial comparisons below are against the corresponding 2016 period unless stated otherwise. Amounts are in millions of dollars unless noted.
Business context and reporting period
Conifer is a property-and-casualty insurer offering specialty commercial and personal lines through independent agents and managing general agents. Its products include commercial property and liability, auto, workers’ compensation, homeowners, and dwelling policies. It reported commercial and personal insurance segments.
Financial results and key metrics
| Metric | Q2 2017 | Q2 2016 | Six months 2017 | Six months 2016 |
|---|---|---|---|---|
| Net earned premiums | $24.5 | $21.7 | $48.6 | $41.8 |
| Total revenue | $26.3 | $23.0 | $51.3 | $43.9 |
| Net loss | $1.1 | $0.5 | $2.9 | $2.5 |
| Loss per share | $0.14 | $0.07 | $0.38 | $0.33 |
| Combined ratio | 110.4% | 109.7% | 109.9% | 110.9% |
For the first six months, gross written premiums were $53.5 million, down 3.0%, and net written premiums were $45.4 million, down 5.8%. Net earned premiums grew 16.4%, reflecting commercial-lines growth; this did not translate into improved underwriting profitability. The six-month loss ratio rose to 65.7% from 62.0%, while the expense ratio improved to 44.2% from 48.9%. A combined ratio above 100% indicates an underwriting loss.
Six-month net investment income was $1.24 million, up 16.4%. Net realized investment losses were $8,000, versus $533,000 of gains in 2016. Other gains included a $750,000 gain from selling renewal rights for part of the low-value dwelling book. Adjusted operating loss, a non-GAAP measure, was $3.9 million, or $0.52 per share, for the six months.
At June 30, 2017, total assets were $211.4 million, total liabilities $145.4 million, and shareholders’ equity $66.0 million. Investments totaled $136.2 million; cash was $10.9 million and short-term investments $14.9 million. Senior debt was $16.4 million, down from $17.8 million at December 31, 2016. The revolver had $6.5 million undrawn, and the company reported compliance with its debt covenants. Insurance subsidiaries’ statutory capital and surplus was $61.7 million, compared with $62.2 million at year-end.
Six-month operating cash flow was $7.4 million, investing cash outflow $7.6 million, and financing cash outflow $1.4 million. Cash declined $1.6 million to $10.9 million. Management stated that cash, short-term investments, investment securities, and available revolver capacity were adequate for short- and long-term liquidity needs. The MD&A rounds operating cash flow to $7.6 million, while the cash-flow statement reports $7.354 million.
Material changes and management commentary
- Six-month commercial net earned premiums increased 25.2%; personal net earned premiums decreased 11.6%. Gross written premiums fell 18.6% in personal lines, mainly reflecting the planned reduction of Florida homeowners and wind-exposed business. Low-value dwelling business continued to grow.
- Prior-year reserve development was adverse by $4.3 million in Q2 and $7.4 million in the first half, substantially more than in 2016. First-half development included commercial liability ($2.9 million), commercial property ($2.3 million), and Florida homeowners ($1.7 million). Management said reserves were adequate, but emphasized that estimates are inherently uncertain and actual claim costs may differ materially.
- Reinsurance costs increased beginning in June 2016 and contributed to lower net written premiums. Reinsurance does not relieve the insurers of their obligations to policyholders if reinsurers fail to pay. The company reported $16.6 million due from reinsurers, including ceded unearned premiums, and considered the amounts recoverable.
- Management attributed the lower expense ratio to cost and commission reductions, improved scale, and business mix; it expected the ratio to trend lower as revenues grow. No numerical earnings or premium guidance was provided.
Risks, contingencies, and unusual items
Key exposures include loss-reserve estimation, catastrophe and claims costs, Florida homeowners exposure, interest-rate and investment-market risk, and reinsurer credit risk. The investment portfolio was primarily investment-grade fixed-income securities, with an average quality of AA and duration of approximately 3.1 years. A hypothetical 100-basis-point rate increase was estimated to reduce fixed-income fair value by 3.0%. State restrictions can limit dividends from insurance subsidiaries to the parent.
The company disclosed ordinary-course claims and legal proceedings, including matters relating to insurance placement and claims administration, but said it did not believe a material loss beyond amounts accrued was reasonably possible based on current information. It reported no material changes to previously disclosed risk factors, effective disclosure controls at June 30, 2017, and no material change in internal control over financial reporting.
Important facts for investors to verify
- Confirm the issuer identity: the supplied filing is Conifer Holdings, Inc., despite the request metadata naming Presurance Holdings, Inc.
- Review the drivers and subsequent development of the $7.4 million first-half adverse reserve development, particularly commercial liability and property.
- Assess whether commercial premium growth and management’s personal-lines repositioning can improve underwriting results, given the 109.9% first-half combined ratio.
- Check the recoverability and concentration of reinsurance balances, catastrophe exposure, and the effect of reinsurance pricing on written premiums.
- Track liquidity, debt repayment, revolver availability, and compliance with credit-facility and insurance-subsidiary capital requirements.
- Distinguish recurring operating performance from the $750,000 renewal-rights gain and review the non-GAAP adjusted operating loss reconciliation.