Conifer Holdings, Inc. — Q1 2018 Form 10-Q
Entity note: The request metadata names Presurance Holdings, Inc., but the supplied filing identifies Conifer Holdings, Inc. and its subsidiaries. This summary reflects the supplied filing. Reporting period: three months ended March 31, 2018; financial statement amounts are unaudited and in thousands unless stated otherwise.
Business context and results
Conifer is a property-and-casualty insurer focused on specialty commercial and personal lines, distributing through independent agents and managing general agents. It writes policies across the United States. Management continued to reduce wind-exposed personal-lines business, particularly Florida homeowners, while developing commercial lines.
| Metric | Q1 2018 | Q1 2017 |
|---|---|---|
| Gross written premiums | $23.7 million | $26.5 million |
| Net written premiums | $19.8 million | $22.3 million |
| Net earned premiums | $23.8 million | $24.1 million |
| Total revenue | $24.8 million | $25.1 million |
| Net losses and LAE | $13.3 million | $15.7 million |
| Net income (loss) | $213,000; $0.02/share | $(1.8) million; $(0.24)/share |
| Adjusted operating income (non-GAAP) | $1.8 million; $0.21/share | $(1.8) million; $(0.24)/share |
| Loss / expense / combined ratios | 55.2% / 44.3% / 99.5% | 64.2% / 44.9% / 109.1% |
Financial position, liquidity and cash flow
- At March 31, 2018, total assets were $229.7 million, total liabilities $178.2 million, and shareholders’ equity $51.4 million. Book value per share was $6.04.
- Cash was $14.4 million; short-term investments were $2.5 million. Management reported $16.9 million in cash and short-term investments and said available liquidity and investment securities were adequate for capital and liquidity needs.
- Debt was $29.0 million, consisting of subordinated notes with an 8% fixed coupon, maturing in 2032. Interest expense was $619,000 versus $224,000 a year earlier. The company reported compliance with debt covenants.
- Operating cash flow was a use of $3.9 million, compared with $3.9 million provided in Q1 2017. Investing activities provided $6.4 million, and financing activities had no net cash flow. Cash increased $2.5 million during the quarter.
- Insurance subsidiaries’ statutory capital and surplus was $65.4 million, up from $62.5 million at December 31, 2017.
Material changes and unusual items
- Net earned premiums declined 1.4%. Commercial lines earned premiums rose 2.2%, while personal lines fell 17.5%. Gross written premiums declined 10.3%, primarily due to the planned reduction in personal lines: personal gross written premiums fell 59.6%, while commercial grew 0.7%.
- The combined ratio improved 9.6 percentage points to 99.5%, reflecting a 9.0-point improvement in the loss ratio and a 0.6-point reduction in the expense ratio. Commercial underwriting produced a $1.1 million gain; personal lines recorded a $716,000 underwriting loss.
- Prior-year reserve development was favorable by $16,000, versus $3.1 million adverse development in Q1 2017. The adverse development in personal lines included additional Hurricane Harvey losses; the adverse development cover (ADC) favorably affected prior-year development by $278,000.
- Hurricane Harvey and Irma losses and reinstatement costs totaled $633,000 in Q1 2018; cumulative pretax losses and reinstatement costs since inception were $6.8 million, net of expected recoveries.
- Conifer adopted accounting guidance that moved changes in equity-security fair value into net income; this contributed a $297,000 Q1 loss. Unrealized investment losses reduced other comprehensive income by $1.8 million. The adoption-related reclassifications between accumulated deficit and other comprehensive income had no net effect on total equity.
- The ADC covers up to $17.5 million of adverse development for accident years 2005–2016. At quarter-end, the filing reported $8.9 million of retroactive reinsurance recoverable and $8.6 million of coverage remaining. A $1.4 million deferred gain was recorded; a potential 35% contingent recovery on the ADC consideration was not reflected in the financial statements.
Outlook, risks and contingencies
No quantitative earnings or premium guidance is provided. Management previously described the 2017 financing, equity issuance and ADC transactions as intended to strengthen the financial position and support a return to profitability in coming quarters. Management said it was continuing cost-reduction efforts and de-emphasizing Florida and other wind-exposed personal business. Results remain sensitive to claims and reserve estimates, catastrophe losses, interest rates and investment values, and reinsurer performance. Reinsurance does not remove the insurers’ primary obligation to policyholders. The filing reports ordinary-course claims and legal proceedings but states management did not believe a material loss beyond amounts accrued was reasonably possible based on available information. No material changes to the risk factors in the 2017 Form 10-K were reported.
Important facts for investors to verify
- Confirm the issuer: the supplied filing is for Conifer Holdings, Inc., not Presurance Holdings, Inc.
- Track reserve adequacy and development, including personal-lines claims, Hurricane Harvey and Irma exposure, and the ADC’s remaining coverage and recoverability.
- Assess whether commercial-line growth and underwriting improvement can offset continued personal-lines contraction and whether the combined ratio remains below 100%.
- Monitor liquidity, restricted trust deposits, holding-company access to subsidiary funds, and the 8% subordinated debt obligations and covenants.
- Distinguish GAAP net income from adjusted operating income, a company-defined non-GAAP measure that excludes specified investment and ADC-related effects.