Business context and reporting period
The supplied filing is Conifer Holdings, Inc.’s Form 10-K for the fiscal year ended December 31, 2022 (ticker CNFR), not a filing for “Presurance Holdings, Inc.” The company is a property-and-casualty insurer focused on specialty commercial and personal lines, distributed primarily through independent agents.
Key financial metrics
Amounts are in U.S. dollars; financial statement amounts are in millions unless stated otherwise.
| Metric | 2022 | 2021 |
|---|---|---|
| Gross written premiums | $138.0 | $132.1 |
| Net written premiums | $91.2 | $101.4 |
| Net earned premiums | $96.7 | $98.8 |
| Total revenue and other income | $104.9 | $116.0 |
| Net income (loss) | $(10.7) | $(1.1) |
| Net loss per diluted share | $(1.00) | $(0.11) |
| Net losses and loss-adjustment expenses | $81.4 | $69.9 |
| Loss / expense / combined ratio | 83.9% / 38.4% / 122.3% | 70.5% / 42.4% / 112.9% |
| Net investment income | $3.0 | $2.0 |
| Cash from (used in) operating activities | $(40.5) | $5.4 |
| Cash and cash equivalents | $28.0 | $9.9 |
| Cash, cash equivalents and short-term investments | $54.0 | Not stated clearly as a comparable figure |
| Total assets / shareholders’ equity | $312.4 / $19.0 | $290.4 / $40.5 |
| Debt | $33.9 | $33.6 |
Material changes versus 2021
- Gross written premiums rose 4.5%, driven by 40.8% growth in personal lines, particularly low-value dwelling; commercial premiums were nearly flat, with hospitality premiums declining.
- Net written premiums fell 10.1%, largely because ceded premiums increased under new reinsurance treaties. Net earned premiums declined 2.1%.
- The combined ratio worsened to 122.3% from 112.9%, reflecting higher losses and adverse prior-year reserve development. The company reported $24.3 million of adverse development in 2022, versus $19.4 million in 2021, mainly in commercial liability.
- Operating cash flow turned negative, at $(40.5) million, primarily due to higher paid losses and lower premium collections, net of reinsurance. Investing cash flow was $56.5 million and financing cash flow was $2.1 million.
- Shareholders’ equity fell to $19.0 million from $40.5 million, including a $16.1 million other comprehensive loss from unrealized investment losses.
Outlook, risks and unusual items
- Debt refinancing: $24.4 million of senior unsecured notes, bearing 6.75% interest, mature September 30, 2023. Management said it believed refinancing or asset sales to repay them were probable. The $10.5 million subordinated notes bear 7.5% interest through September 30, 2023, then 12.5%. The $10.0 million line of credit matured December 1, 2022 and was not renewed.
- Liquidity and capital: Management stated available cash and investments should meet operating and capital needs, subject to expected senior-debt refinancing. Insurer dividends to the parent are restricted and require regulatory approval; no subsidiary dividends were paid in 2022. The parent depends mainly on intercompany service fees.
- Loss portfolio transfer: A November 2022 agreement transferred specified prior-year commercial liability risk to Fleming Re, with a $66.3 million aggregate limit and $20.0 million of adverse-development cover after a $5.5 million corridor. The company incurred a $5.4 million one-time risk fee; recoverables under the agreement were $25.9 million on unpaid losses at year-end.
- VSRM transactions: The company acquired the remaining 50% of Venture Agency Holdings (renamed VSRM) for $9.7 million in October and recognized an $8.8 million step-acquisition gain. It then sold the security and alarm brokerage business for $38.2 million. A $9.4 million tax benefit arose from use of tax-loss carryforwards. The remaining agency business was contributed to a new entity, with 50% sold to a related party at year-end.
- Catastrophe and reserve risks: Hurricane Ian generated $2.0 million of net losses and $1.6 million of reinsurance reinstatement costs in the fourth quarter. Management cited social inflation, higher claim severity and longer-tail exposure as drivers of adverse development. The gross unpaid-loss and LAE liability was $165.5 million.
- Investments and ratings: The fixed-income portfolio had an average AA+ rating and 3.5-year duration, but unrealized investment losses contributed to lower equity. A.M. Best downgraded the insurance subsidiaries’ financial strength rating to B+ in April 2022, with a stable outlook; Kroll’s rating was BBB+ with a stable outlook as of the filing date.
- Tax and audit: A $21.7 million valuation allowance was recorded against deferred tax assets amid cumulative losses. Plante Moran issued an unqualified opinion on the 2022 financial statements and identified reserves and the VSRM transaction as critical audit matters. Management reported effective disclosure controls and internal control over financial reporting.
Important facts for investors to verify
- Whether the senior notes were refinanced or repaid by their September 30, 2023 maturity, and on what terms.
- Subsequent loss development, especially in commercial liability, and the adequacy and recoverability of reserves and LPT claims from Fleming Re.
- Whether the deteriorated combined ratio and negative operating cash flow improve, and how much growth depends on personal low-value dwelling business.
- The status and quality of reinsurance recoverables, including the concentration of amounts due from reinsurers and any collateral requirements.
- Whether the company can maintain statutory capital and ratings while meeting debt covenants and funding its insurance subsidiaries.
- The filing’s company-name mismatch with the request: the supplied document identifies Conifer Holdings, Inc., not Presurance Holdings, Inc.