Filing summary
Entity discrepancy: The filing provided is for Conifer Holdings, Inc. and subsidiaries, not Presurance Holdings, Inc. It is a Form 10-Q for the quarter ended September 30, 2021, filed November 10, 2021. Dollar amounts below are in millions unless stated otherwise.
Business context and reporting period
Conifer is a property-and-casualty insurance holding company with commercial lines, personal lines, and a wholesale agency business. It sells specialty insurance through independent agents and operates primarily in the United States. Results cover the three and nine months ended September 30, 2021, with comparisons to the same 2020 periods.
Financial results and key metrics
- Premiums: Third-quarter gross written premiums rose 12.9% to $33.7 million; net earned premiums rose 12.2% to $24.9 million. For the first nine months, gross written premiums increased 20.1% to $99.1 million and net earned premiums increased 10.0% to $72.6 million. Higher ceded reinsurance costs meant net written premium growth was lower than gross written premium growth.
- Profitability: Third-quarter net loss was $1.2 million, or $0.12 per share, versus net income of $0.5 million a year earlier. Nine-month net loss was $0.3 million, or $0.03 per share, compared with a $2.7 million loss in 2020. Nine-month adjusted operating loss, a non-GAAP measure, widened to $12.6 million from $5.6 million.
- Underwriting and margins: The combined ratio was 106.9% in Q3 versus 110.7% in Q3 2020; for nine months it worsened to 116.0% from 107.7%. Ratios above 100% indicate underwriting losses. The nine-month deterioration reflected higher losses, including adverse prior-year reserve development and catastrophe claims, despite improved expense ratios.
- Revenue and unusual gains: Total revenue and other income was $26.7 million in Q3 and $88.5 million for nine months, versus $26.6 million and $73.5 million, respectively, in 2020. Nine-month other gains of $11.7 million included an $8.9 million gain on an agency-business sale and a $2.8 million gain from forgiveness of the PPP loan.
- Cash flow: Operating activities used $2.0 million in the first nine months, compared with $3.0 million used in 2020. Investing activities provided $5.3 million; financing activities used $4.0 million, primarily reflecting a net $4.0 million paydown on the line of credit. Cash declined $0.7 million to $7.5 million.
- Liquidity and investments: Cash, cash equivalents, and short-term investments totaled $17.6 million. Total investments were $176.5 million. Management stated it believed available cash and investments would meet short- and long-term capital and liquidity needs; however, some investments are held in restricted trust accounts.
- Debt and equity: Debt was $34.5 million at September 30, down from $41.0 million at year-end 2020. The PPP loan was forgiven and the line of credit balance fell to $1.0 million. Shareholders’ equity was $42.1 million, versus $44.4 million at year-end. The company reported compliance with debt covenants.
- Reserves and capital: Unpaid losses and loss-adjustment expense reserves were $119.9 million, up from $111.3 million at year-end. Insurance subsidiaries’ statutory capital and surplus was $57.8 million, down from $64.1 million.
Material changes, outlook, and risks
- Net adverse reserve development was $3.6 million in Q3 and $15.6 million for the first nine months of 2021, primarily in commercial liability lines and earlier accident years. The company also recorded $2.0 million of net catastrophe losses from Winter Storm Uri.
- On June 30, Sycamore sold certain agency customer accounts and related assets for $10.0 million: $1.0 million cash and $9.0 million in five-year notes bearing 7% interest. The transaction generated an $8.9 million gain. Conifer retained a 50% non-controlling interest in Venture, and management expected the sold business to transition over time. The agency segment was expected to produce substantially less third-party business and about 50% less business for Conifer’s insurance subsidiaries.
- Management said pandemic-related disruption had eased and reported no major operational disruption to date, while noting continued exposure to a possible resurgence and stress in the hospitality sector. The filing also identifies uncertainty in reserve estimates, reinsurer performance, claims inflation, interest rates, and investment values.
- Management gave no specific earnings or premium guidance. It said it was reducing exposure to less profitable business and de-emphasizing Florida homeowners’ business and other wind-exposed areas.
- The company reported no material change in risk factors from its 2020 Form 10-K and stated that disclosure controls were effective. It did not believe pending legal matters were reasonably likely to result in material losses beyond amounts accrued.
Most important facts for investors to verify
- Confirm that the intended filing is Conifer Holdings, Inc.’s 2021 Q3 10-Q, given the mismatch with the requested company name.
- Review the drivers and potential persistence of the $15.6 million year-to-date adverse reserve development, especially commercial liability claims and prior accident years.
- Assess whether premium growth can translate into underwriting profitability, given the 116.0% nine-month combined ratio and increased reinsurance costs.
- Evaluate collectibility and repayment terms of the $9.0 million Venture notes, and the effect of the agency sale on future revenue and operations.
- Monitor liquidity, restricted trust assets, debt maturities and covenant headroom, along with the decline in statutory capital and surplus.