Conifer Holdings, Inc. — FY 2021 Form 10-K
Reporting period: Year ended December 31, 2021. The filing identifies the registrant as Conifer Holdings, Inc. (Nasdaq: CNFR), not Presurance Holdings, Inc.; verify the company and filing identity.
Business context
Conifer is a property-and-casualty insurance holding company focused on specialty commercial and personal lines, plus a wholesale agency business. Commercial insurance represented 89% of 2021 gross written premiums. The company distributes mainly through independent agents and writes admitted and excess-and-surplus business.
Financial performance
| Metric | FY 2021 | FY 2020 |
|---|---|---|
| Gross written premiums | $132.1 million | $111.3 million |
| Net written premiums | $101.4 million | $92.9 million |
| Net earned premiums | $98.8 million | $89.1 million |
| Total revenue and other income | $116.0 million | $103.5 million |
| Net income (loss) | $(1.1) million; $(0.11) per share | $0.6 million; $0.06 per share |
| Adjusted operating income (loss), non-GAAP | $(13.6) million; $(1.40) per share | $(8.0) million; $(0.83) per share |
| Combined ratio | 112.9% | 108.4% |
| Net cash from operating activities | $5.4 million | $3.0 million |
| Cash, cash equivalents and short-term investments | $32.9 million | Not stated on the same basis in the cited summary |
| Total debt | $33.6 million | $41.0 million |
| Total shareholders’ equity | $40.5 million | $44.4 million |
Underwriting remained unprofitable: the 112.9% combined ratio exceeded the 100% break-even benchmark. The calendar-year loss ratio rose to 70.5% from 62.8%, while the expense ratio improved to 42.4% from 45.6%. Current accident-year underwriting improved, with a 93.3% accident-year combined ratio, but this was outweighed by $19.4 million of adverse prior-year reserve development.
Investment income fell 37.6% to $2.0 million; realized investment gains declined to $2.9 million from $8.1 million. Total investments were $182.7 million at year-end. The fixed-income portfolio had an average credit rating of AA and duration of 3.6 years. Investing activities provided $1.4 million; financing activities used $5.0 million, mainly reflecting an $8.0 million line-of-credit repayment.
Material changes and unusual items
- Gross written premiums grew 18.6%; commercial premiums rose 13.9% and personal premiums 75.2%. Small-business and low-value-dwelling growth was partly offset by a 15.8% decline in hospitality premiums.
- Net losses and loss-adjustment expenses increased 24.2% to $69.9 million. Prior-year adverse development was $19.4 million, mainly in commercial lines and mostly related to 2019 and earlier accident years; it was $15.6 million in 2020.
- The June 2021 sale of agency customer accounts and related assets to Venture generated an $8.9 million gain on a $10.0 million purchase price. Consideration included $1.0 million cash and two promissory notes; Venture repaid the $3.0 million note in December, while the filing reports the remaining $6.0 million note receivable at year-end. Conifer retained a 50% interest in Venture.
- Forgiveness of a $2.7 million Paycheck Protection Program loan produced a $2.8 million gain. Together, the agency-sale and PPP gains materially supported reported results; adjusted operating loss was substantially larger than the GAAP net loss.
- Winter Storm Uri caused $2.0 million of net catastrophe losses. Year-end unpaid losses and LAE were $139.1 million gross and $98.7 million net of reinsurance.
Liquidity, debt, outlook and risks
Debt included $24.4 million face value of senior unsecured notes bearing 6.75% and maturing September 2023, and $10.5 million of subordinated notes bearing 7.5% through September 2023 and 12.5% thereafter. The $10.0 million bank credit line had no year-end balance and matures December 2022. The company reported compliance with debt covenants. Management stated existing cash and investments should meet company and subsidiary liquidity needs, and current statutory surplus and holding-company funds should support premium growth over the next two years. No quantified earnings or premium guidance was provided.
Insurance subsidiaries paid no dividends to the parent in 2021; parent-company debt service relies primarily on intercompany service fees, while insurance-regulatory restrictions constrain subsidiary dividends. The filing highlights reserve-estimation risk, catastrophe and weather exposure, reinsurance availability and collectability, agent concentration, competition, inflation and litigation trends, investment and interest-rate risk, COVID-19 uncertainty, and regulatory and rating-agency risks. Management reported no major COVID-19 operating disruption and did not expect a material financial impact at the filing date, while noting continuing uncertainty for hospitality customers and possible resurgence.
The company recorded a $14.6 million valuation allowance against deferred tax assets, citing cumulative losses. Its federal NOL carryforwards were $59.7 million, including $12.8 million subject to Section 382 limits. A.M. Best ratings for CIC and WPIC were B++ with stable outlooks, and Kroll ratings were BBB+ with stable outlooks. Deloitte issued an unqualified opinion on the financial statements; management reported effective disclosure controls and internal control over financial reporting. Deloitte did not provide an internal-control audit opinion.
Key facts for investors to verify
- Whether the filing is for the intended issuer, given the request’s Presurance Holdings name and the 10-K’s Conifer Holdings identification.
- Development of prior-year loss reserves and the sustainability of the favorable 93.3% current accident-year combined ratio.
- Collection terms, remaining balance and credit quality of the Venture note, along with the continuing economics of Conifer’s 50% Venture interest.
- Capacity to service and refinance senior notes due in 2023, and the higher subordinated-note coupon after September 2023.
- Availability and cost of reinsurance, statutory capital headroom, and the liquidity effect of restricted assets and reinsurance recoverables.
- Whether underwriting profitability improves without recurring asset-sale or loan-forgiveness gains, and whether deferred tax assets become realizable.