Business context and reporting period
The supplied filing is Conifer Holdings, Inc. and subsidiaries’ Form 10-K for the fiscal year ended December 31, 2018, filed March 13, 2019. This does not match the request metadata naming Presurance Holdings, Inc. Conifer is a property-and-casualty insurer focused on specialty commercial and personal lines, distributed mainly through independent agents.
Management emphasized expanding commercial insurance while reducing wind-exposed homeowners business. Gross written premiums were 94% commercial and 6% personal in 2018, versus 81% and 19%, respectively, in 2017.
Financial results and liquidity
Amounts below are in millions of dollars unless noted.
| Metric | 2018 | 2017 |
|---|---|---|
| Gross written premiums | $104.4 | $114.3 |
| Net written premiums | $89.1 | $91.2 |
| Net earned premiums | $93.8 | $91.7 |
| Total revenue | $98.9 | $96.8 |
| Net investment income | $3.3 | $2.7 |
| Net loss | $(9.2) | $(21.5) |
| Loss per share, basic and diluted | $(1.08) | $(2.74) |
| Net cash from (used in) operating activities | $(17.0) | $9.1 |
| Combined ratio | 110.8% | 126.0% |
The 2018 loss ratio was 65.5% (79.2% in 2017); the expense ratio was 45.3% (46.8%). A combined ratio above 100% indicates underwriting losses. Adjusted operating loss, a non-GAAP measure, was $3.7 million, or $0.44 per share, compared with $22.8 million, or $2.90 per share, in 2017.
At year-end, total assets were $232.8 million, total liabilities $190.6 million, and shareholders’ equity $42.2 million, down from $52.8 million. Cash was $10.8 million; cash and short-term investments were $19.7 million. Investments totaled $140.1 million, primarily fixed income, with an average credit rating of AA and a 3.1-year duration-to-worst. Unpaid losses and loss adjustment expenses were $92.8 million, including $29.7 million of reinsurance recoverables on unpaid losses.
Debt was $33.5 million: $25.3 million principal of senior unsecured notes bearing 6.75% and $10.5 million principal of subordinated notes, partly offset by unamortized issuance costs. A $10 million credit line was undrawn at year-end and was scheduled to mature June 21, 2019. The company reported compliance with debt covenants and regulatory capital requirements at December 31, 2018.
Material changes versus the prior comparable period
- Gross written premiums fell 8.7%, as commercial premiums grew 6.1% to $97.7 million while personal premiums declined 69.9% to $6.7 million, primarily from reducing wind-exposed Florida and Hawaii homeowners business.
- Net earned premiums rose 2.3%, but net written premiums declined 2.4%. Management attributed the shift to the business mix and the timing of earned premiums.
- Net loss narrowed by $12.3 million. Net losses and loss adjustment expenses declined $11.4 million, and the combined ratio improved 15.2 percentage points, though underwriting remained unprofitable.
- Net investment income increased 22.3% to $3.3 million. Interest expense rose 94.1% to $2.6 million following the debt restructuring.
- Operating cash flow swung from $9.1 million provided to $17.0 million used. Management cited lower premium collections, ADC and catastrophe-reinsurance payments, and increased net paid losses.
- Shareholders’ equity declined $10.7 million, reflecting the net loss and a $1.8 million other comprehensive loss, principally from unrealized investment losses.
Outlook, commentary, risks and unusual items
Management intends to continue expanding specialty commercial lines and shift personal lines toward low-value dwelling coverage, while maintaining underwriting discipline. The filing provides no numerical earnings or premium guidance.
- Prior-year reserve development remained adverse: $9.0 million in 2018, primarily related to 2015 and 2016 accident years. The filing identifies commercial liability and homeowners claims among the sources. Loss-reserve estimates are inherently uncertain; a sensitivity analysis illustrates potential material effects from changes in selected loss-development assumptions.
- The adverse development cover (ADC) was fully utilized by December 31, 2018. Of $10.3 million ceded in 2018, $4.6 million reduced current-period losses and $5.7 million was deferred for recognition over the next two years. A contingent recovery of up to 35% is not reflected in the financial statements.
- 2018 included $583,000 of net catastrophe losses related to Hurricane Harvey and $1.0 million of catastrophe reinsurance reinstatement costs relating to Hurricane Irma.
- Key risks include catastrophe exposure, further reserve deterioration, Florida assignment-of-benefits litigation, reinsurance availability and collectability, competition, investment and interest-rate risk, and dependence on restricted subsidiary dividends and intercompany fees to fund the holding company and service debt.
- A $12.6 million valuation allowance was recorded against deferred tax assets, reflecting cumulative losses; federal net operating loss carryforwards were $48.3 million, some subject to utilization limits.
- The company repurchased 129,175 shares for approximately $584,000 during 2018. It reported a further repurchase of 119,605 shares at $4.00 per share on March 13, 2019.
- Management stated that pending ordinary-course legal matters were not expected to have a material adverse effect. The independent auditor issued an unqualified opinion on the financial statements. Management reported effective disclosure controls and internal control over financial reporting; auditor attestation on internal control was not included because the company qualified as an emerging growth company.
Most important facts for investors to verify
- Confirm the issuer identity: the supplied document is Conifer Holdings, Inc.’s 2018 Form 10-K, not a filing identified as Presurance Holdings, Inc.
- Review subsequent reserve development and whether the reported adverse development and the remaining deferred ADC gain are consistent with later filings.
- Check cash generation, holding-company liquidity, subsidiary dividend restrictions, and the status or refinancing of the credit line that matured in June 2019.
- Assess debt-service capacity, particularly the subordinated notes’ 12.5% rate after September 2023 and the associated covenants and redemption terms.
- Track commercial underwriting profitability, the personal-lines repositioning, catastrophe and Florida litigation exposure, and reinsurance recoverables.
- Evaluate whether future taxable income supports realization of deferred tax assets and any reduction of the valuation allowance.