Business context and reporting period
The supplied filing is Conifer Holdings, Inc. and subsidiaries’ unaudited Form 10-Q for the quarter and six months ended June 30, 2018. The request metadata names Presurance Holdings, Inc.; that does not match the registrant identified in the filing and should be verified. Conifer underwrites specialty property and casualty insurance through commercial and personal lines, with products marketed through independent agents and managing general agents.
Financial results and liquidity
| Metric | Three months ended June 30, 2018 | Six months ended June 30, 2018 |
|---|---|---|
| Net earned premiums | $23.9 million | $47.7 million |
| Total revenue | $25.3 million | $50.1 million |
| Net loss; loss per share | $1.1 million; $0.13 | $0.9 million; $0.11 |
| Combined ratio | 106.0% | 102.7% |
| Adjusted operating income (loss), non-GAAP | $(0.2) million | $1.6 million |
- For the six-month period, net earned premiums declined 1.8% year over year. Net losses and loss adjustment expenses fell 12.4% to $28.4 million; the combined ratio improved from 109.9% to 102.7%, but remained above 100%, indicating an underwriting loss.
- Six-month operating cash flow was negative $7.1 million, versus positive $7.4 million in 2017. Investing activities provided $12.3 million; cash increased $5.1 million to $17.0 million.
- At June 30, cash and short-term investments totaled $21.4 million. Total investments were $140.6 million, total assets $227.3 million, total liabilities $177.2 million, and shareholders’ equity $50.2 million. Book value per share was $5.89.
- Debt was $29.1 million, principally subordinated notes with an 8% fixed rate and a 2032 maturity. A new $10 million credit line, maturing June 21, 2019 at LIBOR plus 2.75%, was undrawn at quarter-end. The company reported compliance with subordinated debt covenants.
- Insurance subsidiaries’ statutory capital and surplus was $65.9 million, compared with $62.5 million at December 31, 2017. No subsidiary dividends were paid in the first half.
Material changes versus the prior comparable period
- Six-month gross written premiums decreased 5.9% to $50.3 million. Commercial lines grew: gross written premiums increased 9.5% and net earned premiums 3.1%. Personal lines contracted: gross written premiums fell 67.3% and net earned premiums 23.9%, reflecting the planned reduction of Florida homeowners and other wind-exposed business.
- Six-month net loss improved to $0.9 million from $2.9 million. The 2018 result included $1.5 million of adverse prior-year reserve development, compared with $7.4 million in the first half of 2017. The adverse development cover (ADC) provided $0.9 million of benefit in the first half; a further $2.4 million was deferred for recognition in future periods.
- Interest expense rose to $1.2 million from $0.4 million, reflecting higher debt and a higher interest rate than the prior facility. Net investment income increased 32.2% to $1.6 million.
- Cash used in operations, rather than provided, and a $2.2 million other comprehensive loss contributed to lower equity, which declined to $50.2 million from $52.8 million at year-end 2017.
Outlook, commentary, risks and unusual items
- No specific earnings or premium guidance is provided. Management said it expected existing cash, short-term investments and investment securities to meet short- and long-term capital and liquidity needs. Results for the six months are not necessarily indicative of full-year results.
- Management is growing hospitality and small-business commercial programs while reducing Florida homeowners and other wind-exposed exposures. A new commercial property reinsurance layer lowered the specific loss retention from $500,000 to $300,000; related ceded premiums reduced earned premiums and increased the reported expense ratio.
- Reserve estimates are inherently uncertain and may change materially. The ADC covered up to $17.5 million of adverse development for accident years 2005–2016; $7.1 million of coverage remained at June 30. The filing reports $388,000 of additional 2017 Hurricane Harvey losses in the first half of 2018.
- Key disclosed risks include reinsurance recoverability and fronting-carrier availability (about 28% of first-half gross written premiums used fronting arrangements), exposure to wind and catastrophe losses, and possible federal-law consequences for insurance activities involving the cannabis industry. The filing also identifies personal-information security risk.
- The company adopted accounting standards that moved changes in equity-security fair value into net income; the six-month 2018 income statement included a $268,000 loss from that change. Debt, investments and insurance operations are also exposed to interest-rate, credit and claims-cost risks. Management reported no material loss reasonably possible beyond amounts already accrued from disclosed legal proceedings.
Important facts for investors to verify
- Confirm the intended issuer: the request says Presurance Holdings, Inc., but the filing is for Conifer Holdings, Inc.
- Review reserve adequacy, the remaining ADC coverage and deferred gain, including subsequent claims development and catastrophe losses.
- Assess whether commercial-line growth can offset the deliberate personal-lines contraction while improving underwriting profitability.
- Check operating cash generation, liquidity restrictions on insurance-subsidiary assets, and compliance with credit-line and subordinated-note covenants.
- Reconcile GAAP net loss with adjusted operating results, including the ADC deferred-gain adjustments and equity-security fair-value changes.