Conifer Holdings, Inc. — 2017 Form 10-K Summary
Entity and period: The supplied filing is Conifer Holdings, Inc.’s Form 10-K for the fiscal year ended December 31, 2017, with quarterly data for Q4. This differs from the request metadata naming Presurance Holdings, Inc.
Business context
Conifer is a property and casualty insurance holding company focused on specialty commercial and personal lines, distributed mainly through independent agents. Commercial products include coverage for hospitality businesses, contractors and security services; personal lines include low-value dwellings and catastrophe-exposed homeowners coverage. The company said it was reducing Florida homeowners exposure and repositioning personal lines.
Financial and operating metrics
| Metric | 2017 | 2016 |
|---|---|---|
| Gross written premiums | $114.3 million | $114.9 million |
| Net written premiums | $91.2 million | $99.9 million |
| Net earned premiums | $91.7 million | $89.6 million |
| Total revenue | $96.8 million | $93.9 million |
| Net loss | $21.5 million | $8.4 million |
| Loss per share, basic and diluted | $2.74 loss | $1.11 loss |
| Combined ratio | 126.0% | 112.2% |
| Operating cash flow | $9.1 million provided | $6.2 million provided |
Net losses and loss-adjustment expenses rose 25.3% to $73.9 million. The loss ratio increased to 79.2% from 65.0%; the expense ratio improved slightly to 46.8% from 47.2%. A combined ratio above 100% indicates underwriting losses. Adjusted operating loss, a non-GAAP measure, was $22.8 million, or $2.90 per share, versus $9.5 million, or $1.26 per share, in 2016.
At year-end, total assets were $239.0 million, including $157.7 million of investments and $11.9 million of cash. Cash plus short-term investments were approximately $23.3 million. Total liabilities were $186.2 million and shareholders’ equity was $52.8 million, down from $67.8 million. Debt had a $29.0 million carrying value; the company issued $30 million of 8% subordinated notes, due in 2032, and used proceeds to repay its senior facility and add subsidiary capital. Debt covenants were reported in compliance. The company reported $62.5 million of regulatory capital and surplus; its insurance subsidiaries exceeded applicable RBC intervention thresholds.
Operating cash flow was positive despite the net loss, with changes in reserves and other working-capital items contributing. Investing activities used $26.0 million and financing activities provided $16.2 million. No subsidiary dividends were paid to the holding company in 2017. Management said existing liquidity and statutory surplus were expected to support needs and premium growth over the next two years, while noting that holding-company resources depend substantially on subsidiary service fees and are subject to dividend restrictions.
Material changes and unusual items
- Commercial gross written premiums increased 4.4% to $92.1 million; personal gross written premiums declined 16.9% to $22.2 million. Net written premiums fell largely because of ceded premium for the adverse development cover (ADC).
- Prior-year reserves recorded $9.5 million of net adverse development, mainly in commercial liability, commercial property, Florida homeowners and commercial auto, largely relating to 2015 and 2016 accident years. The reserve liability at year-end was $87.9 million gross and $67.8 million net of reinsurance recoverables.
- Hurricanes Harvey and Irma contributed $5.4 million of net catastrophe losses. Irma losses exceeded the $4.0 million catastrophe retention; the company ceded $5.2 million and recorded $806,000 of reinstatement premiums.
- The ADC cost $7.2 million in ceded premium and covers specified adverse development for accident years 2005–2016, with up to $17.5 million of stated coverage and a 10% co-participation. By year-end, $7.19 million of losses had been ceded and $10.3 million of cover remained. Management said Q4 adverse development was $2.1 million before the ADC, with only $33,000 retained. Retroactive reinsurance accounting may defer recognition of some gains.
- The company raised $5.0 million through a private placement of 800,000 shares at $6.25 each, mainly to insiders, and contributed approximately $20.9 million to its insurance subsidiaries. It also recognized a $750,000 gain on the sale of renewal rights for part of its low-value dwelling business.
- The 2017 tax law reduced the federal corporate rate to 21%. A $9.9 million valuation allowance was recorded against deferred tax assets, reflecting cumulative losses; federal and state NOL carryforwards were $43.6 million and $11.0 million, respectively.
Outlook, commentary and risks
No specific earnings or premium guidance was provided. Management described continued commercial-line expansion, personal-lines repositioning, underwriting discipline and cost rationalization; it anticipated further expense-ratio improvement as earned premiums grow. These are plans and expectations, not assurances.
Key risks include reserve inadequacy and adverse development, catastrophe exposure and reinsurance availability or collectability, Florida assignment-of-benefits litigation and homeowners losses, investment-market and interest-rate risk, reliance on a concentrated group of agents, state regulation and limits on subsidiary dividends, and the ability to maintain ratings and meet debt covenants. A.M. Best ratings disclosed were B++ with a negative outlook for CIC and B+ with a stable outlook for WPIC; Demotech rated both A and Kroll rated both BBB+ with stable outlooks. Management reported no material adverse outcome expected from ordinary-course litigation. The financial statement audit received an unqualified opinion; management concluded disclosure controls and internal control over financial reporting were effective, and the auditor did not attest to internal controls.
Important facts for investors to verify
- How much of future reserve development is covered by the remaining ADC protection, and the timing of any recoveries or deferred gains.
- Whether recent adverse development and catastrophe experience indicate continuing deterioration in specific commercial and personal lines.
- Subsidiary statutory capital, RBC levels, rating-agency outlooks and the capacity to upstream cash while meeting regulatory and debt restrictions.
- The terms, covenants and interest-reset provisions of the $30 million subordinated notes, and the company’s capacity to service them.
- Whether the $9.9 million deferred-tax valuation allowance can be reduced, given the cumulative losses and NOL limitations.
- The filing identifies Conifer Holdings, Inc., not Presurance Holdings, Inc.; confirm that this is the intended issuer and filing.