Conifer Holdings, Inc. — Q1 2021 Form 10-Q
Filing identity: The submitted filing is for Conifer Holdings, Inc. (Nasdaq: CNFR), not Presurance Holdings, Inc. The reporting period is the three months ended March 31, 2021; financial statement amounts below are in millions of dollars unless noted.
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 across the United States. Comparisons are with Q1 2020 unless otherwise stated.
Financial performance and position
- Premiums and revenue: Gross written premiums rose 21.1% to $30.4 million; net written premiums rose 16.3% to $24.5 million; net earned premiums increased 3.7% to $22.8 million. Total revenue was $26.3 million, up from $21.6 million.
- Profitability: Net loss was $4.6 million, or $0.48 per share, versus a $4.7 million loss, or $0.49 per share. Adjusted operating loss, a non-GAAP measure, widened to $7.0 million, or $0.72 per share, from $2.7 million, or $0.28 per share.
- Underwriting: Combined ratio increased to 129.0% from 111.6% (above 100% indicates an underwriting loss). The loss ratio rose to 84.4% from 64.5%, while the expense ratio improved to 44.6% from 47.1%. Underwriting loss widened to $7.1 million from $2.9 million.
- Investment results: Net investment income declined to $0.5 million from $1.0 million. Net realized investment gains increased to $2.9 million from $0.9 million, while the fair-value loss on equity securities narrowed to $0.5 million from $3.1 million. These volatile items materially affect the comparison between GAAP net loss and adjusted operating loss.
- Cash flow: Operating activities used $3.5 million, compared with $4.0 million provided in Q1 2020. Investing activities provided $1.7 million; financing activities used $2.0 million, primarily reflecting a net $2.0 million line-of-credit paydown. Cash and cash equivalents were $4.4 million at quarter-end, down from $8.2 million at December 31, 2020.
- Balance sheet and liquidity: Total assets were $259.7 million and shareholders’ equity was $37.0 million at March 31, 2021, versus $261.6 million and $44.4 million at year-end. Cash, cash equivalents and short-term investments totaled $17.1 million; total investments were $180.0 million. Management said available cash and investments were adequate for short- and long-term needs.
- Debt and capital: Total debt was $39.1 million, down from $41.0 million at year-end. It included $23.7 million of senior unsecured notes, $9.6 million of subordinated notes, $3.0 million of line-of-credit borrowings and a $2.7 million PPP loan. The $10.0 million line of credit matured June 18, 2021. The company reported compliance with financial covenants. Insurance subsidiaries’ statutory capital and surplus was $58.7 million, down from $64.1 million at year-end.
Material changes versus the prior comparable period
- Q1 gross written premiums increased across commercial and personal lines. Commercial growth was led by small-business programs; hospitality premiums declined amid pandemic-related business disruption. Personal lines growth reflected the low-value dwelling book.
- Losses and loss adjustment expenses rose 35.7% to $19.4 million. Q1 2021 included $2.0 million of net catastrophe losses from Winter Storm Uri and $5.8 million of adverse prior-year reserve development, compared with $3.7 million of adverse development in Q1 2020.
- Of the 2021 adverse development, $5.2 million related to commercial lines—$2.7 million hospitality and $2.5 million small business—and $0.6 million to personal lines.
- Ceded earned premiums as a share of gross earned premiums increased to 19.2% from 15.5%, reflecting business mix, reinsurance rate increases and additional commercial property reinsurance. Uri also generated $0.3 million of reinstatement premiums.
- Operating expenses declined 13.8% to $4.3 million, which management attributed to expense-reduction efforts. Despite this and stronger realized investment gains, underlying adjusted operating loss and underwriting results worsened.
Outlook, commentary, risks and unusual items
- Management provided no additional forward-looking guidance, citing uncertainty about the pandemic’s ultimate impact. It identified potential effects on sales, insurance margins, investment income and assets, regulatory capital, insurance liabilities, capital-market access and future profits. Hospitality exposure remains a particular concern.
- The company reported that it was continuing customer service, underwriting and claims operations while most employees worked remotely. It was reducing Florida homeowners exposure and other wind-exposed risks, including in Texas and Hawaii.
- Management identified Winter Storm Uri losses, reinstatement premiums and adverse reserve development as key unusual Q1 items. Reserve estimates are inherently uncertain and may change as claims develop.
- Reinsurance recoverables, including prepaid reinsurance premiums, were $34.1 million net due from reinsurers. The company said it believed recorded amounts recoverable, while noting reinsurance does not remove its primary obligation to policyholders if a reinsurer fails to pay.
- Debt-related considerations include the near-term line-of-credit maturity, subordinated-note covenants and the PPP loan, which remained a liability pending forgiveness. Management reported covenant compliance at quarter-end.
- The filing says ordinary-course legal claims are generally covered or reserved and that management did not believe a material loss exceeding accrued amounts was reasonably possible. No material changes to previously disclosed risk factors were reported.
Important facts for investors to verify
- Confirm the issuer identity: this filing is for Conifer Holdings, Inc., not Presurance Holdings, Inc.
- Track commercial and personal loss trends, especially the adequacy of reserves and whether adverse development persists.
- Assess the durability of premium growth against the higher reinsurance cost and the company’s exposure to hospitality and catastrophe-prone property risks.
- Review liquidity, statutory capital and the status of the June 2021 line-of-credit maturity, PPP loan forgiveness and debt-covenant compliance.
- Distinguish GAAP results from adjusted operating results and evaluate the effect of investment gains, equity-security fair-value changes and unrealized investment losses.