Business context and reporting period
The supplied filing identifies the registrant as Conifer Holdings, Inc., not Presurance Holdings, Inc. It is a Form 10-Q for the three months ended March 31, 2016. Conifer is a property-and-casualty insurer focused on specialty commercial and personal lines, distributed mainly through independent agents.
The company discontinued writing nonstandard personal auto policies in 2015; that business is in run-off. It is expanding commercial insurance and homeowners products.
Financial performance and condition
- Revenue and premiums: Total revenue was $20.9 million, up from $15.6 million. Net earned premiums rose 38.7% to $20.1 million; gross written premiums increased 19.8% to $25.4 million. Net written premiums grew 61.3% to $22.1 million, reflecting both growth and the termination of a 25% quota-share reinsurance arrangement in August 2015.
- Profitability: Net loss was $2.0 million, or $0.27 per diluted share, versus net income of $512,000, or $0.06 per share. Underwriting loss was $2.5 million versus an underwriting gain of $125,000. Net investment income was $537,000; realized investment losses were $8,000.
- Margins: The combined ratio rose to 112.2% from 99.2% (above 100% indicates an underwriting loss). The loss ratio was 62.4%, versus 57.2%, and the expense ratio was 49.8%, versus 42.0%.
- Cash flow and liquidity: Operating activities provided $3.0 million, compared with $1.4 million used in the prior-year quarter. Cash was $15.8 million; cash and short-term investments totaled $21.0 million. Management said available cash, investments and revolving credit capacity were adequate for short- and long-term needs.
- Debt and capital: Senior debt was $13.25 million, up from $12.75 million at year-end; $13.0 million remained available on the revolver. The company reported compliance with all credit-facility financial covenants. Insurance subsidiaries’ statutory capital and surplus was $69.9 million, down from $71.2 million at December 31, 2015. Shareholders’ equity was $76.7 million.
Material changes, outlook and risks
- Management attributed the quarterly loss primarily to $1.6 million of adverse prior-year reserve development, including commercial auto, personal auto and Florida homeowners, and higher expenses related to hiring and infrastructure for growth and public-company requirements. Favorable reserve development in other lines partly offset the adverse development.
- Commercial gross written premiums increased 21.6%; personal lines increased 14.4%. Personal net earned premiums declined 3.5%, while the commercial business grew. Premium growth was concentrated in Florida, Michigan, Pennsylvania and Texas, which together represented 70% of gross written premiums.
- Policy acquisition costs increased substantially in part because the former quota-share agreement provided a ceding commission that reduced acquisition expenses in the prior-year period. The agreement’s termination also increased the company’s retained premium exposure.
- The investment portfolio was $119.2 million, primarily investment-grade fixed-income securities. Its effective duration was approximately 3.1 years. Interest-rate and investment-credit risk, reinsurer collectability, catastrophe exposure and uncertainty in loss reserves are material considerations. The company reported $10.0 million due from reinsurers, including prepaid reinsurance, and believed the amounts recoverable.
- No specific earnings or premium guidance was provided. Management described growth initiatives but cautioned that first-quarter results are not necessarily indicative of full-year results. It expected the personal auto run-off to be substantially complete by year-end 2016.
- The filing reported no material change in risk factors and no material loss expected from disclosed ordinary-course legal proceedings. Management concluded disclosure controls were effective as of March 31, 2016.
Important facts for investors to verify
- Confirm the issuer identity: the supplied 10-Q names Conifer Holdings, Inc., while the request metadata names Presurance Holdings, Inc.
- Track whether reserve strengthening continues, particularly in automobile and Florida homeowners lines, and whether recorded reserves ultimately prove adequate.
- Assess whether premium growth produces underwriting profitability after the quota-share termination and the resulting changes in retention and acquisition costs.
- Review liquidity, statutory capital, debt-covenant headroom and the effect of any further share repurchases; the company authorized a $2.1 million repurchase program and had repurchased $231,000 by quarter-end.
- Monitor geographic and catastrophe concentration, investment sensitivity to interest rates, and the completion and claims costs of the nonstandard auto run-off.