Business context and reporting period
The supplied filing is Conifer Holdings, Inc.’s unaudited Form 10-Q for the quarter and six months ended June 30, 2021—not a filing identified as Presurance Holdings, Inc. Conifer is a property-and-casualty insurer with commercial and personal underwriting operations and an agency business.
Unless otherwise noted, amounts below are in U.S. dollars; financial statement amounts are in millions. Comparisons are with the corresponding 2020 period or December 31, 2020.
Financial results and condition
| Metric | Q2 2021 | Six months 2021 |
|---|---|---|
| Net earned premiums | $24.8 million, up 14.2% | $47.7 million, up 8.9% |
| Total revenue and other income | $35.5 million | $61.8 million |
| Net income (loss) | $5.6 million; $0.57 per share | $0.9 million; $0.09 per share |
| Adjusted operating income (loss), non-GAAP | $(3.9) million; $(0.40) per share | $(10.9) million; $(1.13) per share |
| Underwriting combined ratio | 113.2% | 120.8% |
Q2 revenue and reported earnings included an $8.9 million gain from the sale of agency assets. The six-month underwriting loss was $10.7 million, compared with $3.7 million in the prior-year period. Losses and loss-adjustment expenses rose 50.1% in Q2 and 42.2% for the six months; the loss ratio increased to 71.9% for Q2 and 77.9% for the half-year. Expense ratios improved to 41.3% and 42.9%, respectively, but did not offset higher claims costs.
Gross written premiums grew 27.0% in Q2 to $35.0 million and 24.2% for the six months to $65.4 million. Growth came from commercial small-business programs and personal low-value dwelling policies. Management cited reduced hospitality exposure and continued focus on markets and lines it considered more profitable.
Net investment income was $0.5 million in Q2 and $1.0 million for the six months, down 41.7% and 43.0%, respectively. Six-month net realized investment gains were $4.0 million; equity-security fair-value changes were a $1.1 million loss.
At June 30, total assets were $269.7 million, total liabilities $225.9 million, and shareholders’ equity $43.9 million. Cash and cash equivalents were $4.7 million; cash, cash equivalents and short-term investments together were $16.1 million. Debt was $37.2 million, down from $41.0 million at year-end. Insurance subsidiaries’ statutory capital and surplus was $62.5 million, versus $64.1 million at year-end.
Six-month operating cash flow was negative $4.5 million, investing cash flow positive $4.9 million, and financing cash flow negative $4.0 million. Cash fell by $3.5 million to $4.7 million. Management stated available cash and investments were expected to meet short- and long-term capital and liquidity needs. Some investments are restricted in trust for regulatory deposits and reinsurance collateral.
Material changes and unusual items
- Agency asset sale: On June 30, Sycamore sold customer accounts and related assets for $10.0 million: $1.0 million cash and $9.0 million in two five-year notes bearing 7% interest. The $8.9 million gain boosted reported results; the notes are receivables, not cash proceeds. The filing says management expected the $3.0 million note to be repaid within the next quarter. Venture did not assume in-force business or liabilities, and Conifer retained a 50% non-controlling interest in Venture.
- PPP loan forgiveness: The $2.7 million loan remained a liability at June 30 but was fully forgiven by the SBA on July 8, 2021. Conifer expected to recognize the forgiveness as a gain in Q3 2021.
- Adverse reserve development and catastrophe losses: Prior-period adverse development was $6.2 million in Q2 and $12.0 million for the first half, substantially attributable to commercial lines and mostly earlier accident years. First-half claims also included $2.0 million of net losses from Winter Storm Uri.
- Debt: The $10.0 million revolving credit facility was renewed in June 2021 through December 1, 2022. The company reported compliance with debt covenants at June 30. Senior notes mature September 30, 2023; subordinated notes carry a 7.5% rate through September 2023 and 12.5% thereafter.
- Portfolio and reinsurance: Net investment income declined amid lower bond yields. Management increased reinsurance protection, including reducing the commercial property specific-loss retention to $200,000 from $340,000, contributing to higher ceded premiums.
Outlook, risks and contingencies
The filing provides no specific earnings or premium guidance. Management said it saw reduced business risk from COVID-19 as reported cases and restrictions declined, had not experienced major operational disruption, and did not then expect a material negative financial impact. It nevertheless noted uncertainty, potential resurgence, continued stress in hospitality, and possible effects on sales, margins, investments, capital and insurance liabilities.
Key risks include reserve-estimate uncertainty, adverse claims development, catastrophe losses, reinsurance recoverability, investment-market and interest-rate exposure, and the effects of inflation on claims and judicial awards. The company reported $31.1 million net due from reinsurers, including prepaid reinsurance premiums, and said it believed recorded recoverables were recoverable. It reported no material change to the risk factors in its 2020 Form 10-K. Ordinary-course legal claims were disclosed; management did not believe material losses beyond amounts accrued were reasonably possible based on information available.
Most important facts for investors to verify
- Confirm the issuer identity: the supplied filing is for Conifer Holdings, Inc., despite the request metadata naming Presurance Holdings, Inc.
- Assess the quality and repeatability of earnings: reported first-half net income contrasts with a $10.9 million adjusted operating loss and includes the one-time agency-sale gain.
- Track reserve adequacy and subsequent claims development, particularly the $12.0 million first-half adverse development concentrated in commercial lines.
- Monitor whether the agency-sale notes are collected as scheduled and the effect of the divestiture on agency revenue and business production.
- Confirm the accounting recognition and cash-flow effects of the SBA’s July 2021 PPP forgiveness.
- Review liquidity, restricted trust assets, debt maturities and covenant compliance, and statutory capital at the insurance subsidiaries.