Presurance Holdings, Inc. annual report, FY2019

Business context and reporting period

The filing is Conifer Holdings, Inc.’s Form 10-K for the fiscal year ended December 31, 2019; the supplied company metadata says “Presurance Holdings, Inc.,” which does not match the registrant named in the filing. Conifer is a property-and-casualty insurance holding company focused on specialty commercial and personal lines, plus a wholesale agency business.

This is an annual report, not a standalone fourth-quarter filing. The unaudited quarterly data show Q4 2019 net loss of $3.0 million, or $0.32 per share, and a 112.9% combined ratio.

Financial performance and position

The combined ratio remained above 100%, indicating an underwriting loss. Net losses and loss-adjustment expenses were $59.7 million, including $10.6 million of adverse prior-year reserve development. Net investment income increased 20.8% to $4.0 million; realized investment gains were $1.2 million. Interest expense rose 9.0% to $2.9 million.

At year-end, total assets were $247.3 million, including $169.7 million of investments and $7.5 million of cash. The company separately reported $38.9 million in cash, cash equivalents and short-term investments. Total liabilities were $204.5 million, debt was $35.8 million, and shareholders’ equity was $42.7 million. Statutory capital and surplus was $59.6 million, and the insurer subsidiaries exceeded regulatory risk-based capital intervention thresholds. Their reported RBC ratios were 359% for CIC and 545% for WPIC.

Material changes versus the prior comparable period

• Gross written premiums declined 2.4%; commercial premiums fell 3.4%, while personal premiums rose 11.8%. Hospitality premiums decreased $6.6 million, partly offset by $3.3 million growth in small-business programs.
• Net earned premiums declined 5.0%. The expense ratio improved to 44.0% from 45.9%, but the loss ratio edged up to 66.8% from 66.4%.
• Net loss narrowed by $1.4 million, but adjusted operating loss widened substantially. The 2019 GAAP result included recognition of the remaining $5.7 million deferred gain under the adverse development cover (ADC), which was fully utilized during 2019.
• Operating cash flow swung to positive $15.4 million, largely due to increased receipts from reinsurers, including $12.5 million from the ADC. Investing activities used $25.0 million.
• Debt increased to $35.8 million from $33.5 million, including a $2.0 million line-of-credit draw. The company issued $5.0 million of common stock in a private placement to board members and repurchased approximately $0.6 million of stock.

Outlook, commentary, risks and unusual items

Management describes a continued shift toward core commercial markets and low-value dwelling products, while reducing Florida homeowners and other wind-exposed exposure. It also cites expansion of its wholesale agency business and says existing liquidity and investment balances should meet near- and long-term needs. No quantified earnings or premium guidance is provided.

Key risks include reserve uncertainty and adverse development, pricing and underwriting performance, catastrophe losses, reinsurance availability and recoverability, agent concentration, investment and interest-rate risk, regulatory limits on subsidiary dividends, and debt service and covenant requirements. The company reported $25.3 million of senior notes at 6.75% due in 2023, $10.5 million of subordinated notes bearing 7.5% through September 2023 and 12.5% thereafter, and $2.0 million outstanding on its credit line. It reported compliance with debt covenants at year-end. No subsidiary dividends were paid to the parent in 2019, although the parent-only statements record $1.5 million in subsidiary dividends received; the filing’s disclosures should be reconciled.

Management said pending ordinary-course legal matters were not expected to have a material adverse effect. The auditor gave an unqualified opinion on the consolidated financial statements. Management concluded disclosure controls and internal control over financial reporting were effective; the auditor did not attest to internal control, consistent with the company’s emerging-growth-company status.

Investor verification priorities

• Confirm the issuer identity: the filing is for Conifer Holdings, Inc. (Nasdaq: CNFR), not Presurance Holdings, Inc.
• Review reserve development by line and accident year, particularly 2019 hospitality and personal-lines development, and assess reserve adequacy independently.
• Assess underlying underwriting profitability: the combined ratio was 110.8%, and adjusted operating loss was materially greater than the GAAP net loss.
• Verify the quality and sustainability of operating cash flow, including the impact of ADC recoveries and the ADC’s full utilization.
• Review debt maturities, interest step-ups, call provisions, covenants, and holding-company access to subsidiary cash; reconcile subsidiary dividend disclosures.
• Check catastrophe and reinsurance exposures, including treaty terms and the amount and collectability of reinsurance recoverables.