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Conifer Holdings Reports 2020 Fourth Quarter and Year End Financial Results

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Conifer Holdings, Inc.
·16 min read
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Company to Host Conference Call at 8:30 AM ET on Wednesday, February 24, 2021

BIRMINGHAM, Mich., Feb. 23, 2021 (GLOBE NEWSWIRE) -- Conifer Holdings, Inc. (Nasdaq: CNFR) (“Conifer” or the “Company”) today announced results for the fourth quarter and year ended December 31, 2020.

Fourth Quarter 2020 Financial Highlights (compared to the prior year period)

  • Gross written premium increased 13.7% to $28.9 million

  • Commercial Lines gross written premium increased 13.3% to $26.4 million

  • Personal Lines gross written premium increased 18.5% to $2.4 million

  • Net income of $3.3 million, or $0.34 per share, based on 9.7 million average shares outstanding

Year End 2020 Financial Highlights (compared to the prior year period)

  • Gross written premium increased 9.3% to $111.3 million

  • Net income of $595,000, or $0.06 per share, based on 9.6 million average shares outstanding

  • Book value per share of $4.59 as of December 31, 2020

Management Comments
James Petcoff, Chairman and CEO, commented, “Despite the pandemic-driven unpredictability in 2020, we were able to close out the year on a positive note, growing gross written premiums by 9% for the year and just under 14% for the fourth quarter. This growth was achieved through a balanced mix of rate and market share expansion in both the commercial and personal lines segments. Overall, our book value improved year over year to $4.59 at December 31, 2020.”

2020 Fourth Quarter Financial Results Overview

At and for the Three Months Ended December 31,

At and for the Year Ended December 31,

2020

2019

% Change

2020

2019

% Change

(dollars in thousands, except share and per share amounts)

Gross written premiums

$

28,865

$

25,391

13.7

%

$

111,335

$

101,853

9.3

%

Net written premiums

23,781

22,162

7.3

%

92,940

87,724

5.9

%

Net earned premiums

23,101

23,278

-0.8

%

89,103

89,089

0.0

%

Net investment income

563

860

-34.5

%

3,156

4,031

-21.7

%

Net realized investment gains

3,637

72

**

8,126

1,196

**

Change in fair value of equity investments

2,094

288

**

228

(427

)

Other gains

-

-

**

260

-

**

Net income (loss)

3,274

(3,028

)

**

595

(7,822

)

**

Net income (loss) per share, diluted

$

0.34

$

(0.32

)

$

0.06

$

(0.88

)

Adjusted operating income (loss)*

(2,457

)

(3,394

)

**

(8,019

)

(15,092

)

**

Adjusted operating income (loss) per share, diluted*

$

(0.26

)

$

(0.35

)

**

$

(0.83

)

$

(1.69

)

**

Book value per common share outstanding

$

4.59

$

4.45

$

4.59

$

4.45

Weighted average shares outstanding, basic and diluted

9,680,521

9,591,387

9,625,059

8,880,107

Underwriting ratios:

Loss ratio (1)

66.7

%

68.6

%

62.8

%

66.8

%

Expense ratio (2)

43.9

%

44.3

%

45.6

%

44.0

%

Combined ratio (3)

110.6

%

112.9

%

108.4

%

110.8

%

* The "Definitions of Non-GAAP Measures" section of this release defines and reconciles data that are not based on generally accepted accounting principles.

** Percentage is not meaningful

(1) The loss ratio is the ratio, expressed as a percentage, of net losses and loss adjustment expenses to net earned premiums and income from underwriting operations.

(2) The expense ratio is the ratio, expressed as a percentage, of policy acquisition costs and other underwriting expenses to net earned premiums and other income from underwriting operations.

(3) The combined ratio is the sum of the loss ratio and the expense ratio. A combined ratio under 100% indicates an underwriting profit. A combined ratio over 100% indicates an underwriting loss.

2020 Fourth Quarter Premiums
Gross Written Premiums
Gross written premiums increased 13.7% in the fourth quarter of 2020 to $28.9 million, compared to $25.4 million in the prior year period. The increase was achieved through a combination of rate increases and growth of policies-in-force, specifically in the Company’s specialty commercial markets. The overall premium increase was supplemented by continued growth in the Company’s personal lines, driven by its low-value dwelling line of business.

Net Earned Premiums
Net earned premiums decreased 0.8% to $23.1 million for the fourth quarter of 2020, compared to $23.3 million for the prior year period. This was mainly due to slightly higher reinsurance costs. The Company expects net earned premiums to increase throughout 2021 as the growth in gross written premiums achieved in the second half of 2020 are earned ratably in the coming year.

Commercial Lines Financial and Operational Review

Commercial Lines Financial Review

Three Months Ended December 31,

Year Ended December 31,

2020

2019

% Change

2020

2019

% Change

(dollars in thousands)

Gross written premiums

$

26,422

$

23,330

13.3

%

$

102,763

$

94,391

8.9

%

Net written premiums

21,558

20,387

5.7

%

85,385

81,966

4.2

%

Net earned premiums

21,287

21,567

-1.3

%

82,409

83,858

-1.7

%

Underwriting ratios:

Loss ratio

67.2

%

67.7

%

64.4

%

63.3

%

Expense ratio

44.1

%

43.6

%

45.6

%

43.3

%

Combined ratio

111.3

%

111.3

%

110.0

%

106.6

%

Contribution to combined ratio from net

(favorable) adverse prior year development

18.1

%

13.3

%

18.4

%

9.0

%

Accident year combined ratio (1)

93.2

%

98.0

%

91.6

%

97.6

%

(1) The accident year combined ratio is the sum of the loss ratio and the expense ratio, less changes in net ultimate loss estimates from prior accident year loss reserves. The accident year combined ratio provides management with an assessment of the specific policy year's profitability and assists management in their evaluation of product pricing levels and quality of business written.

The Company’s commercial lines of business, representing 91.5% of total gross written premium in the fourth quarter of 2020, primarily consists of property and liability coverage offered to owner-operated small- to mid-sized businesses.

Commercial lines gross written premium increased 13.3% in the fourth quarter of 2020 to $26.4 million, as the Company continues to shift its mix towards more profitable specialty lines.

The Commercial lines combined ratio was 111.3% for the three months ended December 31, 2020, compared to 111.3% in the prior year period. The loss ratio was 67.2% for the three months ended December 31, 2020, compared with 67.7% in the prior year period while the expense ratio was 44.1% in the current year period, compared with 43.6% during the prior year period.

Commercial lines accident year combined ratio was 93.2% for the quarter.

Personal Lines Financial and Operational Review

Personal Lines Financial Review

Three Months Ended December 31,

Year Ended December 31,

2020

2019

% Change

2020

2019

% Change

(dollars in thousands)

Gross written premiums

$

2,443

$

2,061

18.5

%

$

8,572

$

7,462

14.9

%

Net written premiums

2,223

1,775

25.2

%

7,555

5,758

31.2

%

Net earned premiums

1,814

1,711

6.0

%

6,694

5,231

28.0

%

Underwriting ratios:

Loss ratio

61.0

%

80.5

%

43.3

%

120.7

%

Expense ratio

42.3

%

52.0

%

45.5

%

55.4

%

Combined ratio

103.3

%

132.5

%

88.8

%

176.1

%

Contribution to combined ratio from net

(favorable) adverse prior year development

13.2

%

34.0

%

5.1

%

55.5

%

Accident year combined ratio

90.1

%

98.5

%

83.7

%

120.6

%

Personal lines, representing 8.5% of total gross written premium for the fourth quarter of 2020, consists largely of low-value dwelling homeowner’s insurance.

Personal lines gross written premium increased 18.5% to $2.4 million in the fourth quarter of 2020 compared to the prior year period, led by growth in the Company’s low-value dwelling line of business in Texas.

Personal lines combined ratio was 103.3% for the three months ended December 31, 2020, compared to 132.5% in the prior year period. Personal lines loss ratio improved considerably to 61.0%, compared to 80.5% in the prior year period, largely driven by significantly lower losses from the low-value dwelling line of business.

For the full year 2020, the personal lines combined ratio was 88.8% compared to 176.1% in the prior year period.

The personal lines accident year combined ratio was 90.1% for the quarter.

Combined Ratio Analysis

Three Months Ended December 31,

Year Ended December 31,

2020

2019

2020

2019

(dollars in thousands)

Underwriting ratios:

Loss ratio

66.7

%

68.6

%

62.8

%

66.8

%

Expense ratio

43.9

%

44.3

%

45.6

%

44.0

%

Combined ratio

110.6

%

112.9

%

108.4

%

110.8

%

Contribution to combined ratio from net (favorable)

adverse prior year development

17.7

%

14.8

%

17.4

%

11.8

%

Accident year combined ratio

92.9

%

98.1

%

91.0

%

99.0

%

Combined Ratio
The Company's combined ratio was 110.6% for the quarter ended December 31, 2020, compared to 112.9% for the same period in 2019. The combined ratio was 108.4% for the twelve months ended December 31, 2020, compared to 110.8% for the same period in 2019. The Company’s accident year combined ratio for the quarter ended December 31, 2020 was 92.9%, compared to 98.1% in the prior year period.

Loss Ratio:
The Company’s losses and loss adjustment expenses were $15.5 million for the three months ended December 31, 2020, compared to $16.0 million in the prior year period. This resulted in a loss ratio of 66.7%, compared to 68.6% in the prior year period.

Expense Ratio:
The expense ratio was 43.9% for the fourth quarter of 2020, compared to 44.3% in the prior year period.

Net Investment Income
Net investment income was $563,000 during the quarter ended December 31, 2020, compared to $860,000 in the prior year period. Net realized investment gains during the fourth quarter were $3.6 million, compared to net realized investment gains of $72,000 in the prior year period.

Change in Fair Value of Equity Securities
During the quarter, the Company reported a gain from the change in fair value of equity investments of $2.1 million, compared to a gain of $288,000 in the prior year period.

Net Income (Loss)
In the fourth quarter of 2020, the Company reported net income of $3.3 million, or $0.34 per share, compared to a net loss of $3.0 million, or $0.32 per share, in the prior year period.

Adjusted Operating Income (Loss)
In the fourth quarter of 2020, the Company reported an adjusted operating loss of $2.5 million, or $0.26 per share, compared to an adjusted operating loss of $3.4 million, or $0.35 per share, for the same period in 2019. See Definitions of Non-GAAP Measures.

Earnings Conference Call with Accompanying Slide Presentation
The Company will hold a conference call/webcast on Wednesday, February 24, 2021 at 8:30 a.m. ET to discuss results for the fourth quarter and year ended December 31, 2020.

Investors, analysts, employees and the general public are invited to listen to the conference call via:

Webcast: On the Event Calendar at IR.CNFRH.com
Conference Call: 844-868-8843 (domestic) or 412-317-6589 (international)

The webcast will be archived on the Conifer Holdings website and available for replay for at least one year.

About the Company
Conifer Holdings, Inc. is a Michigan-based insurance holding company. Through its operating subsidiaries, Conifer offers customized coverage solutions tailored to the needs of our specialty niche insureds. Across all 50 states, we utilize a multi-channel distribution approach, but largely market through independent agents. Conifer is traded on the Nasdaq Global Market (Nasdaq: CNFR), and additional information is available on the Company’s website at www.CNFRH.com.

Definitions of Non-GAAP Measures
Conifer prepares its public financial statements in conformity with accounting principles generally accepted in the United States of America (GAAP). Statutory data is prepared in accordance with statutory accounting rules as defined by the National Association of Insurance Commissioners' (NAIC) Accounting Practices and Procedures Manual, and therefore is not reconciled to GAAP data.

We believe that investors’ understanding of Conifer’s performance is enhanced by our disclosure of adjusted operating income. Our method for calculating this measure may differ from that used by other companies and therefore comparability may be limited. We define adjusted operating income (loss), a non-GAAP measure, as net income (loss) excluding after-tax net realized investment gains and losses, excluding the tax effect of changes in unrealized gains and losses, excluding the after-tax change in fair value of equity securities, and including the net change in deferred gain on losses ceded to the Adverse Development Cover (ADC). We use adjusted operating income as an internal performance measure in the management of our operations because we believe it gives our management and other users of our financial information useful insight into our results of operations and our underlying business performance.

Reconciliations of adjusted operating income and adjusted operating income per share:

Three Months Ended December 31,

Year Ended December 31,

2020

2019

2020

2019

(dollar in thousands, except share and per share amounts)

Net income (loss)

$

3,274

$

(3,028

)

$

595

$

(7,822

)

Less:

Net realized investment gains and other gains, net of tax

3,637

72

8,386

1,196

Tax effect of unrealized gains and losses on investments

-

6

-

824

Change in fair value of equity securities, net of tax

2,094

288

228

(427

)

Net (increase) decrease in deferred gain on losses

ceded to ADC, net of tax

-

-

-

5,677

Adjusted operating income (loss)

$

(2,457

)

$

(3,394

)

$

(8,019

)

$

(15,092

)

Weighted average common shares, diluted

9,680,521

9,591,387

9,625,059

8,880,107

Diluted income (loss) per common share:

Net income (loss)

$

0.34

$

(0.32

)

$

0.06

$

(0.88

)

Less:

Net realized investment gains and other gains, net of tax

0.38

-

0.87

0.13

Tax effect of unrealized gains and losses on investments

-

-

-

0.09

Change in fair value of equity securities, net of tax

0.22

0.03

0.02

(0.05

)

Net (increase) decrease in deferred gain on losses

ceded to ADC, net of tax

-

-

-

0.64

Adjusted operating income (loss), per share

$

(0.26

)

$

(0.35

)

$

(0.83

)

$

(1.69

)

Forward-Looking Statement

This press release contains forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements give current expectations or forecasts of future events or our future financial or operating performance, and include Conifer’s expectations regarding premiums, earnings, its capital position, expansion, and growth strategies. The forward-looking statements contained in this press release are based on management’s good-faith belief and reasonable judgment based on current information. The forward-looking statements are qualified by important factors, risks and uncertainties, many of which are beyond our control, that could cause our actual results to differ materially from those in the forward-looking statements, including those described in our form 10-K (“Item 1A Risk Factors”) filed with the SEC on March 12, 2020 and subsequent reports filed with or furnished to the SEC. Any forward-looking statement made by us in this report speaks only as of the date hereof or as of the date specified herein. We undertake no obligation to publicly update any forward-looking statement, whether as a result of new information, future developments or otherwise, except as may be required by any applicable laws or regulations.

Conifer Holdings, Inc. and Subsidiaries

Consolidated Balance Sheets

(dollars in thousands)

December 31,

December 31,

2020

2019

Assets

(Unaudited)

Investment securities:

Debt securities, at fair value (amortized cost of $149,954 and

$

151,999

$

131,000

$129,313, respectively)

Equity securities, at fair value (cost of $16,912 and $6,554, respectively)

17,891

7,306

Short-term investments, at fair value

13,317

31,426

Total investments

183,207

169,732

Cash and cash equivalents

8,193

7,464

Premiums and agents' balances receivable, net

20,162

20,168

Receivable from Affiliate

8

313

Reinsurance recoverables on unpaid losses

24,218

22,579

Reinsurance recoverables on paid losses

2,138

5,155

Prepaid reinsurance premiums

1,316

1,250

Deferred policy acquisition costs

12,243

11,906

Other assets

10,112

8,698

Total assets

$

261,597

$

247,265

Liabilities and Shareholders' Equity

Liabilities:

Unpaid losses and loss adjustment expenses

$

111,270

$

107,246

Unearned premiums

56,224

51,503

Debt

40,997

35,824

Accounts payable and accrued expenses

8,693

9,967

Total liabilities

217,184

204,540

Commitments and contingencies

-

-

Shareholders' equity:

Common stock, no par value (100,000,000 shares authorized;

9,681,728 and 9,592,861 issued and outstanding, respectively)

92,486

91,816

Accumulated deficit

(48,985

)

(49,580

)

Accumulated other comprehensive income (loss)

912

489

Total shareholders' equity

44,413

42,725

Total liabilities and shareholders' equity

$

261,597

$

247,265



Conifer Holdings, Inc. and Subsidiaries

Consolidated Statements of Operations (Unaudited)

(dollars in thousands, except share and per share data)

Three Months Ended

Year Ended

December 31,

December 31,

2020

2019

2020

2019

Revenue

Premiums

Gross earned premiums

$

27,730

$

26,609

$

106,614

$

103,203

Ceded earned premiums

(4,629

)

(3,331

)

(17,511

)

(14,114

)

Net earned premiums

23,101

23,278

89,103

89,089

Net investment income

563

860

3,156

4,031

Net realized investment gains

3,637

72

8,126

1,196

Change in fair value of equity securities

2,094

288

228

(427

)

Other gains

-

-

260

-

Other income

602

542

2,615

2,109

Total revenue

29,997

25,040

103,488

95,998

Expenses

Losses and loss adjustment expenses, net

15,461

16,049

56,228

59,744

Policy acquisition costs

6,924

6,959

26,105

24,911

Operating expenses

4,027

4,622

18,468

17,582

Interest expense

740

727

2,925

2,882

Total expenses

27,152

28,357

103,726

105,119

Income (loss) before equity earnings in Affiliate and income taxes

2,845

(3,317

)

(238

)

(9,121

)

Equity earnings in Affiliate, net of tax

422

167

839

386

Income tax (benefit) expense

(7

)

(122

)

6

(913

)

Net income (loss)

3,274

(3,028

)

595

(7,822

)

Earnings (loss) per common share,

basic and diluted

$

0.34

$

(0.32

)

$

0.06

$

(0.88

)

Weighted average common shares outstanding,

basic and diluted

9,680,521

9,591,387

9,625,059

8,880,107

For Further Information:

Jessica Gulis, 248.559.0840
ir@cnfrh.com