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Conifer Holdings Reports 2020 Third Quarter Financial Results

Conifer Holdings, Inc.
·15 min read

Company to Host Conference Call at 8:30 AM ET on Thursday, November 12, 2020

BIRMINGHAM, Mich., Nov. 11, 2020 (GLOBE NEWSWIRE) -- Conifer Holdings, Inc. (Nasdaq: CNFR) (“Conifer” or the “Company”) today announced results for the third quarter ended September 30, 2020.

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

  • Gross written premium increased 10.2% to $29.8 million,

  • Commercial Lines gross written premium increased 9.1% to $27.3 million

  • Personal Lines gross written premium increased 23.6% to $2.5 million

  • Commercial Lines combined ratio was 114.2%

  • Personal Lines combined ratio was 68.1%

  • Net income of $0.5 million, or $0.06 per share, based on 9.6 million average shares outstanding

  • Book value per share of $4.40 as of September 30, 2020, compared to $4.51 as of June 30, 2020, and $3.81 at March 31, 2020

Management Comments
James Petcoff, Chairman and CEO, commented, “We were pleased to report double digit growth in the top line during the quarter, largely driven by higher premiums in our core specialty commercial lines of business. Continued growth in our written premiums will drive more efficient scale for our business overall. We continue to see favorable pricing trends in our core markets and feel well positioned for the coming year. Reserve development did impact the Company’s combined ratio for the period. This was partially offset by exceptional performance in our personal lines business and favorable realized investment gains, which led to profitable operations for the period.”

2020 Third Quarter Financial Results Overview

At and for the
Three Months Ended September 30,

At and for the
Nine Months Ended September 30,

2020

2019

% Change

2020

2019

% Change

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

Gross written premiums

$

29,841

$

27,077

10.2%

$

82,470

$

76,462

7.9%

Net written premiums

25,043

23,806

5.2%

69,159

65,562

5.5%

Net earned premiums

22,227

22,775

-2.4%

66,002

65,811

0.3%

Net investment income

776

1,210

-35.9%

2,593

3,171

-18.2%

Net realized investment gains

3,316

390

**

4,489

1,124

**

Change in fair value of equity investments

(356

)

(1,065

)

**

(1,866

)

(715

)

Other gains

-

-

**

260

-

**

Net income (loss)

541

(1,230

)

**

(2,679

)

(4,794

)

**

Net income (loss) per share, diluted

$

0.06

$

(0.13

)

$

(0.28

)

$

(0.55

)

Adjusted operating income (loss)*

(2,419

)

(1,854

)

**

(5,562

)

(11,698

)

**

Adjusted operating income (loss) per share, diluted*

$

(0.24

)

$

(0.18

)

**

$

(0.58

)

$

(1.35

)

**

Book value per common share outstanding

$

4.40

$

4.74

$

4.40

$

4.74

Weighted average shares outstanding, basic and diluted

9,630,600

9,543,535

9,606,436

8,640,409

Underwriting ratios:

Loss ratio (1)

65.2%

64.9%

61.5%

66.1%

Expense ratio (2)

45.5%

44.3%

46.2%

43.9%

Combined ratio (3)

110.7%

109.2%

107.7%

110.0%

* 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 Third Quarter Premiums
Gross Written Premiums
Gross written premiums increased 10.2% in the third quarter of 2020 to $29.8 million, compared to $27.1 million in the prior year period. The increase was largely due to both rate and policy growth across several lines, 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 2.4% to $22.2 million for the third quarter of 2020, compared to $22.8 million for the prior year period. This was mainly due to slightly higher reinsurance costs.

Commercial Lines Financial and Operational Review

Commercial Lines Financial Review

Three Months Ended September 30,

Nine Months Ended September 30,

2020

2019

% Change

2020

2019

% Change

(dollars in thousands)

Gross written premiums

$

27,297

$

25,018

9.1%

$

76,341

$

71,061

7.4%

Net written premiums

22,763

22,095

3.0%

63,827

61,579

3.7%

Net earned premiums

20,586

21,439

-4.0%

61,122

62,291

-1.9%

Underwriting ratios:

Loss ratio

68.8%

62.8%

63.5%

61.8%

Expense ratio

45.4%

43.5%

46.1%

43.2%

Combined ratio

114.2%

106.3%

109.6%

105.0%

Contribution to combined ratio from net

(favorable) adverse prior year development

22.4%

10.7%

18.5%

7.5%

Accident year combined ratio (1)

91.8%

95.6%

91.1%

97.5%

(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% of total gross written premium in the third 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 9.1% in the third quarter of 2020 to $27.3 million, as the Company continues to shift its mix towards more profitable specialty lines.

The Commercial lines combined ratio was 114.2% for the three months ended September 30, 2020, compared to 106.3% in the prior year period, largely due to a 22.4 percentage point contribution to the combined ratio from adverse prior year development. The development was due to higher than anticipated losses, mostly in the hospitality lines in the 2018 and prior accident years.

Commercial lines accident year combined ratio was 91.8% for the quarter.

Personal Lines Financial and Operational Review

Personal Lines Financial Review

Three Months Ended September 30,

Nine Months Ended September 30,

2020

2019

% Change

2020

2019

% Change

(dollars in thousands)

Gross written premiums

$

2,544

$

2,059

23.6%

$

6,129

$

5,401

13.5%

Net written premiums

2,280

1,711

33.3%

5,332

3,983

33.9%

Net earned premiums

1,641

1,336

22.8%

4,880

3,520

38.6%

Underwriting ratios:

Loss ratio

21.3%

97.9%

36.7%

140.1%

Expense ratio

46.8%

56.6%

46.7%

57.0%

Combined ratio

68.1%

154.5%

83.4%

197.1%

Contribution to combined ratio from net

(favorable) adverse prior year development

3.8%

28.7%

2.2%

65.9%

Accident year combined ratio

64.3%

125.8%

81.2%

131.2%

Personal lines, representing 9% of total gross written premium for the third quarter of 2020, consists largely of low-value dwelling homeowner’s insurance.

Personal lines gross written premium increased 23.6% to $2.5 million in the third quarter of 2020 compared to the prior year period, largely due to renewed growth in the Company’s low-value dwelling line of business across several geographic regions.

Personal lines combined ratio was 68.1% for the three months ended September 30, 2020, compared to 154.5% in the prior year period. Personal lines loss ratio improved considerably to 21.3%, compared to 97.9% in the prior year period, largely driven by significantly lower losses from the Florida homeowner’s line of business and favorable performance in the Company’s current lines of business.

The personal lines accident year combined ratio was 64.3% for the quarter.

Combined Ratio Analysis

Three Months Ended
September 30,

Nine Months Ended
September 30,

2020

2019

2020

2019

(dollars in thousands)

Underwriting ratios:

Loss ratio

65.2%

64.9%

61.5%

66.1%

Expense ratio

45.5%

44.3%

46.2%

43.9%

Combined ratio

110.7%

109.2%

107.7%

110.0%

Contribution to combined ratio from net (favorable)

adverse prior year development

21.0%

11.8%

17.3%

10.7%

Accident year combined ratio

89.7%

97.4%

90.4%

99.3%

Combined Ratio
The Company's combined ratio was 110.7% for the quarter ended September 30, 2020, compared to 109.2% for the same period in 2019. The combined ratio was 107.7% for the nine months ended September 30, 2020, compared to 110.0% for the same period in 2019. The Company’s accident year combined ratio for the quarter ended September 30, 2020 was 89.7%, compared to 97.4% in the prior year period.

Loss Ratio:
The Company’s losses and loss adjustment expenses were $14.6 million for the three months ended September 30, 2020, compared to $14.9 million in the prior year period. This resulted in a loss ratio of 65.2%, compared to 64.9% in the prior year period.

Expense Ratio:
The expense ratio was 45.5% for the third quarter of 2020, compared to 44.3% in the prior year period.

Net Investment Income
Net investment income was $0.8 million during the quarter ended September 30, 2020, compared to $1.2 million in the prior year period. Net realized gains during the third quarter were $3.3 million, compared to net realized gain of $0.4 million in the prior year period.

Change in Fair Value of Equity Securities
During the quarter, the Company reported a loss from change in fair value of equity investments of $0.4 million, compared to a loss of $1.1 million in the prior year period.

Net Income (Loss)
In the third quarter of 2020, the Company reported net income of $0.5 million, or $0.06 per share, compared to a net loss of $1.2 million, or $0.13 per share, in the prior year period.

Adjusted Operating Income (Loss)
In the third quarter of 2020, the Company reported adjusted operating loss of $2.4 million, or $0.24 per share, compared to adjusted operating loss of $1.8 million, or $0.18 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 Thursday, November 12, 2020 at 8:30 a.m. ET to discuss results for the third quarter ended September 30, 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 net realized investment gains and losses, after-tax, excluding the tax impact of changes in unrealized gains and losses, 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
September 30,

Nine Months Ended
September 30,

2020

2019

2020

2019

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

Net income (loss)

$

541

$

(1,230

)

$

(2,679

)

$

(4,794

)

Less:

Net realized investment gains and other gains, net of tax

3,316

390

4,749

1,124

Tax effect of investment unrealized gains on investments

-

818

-

818

Change in fair value of equity securities, net of tax

(356

)

(1,065

)

(1,866

)

(715

)

Net decrease (Increase) in deferred gain on losses

ceded to ADC, net of tax

-

481

-

5,677

Adjusted operating income (loss)

$

(2,419

)

$

(1,854

)

$

(5,562

)

$

(11,698

)

Weighted average common shares, diluted

9,630,600

9,543,535

9,606,436

8,640,409

Diluted income (loss) per common share:

Net income (loss)

$

0.06

$

(0.13

)

$

(0.28

)

$

(0.55

)

Less:

Net realized investment gains and other gains, net of tax

0.34

0.04

0.49

0.13

Tax effect of investment unrealized gains on investments

-

0.09

-

0.09

Change in fair value of equity securities, net of tax

(0.04

)

(0.12

)

(0.19

)

(0.08

)

Net decrease (increase) in deferred gain on losses

ceded to ADC, net of tax

-

0.04

-

0.66

Adjusted operating income (loss), per share

$

(0.24

)

$

(0.18

)

$

(0.58

)

$

(1.35

)

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)

September 30,

December 31,

2020

2019

Assets

(Unaudited)

Investment securities:

Debt securities, at fair value (amortized cost of $135,883 and

$

139,441

$

131,000

$129,313, respectively)

Equity securities, at fair value (cost of $17,027 and $6,554, respectively)

15,913

7,306

Short-term investments, at fair value

24,898

31,426

Total investments

180,252

169,732

Cash and cash equivalents

7,550

7,464

Premiums and agents' balances receivable, net

20,137

20,168

Receivable from Affiliate

12

313

Reinsurance recoverables on unpaid losses

18,564

22,579

Reinsurance recoverables on paid losses

3,496

5,155

Prepaid reinsurance premiums

4,543

1,250

Deferred policy acquisition costs

12,277

11,906

Other assets

13,062

8,698

Total assets

$

259,893

$

247,265

Liabilities and Shareholders' Equity

Liabilities:

Unpaid losses and loss adjustment expenses

$

103,684

$

107,246

Unearned premiums

55,089

51,503

Debt

40,920

35,824

Accounts payable and accrued expenses

17,614

9,967

Total liabilities

217,307

204,540

Commitments and contingencies

-

-

Shareholders' equity:

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

9,678,463 and 9,592,861 issued and outstanding, respectively)

92,417

91,816

Accumulated deficit

(52,259

)

(49,580

)

Accumulated other comprehensive income (loss)

2,428

489

Total shareholders' equity

42,586

42,725

Total liabilities and shareholders' equity

$

259,893

$

247,265


Conifer Holdings, Inc. and Subsidiaries

Consolidated Statements of Operations (Unaudited)

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

Three Months Ended

Nine Months Ended

September 30,

September 30,

2020

2019

2020

2019

Revenue

Premiums

Gross earned premiums

$

26,872

$

25,962

$

78,884

$

76,594

Ceded earned premiums

(4,645

)

(3,187

)

(12,882

)

(10,783

)

Net earned premiums

22,227

22,775

66,002

65,811

Net investment income

776

1,210

2,593

3,171

Net realized investment gains

3,316

390

4,489

1,124

Change in fair value of equity securities

(356

)

(1,065

)

(1,866

)

(715

)

Other gains

-

-

260

-

Other income

642

564

2,013

1,567

Total revenue

26,605

23,874

73,491

70,958

Expenses

Losses and loss adjustment expenses, net

14,553

14,857

40,767

43,695

Policy acquisition costs

6,483

6,153

19,181

17,952

Operating expenses

4,537

4,297

14,441

12,960

Interest expense

723

720

2,185

2,155

Total expenses

26,296

26,027

76,574

76,762

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

309

(2,153

)

(3,083

)

(5,804

)

Equity earnings (losses) of Affiliate, net of tax

188

121

417

219

Income tax (benefit) expense

(44

)

(802

)

13

(791

)

Net income (loss)

541

(1,230

)

(2,679

)

(4,794

)

Earnings (loss) per common share,

basic and diluted

$

0.06

$

(0.13

)

$

(0.28

)

$

(0.55

)

Weighted average common shares outstanding,

basic and diluted

9,630,600

9,543,535

9,606,436

8,640,409

For Further Information:
Jessica Gulis, 248.559.0840
ir@cnfrh.com