Press Release

Conifer Holdings Reports 2016 Fourth Quarter and Year End Financial Results

Company to Host Conference Call at 8:30 AM ET on Thursday, March 2, 2017

Company Release - 3/1/2017 4:01 PM ET

BIRMINGHAM, Mich., March 01, 2017 (GLOBE NEWSWIRE) -- Conifer Holdings, Inc. (Nasdaq:CNFR) (“Conifer” or the “Company”) today announced results for the fourth quarter and year ended December 31, 2016.

Fourth Quarter 2016 Highlights (all comparisons to prior year period)

  • Gross written premiums increased 24.0% to $31.3 million
  • Net earned premiums increased 26.9% to $24.5 million
  • Combined ratio was 118.7%, compared to 113.3% in the prior year period and 107.9% in the third quarter of 2016; largely due to reserve strengthening on prior claims
  • Net loss of $4.4 million, or $0.58 per diluted share

Annual 2016 Highlights (all comparisons to prior year)

  • Gross written premiums increased 22.6% to $114.9 million
  • Net earned premiums increased 34.2% to $89.6 million
  • Combined ratio was 112.2% for the year ended December 31, 2016, compared to 102.1% in the prior year
  • Net loss of $8.4 million, or $1.11 per diluted share
  • Book value per share of $8.88 at December 31, 2016, compared to $10.11 at December 31, 2015

Management Comments
James Petcoff, Chairman and CEO, commented, “Largely as a result of the underwriting initiatives we began in the latter half of 2015, Conifer achieved strong top line organic growth throughout 2016 with premiums up roughly 23% on the year. Our growth was led by Conifer’s core commercial insurance products which encompass all major lines of business as we grew our specialty premiums to all 50 states.”

Mr. Petcoff continued, “Throughout 2016, Conifer focused on growing our lines of business that produced the best underwriting results.  Our core commercial lines performed well, with a 98% combined ratio for the year.  However, the overall underwriting performance was affected mainly by unfavorable loss trends in the homeowner’s lines of business in Florida, and much like the P&C industry at large in our commercial auto business.  As a result, Conifer took a conservative approach to reserving in the fourth quarter, which impacted short-term operating results, but positioned the Company for a return to profitability in 2017.  The Company began to benefit from a number of policy adjustments and rate increases implemented in 2016, but understands that the full impact of these positive changes will continue over the next 12 months.”

2016 Fourth Quarter and Year End Financial Results Overview

  At and for the 
Three Months Ended December 31,
 At and for the 
Year Ended December 31,
   2016   2015  % Change  2016   2015  % Change
                       
  (dollars in thousands, except share and per share amounts)
             
Gross written premiums$31,308  $25,245  24.0% $114,923  $93,750  22.6%
Net written premiums 27,069   21,467  26.1%  99,929   79,674  25.4%
Net earned premiums 24,463   19,274  26.9%  89,627   66,765  34.2%
             
Net investment income 548   442  24.0%  2,173   1,902  14.2%
Net realized investment gains 761   47  **   1,365   285  ** 
Other gains (losses) (400)  -  **   (400)  104  ** 
               
Net income (loss) (4,421)  (2,304) **   (8,437)  (17) ** 
Net income (loss) attributable to Conifer (4,421)  (2,304) **   (8,437)  64  ** 
               
Net income (loss) allocable to common shareholders (4,421)  (2,304) **   (8,437)  (476) ** 
 Net income (loss) per share, diluted$(0.58) $(0.30)    $(1.11) $(0.09)   
               
Adjusted operating income allocable to common shareholders* (4,279)  (2,351) **   (9,549)  (865) ** 
 Adjusted operating income (loss) per share, diluted*$(0.56) $(0.31)   $(1.26) $(0.16)  
             
Book value per common share outstanding$8.88  $10.11    $8.88  $10.11   
             
Weighted average shares outstanding, basic and diluted 7,632,390   7,644,492     7,618,588   5,369,960   
             
Underwriting ratios:           
 Loss ratio (1) 73.4%  59.2%    65.0%  56.8%  
 Expense ratio (2) 45.3%  54.1%    47.2%  45.3%  
 Combined ratio (3) 118.7%  113.3%    112.2%  102.1%  
             
* 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 other income.
(2) The expense ratio is the ratio, expressed as a percentage, of policy acquisition costs and operating expenses to net earned premiums and other income.
(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.
             

Fourth Quarter 2016 Premiums
Gross Written Premiums
Gross written premiums increased 24.0% in the fourth quarter of 2016 to $31.3 million, compared to $25.2 million in the prior year period, largely due to strong growth in the Company’s specialty commercial lines business, partially offset by a decline in the growth of the personal lines business as wind-exposed homeowners premiums decreased.

Gross written premiums increased 22.6% for the year ended December 31, 2016 compared to 2015, largely driven by a 29.4% increase in Conifer’s commercial lines business.   

Net Earned Premiums
Net earned premiums increased 26.9% to $24.5 million for the fourth quarter of 2016, compared to $19.3 million for the prior year period. Net earned premiums for the year ended December 31, 2016 increased 34.2%, largely due to the increase in gross written premiums.

Commercial Lines Operational Review

Commercial Lines Financial Review
  Three Months Ended December 31, Year Ended December 31,
   2016   2015  % Change  2016   2015  % Change
                       
  (dollars in thousands)
             
Gross written premiums$25,517  $17,475  46.0% $88,242  $68,197  29.4%
Net written premiums 22,671   14,994  51.2%  78,439   58,157  34.9%
Net earned premiums 19,394   14,808  31.0%  68,921   48,586  41.9%
             
Underwriting ratios:           
 Loss ratio 76.4%  53.2%    61.2%  51.8%  
 Expense ratio 34.2%  39.3%    36.5%  34.0%  
 Combined ratio 110.6%  92.5%    97.7%  85.8%  
             
Contribution to combined ratio from net           
 (favorable) adverse prior year development 19.9%  4.3%    9.8%  0.7%  
             
Accident year combined ratio (1) 90.7%  88.2%    87.9%  85.1%  
             
(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, which represented 82% of total gross written premiums in the fourth quarter of 2016, primarily consists of property, liability, automobile and other miscellaneous coverage offered to owner-operated small and mid-sized businesses, professional organizations and hospitality businesses such as restaurants, bars and taverns.

Commercial lines gross written premiums grew by 46.0% to $25.5 million in the fourth quarter of 2016.  The majority of this growth came largely from expansion in the hospitality and security guard product lines.

For the year ended December 31, 2016, commercial lines gross written premiums grew by 29.4% to $88.2 million.

As a result of the reserve strengthening in the commercial auto line, coupled with increases in operating costs not yet offset by the Company’s continued progression to efficient operating scale, the commercial lines combined ratio was 110.6% in the fourth quarter of 2016 compared to 92.5% in the prior year period.  Excluding the contribution to the combined ratio from prior year adverse development, the accident year combined ratio on commercial lines, for the quarter, was 90.7%.

For the year ended December 31, 2016, commercial lines combined ratio was 97.7%, compared to 85.8% in the prior year.

Personal Lines Operational Review

             
Personal Lines Financial Review
  Three Months Ended December 31, Year Ended December 31,
   2016   2015  % Change  2016   2015  % Change
                       
  (dollars in thousands)
             
Gross written premiums$5,789  $7,770  -25.5% $26,681  $25,553  4.4%
Net written premiums 4,397   6,473  -32.1%  21,490   21,517  -0.1%
Net earned premiums 5,096   4,466  14.1%  20,706   18,179  13.9%
             
Underwriting ratios:           
 Loss ratio 62.7%  78.8%    77.9%  70.5%  
 Expense ratio 50.4%  65.4%    45.3%  40.4%  
 Combined ratio 113.1%  144.2%    123.2%  110.9%  
             
Contribution to combined ratio from net           
 (favorable) adverse prior year development 12.5%  15.1%    16.1%  5.9%  
             
Accident year combined ratio 100.6%  129.1%    107.1%  105.0%  
             

Personal lines, which consist of low-value dwelling and wind-exposed homeowners insurance, represented 18% of total gross written premiums for the fourth quarter of 2016.  Personal lines gross written premiums decreased 25.5% to $5.8 million in the fourth quarter of 2016 compared to the prior year period.  This was mainly due to a 42.9% decline in wind-exposed homeowners premiums due to the exiting of one Texas program and a reduction in Florida homeowners premiums.  Conifer’s low-value dwelling and other wind-exposed homeowners products grew by 23.4% during the fourth quarter of 2016.

For the year ended December 31, 2016, personal lines gross written premiums increased 4.4% from the prior year.  This was largely driven by a 38.2% increase in the Company’s low-value dwelling programs, partially offset by lower premiums in the wind-exposed homeowners programs.

During the fourth quarter of 2016, the Company increased its reserves in its Florida homeowners business, which contributed to a personal lines loss ratio for the quarter of 62.7%.  The Company has reduced exposure, ceased seeking additional growth in this market and has begun to examine potential strategic options for the Florida homeowners business. 

The Company’s personal lines expense ratio has continued to improve throughout the year, as the corresponding higher gross written premiums have begun to balance additional expenses related to the expansion of its underwriting teams in the second half of 2015.  The Company expects to see consistent declines in the coming year due to the infrastructure investments already in place.  The Company reported a quarter to date combined ratio in personal lines of 113.1%, compared to 144.2% in the prior year period.  For the year ended December 31, 2016, the Company’s personal lines combined ratio was 123.2%, compared to 110.9% in the prior year.

Combined Ratio Analysis

  Three Months Ended
December 31,
 Year Ended
December 31,
  2016 2015 2016 2015
             
  (dollars in thousands)
         
Underwriting ratios:       
 Loss ratio73.4% 59.2% 65.0% 56.8%
 Expense ratio45.3% 54.1% 47.2% 45.3%
 Combined ratio118.7% 113.3% 112.2% 102.1%
         
Contribution to combined ratio from net (favorable)       
 adverse prior year development18.3% 6.9% 11.3% 2.1%
         
Accident year combined ratio100.4% 106.4% 100.9% 100.0%
         

Combined Ratio
The Company's combined ratio was 118.7% for the three months ended December 31, 2016, compared to 113.3% for the same period in 2015, and 112.2% for the year ended December 31, 2016 compared to 102.1% in the prior year. 

Excluding additional reserve strengthening, the quarter to date accident year combined ratio was 100.4%, compared to 106.4% in the prior year period.  For the year ended December 31, 2016, the accident year combined ratio was 100.9%, compared to 100.0% in the prior year. 

  • Loss Ratio: The Company's loss ratio was impacted by increased reserves in the Florida homeowners, commercial auto and other commercial liability lines of business.  The Company continues to tighten underwriting guidelines, increase rates, and selectively write in the most profitable geographies, particularly in commercial auto.  For the fourth quarter of 2016, the Company’s loss ratio was 73.4%, compared to 59.2% in the prior year period.  For the year, the Company’s loss ratio was 65.0% compared to 56.8% the prior year. 
  • Expense Ratio: The expense ratio was 45.3% for the fourth quarter of 2016, compared to 54.1% in the prior year period, marking the fourth consecutive quarter over quarter improvement as the Company began to leverage the infrastructure investments necessary to support the Company’s continued growth rate.  The 2016 fourth quarter expense ratio resulted in a 1.0 percentage point improvement from the 46.3% expense ratio reported for the third quarter of 2016.  The Company believes this ratio will continue to decline over time as the Company grows to efficient operating scale.
  • For the year ended December 31, 2016, the Company’s expense ratio was 47.2% compared to 45.3% (inclusive of quota-share impact ) in the prior year. 

The table below details the impact of the reserve strengthening on the Company’s loss ratio:

  Three Months Ended
December 31,
 Year Ended
December 31,
  2016 2015  2016 2015
              
Loss ratio73.4% 59.2%  65.0% 56.8%
          
Less loss ratio impact from:        
 Florida homeowners reserve strengthening1.2% 0.0%  2.9% 0.0%
 Commercial automobile reserve strengthening2.5% 0.7%  2.9% 1.2%
 Commercial liability reserve development14.9% 2.4%  4.0% 0.0%
 Personal automobile; in run-off1.0% 3.4%  0.8% 1.7%
 Other net reserve (favorable) development-1.3% 0.2%  0.7% -0.7%
          
Accident year loss ratio55.1% 52.3%  53.7% 54.7%
          

Net Income (Loss) Allocable to Common Shareholders
In the fourth quarter of 2016, the Company reported a net loss of $4.4 million, or $0.58 per diluted share based on 7.6 million weighted average common diluted shares outstanding, compared to net loss of $2.3 million, or $0.30 per diluted share, based on 7.6 million weighted average common diluted shares outstanding in the prior year period.

For the year ended December 31, 2016, the Company reported a net loss of $8.4 million, or $1.11 per diluted share based on 7.6 million weighted average common diluted shares outstanding, compared to net loss of $476,000, or $0.09 per diluted share, based on 5.4 million weighted average common diluted shares outstanding in the prior year period.

Adjusted Operating Income (Loss)
The Company defines adjusted operating income (loss), a non-GAAP measure, as net income (loss) allocable to common shareholders excluding net realized investment gains and losses, and other gains and losses, after tax.  In the fourth quarter of 2016, the Company reported an adjusted operating loss of $4.3 million, or $0.56 per share, compared to adjusted operating loss of $2.4 million, or $0.31 per share, for the same period in 2015. 

For the year ended December 31, 2016, the Company reported an adjusted operating loss of $9.6 million, or $1.26 per share, compared to an adjusted operating loss of $865,000, or $0.16 per share, in the prior year.

Balance Sheet/Investment Overview

  December 31, December 31,
  2016 2015
       
   (Unaudited)
  (dollars in thousands)
Cash and invested assets $141,023 $130,427
Reinsurance recoverables on paid and unpaid losses  7,498  7,044
Goodwill and intangible assets  1,007  1,427
Total assets  203,701  177,927
     
Unpaid losses and loss adjustment expenses  54,651  35,422
Unearned premiums  58,126  47,916
Senior debt  17,750  12,750
Total liabilities  135,907  100,665
     
Total shareholders' equity  67,794  77,262
     
Net written premium-to-statutory capital and surplus ratio  1.6  1.1
     
Debt-to-total capitalization ratio  0.2  0.1
     
Average tax-equivalent book yield  2.2  2.1
Average fixed maturity duration  3.2  3.1
     

The Company maintains a prudent investment approach with 97% of the portfolio invested in fixed-income securities (with an average credit quality of AA) and short-term investments.  Only 3% of the portfolio is invested in equities.

Outlook for 2017
Mr. Petcoff concluded, “Our goal for 2017 is to build upon the growth in gross written premiums in core markets where Conifer’s underwriting teams have historically produced favorable underwriting results.  The shift in strategy regarding the Florida homeowners business created challenges throughout 2016 in the form of adverse development and an elevated expense ratio due to an infrastructure build out in advance of premiums that ultimately were not in the best interest of our Company or its shareholders.  We have identified and isolated any problematic lines and our entire team has worked diligently to better position the Company for sustained, profitable growth in 2017.”

Earnings Conference Call
The Company will hold a conference call/webcast on Thursday, March 2, 2017 at 8:30 a.m. ET to discuss results for the fourth quarter and year ended December 31, 2016.  

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 formed in 2009.  Through its subsidiaries, Conifer offers insurance coverage in both specialty commercial and specialty personal product lines marketing through independent agents in all 50 states.  The Company completed its initial public offering in August 2015 and is traded on the Nasdaq Global Market (Nasdaq:CNFR).  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) allocable to common shareholders excluding net realized investment gains and losses, and other gains and losses, after-tax.  We use adjusting 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,
   2016   2015   2016   2015 
                 
  (dollar in thousands, except share and per share amounts)
        
Net income (loss) allocable to common shareholders$(4,421) $(2,304) $(8,437) $(476)
Net realized gains and other gains (losses), net of tax 508   47   1,112   389 
Tax effect of investment unrealized gains and losses (650)  -   -   - 
Adjusted operating income (loss) allocable to       
 common shareholders$(4,279) $(2,351) $(9,549) $(865)
         
Weighted average common shares, diluted 7,632,390   7,644,492   7,618,588   5,369,960 
         
Diluted income (loss) per common share:       
 Net income (loss) allocable to common shareholders, per share$(0.58) $(0.30) $(1.11) $(0.09)
 Net realized gains and other gains (losses), net of tax, per share 0.07   0.01   0.15   0.07 
 Tax effect of investment unrealized gains and losses, per share (0.09)  -   -   - 
 Adjusted operating income (loss) allocable to common shareholders, per share$(0.56) $(0.31) $(1.26) $(0.16)
         

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 15, 2016 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
(In thousands, except share data)
        
     December 31, December 31,
      2016   2015 
Assets  (Unaudited)  
Investment securities:    
 Fixed maturity securities, at fair value (amortized cost of $113,915 and $113,163  $107,093 
  $107,213, respectively)    
 Equity securities, at fair value (cost of $4,283 and $3,341, respectively) $4,579   4,240 
 Short-term investments, at fair value  10,788   6,391 
  Total investments  128,530   117,724 
        
Cash
  12,493   12,703 
Premiums and agents' balances receivable, net  24,538   18,010 
Receivable from affiliate  1,751   1,792 
Reinsurance recoverables on unpaid losses  6,658   5,405 
Reinsurance recoverables on paid losses  840   1,639 
Ceded unearned premiums  4,120   3,483 
Deferred policy acquisition costs  13,290   12,102 
Other assets  11,481   5,069 
   Total assets $203,701  $177,927 
        
Liabilities and Shareholders' Equity    
Liabilities:    
 Unpaid losses and loss adjustment expenses $54,651  $35,422 
 Unearned premiums  58,126   47,916 
 Reinsurance premiums payable  -   1,069 
 Senior debt  17,750   12,750 
 Accounts payable and accrued expenses  4,879   2,758 
 Other liabilities  501   750 
   Total liabilities  135,907   100,665 
        
Commitments and contingencies  -   - 
        
Shareholders' equity:    
 Common stock, no par value (100,000,000 shares authorized;    
  7,633,070 and 7,644,492 issued and outstanding, respectively)  80,342   80,111 
 Accumulated deficit  (11,468)  (3,031)
 Accumulated other comprehensive (loss) income  (1,080)  182 
  Total shareholders' equity   67,794   77,262 
   Total liabilities and shareholders' equity $203,701  $177,927 
        

 

Conifer Holdings, Inc. and Subsidiaries
Consolidated Statements of Operations (Unaudited) 
(In thousands, except share and per share data)
           
    Three Months Ended Year Ended
    December 31, December 31,
     2016   2015   2016   2015  
           
Revenue       
 Premiums       
  Gross earned premiums$28,656  $23,013  $104,713  $89,216 
  Ceded earned premiums (4,193)  (3,739)  (15,086)  (22,451)
   Net earned premiums 24,463   19,274   89,627   66,765 
 Net investment income 548   442   2,173   1,902 
 Net realized investment gains 761   47   1,365   285 
 Other gains (losses) (400)  -   (400)  104 
 Other income 287   175   1,118   1,667 
   Total revenue 25,659   19,938   93,883   70,723 
           
Expenses       
 Losses and loss adjustment expenses, net 18,181   11,523   59,003   38,882 
 Policy acquisition costs 6,997   6,344   25,280   16,183 
 Operating expenses 4,211   4,170   17,596   14,806 
 Interest expense 179   105   647   769 
   Total expenses 29,568   22,142   102,526   70,640 
           
Income (loss) before equity earnings and income taxes (3,909)  (2,204)  (8,643)  83 
 Equity earnings (losses) of affiliates, net of tax 18   (52)  129   (52)
 Income tax (benefit) expense 530   48   (77)  48 
           
Net income (loss) (4,421)  (2,304)  (8,437)  (17)
 Less net (loss) income attributable to noncontrolling interest -   -   -   (81)
Net income (loss) attributable to Conifer$(4,421) $(2,304) $(8,437) $64 
           
Net income (loss) allocable to common shareholders$(4,421) $(2,304) $(8,437) $(476)
           
Earnings (loss) per common share,       
  basic and diluted$(0.58) $(0.30) $(1.11) $(0.09)
           
Weighted average common shares outstanding,       
  basic and diluted 7,632,390   7,644,492   7,618,588   5,369,960 
           
For Further Information:
Sarah Miller, 248.559.0840
ir@cnfrh.com

Source: Conifer Holdings Inc.