Press Release

Conifer Holdings Reports 2018 First Quarter Financial Results Highlighted by Significantly Improved Combined Ratio

Company to Host Conference Call at 8:30 AM ET on Thursday, May 10, 2018

Company Release - 5/9/2018 4:01 PM ET

BIRMINGHAM, Mich., May 09, 2018 (GLOBE NEWSWIRE) -- Conifer Holdings, Inc. (Nasdaq:CNFR) (“Conifer” or the “Company”) today announced results for the first quarter ended March 31, 2018.

First Quarter 2018 Financial Highlights (all comparisons to prior year period)

  • Commercial lines net earned premiums increased by 2.2% in the first quarter
  • Personal lines net earned premiums decreased 17.5% for the same period
  • Loss ratio improved to 55.2% from 64.2%;
  • Expense ratio improved to 44.3% from 44.9%
  • Combined ratio was 99.5% for the period, compared to 109.1% in the prior year period
  • Net income of $213,000, or $0.02 per diluted share based on 8.5 million weighted average common diluted shares outstanding

Management Comments
James Petcoff, Chairman and CEO, commented, “We reported another profitable quarter marked by on-going improvements in our overall underwriting performance. We continue to reposition select personal lines that are not consistent with our long-term goals, and to concentrate our efforts on our best performing lines.”

2018 First Quarter Financial Results Overview

    
   At and for the  Three Months Ended March 31,
   2018 2017 % Change
             
   (dollars in thousands, except share and per share amounts)
        
 Gross written premiums$  23,737  $  26,474  -10.3%
 Net written premiums   19,845     22,324  -11.1%
 Net earned premiums   23,800     24,140  -1.4%
        
 Net investment income   802     577  39.0%
 Net realized investment gains (losses)   161     (8) ** 
 Change in fair value of equity investments   (297)    -   ** 
         
 Net income (loss)   213     (1,798) ** 
  Net income (loss) per share, diluted$  0.02  $  (0.24)   
         
 Adjusted operating income*   1,780     (1,790) ** 
  Adjusted operating income (loss) per share, diluted*$  0.21  $  (0.24)   
         
 Book value per common share outstanding$  6.04  $  8.72    
        
 Weighted average shares outstanding, basic and diluted   8,520,328     7,633,069   
        
 Underwriting ratios:     
  Loss ratio (1) 55.2%  64.2%  
  Expense ratio (2) 44.3%  44.9%  
  Combined ratio (3) 99.5%  109.1%  
        
 * 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.
        

First Quarter 2018 Premiums

Gross Written Premiums
Gross written premiums decreased 10.3% in the first quarter of 2018 to $23.7 million, compared to $26.5 million in the prior year period.  The decline in gross written premiums was largely attributable to a 59.6% decrease in the Company’s personal lines of business, despite a slight increase in the Company’s commercial lines.  

Net Earned Premiums
Net earned premiums decreased 1.4% to $23.8 million for the first quarter of 2018, compared to $24.1 million for the prior year period.  The decrease is primarily due to the repositioning of its personal lines, offset by the expansion of the Company’s commercial lines, which increased 2.2%. 

Commercial Lines Financial and Operational Review

  
 Commercial Lines Financial Review
   Three Months Ended March 31,
   2018 2017 % Change
             
   (dollars in thousands)
        
 Gross written premiums$  21,788  $  21,644  0.7%
 Net written premiums   19,422     19,479  -0.3%
 Net earned premiums   20,127     19,689  2.2%
        
 Underwriting ratios:     
  Loss ratio 50.3%  62.8%  
  Expense ratio 44.1%  37.8%  
  Combined ratio 94.4%  100.6%  
        
 Contribution to combined ratio from net      
  (favorable) adverse prior year development -4.5%  14.3%  
        
 Accident year combined ratio (1) 98.9%  86.3%  
        
 (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 92% of total gross written premiums in the first quarter of 2018, and primarily consisted of property and liability coverage offered to owner-operated small- to mid-sized businesses, such as hospitality risks which includes restaurants, bars, taverns and professional organizations.

Commercial lines gross written premiums increased by 0.7%, or $144,000, to $21.8 million in the first quarter of 2018. This was largely due to 2.8% increase in small business programs.  

For the first quarter of 2018, the commercial lines combined ratio was 94.4%, compared to 100.6% in the prior year period, due to the reduction of adverse development from $2.8 million in 2017 to $909,000 of favorable development in 2018. 

Personal Lines Financial and Operational Review

        
 Personal Lines Financial Review
   Three Months Ended March 31,
   2018 2017 % Change
             
   (dollars in thousands)
        
 Gross written premiums$  1,949  $  4,830  -59.6%
 Net written premiums   423     2,845  -85.1%
 Net earned premiums   3,673     4,451  -17.5%
        
 Underwriting ratios:     
  Loss ratio 81.2%  70.9%  
  Expense ratio 37.4%  43.9%  
  Combined ratio 118.6%  114.8%  
        
 Contribution to combined ratio from net      
  (favorable) adverse prior year development 23.2%  5.3%  
        
 Accident year combined ratio 95.4%  109.5%  
        

Personal lines, which consist of low-value dwelling and wind-exposed homeowners insurance, represented 8% of total gross written premiums for the first quarter of 2018, compared to 18% in 2017.  Personal lines gross written premiums decreased 59.6% to $1.9 million in the first quarter of 2018 compared to the prior year period.  The decrease was the result of management's strategic decision to deemphasize the Company’s Florida homeowners business and other wind-exposed business in Texas and Hawaii. The Florida homeowners business decreased by 51% for the three months ended March 31, 2018, compared to the same period in 2017.  

For the first quarter of 2018, the personal lines combined ratio was 118.6%, compared to 114.8% in the prior year period.  There was $274,000 of additional losses relating to Hurricane Harvey in Texas and $184,000 of reinstatement reinsurance premiums relating to Hurricane Irma in Florida, which also increased the combined ratio in the first quarter. 

Combined Ratio Analysis

    
   Three Months Ended March 31,
   2018 2017
        
   (dollars in thousands)
      
 Underwriting ratios:   
  Loss ratio55.2% 64.2%
  Expense ratio44.3% 44.9%
  Combined ratio  99.5% 109.1%
      
 Contribution to combined ratio from net (favorable)   
  adverse prior year development0.0% 12.5%
      
 Accident year combined ratio99.5% 96.6%
      

Combined Ratio
The Company's combined ratio was 99.5% for the three months ended March 31, 2018, compared to 109.1% for the same period in 2017.   

  • Loss Ratio: The impact of prior accident year reserves on the Company's loss ratio has been significantly reduced due to the benefits of the ADC.  As of March 31, 2018, the Company has ceded $8.9 million under the ADC, leaving $8.6 million of cover in the event of future development.  The Company’s losses and loss adjustment expenses were $13.3 million for the three months ended March 31, 2018, compared to $15.7 million in the prior year period.  As a result, Conifer reported an improved loss ratio of 55.2%, compared to 64.2% in the prior year period.
     
  • Expense Ratio: The expense ratio was 44.3% for the first quarter of 2018, compared to 44.9% in the prior year period, due to continued cost-containment efforts.

Net Investment Income
Net investment income increased 39.0% to $802,000 during the quarter ended March 31, 2018, compared to $577,000 in the prior year period. 

Net Income (Loss)
In the first quarter of 2018, the Company reported net income of $213,000, or $0.02 per diluted share, based on 8.5 million weighted average common diluted shares outstanding, compared to net loss of $1.8 million, or $0.24 per diluted share, based on 7.6 million weighted average common diluted shares outstanding in the prior year period.

Adjusted Operating Income (Loss)

In the first quarter of 2018, the Company reported adjusted operating income of $1.8 million, or $0.21 per share, compared to adjusted operating loss of $1.8 million, or $0.24 per share, for the same period in 2017.  See Definitions of Non-GAAP Measures.

Earnings Conference Call
The Company will hold a conference call/webcast on Thursday, May 10, 2018 at 8:30 a.m. ET to discuss results for the first quarter ended March 31, 2018 and its outlook for the remainder of 2018.  

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 property and casualty holding company.  Through its subsidiaries, Conifer offers specialty insurance coverage for both commercial and personal lines, marketing through independent agents in all 50 states. The Company is traded on the Nasdaq Global Market under the symbol CNFR.  Additional information is available on the Company's website at IR.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, and other gains and losses, after-tax, and excluding the tax impact of changes in unrealized gains and losses.  Beginning in 2018, the change in fair value of equity securities, net of tax, and the deferred gain on losses ceded to the ADC are also excluded from net income to arrive at adjusted operating income.  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
March 31,
   2018 2017
          
   (dollar in thousands, except share and per share amounts)
     
 Net income (loss)$  213  $  (1,798)
 Less:   
 Net realized gains (losses) and other gains, net of tax   161     (8)
 Change in fair value of equity securities, net of tax    (297)    -  
 (Increase) in deferred gain on losses ceded to ADC, net of tax   (1,431)    -  
      
 Adjusted operating income (loss)$  1,780  $  (1,790)
      
 Weighted average common shares, diluted   8,520,328     7,633,069 
      
 Diluted income (loss) per common share:   
  Net income (loss)$  0.02  $  (0.24)
  Less:   
  Net realized gains (losses) and other gains, net of tax   0.02     -  
  Change in fair value of equity securities, net of tax   (0.04)    -  
  (Increase) in deferred gain on losses ceded to ADC, net of tax   (0.17)    -  
  Adjusted operating income (loss), per share $  0.21  $  (0.24)
      

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, 2018 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)
        
     March 31 December 31,
     2018 2017
Assets  (Unaudited)  
Investment securities:    
 Debt securities, at fair value (amortized cost of $137,025 and  $  134,711  $  136,536 
  $137,004, respectively)    
 Equity securities, at fair value (cost of $8,664 and $8,629, respectively)    9,425     9,687 
 Short-term investments, at fair value    2,505     11,427 
  Total investments    146,641     157,650 
        
Cash     14,406     11,868 
Premiums and agents' balances receivable, net     19,895     22,845 
Receivable from affiliate    1,783     1,195 
Reinsurance recoverables on unpaid losses    20,063     20,066 
Reinsurance recoverables on paid losses    4,595     4,473 
Prepaid reinsurance premiums    1,050     1,081 
Deferred policy acquisition costs    12,050     12,781 
Other assets    9,171     7,073 
   Total assets $  229,654  $  239,032 
        
Liabilities and Shareholders' Equity    
Liabilities:    
 Unpaid losses and loss adjustment expenses $  85,491  $  87,896 
 Unearned premiums    53,685     57,672 
 Reinsurance premiums payable    3,398     3,299 
 Debt     29,043     29,027 
 Accounts payable and accrued expenses    6,613     8,312 
   Total liabilities    178,230     186,206 
        
Commitments and contingencies    -      -  
        
Shareholders' equity:    
 Common stock, no par value (100,000,000 shares authorized;     
  8,520,328 issued and outstanding, respectively)     86,430     86,199 
 Accumulated deficit    (32,318)    (33,010)
 Accumulated other comprehensive (loss) income    (2,688)    (363)
  Total shareholders' equity     51,424     52,826 
   Total liabilities and shareholders' equity $  229,654  $  239,032 
        


  
 Conifer Holdings, Inc. and Subsidiaries
 Consolidated Statements of Operations (Unaudited) 
 (In thousands, except share and per share data)
        
     Three Months Ended
     March 31,
     2018 2017
        
 Revenue   
  Premiums   
   Gross earned premiums$27,724  $28,264 
   Ceded earned premiums   (3,924)    (4,124)
    Net earned premiums   23,800     24,140 
  Net investment income   802     577 
  Net realized investment gains (losses)   161     (8)
  Change in fair value of equity securities   (297)  
  Other income   357     354 
    Total revenue   24,823     25,063 
        
 Expenses   
  Losses and loss adjustment expenses, net   13,328     15,733 
  Policy acquisition costs   6,513     6,472 
  Operating expenses   4,187     4,530 
  Interest expense   619     224 
    Total expenses   24,647     26,959 
        
 Income (loss) before equity earnings and income taxes   176     (1,896)
  Equity earnings (losses) of affiliates, net of tax   55     104 
  Income tax (benefit) expense    18     6 
 Net income (loss)   213     (1,798)
        
 Earnings (loss) per common share,   
   basic and diluted$  0.02  $  (0.24)
        
 Weighted average common shares outstanding,   
   basic and diluted   8,520,328     7,633,069 
        


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

 

Source: Conifer Holdings, Inc.