Press Release

Conifer Holdings Reports 2019 Third Quarter Financial Results

Company to Host Conference Call at 8:30 AM ET on Tuesday, November 12, 2019

Company Release - 11/11/2019 4:01 PM ET

BIRMINGHAM, Mich., Nov. 11, 2019 (GLOBE NEWSWIRE) -- Conifer Holdings, Inc. (Nasdaq: CNFR) (“Conifer” or the “Company”) today announced results for the third quarter ended September 30, 2019.

Third Quarter 2019 Financial Highlights

  • Gross written premium increased 2% to $27.1 million
  • Commercial Lines combined ratio was 106.3% (with accident year combined ratio of 95.6%)
  • Personal Lines combined ratio was 154.5% (with accident year combined of 125.8%)
  • The Company’s overall accident year combined ratio was 97.4%
  • Net loss of $1.2 million, or $0.13 per share based on 9.5 million average shares outstanding
  • As of September 30, 2019, book value was $4.74 per share

Management Comments
James Petcoff, Chairman and CEO, commented, “Our singular focus remains not on market share, but improvement in underwriting profits. We reported excellent accident year combined ratios in our commercial business, and our overall combined ratio improved dramatically as more profitable specialty lines grow in size. We have worked aggressively to close outstanding claims from personal lines, and with each quarter the wind-exposed homeowners business becomes a smaller impact to our bottom line.”

Mr. Petcoff continued, “In 2020, our goal is to maintain steady premium growth that takes advantage of the current market conditions. Overall, we feel that this growth, coupled with lean operations, will help drive our expense ratio down to below 40% over time and ultimately lead to a consistent trend of profitability and book value growth.”

2019 Third Quarter Financial Results Overview

  At and for the
Three Months Ended September 30,
 At and for the
Nine Months Ended September 30,
  2019 2018 % Change
 2019 2018 % Change
             
  (dollars in thousands, except share and per share amounts)
             
Gross written premiums$27,077  $26,629  1.7% $76,462  $76,928  -0.6%
Net written premiums 23,806   22,846  4.2%  65,562   65,286  0.4%
Net earned premiums 22,775   23,450  -2.9%  65,811   71,188  -7.6%
              
Net investment income 1,210   786  53.9%  3,171   2,425  30.8%
Net realized investment gains (losses) 390   (21) **   1,124   152  ** 
Change in fair value of equity investments (1,065)  151  **   (715)  (116)   
               
Net income (loss) (1,230)  (3,551) **   (4,794)  (4,451) ** 
 Net income (loss) per share, diluted$(0.13) $(0.42)    $(0.55) $(0.52)   
               
Adjusted operating income (loss)* (1,854)  (1,160) **   (11,698)  446  ** 
 Adjusted operating income (loss) per share, diluted*$(0.18) $(0.14) **  $(1.35) $0.05  ** 
               
Book value per common share outstanding$4.74  $5.41     $4.74  $5.41    
               
Weighted average shares outstanding, basic and diluted 9,543,535   8,553,613      8,640,409   8,531,545    
               
Underwriting ratios:             
 Loss ratio (1) 64.9%  70.4%     66.1%  62.9%   
 Expense ratio (2) 44.3%  47.8%     43.9%  45.7%  
 Combined ratio (3) 109.2%  118.2%     110.0%  108.6%   
              
* 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.
             

2019 Third Quarter Premiums
Gross Written Premiums
Gross written premiums increased 2% in the third quarter of 2019 to $27.1 million, compared to $26.6 million in the prior year period. The increase was due to growth in the Company’s small-business specialty lines, along with a slight increase in personal lines premiums during the quarter due to stable growth in its low-value dwelling line.

Net Earned Premiums
Net earned premiums decreased 2.9% to $22.8 million for the third quarter of 2019, compared to $23.5 million for the prior year period. The decrease is largely attributed to lower personal lines net earned premiums, which decreased by $844,000 in the quarter.

Commercial Lines Financial and Operational Review

Commercial Lines Financial Review
  Three Months Ended September 30, Nine Months Ended September 30,
  2019 2018 % Change
 2019 2018 % Change
             
  (dollars in thousands)
             
Gross written premiums$25,018 $24,806 0.9% $71,061 $71,602 -0.8%
Net written premiums 22,095  22,160 -0.3%  61,579  63,866 -3.6%
Net earned premiums 21,439  21,270 0.8%  62,291  62,270 0.0%
             
Underwriting ratios:           
 Loss ratio 62.8%  67.8%    61.8%  59.3%  
 Expense ratio 43.5%  46.8%    43.2%  45.9%  
 Combined ratio 106.3%  114.6%    105.0%  105.2%  
             
Contribution to combined ratio from net           
 (favorable) adverse prior year development 10.7%  13.7%    7.5%  4.1%  
             
Accident year combined ratio (1) 95.6%  100.9%    97.5%  101.1%  
             
(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, representing 92.4% of total gross written premium in the third quarter of 2019, primarily consists of property and liability coverage offered to owner-operated small- to mid-sized businesses, such as hospitality risks including restaurants, bars, taverns and professional organizations.

Commercial lines gross written premium was roughly flat at $25 million in the third quarter of 2019. The Company continues to shift its mix towards more profitable specialty lines.

For the third quarter of 2019, the commercial lines loss ratio was 62.8%, with profitable current year operations being offset by prior-year development.

The commercial lines accident year combined ratio was 95.6% for the quarter.

Personal Lines Financial and Operational Review

Personal Lines Financial Review
  Three Months Ended September 30, Nine Months Ended September 30,
  2019
 2018
 % Change
 2019
 2018
 % Change
             
  (dollars in thousands)
             
Gross written premiums$2,059 $1,823 12.9% $5,401 $5,326 1.4%
Net written premiums 1,711  686 149.4%  3,983  1,420 180.5%
Net earned premiums 1,336  2,180 -38.7%  3,520  8,918 -60.5%
             
Underwriting ratios:           
 Loss ratio 97.9%  94.6%    140.1%  87.6%  
 Expense ratio 56.6%  57.7%    57.0%  44.4%  
 Combined ratio 154.5%  152.3%    197.1%  132.0%  
             
Contribution to combined ratio from net           
 (favorable) adverse prior year development 28.7%  21.3%    65.9%  25.1%  
             
Accident year combined ratio 125.8%  131.0%    131.2%  106.9%  
             

Personal lines, which consists largely of low-value dwelling homeowner’s insurance, represented 7.6% of total gross written premium for the third quarter of 2019. Personal lines gross written premium increased 12.9% to $2.1 million in the third quarter of 2019 compared to the prior year period, largely due to renewed growth in the Company’s low-value dwelling line of business.

The loss ratio for the three months ended September 30, 2019 was 97.9%, compared to 94.6% in the prior year period, largely driven by losses from wind-exposed homeowners lines (specifically Florida homeowners). The Company’s wind-exposed lines of business continue to represent a smaller portion of the Company’s overall gross premiums written, with Florida homeowners business declining 50.9% during the quarter. 

Due to the planned decline in the wind-exposed business and the related reinstatement costs, net earned premiums decreased to $1.3 million during the third quarter, compared to $2.2 million in the prior year.

Combined Ratio Analysis

  Three Months Ended
September 30,
 Nine Months Ended
September 30,
  2019
 2018
 2019
 2018
         
  (dollars in thousands)
         
Underwriting ratios:       
 Loss ratio64.9% 70.4% 66.1% 62.9%
 Expense ratio44.3% 47.8% 43.9% 45.7%
 Combined ratio109.2% 118.2% 110.0% 108.6%
         
Contribution to combined ratio from net (favorable)       
 adverse prior year development11.8% 14.5% 10.7% 6.8%
         
Accident year combined ratio97.4% 103.7% 99.3% 101.8%
         

Combined Ratio
The Company's combined ratio was 109.2% for the quarter ended September 30, 2019, compared to 118.2% for the same period in 2018. The Company’s accident year combined ratio for the quarter ended September 30, 2019 was 97.4%, compared to 103.7% in the prior year period.   

Loss Ratio:
The Company’s losses and loss adjustment expenses were $14.9 million for the three months ended September 30, 2019, compared to $16.6 million in the prior year period. This resulted in a lower loss ratio of 64.9%, compared to 70.4% in the prior year period.
       
Expense Ratio:
The expense ratio improved slightly to 44.3% for the third quarter of 2019, compared to 47.8% in the prior year period.

Net Investment Income
Net investment income increased 53.9% to $1.2 million during the third quarter ended September 30, 2019, compared to $786,000 in the prior year period, largely due higher investment yields.

Net Income (Loss)
In the third quarter of 2019, the Company reported net loss of $1.2 million, or $0.13 per share, compared to a net loss of $3.6 million, or $0.42 per share in the prior year period.

Adjusted Operating Income (Loss)
In the third quarter of 2019, the Company reported adjusted operating loss of $1.9 million, or $0.18 per share, compared to adjusted operating loss of $1.2 million, or $0.14 per share, for the same period in 2018. See Definitions of Non-GAAP Measures.

Earnings Conference Call
The Company will hold a conference call/webcast on Tuesday, November 12, 2019 at 8:30 a.m. ET to discuss results for the third quarter ending September 30, 2019. The Company will file its third quarter financial results on Tuesday, November 12, 2019 before the conference call/webcast. 

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 subsidiaries, Conifer offers customized insurance coverage solutions in both specialty commercial and specialty personal product lines marketing mainly through independent agents in all 50 states. The Company 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) excluding net realized investment gains and losses, after-tax, and excluding the tax impact of changes in unrealized gains and losses. 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,
  2019 2018 2019 2018
         
  (dollar in thousands, except share and per share amounts)
        
Net income (loss)$(1,230) $(3,551) $(4,794) $(4,451)
Less:       
Net realized investment gains (losses), net of tax 390   (21)  1,124   152 
Tax effect of unrealized gains on investments 818   -   818   - 
Change in fair value of equity securities, net of tax (1,065)  151   (715)  (116)
Net decrease (increase) in deferred gain on losses       
 ceded to ADC, net of tax 481   (2,521)  5,677   (4,933)
Adjusted operating income (loss)$(1,854) $(1,160) $(11,698) $446 
         
Weighted average common shares, diluted 9,543,535   8,553,613   8,640,409   8,531,545 
         
Diluted income (loss) per common share:       
 Net income (loss)$(0.13) $(0.42) $(0.55) $(0.52)
 Less:       
 Net realized gains (losses) and other gains, net of tax 0.04   -   0.13   0.02 
 Tax effect of unrealized gains on investments 0.09   -   0.09   - 
 Change in fair value of equity securities, net of tax (0.12)  0.01   (0.08)  (0.01)
 Net decrease (increase) in deferred gain on losses       
 ceded to ADC, net of tax 0.04   (0.29)  0.66   (0.58)
 Adjusted operating income (loss), per share$(0.18) $(0.14) $(1.35) $0.05 
         

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 13, 2019 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)
       
    September 30,December 31,
    2019 2018
Assets (Unaudited)  
Investment securities:   
 Debt securities, at fair value (amortized cost of $124,046 and$125,704  $120,440 
  $122,678, respectively)   
 Equity securities, at fair value (cost of $6,546 and $9,559, respectively) 7,000   10,737 
 Short-term investments, at fair value 3,508   8,925 
  Total investments 136,212   140,102 
       
Cash and cash equivalents 30,854   10,792 
Premiums and agents' balances receivable, net 18,735   21,247 
Receivable from Affiliate 427   3,582 
Reinsurance recoverables on unpaid losses 16,862   29,685 
Reinsurance recoverables on paid losses 7,659   5,060 
Prepaid reinsurance premiums 3,521   1,829 
Deferred policy acquisition costs 12,879   12,011 
Other assets 11,341   8,444 
   Total assets$238,490  $232,752 
       
Liabilities and Shareholders' Equity   
Liabilities:   
 Unpaid losses and loss adjustment expenses$97,337  $92,807 
 Unearned premiums 52,721   52,852 
 Debt  33,743   33,502 
 Deferred gain on ADC -   5,677 
 Accounts payable and accrued expenses 9,207   5,751 
   Total liabilities 193,008   190,589 
       
Commitments and contingencies -   - 
       
Shareholders' equity:   
 Common stock, no par value (100,000,000 shares authorized; 9,588,873   
  and 8,478,202 issued and outstanding, respectively) 91,578   86,533 
 Accumulated deficit (46,552)  (41,758)
 Accumulated other comprehensive income (loss) 456   (2,612)
  Total shareholders' equity  45,482   42,163 
   Total liabilities and shareholders' equity$238,490  $232,752 
       


Conifer Holdings, Inc. and Subsidiaries
Consolidated Statements of Operations (Unaudited)
(In thousands, except share and per share data)
           
    Three Months Ended Nine Months Ended
    September 30, September 30,
     2019   2018   2019   2018 
           
Revenue       
 Premiums       
  Gross earned premiums$25,962  $27,318  $76,594  $82,899 
  Ceded earned premiums (3,187)  (3,868)  (10,783)  (11,711)
   Net earned premiums 22,775   23,450   65,811   71,188 
 Net investment income 1,210   786   3,171   2,425 
 Net realized investment gains (losses) 390   (21)  1,124   152 
 Change in fair value of equity securities (1,065)  151   (715)  (116)
 Other income 564   405   1,567   1,212 
   Total revenue 23,874   24,771   70,958   74,861 
           
Expenses       
 Losses and loss adjustment expenses, net 14,857   16,554   43,695   44,950 
 Policy acquisition costs 6,153   6,452   17,952   19,437 
 Operating expenses 4,297   4,786   12,960   13,276 
 Interest expense 720   598   2,155   1,834 
   Total expenses 26,027   28,390   76,762   79,497 
           
Income (loss) before equity earnings in Affiliate and income taxes (2,153)  (3,619)  (5,804)  (4,636)
 Equity earnings in Affiliate, net of tax 121   93   219   237 
 Income tax expense (benefit) (802)  25   (791)  52 
Net income (loss)$(1,230) $(3,551) $(4,794) $(4,451)
           
Earnings (loss) per common share,       
  basic and diluted$(0.13) $(0.42) $(0.55) $(0.52)
           
Weighted average common shares outstanding,       
  basic and diluted 9,543,535   8,553,613   8,640,409   8,531,545 
           

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

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Source: Conifer Holdings, Inc.