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Conifer Holdings Reports 2018 Third Quarter Financial Results

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

BIRMINGHAM, Mich., Nov. 07, 2018 (GLOBE NEWSWIRE) -- Conifer Holdings, Inc. (Nasdaq: CNFR, CNFRL) (“Conifer” or the “Company”) today announced results for the third quarter ended September 30, 2018.

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

  • Commercial lines gross written premiums increased 5.5% driven by growth in the Company’s core hospitality and small business lines
  • Personal lines gross written premiums decreased by 70.0%  
  • Combined ratio was 104.3% before the impact of the deferred gain on the ADC and hurricane-related costs
  • The Commercial Lines accident year combined ratio was 97.6%
  • Net loss of $3.6 million, or $0.42 per diluted share based on 8.6 million weighted average common diluted shares outstanding
  • Adjusted operating loss was $1.2 million, or $0.14 per diluted share

Management Comments
James Petcoff, Chairman and CEO, commented, “Last year, Conifer strengthened its reserve position while also pursuing growth opportunities in mainly specialty commercial lines where we have outperformed the market.  During the period, Conifer reported ongoing positive results in our commercial lines, which included growth where we have seen stronger historical underwriting results. Reflective of this, on a year-to-date basis, before the deferred gain from the ADC and hurricane-related costs, Conifer’s combined ratio was 98.7% and pre-tax income was $1.6 million.”

Mr. Petcoff continued, “With the positive shift in our business mix, Conifer continues to seek opportunities for growth in our select niche markets, whether including select renewal rights agreements, further market penetration or geographic expansion.”

2018 Third Quarter Financial Results Overview

  At and for the
Three Months Ended September 30,
  At and for the
Nine Months Ended September 30,
  2018   2017   % Change   2018   2017   % Change
  (dollars in thousands, except share and per share amounts)
                       
Gross written premiums $   26,629     $   29,581     -10.0 %   $   76,928     $   83,036     -7.4 %
Net written premiums     22,846         18,395     24.2 %       65,286         63,801     2.3 %
Net earned premiums     23,450         17,659     32.8 %       71,188         66,295     7.4 %
                       
Net investment income     786         768     2.3 %       2,425         2,008     20.8 %
Net realized investment gains (losses)     (21 )       39     **       152         31     **
Change in fair value of equity investments     151         -      **       (116 )       -       
Other gains (losses)     -          -      **       -          750     **
                       
Net income (loss)     (3,551 )       (18,898 )   **       (4,451 )       (21,763 )   **
Net income (loss) per share, diluted $   (0.42 )   $   (2.46 )       $   (0.52 )   $   (2.85 )    
                       
Adjusted operating income (loss)*     (1,160 )       (19,054 )   **       446         (22,942 )   **
Adjusted operating income (loss) per share, diluted* $   (0.14 )   $   (2.48 )   **   $   0.05     $   (3.00 )   **
                       
Book value per common share outstanding $   5.41     $   6.16         $   5.41     $   6.16      
                       
Weighted average shares outstanding, basic and diluted     8,553,613         7,675,952             8,531,545         7,647,520      
                       
Underwriting ratios:                      
Loss ratio (1)   69.4 %     145.9 %         62.1 %     87.2 %    
Expense ratio (2)   47.1 %     61.4 %         45.2 %     48.8 %    
Combined ratio (3)   116.5 %     207.3 %         107.3 %     136.0 %    
                                       

/EIN News/ --

* 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.
 

Third Quarter 2018 Premiums

Gross Written Premiums
Gross written premiums decreased 10.0% in the third quarter of 2018 to $26.6 million, compared to $29.6 million in the prior year period and flat sequentially from the second quarter of 2018.  The decline in gross written premiums was due  to a 70.0% decrease in personal lines of business, offset by a 5.5% increase in commercial lines.  

Net Earned Premiums
Net earned premiums increased 32.8% to $23.5 million for the third quarter of 2018, compared to $17.7 million for the prior year period.  The increase is primarily due to higher earned premiums from commercial lines, which increased 35.8% mainly due to the impact of the ADC on prior quarter’s ceded premium.

Commercial Lines Financial and Operational Review

Commercial Lines Financial Review
       
  Three Months Ended September 30,   Nine Months Ended September 30,
  2018   2017   % Change   2018   2017   % Change
  (dollars in thousands)
                       
Gross written premiums $   24,806     $   23,509     5.5 %   $   71,602     $   66,258     8.1 %
Net written premiums     22,160         16,221     36.6 %       63,866         54,616     16.9 %
Net earned premiums     21,270         15,658     35.8 %       62,270         55,443     12.3 %
                       
Underwriting ratios:                      
Loss ratio   67.3 %     123.8 %         58.9 %     78.3 %    
Expense ratio   43.9 %     53.6 %         43.5 %     41.8 %    
Combined ratio   111.2 %     177.4 %         102.4 %     120.1 %    
                       
Contribution to combined ratio from net (favorable) adverse prior year development   13.6 %     12.1 %         4.1 %     12.8 %    
                       
Accident year combined ratio (1)   97.6 %     165.3 %         98.3 %     107.3 %    
                                       

(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.

Commercial lines represented approximately 93% of total gross written premiums in the third quarter of 2018, up from 79% in the prior year period.  Conifer’s commercial lines mainly consist of property and liability coverage offered to owner-operated, small- to mid-sized businesses, such as hospitality risks which include restaurants, bars, taverns and professional organizations.

Commercial lines gross written premiums increased by 5.5% to $24.8 million in the third quarter of 2018.  This was largely due to continued growth in hospitality and small business lines.  

For the third quarter of 2018, the commercial lines combined ratio was 111.2%, yet the Accident year combined ratio for the same period was 97.6%. 

Personal Lines Financial and Operational Review

Personal Lines Financial Review
 
  Three Months Ended September 30,   Nine Months Ended September 30,
  2018   2017   % Change   2018   2017   % Change
  (dollars in thousands)
                       
Gross written premiums $   1,823     $   6,072     -70.0 %   $   5,326     $   16,778     -68.3 %
Net written premiums     686         2,174     -68.4 %       1,420         9,185     -84.5 %
Net earned premiums     2,180         2,001     8.9 %       8,918         10,852     -17.8 %
                       
Underwriting ratios:                      
Loss ratio   88.6 %     301.4 %         83.8 %     131.4 %    
Expense ratio   60.0 %     100.9 %         47.8 %     55.4 %    
Combined ratio   148.6 %     402.3 %         131.6 %     186.8 %    
                       
Contribution to combined ratio from net (favorable) adverse prior year development   20.0 %     6.9 %         24.0 %     19.4 %    
                       
Accident year combined ratio   128.6 %     395.4 %         107.6 %     167.4 %    
                                       

Personal lines, which consist of low-value dwelling and wind-exposed homeowners insurance, represented approximately 7% of total gross written premiums for the third quarter of 2018, compared to 21% in 2017. 

Personal lines gross written premiums decreased 70% to $1.8 million in the third quarter of 2018 compared to the prior year period.  The decrease was the result of management's strategic decision to deemphasize Florida homeowners business and other wind-exposed business in Texas and Hawaii, which in total decreased by approximately 88% year-over-year. 

For the third quarter of 2018, the personal lines combined ratio was 148.6%, compared to 402.3% in the prior year period, which included hurricane losses and the aforementioned reserve strengthening. 

Combined Ratio Analysis

  Three Months Ended
September 30,
  Nine Months Ended
September 30,
  2018   2017   2018   2017
  (dollars in thousands)
               
Underwriting ratios:              
Loss ratio 69.4 %   145.9 %   62.1 %   87.2 %
Expense ratio 47.1 %   61.4 %   45.2 %   48.8 %
Combined ratio 116.5 %   207.3 %   107.3 %   136.0 %
               
Contribution to combined ratio from net (favorable) adverse prior year development 14.3 %   11.4 %   6.7 %   14.0 %
               
Accident year combined ratio 102.2 %   195.9 %   100.6 %   122.0 %
                       

Combined Ratio
The Company's combined ratio was 116.5% for the three months ended September 30, 2018, compared to 207.3% for the same period in 2017, and was 104.3% before the impact of the deferred gain on the ADC and hurricane-related costs.

  • Loss Ratio: The impact of prior accident year reserves on the loss ratio has been significantly reduced due to the benefits of the ADC.  As of September 30, 2018, the Company has ceded $14.5 million under the ADC, leaving $3.0 million of cover in the event of future development.  Losses and loss adjustment expenses were $16.6 million for the three months ended September 30, 2018, compared to $26.5 million in the prior year period. 
     
  • Expense Ratio: The expense ratio was 47.1% for the third quarter of 2018, compared to 61.4% in the prior year period, which included the impact of ADC and hurricane-related costs.

Net Investment Income
Net investment income remained largely flat at $786,000 during the quarter ended September 30, 2018, compared to $768,000 in the prior year period. 

Net Loss
In the third quarter of 2018, the Company reported a net loss of $3.6 million, or $0.42 per diluted share, based on 8.6 million weighted average common diluted shares outstanding, compared to net loss of $18.9 million, or $2.46 per diluted share, based on 7.7 million weighted average common diluted shares outstanding in the prior year period.

Adjusted Operating Loss
In the third quarter of 2018, the Company reported adjusted operating loss of $1.2 million, or $0.14 per share, compared to adjusted operating loss of $19.1 million, or $2.48 per share, for the same period in 2017.  See Definitions of Non-GAAP Measures. 

Outlook for 2018
Mr. Petcoff concluded, “We continue to execute on our long-term strategy of shifting business mix toward our most profitable lines, where we  have worked to reduce our wind-exposed homeowners premiums, which are down over 88% during the period.  We believe this portfolio repositioning will help to maximize underwriting profits and ultimately begin to achieve book value appreciation.”

Earnings Conference Call
The Company will hold a conference call/webcast on Thursday, November 8, 2018 at 8:30 a.m. ET to discuss results for the quarter ended September 30, 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.

Individuals who listen to the call should refer to Conifer Holdings’ audited consolidated financial statements and related notes included in its annual report on form 10-K/A for the fiscal year ended December 31, 2017 and the quarterly report on form 10-Q for the quarter ended September 30, 2018, filed with the Securities and Exchange Commission (the “SEC”).  The Company’s filings can be accessed at www.sec.gov or the Company’s website at IR.CNFRH.com.

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
September 30,
  Nine Months Ended
September 30,
  2018   2017   2018   2017
  (dollar in thousands, except share and per share amounts)
               
Net income (loss) $   (3,551 )   $   (18,898 )   $   (4,451 )   $   (21,763 )
Less:              
Net realized gains (losses) and other gains, net of tax     (21 )       39         152         781  
Change in fair value of equity securities, net of tax     151         -          (116 )       -   
Tax effect of investment unrealized gains and losses     -          117         -          398  
Net (Increase) in deferred gain on losses ceded to ADC, net of tax     (2,521 )       -          (4,933 )       -   
Adjusted operating income (loss) $   (1,160 )   $   (19,054 )   $   446     $   (22,942 )
               
Weighted average common shares, diluted     8,553,613         7,675,952         8,531,545         7,647,520  
               
Diluted income (loss) per common share:              
Net income (loss) $   (0.42 )   $   (2.46 )   $   (0.52 )   $   (2.85 )
Less:              
Net realized gains (losses) and other gains, net of tax     -          0.01         0.02         0.10  
Change in fair value of equity securities, net of tax     0.01         -          (0.01 )       -   
Tax effect of investment unrealized gains and losses, per share     -          0.01         -          0.05  
Net (Increase) in deferred gain on losses ceded to ADC, net of tax     (0.29 )       -          (0.58 )       -   
Adjusted operating income (loss), per share     (0.14 )   $   (2.48 )   $   0.05     $   (3.00 )
                               

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/A (“Item 1A Risk Factors”) filed with the SEC on May 14, 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)
       
  September 30,   December 31,
  2018   2017
Assets  (Unaudited)    
Investment securities:      
Debt securities, at fair value (amortized cost of $125,018 and $137,004, respectively) $   121,996     $   136,536  
Equity securities, at fair value (cost of $8,890 and $8,629, respectively)     9,832         9,687  
Short-term investments, at fair value     9,905         11,427  
Total investments     141,733         157,650  
       
Cash      16,455         11,868  
Premiums and agents' balances receivable, net     22,415         22,845  
Receivable from affiliate     1,321         1,195  
Reinsurance recoverables on unpaid losses     27,118         20,066  
Reinsurance recoverables on paid losses     2,540         4,473  
Prepaid reinsurance premiums     1,498         1,081  
Deferred policy acquisition costs     11,843         12,781  
Other assets     8,074         7,073  
Total assets $   232,997     $   239,032  
       
Liabilities and Shareholders' Equity      
Liabilities:      
Unpaid losses and loss adjustment expenses $   91,046     $   87,896  
Unearned premiums     51,701         57,672  
Reinsurance premiums payable     -          3,299  
Debt     29,750         29,027  
Accounts payable and accrued expenses     13,961         8,312  
Total liabilities     186,458         186,206  
       
Commitments and contingencies     -          -   
       
Shareholders' equity:      
Common stock, no par value (100,000,000 shares authorized; 8,602,703 and 8,520,328 issued and outstanding, respectively)      86,915         86,199  
Accumulated deficit     (36,982 )       (33,010 )
Accumulated other comprehensive (loss) income     (3,394 )       (363 )
Total shareholders' equity     46,539         52,826  
Total liabilities and shareholders' equity $   232,997     $   239,032  
               


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,
  2018   2017   2018   2017
               
Revenue              
Premiums              
Gross earned premiums $ 27,318     $ 28,891     $   82,899     $   85,493  
Ceded earned premiums     (3,868 )       (11,232 )       (11,711 )       (19,198 )
Net earned premiums     23,450         17,659         71,188         66,295  
Net investment income     786         768         2,425         2,008  
Net realized investment gains (losses)     (21 )       39         152         31  
Other gains (losses)     -          -          -          750  
Change in fair value of equity securities     151         -          (116 )       -   
Other income     405         477         1,212         1,203  
Total revenue     24,771         18,943         74,861         70,287  
               
Expenses              
Losses and loss adjustment expenses, net     16,554         26,468         44,950         58,875  
Policy acquisition costs     6,452         6,655         19,437         19,555  
Operating expenses     4,786         4,474         13,276         13,374  
Interest expense     598         303         1,834         745  
Total expenses     28,390         37,900         79,497         92,549  
               
Income (loss) before equity earnings and income taxes     (3,619 )       (18,957 )       (4,636 )       (22,262 )
Equity earnings (losses) of affiliates, net of tax     93         (76 )       237         89  
Income tax (benefit) expense     25         (135 )       52         (410 )
Net income (loss)     (3,551 )       (18,898 )       (4,451 )       (21,763 )
               
Earnings (loss) per common share, basic and diluted $   (0.42 )   $   (2.46 )   $   (0.52 )   $   (2.85 )
               
Weighted average common shares outstanding, basic and diluted     8,553,613         7,675,952         8,531,545         7,647,520  
                               

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

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