Conifer Holdings Reports 2020 First Quarter Financial Results

Rhea-AI Summary

Conifer Holdings, Inc. (NASDAQ: CNFR) reported its Q1 2020 results, revealing a net loss of $4.7 million, equating to $0.49 per share, worsened by market disruptions due to COVID-19. Despite this, gross written premiums increased by 3.6% to $25.1 million. The combined ratio stood at 111.6%, indicating an underwriting loss, although the accident year combined ratio improved to 94.7%. Management emphasized resilience with steady growth in commercial and personal lines, supported by strong retention.

Positive

• Gross written premiums increased 3.6% to $25.1 million driven by commercial specialty lines.
• Adjusted operating loss improved to $2.7 million from $4.2 million year-over-year.

Negative

• Net loss of $4.7 million or $0.49 per share, a decline attributed to reduced fair value of equity securities.
• Overall combined ratio increased to 111.6%, indicating ongoing underwriting losses.

BIRMINGHAM, Mich., May 13, 2020 (GLOBE NEWSWIRE) -- Conifer Holdings, Inc. (Nasdaq: CNFR) (“Conifer” or the “Company”) today announced results for the first quarter ended March 31, 2020.

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

• Gross written premium increased 3.6% to $25.1 million due to growth in commercial specialty lines
• Commercial Lines combined ratio was 112.8% (accident year combined ratio was 94.9%)
• Personal Lines combined ratio was 96.9% (accident year combined ratio was 92.9%)
• The Company’s overall combined ratio was 111.6% (accident year combined ratio was 94.7%)
• Net loss of $4.7 million, or $0.49 per share based on 9.6 million average shares outstanding; largely due to a decline in the fair value of equity securities resulting from disruption in financial markets related to the COVID-19 pandemic

Management Comments
James Petcoff, Chairman and CEO, commented, “For the quarter, we achieved steady growth in both our commercial and personal lines segments, despite the unique and disruptive challenges created by the COVID-19 pandemic.  While the tumult in the capital markets resulted in a net loss during the quarter, we were pleased with the improvement in premium growth.”

Mr. Petcoff continued, “We are continuing to evaluate the overall impact of COVID-19 on our business, with our primary focus on the safety and well-being of our insureds, agent partners and employees.  While the economic challenges presented by COVID-19 create uncertainty, we are encouraged by strong retention across our core books of business, and believe our continuing underwriting discipline will serve us well in the long-term.”

Financial Results for the Three Months Ended 2020 and 2019

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	As of and for the Three Months Ended March 31,
	2020		2019		% Change
	(dollars in thousands, except share and per share amounts)
55%; width:55%; min-width:55%;">Gross written premiums	1%; width:1%; min-width:1%;">$	13%; width:13%; min-width:13%;">25,084	1%; width:1%; min-width:1%;">	1%; width:1%; min-width:1%;">	1%; width:1%; min-width:1%;">$	13%; width:13%; min-width:13%;">24,216	1%; width:1%; min-width:1%;">	1%; width:1%; min-width:1%;">	9%; width:9%; min-width:9%;">3.6	4%; width:4%; min-width:4%;">%
Net written premiums		21,051				20,322			3.6	%
Net earned premiums		22,017				21,687			1.5	%
Net investment income		954				910			4.8	%
Net realized investment gains (losses)		928				19			**
Change in fair value of equity investments		(3,086	)			1,265
Other gains		115				-			**
Net income (loss)		(4,725	)			(680	)		**
Net income (loss) per share, diluted	$	(0.49	)		$	(0.08	)
Adjusted operating income (loss)*		(2,682	)			(4,247	)
Adjusted operating income (loss) per share, diluted*	$	(0.28	)		$	(0.50	)
Book value per common share outstanding	$	3.81			$	5.14
Weighted average shares outstanding, basic and diluted		9,592,774				8,453,570
Underwriting ratios:
Loss ratio (1)		64.5	%			66.5	%
Expense ratio (2)		47.1	%			41.6	%
Combined ratio (3)		111.6	%			108.1	%
* 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 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 First Quarter Premiums
Gross Written Premiums
Gross written premiums increased 3.6% in the first quarter of 2020 to $25.1 million, compared to $24.2 million in the prior year period. The increase was largely due to growth in commercial specialty lines, with an increase in both rate and new business opportunities, along with moderate growth in the Company’s personal lines driven by stable growth in its low-value dwelling line of business.

Net Earned Premiums
Net earned premiums increased 1.5% to $22.0 million for the first quarter of 2020, compared to $21.6 million for the prior year period. The increase was largely in personal lines and was substantially due to lower reinsurance costs.

Commercial Lines Financial and Operational Review

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Commercial Lines Financial Review
	Three Months Ended March 31,
	2020		2019		% Change
	(dollars in thousands)
56%; width:56%; min-width:56%;">Gross written premiums	1%; width:1%; min-width:1%;">$	12%; width:12%; min-width:12%;">23,444	1%; width:1%; min-width:1%;">	1%; width:1%; min-width:1%;">	1%; width:1%; min-width:1%;">$	12%; width:12%; min-width:12%;">22,584	1%; width:1%; min-width:1%;">	1%; width:1%; min-width:1%;">	9%; width:9%; min-width:9%;">3.8	4%; width:4%; min-width:4%;">%	1%; width:1%; min-width:1%;">
Net written premiums		19,687				19,306			2.0	%
Net earned premiums		20,431				20,698			-1.3	%
Underwriting ratios:
Loss ratio		65.6	%			60.5	%
Expense ratio		47.2	%			40.4	%
Combined ratio		112.8	%			100.9	%
Contribution to combined ratio from net (favorable)
adverse prior year development		17.9	%			4.4	%
Accident year combined ratio (1)		94.9	%			96.5	%
(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 93.5% of total gross written premium in the first 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 3.8% in the first quarter of 2020 as the Company continues to shift its mix towards more profitable specialty lines.

Commercial lines combined ratio was 112.8% for the three months ended March 31, 2020, compared to 100.9% in the prior year period, largely due to a 17.9% contribution from adverse development on 2017 and prior accident years. 

Commercial lines current accident year combined ratio was 94.9% for the quarter.

Personal Lines Financial and Operational Review

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Personal Lines Financial Review
	Three Months Ended March 31,
	2020		2019		% Change
	(dollars in thousands)
Gross written premiums	$	1,640			$	1,632			0.5	%
Net written premiums		1,364				1,016			34.3	%
Net earned premiums		1,586				989			60.4	%
Underwriting ratios:
Loss ratio		49.8	%			187.5	%
Expense ratio		47.1	%			66.1	%
Combined ratio		96.9	%			253.6	%
Contribution to combined ratio from net (favorable)
adverse prior year development		4.0	%			105.1	%
Accident year combined ratio		92.9	%			148.5	%

Personal lines, representing 6.5% of total gross written premium for the first quarter of 2020, consists largely of low-value dwelling homeowner’s insurance. Personal lines gross written premium increased 0.5% to $1.6 million in the first quarter of 2020 compared to the prior year period, largely due to renewed growth in the Company’s low-value dwelling line of business.

Personal lines combined ratio was 96.9% for the three months ended March 31, 2020, compared to 253.6% in the prior year period.  Personal lines loss ratio for the three months ended March 31, 2020 improved considerably to 49.8%, compared to 187.5% in the prior year period, largely driven by lower 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.

The personal lines accident year combined ratio was 92.9% for the quarter.

Combined Ratio Analysis 

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	Three Months Ended March 31,
	2020		2019
	(dollars in thousands)
Underwriting ratios:
73%; width:73%; min-width:73%;">Loss ratio	12%; width:12%; min-width:12%;">64.5	1%; width:1%; min-width:1%;">%	1%; width:1%; min-width:1%;">	12%; width:12%; min-width:12%;">66.5	1%; width:1%; min-width:1%;">%
Expense ratio	47.1	%		41.6	%
Combined ratio	111.6	%		108.1	%
Impact to combined ratio from net (favorable)
adverse prior year development	16.9	%		9.1	%
Accident year combined ratio	94.7	%		99.0	%

Combined Ratio
The Company's combined ratio was 111.6% for the quarter ended March 31, 2020, compared to 108.1% for the same period in 2019. The Company’s accident year combined ratio for the quarter ended March 31, 2020 was 94.7%, compared to 99.0% in the prior year period.  

Loss Ratio:
The Company’s losses and loss adjustment expenses were $14.3 million for the three months ended March 31, 2020, compared to $14.5 million in the prior year period. This resulted in a lower loss ratio of 64.5%, compared to 66.5% in the prior year period.

Expense Ratio:
The expense ratio was 47.1% for the first quarter of 2019, compared to 41.6% in the prior year period.  The expense ratio was higher due to a combination of factors. First, in the second quarter of 2019, the Company began allocating more commission expense to the Underwriting Segment which it paid to the Agency segment. This did not increase acquisition costs on a consolidated basis but did increase the acquisition cost ratio (a major component of the expense ratio).  There were several operating expense timing differences of incurred costs resulting in a slightly lower-than-normal 2019 first quarter expense ratio while the 2020 first quarter expense ratio is slightly higher than average. 

Net Investment Income
Net investment income was $954,000 during the fourth quarter ended March 31, 2020, compared to $910,000 in the prior year period. Net realized gains during the first quarter ended March 31, 2020 were $928,000, compared to net realized gains of $19,000 in the prior year period.

Change in Fair Value of Equity Securities
During the quarter, the Company reported an unrealized loss from change in fair value of equity investments of $3.1 million, compared to a gain of $1.3 million in the prior year period. This decline was largely related to disruption in financial markets related to the COVID-19 pandemic.

Net Income (Loss)
In the first quarter of 2020, the Company reported a net loss of $4.7 million, or $0.49 per share, compared to a net loss of $680,000, or $0.08 per share in the prior year period.

Adjusted Operating Income (Loss)
In the first quarter of 2020, the Company reported adjusted operating loss of $2.7 million, or $0.28 per share, compared to adjusted operating loss of $4.2 million, or $0.50 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, May 14, 2020 at 8:30 a.m. ET to discuss results for the first quarter ended March 31, 2020.

Investors, analysts, employees and the general public are invited to listen to the conference call via:

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15%; width:15%; min-width:15%;">Webcast:	85%; width:85%; min-width:85%;">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, 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: 

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	Three Months Ended March 31,
	2020		2019
	(dollars in thousands, except share and per share amounts)
71%; width:71%; min-width:71%;">Net income (loss)	1%; width:1%; min-width:1%;">$	12%; width:12%; min-width:12%;">(4,725	1%; width:1%; min-width:1%;">)	1%; width:1%; min-width:1%;">	1%; width:1%; min-width:1%;">$	12%; width:12%; min-width:12%;">(680	1%; width:1%; min-width:1%;">)
Less:
Net realized investment gains (losses) and other gains, net of tax		1,043				19
Change in fair value of equity securities, net of tax		(3,086	)			1,265
Net decrease (increase) in deferred gain on losses
ceded to ADC, net of tax		-				2,283
Adjusted operating income (loss)	$	(2,682	)		$	(4,247	)
Weighted average common shares, diluted		9,592,774				8,453,570
Diluted income (loss) per common share:
Net income (loss)	$	(0.49	)		$	(0.08	)
Less:
Net realized investment gains (losses) and other gains, net of tax		0.11				-
Change in fair value of equity securities, net of tax		(0.32	)			0.15
Net decrease (increase) in deferred gain on losses
ceded to ADC, net of tax		-				0.27
Adjusted operating income (loss) per share	$	(0.28	)		$	(0.50	)

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.

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Conifer Holdings, Inc. and Subsidiaries
Consolidated Balance Sheets
(dollars in thousands, except share data)
		March 31,		December 31,
		2020		2019
Assets		(Unaudited)
Investment securities:
Debt securities, at fair value (amortized cost of $135,281 and		$	135,269			$	131,000
$129,313, respectively)
Equity securities, at fair value (cost of $14,125 and $6,554, respectively)		11,790				7,306
Short-term investments, at fair value			27,178				31,426
Total investments			174,237				169,732
Cash and cash equivalents			8,100				7,464
Premiums and agents' balances receivable, net			18,804				20,168
Receivable from Affiliate			-				313
Reinsurance recoverables on unpaid losses			22,022				22,579
Reinsurance recoverables on paid losses			3,746				5,155
Prepaid reinsurance premiums			997				1,250
Deferred policy acquisition costs			11,508				11,906
Other assets			9,598				8,698
Total assets		$	249,012			$	247,265
Liabilities and Shareholders' Equity
Liabilities:
Unpaid losses and loss adjustment expenses		$	109,657			$	107,246
Unearned premiums			50,534				51,503
Reinsurance premiums payable			833				-
Debt			36,669				35,824
Accounts payable and accrued expenses			14,781				9,967
Total liabilities			212,474				204,540
Commitments and contingencies			-				-
Shareholders' equity:
Common stock, no par value (100,000,000 shares authorized;
9,592,161 and 9,592,861 issued and outstanding, respectively)			92,053				91,816
Accumulated deficit			(54,305	)			(49,580	)
Accumulated other comprehensive income (loss)			(1,210	)			489
Total shareholders' equity			36,538				42,725
Total liabilities and shareholders' equity		$	249,012			$	247,265

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Conifer Holdings, Inc. and Subsidiaries
Consolidated Statements of Operations (Unaudited)
(dollars in thousands, except share and per share data)
		Three Months Ended
		March 31,
		2020		2019
Revenue
Premiums
70%; width:70%; min-width:70%;">Gross earned premiums	1%; width:1%; min-width:1%;">	1%; width:1%; min-width:1%;">$	12%; width:12%; min-width:12%;">26,053	1%; width:1%; min-width:1%;">	1%; width:1%; min-width:1%;">	1%; width:1%; min-width:1%;">$	12%; width:12%; min-width:12%;">25,550	1%; width:1%; min-width:1%;">
Ceded earned premiums			(4,036	)			(3,863	)
Net earned premiums			22,017				21,687
Net investment income			954				910
Net realized investment gains			928				19
Change in fair value of equity securities			(3,086	)			1,265
Other gains			115				-
Other income			658				422
Total revenue			21,586				24,303
Expenses
Losses and loss adjustment expenses, net			14,269				14,456
Policy acquisition costs			6,303				5,589
Operating expenses			5,045				4,323
Interest expense			731				710
Total expenses			26,348				25,078
Income (loss) before equity earnings and income taxes			(4,762	)			(775	)
Equity earnings of Affiliate, net of tax			50				106
Income tax (benefit) expense			13				11
Net income (loss)			(4,725	)			(680	)
Earnings (loss) per common share,
basic and diluted		$	(0.49	)		$	(0.08	)
Weighted average common shares outstanding,
basic and diluted			9,592,774				8,453,570

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

FAQ

What were Conifer Holdings' financial results for Q1 2020?

Conifer Holdings reported a net loss of $4.7 million or $0.49 per share, with gross written premiums rising 3.6% to $25.1 million.

How did COVID-19 affect Conifer Holdings' Q1 2020 results?

The COVID-19 pandemic led to market disruptions, contributing to a net loss and impacting the fair value of equity securities.

What was the combined ratio for Conifer Holdings in Q1 2020?

The combined ratio for Q1 2020 was 111.6%, an increase from 108.1% in the previous year.

What factors contributed to the improvement in Conifer Holdings' adjusted operating loss?

The adjusted operating loss improved to $2.7 million due to steady growth in premiums and lower reinsurance costs.

When is Conifer Holdings' earnings conference call for Q1 2020?

The earnings conference call is scheduled for May 14, 2020, at 8:30 a.m. ET.