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ifer (CNFR) - 2020 Q2 - Quarterly Report
2020-08-12 20:10
[Part I — Financial Information](index=3&type=section&id=Part%20I%20%E2%80%94%20Financial%20Information) This section presents the company's financial statements, management's analysis, market risk disclosures, and internal controls [Financial Statements](index=3&type=section&id=Item%201%20%E2%80%94%20Financial%20Statements) Total assets increased to $250.0 million, with Q2 2020 net income of $1.5 million and H1 2020 net loss narrowing [Consolidated Balance Sheets](index=3&type=section&id=Consolidated%20Balance%20Sheets) Total assets increased to $250.0 million, driven by debt securities, with liabilities and shareholders' equity also rising Consolidated Balance Sheet Highlights (in thousands) | Account | June 30, 2020 (Unaudited) | December 31, 2019 | | :--- | :--- | :--- | | **Total Assets** | **$250,013** | **$247,265** | | Total investments | $170,616 | $169,732 | | Cash and cash equivalents | $4,812 | $7,464 | | **Total Liabilities** | **$206,733** | **$204,540** | | Unpaid losses and loss adjustment expenses | $106,734 | $107,246 | | Debt | $38,842 | $35,824 | | **Total Shareholders' Equity** | **$43,280** | **$42,725** | [Consolidated Statements of Operations](index=4&type=section&id=Consolidated%20Statements%20of%20Operations) Q2 2020 net income of $1.5 million reversed prior-year loss, with H1 2020 net loss narrowing to $3.2 million Statement of Operations Summary (in thousands, except per share data) | Metric | Q2 2020 | Q2 2019 | H1 2020 | H1 2019 | | :--- | :--- | :--- | :--- | :--- | | Total Revenue | $25,300 | $22,781 | $46,886 | $47,084 | | Net Earned Premiums | $21,758 | $21,349 | $43,775 | $43,036 | | Losses and LAE, net | $11,945 | $14,382 | $26,214 | $28,838 | | Total Expenses | $23,930 | $25,657 | $50,278 | $50,735 | | **Net Income (Loss)** | **$1,505** | **($2,884)** | **($3,220)** | **($3,564)** | | **EPS (basic and diluted)** | **$0.16** | **($0.34)** | **($0.34)** | **($0.42)** | [Consolidated Statements of Comprehensive Income (Loss)](index=5&type=section&id=Consolidated%20Statements%20of%20Comprehensive%20Income%20%28Loss%29) Total comprehensive income improved to $6.5 million in Q2 2020 and $96,000 in H1 2020, driven by investment gains Comprehensive Income (Loss) Summary (in thousands) | Metric | Q2 2020 | Q2 2019 | H1 2020 | H1 2019 | | :--- | :--- | :--- | :--- | :--- | | Net Income (Loss) | $1,505 | ($2,884) | ($3,220) | ($3,564) | | Other Comprehensive Income (Loss) | $5,015 | $1,336 | $3,316 | $3,033 | | **Total Comprehensive Income (Loss)** | **$6,520** | **($1,548)** | **$96** | **($531)** | [Consolidated Statements of Changes in Shareholders' Equity](index=6&type=section&id=Consolidated%20Statements%20of%20Changes%20in%20Shareholders%27%20Equity) Shareholders' equity increased to $43.3 million, primarily due to other comprehensive income offsetting the net loss - Total shareholders' equity increased to **$43,280 thousand** at June 30, 2020, from **$42,725 thousand** at December 31, 2019[21](index=21&type=chunk) - The change in equity during the first six months of 2020 was primarily influenced by a net loss of **$3,220 thousand**, offset by other comprehensive income of **$3,316 thousand**[21](index=21&type=chunk) [Consolidated Statements of Cash Flows](index=7&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) Net cash used in operations increased to $4.6 million in H1 2020, with financing activities providing $2.8 million Cash Flow Summary (in thousands) | Activity | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | ($4,601) | ($223) | | Net cash provided by (used in) investing activities | ($861) | $4,459 | | Net cash provided by financing activities | $2,810 | $5,387 | | **Net increase (decrease) in cash** | **($2,652)** | **$9,623** | | Cash at end of period | $4,812 | $20,415 | [Notes to Consolidated Financial Statements](index=8&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) Notes detail accounting policies, investment portfolio, debt, segment performance, and COVID-19 impacts - The company is engaged in selling property and casualty insurance products through three business segments: commercial lines, personal lines, and agency business[29](index=29&type=chunk) - The company's investment portfolio, valued at **$170.6 million**, consists mainly of available-for-sale debt securities, with no other-than-temporary impairment loss recorded for the period[35](index=35&type=chunk)[37](index=37&type=chunk) - For the six months ended June 30, 2020, the company experienced **$6.7 million** in prior-year adverse reserve development, primarily from commercial lines[50](index=50&type=chunk) - Total debt outstanding was **$38.8 million** as of June 30, 2020, including senior unsecured notes, subordinated notes, a line of credit, and a **$2.7 million** Paycheck Protection Program (PPP) loan received in April 2020[54](index=54&type=chunk)[59](index=59&type=chunk) - The Commercial Lines segment is the largest contributor to premiums, with **$49.0 million** in gross written premiums for the first six months of 2020[74](index=74&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=24&type=section&id=Item%202%20%E2%80%94%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management attributes Q2 2020 net income to improved business mix and lower claims, with premium growth despite adverse reserve development [Executive Overview](index=25&type=section&id=Executive%20Overview) Q2 2020 net income of $1.5 million and improved 100.5% combined ratio reflect better business mix and lower commercial claims - Reported net income of **$1.5 million**, or **$0.16 per share**, for Q2 2020, compared to a net loss of **$2.9 million**, or **($0.34) per share**, in Q2 2019[83](index=83&type=chunk) - The underwriting combined ratio improved to **100.5%** for Q2 2020 from **113.0%** in Q2 2019[83](index=83&type=chunk) - Commercial lines experienced low claims activity during Q2 due to COVID-19, as business shutdowns reduced the potential for liability losses[83](index=83&type=chunk) [Results of Operations - Three Months Ended June 30, 2020 and 2019](index=26&type=section&id=Results%20of%20Operations%20For%20The%20Three%20Months%20Ended%20June%2030%2C%202020%20and%202019) Q2 2020 gross written premiums grew 9.4% to $27.5 million, with loss ratio improving to 54.6% despite adverse reserve development Q2 Operating Results Highlights (in thousands) | Metric | Q2 2020 | Q2 2019 | % Change | | :--- | :--- | :--- | :--- | | Gross written premiums | $27,545 | $25,169 | 9.4% | | Net earned premiums | $21,758 | $21,349 | 1.9% | | Losses and LAE, net | $11,945 | $14,382 | (16.9)% | | Underwriting gain (loss) | ($728) | ($3,002) | 75.7% | | Net income (loss) | $1,505 | ($2,884) | N/A | - The calendar year loss ratio improved to **54.6%** in Q2 2020 from **67.1%** in Q2 2019[97](index=97&type=chunk) - Incurred losses for Q2 2020 included **$3.0 million** of adverse prior-year reserve development, mainly from commercial auto lines in 2017 and 2018[97](index=97&type=chunk) [Results of Operations - Six Months Ended June 30, 2020 and 2019](index=30&type=section&id=Results%20of%20Operations%20For%20The%20Six%20Months%20Ended%20June%2030%2C%202020%20and%202019) H1 2020 gross written premiums grew 6.6% to $52.6 million, with net loss narrowing and loss ratio improving despite adverse reserve development H1 Operating Results Highlights (in thousands) | Metric | H1 2020 | H1 2019 | % Change | | :--- | :--- | :--- | :--- | | Gross written premiums | $52,629 | $49,385 | 6.6% | | Net earned premiums | $43,775 | $43,036 | 1.7% | | Losses and LAE, net | $26,214 | $28,838 | (9.1)% | | Underwriting gain (loss) | ($3,670) | ($5,261) | 30.2% | | Net income (loss) | ($3,220) | ($3,564) | N/A | - The calendar year loss ratio improved to **59.6%** in H1 2020 from **66.8%** in H1 2019[112](index=112&type=chunk) - Incurred losses for H1 2020 included **$6.8 million** of adverse prior-year reserve development, with **$6.7 million** from Commercial lines[112](index=112&type=chunk) [Liquidity and Capital Resources](index=34&type=section&id=Liquidity%20and%20Capital%20Resources) The company maintains $15.7 million in liquid assets, with H1 2020 cash used in operations at $4.6 million, offset by financing activities - At June 30, 2020, the company had **$15.7 million** in cash, cash equivalents and short-term investments[120](index=120&type=chunk) - Cash used in operating activities increased to **$4.6 million** in H1 2020 from **$0.2 million** in H1 2019, mainly due to higher cash paid on losses[121](index=121&type=chunk) - Cash from financing activities decreased to **$2.8 million** in H1 2020 from **$5.4 million** in H1 2019, as a **$5.0 million** equity issuance in 2019 was not repeated, though partially offset by new borrowings in 2020[121](index=121&type=chunk) [Non-GAAP Financial Measures](index=34&type=section&id=Non-GAAP%20Financial%20Measures) The company provides non-GAAP measures like Adjusted Operating Income to supplement GAAP results, with Q2 2020 adjusted operating loss at $461,000 - The company's insurance subsidiaries' aggregate statutory capital and surplus, a non-GAAP measure, was **$59.8 million** at June 30, 2020[122](index=122&type=chunk) Reconciliation of Net Income (Loss) to Adjusted Operating Income (Loss) (in thousands) | Metric | Q2 2020 | Q2 2019 | H1 2020 | H1 2019 | | :--- | :--- | :--- | :--- | :--- | | Net income (loss) | $1,505 | ($2,884) | ($3,220) | ($3,564) | | Exclusions (net of tax) | ($1,966) | ($2,713) | $83 | ($5,282) | | **Adjusted operating income (loss)** | **($461)** | **($5,597)** | **($3,143)** | **($9,844)** | [Quantitative and Qualitative Disclosures about Market Risk](index=35&type=section&id=Item%203%20%E2%80%94%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) Primary market risk is interest rate exposure on the $170.6 million debt securities portfolio, with credit risk from reinsurers also noted - The primary market risk is interest rate risk on the debt securities portfolio, which had a fair value of **$170.6 million** and an effective duration of **3.5 years** as of June 30, 2020[128](index=128&type=chunk) Interest Rate Sensitivity of Debt Portfolio (in thousands) | Hypothetical Change in Interest Rates | Estimated Change in Fair Value | Hypothetical % Change in Fair Value | | :--- | :--- | :--- | | 200 basis point increase | ($10,223) | (6.48)% | | 100 basis point increase | ($5,096) | (3.23)% | | 100 basis point decrease | $2,287 | 1.45% | - The company is subject to credit risk from reinsurers, with a net amount due of **$30.5 million** as of June 30, 2020, believed to be fully recoverable[129](index=129&type=chunk) [Controls and Procedures](index=37&type=section&id=Item%204%20%E2%80%94%20Controls%20and%20Procedures) Management concluded that disclosure controls and procedures were effective as of June 30, 2020, with no material changes to internal controls - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of June 30, 2020[133](index=133&type=chunk) - No material changes were made to the company's internal control over financial reporting during the second quarter of 2020[134](index=134&type=chunk) [Part II — Other Information](index=38&type=section&id=Part%20II%20%E2%80%94%20Other%20Information) This section covers legal proceedings, risk factors, equity sales, exhibits, and signatures related to the report [Legal Proceedings](index=38&type=section&id=Item%201%20%E2%80%94%20Legal%20Proceedings) The company faces various claims and lawsuits in the ordinary course of business, with no material loss expected beyond accrued amounts - The company is subject to various claims and lawsuits arising in the ordinary course of business, for which it establishes reserves for unpaid losses and LAE[68](index=68&type=chunk) - Management does not believe that any material loss exceeding accrued amounts will result from current legal proceedings[68](index=68&type=chunk)[137](index=137&type=chunk) [Risk Factors](index=38&type=section&id=Item%201A%20%E2%80%94%20Risk%20Factors) New risks from COVID-19 include adverse impacts on operations, financial performance, asset values, and potential regulatory actions - The COVID-19 pandemic could adversely impact business performance, leading to higher claims, reduced premiums, and negative effects on the investment portfolio[138](index=138&type=chunk) - There is a risk of governmental or judicial actions, such as retroactively altering insurance contracts to cover pandemic-related business interruption losses, which the company believes would be unconstitutional[139](index=139&type=chunk) - The shift to remote work places increased demands on IT systems and infrastructure, posing a risk to operational efficiency and productivity[140](index=140&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=38&type=section&id=Item%202%20%E2%80%94%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) In June 2019, the company issued $5.0 million in common stock via private placement to accredited investors for growth capital - In June 2019, the company issued **$5.0 million** of common stock (**1,176,471 shares**) at **$4.25 per share** in a private placement to accredited investors, mainly board members[141](index=141&type=chunk) - The proceeds from the private placement were used for growth capital in the company's specialty core commercial business segments[141](index=141&type=chunk) [Exhibits](index=39&type=section&id=Item%206%20%E2%80%94%20Exhibits) This section lists exhibits filed with the Form 10-Q, including debt agreement amendments and CEO/CFO certifications - Filed exhibits include amendments to debt agreements with The Huntington National Bank, CEO/CFO certifications, and XBRL data files[144](index=144&type=chunk) [Signatures](index=40&type=section&id=Signatures) The Form 10-Q report was signed on August 12, 2020, by Harold J. Meloche, the company's Chief Financial Officer - The report was signed on August 12, 2020, by Harold J. Meloche, the company's CFO[148](index=148&type=chunk)
ifer (CNFR) - 2020 Q1 - Earnings Call Transcript
2020-05-14 18:34
Conifer Holdings (NASDAQ:CNFR) Q1 2020 Earnings Conference Call May 14, 2020 8:30 AM ET Company Participants Adam Prior - Investor Relations Jim Petcoff - Chairman and Chief Executive Officer Nick Petcoff - Executive Vice President and Secretary Harold Meloche - Chief Financial Officer Brian Roney - President Conference Call Participants Paul Newsome - Piper Sandler Bob Farnam - Boenning & Scattergood Greg Peters - Raymond James Operator Good morning and welcome to the Conifer Holdings, Inc. Q1 2020 Investo ...
ifer (CNFR) - 2020 Q1 - Earnings Call Presentation
2020-05-14 17:10
FIRST QUARTER 2020 INVESTOR CONFERENCE CALL May 14, 2020 Conifer Holdings Inc. SAFE HARBOR STATEMENT 1 This presentation contains "forward-looking" statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, that are based on our management's beliefs and assumptions and on information currently available to management. These forward-looking statements include, without limitation, statements regarding our industry ...
ifer (CNFR) - 2020 Q1 - Quarterly Report
2020-05-13 20:57
UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q ☑ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarterly Period Ended March 31, 2020 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number 001-37536 Conifer Holdings, Inc. (Exact name of registrant as specified in its charter) Michigan 27-1298795 (State or other jurisdiction of inc ...
ifer (CNFR) - 2019 Q4 - Annual Report
2020-03-12 19:57
PART I [ITEM 1. BUSINESS](index=3&type=section&id=ITEM%201.%20BUSINESS) Conifer Holdings, Inc. is an insurance holding company providing property and casualty products across 50 states, focusing on specialty lines and under-served markets - Conifer Holdings, Inc. operates through wholly-owned subsidiaries including Conifer Insurance Company (CIC), Red Cedar Insurance Company (RCIC), White Pine Insurance Company (WPIC), American Colonial Insurance Services, and Sycamore Insurance Agency, Inc. (SIA)[7](index=7&type=chunk) - The Company sells property and casualty insurance products across commercial lines, personal lines, and wholesale agency businesses[9](index=9&type=chunk) - The Company is authorized as an E&S carrier in **45 states** and an admitted carrier in **42 states**, offering products in all **50 states**[9](index=9&type=chunk) - Revenues are primarily from earned premiums, supplemented by investment income, installment fees, policy issuance fees, and wholesale agency commissions[9](index=9&type=chunk) - The Company targets under-served markets such as hospitality, artisan contractors, security services, and owners of lower-valued homes[9](index=9&type=chunk)[10](index=10&type=chunk)[15](index=15&type=chunk) Gross Written Premium by Segment (2017-2019, in thousands) | Segment | 2019 ($) | 2019 (%) | 2018 ($) | 2018 (%) | 2017 ($) | 2017 (%) | |:-----------|:---------|:---------|:---------|:---------|:---------|:---------| | Commercial | 94,391 | 93% | 97,694 | 94% | 92,112 | 81% | | Personal | 7,462 | 7% | 6,674 | 6% | 22,172 | 19% | | Total | 101,853 | 100% | 104,368 | 100% | 114,284 | 100% | Gross Written Premiums by State (2017-2019, in thousands) | State | 2019 ($) | 2019 (%) | 2018 ($) | 2018 (%) | 2017 ($) | 2017 (%) | |:-------------------|:---------|:---------|:---------|:---------|:---------|:---------| | Michigan | 19,346 | 19.0% | 19,822 | 19.0% | 21,099 | 18.5% | | Florida | 16,993 | 16.7% | 23,389 | 22.4% | 26,562 | 23.1% | | Texas | 8,236 | 8.1% | 6,509 | 6.2% | 12,910 | 11.3% | | New York | 7,955 | 7.8% | 3,845 | 3.7% | 3,095 | 2.7% | | California | 7,037 | 6.9% | 5,691 | 5.5% | 2,218 | 1.9% | | Pennsylvania | 6,015 | 5.9% | 6,503 | 6.2% | 8,859 | 7.8% | | Ohio | 4,129 | 4.1% | 4,025 | 3.9% | 3,850 | 3.4% | | Indiana | 3,937 | 3.9% | 3,914 | 3.8% | 4,356 | 3.8% | | Colorado | 3,044 | 3.0% | 2,835 | 2.7% | 2,998 | 2.6% | | New Jersey | 2,051 | 2.0% | 4,884 | 4.7% | 3,960 | 3.5% | | Montana | 1,945 | 1.9% | 2,433 | 2.3% | 2,409 | 2.1% | | All Other States | 21,165 | 20.7% | 20,518 | 19.6% | 21,968 | 19.3% | | Total | 101,853 | 100.0% | 104,368 | 100.0% | 114,284 | 100.0% | - The Company increased focus on core commercial lines while deemphasizing wind-exposed personal lines in Florida, Texas, and Hawaii to rebalance its portfolio[11](index=11&type=chunk) - As of December 31, 2019, investments were primarily fixed income with an average credit rating of **'AA'** and a duration-to-worst average of **3.0 years**[15](index=15&type=chunk) - The Company employed **147 full-time employees** as of December 31, 2019, with no collective bargaining agreements[39](index=39&type=chunk) [ITEM 1A. RISK FACTORS](index=15&type=section&id=ITEM%201A.%20RISK%20FACTORS) The Company faces risks from reserve adequacy, underwriting accuracy, market competition, holding company structure, investment volatility, rating downgrades, IT security, catastrophes, agent reliance, and regulatory changes - Actual incurred losses may exceed loss and loss adjustment expense (LAE) reserves, potentially reducing net income and shareholders' equity[45](index=45&type=chunk)[47](index=47&type=chunk) - Inaccurate underwriting and pricing, influenced by data reliability and regulatory constraints, could adversely affect profitability and competitiveness[47](index=47&type=chunk) - The Company operates in a highly competitive environment, risking market share loss to larger, more diversified rivals during intense price competition[47](index=47&type=chunk)[49](index=49&type=chunk) - As a holding company, debt obligations and dividend payments depend on distributions from Insurance Company Subsidiaries, which are restricted by state insurance laws[49](index=49&type=chunk) - The investment portfolio is subject to market and credit risks, including defaults and impairments, which could adversely impact financial condition and ratings[51](index=51&type=chunk) - A decline in financial strength ratings, such as **A.M. Best B++** for CIC and WPIC or **Kroll BBB+**, could reduce new business and increase reinsurance costs[53](index=53&type=chunk)[55](index=55&type=chunk) - Increased IT security threats and computer crimes pose risks to systems, data confidentiality, and operations, potentially leading to reputational damage and substantial costs[55](index=55&type=chunk)[57](index=57&type=chunk) - Severe weather and catastrophes are unpredictable, causing significant losses, especially given geographic concentration in certain states[57](index=57&type=chunk)[72](index=72&type=chunk) - The Company relies heavily on a select group of independent agents, with top agencies accounting for **33% of commercial** and **27% of personal** gross written premiums in 2019, posing credit and continuity risks[57](index=57&type=chunk) - Extensive state and federal regulations, including capital and surplus requirements (RBC), can restrict business objectives and lead to non-compliance penalties[59](index=59&type=chunk)[61](index=61&type=chunk) - The Notes are structurally subordinated to subsidiary indebtedness, giving subsidiary creditors priority over Note holders regarding subsidiary assets[83](index=83&type=chunk) [ITEM 1B. UNRESOLVED STAFF COMMENTS](index=32&type=section&id=ITEM%201B.%20UNRESOLVED%20STAFF%20COMMENTS) There are no unresolved staff comments to report - No unresolved staff comments[90](index=90&type=chunk) [ITEM 2. PROPERTIES](index=32&type=section&id=ITEM%202.%20PROPERTIES) The Company leases office spaces in Michigan, Florida, and Pennsylvania, which are considered adequate for current operational needs - The Company leases office space in Birmingham and Southfield, Michigan; Jacksonville, Orlando, and Miami, Florida; and Somerset, Pennsylvania[91](index=91&type=chunk) - Current facilities are considered adequate, with additional or substitute space expected to be available as needed[91](index=91&type=chunk) [ITEM 3. LEGAL PROCEEDINGS](index=32&type=section&id=ITEM%203.%20LEGAL%20PROCEEDINGS) The Company is involved in ordinary course legal proceedings, with management expecting no material adverse effect on financial position, operating results, or liquidity - The Company is party to legal proceedings arising in the ordinary course of business[92](index=92&type=chunk) - Management believes the outcome of these matters will not materially adversely affect consolidated financial position, operating results, or liquidity[92](index=92&type=chunk) [ITEM 4. MINE SAFETY DISCLOSURES](index=32&type=section&id=ITEM%204.%20MINE%20SAFETY%20DISCLOSURES) This item is not applicable to the Company - Mine Safety Disclosures are not applicable[93](index=93&type=chunk) PART II [ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.](index=33&type=section&id=ITEM%205.%20MARKET%20FOR%20REGISTRANT'S%20COMMON%20EQUITY%2C%20RELATED%20STOCKHOLDER%20MATTERS%20AND%20ISSUER%20PURCHASES%20OF%20EQUITY%20SECURITIES.) Conifer Holdings' common stock trades on Nasdaq, with no anticipated cash dividends; the Company conducted stock repurchases and private placements in recent years - Conifer Holdings, Inc.'s common stock is traded on the Nasdaq under the symbol **'CNFR'**[98](index=98&type=chunk) Common Stock High and Low Sale Prices (2018-2019, in US dollars) | Period | High ($) | Low ($) | |:-----------------|:---------|:--------| | **2019** | | | | First Quarter | 4.86 | 3.70 | | Second Quarter | 4.80 | 3.42 | | Third Quarter | 4.00 | 3.20 | | Fourth Quarter | 4.50 | 3.50 | | **2018** | | | | First Quarter | 6.85 | 5.15 | | Second Quarter | 6.40 | 5.60 | | Third Quarter | 7.20 | 5.60 | | Fourth Quarter | 5.90 | 3.06 | - The Parent Company has not historically paid and does not anticipate paying cash dividends on its common stock for the foreseeable future[99](index=99&type=chunk) - As of March 12, 2020, there were **29 shareholders of record** for the common stock[102](index=102&type=chunk) - The Board authorized a stock repurchase program in December 2018; in 2019, **154,208 shares** were repurchased for approximately **$638,000**, and in 2018, **8,053 shares** for **$52,000**[103](index=103&type=chunk) - In June 2019, **$5.0 million** of common equity (**1,176,471 shares** at **$4.25/share**) was issued via private placement for growth capital; in September 2017, **$5.0 million** (**800,000 shares** at **$6.25/share**) was issued to strengthen the balance sheet and cover ADC costs[104](index=104&type=chunk) [ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA](index=35&type=section&id=ITEM%206.%20SELECTED%20CONSOLIDATED%20FINANCIAL%20DATA) This section presents selected consolidated historical financial data for 2015-2019, including operating results, balance sheet data, and underwriting ratios, derived from audited statements Selected Consolidated Operating Results (2015-2019, in thousands) | Operating Results | 2019 ($) | 2018 ($) | 2017 ($) | 2016 ($) | 2015 ($) | |:-----------------------------------|:---------|:---------|:---------|:---------|:---------| | Gross written premiums | 101,853 | 104,368 | 114,284 | 114,923 | 93,750 | | Ceded written premiums | (14,129) | (15,282) | (23,044) | (14,994) | (14,076) | | Net written premiums | 87,724 | 89,086 | 91,240 | 99,929 | 79,674 | | Net earned premiums | 89,089 | 93,811 | 91,729 | 89,627 | 66,765 | | Net investment income | 4,031 | 3,336 | 2,728 | 2,173 | 1,902 | | Net realized investment gains | 1,196 | 61 | 70 | 1,365 | 285 | | Change in fair value of equity securities | (427) | 121 | — | — | — | | Other gains (losses) | — | — | 750 | (400) | 104 | | Other income | 2,109 | 1,582 | 1,560 | 1,118 | 1,667 | | Total revenue | 95,998 | 98,911 | 96,837 | 93,883 | 70,723 | | Losses and loss adjustment expenses, net | 59,744 | 62,515 | 73,917 | 59,003 | 38,882 | | Policy acquisition costs | 24,911 | 25,534 | 26,245 | 25,280 | 16,183 | | Operating expenses | 17,582 | 17,683 | 17,367 | 17,596 | 14,806 | | Interest expense | 2,882 | 2,644 | 1,362 | 647 | 769 | | Total expenses | 105,119 | 108,376 | 118,891 | 102,526 | 70,640 | | Income (loss) before income taxes | (9,121) | (9,465) | (22,054) | (8,643) | 83 | | Equity earnings (losses) in affiliates, net of tax | 386 | 290 | 65 | 129 | (52) | | Income tax expense (benefit) | (913) | 52 | (447) | (77) | 48 | | Net income (loss) | (7,822) | (9,227) | (21,542) | (8,437) | (17) | | Net income (loss) for Conifer | (7,822) | (9,227) | (21,542) | (8,437) | 64 | | Net income (loss) allocable to common shareholders | (7,822) | (9,227) | (21,542) | (8,437) | (476) | | Net income (loss) per share, basic and diluted | (0.88) | (1.08) | (2.74) | (1.11) | (0.09) | | Weighted average common shares outstanding, basic and diluted | 8,880,107| 8,543,876| 7,867,344| 7,618,588| 5,369,960| Selected Consolidated Balance Sheet Data (2015-2019, in thousands) | Balance Sheet Data | 2019 ($) | 2018 ($) | 2017 ($) | 2016 ($) | 2015 ($) | |:-------------------------------------------|:---------|:---------|:---------|:---------|:---------| | Cash and invested assets | 177,196 | 150,894 | 169,518 | 141,023 | 130,427 | | Reinsurance recoverables | 27,734 | 34,745 | 24,539 | 7,498 | 7,044 | | Total assets | 247,265 | 232,752 | 239,032 | 203,701 | 177,927 | | Unpaid losses and loss adjustment expenses | 107,246 | 92,807 | 87,896 | 54,651 | 35,422 | | Unearned premiums | 51,503 | 52,852 | 57,672 | 58,126 | 47,916 | | Debt | 35,824 | 33,502 | 29,027 | 17,750 | 12,750 | | Total liabilities | 204,540 | 190,589 | 186,206 | 135,907 | 100,665 | | Total shareholders' equity attributable to Conifer | 42,725 | 42,163 | 52,826 | 67,794 | 77,262 | Selected Consolidated Other Data and Underwriting Ratios (2015-2019) | Other Data / Underwriting Ratios | 2019 | 2018 | 2017 | 2016 | 2015 | |:---------------------------------|:---------|:---------|:---------|:---------|:---------| | Shareholders' equity per common share outstanding | $4.45 | $4.97 | $6.20 | $8.88 | $10.11 | | Regulatory capital and surplus | 59,561 | 63,993 | 62,451 | 62,189 | 71,153 | | Loss ratio | 66.8% | 66.4% | 79.9% | 65.0% | 56.8% | | Expense ratio | 44.0% | 45.9% | 44.8% | 47.2% | 45.3% | | Combined ratio | 110.8% | 112.3% | 124.7% | 112.2% | 102.1% | [ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS](index=37&type=section&id=ITEM%207.%20MANAGEMENT'S%20DISCUSSION%20AND%20ANALYSIS%20OF%20FINANCIAL%20CONDITION%20AND%20RESULTS%20OF%20OPERATIONS) This section analyzes the Company's financial condition and operations for 2017-2019, covering premium trends, income, expenses, underwriting, investments, debt, liquidity, and regulatory compliance - The Company reported a net loss of **$7.8 million** (**$0.88 per share**) in 2019, compared to **$9.2 million** (**$1.08 per share**) in 2018, and **$21.5 million** (**$2.74 per share**) in 2017[107](index=107&type=chunk)[132](index=132&type=chunk) - Adjusted operating loss (non-GAAP) was **$15.1 million** (**$1.69 per share**) in 2019, compared to **$3.7 million** (**$0.44 per share**) in 2018, and **$22.8 million** (**$2.90 per share**) in 2017[130](index=130&type=chunk)[132](index=132&type=chunk) - The 2019 results were significantly impacted by **$10.6 million** of adverse development, primarily from commercial lines (**$7.6 million**) and personal lines (**$3.0 million**), mostly related to 2017 and 2016 accident years[132](index=132&type=chunk)[144](index=144&type=chunk) - The **$5.7 million** deferred gain from the Adverse Development Cover (ADC) as of December 31, 2018, was fully utilized in 2019[132](index=132&type=chunk)[133](index=133&type=chunk) - Gross written premiums decreased by **2.4%** to **$101.9 million** in 2019, while personal lines gross written premiums increased by **11.8%** to **$7.5 million** due to low-value dwelling business[140](index=140&type=chunk) - Net investment income increased by **20.8%** to **$4.0 million** in 2019, primarily due to an increase in average invested assets[152](index=152&type=chunk) - Interest expense increased by **9.0%** to **$2.9 million** in 2019, following 2018 debt restructuring that included issuing **$25.3 million** in senior unsecured notes[153](index=153&type=chunk) - Cash provided by operating activities increased by **$32.4 million** to **$15.4 million** in 2019, a significant increase from **$17.0 million** cash used in 2018, mainly due to increased cash from reinsurers for ceded losses, including **$12.5 million** from the ADC[181](index=181&type=chunk) - As of December 31, 2019, outstanding debt totaled **$35.8 million**, comprising **$25.3 million** in senior unsecured notes, **$10.5 million** in subordinated notes, and **$2.0 million** drawn on a **$10.0 million** line of credit, all in compliance with covenants[185](index=185&type=chunk)[300](index=300&type=chunk) [Forward-Looking Statements](index=37&type=section&id=Forward-Looking%20Statements) This section discusses forward-looking statements, which are subject to risks and uncertainties that could cause actual results to differ materially - The report contains forward-looking statements based on management's judgment, subject to factors, risks, and uncertainties that could cause actual results to differ materially[111](index=111&type=chunk) - The Company undertakes no obligation to publicly update any forward-looking statement, except as required by law[111](index=111&type=chunk) [Business Overview](index=37&type=section&id=Business%20Overview) Conifer Holdings is an insurance holding company offering specialty commercial and personal products across 50 states, with revenues from premiums and investments - Conifer Holdings is an insurance holding company marketing specialty commercial and personal products, authorized as E&S in **45 states** and admitted in **42 states**, offering products in all **50 states**[112](index=112&type=chunk) - Revenues are primarily from earned premiums, investment income, and other income, while expenses include losses, LAE, agent commissions, and underwriting/administrative costs[112](index=112&type=chunk) - Operations are organized into commercial lines (property, liability, auto, workers' comp), personal lines (homeowners, dwelling fire, de-emphasizing wind-exposed areas), and wholesale agency business[112](index=112&type=chunk) [Critical Accounting Policies and Estimates](index=38&type=section&id=Critical%20Accounting%20Policies%20and%20Estimates) This section details critical accounting estimates, including loss and LAE reserves, investment valuation, and income taxes, which require significant judgment - Critical accounting estimates, including loss and LAE reserves, investment valuation, and income taxes, require significant judgment and are crucial for financial reporting[114](index=114&type=chunk) - Loss and LAE reserves represent management's best estimate of unpaid amounts, comprising case reserves and IBNR reserves, not discounted for time value[115](index=115&type=chunk) - IBNR reserves are determined using various actuarial methods and diagnostic measures, with weights applied based on data maturity and judgment[117](index=117&type=chunk) Ratio of IBNR Reserves to Total Reserves (Net of Reinsurance Recoverables) as of December 31, 2019 (in thousands) | Line of Business | Case Reserves ($) | IBNR Reserves ($) | Total Reserves ($) | Ratio of IBNR to Total Reserves | |:-----------------|:------------------|:------------------|:-------------------|:--------------------------------| | Commercial Lines | 43,299 | 38,501 | 81,800 | 47.1% | | Personal Lines | 1,802 | 1,065 | 2,867 | 37.1% | | Total Lines | 45,101 | 39,566 | 84,667 | 46.7% | - A 2019 sensitivity analysis on net reserves showed potential changes in pre-tax income and shareholders' equity based on varying loss development factors, but no material impact on operating results or liquidity is expected[121](index=121&type=chunk)[122](index=122&type=chunk) - Debt securities are classified as available-for-sale and reported at fair value, equity securities at fair value with changes in net income, and other equity investments at cost less impairment[123](index=123&type=chunk)[125](index=125&type=chunk) - Income tax expense, deferred tax assets/liabilities, and unrecognized tax benefits are based on management's assessment, with the Tax Cuts and Jobs Act of 2017 reducing the corporate tax rate from **34% to 21%**[126](index=126&type=chunk) - As of December 31, 2019, the Company had federal and state NOL carryforwards of **$60.0 million** and **$17.7 million**, respectively, with a **$13.6 million** valuation allowance against gross deferred tax assets[128](index=128&type=chunk) [Non-GAAP Financial Measures](index=44&type=section&id=Non-GAAP%20Financial%20Measures) This section defines non-GAAP adjusted operating income (loss) and per share amounts, which exclude specific non-recurring or non-cash items - Adjusted operating income (loss) and per share are non-GAAP measures excluding net realized investment gains/losses, tax effects of reform and unrealized gains, and ADC deferred gain capitalization/amortization[130](index=130&type=chunk) Reconciliation of Net Income to Adjusted Operating Income (2017-2019, in thousands) | Item | 2019 ($) | 2018 ($) | 2017 ($) | |:------------------------------------------------------------------|:---------|:---------|:---------| | Net income (loss) | (7,822) | (9,227) | (21,542) | | Less: Net realized investment and other gains, net of tax | 1,196 | 61 | 820 | | Less: Effect of tax law change | — | — | 63 | | Less: Tax effect of unrealized gains and losses on investments | 824 | — | 356 | | Less: Change in fair value of equity securities, net of tax | (427) | 121 | — | | Less: Net (increase) decrease in deferred gain on losses ceded to ADC, net of tax | 5,677 | (5,677) | — | | Adjusted operating income (loss) | (15,092) | (3,732) | (22,781) | | Weighted average common shares, diluted | 8,880,107| 8,543,876| 7,867,344| | Diluted (loss) per common share: | | | | | Net income (loss) | (0.88) | (1.08) | (2.74) | | Net realized investment and other gains, net of tax | 0.13 | 0.01 | 0.10 | | Effect of tax law change | 0.09 | — | 0.01 | | Tax effect of unrealized gains and losses on investments | — | — | 0.05 | | Change in fair value of equity securities, net of tax | (0.05) | 0.01 | — | | Net (increase) decrease in deferred gain on losses ceded to ADC, net of tax | 0.64 | (0.66) | — | | Adjusted operating (loss) per share | (1.69) | (0.44) | (2.90) | [Executive Overview](index=45&type=section&id=Executive%20Overview) This overview highlights key strategic actions and financial outcomes for 2019 and prior years, including commercial lines expansion and net losses - In 2019, the Company expanded commercial lines in successful areas, reduced exposure in challenging areas, and repositioned personal lines[132](index=132&type=chunk) - Commercial lines gross written premiums decreased by **3.4%** to **$94.4 million** in 2019, while personal lines gross written premiums increased by **11.8%** to **$7.5 million**[132](index=132&type=chunk) - The 2019 net loss of **$7.8 million** was mainly driven by **$10.6 million** of adverse development and the full utilization of the **$5.7 million** deferred gain from the ADC[132](index=132&type=chunk) - Debt was restructured in 2018 by issuing **$25.3 million** in public senior unsecured notes and paying down **$19.5 million** of subordinated notes[132](index=132&type=chunk) - The 2017 results were primarily affected by adverse development on prior-year reserves, the cost of the ADC, and losses from Hurricanes Irma and Harvey[132](index=132&type=chunk) [Adverse Development Cover](index=45&type=section&id=Adverse%20Development%20Cover) This section details the Adverse Development Cover (ADC) purchased in 2017 to mitigate prior-year adverse development, fully utilized by 2019 - The Company purchased an Adverse Development Cover (ADC) in 2017, covering up to **$17.5 million** in excess of stated reserves for accident years 2005-2016[133](index=133&type=chunk) - In 2018, **$10.3 million** of adverse development was ceded to the ADC, with **$4.6 million** amortized in 2018 and the remaining **$5.7 million** recognized in 2019[133](index=133&type=chunk) - As of December 31, 2019, the deferred gain from the ADC was fully utilized[133](index=133&type=chunk) [Results of Operations - 2019 Compared to 2018](index=46&type=section&id=Results%20of%20Operations%20-%202019%20Compared%20to%202018) This section compares 2019 and 2018 operating results, detailing changes in premiums, income, expenses, underwriting, investments, and interest expense Summary Operating Results (2018 vs. 2019, in thousands) | Item | 2019 ($) | 2018 ($) | Change ($) | % Change | |:-----------------------------------|:---------|:---------|:-----------|:---------| | Gross written premiums | 101,853 | 104,368 | (2,515) | (2.4%) | | Net written premiums | 87,724 | 89,086 | (1,362) | (1.5%) | | Net earned premiums | 89,089 | 93,811 | (4,722) | (5.0%) | | Other income | 2,109 | 1,582 | 527 | 33.3% | | Losses and loss adjustment expenses, net | 59,744 | 62,515 | (2,771) | (4.4%) | | Policy acquisition costs | 24,911 | 25,534 | (623) | (2.4%) | | Operating expenses | 17,582 | 17,683 | (101) | (0.6%) | | Underwriting gain (loss) | (11,039) | (10,339) | (700) | * | | Net investment income | 4,031 | 3,336 | 695 | 20.8% | | Net realized investment gains | 1,196 | 61 | 1,135 | * | | Change in fair value of equity securities | (427) | 121 | (548) | * | | Interest expense | 2,882 | 2,644 | 238 | 9.0% | | Income (loss) before income taxes | (9,121) | (9,465) | 344 | * | | Equity earnings (losses) in affiliates, net of tax | 386 | 290 | 96 | 33.1% | | Income tax expense (benefit) | (913) | 52 | (965) | * | | Net income (loss) | (7,822) | (9,227) | 1,405 | * | | Underwriting Ratios: | | | | | | Loss ratio | 66.8% | 66.4% | | | | Expense ratio | 44.0% | 45.9% | | | | Combined ratio | 110.8% | 112.3% | | | Summary of Premium Revenue (2018 vs. 2019, in thousands) | Premium Type | 2019 ($) | 2018 ($) | Change ($) | % Change | |:-------------------|:---------|:---------|:-----------|:---------| | **Gross written premiums** | | | | | | Commercial lines | 94,391 | 97,694 | (3,303) | (3.4%) | | Personal lines | 7,462 | 6,674 | 788 | 11.8% | | Total | 101,853 | 104,368 | (2,515) | (2.4%) | | **Net written premiums** | | | | | | Commercial lines | 81,966 | 87,038 | (5,072) | (5.8%) | | Personal lines | 5,758 | 2,048 | 3,710 | 181.2% | | Total | 87,724 | 89,086 | (1,362) | (1.5%) | | **Net Earned premiums** | | | | | | Commercial lines | 83,858 | 83,352 | 506 | 0.6% | | Personal lines | 5,231 | 10,459 | (5,228) | (50.0%) | | Total | 89,089 | 93,811 | (4,722) | (5.0%) | - Other income increased by **$527,000** (**33.3%**) to **$2.1 million** in 2019, primarily due to additional commission income and increased fees[141](index=141&type=chunk) Losses and Loss Adjustment Expenses & Ratios (2018 vs. 2019, in thousands) | Item | 2019 ($) | Commercial Lines (%) | Personal Lines ($) | Personal Lines (%) | Total ($) | Total (%) | |:-----------------------------------|:---------|:---------------------|:-------------------|:-------------------|:----------|:----------| | Accident year net losses and LAE | 45,690 | 54.3% | 3,502 | 65.2% | 49,192 | 55.0% | | Net (favorable) adverse development | 7,566 | 9.0% | 2,986 | 55.5% | 10,552 | 11.8% | | Calendar year net loss and LAE | 53,256 | 63.3% | 6,488 | 120.7% | 59,744 | 66.8% | | **2018** | | | | | | | | Accident year net losses and LAE | 46,816 | 56.1% | 6,665 | 62.3% | 53,481 | 56.8% | | Net (favorable) adverse development | 6,249 | 7.5% | 2,785 | 26.1% | 9,034 | 9.6% | | Calendar year net loss and LAE | 53,065 | 63.6% | 9,450 | 88.4% | 62,515 | 66.4% | - The expense ratio decreased by **1.9 percentage points** to **44.0%** in 2019, primarily due to lower operating and reinsurance costs[148](index=148&type=chunk) Underwriting Gain (Loss) by Segment (2018 vs. 2019, in thousands) | Segment | 2019 ($) | 2018 ($) | Change ($) | |:---------------------------|:---------|:---------|:-----------| | Commercial Lines | (5,574) | (7,858) | 2,284 | | Personal Lines | (4,091) | (3,700) | (391) | | Total Underwriting | (9,665) | (11,558) | 1,893 | | Wholesale Agency | 830 | 1,432 | (602) | | Corporate | (1,064) | (213) | (851) | | Eliminations | (1,140) | — | (1,140) | | Total underwriting income (loss) | (11,039) | (10,339) | (700) | - Net investment income increased by **$695,000** (**20.8%**) to **$4.0 million** in 2019, driven by a **$6.0 million** increase in average invested assets to **$154.9 million**[152](index=152&type=chunk) - Interest expense was **$2.9 million** in 2019, up from **$2.6 million** in 2018, reflecting the issuance of **$25.3 million** in public senior unsecured notes in late 2018[153](index=153&type=chunk) - The Company reported a deferred tax benefit of **$940,000** in 2019, compared to **$0** in 2018, with a **$13.6 million** valuation allowance recorded against net deferred tax assets as of December 31, 2019[154](index=154&type=chunk) [Results of Operations - 2018 Compared to 2017](index=50&type=section&id=Results%20of%20Operations%20-%202018%20Compared%20to%202017) This section compares 2018 and 2017 operating results, detailing changes in premiums, income, expenses, underwriting, investments, and interest expense Summary Operating Results (2017 vs. 2018, in thousands) | Item | 2018 ($) | 2017 ($) | Change ($) | % Change | |:-----------------------------------|:---------|:---------|:-----------|:---------| | Gross written premiums | 104,368 | 114,284 | (9,916) | (8.7%) | | Net written premiums | 89,086 | 91,240 | (2,154) | (2.4%) | | Net earned premiums | 93,811 | 91,729 | 2,082 | 2.3% | | Other income | 1,582 | 1,560 | 22 | 1.4% | | Losses and loss adjustment expenses, net | 62,515 | 73,917 | (11,402) | (15.4%) | | Policy acquisition costs | 25,534 | 26,245 | (711) | (2.7%) | | Operating expenses | 17,683 | 17,367 | 316 | 1.8% | | Underwriting gain (loss) | (10,339) | (24,240) | 13,901 | * |\ | Net investment income | 3,336 | 2,728 | 608 | 22.3% | | Net realized investment gains | 61 | 70 | (9) | (12.86%) |\ | Change in fair value of equity securities | 121 | — | 121 | * |\ | Other gains (losses) | — | 750 | (750) | * |\ | Interest expense | 2,644 | 1,362 | 1,282 | 94.1% | | Income (loss) before income taxes | (9,465) | (22,054) | 12,589 | * |\ | Income tax expense (benefit) | 52 | (447) | 499 | * |\ | Equity earnings (losses) in affiliates, net of tax | 290 | 65 | 225 | * |\ | Net income (loss) | (9,227) | (21,542) | 12,315 | * |\ | Underwriting Ratios: | | | | | | Loss ratio | 66.4% | 79.9% | | | | Expense ratio | 45.9% | 44.8% | | | | Combined ratio | 112.3% | 124.7% | | | Summary of Premium Revenue (2017 vs. 2018, in thousands) | Premium Type | 2018 ($) | 2017 ($) | Change ($) | % Change | |:-------------------|:---------|:---------|:-----------|:---------| | **Gross written premiums** | | | | | | Commercial lines | 97,694 | 92,112 | 5,582 | 6.1% | | Personal lines | 6,674 | 22,172 | (15,498) | (69.9%) | | Total | 104,368 | 114,284 | (9,916) | (8.7%) | | **Net written premiums** | | | | | | Commercial lines | 87,038 | 78,217 | 8,821 | 11.3% | | Personal lines | 2,048 | 13,023 | (10,975) | (84.3%) | | Total | 89,086 | 91,240 | (2,154) | (2.4%) | | **Net Earned premiums** | | | | | | Commercial lines | 83,352 | 76,786 | 6,566 | 8.6% | | Personal lines | 10,459 | 14,943 | (4,484) | (30.0%) | | Total | 93,811 | 91,729 | 2,082 | 2.3% | - Other income remained flat at **$1.6 million** for both 2018 and 2017[163](index=163&type=chunk) Losses and Loss Adjustment Expenses & Ratios (2017 vs. 2018, in thousands) | Item | 2018 ($) | Commercial Lines (%) | Personal Lines ($) | Personal Lines (%) | Total ($) | Total (%) | |:-----------------------------------|:---------|:---------------------|:-------------------|:-------------------|:----------|:----------| | Accident year net losses and LAE | 46,816 | 56.1% | 6,665 | 62.4% | 53,481 | 56.8% | | Net (favorable) adverse development | 6,249 | 7.5% | 2,785 | 26.1% | 9,034 | 9.6% | | Calendar year net loss and LAE | 53,065 | 63.6% | 9,450 | 88.5% | 62,515 | 66.4% | | **2017** | | | | | | | | Accident year net losses and LAE | 48,520 | 63.0% | 15,937 | 102.7% | 64,457 | 69.7% | | Net (favorable) adverse development | 7,181 | 9.3% | 2,279 | 14.7% | 9,460 | 10.2% | | Calendar year net loss and LAE | 55,701 | 72.3% | 18,216 | 117.4% | 73,917 | 79.9% | - The expense ratio increased by **1.1 percentage points** to **45.9%** in 2018, primarily due to lower net earned premium in personal lines[169](index=169&type=chunk) Underwriting Gain (Loss) by Segment (2017 vs. 2018, in thousands) | Segment | 2018 ($) | 2017 ($) | Change ($) | |:---------------------------|:---------|:---------|:-----------| | Commercial Lines | (7,858) | (11,645) | 3,787 | | Personal Lines | (3,700) | (11,176) | 7,476 | | Total Underwriting | (11,558) | (22,821) | 11,263 | | Wholesale Agency | 1,432 | 1,046 | 386 | | Corporate | (213) | (2,465) | 2,252 | | Eliminations | — | — | — | | Total underwriting income (loss) | (10,339) | (24,240) | 13,901 | - Net investment income increased by **$608,000** (**22.3%**) to **$3.3 million** in 2018, due to higher interest rates and a **4.1%** increase in average invested assets to **$148.9 million**[174](index=174&type=chunk) - Interest expense increased by **94.1%** to **$2.6 million** in 2018, from **$1.4 million** in 2017, due to increased outstanding debt from the issuance of **$25.3 million** in public senior unsecured notes[176](index=176&type=chunk) - The Tax Cuts and Jobs Act of 2017 reduced the corporate tax rate from **34% to 21%**; 2018 measurement period adjustments had no effect on the effective tax rate[177](index=177&type=chunk) [Liquidity and Capital Resources](index=56&type=section&id=Liquidity%20and%20Capital%20Resources) This section discusses the Company's liquidity and capital resources, including cash, investments, fund sources/uses, cash flow, and debt compliance - As of December 31, 2019, the Company had **$38.9 million** in cash, cash equivalents, and short-term investments, with funds primarily from premiums and investments used for claims and expenses[180](index=180&type=chunk) - The Parent Company's ability to service debt and pay expenses relies primarily on intercompany service fees from Insurance Company Subsidiaries, with dividends as a secondary, restricted source[180](index=180&type=chunk) - Cash provided by operating activities increased by **$32.4 million** to **$15.4 million** in 2019, mainly due to a **$28.4 million** increase in cash from reinsurers, including **$12.5 million** from ADC[181](index=181&type=chunk) - Cash used in investing activities was **$25.0 million** in 2019, compared to **$12.2 million** provided in 2018, reflecting increased portfolio investment[184](index=184&type=chunk) - Cash provided by financing activities was **$6.3 million** in 2019, up from **$3.7 million** in 2018, largely due to a **$5.0 million** common stock issuance in 2019[184](index=184&type=chunk) - As of December 31, 2019, outstanding debt included **$25.3 million** in senior unsecured notes (**6.75%** interest, maturing Sept 2023), **$10.5 million** in subordinated notes, and **$2.0 million** drawn on a **$10.0 million** line of credit, with all debt covenants in compliance[185](index=185&type=chunk) Contractual Obligations and Commitments as of December 31, 2019 (in thousands) | Obligation | Total ($) | Less than one year ($) | One to three years ($) | Three to five years ($) | More than five years ($) | |:---------------------------------|:----------|:-----------------------|:-----------------------|:------------------------|:-------------------------| | Senior unsecured notes | 25,300 | — | — | 25,300 | — | | Interest on senior unsecured notes | 6,404 | 1,708 | 3,415 | 1,281 | — | | Subordinated notes | 10,500 | — | — | — | 10,500 | | Interest on subordinated notes | 22,969 | 788 | 1,575 | 2,231 | 18,375 | | Lease obligations | 3,498 | 864 | 1,598 | 1,036 | — | | Line of credit | 2,000 | 2,000 | — | — | — | | Loss and loss adjustment expense | 107,246 | 40,495 | 47,132 | 14,791 | 4,828 | | Purchase Obligations | 990 | 360 | 630 | — | — | | Total | 178,907 | 46,215 | 54,350 | 44,639 | 33,703 | [Regulatory and Rating Issues](index=58&type=section&id=Regulatory%20and%20Rating%20Issues) This section addresses the Company's compliance with regulatory capital requirements and performance relative to NAIC IRIS ratios, indicating no regulatory actions - All Insurance Company Subsidiaries exceeded minimum Risk-Based Capital (RBC) thresholds at December 31, 2019, complying with NAIC requirements[188](index=188&type=chunk) - As of December 31, 2019, trailing twelve-month statutory combined gross written and net written premium leverage ratios were **1.7 to 1.0** and **1.5 to 1.0**, respectively[188](index=188&type=chunk) - The Company's Insurance Company Subsidiaries have not experienced any regulatory actions due to NAIC's Insurance Regulatory Information System (IRIS) ratio results[188](index=188&type=chunk) [Recently Issued Accounting Pronouncements](index=59&type=section&id=Recently%20Issued%20Accounting%20Pronouncements) This section outlines recently issued accounting pronouncements, including ASU No. 2016-13 on credit losses and ASU No. 2018-13 on fair value measurement - ASU No. 2016-13, effective after December 15, 2022, will replace the 'incurred loss' methodology with one based on expected credit losses[253](index=253&type=chunk) - ASU No. 2018-13, effective after December 15, 2019, modifies fair value disclosure requirements but is not expected to have a material impact[253](index=253&type=chunk) [ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK](index=59&type=section&id=ITEM%207A.%20QUANTITATIVE%20AND%20QUALITATIVE%20DISCLOSURES%20ABOUT%20MARKET%20RISK) The Company's primary market risks are interest rate and credit risk from investments and reinsurance, managed through portfolio diversification, credit quality, and reinsurer selection - The Company's primary market risk is interest rate risk, mainly from its investment-grade, fixed-income securities portfolio, which is sensitive to market interest rate changes[192](index=192&type=chunk) - Interest rate risk is mitigated by investing in securities with varied maturities and managing the portfolio's duration to a defined range of **three to four years** (**3.0 years** at December 31, 2019)[192](index=192&type=chunk) Sensitivity of Fair Value of Investments to Hypothetical Interest Rate Changes (as of December 31, 2019, in thousands) | Hypothetical Change in Interest Rates | Estimated Fair Value ($) | Estimated Change in Fair Value ($) | Hypothetical Increase/Decrease in Fair Value (%) | Percentage (Decrease) in Shareholders' Equity (%) | |:--------------------------------------|:-------------------------|:-----------------------------------|:-------------------------------------------------|:--------------------------------------------------| | 200 basis point increase | 152,599 | (9,827) | (6.05)% | (23.0)% | | 100 basis point increase | 157,569 | (4,857) | (2.99)% | (11.4)% | | No change | 162,426 | — | — | —% | | 100 basis point decrease | 166,698 | 4,272 | 2.63% | 10.0% | | 200 basis point decrease | 170,028 | 7,602 | 4.68% | 17.8% | - Credit risk in the debt securities portfolio is managed by investing only in investment-grade securities and complying with statutory limits[193](index=193&type=chunk) - Credit risk with reinsurers is mitigated by selecting financially strong reinsurers (A.M. Best rating of **'A-' or better**) and monitoring their financial condition; reinsurance recoverables were **$29.0 million** at December 31, 2019[193](index=193&type=chunk) - Inflation's effects on interest rates and claims costs are considered in pricing and reserve estimation, though actual effects are unknown until claims are settled[196](index=196&type=chunk) [ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA](index=60&type=section&id=ITEM%208.%20FINANCIAL%20STATEMENTS%20AND%20SUPPLEMENTARY%20DATA) This section refers to the financial statements and supplementary data, including auditor's report, consolidated statements, and notes, detailed in Item 15 of this Form 10-K - Financial statements and supplementary data are referenced in Item 15 of this Annual Report on Form 10-K[197](index=197&type=chunk) [ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE](index=60&type=section&id=ITEM%209.%20CHANGES%20IN%20AND%20DISAGREEMENTS%20WITH%20ACCOUNTANTS%20ON%20ACCOUNTING%20AND%20FINANCIAL%20DISCLOSURE) There are no changes in or disagreements with accountants on accounting and financial disclosure to report - No changes in or disagreements with accountants on accounting and financial disclosure[197](index=197&type=chunk) [ITEM 9A. CONTROLS AND PROCEDURES](index=60&type=section&id=ITEM%209A.%20CONTROLS%20AND%20PROCEDURES) Management concluded that disclosure controls and internal control over financial reporting were effective as of December 31, 2019; the Company is exempt from auditor attestation - Management, including the CEO and CFO, concluded that the Company's disclosure controls and procedures were effective as of December 31, 2019[198](index=198&type=chunk) - Management concluded that the Company's internal control over financial reporting was effective as of December 31, 2019, based on the COSO framework[199](index=199&type=chunk) - As an emerging growth company, the Company is not required to include an attestation report from its registered public accounting firm regarding internal control over financial reporting[200](index=200&type=chunk) [ITEM 9B. OTHER INFORMATION](index=60&type=section&id=ITEM%209B.%20OTHER%20INFORMATION) There is no other information to report under this item - No other information to report[201](index=201&type=chunk) PART III [ITEMS 10 to 14](index=61&type=section&id=ITEMS%2010%20to%2014) Information for Items 10-14 is omitted and incorporated by reference from the definitive Proxy Statement, to be filed within 120 days after fiscal year-end - Information for Items 10 through 14 is omitted and incorporated by reference from the definitive Proxy Statement, to be filed within **120 days** after fiscal year-end[204](index=204&type=chunk) - This includes information on directors, executive officers, corporate governance, compensation, security ownership, and related party transactions[204](index=204&type=chunk) PART IV [ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES](index=62&type=section&id=ITEM%2015.%20EXHIBITS%2C%20FINANCIAL%20STATEMENT%20SCHEDULES) This section lists financial statements, schedules, and exhibits filed as part of the Form 10-K, including the auditor's report, consolidated statements, and notes - The report includes the Report of Independent Registered Public Accounting Firm, Consolidated Balance Sheets, Statements of Operations, Comprehensive Income (Loss), Changes in Shareholders' Equity, and Cash Flows for 2017-2019[207](index=207&type=chunk)[211](index=211&type=chunk) - Financial Statement Schedules I, III, and VI are omitted as their information is included elsewhere, while Schedule II and Schedule V are included[207](index=207&type=chunk) - A comprehensive Exhibit Index lists various documents filed or incorporated by reference into this Form 10-K, including corporate governance, incentive plans, and debt agreements[209](index=209&type=chunk)[352](index=352&type=chunk)[353](index=353&type=chunk)[354](index=354&type=chunk) [SIGNATURES](index=107&type=section&id=SIGNATURES) The report is signed by the Chairman and CEO, CFO and Treasurer, and other directors of Conifer Holdings, Inc. as of March 12, 2020 - The report is signed by James G. Petcoff, Chairman and CEO, and Harold J. Meloche, CFO and Treasurer, as of March 12, 2020[359](index=359&type=chunk)[361](index=361&type=chunk) - Additional signatures include those of other directors, confirming the report's submission pursuant to the Securities Exchange Act of 1934[360](index=360&type=chunk)[361](index=361&type=chunk)
ifer (CNFR) - 2019 Q4 - Earnings Call Transcript
2020-03-01 03:10
Financial Data and Key Metrics Changes - Gross written premiums were $25 million in Q4 2019 and $102 million for the year, reflecting a slight decrease due to the shift towards more profitable lines [18] - The combined ratio improved to 112.9% in Q4 2019 from 123% in the same period of 2018, with a loss ratio of 69% compared to 77% a year ago [18] - The expense ratio decreased to 44.3% in Q4 2019 from 45.6% in the prior year period, and for the full year, it was 44% versus 46% a year ago, showing an improvement of almost 200 basis points [18] Business Line Data and Key Metrics Changes - The company has repositioned its business largely into commercial lines, achieving favorable results and considerable rate increases in select lines [6][8] - Personal lines production has seen a turnaround, particularly in low-value dwelling business, which performed well without the catastrophe exposures of previous wind-exposed business [9] - The commercial lines accident year combined ratio was 98% versus 105% a year ago, while personal lines improved to 99% from 113% [18] Market Data and Key Metrics Changes - The company is focusing on specialty niche markets, particularly in commercial lines, where greater rate adequacy is observed [8] - The market is hardening in key areas such as hospitality and small business, providing opportunities for growth [8] Company Strategy and Development Direction - The company aims for sustainable underwriting profit and is dedicated to consistent underwriting guidelines, willing to let non-renew business if pricing is inadequate [7] - The management believes that 2020 presents an opportunity for double-digit top line growth, supported by a solid balance sheet and operational infrastructure [10][21] - The company is growing its fee-based agency operations, which are expected to contribute to non-risk revenue in 2020 and beyond [13] Management's Comments on Operating Environment and Future Outlook - Management is optimistic about returning to profitability in 2020, with expectations that premium growth will significantly reduce the expense ratio [23] - The company has exited troubled geographic areas and is comfortable with its current loss picks for 2019 and 2020 [24][32] - Management acknowledges ongoing challenges in certain areas but believes they are on the downhill side of previous issues, with a focus on profitable growth moving forward [46] Other Important Information - The investment portfolio is conservatively managed, with high-quality fixed income securities and an average credit quality of AA [19] - Total assets were $247 million at year-end, with cash and total investments at $177 million [20] Q&A Session Summary Question: Will the company return to profitability in 2020? - Management expects that growth in premium will significantly reduce the expense ratio, leading to profitability [23] Question: What are the company's thoughts on accident year loss picks for 2019? - Management is comfortable with the loss picks for 2019 and 2020, having made significant underwriting changes in troubled areas [24] Question: Can the company discuss the rate environment for its focus areas? - The rate environment varies by geography, with significant rate increases observed in commercial auto and general liability in certain areas [26] Question: How does the company view its capital position? - The company has strong RBC ratios and is comfortable with its capital position to fuel growth for the upcoming year [28] Question: What is the company's strategy regarding claims inflation versus rate adequacy? - The company is focusing on repositioning its book of business away from high litigation cost areas to achieve rate adequacy [32] Question: How much of the reserve development is related to troubled geographic areas? - Approximately 95% of the reserve development issues are related to troubled areas like Southeast Florida and Pennsylvania liquor [38]
ifer (CNFR) - 2019 Q4 - Earnings Call Presentation
2020-02-28 15:55
FOURTH QUARTER 2019 INVESTOR CONFERENCE CALL February 27, 2020 Conifer Holdings Inc. SAFE HARBOR STATEMENT 1 This presentation contains "forward-looking" statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, that are based on our management's beliefs and assumptions and on information currently available to management. These forward-looking statements include, without limitation, statements regarding our in ...
ifer (CNFR) - 2019 Q3 - Quarterly Report
2019-11-12 12:08
PART I — FINANCIAL INFORMATION [ITEM 1 — FINANCIAL STATEMENTS](index=3&type=section&id=ITEM%201%20-%20FINANCIAL%20STATEMENTS) This section presents the unaudited consolidated financial statements of Conifer Holdings, Inc. and its subsidiaries for the period ended September 30, 2019, including balance sheets, statements of operations, comprehensive income (loss), changes in shareholders' equity, and cash flows, along with detailed notes on significant accounting policies, investments, fair value measurements, and other financial disclosures [Consolidated Balance Sheets](index=3&type=section&id=Consolidated%20Balance%20Sheets) | Assets/Liabilities & Equity | September 30, 2019 ($ thousands) | December 31, 2018 ($ thousands) | | :-------------------------- | :------------------------------------------- | :------------------------------ | | **Assets:** | | | | Total investments | 136,212 | 140,102 | | Cash and cash equivalents | 30,854 | 10,792 | | Total assets | 238,490 | 232,752 | | **Liabilities:** | | | | Unpaid losses and LAE | 97,337 | 92,807 | | Unearned premiums | 52,721 | 52,852 | | Total liabilities | 193,008 | 190,589 | | **Shareholders' Equity:** | | | | Total shareholders' equity | 45,482 | 42,163 | [Consolidated Statements of Operations (Unaudited)](index=4&type=section&id=Consolidated%20Statements%20of%20Operations%20(Unaudited)) | Metric | Three Months Ended Sep 30, 2019 ($ thousands) | Three Months Ended Sep 30, 2018 ($ thousands) | Nine Months Ended Sep 30, 2019 ($ thousands) | Nine Months Ended Sep 30, 2018 ($ thousands) | | :---------------------- | :-------------------------------------------- | :-------------------------------------------- | :------------------------------------------- | :------------------------------------------- | | Total revenue | 23,874 | 24,771 | 70,958 | 74,861 | | Total expenses | 26,027 | 28,390 | 76,762 | 79,497 | | Net income (loss) | (1,230) | (3,551) | (4,794) | (4,451) | | EPS, basic and diluted | (0.13) | (0.42) | (0.55) | (0.52) | [Consolidated Statements of Comprehensive Income (Loss) (Unaudited)](index=5&type=section&id=Consolidated%20Statements%20of%20Comprehensive%20Income%20(Loss)%20(Unaudited)) | Metric | Three Months Ended Sep 30, 2019 ($ thousands) | Three Months Ended Sep 30, 2018 ($ thousands) | Nine Months Ended Sep 30, 2019 ($ thousands) | Nine Months Ended Sep 30, 2018 ($ thousands) | | :------------------------------------ | :-------------------------------------------- | :-------------------------------------------- | :------------------------------------------- | :------------------------------------------- | | Net income (loss) | (1,230) | (3,551) | (4,794) | (4,451) | | Other comprehensive income (loss) | 35 | (334) | 3,068 | (2,552) | | Total comprehensive income (loss) | (1,195) | (3,885) | (1,726) | (7,003) | [Consolidated Statements of Changes in Shareholders' Equity (Unaudited)](index=6&type=section&id=Consolidated%20Statements%20of%20Changes%20in%20Shareholders'%20Equity%20(Unaudited)) | Metric | September 30, 2019 ($ thousands) | December 31, 2018 ($ thousands) | | :------------------------------------ | :------------------------------- | :------------------------------ | | Common stock, no par value (Amount) | 91,578 | 86,533 | | Accumulated deficit | (46,552) | (41,758) | | Accumulated other comprehensive income| 456 | (2,612) | | Total Shareholders' Equity | 45,482 | 42,163 | - The number of outstanding common shares increased from 8,478,202 at December 31, 2018, to **9,588,873 at September 30, 2019**, primarily due to the issuance of common stock via private placement[17](index=17&type=chunk)[21](index=21&type=chunk) [Consolidated Statements of Cash Flows (Unaudited)](index=7&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows%20(Unaudited)) | Cash Flow Activity | Nine Months Ended Sep 30, 2019 ($ thousands) | Nine Months Ended Sep 30, 2018 ($ thousands) | | :---------------------------------- | :------------------------------------------- | :------------------------------------------- | | Net cash provided by (used in) operating activities | 7,344 | (7,511) | | Net cash provided by (used in) investing activities | 8,392 | 11,424 | | Net cash provided by (used in) financing activities | 4,326 | 674 | | Net increase (decrease) in cash | 20,062 | 4,587 | | Cash and cash equivalents at end of period | 30,854 | 16,455 | [Notes to Consolidated Financial Statements (Unaudited)](index=8&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements%20(Unaudited)) [1. Summary of Significant Accounting Policies](index=8&type=section&id=1.%20Summary%20of%20Significant%20Accounting%20Policies) This section outlines the basis of presentation for the consolidated financial statements, the Company's business operations in property and casualty insurance, the use of estimates in financial reporting, and the adoption of new accounting standards like FASB ASU No. 2016-02 for leases, and the evaluation of recently issued guidance on credit losses and fair value measurements - The Company is an insurance holding company engaged in property and casualty insurance, organized into commercial insurance, personal insurance, and agency businesses, underwriting specialty products across all 50 states[28](index=28&type=chunk) - Effective January 1, 2019, the Company adopted ASU No. 2016-02 (Leases), recognizing a right-of-use asset and corresponding lease liability of **$3.9 million**, with no material impact expected from future ASU adoptions on credit losses and fair value measurements[31](index=31&type=chunk)[34](index=34&type=chunk) [2. Investments](index=11&type=section&id=2.%20Investments) This note details the Company's investment portfolio, primarily consisting of available-for-sale debt and equity securities, their fair values, unrealized gains/losses, and net investment income. It also summarizes gross realized gains and losses from sales and maturities, and provides a breakdown of debt securities by contractual maturity | Investment Type | September 30, 2019 (Fair Value, $ thousands) | December 31, 2018 (Fair Value, $ thousands) | | :-------------------------- | :------------------------------------------- | :------------------------------------------ | | Debt securities | 125,704 | 120,440 | | Equity securities | 7,000 | 10,737 | | Short-term investments | 3,508 | 8,925 | | Total investments | 136,212 | 140,102 | | Investment Income Source | Nine Months Ended Sep 30, 2019 ($ thousands) | Nine Months Ended Sep 30, 2018 ($ thousands) | | :----------------------- | :------------------------------------------- | :------------------------------------------- | | Debt securities | 2,716 | 2,495 | | Equity securities | 322 | 98 | | Cash, cash equivalents, and short-term investments | 342 | 55 | | Total investment income | 3,380 | 2,648 | | Investment expenses | (209) | (223) | | Net investment income | 3,171 | 2,425 | - The Company did not record any credit-related other-than-temporary impairment (OTTI) losses in net income for the three and nine months ended September 30, 2019 and 2018[43](index=43&type=chunk) [3. Fair Value Measurements](index=15&type=section&id=3.%20Fair%20Value%20Measurements) This note describes the Company's methodology for fair value measurements, categorizing assets and liabilities into a three-level hierarchy based on input observability. It provides detailed tables of assets and liabilities measured at fair value, highlighting that most debt securities are Level 2, equity securities are Level 1, and subordinated debt is Level 3 - Fair value measurements are categorized into Level 1 (quoted prices in active markets), Level 2 (observable inputs other than Level 1 prices), and Level 3 (unobservable inputs)[49](index=49&type=chunk) | Asset/Liability Category | September 30, 2019 (Total Fair Value, $ thousands) | Level 1 ($ thousands) | Level 2 ($ thousands) | Level 3 ($ thousands) | | :----------------------- | :----------------------------------------------- | :-------------------- | :-------------------- | :-------------------- | | Total marketable investments measured at fair value | 135,626 | 9,658 | 125,968 | — | | Investment in limited partnership (NAV) | 586 | — | — | — | | Total assets measured at fair value | 136,212 | | | | | Senior Unsecured Notes | 23,276 | — | 23,276 | — | | Subordinated Notes | 11,133 | — | — | 11,133 | | Total Liabilities measured at fair value | 34,409 | — | 23,276 | 11,133 | - As of September 30, 2019, Level 1 investments comprised **7.1%** of the total investment portfolio, Level 2 comprised **92.5%**, and Level 3 was entirely comprised of the Company's subordinated debt[55](index=55&type=chunk)[58](index=58&type=chunk) [4. Deferred Policy Acquisition Costs](index=18&type=section&id=4.%20Deferred%20Policy%20Acquisition%20Costs) This note explains the Company's policy of deferring and amortizing costs directly related to acquiring new or renewal insurance business. It provides a table summarizing the activity in deferred policy acquisition costs, net of reinsurance transactions | Metric | Nine Months Ended Sep 30, 2019 ($ thousands) | Nine Months Ended Sep 30, 2018 ($ thousands) | | :----------------------------------- | :------------------------------------------- | :------------------------------------------- | | Balance at beginning of period | 12,011 | 12,781 | | Deferred policy acquisition costs | 18,820 | 18,499 | | Amortization of policy acquisition costs | (17,952) | (19,437) | | Net change | 868 | (938) | | Balance at end of period | 12,879 | 11,843 | [5. Unpaid Losses and Loss Adjustment Expenses](index=18&type=section&id=5.%20Unpaid%20Losses%20and%20Loss%20Adjustment%20Expenses) This section details the Company's process for establishing reserves for unpaid losses and loss adjustment expenses (LAE), including incurred but not yet reported (IBNR) losses. It highlights the inherent uncertainty in these estimates and provides a table showing changes in reserves, net of reinsurance recoverables, and discusses prior-year adverse reserve development - The Company establishes reserves for unpaid losses and LAE, which are inherently uncertain estimates, and regularly updates them based on new information[61](index=61&type=chunk)[64](index=64&type=chunk) | Metric | Nine Months Ended Sep 30, 2019 ($ thousands) | Nine Months Ended Sep 30, 2018 ($ thousands) | | :------------------------------------ | :------------------------------------------- | :------------------------------------------- | | Net reserves - beginning of period | 68,799 | 67,830 | | Total net incurred losses and LAE | 43,695 | 44,950 | | Total net loss and LAE payments | 32,019 | 43,919 | | Net reserves - end of period | 80,475 | 68,861 | | Gross reserves - end of period | 97,337 | 91,046 | - Incurred losses for the nine months ended September 30, 2019, included **$7.1 million** in adverse prior-year reserve development, primarily from commercial liability and Florida homeowners lines, net of a fully recognized **$5.7 million** deferred gain on an Adverse Development Cover (ADC) reinsurance agreement[64](index=64&type=chunk) [6. Reinsurance](index=21&type=section&id=6.%20Reinsurance) This note describes the Company's use of reinsurance to minimize loss exposure from catastrophes and other events, including specific property and liability risks. It also covers fronting arrangements and presents the effects of reinsurance transactions on premiums and losses - The Company uses reinsurance to limit loss exposure, ceding specific property risks over **$300,000** and liability risks over **$400,000** (2019)[68](index=68&type=chunk) | Metric | Nine Months Ended Sep 30, 2019 ($ thousands) | Nine Months Ended Sep 30, 2018 ($ thousands) | | :----------------------- | :------------------------------------------- | :------------------------------------------- | | Net written premiums | 65,562 | 65,286 | | Net earned premiums | 65,811 | 71,188 | | Net Losses and LAE | 43,695 | 44,950 | - Reinsurance reinstatement costs related to Hurricane Irma were **$90,000** for the three months and **$433,000** for the nine months ended September 30, 2019[68](index=68&type=chunk) [7. Debt](index=22&type=section&id=7.%20Debt) This note details the Company's debt instruments, including senior unsecured notes, subordinated notes, and a line of credit. It provides a summary of outstanding debt, discusses covenant compliance, and outlines the terms and amendments of these debt agreements | Debt Instrument | September 30, 2019 ($ thousands) | December 31, 2018 ($ thousands) | | :----------------------- | :------------------------------- | :------------------------------ | | Senior unsecured notes | 24,220 | 24,018 | | Subordinated notes | 9,523 | 9,484 | | Line of credit | — | — | | Total | 33,743 | 33,502 | - The Company issued **$25.3 million** in public senior unsecured notes in September and October 2018, maturing September 30, 2023, with a **6.75%** annual interest rate[73](index=73&type=chunk) - The Subordinated Notes were amended in September 2018, reducing the principal to **$10.5 million**, extending maturity to September 30, 2038, and modifying interest rates and call provisions. The Company was in compliance with all debt financial covenants as of September 30, 2019[73](index=73&type=chunk) [8. Shareholders' Equity](index=23&type=section&id=8.%20Shareholders'%20Equity) This note provides information on changes in shareholders' equity, including a private placement of common stock, the Company's stock repurchase program, and shares repurchased related to restricted stock unit vesting - In June 2019, the Company issued **$5.0 million** of common equity (**1,176,471 shares at $4.25/share**) through a private placement to Board members for growth capital[77](index=77&type=chunk) - The Board authorized a stock repurchase program in December 2018 for up to **one million shares**. For the nine months ended September 30, 2019, the Company repurchased **154,208 shares** valued at approximately **$638,000** under this program[77](index=77&type=chunk) - As of September 30, 2019, there were **9,588,873** issued and outstanding shares of common stock[77](index=77&type=chunk) [9. Accumulated Other Comprehensive Income (Loss)](index=23&type=section&id=9.%20Accumulated%20Other%20Comprehensive%20Income%20(Loss)) This note presents the changes in accumulated other comprehensive income (loss), primarily reflecting unrealized gains and losses on available-for-sale securities, and the cumulative effects of adopting new accounting standards | Metric | September 30, 2019 ($ thousands) | September 30, 2018 ($ thousands) | | :------------------------------------ | :------------------------------- | :------------------------------- | | Balance at beginning of period | 421 | (3,060) | | Other comprehensive income (loss) before reclassifications | (6) | (352) | | Less: amounts reclassified | (41) | (18) | | Net other comprehensive income (loss) | 35 | (334) | | Balance at end of period | 456 | (3,394) | [10. Earnings Per Share](index=24&type=section&id=10.%20Earnings%20Per%20Share) This note provides the calculation of basic and diluted earnings (loss) per common share, indicating that nonvested restricted stock units were anti-dilutive for the reported periods | Metric | Three Months Ended Sep 30, 2019 | Three Months Ended Sep 30, 2018 | Nine Months Ended Sep 30, 2019 | Nine Months Ended Sep 30, 2018 | | :------------------------------------ | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Net income (loss) ($ thousands) | (1,230) | (3,551) | (4,794) | (4,451) | | Weighted average common shares, basic and diluted | 9,543,535 | 8,553,613 | 8,640,409 | 8,531,545 | | Earnings (loss) per common share, basic and diluted | (0.13) | (0.42) | (0.55) | (0.52) | - Nonvested restricted stock units were anti-dilutive, resulting in equal basic and diluted weighted average common shares outstanding for the three and nine months ended September 30, 2019 and 2018[81](index=81&type=chunk) [11. Stock-based Compensation](index=24&type=section&id=11.%20Stock-based%20Compensation) This note summarizes the Company's restricted stock unit (RSU) activity, including units granted, vested, and forfeited, along with the related compensation expense recognized | RSU Activity | Number of Units (thousands) | Weighted Average Grant-Date Value | | :---------------------------- | :-------------------------- | :-------------------------------- | | Outstanding at Dec 31, 2017 | 307 | $9.84 | | Units granted (2018) | 70 | $5.76 | | Outstanding at Sep 30, 2018 | 273 | $8.79 | | Outstanding at Dec 31, 2018 | 264 | $8.91 | | Units vested (2019) | (95) | $9.67 | | Outstanding at Sep 30, 2019 | 154 | $8.51 | - The Company recorded **$719,000** and **$716,000** in compensation expense related to RSUs for the nine months ended September 30, 2019 and 2018, respectively[84](index=84&type=chunk) [12. Commitments and Contingencies](index=26&type=section&id=12.%20Commitments%20and%20Contingencies) This note addresses legal proceedings and other claims against the Company and its subsidiaries, stating that management does not believe there is a reasonable possibility of material loss exceeding accrued amounts - The Company is subject to various claims and lawsuits in the ordinary course of business, primarily related to insurance policies[87](index=87&type=chunk) - Management believes that no material loss exceeding currently accrued amounts will result from any legal proceedings, individually or in aggregate[87](index=87&type=chunk) [13. Segment Information](index=26&type=section&id=13.%20Segment%20Information) This note outlines the Company's operating segments: commercial lines, personal lines (both underwriting businesses), and wholesale agency business (non-risk bearing). It provides financial information by segment, including gross written premiums, net earned premiums, and underwriting gain or loss, and explains the Corporate category for reconciliation - The Company operates in three segments: Commercial Lines, Personal Lines (underwriting businesses), and Wholesale Agency (non-risk bearing)[88](index=88&type=chunk) | Segment (Nine Months Ended Sep 30, 2019) | Gross Written Premiums ($ thousands) | Net Earned Premiums ($ thousands) | Underwriting Gain (Loss) ($ thousands) | | :--------------------------------------- | :----------------------------------- | :-------------------------------- | :------------------------------------- | | Commercial Lines | 71,061 | 62,291 | (3,125) | | Personal Lines | 5,401 | 3,520 | (3,525) | | Wholesale Agency | — | — | 740 | | Corporate | — | — | (728) | | Eliminations | — | — | (591) | | Total | 76,462 | 65,811 | (7,229) | - Gross written premiums from Florida, Michigan, Texas, and Pennsylvania accounted for **49%** of the Company's total gross written premiums for the nine months ended September 30, 2019[88](index=88&type=chunk) [ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS](index=31&type=section&id=ITEM%202.%20MANAGEMENT'S%20DISCUSSION%20AND%20ANALYSIS%20OF%20FINANCIAL%20CONDITION%20AND%20RESULTS%20OF%20OPERATIONS) This section provides management's perspective on the Company's financial condition and results of operations, including an overview of its business, critical accounting policies, and a detailed analysis of operating results for the three and nine months ended September 30, 2019 and 2018. It also covers liquidity, capital resources, outstanding debt, and non-GAAP financial measures [Forward-Looking Statements](index=31&type=section&id=Forward-Looking%20Statements) - The report contains forward-looking statements based on management's current expectations and judgment, which are subject to important factors, risks, and uncertainties that could cause actual results to differ materially[103](index=103&type=chunk)[104](index=104&type=chunk) [Business Overview](index=31&type=section&id=Business%20Overview) - Conifer Holdings, Inc. is an insurance holding company offering specialty commercial and personal insurance lines, authorized in **45 states** for excess and surplus lines and licensed in **42 states** as an admitted carrier[105](index=105&type=chunk) - Revenues are primarily from earned premiums, supplemented by investment income and other fees. Expenses include losses and LAE, agents' commissions, and underwriting/administrative costs[106](index=106&type=chunk)[107](index=107&type=chunk) - The Company is de-emphasizing its Florida homeowners' business and reducing exposures in other wind-exposed states due to recent industry events, while expanding its wholesale agency business for non-risk revenue[108](index=108&type=chunk) [Critical Accounting Policies and Estimates](index=32&type=section&id=Critical%20Accounting%20Policies%20and%20Estimates) - Management makes estimates and assumptions affecting financial statements, which are evaluated periodically. No material changes to critical accounting policies occurred during the nine months ended September 30, 2019[110](index=110&type=chunk) [Executive Overview](index=32&type=section&id=Executive%20Overview) | Metric | Three Months Ended Sep 30, 2019 | Nine Months Ended Sep 30, 2019 | | :---------------------- | :------------------------------ | :----------------------------- | | Net loss ($ millions) | (1.2) | (4.8) | | Net loss per share | (0.13) | (0.55) | | Adjusted operating loss ($ millions) | (1.9) | (11.7) | | Adjusted operating loss per share | (0.18) | (1.35) | | Underwriting combined ratio | 109.2% | 110.0% | - The underwriting combined ratio improved to **109.2%** for the three months ended September 30, 2019, from **118.2%** in the prior year, but increased to **110.0%** for the nine-month period from **108.6%**[111](index=111&type=chunk) [Results of Operations For The Three Months Ended September 30, 2019 and 2018](index=33&type=section&id=Results%20of%20Operations%20For%20The%20Three%20Months%20Ended%20September%2030,%202019%20and%202018) This section provides a detailed analysis of the Company's operating results for the three months ended September 30, 2019, compared to the same period in 2018, focusing on premiums, other income, losses and loss adjustment expenses, expense ratio, and overall underwriting gain or loss [Premiums](index=34&type=section&id=Premiums%20(3%20months)) | Premium Type (3 months) | Sep 30, 2019 ($ thousands) | Sep 30, 2018 ($ thousands) | Change ($ thousands) | % Change | | :---------------------- | :------------------------- | :------------------------- | :------------------- | :------- | | Gross written premiums | 27,077 | 26,629 | 448 | 1.7% | | Net written premiums | 23,806 | 22,846 | 960 | 4.2% | | Net earned premiums | 22,775 | 23,450 | (675) | (2.9)% | - Commercial lines gross written premiums increased by **0.9%** to **$25.0 million**, driven by growth in more profitable programs. Personal lines gross written premiums increased by **12.9%** to **$2.1 million**, due to growth in low-value dwelling lines[117](index=117&type=chunk) - Net written premiums increased by **4.2%** due to higher gross written premiums and reduced ceded premiums, partly from lower catastrophe reinsurance costs (from **12.2% to 4.2%** of gross earned premium)[118](index=118&type=chunk) [Other Income](index=34&type=section&id=Other%20Income%20(3%20months)) - Other income increased by **$159,000 (39.3%)** to **$564,000** for the three months ended September 30, 2019, primarily due to additional commission income from Agency operations and increased fees on existing business[119](index=119&type=chunk)[121](index=121&type=chunk) [Losses and Loss Adjustment Expenses](index=35&type=section&id=Losses%20and%20Loss%20Adjustment%20Expenses%20(3%20months)) | Metric (3 months) | Sep 30, 2019 ($ thousands) | Sep 30, 2018 ($ thousands) | Change ($ thousands) | % Change | | :------------------------------ | :------------------------- | :------------------------- | :------------------- | :------- | | Net losses and LAE | 14,857 | 16,554 | (1,697) | (10.3)% | | Calendar year loss ratio | 64.9% | 70.4% | | | - Incurred losses for the three months ended September 30, 2019, included **$2.7 million** in adverse prior-year reserve development, mainly from commercial hospitality liability (2016-2017 accident years) and personal lines (Florida homeowners)[123](index=123&type=chunk) - The adverse development was net of a **$481,000** amortization of the deferred gain on the ADC, which favorably impacted commercial lines and is now fully recognized[123](index=123&type=chunk) [Expense Ratio](index=36&type=section&id=Expense%20Ratio%20(3%20months)) - The total underwriting expense ratio decreased by **3.5 percentage points** to **44.3%** for the three months ended September 30, 2019, compared to **47.8%** in 2018, reflecting progress in reducing overhead costs[126](index=126&type=chunk)[127](index=127&type=chunk) | Expense Component (3 months) | Sep 30, 2019 | Sep 30, 2018 | | :--------------------------- | :----------- | :----------- | | Policy acquisition costs | 28.7% | 30.0% | | Operating expenses | 15.6% | 17.8% | | Total Underwriting | 44.3% | 47.8% | - The personal lines expense ratio increased significantly due to a steep decrease in net earned premiums from the planned reduction in wind-exposed business[127](index=127&type=chunk) [Underwriting Results](index=37&type=section&id=Underwriting%20Results%20(3%20months)) | Segment (3 months) | Sep 30, 2019 ($ thousands) | Sep 30, 2018 ($ thousands) | Change ($ thousands) | | :----------------------- | :------------------------- | :------------------------- | :------------------- | | Commercial Lines | (1,361) | (3,115) | 1,754 | | Personal Lines | (745) | (1,166) | 421 | | Total Underwriting | (2,106) | (4,281) | 2,175 | | Wholesale Agency | 360 | 511 | (151) | | Corporate | (250) | (167) | (83) | | Eliminations | 28 | — | 28 | | Total underwriting income (loss) | (1,968) | (3,937) | 1,969 | - Total underwriting loss improved to **$(1,968) thousand** for the three months ended September 30, 2019, from **$(3,937) thousand** in the prior year, driven by improvements in both Commercial and Personal Lines[129](index=129&type=chunk) [Results of Operations For The Nine Months Ended September 30, 2019 and 2018](index=38&type=section&id=Results%20of%20Operations%20For%20The%20Nine%20Months%20Ended%20September%2030,%202019%20and%202018) This section provides a detailed analysis of the Company's operating results for the nine months ended September 30, 2019, compared to the same period in 2018, covering premiums, other income, losses and loss adjustment expenses, expense ratio, and overall underwriting gain or loss [Premiums](index=39&type=section&id=Premiums%20(9%20months)) | Premium Type (9 months) | Sep 30, 2019 ($ thousands) | Sep 30, 2018 ($ thousands) | Change ($ thousands) | % Change | | :---------------------- | :------------------------- | :------------------------- | :------------------- | :------- | | Gross written premiums | 76,462 | 76,928 | (466) | (0.6)% | | Net written premiums | 65,562 | 65,286 | 276 | 0.4% | | Net earned premiums | 65,811 | 71,188 | (5,377) | (7.6)% | - Commercial lines gross written premiums decreased by **0.8%** to **$71.1 million** due to strategic reductions in higher-loss areas, partially offset by growth in profitable programs. Personal lines gross written premiums increased by **1.4%** to **$5.4 million**, driven by low-value dwelling lines[139](index=139&type=chunk) - Net written premiums increased by **0.4%** due to a combination of **$433,000** in reinsurance reinstatement costs and new catastrophe reinsurance treaties reducing average costs from **12.2% to 4.2%** of gross earned premium[140](index=140&type=chunk) [Other Income](index=39&type=section&id=Other%20Income%20(9%20months)) - Other income increased by **$355,000 (29.3%)** to **$1.6 million** for the nine months ended September 30, 2019, primarily due to additional commission income from Agency operations and increased fees[141](index=141&type=chunk) [Losses and Loss Adjustment Expenses](index=41&type=section&id=Losses%20and%20Loss%20Adjustment%20Expenses%20(9%20months)) | Metric (9 months) | Sep 30, 2019 ($ thousands) | Sep 30, 2018 ($ thousands) | Change ($ thousands) | % Change | | :------------------------------ | :------------------------- | :------------------------- | :------------------- | :------- | | Net losses and LAE | 43,695 | 44,950 | (1,255) | (2.8)% | | Calendar year loss ratio | 66.1% | 62.9% | | | - Incurred losses for the nine months ended September 30, 2019, included **$7.1 million** in adverse prior-year reserve development, mainly from commercial hospitality liability and personal lines (Florida homeowners), net of a fully recognized **$5.7 million** deferred gain on the ADC[145](index=145&type=chunk) [Expense Ratio](index=42&type=section&id=Expense%20Ratio%20(9%20months)) - The total underwriting expense ratio decreased by **1.8 percentage points** to **43.9%** for the nine months ended September 30, 2019, compared to **45.7%** in 2018, despite negative impacts from reinsurance reinstatement and minimum premium costs[149](index=149&type=chunk)[150](index=150&type=chunk) | Expense Component (9 months) | Sep 30, 2019 | Sep 30, 2018 | | :--------------------------- | :----------- | :----------- | | Policy acquisition costs | 28.0% | 29.4% | | Operating expenses | 15.9% | 16.3% | | Total Underwriting | 43.9% | 45.7% | - The personal lines expense ratio significantly increased in 2019 due to a steep decrease in net earned premiums from the planned reduction in wind-exposed business[150](index=150&type=chunk) [Underwriting Results](index=43&type=section&id=Underwriting%20Results%20(9%20months)) | Segment (9 months) | Sep 30, 2019 ($ thousands) | Sep 30, 2018 ($ thousands) | Change ($ thousands) | | :----------------------- | :------------------------- | :------------------------- | :------------------- | | Commercial Lines | (3,125) | (3,261) | 136 | | Personal Lines | (3,525) | (2,911) | (614) | | Total Underwriting | (6,650) | (6,172) | (478) | | Wholesale Agency | 740 | 1,061 | (321) | | Corporate | (728) | (152) | (576) | | Eliminations | (591) | — | (591) | | Total underwriting income (loss) | (7,229) | (5,263) | (1,966) | - Total underwriting loss increased to **$(7,229) thousand** for the nine months ended September 30, 2019, from **$(5,263) thousand** in the prior year, primarily due to increased losses in Personal Lines and Corporate expenses[154](index=154&type=chunk) [Liquidity and Capital Resources](index=43&type=section&id=Liquidity%20and%20Capital%20Resources) This section discusses the Company's sources and uses of funds, cash flow activities (operating, investing, and financing), and details its outstanding debt instruments and compliance with financial covenants [Sources and Uses of Funds](index=43&type=section&id=Sources%20and%20Uses%20of%20Funds) - At September 30, 2019, the Company had **$34.4 million** in cash, cash equivalents, and short-term investments. Principal funds sources are insurance premiums, investment income, and proceeds from investments[155](index=155&type=chunk) - Funds are primarily used for claims, commissions, employee compensation, taxes, operating expenses, and debt service. The Parent Company relies on intercompany service fees from subsidiaries, with state laws restricting dividends[155](index=155&type=chunk) [Cash Flows](index=43&type=section&id=Cash%20Flows) - Operating activities generated **$7.3 million** cash for the nine months ended September 30, 2019, a **$14.8 million** increase from a **$7.5 million** use in 2018, mainly due to a **$22.5 million** reduction in paid claims, net of reinsurance[156](index=156&type=chunk) - Investing activities provided **$8.4 million**, down from **$11.4 million** in 2018, as the Company withdrew less from its investment portfolio[156](index=156&type=chunk) - Financing activities provided **$4.3 million**, up from **$674,000** in 2018, driven by a **$5.0 million** common stock issuance, partially offset by **$674,000** in stock repurchases[156](index=156&type=chunk) [Outstanding Debt](index=44&type=section&id=Outstanding%20Debt) - The Company has **$25.3 million** in public senior unsecured notes (**6.75%** interest, maturing Sep 2023) and **$10.5 million** in amended subordinated notes (**7.5%** interest until Sep 2023, then **12.5%**, maturing Sep 2038)[158](index=158&type=chunk) - A **$10.0 million** line of credit was renewed in June 2019, maturing June 2020, with no outstanding balance as of September 30, 2019. The Company was in compliance with all financial covenants[158](index=158&type=chunk) [Non-GAAP Financial Measures](index=45&type=section&id=Non-GAAP%20Financial%20Measures) - Statutory capital and surplus for the Company's insurance subsidiaries was **$60.6 million** at September 30, 2019, down from **$64.0 million** at December 31, 2018[160](index=160&type=chunk) - Adjusted operating income (loss) is a non-GAAP measure that excludes net realized investment gains/losses, changes in fair value of equity securities, and the deferred gain on losses ceded to the ADC, net of tax[161](index=161&type=chunk) | Metric | Three Months Ended Sep 30, 2019 ($ thousands) | Nine Months Ended Sep 30, 2019 ($ thousands) | | :------------------------------------ | :-------------------------------------------- | :------------------------------------------- | | Net income (loss) | (1,230) | (4,794) | | Adjusted operating income (loss) | (1,854) | (11,698) | | Adjusted operating income (loss) per share | (0.18) | (1.35) | [Recently Issued Accounting Pronouncements](index=46&type=section&id=Recently%20Issued%20Accounting%20Pronouncements) - Refer to Note 1 for detailed information regarding recently issued accounting pronouncements[164](index=164&type=chunk) [ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK](index=47&type=section&id=ITEM%203.%20QUANTITATIVE%20AND%20QUALITATIVE%20DISCLOSURES%20ABOUT%20MARKET%20RISK) This section discusses the Company's primary market risk exposures, including interest rate risk and credit risk, and how these risks are managed. It also briefly addresses the effects of inflation [Interest Rate Risk](index=47&type=section&id=Interest%20Rate%20Risk) - The Company's primary market risk exposure is interest rate risk, affecting its **$136.2 million** investment portfolio (excluding cash), which consists principally of investment-grade debt securities classified as available for sale[167](index=167&type=chunk) - Interest rate risks are mitigated by investing in securities with varied maturity dates and managing the investment portfolio's duration to a range of **three to four years**. The effective duration was **3.6 years** at September 30, 2019[167](index=167&type=chunk) | Hypothetical Change in Interest Rates | Estimated Fair Value ($ thousands) | Estimated Change in Fair Value ($ thousands) | Percentage (Decrease) in Shareholders' Equity | | :------------------------------------ | :--------------------------------- | :------------------------------------------- | :-------------------------------------------- | | 200 basis point increase | 120,813 | (8,399) | (18.5)% | | 100 basis point increase | 125,077 | (4,135) | (9.1)% | | No change | 129,212 | — | —% | | 100 basis point decrease | 132,959 | 3,747 | 8.2% | | 200 basis point decrease | 135,543 | 6,331 | 13.9% | [Credit Risk](index=47&type=section&id=Credit%20Risk) - Credit risk in the debt securities portfolio is managed by investing only in investment-grade securities and complying with statutory investment limits[168](index=168&type=chunk) - The Company is also exposed to credit risk from reinsurers, mitigated by selecting financially strong reinsurers (A.M. Best rating of **'A-' or better**) and monitoring their financial condition[168](index=168&type=chunk) - At September 30, 2019, the net amount due from reinsurers was **$28.0 million**, all believed to be recoverable[168](index=168&type=chunk) [Effects of Inflation](index=47&type=section&id=Effects%20of%20Inflation) - The Company does not believe inflation materially affects its operations, except for its impact on interest rates and claims costs, which are considered in pricing and reserving[169](index=169&type=chunk) [ITEM 4. CONTROLS AND PROCEDURES](index=48&type=section&id=ITEM%204.%20CONTROLS%20AND%20PROCEDURES) This section addresses the Company's disclosure controls and procedures and internal control over financial reporting, confirming their effectiveness as of September 30, 2019, and reporting no material changes in internal control [Disclosure Controls and Procedures](index=48&type=section&id=Disclosure%20Controls%20and%20Procedures) - Management, with CEO and CFO participation, evaluated the effectiveness of disclosure controls and procedures as of September 30, 2019, concluding they were effective at a reasonable assurance level[173](index=173&type=chunk) [Changes in Internal Control over Financial Reporting](index=48&type=section&id=Changes%20in%20Internal%20Control%20over%20Financial%20Reporting) - There were no changes in internal control over financial reporting during the three months ended September 30, 2019, that materially affected or are reasonably likely to materially affect the Company's internal control[174](index=174&type=chunk) PART II — OTHER INFORMATION [ITEM 1. LEGAL PROCEEDINGS](index=49&type=section&id=ITEM%201.%20LEGAL%20PROCEEDINGS) This section incorporates by reference the information on legal proceedings from Note 12 of the Notes to Consolidated Financial Statements, indicating no new material information - Information regarding legal proceedings is incorporated by reference from Note 12 ~ Commitments and Contingencies of the Notes to the Consolidated Financial Statements[177](index=177&type=chunk) [ITEM 1A. RISK FACTORS](index=49&type=section&id=ITEM%201A.%20RISK%20FACTORS) This section states that there were no material changes to the risk factors previously disclosed in the Company's Annual Report on Form 10-K - There were no material changes to the risk factors disclosed in the Company's Annual Report on Form 10-K filed on March 13, 2019[178](index=178&type=chunk) [ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS](index=50&type=section&id=ITEM%202.%20UNREGISTERED%20SALES%20OF%20EQUITY%20SECURITIES%20AND%20USE%20OF%20PROCEEDS) This section details the Company's unregistered sales of equity securities, specifically a private placement of common stock in June 2019, and provides an update on the stock repurchase program - On June 13, 2019, the Board authorized a private placement, resulting in the issuance of **$5.0 million** of common equity (**1,176,471 shares at $4.25/share**) on June 28, 2019, to accredited investors, primarily Board members[181](index=181&type=chunk) - Proceeds from the private placement were used for growth capital in the Company's specialty core commercial business segments[181](index=181&type=chunk) - For the nine months ended September 30, 2019, the Company repurchased **142,815 shares** of stock valued at approximately **$608,000** under its authorized stock repurchase program[181](index=181&type=chunk) [ITEM 6. EXHIBITS](index=51&type=section&id=ITEM%206.%20EXHIBITS) This section lists the exhibits filed with the Form 10-Q, including certifications (Section 302 and 906) and XBRL taxonomy documents - The exhibits include Section 302 and 906 Certifications from the CEO and CFO, along with various XBRL taxonomy documents[184](index=184&type=chunk) SIGNATURES This section contains the required signatures for the Form 10-Q, certifying its submission on behalf of Conifer Holdings, Inc - The report was signed by Harold J. Meloche, Chief Financial Officer, Principal Financial Officer, and Principal Accounting Officer, on November 12, 2019[188](index=188&type=chunk)
ifer (CNFR) - 2019 Q2 - Quarterly Report
2019-08-07 20:52
[PART I — FINANCIAL INFORMATION](index=3&type=section&id=Part%20I%20%E2%80%94%20Financial%20Information) This section presents the unaudited consolidated financial statements, management's analysis of operations, market risk disclosures, and internal controls [ITEM 1 — FINANCIAL STATEMENTS](index=3&type=section&id=Item%201%20%E2%80%94%20Financial%20Statements) This section presents the unaudited consolidated financial statements, including balance sheets, income statements, cash flows, and detailed notes [Consolidated Balance Sheets (Unaudited)](index=3&type=section&id=Consolidated%20Balance%20Sheets%20(Unaudited)) This section provides a snapshot of the Company's assets, liabilities, and shareholders' equity at specific dates | Metric | June 30, 2019 (Unaudited) ($ thousands) | December 31, 2018 ($ thousands) | |:---|:---|:---| | **Assets** ||| | Total investments | $140,594 | $140,102 | | Cash and cash equivalents | $20,415 | $10,792 | | Premiums and agents' balances receivable, net | $23,125 | $21,247 | | Reinsurance recoverables on unpaid losses | $21,396 | $29,685 | | Total assets | $243,396 | $232,752 | | **Liabilities** ||| | Unpaid losses and loss adjustment expenses | $97,981 | $92,807 | | Unearned premiums | $51,606 | $52,852 | | Debt | $34,658 | $33,502 | | Total liabilities | $196,887 | $190,589 | | **Shareholders' Equity** ||| | Total shareholders' equity | $46,509 | $42,163 | | Total liabilities and shareholders' equity | $243,396 | $232,752 | [Consolidated Statements of Operations (Unaudited)](index=4&type=section&id=Consolidated%20Statements%20of%20Operations%20(Unaudited)) This section details the Company's revenues, expenses, and net income or loss over specific reporting periods | Metric | Three Months Ended June 30, 2019 ($ thousands) | Three Months Ended June 30, 2018 ($ thousands) | Six Months Ended June 30, 2019 ($ thousands) | Six Months Ended June 30, 2018 ($ thousands) | |:---|:---|:---|:---|:---|\n| Net earned premiums | $21,349 | $23,938 | $43,036 | $47,739 | | Total revenue | $22,781 | $25,267 | $47,084 | $50,090 | | Losses and loss adjustment expenses, net | $14,382 | $15,067 | $28,838 | $28,396 | | Policy acquisition costs | $6,210 | $6,472 | $11,799 | $12,985 | | Operating expenses | $4,340 | $4,303 | $8,663 | $8,489 | | Total expenses | $25,657 | $26,459 | $50,735 | $51,106 | | Net income (loss) | $(2,884) | $(1,113) | $(3,564) | $(900) | | Earnings (loss) per common share, basic and diluted | $(0.34) | $(0.13) | $(0.42) | $(0.11) | [Consolidated Statements of Comprehensive Income (Loss) (Unaudited)](index=5&type=section&id=Consolidated%20Statements%20of%20Comprehensive%20Income%20(Loss)%20(Unaudited)) This section presents the Company's net income or loss and other comprehensive income or loss components | Metric | Three Months Ended June 30, 2019 ($ thousands) | Three Months Ended June 30, 2018 ($ thousands) | Six Months Ended June 30, 2019 ($ thousands) | Six Months Ended June 30, 2018 ($ thousands) | |:---|:---|:---|:---|:---|\n| Net income (loss) | $(2,884) | $(1,113) | $(3,564) | $(900) | | Other comprehensive income (loss) | $1,336 | $(372) | $3,033 | $(2,218) | | Total comprehensive income (loss) | $(1,548) | $(1,485) | $(531) | $(3,118) | [Consolidated Statements of Changes in Shareholders' Equity (Unaudited)](index=6&type=section&id=Consolidated%20Statements%20of%20Changes%20in%20Shareholders%27%20Equity%20(Unaudited)) This section outlines the changes in the Company's shareholders' equity over the reporting period | Metric | December 31, 2018 ($ thousands) | June 30, 2019 ($ thousands) | |:---|:---|:---|\n| Common Stock Amount | $86,533 | $91,410 | | Accumulated Deficit | $(41,758) | $(45,322) | | Accumulated Other Comprehensive Income (Loss) | $(2,612) | $421 | | Total Shareholders' Equity | $42,163 | $46,509 | | Shares Outstanding | 8,478,202 | 9,519,550 | - The Company issued **1,176,471 shares** of common stock through a private placement, increasing common stock by **$5,000,000**[17](index=17&type=chunk) - The Company repurchased **142,815 shares** of common stock for **$608,000** during the six months ended June 30, 2019[17](index=17&type=chunk) [Consolidated Statements of Cash Flows (Unaudited)](index=7&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows%20(Unaudited)) This section details the cash inflows and outflows from operating, investing, and financing activities | Cash Flow Activity | Six Months Ended June 30, 2019 ($ thousands) | Six Months Ended June 30, 2018 ($ thousands) | |:---|:---|:---|\n| Net cash provided by (used in) operating activities | $(223) | $(7,121) | | Net cash provided by (used in) investing activities | $4,459 | $12,269 | | Net cash provided by (used in) financing activities | $5,387 | $0 | | Net increase (decrease) in cash | $9,623 | $5,148 | | Cash and cash equivalents at end of period | $20,415 | $17,016 | [Notes to Consolidated Financial Statements (Unaudited)](index=8&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements%20(Unaudited)) This section provides detailed explanations and disclosures supporting the consolidated financial statements [1. Summary of Significant Accounting Policies](index=8&type=section&id=1.%20Summary%20of%20Significant%20Accounting%20Policies) This section details the basis of financial statement presentation, key accounting policies, use of estimates, and recently adopted or issued accounting guidance - The Company adopted FASB ASU No. 2016-02, Leases (Topic 842), effective January 1, 2019, recognizing a right-of-use asset and corresponding lease liability of **$3.9 million**[27](index=27&type=chunk) - The Company is evaluating the impact of ASU No. 2016-13 (Credit Losses) and ASU No. 2018-13 (Fair Value Measurement), both effective after December 15, 2019, but does not expect a material impact on its consolidated financial statements[30](index=30&type=chunk) [2. Investments](index=10&type=section&id=2.%20Investments) This note details the Company's investment portfolio, including fair values, unrealized gains/losses, net investment income, and impairment analysis | Investment Type | June 30, 2019 Fair Value ($ thousands) | December 31, 2018 Fair Value ($ thousands) | |:---|:---|:---|\n| Debt securities, at fair value | $124,118 | $120,440 | | Equity securities, at fair value | $11,862 | $10,737 | | Short-term investments, at fair value | $4,614 | $8,925 | | Total investments | $140,594 | $140,102 | | Metric | Three Months Ended June 30, 2019 ($ thousands) | Three Months Ended June 30, 2018 ($ thousands) | Six Months Ended June 30, 2019 ($ thousands) | Six Months Ended June 30, 2018 ($ thousands) | |:---|:---|:---|:---|:---|\n| Net investment income | $1,051 | $838 | $1,961 | $1,639 | | Total net realized investment gains (losses) | $715 | $12 | $734 | $173 | - The Company did not record any credit-related other-than-temporary impairment (OTTI) losses for the three and six months ended June 30, 2019 and 2018[39](index=39&type=chunk) [3. Fair Value Measurements](index=14&type=section&id=3.%20Fair%20Value%20Measurements) This note details fair value measurements for financial instruments, categorizing them into a three-level hierarchy based on input observability | Fair Value Level | June 30, 2019 Total Marketable Investments ($ thousands) | December 31, 2018 Total Marketable Investments ($ thousands) | |:---|:---|:---|\n| Level 1 | $11,256 | $15,248 | | Level 2 | $124,382 | $120,704 | | Level 3 | $0 | $0 | | Investments measured at NAV | $4,956 | $4,150 | | Total assets measured at fair value | $140,594 | $140,102 | - As of June 30, 2019, Level 1 investments (equity securities, money market funds) comprised **8.0%** of the total investment portfolio, while Level 2 investments (debt securities) comprised **88.5%**[52](index=52&type=chunk) - Level 3 is entirely comprised of the Company's subordinated debt, with its fair value determined using a valuation model incorporating security attributes and market rates[55](index=55&type=chunk) [4. Deferred Policy Acquisition Costs](index=17&type=section&id=4.%20Deferred%20Policy%20Acquisition%20Costs) This note explains the Company's policy for deferring and amortizing policy acquisition costs and summarizes related activity | Metric | June 30, 2019 ($ thousands) | June 30, 2018 ($ thousands) | |:---|:---|:---|\n| Balance at beginning of period (Six Months) | $12,011 | $12,781 | | Deferred policy acquisition costs (Six Months) | $12,090 | $12,225 | | Amortization of policy acquisition costs (Six Months) | $(11,799) | $(12,985) | | Net change (Six Months) | $291 | $(760) | | Balance at end of period (Six Months) | $12,302 | $12,021 | - The Company anticipates full recoverability of its deferred policy acquisition costs and reported no premium deficiencies for the six months ended June 30, 2019 and 2018[56](index=56&type=chunk) [5. Unpaid Losses and Loss Adjustment Expenses](index=17&type=section&id=5.%20Unpaid%20Losses%20and%20Loss%20Adjustment%20Expenses) This note details the Company's methodology for establishing and updating reserves for unpaid losses and loss adjustment expenses | Metric | June 30, 2019 ($ thousands) | June 30, 2018 ($ thousands) | |:---|:---|:---|\n| Gross reserves - beginning of period (Six Months) | $92,807 | $87,896 | | Net incurred losses and LAE (Six Months) | $28,838 | $28,396 | | Total net loss and LAE payments (Six Months) | $20,571 | $30,619 | | Gross reserves - end of period (Six Months) | $97,981 | $83,662 | - The Company's incurred losses for the six months ended June 30, 2019, included **$4.4 million** of adverse prior-year reserve development, primarily from commercial liability and Florida homeowners lines, net of **$5.2 million** amortization of deferred gain on the ADC[61](index=61&type=chunk) - As of June 30, 2019, the Company had ceded to the limit of the ADC, with **$481,000** of deferred gain remaining to be recognized[61](index=61&type=chunk) [6. Reinsurance](index=21&type=section&id=6.%20Reinsurance) This note describes the Company's use of reinsurance to manage loss exposure and its impact on premiums and losses | Metric | Three Months Ended June 30, 2019 ($ thousands) | Three Months Ended June 30, 2018 ($ thousands) | Six Months Ended June 30, 2019 ($ thousands) | Six Months Ended June 30, 2018 ($ thousands) | |:---|:---|:---|:---|:---|\n| Net written premiums | $21,434 | $22,595 | $41,756 | $42,439 | | Net earned premiums | $21,349 | $23,938 | $43,036 | $47,739 | | Net Losses and LAE | $14,382 | $15,067 | $28,838 | $28,396 | - Reinsurance reinstatement costs related to Hurricane Irma were **$93,000** for the three months and **$343,000** for the six months ended June 30, 2019[65](index=65&type=chunk) - The Company primarily ceded specific property risks exceeding **$300,000** and specific liability risks exceeding **$400,000** in 2019[65](index=65&type=chunk) [7. Debt](index=22&type=section&id=7.%20Debt) This note details the Company's debt instruments, including terms, interest rates, maturity dates, and covenant compliance | Debt Instrument | June 30, 2019 ($ thousands) | December 31, 2018 ($ thousands) | |:---|:---|:---|\n| Senior unsecured notes | $24,153 | $24,018 | | Subordinated notes | $9,510 | $9,484 | | Line of credit | $995 | $0 | | Total | $34,658 | $33,502 | - In May 2019, lenders waived the March 31, 2019, tangible net worth covenant non-compliance for the Subordinated Notes and line of credit[70](index=70&type=chunk) - The Company renewed its **$10.0 million** line of credit and amended the Subordinated Notes agreement on June 21, 2019, modifying tangible net worth and debt-to-total capital ratio covenants, and was in compliance with all debt covenants as of June 30, 2019[70](index=70&type=chunk) [8. Shareholders' Equity](index=23&type=section&id=8.%20Shareholders%27%20Equity) This note details changes in shareholders' equity, including common stock issuance, repurchases, and outstanding shares - In June 2019, the Company issued **$5.0 million** of common equity through a private placement of **1,176,471 shares** at **$4.25 per share**, with proceeds used for growth capital in specialty core business segments[74](index=74&type=chunk) - For the six months ended June 30, 2019, the Company repurchased **142,815 shares** of common stock valued at approximately **$608,000** under its stock repurchase program[74](index=74&type=chunk) | Metric | June 30, 2019 | December 31, 2018 | |:---|:---|:---|\n| Issued and outstanding common shares | 9,519,550 | 8,478,202 | [9. Accumulated Other Comprehensive Income (Loss)](index=24&type=section&id=9.%20Accumulated%20Other%20Comprehensive%20Income%20(Loss)) This note presents changes in accumulated other comprehensive income (loss), primarily from unrealized gains/losses on available-for-sale securities | Metric | Three Months Ended June 30, 2019 ($ thousands) | Three Months Ended June 30, 2018 ($ thousands) | Six Months Ended June 30, 2019 ($ thousands) | Six Months Ended June 30, 2018 ($ thousands) | |:---|:---|:---|:---|:---|\n| Balance at beginning of period | $(915) | $(2,688) | $(2,612) | $(363) | | Other comprehensive income (loss) before reclassifications | $1,366 | $(376) | $2,923 | $(2,222) | | Net other comprehensive income (loss) | $1,336 | $(372) | $3,033 | $(2,218) | | Balance at end of period | $421 | $(3,060) | $421 | $(3,060) | [10. Earnings Per Share](index=24&type=section&id=10.%20Earnings%20Per%20Share) This note details the calculation of basic and diluted earnings (loss) per common share for the reporting periods | Metric | Three Months Ended June 30, 2019 ($ thousands) | Three Months Ended June 30, 2018 ($ thousands) | Six Months Ended June 30, 2019 ($ thousands) | Six Months Ended June 30, 2018 ($ thousands) | |:---|:---|:---|:---|:---|\n| Net income (loss) | $(2,884) | $(1,113) | $(3,564) | $(900) | | Weighted average common shares, basic and diluted | 8,370,782 | 8,520,328 | 8,411,835 | 8,520,328 | | Earnings (loss) per common share, basic and diluted | $(0.34) | $(0.13) | $(0.42) | $(0.11) | - Nonvested restricted stock units were anti-dilutive, resulting in equal basic and diluted weighted average common shares for the periods presented[78](index=78&type=chunk) [11. Stock-based Compensation](index=25&type=section&id=11.%20Stock-based%20Compensation) This note summarizes the Company's restricted stock unit (RSU) activity and related compensation expense recognized | RSU Activity | Number of Units (thousands) | Average Grant-Date Value | |:---|:---|:---|\n| Outstanding at December 31, 2018 | 264 | $8.91 | | Units vested (Six Months Ended June 30, 2019) | (8) | $5.65 | | Units forfeited (Six Months Ended June 30, 2019) | (6) | $6.13 | | Outstanding at June 30, 2019 | 250 | $9.08 | - The Company recorded **$485,000** and **$460,000** of compensation expense related to RSUs for the six months ended June 30, 2019 and 2018, respectively[83](index=83&type=chunk) - Total unrecognized compensation cost for non-vested RSUs as of June 30, 2019, was **$1.8 million**[83](index=83&type=chunk) [12. Commitments and Contingencies](index=25&type=section&id=12.%20Commitments%20and%20Contingencies) This note addresses legal proceedings and other claims, with management expecting no material loss beyond accrued amounts - The Company is subject to various claims and lawsuits, primarily related to alleged errors or omissions in insurance placement and claims administration[84](index=84&type=chunk) - Management believes there is no reasonable possibility of a material loss exceeding currently accrued amounts from these legal proceedings[84](index=84&type=chunk) [13. Segment Information](index=26&type=section&id=13.%20Segment%20Information) This note provides financial information for the Company's commercial lines, personal lines, and wholesale agency operating segments - The Company's operating segments are commercial lines, personal lines (underwriting businesses), and wholesale agency business (non-risk bearing revenue)[87](index=87&type=chunk) | Segment | Three Months Ended June 30, 2019 Underwriting Gain (Loss) ($ thousands) | Three Months Ended June 30, 2018 Underwriting Gain (Loss) ($ thousands) | |:---|:---|:---|\n| Commercial Lines | $(1,563) | $(968) | | Personal Lines | $(1,214) | $(1,134) | | Total Underwriting | $(2,777) | $(2,102) | | Wholesale Agency | $466 | $542 | | Corporate | $(72) | $106 | | Eliminations | $(619) | $0 | | Total underwriting income (loss) | $(3,002) | $(1,454) | | Segment | Six Months Ended June 30, 2019 Underwriting Gain (Loss) ($ thousands) | Six Months Ended June 30, 2018 Underwriting Gain (Loss) ($ thousands) | |:---|:---|:---|\n| Commercial Lines | $(1,765) | $(66) | | Personal Lines | $(2,780) | $(1,665) | | Total Underwriting | $(4,545) | $(1,731) | | Wholesale Agency | $380 | $392 | | Corporate | $(477) | $15 | | Eliminations | $(619) | $0 | | Total underwriting income (loss) | $(5,261) | $(1,324) | [ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS](index=31&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's analysis of the Company's financial condition, operational results, liquidity, and capital resources [Forward-Looking Statements](index=31&type=section&id=Forward-Looking%20Statements) This section cautions that the report contains forward-looking statements subject to risks and uncertainties - The report contains forward-looking statements based on management's current expectations and judgment, which are subject to important factors, risks, and uncertainties that could cause actual results to differ materially[102](index=102&type=chunk)[103](index=103&type=chunk) [Business Overview](index=31&type=section&id=Business%20Overview) This section describes the Company's insurance operations, revenue sources, expenses, and strategic business adjustments - Conifer Holdings, Inc. is an insurance holding company offering specialty commercial and personal insurance lines, authorized as an excess and surplus lines carrier in **45 states** and licensed as an admitted carrier in **42 states**[104](index=104&type=chunk) - Revenues are primarily from earned premiums, supplemented by investment income and other fees; expenses include losses, commissions, and administrative costs[105](index=105&type=chunk)[106](index=106&type=chunk) - The Company is de-emphasizing its Florida homeowners' business and reducing exposures in other wind-exposed states due to recent industry events, while expanding its wholesale agency business for non-risk revenue streams[107](index=107&type=chunk) [Critical Accounting Policies and Estimates](index=32&type=section&id=Critical%20Accounting%20Policies%20and%20Estimates) This section highlights the significant accounting policies and estimates used in preparing the financial statements - Management makes estimates and assumptions that affect reported financial amounts, with no material changes to critical accounting policies during the six months ended June 30, 2019[109](index=109&type=chunk) [Executive Overview](index=32&type=section&id=Executive%20Overview) This section provides a high-level summary of key financial performance metrics for the reporting period | Metric | Three Months Ended June 30, 2019 ($ millions) | Three Months Ended June 30, 2018 ($ millions) | Six Months Ended June 30, 2019 ($ millions) | Six Months Ended June 30, 2018 ($ millions) | |:---|:---|:---|:---|:---|\n| Net loss | $(2.9) | $(1.1) | $(3.6) | $(0.9) | | Net loss per share | $(0.34) | $(0.13) | $(0.42) | $(0.11) | | Adjusted operating loss (non-GAAP) | $(5.6) | $(0.173) | $(9.8) | $1.6 | | Adjusted operating loss per share (non-GAAP) | $(0.67) | $(0.02) | $(1.17) | $0.18 | | Combined ratio | 113.0% | 108.8% | 110.5% | 103.6% | [Results of Operations For The Three Months Ended June 30, 2019 and 2018](index=33&type=section&id=Results%20of%20Operations%20For%20The%20Three%20Months%20Ended%20June%2030%2C%202019%20and%202018) Net loss increased to **$2.9 million** for the three months ended June 30, 2019, with the combined ratio worsening to **113.0%** | Metric | 3 Months Ended June 30, 2019 ($ thousands) | 3 Months Ended June 30, 2018 ($ thousands) | Change ($ thousands) | Change (%) | |:---|:---|:---|:---|:---|\n| Gross written premiums | $25,169 | $26,562 | $(1,393) | (5.2)% | | Net earned premiums | $21,349 | $23,938 | $(2,589) | (10.8)% | | Underwriting gain (loss) | $(3,002) | $(1,454) | $(1,548) | * | | Net income (loss) | $(2,884) | $(1,113) | $(1,771) | * | | Loss ratio | 67.1% | 62.8% | 4.3 pp | | | Expense ratio | 45.9% | 46.0% | (0.1) pp | | | Combined ratio | 113.0% | 108.8% | 4.2 pp | | [Premiums](index=34&type=section&id=Premiums) Gross written premiums decreased by **5.2%** due to strategic reductions, while net earned premiums declined by **10.8%** | Premium Type | 3 Months Ended June 30, 2019 ($ thousands) | 3 Months Ended June 30, 2018 ($ thousands) | Change ($ thousands) | Change (%) | |:---|:---|:---|:---|:---|\n| Gross written premiums | $25,169 | $26,562 | $(1,393) | (5.2)% | | Commercial lines GWP | $23,459 | $25,008 | $(1,549) | (6.2)% | | Personal lines GWP | $1,710 | $1,554 | $156 | 10.0% | | Net written premiums | $21,434 | $22,595 | $(1,161) | (5.1)% | | Net earned premiums | $21,349 | $23,938 | $(2,589) | (10.8)% | - Commercial lines gross written premiums decreased due to strategic reduction in areas generating higher loss results, partially offset by growth in historically more profitable areas[117](index=117&type=chunk) - New catastrophe reinsurance treaties effective June 1, 2019, are expected to reduce the average cost of catastrophe reinsurance on property lines from **12.2%** to **4.2%** of gross earned premium[118](index=118&type=chunk) [Other Income](index=34&type=section&id=Other%20Income) Other income increased by **29.1%**, driven by higher commission income from Agency operations and increased policyholder fees | Metric | 3 Months Ended June 30, 2019 ($ thousands) | 3 Months Ended June 30, 2018 ($ thousands) | Change ($ thousands) | Change (%) | |:---|:---|:---|:---|:---|\n| Other income | $581 | $450 | $131 | 29.1% | - The increase in other income was mainly due to additional commission income in Agency operations and higher fees charged on existing business[121](index=121&type=chunk) [Losses and Loss Adjustment Expenses](index=35&type=section&id=Losses%20and%20Loss%20Adjustment%20Expenses) Net losses and LAE decreased by **4.5%**, but the loss ratio worsened to **67.1%** due to adverse prior-year reserve development | Metric | 3 Months Ended June 30, 2019 ($ thousands) | 3 Months Ended June 30, 2018 ($ thousands) | Change ($ thousands) | Change (%) | |:---|:---|:---|:---|:---|\n| Net losses and LAE | $14,382 | $15,067 | $(685) | (4.5)% | | Calendar year loss ratio | 67.1% | 62.8% | 4.3 pp | | | Net adverse development | $2,388 | $1,485 | $903 | * | - Adverse prior-year reserve development of **$2.4 million** for Q2 2019 was mainly from commercial liability (**$1.5 million**) and personal lines (**$0.9 million**, partly Florida homeowners), net of **$2.9 million** ADC deferred gain amortization[123](index=123&type=chunk) [Expense Ratio](index=36&type=section&id=Expense%20Ratio) The overall expense ratio slightly decreased to **45.9%**, despite negative impacts from reduced net earned premiums and reinsurance costs | Metric | 3 Months Ended June 30, 2019 | 3 Months Ended June 30, 2018 | |:---|:---|:---|\n| Total Underwriting Expense Ratio | 45.9% | 46.0% | | Commercial Lines Expense Ratio | 45.6% | 45.6% | | Personal Lines Expense Ratio | 50.1% | 48.8% | - The expense ratio was negatively impacted by **0.6 percentage points** due to reinsurance reinstatement and minimum premium costs[129](index=129&type=chunk) - Personal lines operating expense ratio increased significantly due to a steep decrease in net earned premiums from planned reductions in wind-exposed business[129](index=129&type=chunk) [Underwriting Results](index=37&type=section&id=Underwriting%20Results) Total underwriting loss increased to **$3.0 million** for the three months, driven by higher losses in commercial and personal lines | Segment | 3 Months Ended June 30, 2019 Underwriting Gain (Loss) ($ thousands) | 3 Months Ended June 30, 2018 Underwriting Gain (Loss) ($ thousands) | |:---|:---|:---|\n| Commercial Lines | $(1,563) | $(968) | | Personal Lines | $(1,214) | $(1,134) | | Total Underwriting | $(2,777) | $(2,102) | | Wholesale Agency | $466 | $542 | | Total underwriting income (loss) | $(3,002) | $(1,454) | [Results of Operations For The Six Months Ended June 30, 2019 and 2018](index=38&type=section&id=Results%20of%20Operations%20For%20The%20Six%20Months%20Ended%20June%2030%2C%202019%20and%202018) Net loss increased to **$3.6 million** for the six months ended June 30, 2019, with the combined ratio worsening to **110.5%** | Metric | 6 Months Ended June 30, 2019 ($ thousands) | 6 Months Ended June 30, 2018 ($ thousands) | Change ($ thousands) | Change (%) | |:---|:---|:---|:---|:---|\n| Gross written premiums | $49,385 | $50,299 | $(914) | (1.8)% | | Net earned premiums | $43,036 | $47,739 | $(4,703) | (9.9)% | | Underwriting gain (loss) | $(5,261) | $(1,324) | $(3,937) | * | | Net income (loss) | $(3,564) | $(900) | $(2,664) | * | | Loss ratio | 66.8% | 59.2% | 7.6 pp | | | Expense ratio | 43.7% | 44.4% | (0.7) pp | | | Combined ratio | 110.5% | 103.6% | 6.9 pp | | [Premiums](index=39&type=section&id=Premiums) Gross written premiums decreased by **1.8%** due to strategic reductions, while net earned premiums declined by **9.9%** | Premium Type | 6 Months Ended June 30, 2019 ($ thousands) | 6 Months Ended June 30, 2018 ($ thousands) | Change ($ thousands) | Change (%) | |:---|:---|:---|:---|:---|\n| Gross written premiums | $49,385 | $50,299 | $(914) | (1.8)% | | Commercial lines GWP | $46,043 | $46,796 | $(753) | (1.6)% | | Personal lines GWP | $3,342 | $3,503 | $(161) | (4.6)% | | Net written premiums | $41,756 | $42,439 | $(683) | (1.6)% | | Net earned premiums | $43,036 | $47,739 | $(4,703) | (9.9)% | - Personal lines gross written premiums decreased due to planned reductions in wind-exposed homeowners business, partially offset by growth in low-value dwelling lines[140](index=140&type=chunk) - New catastrophe reinsurance treaties effective June 1, 2019, are expected to reduce the overall weighted average rate of reinsurance premiums to gross earned premiums by approximately **2.5 percentage points** going forward[141](index=141&type=chunk) [Other Income](index=39&type=section&id=Other%20Income) Other income increased by **24.3%**, driven by additional commission income from Agency operations and increased fees | Metric | 6 Months Ended June 30, 2019 ($ thousands) | 6 Months Ended June 30, 2018 ($ thousands) | Change ($ thousands) | Change (%) | |:---|:---|:---|\n| Other income | $1,003 | $807 | $196 | 24.3% | - The increase in other income was primarily due to additional commission income in the Agency operations and increased fees charged on existing business[145](index=145&type=chunk) [Losses and Loss Adjustment Expenses](index=41&type=section&id=Losses%20and%20Loss%20Adjustment%20Expenses) Net losses and LAE increased by **1.6%**, with the loss ratio worsening to **66.8%** due to adverse prior-year reserve development | Metric | 6 Months Ended June 30, 2019 ($ thousands) | 6 Months Ended June 30, 2018 ($ thousands) | Change ($ thousands) | Change (%) | |:---|:---|:---|\n| Net losses and LAE | $28,838 | $28,396 | $442 | 1.6% | | Calendar year loss ratio | 66.8% | 59.2% | 7.6 pp | | | Net adverse development | $4,373 | $1,470 | $2,903 | * | - Adverse prior-year reserve development of **$4.4 million** for H1 2019 was mainly from commercial liability (**$2.4 million**) and personal lines (**$2.0 million**, including **$1.4 million** from Florida homeowners), net of **$5.2 million** ADC deferred gain amortization[147](index=147&type=chunk) [Expense Ratio](index=42&type=section&id=Expense%20Ratio) The overall expense ratio decreased to **43.7%**, despite negative impacts from reduced net earned premiums and reinsurance costs | Metric | 6 Months Ended June 30, 2019 | 6 Months Ended June 30, 2018 | |:---|:---|:---|\n| Total Underwriting Expense Ratio | 43.7% | 44.4% | | Commercial Lines Expense Ratio | 43.0% | 45.3% | | Personal Lines Expense Ratio | 57.4% | 38.9% | - The expense ratio was negatively impacted by **0.5 percentage points** due to reinsurance reinstatement and minimum premium costs[152](index=152&type=chunk) - Personal lines operating expense ratio increased significantly in 2019 due to a steep decrease in net earned premiums from planned reductions in wind-exposed business[152](index=152&type=chunk) [Underwriting Results](index=43&type=section&id=Underwriting%20Results) Total underwriting loss significantly increased to **$5.3 million** for the six months, driven by higher losses in both segments | Segment | 6 Months Ended June 30, 2019 Underwriting Gain (Loss) ($ thousands) | 6 Months Ended June 30, 2018 Underwriting Gain (Loss) ($ thousands) | |:---|:---|:---|\n| Commercial Lines | $(1,765) | $(66) | | Personal Lines | $(2,780) | $(1,665) | | Total Underwriting | $(4,545) | $(1,731) | | Wholesale Agency | $380 | $392 | | Total underwriting income (loss) | $(5,261) | $(1,324) | [Liquidity and Capital Resources](index=43&type=section&id=Liquidity%20and%20Capital%20Resources) This section discusses the Company's liquidity, capital resources, cash flow activities, and outstanding debt obligations [Sources and Uses of Funds](index=43&type=section&id=Sources%20and%20Uses%20of%20Funds) The Company's funding sources include premiums and investment income, with liquidity primarily from intercompany service fees - As of June 30, 2019, the Company had **$25.0 million** in cash, cash equivalents, and short-term investments[157](index=157&type=chunk) - The Parent Company's ability to service debt and pay administrative expenses relies primarily on intercompany service fees from its Insurance Company Subsidiaries[157](index=157&type=chunk) [Cash Flows](index=43&type=section&id=Cash%20Flows) Cash used in operating activities significantly decreased, while financing activities provided **$5.4 million** from stock issuance and debt | Cash Flow Activity | 6 Months Ended June 30, 2019 ($ millions) | 6 Months Ended June 30, 2018 ($ millions) | |:---|:---|:---|\n| Operating Activities | $(0.2) | $(7.1) | | Investing Activities | $4.5 | $12.3 | | Financing Activities | $5.4 | $0.0 | - The **$6.9 million** decrease in cash used in operations was mostly due to an **$11.3 million** reduction in paid claims, partially offset by a **$3.1 million** reduction in premiums collected[158](index=158&type=chunk) - Financing activities were boosted by a **$5.0 million** common stock issuance and a **$1.0 million** line of credit drawdown, partially offset by **$608,000** in stock repurchases[158](index=158&type=chunk) [Outstanding Debt](index=44&type=section&id=Outstanding%20Debt) The Company's debt includes **$25.3 million** senior notes and **$10.5 million** subordinated notes, with modified covenant compliance - The Company issued **$25.3 million** in public senior unsecured notes in September and October 2018, maturing September 30, 2023, with a **6.75%** annual interest rate[160](index=160&type=chunk) - Subordinated Notes were amended to a principal value of **$10.5 million**, maturing September 30, 2038, with interest rates of **7.5%** until September 30, 2023, and **12.5%** thereafter[160](index=160&type=chunk) - The **$10.0 million** line of credit was renewed on June 21, 2019, with modified tangible net worth and debt-to-total capital ratio covenants, and **$995,000** was outstanding as of June 30, 2019[160](index=160&type=chunk) [Non-GAAP Financial Measures](index=45&type=section&id=Non-GAAP%20Financial%20Measures) This section presents non-GAAP financial measures, including statutory capital and surplus and adjusted operating income, for performance assessment [Statutory Capital and Surplus](index=45&type=section&id=Statutory%20Capital%20and%20Surplus) Statutory capital and surplus for insurance subsidiaries decreased to **$59.3 million** at June 30, 2019 | Metric | June 30, 2019 ($ millions) | December 31, 2018 ($ millions) | |:---|:---|:---|\n| Statutory capital and surplus | $59.3 | $64.0 | [Adjusted Operating Income and Adjusted Operating Income Per Share](index=45&type=section&id=Adjusted%20Operating%20Income%20and%20Adjusted%20Operating%20Income%20Per%20Share) Adjusted operating loss was **$5.6 million** for three months and **$9.8 million** for six months, reflecting a significant decline | Metric | 3 Months Ended June 30, 2019 ($ thousands) | 3 Months Ended June 30, 2018 ($ thousands) | 6 Months Ended June 30, 2019 ($ thousands) | 6 Months Ended June 30, 2018 ($ thousands) | |:---|:---|:---|:---|:---|\n| Net income (loss) | $(2,884) | $(1,113) | $(3,564) | $(900) | | Adjusted operating income (loss) | $(5,597) | $(173) | $(9,844) | $1,607 | | Diluted income (loss) per common share | $(0.34) | $(0.13) | $(0.42) | $(0.11) | | Adjusted operating income (loss) per share | $(0.67) | $(0.02) | $(1.17) | $0.18 | - Adjusted operating income excludes net realized investment gains/losses, changes in fair value of equity securities, and the net decrease/increase in deferred gain on losses ceded to ADC to provide a clearer view of ongoing business performance[163](index=163&type=chunk) [Recently Issued Accounting Pronouncements](index=46&type=section&id=Recently%20Issued%20Accounting%20Pronouncements) This section refers to detailed information on recently issued accounting pronouncements in Note 1 - Refer to Note 1, 'Summary of Significant Accounting Policies – Recently Issued Accounting Guidance,' for detailed information on recently issued accounting pronouncements[165](index=165&type=chunk) [ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK](index=47&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) This section discusses the Company's market risk exposures, including interest rate and credit risk, and the effects of inflation [Interest Rate Risk](index=47&type=section&id=Interest%20Rate%20Risk) This section details the Company's exposure to interest rate fluctuations and its mitigation strategies for the investment portfolio - The Company's primary market risk exposure for its **$140.6 million** investment portfolio (excluding cash and cash equivalents) is interest rate risk, as it consists principally of investment-grade, available-for-sale debt securities[168](index=168&type=chunk) - Interest rate risks are mitigated by investing in securities with varied maturity dates and managing the investment portfolio's duration to a defined range of three to four years; the effective duration was **3.5 years** at June 30, 2019[168](index=168&type=chunk) | Hypothetical Change in Interest Rates | Estimated Fair Value ($ thousands) | Estimated Change in Fair Value ($ thousands) | Percentage (Decrease) in Shareholders' Equity | |:---|:---|:---|:---|\n| 200 basis point increase | $120,364 | $(8,368) | (18.0)% | | 100 basis point increase | $124,613 | $(4,119) | (8.9)% | | No change | $128,732 | $0 | 0% | | 100 basis point decrease | $132,336 | $3,604 | 7.7% | | 200 basis point decrease | $135,297 | $6,565 | 14.1% | [Credit Risk](index=47&type=section&id=Credit%20Risk) This section describes how the Company manages credit risk within its debt securities portfolio and with reinsurers - Credit risk in the debt securities portfolio is managed by investing only in investment-grade securities and complying with statutory limits on investment concentration[169](index=169&type=chunk) - The Company mitigates credit risk to reinsurers by selecting financially strong reinsurers (A.M. Best rating of 'A-' or better) and continuously evaluating their financial condition[169](index=169&type=chunk) - As of June 30, 2019, the net amount due from reinsurers, including prepaid reinsurance premiums, was **$33.5 million**, all believed to be recoverable[169](index=169&type=chunk) [Effects of Inflation](index=47&type=section&id=Effects%20of%20Inflation) This section discusses the Company's assessment of inflation's impact on its operations, interest rates, and claims costs - The Company does not believe inflation materially affects its results of operations, except for its impact on interest rates and claims costs, which are considered in pricing and reserving[170](index=170&type=chunk) [ITEM 4. CONTROLS AND PROCEDURES](index=48&type=section&id=Item%204.%20Controls%20and%20Procedures) This section addresses the effectiveness of disclosure controls and procedures and reports on internal control changes [Disclosure Controls and Procedures](index=48&type=section&id=Disclosure%20Controls%20and%20Procedures) This section confirms the effectiveness of the Company's disclosure controls and procedures as evaluated by management - Management, including the CEO and CFO, evaluated the effectiveness of disclosure controls and procedures as of June 30, 2019, and concluded they were effective at a reasonable assurance level[174](index=174&type=chunk) [Changes in Internal Control over Financial Reporting](index=48&type=section&id=Changes%20in%20Internal%20Control%20over%20Financial%20Reporting) This section reports that no material changes occurred in internal control over financial reporting during the period - There were no changes in internal control over financial reporting during the three months ended June 30, 2019, that materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting[175](index=175&type=chunk) [PART II — OTHER INFORMATION](index=49&type=section&id=Part%20II%20%E2%80%94%20Other%20Information) This section includes legal proceedings, risk factors, equity sales, and required exhibits for the report [ITEM 1. LEGAL PROCEEDINGS](index=49&type=section&id=Item%201.%20Legal%20Proceedings) This section incorporates legal proceedings information by reference from Note 12 of the financial statements - Information regarding legal proceedings is incorporated by reference from Note 12, 'Commitments and Contingencies,' of the Notes to the Consolidated Financial Statements[178](index=178&type=chunk) [ITEM 1A. RISK FACTORS](index=49&type=section&id=Item%201A.%20Risk%20Factors) This section confirms no material changes to risk factors previously disclosed in the Annual Report on Form 10-K - There were no material changes to the risk factors disclosed in the Company's Annual Report on Form 10-K filed on March 13, 2019[179](index=179&type=chunk) [ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS](index=50&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) This section details unregistered equity sales, including a **$5.0 million** private placement, and stock repurchase program updates - On June 28, 2019, the Company issued **$5.0 million** of common equity (**1,176,471 shares** at **$4.25 per share**) through a private placement to accredited investors, including Board members, using proceeds for growth capital in specialty core commercial business segments[182](index=182&type=chunk) - For the six months ended June 30, 2019, the Company repurchased **142,815 shares** of stock valued at approximately **$608,000** under its authorized stock repurchase program[182](index=182&type=chunk) [ITEM 6. EXHIBITS](index=51&type=section&id=Item%206.%20Exhibits) This section lists all exhibits filed as part of the Form 10-Q, including required certifications and XBRL documents - The exhibits include Section 302 Certifications from the CEO and CFO, Section 906 Certifications from the CEO and CFO, and various XBRL Instance and Taxonomy Extension Documents[185](index=185&type=chunk) [SIGNATURES](index=52&type=section&id=Signatures) This section contains the required signatures for the Form 10-Q, certifying its official submission - The report was signed by Harold J. Meloche, Chief Financial Officer, Principal Financial Officer, and Principal Accounting Officer, on August 7, 2019[190](index=190&type=chunk)
ifer (CNFR) - 2019 Q1 - Quarterly Report
2019-05-08 20:06
UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarterly Period Ended March 31, 2019 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number 001-37536 Conifer Holdings, Inc. (Exact name of registrant as specified in its charter) Michigan 27-1298795 (State or other jurisdiction of inc ...