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ifer (CNFR) - 2019 Q3 - Quarterly Report
ifer ifer (US:CNFR)2019-11-12 12:08

PART I — FINANCIAL INFORMATION ITEM 1 — FINANCIAL STATEMENTS 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 | 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) | 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) | 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) | 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 placement1721 Consolidated Statements of Cash Flows (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) 1. Summary of Significant Accounting Policies 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 states28 - 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 measurements3134 2. Investments 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 201843 3. Fair Value Measurements 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 | 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 debt5558 4. Deferred Policy Acquisition Costs 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 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 information6164 | 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 agreement64 6. Reinsurance 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 $400,000 (2019)68 | Metric | Nine Months Ended Sep 30, 2019 ($ 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 $433,000 for the nine months ended September 30, 201968 7. Debt This note details the Company's debt instruments, including senior unsecured notes, subordinated notes, and a line of credit. It provides a summary of outstanding debt, discusses covenant compliance, and outlines the terms and amendments of these debt agreements | Debt Instrument | September 30, 2019 ($ 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 rate73 - 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, 201973 8. Shareholders' Equity 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 capital77 - 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 $638,000 under this program77 - As of September 30, 2019, there were 9,588,873 issued and outstanding shares of common stock77 9. Accumulated Other Comprehensive Income (Loss) This note presents the changes in accumulated other comprehensive income (loss), primarily reflecting unrealized gains and losses on available-for-sale securities, and the cumulative effects of adopting new accounting standards | Metric | September 30, 2019 ($ 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 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 201881 11. Stock-based Compensation 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 $716,000 in compensation expense related to RSUs for the nine months ended September 30, 2019 and 2018, respectively84 12. Commitments and Contingencies This note addresses legal proceedings and other claims against the Company and its subsidiaries, stating that management does not believe there is a reasonable possibility of material loss exceeding accrued amounts - The Company is subject to various claims and lawsuits in the ordinary course of business, primarily related to insurance policies87 - Management believes that no material loss exceeding currently accrued amounts will result from any legal proceedings, individually or in aggregate87 13. Segment Information This note outlines the Company's operating segments: commercial lines, personal lines (both underwriting businesses), and wholesale agency business (non-risk bearing). It provides financial information by segment, including gross written premiums, net earned premiums, and underwriting gain or loss, and explains the Corporate category for reconciliation - The Company operates in three segments: Commercial Lines, Personal Lines (underwriting businesses), and Wholesale Agency (non-risk bearing)88 | Segment (Nine Months Ended Sep 30, 2019) | Gross Written Premiums ($ 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, 201988 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 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 - 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 materially103104 Business Overview - 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 carrier105 - Revenues are primarily from earned premiums, supplemented by investment income and other fees. Expenses include losses and LAE, agents' commissions, and underwriting/administrative costs106107 - 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 revenue108 Critical Accounting Policies and Estimates - 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, 2019110 Executive Overview | 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 Results of Operations For The Three Months Ended September 30, 2019 and 2018 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 | 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 lines117 - 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 Other Income - Other income increased by $159,000 (39.3%) to $564,000 for the three months ended September 30, 2019, primarily due to additional commission income from Agency operations and increased fees on existing business119121 Losses and Loss Adjustment Expenses | Metric (3 months) | Sep 30, 2019 ($ 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 - The adverse development was net of a $481,000 amortization of the deferred gain on the ADC, which favorably impacted commercial lines and is now fully recognized123 Expense Ratio - The total underwriting expense ratio decreased by 3.5 percentage points to 44.3% for the three months ended September 30, 2019, compared to 47.8% in 2018, reflecting progress in reducing overhead costs126127 | Expense Component (3 months) | Sep 30, 2019 | Sep 30, 2018 | | :--------------------------- | :----------- | :----------- | | Policy acquisition costs | 28.7% | 30.0% | | Operating expenses | 15.6% | 17.8% | | Total Underwriting | 44.3% | 47.8% | - The personal lines expense ratio increased significantly due to a steep decrease in net earned premiums from the planned reduction in wind-exposed business127 Underwriting Results | Segment (3 months) | Sep 30, 2019 ($ 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 $(3,937) thousand in the prior year, driven by improvements in both Commercial and Personal Lines129 Results of Operations For The Nine Months Ended September 30, 2019 and 2018 This section provides a detailed analysis of the Company's operating results for the nine months ended September 30, 2019, compared to the same period in 2018, covering premiums, other income, losses and loss adjustment expenses, expense ratio, and overall underwriting gain or loss Premiums | Premium Type (9 months) | Sep 30, 2019 ($ 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 lines139 - 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 premium140 Other Income - Other income increased by $355,000 (29.3%) to $1.6 million for the nine months ended September 30, 2019, primarily due to additional commission income from Agency operations and increased fees141 Losses and Loss Adjustment Expenses | Metric (9 months) | Sep 30, 2019 ($ 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 $5.7 million deferred gain on the ADC145 Expense Ratio - The total underwriting expense ratio decreased by 1.8 percentage points to 43.9% for the nine months ended September 30, 2019, compared to 45.7% in 2018, despite negative impacts from reinsurance reinstatement and minimum premium costs149150 | Expense Component (9 months) | Sep 30, 2019 | Sep 30, 2018 | | :--------------------------- | :----------- | :----------- | | Policy acquisition costs | 28.0% | 29.4% | | Operating expenses | 15.9% | 16.3% | | Total Underwriting | 43.9% | 45.7% | - The personal lines expense ratio significantly increased in 2019 due to a steep decrease in net earned premiums from the planned reduction in wind-exposed business150 Underwriting Results | Segment (9 months) | Sep 30, 2019 ($ 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 expenses154 Liquidity and Capital Resources 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 - 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 investments155 - 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 dividends155 Cash Flows - 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 reinsurance156 - Investing activities provided $8.4 million, down from $11.4 million in 2018, as the Company withdrew less from its investment portfolio156 - 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 repurchases156 Outstanding Debt - 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 - 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 covenants158 Non-GAAP Financial Measures - Statutory capital and surplus for the Company's insurance subsidiaries was $60.6 million at September 30, 2019, down from $64.0 million at December 31, 2018160 - Adjusted operating income (loss) is a non-GAAP measure that excludes net realized investment gains/losses, changes in fair value of equity securities, and the deferred gain on losses ceded to the ADC, net of tax161 | Metric | Three Months Ended Sep 30, 2019 ($ 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 - Refer to Note 1 for detailed information regarding recently issued accounting pronouncements164 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 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 - The Company's primary market risk exposure is interest rate risk, affecting its $136.2 million investment portfolio (excluding cash), which consists principally of investment-grade debt securities classified as available for sale167 - Interest rate risks are mitigated by investing in securities with varied maturity dates and managing the investment portfolio's duration to a range of three to four years. The effective duration was 3.6 years at September 30, 2019167 | Hypothetical Change in Interest Rates | Estimated Fair Value ($ 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 - Credit risk in the debt securities portfolio is managed by investing only in investment-grade securities and complying with statutory investment limits168 - 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 condition168 - At September 30, 2019, the net amount due from reinsurers was $28.0 million, all believed to be recoverable168 Effects of Inflation - 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 reserving169 ITEM 4. CONTROLS AND PROCEDURES 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 - 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 level173 Changes in Internal Control over Financial Reporting - 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 control174 PART II — OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS 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 Statements177 ITEM 1A. RISK FACTORS 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, 2019178 ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS 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 members181 - Proceeds from the private placement were used for growth capital in the Company's specialty core commercial business segments181 - 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 program181 ITEM 6. EXHIBITS 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 documents184 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, 2019188