Conifer Holdings Reports 2020 Fourth Quarter and Year End Financial Results

Company to Host Conference Call at 8:30 AM ET on Wednesday, February 24, 2021

February 23, 2021 4:01 PM EST

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BIRMINGHAM, Mich., Feb. 23, 2021 (GLOBE NEWSWIRE) -- Conifer Holdings, Inc. (Nasdaq: CNFR) (“Conifer” or the “Company”) today announced results for the fourth quarter and year ended December 31, 2020.

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

  • Gross written premium increased 13.7% to $28.9 million
  • Commercial Lines gross written premium increased 13.3% to $26.4 million
  • Personal Lines gross written premium increased 18.5% to $2.4 million
  • Net income of $3.3 million, or $0.34 per share, based on 9.7 million average shares outstanding

Year End 2020 Financial Highlights (compared to the prior year period)

  • Gross written premium increased 9.3% to $111.3 million
  • Net income of $595,000, or $0.06 per share, based on 9.6 million average shares outstanding
  • Book value per share of $4.59 as of December 31, 2020

Management Comments James Petcoff, Chairman and CEO, commented, “Despite the pandemic-driven unpredictability in 2020, we were able to close out the year on a positive note, growing gross written premiums by 9% for the year and just under 14% for the fourth quarter. This growth was achieved through a balanced mix of rate and market share expansion in both the commercial and personal lines segments. Overall, our book value improved year over year to $4.59 at December 31, 2020.”

2020 Fourth Quarter Financial Results Overview

  At and for the Three Months Ended December 31, At and for the Year Ended December 31,  
   2020   2019  % Change  2020   2019  % Change 
                      
  (dollars in thousands, except share and per share amounts)  
               
Gross written premiums$28,865  $25,391  13.7% $111,335  $101,853  9.3%  
Net written premiums 23,781   22,162  7.3%  92,940   87,724  5.9%  
Net earned premiums 23,101   23,278  -0.8%  89,103   89,089  0.0%  
               
Net investment income 563   860  -34.5%  3,156   4,031  -21.7%  
Net realized investment gains 3,637   72  **  8,126   1,196  **  
Change in fair value of equity investments 2,094   288  **  228   (427)    
Other gains -   -  **  260   -  **  
               
Net income (loss) 3,274   (3,028) **  595   (7,822) **  
 Net income (loss) per share, diluted$0.34  $(0.32)   $0.06  $(0.88)    
               
Adjusted operating income (loss)* (2,457)  (3,394) **  (8,019)  (15,092) **  
 Adjusted operating income (loss) per share, diluted*$(0.26) $(0.35) ** $(0.83) $(1.69) **  
               
Book value per common share outstanding$4.59  $4.45    $4.59  $4.45     
               
Weighted average shares outstanding, basic and diluted 9,680,521   9,591,387     9,625,059   8,880,107     
               
Underwriting ratios:             
 Loss ratio (1) 66.7%  68.6%    62.8%  66.8%    
 Expense ratio (2) 43.9%  44.3%    45.6%  44.0%    
 Combined ratio (3) 110.6%  112.9%    108.4%  110.8%    
               
* The "Definitions of Non-GAAP Measures" section of this release defines and reconciles data that are not based on generally accepted accounting principles.  
** Percentage is not meaningful             
(1) The loss ratio is the ratio, expressed as a percentage, of net losses and loss adjustment expenses to net earned premiums and income from underwriting operations.  
(2) The expense ratio is the ratio, expressed as a percentage, of policy acquisition costs and other underwriting expenses to net earned premiums and other income from underwriting operations.  
(3) The combined ratio is the sum of the loss ratio and the expense ratio. A combined ratio under 100% indicates an underwriting profit. A combined ratio over 100% indicates an underwriting loss.  

2020 Fourth Quarter PremiumsGross Written PremiumsGross written premiums increased 13.7% in the fourth quarter of 2020 to $28.9 million, compared to $25.4 million in the prior year period. The increase was achieved through a combination of rate increases and growth of policies-in-force, specifically in the Company’s specialty commercial markets. The overall premium increase was supplemented by continued growth in the Company’s personal lines, driven by its low-value dwelling line of business.

Net Earned PremiumsNet earned premiums decreased 0.8% to $23.1 million for the fourth quarter of 2020, compared to $23.3 million for the prior year period. This was mainly due to slightly higher reinsurance costs. The Company expects net earned premiums to increase throughout 2021 as the growth in gross written premiums achieved in the second half of 2020 are earned ratably in the coming year.

Commercial Lines Financial and Operational Review

Commercial Lines Financial Review 
  
  Three Months Ended December 31, Year Ended December 31, 
   2020   2019  % Change   2020   2019  % Change
                        
  (dollars in thousands) 
              
Gross written premiums$26,422  $23,330  13.3% $102,763  $94,391  8.9% 
Net written premiums 21,558   20,387  5.7%  85,385   81,966  4.2% 
Net earned premiums 21,287   21,567  -1.3%  82,409   83,858  -1.7% 
              
Underwriting ratios:            
 Loss ratio 67.2%  67.7%    64.4%  63.3%   
 Expense ratio 44.1%  43.6%    45.6%  43.3%   
 Combined ratio 111.3%  111.3%    110.0%  106.6%   
              
Contribution to combined ratio from net            
 (favorable) adverse prior year development 18.1%  13.3%    18.4%  9.0%   
              
Accident year combined ratio (1) 93.2%  98.0%    91.6%  97.6%   
              
(1) The accident year combined ratio is the sum of the loss ratio and the expense ratio, less changes in net ultimate loss estimates from prior accident year loss reserves. The accident year combined ratio provides management with an assessment of the specific policy year's profitability and assists management in their evaluation of product pricing levels and quality of business written. 

The Company’s commercial lines of business, representing 91.5% of total gross written premium in the fourth quarter of 2020, primarily consists of property and liability coverage offered to owner-operated small- to mid-sized businesses.

Commercial lines gross written premium increased 13.3% in the fourth quarter of 2020 to $26.4 million, as the Company continues to shift its mix towards more profitable specialty lines.

The Commercial lines combined ratio was 111.3% for the three months ended December 31, 2020, compared to 111.3% in the prior year period.   The loss ratio was 67.2% for the three months ended December 31, 2020, compared with 67.7% in the prior year period while the expense ratio was 44.1% in the current year period, compared with 43.6% during the prior year period.

Commercial lines accident year combined ratio was 93.2% for the quarter.

Personal Lines Financial and Operational Review

                
Personal Lines Financial Review   
    
  Three Months Ended December 31, Year Ended December 31,   
   2020   2019  % Change  2020   2019  % Change  
                          
  (dollars in thousands)  
                
Gross written premiums$2,443  $2,061  18.5% $8,572  $7,462  14.9%   
Net written premiums 2,223   1,775  25.2%  7,555   5,758  31.2%   
Net earned premiums 1,814   1,711  6.0%  6,694   5,231  28.0%   
                
Underwriting ratios:              
 Loss ratio 61.0%  80.5%    43.3%  120.7%     
 Expense ratio 42.3%  52.0%    45.5%  55.4%     
 Combined ratio 103.3%  132.5%    88.8%  176.1%     
                
Contribution to combined ratio from net              
 (favorable) adverse prior year development 13.2%  34.0%    5.1%  55.5%     
                
Accident year combined ratio 90.1%  98.5%    83.7%  120.6%     
                

Personal lines, representing 8.5% of total gross written premium for the fourth quarter of 2020, consists largely of low-value dwelling homeowner’s insurance.

Personal lines gross written premium increased 18.5% to $2.4 million in the fourth quarter of 2020 compared to the prior year period, led by growth in the Company’s low-value dwelling line of business in Texas.

Personal lines combined ratio was 103.3% for the three months ended December 31, 2020, compared to 132.5% in the prior year period. Personal lines loss ratio improved considerably to 61.0%, compared to 80.5% in the prior year period, largely driven by significantly lower losses from the low-value dwelling line of business.

For the full year 2020, the personal lines combined ratio was 88.8% compared to 176.1% in the prior year period.

The personal lines accident year combined ratio was 90.1% for the quarter.

Combined Ratio Analysis

  Three Months Ended December 31,  Year Ended December 31,  
  2020  2019   2020  2019   
                
   (dollars in thousands)  
Underwriting ratios:          
 Loss ratio66.7% 68.6%  62.8% 66.8%  
 Expense ratio43.9% 44.3%  45.6% 44.0%  
 Combined ratio110.6% 112.9%  108.4% 110.8%  
            
Contribution to combined ratio from net (favorable)          
 adverse prior year development17.7% 14.8%  17.4% 11.8%  
            
Accident year combined ratio92.9% 98.1%  91.0% 99.0%  
            

Combined RatioThe Company's combined ratio was 110.6% for the quarter ended December 31, 2020, compared to 112.9% for the same period in 2019. The combined ratio was 108.4% for the twelve months ended December 31, 2020, compared to 110.8% for the same period in 2019. The Company’s accident year combined ratio for the quarter ended December 31, 2020 was 92.9%, compared to 98.1% in the prior year period.

Loss Ratio: The Company’s losses and loss adjustment expenses were $15.5 million for the three months ended December 31, 2020, compared to $16.0 million in the prior year period. This resulted in a loss ratio of 66.7%, compared to 68.6% in the prior year period.

Expense Ratio: The expense ratio was 43.9% for the fourth quarter of 2020, compared to 44.3% in the prior year period.

Net Investment IncomeNet investment income was $563,000 during the quarter ended December 31, 2020, compared to $860,000 in the prior year period. Net realized investment gains during the fourth quarter were $3.6 million, compared to net realized investment gains of $72,000 in the prior year period.

Change in Fair Value of Equity SecuritiesDuring the quarter, the Company reported a gain from the change in fair value of equity investments of $2.1 million, compared to a gain of $288,000 in the prior year period.

Net Income (Loss) In the fourth quarter of 2020, the Company reported net income of $3.3 million, or $0.34 per share, compared to a net loss of $3.0 million, or $0.32 per share, in the prior year period.

Adjusted Operating Income (Loss)In the fourth quarter of 2020, the Company reported an adjusted operating loss of $2.5 million, or $0.26 per share, compared to an adjusted operating loss of $3.4 million, or $0.35 per share, for the same period in 2019. See Definitions of Non-GAAP Measures.

Earnings Conference Call with Accompanying Slide PresentationThe Company will hold a conference call/webcast on Wednesday, February 24, 2021 at 8:30 a.m. ET to discuss results for the fourth quarter and year ended December 31, 2020.

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

Webcast:                On the Event Calendar at IR.CNFRH.comConference Call:        844-868-8843 (domestic) or 412-317-6589 (international)

The webcast will be archived on the Conifer Holdings website and available for replay for at least one year.

About the CompanyConifer Holdings, Inc. is a Michigan-based insurance holding company. Through its operating subsidiaries, Conifer offers customized coverage solutions tailored to the needs of our specialty niche insureds.  Across all 50 states, we utilize a multi-channel distribution approach, but largely market through independent agents. Conifer is traded on the Nasdaq Global Market (Nasdaq: CNFR), and additional information is available on the Company’s website at www.CNFRH.com.

Definitions of Non-GAAP MeasuresConifer prepares its public financial statements in conformity with accounting principles generally accepted in the United States of America (GAAP). Statutory data is prepared in accordance with statutory accounting rules as defined by the National Association of Insurance Commissioners' (NAIC) Accounting Practices and Procedures Manual, and therefore is not reconciled to GAAP data.

We believe that investors’ understanding of Conifer’s performance is enhanced by our disclosure of adjusted operating income. Our method for calculating this measure may differ from that used by other companies and therefore comparability may be limited. We define adjusted operating income (loss), a non-GAAP measure, as net income (loss) excluding after-tax net realized investment gains and losses, excluding the tax effect of changes in unrealized gains and losses, excluding the after-tax change in fair value of equity securities, and including the net change in deferred gain on losses ceded to the Adverse Development Cover (ADC). We use adjusted operating income as an internal performance measure in the management of our operations because we believe it gives our management and other users of our financial information useful insight into our results of operations and our underlying business performance.

Reconciliations of adjusted operating income and adjusted operating income per share:

  Three Months Ended December 31, Year Ended December 31,  
   2020   2019   2020   2019   
                   
  (dollar in thousands, except share and per share amounts)  
          
Net income (loss)$3,274  $(3,028) $595  $(7,822)  
Less:         
Net realized investment gains and other gains, net of tax 3,637   72   8,386   1,196   
Tax effect of unrealized gains and losses on investments -   6   -   824   
Change in fair value of equity securities, net of tax 2,094   288   228   (427)  
Net (increase) decrease in deferred gain on losses         
 ceded to ADC, net of tax -   -   -   5,677   
Adjusted operating income (loss)$(2,457) $(3,394) $(8,019) $(15,092)  
           
Weighted average common shares, diluted 9,680,521   9,591,387   9,625,059   8,880,107   
           
Diluted income (loss) per common share:         
 Net income (loss)$0.34  $(0.32) $0.06  $(0.88)  
 Less:         
 Net realized investment gains and other gains, net of tax 0.38   -   0.87   0.13   
 Tax effect of unrealized gains and losses on investments -   -   -   0.09   
 Change in fair value of equity securities, net of tax 0.22   0.03   0.02   (0.05)  
  Net (increase) decrease in deferred gain on losses         
        ceded to ADC, net of tax -   -   -   0.64   
 Adjusted operating income (loss), per share$(0.26) $(0.35) $(0.83) $(1.69)  
           

Forward-Looking Statement

This press release contains forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements give current expectations or forecasts of future events or our future financial or operating performance, and include Conifer’s expectations regarding premiums, earnings, its capital position, expansion, and growth strategies. The forward-looking statements contained in this press release are based on management’s good-faith belief and reasonable judgment based on current information. The forward-looking statements are qualified by important factors, risks and uncertainties, many of which are beyond our control, that could cause our actual results to differ materially from those in the forward-looking statements, including those described in our form 10-K (“Item 1A Risk Factors”) filed with the SEC on March 12, 2020 and subsequent reports filed with or furnished to the SEC. Any forward-looking statement made by us in this report speaks only as of the date hereof or as of the date specified herein. We undertake no obligation to publicly update any forward-looking statement, whether as a result of new information, future developments or otherwise, except as may be required by any applicable laws or regulations.

         
Conifer Holdings, Inc. and Subsidiaries 
Consolidated Balance Sheets 
(dollars in thousands) 
         
     December 31, December 31, 
      2020   2019  
Assets (Unaudited)   
Investment securities:     
 Debt securities, at fair value (amortized cost of $149,954 and $151,999  $131,000  
  $129,313, respectively)     
 Equity securities, at fair value (cost of $16,912 and $6,554, respectively) 17,891   7,306  
 Short-term investments, at fair value  13,317   31,426  
  Total investments  183,207   169,732  
         
Cash and cash equivalents  8,193   7,464  
Premiums and agents' balances receivable, net  20,162   20,168  
Receivable from Affiliate  8   313  
Reinsurance recoverables on unpaid losses  24,218   22,579  
Reinsurance recoverables on paid losses  2,138   5,155  
Prepaid reinsurance premiums  1,316   1,250  
Deferred policy acquisition costs  12,243   11,906  
Other assets  10,112   8,698  
   Total assets $261,597  $247,265  
         
Liabilities and Shareholders' Equity     
Liabilities:     
 Unpaid losses and loss adjustment expenses $111,270  $107,246  
 Unearned premiums  56,224   51,503  
 Debt   40,997   35,824  
 Accounts payable and accrued expenses  8,693   9,967  
   Total liabilities  217,184   204,540  
         
Commitments and contingencies  -   -  
         
Shareholders' equity:     
 Common stock, no par value (100,000,000 shares authorized;     
  9,681,728 and 9,592,861 issued and outstanding, respectively)  92,486   91,816  
 Accumulated deficit  (48,985)  (49,580) 
 Accumulated other comprehensive income (loss)  912   489  
  Total shareholders' equity   44,413   42,725  
   Total liabilities and shareholders' equity $261,597  $247,265  
         

Conifer Holdings, Inc. and Subsidiaries 
Consolidated Statements of Operations (Unaudited)  
(dollars in thousands, except share and per share data) 
             
    Three Months Ended Year Ended  
    December 31, December 31,  
     2020   2019   2020   2019   
             
Revenue         
 Premiums         
  Gross earned premiums$27,730  $26,609  $106,614  $103,203   
  Ceded earned premiums (4,629)  (3,331)  (17,511)  (14,114)  
   Net earned premiums 23,101   23,278   89,103   89,089   
 Net investment income 563   860   3,156   4,031   
 Net realized investment gains 3,637   72   8,126   1,196   
 Change in fair value of equity securities 2,094   288   228   (427)  
 Other gains -   -   260   -   
 Other income 602   542   2,615   2,109   
   Total revenue 29,997   25,040   103,488   95,998   
             
Expenses         
 Losses and loss adjustment expenses, net 15,461   16,049   56,228   59,744   
 Policy acquisition costs 6,924   6,959   26,105   24,911   
 Operating expenses 4,027   4,622   18,468   17,582   
 Interest expense 740   727   2,925   2,882   
   Total expenses 27,152   28,357   103,726   105,119   
             
Income (loss) before equity earnings in Affiliate and income taxes 2,845   (3,317)  (238)  (9,121)  
 Equity earnings in Affiliate, net of tax 422   167   839   386   
 Income tax (benefit) expense (7)  (122)  6   (913)  
Net income (loss) 3,274   (3,028)  595   (7,822)  
             
Earnings (loss) per common share,         
  basic and diluted$0.34  $(0.32) $0.06  $(0.88)  
             
Weighted average common shares outstanding,         
  basic and diluted 9,680,521   9,591,387   9,625,059   8,880,107   
             

For Further Information:

Jessica Gulis, 248.559.0840ir@cnfrh.com

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Source: Conifer Holdings, Inc.


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