Conifer Holdings Reports 2020 Third Quarter Financial Results

BIRMINGHAM, Mich., Nov. 11, 2020 (GLOBE NEWSWIRE) -- Conifer Holdings, Inc. (Nasdaq: CNFR) (“Conifer” or the “Company”) today announced results for the third quarter ended September 30, 2020.

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

• Gross written premium increased 10.2% to $29.8 million,
• Commercial Lines gross written premium increased 9.1% to $27.3 million
• Personal Lines gross written premium increased 23.6% to $2.5 million
• Commercial Lines combined ratio was 114.2%
• Personal Lines combined ratio was 68.1%
• Net income of $0.5 million, or $0.06 per share, based on 9.6 million average shares outstanding
• Book value per share of $4.40 as of September 30, 2020, compared to $4.51 as of June 30, 2020, and $3.81 at March 31, 2020

Management Comments James Petcoff, Chairman and CEO, commented, “We were pleased to report double digit growth in the top line during the quarter, largely driven by higher premiums in our core specialty commercial lines of business. Continued growth in our written premiums will drive more efficient scale for our business overall. We continue to see favorable pricing trends in our core markets and feel well positioned for the coming year. Reserve development did impact the Company’s combined ratio for the period. This was partially offset by exceptional performance in our personal lines business and favorable realized investment gains, which led to profitable operations for the period.”

2020 Third Quarter Financial Results Overview

	At and for the Three Months Ended September 30,										At and for the Nine Months Ended September 30,
	2020				2019				% Change		2020				2019				% Change
	(dollars in thousands, except share and per share amounts)
Gross written premiums	$	29,841			$	27,077			10.2%		$	82,470			$	76,462			7.9%
Net written premiums		25,043				23,806			5.2%			69,159				65,562			5.5%
Net earned premiums		22,227				22,775			-2.4%			66,002				65,811			0.3%
Net investment income		776				1,210			-35.9%			2,593				3,171			-18.2%
Net realized investment gains		3,316				390			**			4,489				1,124			**
Change in fair value of equity investments		(356	)			(1,065	)		**			(1,866	)			(715	)
Other gains		-				-			**			260				-			**
Net income (loss)		541				(1,230	)		**			(2,679	)			(4,794	)		**
Net income (loss) per share, diluted	$	0.06			$	(0.13	)				$	(0.28	)		$	(0.55	)
Adjusted operating income (loss)*		(2,419	)			(1,854	)		**			(5,562	)			(11,698	)		**
Adjusted operating income (loss) per share, diluted*	$	(0.24	)		$	(0.18	)		**		$	(0.58	)		$	(1.35	)		**
Book value per common share outstanding	$	4.40			$	4.74					$	4.40			$	4.74
Weighted average shares outstanding, basic and diluted		9,630,600				9,543,535						9,606,436				8,640,409
Underwriting ratios:
Loss ratio (1)		65.2%				64.9%						61.5%				66.1%
Expense ratio (2)		45.5%				44.3%						46.2%				43.9%
Combined ratio (3)		110.7%				109.2%						107.7%				110.0%
* 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 Third Quarter PremiumsGross Written PremiumsGross written premiums increased 10.2% in the third quarter of 2020 to $29.8 million, compared to $27.1 million in the prior year period. The increase was largely due to both rate and policy growth across several lines, 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 2.4% to $22.2 million for the third quarter of 2020, compared to $22.8 million for the prior year period. This was mainly due to slightly higher reinsurance costs.

Commercial Lines Financial and Operational Review

Commercial Lines Financial Review
	Three Months Ended September 30,								Nine Months Ended September 30,
	2020			2019			% Change		2020			2019			% Change
	(dollars in thousands)
Gross written premiums	$	27,297		$	25,018		9.1%		$	76,341		$	71,061		7.4%
Net written premiums		22,763			22,095		3.0%			63,827			61,579		3.7%
Net earned premiums		20,586			21,439		-4.0%			61,122			62,291		-1.9%
Underwriting ratios:
Loss ratio		68.8%			62.8%					63.5%			61.8%
Expense ratio		45.4%			43.5%					46.1%			43.2%
Combined ratio		114.2%			106.3%					109.6%			105.0%
Contribution to combined ratio from net
(favorable) adverse prior year development		22.4%			10.7%					18.5%			7.5%
Accident year combined ratio (1)		91.8%			95.6%					91.1%			97.5%
(1) The accident year combined ratio is the sum of the loss ratio and the expense ratio, less changes in net ultimate loss estimates from prior accident year loss reserves. The accident year combined ratio provides management with an assessment of the specific policy year's profitability and assists management in their evaluation of product pricing levels and quality of business written.

The Company’s commercial lines of business, representing 91% of total gross written premium in the third 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 9.1% in the third quarter of 2020 to $27.3 million, as the Company continues to shift its mix towards more profitable specialty lines.

The Commercial lines combined ratio was 114.2% for the three months ended September 30, 2020, compared to 106.3% in the prior year period, largely due to a 22.4 percentage point contribution to the combined ratio from adverse prior year development. The development was due to higher than anticipated losses, mostly in the hospitality lines in the 2018 and prior accident years.

Commercial lines accident year combined ratio was 91.8% for the quarter.

Personal Lines Financial and Operational Review

Personal Lines Financial Review
	Three Months Ended September 30,								Nine Months Ended September 30,
	2020			2019			% Change		2020			2019			% Change
	(dollars in thousands)
Gross written premiums	$	2,544		$	2,059		23.6%		$	6,129		$	5,401		13.5%
Net written premiums		2,280			1,711		33.3%			5,332			3,983		33.9%
Net earned premiums		1,641			1,336		22.8%			4,880			3,520		38.6%
Underwriting ratios:
Loss ratio		21.3%			97.9%					36.7%			140.1%
Expense ratio		46.8%			56.6%					46.7%			57.0%
Combined ratio		68.1%			154.5%					83.4%			197.1%
Contribution to combined ratio from net
(favorable) adverse prior year development		3.8%			28.7%					2.2%			65.9%
Accident year combined ratio		64.3%			125.8%					81.2%			131.2%

Personal lines, representing 9% of total gross written premium for the third quarter of 2020, consists largely of low-value dwelling homeowner’s insurance.

Personal lines gross written premium increased 23.6% to $2.5 million in the third quarter of 2020 compared to the prior year period, largely due to renewed growth in the Company’s low-value dwelling line of business across several geographic regions.

Personal lines combined ratio was 68.1% for the three months ended September 30, 2020, compared to 154.5% in the prior year period. Personal lines loss ratio improved considerably to 21.3%, compared to 97.9% in the prior year period, largely driven by significantly lower losses from the Florida homeowner’s line of business and favorable performance in the Company’s current lines of business.

The personal lines accident year combined ratio was 64.3% for the quarter.

Combined Ratio Analysis

	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
	(dollars in thousands)
Underwriting ratios:
Loss ratio	65.2%		64.9%		61.5%		66.1%
Expense ratio	45.5%		44.3%		46.2%		43.9%
Combined ratio	110.7%		109.2%		107.7%		110.0%
Contribution to combined ratio from net (favorable)
adverse prior year development	21.0%		11.8%		17.3%		10.7%
Accident year combined ratio	89.7%		97.4%		90.4%		99.3%

Combined RatioThe Company's combined ratio was 110.7% for the quarter ended September 30, 2020, compared to 109.2% for the same period in 2019. The combined ratio was 107.7% for the nine months ended September 30, 2020, compared to 110.0% for the same period in 2019. The Company’s accident year combined ratio for the quarter ended September 30, 2020 was 89.7%, compared to 97.4% in the prior year period.

Loss Ratio: The Company’s losses and loss adjustment expenses were $14.6 million for the three months ended September 30, 2020, compared to $14.9 million in the prior year period. This resulted in a loss ratio of 65.2%, compared to 64.9% in the prior year period.

Expense Ratio: The expense ratio was 45.5% for the third quarter of 2020, compared to 44.3% in the prior year period.

Net Investment IncomeNet investment income was $0.8 million during the quarter ended September 30, 2020, compared to $1.2 million in the prior year period. Net realized gains during the third quarter were $3.3 million, compared to net realized gain of $0.4 million in the prior year period.

Change in Fair Value of Equity SecuritiesDuring the quarter, the Company reported a loss from change in fair value of equity investments of $0.4 million, compared to a loss of $1.1 million in the prior year period.

Net Income (Loss) In the third quarter of 2020, the Company reported net income of $0.5 million, or $0.06 per share, compared to a net loss of $1.2 million, or $0.13 per share, in the prior year period.

Adjusted Operating Income (Loss)In the third quarter of 2020, the Company reported adjusted operating loss of $2.4 million, or $0.24 per share, compared to adjusted operating loss of $1.8 million, or $0.18 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 Thursday, November 12, 2020 at 8:30 a.m. ET to discuss results for the third quarter ended September 30, 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.com
Conference Call:	844-868-8843 (domestic) or 412-317-6589 (international)

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

About the 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 net realized investment gains and losses, after-tax, excluding the tax impact of changes in unrealized gains and losses, and including the net change in deferred gain on losses ceded to the Adverse Development Cover (ADC). We use adjusted operating income as an internal performance measure in the management of our operations because we believe it gives our management and other users of our financial information useful insight into our results of operations and our underlying business performance.

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

	Three Months Ended September 30,								Nine Months Ended September 30,
	2020				2019				2020				2019
	(dollar in thousands, except share and per share amounts)
Net income (loss)	$	541			$	(1,230	)		$	(2,679	)		$	(4,794	)
Less:
Net realized investment gains and other gains, net of tax		3,316				390				4,749				1,124
Tax effect of investment unrealized gains on investments		-				818				-				818
Change in fair value of equity securities, net of tax		(356	)			(1,065	)			(1,866	)			(715	)
Net decrease (Increase) in deferred gain on losses
ceded to ADC, net of tax		-				481				-				5,677
Adjusted operating income (loss)	$	(2,419	)		$	(1,854	)		$	(5,562	)		$	(11,698	)
Weighted average common shares, diluted		9,630,600				9,543,535				9,606,436				8,640,409
Diluted income (loss) per common share:
Net income (loss)	$	0.06			$	(0.13	)		$	(0.28	)		$	(0.55	)
Less:
Net realized investment gains and other gains, net of tax		0.34				0.04				0.49				0.13
Tax effect of investment unrealized gains on investments		-				0.09				-				0.09
Change in fair value of equity securities, net of tax		(0.04	)			(0.12	)			(0.19	)			(0.08	)
Net decrease (increase) in deferred gain on losses
ceded to ADC, net of tax		-				0.04				-				0.66
Adjusted operating income (loss), per share	$	(0.24	)		$	(0.18	)		$	(0.58	)		$	(1.35	)

Forward-Looking StatementThis 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)
				September 30,				December 31,
				2020				2019
Assets				(Unaudited)
Investment securities:
	Debt securities, at fair value (amortized cost of $135,883 and			$	139,441			$	131,000
		$129,313, respectively)
	Equity securities, at fair value (cost of $17,027 and $6,554, respectively)				15,913				7,306
	Short-term investments, at fair value				24,898				31,426
		Total investments			180,252				169,732
Cash and cash equivalents					7,550				7,464
Premiums and agents' balances receivable, net					20,137				20,168
Receivable from Affiliate					12				313
Reinsurance recoverables on unpaid losses					18,564				22,579
Reinsurance recoverables on paid losses					3,496				5,155
Prepaid reinsurance premiums					4,543				1,250
Deferred policy acquisition costs					12,277				11,906
Other assets					13,062				8,698
			Total assets	$	259,893			$	247,265
Liabilities and Shareholders' Equity
Liabilities:
	Unpaid losses and loss adjustment expenses			$	103,684			$	107,246
	Unearned premiums				55,089				51,503
	Debt				40,920				35,824
	Accounts payable and accrued expenses				17,614				9,967
			Total liabilities		217,307				204,540
Commitments and contingencies					-				-
Shareholders' equity:
	Common stock, no par value (100,000,000 shares authorized;
		9,678,463 and 9,592,861 issued and outstanding, respectively)			92,417				91,816
	Accumulated deficit				(52,259	)			(49,580	)
	Accumulated other comprehensive income (loss)				2,428				489
		Total shareholders' equity			42,586				42,725
			Total liabilities and shareholders' equity	$	259,893			$	247,265

Conifer Holdings, Inc. and Subsidiaries
Consolidated Statements of Operations (Unaudited)
(dollars in thousands, except share and per share data)
				Three Months Ended								Nine Months Ended
				September 30,								September 30,
				2020				2019				2020				2019
Revenue
	Premiums
		Gross earned premiums		$	26,872			$	25,962			$	78,884			$	76,594
		Ceded earned premiums			(4,645	)			(3,187	)			(12,882	)			(10,783	)
			Net earned premiums		22,227				22,775				66,002				65,811
	Net investment income				776				1,210				2,593				3,171
	Net realized investment gains				3,316				390				4,489				1,124
	Change in fair value of equity securities				(356	)			(1,065	)			(1,866	)			(715	)
	Other gains				-				-				260				-
	Other income				642				564				2,013				1,567
			Total revenue		26,605				23,874				73,491				70,958
Expenses
	Losses and loss adjustment expenses, net				14,553				14,857				40,767				43,695
	Policy acquisition costs				6,483				6,153				19,181				17,952
	Operating expenses				4,537				4,297				14,441				12,960
	Interest expense				723				720				2,185				2,155
			Total expenses		26,296				26,027				76,574				76,762
Income (loss) before equity earnings in Affiliate and income taxes					309				(2,153	)			(3,083	)			(5,804	)
	Equity earnings (losses) of Affiliate, net of tax				188				121				417				219
	Income tax (benefit) expense				(44	)			(802	)			13				(791	)
Net income (loss)					541				(1,230	)			(2,679	)			(4,794	)
Earnings (loss) per common share,
	basic and diluted			$	0.06			$	(0.13	)		$	(0.28	)		$	(0.55	)
Weighted average common shares outstanding,
	basic and diluted				9,630,600				9,543,535				9,606,436				8,640,409

For Further Information:Jessica Gulis, 248.559.0840[email protected]

Source: Conifer Holdings, Inc.

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