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| 8-K - 8-K - Conifer Holdings, Inc. | a8-k3rdquarterinvestorpres.htm |
THIRD QUARTER 2016
INVESTOR CONFERENCE CALL
November 10, 2016
1
SAFE HARBOR STATEMENT
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, business strategy, plans, goals and expectations concerning our market position, product
expansion, future operations, margins, profitability, future efficiencies, and other financial and operating
information. When used in this discussion, the words “may,” “believes,” “intends,” “seeks,” “anticipates,”
“plans,” “estimates,” “expects,” “should,” “assumes,” “continues,” “potential,” “could,” “will,” “future” and the
negative of these or similar terms and phrases are intended to identify forward-looking statements.
Forward-looking statements involve known and unknown risks, uncertainties, inherent risks and other
factors that may cause our actual results, performance or achievements to be materially different from any
future results, performance or achievements expressed or implied by the forward-looking statements.
Forward-looking statements represent our management’s beliefs and assumptions only as of the date of
this presentation. Our actual future results may be materially different from what we expect due to factors
largely outside our control, including the occurrence of severe weather conditions and other catastrophes,
the cyclical nature of the insurance industry, future actions by regulators, our ability to obtain reinsurance
coverage at reasonable rates and the effects of competition. These and other risks and uncertainties
associated with our business are described under the heading “Risk Factors” in our Annual Report on Form
10-K for the year ended December 31, 2015, which should be read in conjunction with this presentation.
The company and subsidiaries operate in a dynamic business environment, and therefore the risks
identified are not meant to be exhaustive. Risk factors change and new risks emerge frequently. Except as
required by law, we assume no obligation to update these forward-looking statements publicly, or to update
the reasons actual results could differ materially from those anticipated in the forward-looking statements,
even if new information becomes available in the future.
1
$16.7
$20.8
$7.5
$7.7
$0
$5
$10
$15
$20
$25
$30
Q3 2015 Q3 2016
M
I
L
L
I
O
N
S
Commercial Lines Personal Lines
Significant top line growth:
• Total gross written premium was
$28.5 million for Q3 2016
Up 17.6% over the same period in 2015
Net earned premium was up 30.7%
for the same period
• Factors driving premium growth include:
Strong commercial lines experience in
hospitality & small business accounts,
particularly in commercial multi-peril
and workers’ compensation lines
Personal lines focus on low-value dwellings and
wind-exposed homeowners
• Active claims management
Select reserve strengthening in the quarter
(added roughly 11 points to the loss ratio)
Still generated a loss ratio of 61.6% in Q3 2016
• Expense ratio showing improvement
Sequential quarterly reduction
• 170 basis point improvement over Q2 2016
• 780 basis point improvement over Q4 2015
Expect continued downward trend as
earned premiums ramp up
• Book Value of $9.76 per share, or $74.5 million,
of shareholders’ equity
2
RESULTS OVERVIEW: Q3 2016
GROSS WRITTEN PREMIUM
3
BUSINESS MIX – GROSS WRITTEN PREMIUM
Personal
Lines
27.2%
Commercial
Lines
72.8%
Hospitality
41.6%
Small Business
31.2%
Wind-Exposed
18.0%
Low-Value Dwelling
9.2%
$0
$5
$10
$15
$20
$25
Q3 2015 Q3 2016
M
I
L
L
I
O
N
S
Commercial Multi-Peril Other Liability
Commercial Auto Other Commercial
COMMERCIAL LINES OVERVIEW
• Seek leading position in niche markets we write
• Focused on small to medium sized owner operators
• 24.6% growth in commercial gross written premium to
$20.8 million for the third quarter of 2016
• Writing commercial lines in all 50 states
4
10 to 25% of GWP
2 to 9.9% of GWP
1 to 1.9% of GWP
Less than 1% of GWP
GROSS WRITTEN PREMIUM
5
460
295
0
50
100
150
200
250
300
350
400
450
500
$9,549
$11,960
$-
$2,000
$4,000
$6,000
$8,000
$10,000
$12,000
$14,000
UNDERWRITING ENHANCEMENTS & POLICIES IN FORCE REDUCTION
• Increased rates an average of 25%
• Curtailed new business in select geographies
• Focus on smaller operators (1-3 vehicles)
• Total repo policies in force down almost 36%
REPOSSESSION & TOWING COMMERCIAL AUTO: Q3 2016
9/30/2015 9/30/2016
25.2%
rate increase
35.9%
fewer policies in force
9/30/2015 9/30/2016
AVERAGE PREMIUM PER POLICY POLICIES IN FORCE
6
• Reserve strengthening impact: added 11 percentage points to Q3 2016 loss ratio
(50.6% without impact) – largest impact from:
Florida homeowners: 3.2 percentage points
Commercial auto: 2.5 percentage points
Commercial multi-peril: 4.0 percentage points (favorable for the 9 months)
• Even with full impact of reserve strengthening, loss ratio was 61.6% for Q3 2016
50.3% 53.3%
63.3%
89.5%
53.3%
61.6%
Q3 2015 Q3 2016
Commercial Lines Personal Lines Consolidated
RESULTS OVERVIEW: Q3 2016 LOSS RATIO
6
Loss Ratio Target:
55%
$0
$1
$2
$3
$4
$5
$6
$7
$8
$9
Q3 2015 Q3 2016
M
I
L
L
I
O
N
S
Wind-Exposed Low-Value Dwelling Personal Auto (run-off)
• Gross written premium was up 2.0% during the third quarter
• Increase in wind-exposed homeowners focusing on coastal exposures in Hawaii, Texas and Florida
• Low-value dwelling ramp up primarily in southern states, such as Texas and northern Louisiana
PERSONAL LINES: LOW-VALUE DWELLING & WIND-EXPOSED HOMEOWNERS
GROSS WRITTEN PREMIUM
$ in thousands
Q3 2016
Top Five States
Texas $ 3,211 41.5%
Florida 2,430 31.4%
Hawaii 1,018 13.2%
Indiana 834 10.8%
Illinois 173 2.2%
All Other 72 1.1%
Total $ 7,738 100.0%
7
GROSS WRITTEN PREMIUM
8
$4,764 $5,164
$6,570
$7,248
$9,956
$0
$1,000
$2,000
$3,000
$4,000
$5,000
$6,000
$7,000
$8,000
$9,000
$10,000
Q3 2015 Q4 2015 Q1 2016 Q2 2016 Q3 2016
CLAIMS ENHANCEMENTS & INCREASED CASE RESERVES
• Added experienced claims staff – Florida based property managers and adjusters
• Implemented improved policy wording previously adopted by Citizens
• Increased average case reserves by 109% since third quarter 2015
FLORIDA HOMEOWNERS: Q3 2016
8
109%
reserve increase
AVERAGE FLORIDA HOMEOWNERS CASE RESERVE
9
Q3 2016 INCOME STATEMENT
• Increased production in hospitality, small business, security services and select homeowners
lines of business
• 2015 investments in experienced underwriting teams are driving organic growth
• Operating loss of $0.20 per diluted share for Q3 2016
• $9.76 per share, or $74.5 million, of shareholders’ equity
Three Months Ended September 30,
($ in thousands, except per share data and ratios) 2016 2015
Gross Written Premium $28,497 $24,242
Net Written Premium 24,634 28,599
Net Earned Premium 23,380 17,883
Net Income (Loss) (1,475) 1,145
Net Income (Loss) Allocable to Common Shareholders (1,475) 1,212
EPS, Basic and Diluted (0.19) 0.21
Operating Income (Loss) (1,546) 1,102
Operating Income (Loss) per share (0.20) 0.19
9
10
54.1% 49.8% 48.0% 46.3%
59.2% 62.4% 61.7% 61.6%
Q4 2015 Q1 2016 Q2 2016 Q3 2016
Expense Ratio Loss Ratio
COMBINED RATIO REFLECTS CLAIMS MANAGEMENT/IMPROVED EXPENSE RATIO
• Changing the mix of business (reduced Florida exposure) should yield positive results
• Continued premium growth can help drive on-going combined ratio improvement
72.8% commercial business with continuing solid loss ratios
Commercial lines loss ratio of 53.3% in the third quarter
10
113.3%
109.7%112.2% 107.9%
11
RESERVING PHILOSOPHY
• Conservative reserving practices
Based on experience and industry-standard actuarial methods
Consistent favorable reserve development for each of the years 2011 to 2014
Cumulative redundancy since 2011 - $5.6 million
• The table below represents the prior year reserve development from 2011 to date by entity.
Adverse development in 2016 is mostly due to greater than expected claim frequency and
severity in our commercial auto and Florida homeowners lines of business:
TOTAL RESERVE REDUNDANCY
$ in thousands
(Favorable) / Unfavorable Development Reported in:
COMPANY
SUBSIDIARIES 2011 2012 2013 2014 2015 YTD 2016 Total
CIC (151) (1,615) (1,521) (61) 1,633 2,044 329
WPIC (2,579) (3,852) (3,639) (367) (345) 830 (9,952)
ACIC - - - (723) 417 2,664 2,358
CHI (2,223) (4,356) (5,021) (1,193) 1,458 5,687 (5,648)
CONSOLIDATED
12
54.1%
49.8% 48.0% 46.3%
Q4 2015 Q1 2016 Q2 2016 Q3 2016
EXPENSE RATIO: TRENDING DOWNWARD
• Total expense ratio of 46.3% in Q3 2016
Versus 54.1% in Q4 2015
Versus 49.8% in Q1 2016
Versus 48.0% in Q2 2016
• Sequential expense ratio improvement quarter to quarter
780 basis point improvement overall since Q4 2015
• Expect continuing downward trend as earned premiums grow quarter to quarter
12
Expense Ratio Target :
35%
13
CONSERVATIVE INVESTMENT STRATEGY
• Investment philosophy is to maintain a
highly liquid portfolio of investment-grade
fixed income securities
• Total cash & investment securities of $140.9M
at September 30, 2016:
Average duration to worst: 3.0 years
Average tax-equivalent yield: ~2%
Average credit quality: AA
FIXED INCOME PORTFOLIO CREDIT RATING
$ in thousands September 30, 2016
Fair Value % of Total
AAA $ 33,014 29%
AA 48,952 43%
A 17,076 15%
BBB 13,661 12%
BB 1,138 1%
TOTAL FIXED INCOME
INVESTMENTS $ 113,841 100%
Short-Term
Investments
10.6%
U.S.
Government
Obligations
4.5%
State & Local
Governments
9.0%
Corporate Debt
26.2%
Commercial
Mortgage &
Asset-Backed
Securities
46.3%
Equity
Securities
3.4%
PORTFOLIO ALLOCATION
APPENDIX
16
FINANCIAL RESULTS: CHI CONSOLIDATED BALANCE SHEET
SUMMARY BALANCE SHEET
$ in thousands
September 30, 2016 December 31, 2015
Cash and invested assets $ 140,934 $ 130,427
Reinsurance recoverables 9,953 7,044
Goodwill and intangible assets 1,412 1,427
Total assets $ 195,919 $ 177,927
Unpaid losses and loss adjustment expenses 45,994 35,422
Unearned premiums 55,475 47,916
Senior debt 14,250 12,750
Total Liabilities $ 121,415 $ 100,665
Total Shareholders' Equity $ 74,504 $ 77,262
17
SUMMARY FINANCIAL STATEMENTS: INCOME STATEMENT
17
OPERATING RESULTS Three Months Ended September 30,
$ in thousands, except per share data 2016 2015
Gross Written Premiums $ 28,498 $ 24,242
Ceded Written Premiums (3,863) 4,357
Net Written Premiums $ 23,380 $ 28,599
Net Earned Premiums 23,380 17,883
Net investment income 560 505
Net realized investment gains 71 6
Other gains -- 104
Other income 303 523
Total revenue 24,314 19,021
Losses and loss adjustment expenses, net 14,582 9,813
Policy acquisition costs 6,266 4,605
Operating expenses 4,710 3,325
Interest expense 168 181
Total expenses 25,726 17,924
Income (loss) before equity earnings and income taxes (1,412) 1,097
Equity earnings (losses) of affiliates, net of tax (47) --
Income tax (benefit) expense 16 (48)
Net income (loss) (1,475) 1,145
Less net (loss) income attributable to non-controlling interest -- (181)
Net income (loss) attributable to Conifer $ (1,475) $ 1,326
Net income (loss) allocable to common shareholders $ (1,475) $ 1,212
Earnings (loss) per common share, basic and diluted $ (0.19) $ 0.21
Weighted average common shares outstanding, basic and diluted 7,608,284 5,701,794
18
REINSURANCE: PRUDENT RISK MANAGEMENT TO PROTECT CAPITAL
• Retain first $500,000 of each
specific loss/risk
Reinsurance coverage in excess
of $500,000 up to policy limits
• Catastrophe (CAT) reinsurance
program provides $165M of protection
All providers are rated minimum A-
Corresponds to the estimated
1-in-200 year probable
maximum loss (PML)
Net retention of $5M for first event
Following reinstatement, net retention
of $1M for each of the next two
subsequent events
• Equipment Breakdown Reinsurance Treaty
100% Quota Share through
Hartford Steam Boiler (A+)
$25M in coverage
$165,000,000
Retention
Property-
CAT:
$165M
XS
$5M
$5,000,000
$2,000,000
$20,000,000
$500,000
$1,000,000
$10,000,000
Multi-Line
Excess of
Loss
Workers’
Comp. /
Casualty
Clash
Retention
CIC / WPIC
Specific Loss Reinsurance Treaties
Effective 01/01/2016 to 01/01/2017
CIC / WPIC / ACIC
Property-CAT Reinsurance Treaties
All layers 06/01/2016 to 06/01/2017
19
REINSURANCE: PRUDENT RISK MANAGEMENT TO PROTECT CAPITAL
Commercial Property Per Risk
Reinsurance Treaty
Effective 07/01/16 to 07/01/17
$2,000,000
$500,000
$1,000,000
Retention
Multi-Line
Excess of
Loss
Property
Per Risk
Multi-Line
Excess of
Loss
$4,000,000
Homeowners Property Per Risk
Reinsurance Treaty
Effective 11/01/14 to 01/01/17
$300,000
Retention
Property
$3,000,000
20
ORGANIZATION STRUCTURE: CORPORATE OVERVIEW
CONIFER HOLDINGS, INC.
Insurance Holding Company
MI Domicile
Incorporated: 10/27/09
RED CEDAR
INSURANCE COMPANY
Pure Captive
Insurance Company
100% owned by CHI
DC Domicile
Formed : 10/12/11
WHITE PINE
INSURANCE COMPANY
Property & Casualty
Insurance Company
100% owned by CHI
MI Domicile
Acquired: 12/28/10
AMERICAN COLONIAL
INSURANCE COMPANY
Property & Casualty
Insurance Company
100% owned by CHI
FL Domicile
Acquired: 11/30/2013
SYCAMORE
INSURANCE AGENCY
Insurance Agency
100% owned by CHI
MI Domicile
Created: 5/9/12
CONIFER
INSURANCE COMPANY
Property & Casualty
Insurance Company
100% owned by CHI
MI Domicile
Acquired: 12/22/09
AMERICAN COLONIAL
INSURANCE SERVICES
(F/K/A/ EGI – FL)
Managing General Agency
100% owned by CHI
FL Domicile
Acquired: 11/30/2013