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| 8-K - 8-K - Conifer Holdings, Inc. | a1231178-kquarterinvestorp.htm |
FOURTH QUARTER 2017
INVESTOR CONFERENCE CALL
March 1, 2018
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 most recently filed
Annual Report on Form 10-K, 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
2
Significantly Improved Combined Ratio Driven by Strong Underwriting Performance
Q4 2017: Return to Profitability Validates Initiatives Implemented in Q3 2017
Maintain Focus on Writing Core Lines of Specialty Niche Business
Balance Sheet Remains Well Positioned to Support Companies
2018: Drive Positive Bottom Line
CONIFER: STATE OF THE BUSINESS
2
3
BUSINESS MIX: GRADUAL SHIFT TOWARD COMMERCIAL LINES
3
2017 – 80% Commercial / 20% Personal
2018 – Commercial will continue to grow as a percentage as the Company scales back personal lines.
GROSS WRITTEN PREMIUM FOR Q4 2017GROSS WRITTEN PREMIUM FOR 2017
$25.5 $25.9
$5.8 $5.4
$0
$5
$10
$15
$20
$25
$30
$35
Q4 2016 Q4 2017
M
I
L
L
I
O
N
S
Commercial Lines Personal Lines
Q4 2017 RESULTS OVERVIEW
Gross Written Premium:
• GWP was $31M in Q4, a 0.2% decrease from the
same period in 2016
Commercial Lines GWP increased 1.3% from
Q4 2016
• Quick Service Restaurants and
Liquor Liability business performed well
in the period
Personal Lines GWP decreased 6.8% from Q4 2016
• Florida homeowners was down 15.8%
• Low value dwelling was down 14.3%
Net Earned Premium increase:
• Overall NEP increase of 4% to $25M in Q4 2017
Commercial Lines NEP increased more than 10%
in Q4 2017
Personal Lines NEP decreased almost 20%,
consistent with planned shift in business mix
4
GROSS WRITTEN PREMIUM
$12.9 $12.7
$12.6 $13.2
$0
$5
$10
$15
$20
$25
$30
Q4 2016 Q4 2017
M
I
L
L
I
O
N
S
Hospitality Small Business
COMMERCIAL LINES OVERVIEW
• Commercial Lines represented roughly 83% of the premium
written in the fourth quarter – and was 80% for 2017 as a whole
• Quarter over quarter, Commercial gross written premium was up 1.3% in Q4 2017
• Conifer continues to write Commercial Lines in all 50 states
5
GROSS WRITTEN PREMIUM
As of December 31, 2017
Top Five States
GROSS WRITTEN PREMIUM
$ in thousands
Michigan $ 21,099 22.9%
Florida 19,763 21.5%
Pennsylvania 8,651 9.4%
Texas 5,918 6.4%
New Jersey 3,960 4.3%
All Other 32,721 35.5%
Total $ 92,112 100.0%
$3.4 $3.2
$2.4
$2.2
$0
$1
$2
$3
$4
$5
$6
$7
Q4 2016 Q4 2017
M
I
L
L
I
O
N
S
Wind-Exposed Low-Value Dwelling
• Personal Lines production was approximately 17% of total premium in Q4 2017
• Net earned premium in personal lines declined almost 20% in the fourth quarter
• Planned decrease in wind-exposed homeowners, specifically Florida homeowners, which was down 16% in Q4
• Florida assumption business started non-renewing February 9th
• Continuing efforts to reduce wind exposure overall
PERSONAL LINES OVERVIEW
As of December 31, 2017
Top Five States
GROSS WRITTEN PREMIUM
$ in thousands
Texas $ 6,992 31.5%
Florida 6,800 30.7%
Hawaii 4,764 21.5%
Indiana 2,612 11.8%
Illinois 621 2.8%
All Other 383 1.7%
Total 22,172 100.0%
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GROSS WRITTEN PREMIUM
7% decrease
7
45.3% 41.4%
73.4%
58.3%
Q4 2016 Q4 2017
RESULTS OVERVIEW: COMBINED RATIO
• Continued focus on core commercial lines will help drive overall combined ratio improvement
83% of total premiums in Q4 were from our core commercial business
Focus on more profitable personal lines such as low value dwelling products
118.7%
99.7%
19 percentage point
improvement
8
76.4%
55.3%
62.7%
74.0%73.4%
58.3%
Q4 2016 Q4 2017
Commercial Lines Personal Lines Consolidated
RESULTS OVERVIEW: Q4 2017 LOSS RATIO
• Consolidated loss ratio improved by 15.1 percentage points from Q4 2016
• For Q4 2017, Commercial Lines loss ratio was 55.3% and Personal Lines was 74.0%
• On going planned trend of shifting away from wind-exposed Personal Lines premium
• Continued focus on core solid performing Commercial Lines business
9
54.1%
49.8%
48.0%
46.3%
45.3%
44.9%
43.4%
42.9%
41.4%
Q4 2015 Q1 2016 Q2 2016 Q3 2016 Q4 2016 Q1 2017 Q2 2017 Q3 2017* Q4 2017
• Continued sequential expense ratio improvement - quarter to quarter
• Almost 1,300 basis point improvement overall since Q4 2015
• Downward expense trend reflects commitment to streamlining on all levels
RESULTS OVERVIEW: Q4 2017 EXPENSE RATIO
1270 basis point
reduction
*before impact of ADC and Q3 2017 hurricane activity
10
FINANCIAL RESULTS: Q4 2017 INCOME STATEMENT
• Company reported net income of $0.2 million, or $0.03 per share for Q4 2017
• $1.16 per share for valuation allowance against deferred tax assets not reflected in book value
• Book value per share of $6.20, or $52.8 million of shareholders’ equity
Three Months Ended
December 31,
($ in thousands, except per share data) 2017 2016
Gross Written Premium $31,247 $31,308
Net Written Premium 27,439 27,069
Net Earned Premium 25,433 24,463
Net Income (Loss) 221 (4,421)
EPS, Basic and Diluted $0.03 $(0.58)
Adjusted Operating Income (Loss) 161 (4,279)
Adjusted Operating Income (Loss) per share $0.02 $(0.56)
10
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FINANCIAL RESULTS: CHI CONSOLIDATED BALANCE SHEET
SUMMARY BALANCE SHEET
$ in thousands
December 31, 2017 December 31, 2016
Cash and invested assets $ 170,343 $ 141,023
Reinsurance recoverables 24,539 7,498
Goodwill and intangible assets 987 1,007
Total assets $ 239,032 $ 203,701
Unpaid losses and loss adjustment expenses 87,896 54,651
Unearned premiums 57,672 58,126
Senior debt 29,027 17,750
Total Liabilities $ 186,206 $ 135,907
Total Shareholders' Equity $ 52,826 $ 67,794
12
U.S. Government
Obligations
11.6%
State & Local
Governments
11.9%
Corporate Debt
26.5%
MBS
22.8%
CMO / RMBS
1.7%
ABS
16.0%
CMBS
2.4% Equity
Securities
7.1%
Q4 2017 INVESTMENT PORTFOLIO
• Maintain a highly liquid portfolio of
investment grade fixed income securities
• Total cash & investment securities of
$170.3M at December 31, 2017:
Average duration: 3 years
Average tax-equivalent yield: ~2.5%
Average credit quality: AA
FIXED INCOME PORTFOLIO
CREDIT RATING
$ in thousands December 31, 2017
Fair Value % of Total
AAA $ 34,680 25.4%
AA 62,397 45.7%
A 25,123 18.4%
BBB 13,107 9.6%
BB 1,229 0.9%
NR -- --
TOTAL
FIXED INCOME
INVESTMENTS
$ 136,536 100.0%
PORTFOLIO ALLOCATION
APPENDIX
15
SUMMARY FINANCIAL STATEMENTS: INCOME STATEMENT
15
OPERATING RESULTS Three Months Ended December 31,
$ in thousands, except per share data 2017 2016
Gross Written Premiums 31,247 31,308
Ceded Written Premiums 3,808 4,239
Net Written Premiums 27,439 27,069
Net Earned Premiums 25,433 24,463
Net investment income 720 548
Net realized investment gains 39 761
Other gains 0 (400)
Other income 357 287
Total revenue 26,549 25,659
Losses and loss adjustment expenses, net 15,042 18,181
Policy acquisition costs 6,690 6,997
Operating expenses 3,993 4,211
Interest expense 616 179
Total expenses 26,341 29,568
Income (loss) before equity earnings and income taxes 208 (3,909)
Equity earnings (losses) of affiliates, net of tax (23) 18
Income tax (benefit) expense (36) 530
Net income (loss) 221 (4,421)
Earnings (loss) per common share, basic and diluted 0.03 (0.58)
Weighted average common shares outstanding, basic and diluted 8,519,648 7,632,390
16
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
$110M of protection
All providers are rated
minimum A-
Net retention of $4M for
first event
CIC / WPIC
Specific Loss Reinsurance Treaties
Effective 01/01/2018 to 01/01/2019
CIC / WPIC
Property-CAT Reinsurance Treaties
All layers 06/01/2017 to 06/01/2018
$110,000,000
$4,000,000
$20,000,000
$60,000,000
Retention
$2,000,000
$20,000,000
$1,000,000
$10,000,000
$500,000
First
Casualty
Clash XOL
($8M xs $2M)
Retention
Second
Casualty
Clash XOL
($10M xs $10M)
First Multi-Line
Excess of Loss
($500K xs $500K)
Second Multi-Line
Excess of Loss
($1M xs $1M)
Property
Per Risk
($2M xs $2M)
$300,000
Property
Per Risk
$2,000,000
17
REINSURANCE: PRUDENT RISK MANAGEMENT TO PROTECT CAPITAL
Commercial Property Per Risk
Reinsurance Treaty
Effective 01/01/18 to 01/01/19
Homeowners Property Per Risk
Reinsurance Treaty
Effective 01/01/18 to 01/01/19
$300,000
Retention
Property
$3,000,000
$2,000,000
$500,000
$1,000,000
Retention
Multi-Line
XOL
Property Per
Risk
Multi-Line
XOL
$4,000,000
$300,000
Property
Per Risk