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| 8-K - 8-K - Conifer Holdings, Inc. | a8-k1stquarterinvestorpres.htm |
FIRST QUARTER 2017
INVESTOR CONFERENCE CALL
May 11, 2017
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
BUSINESS MIX – GROSS WRITTEN PREMIUM FOR Q1 2017
2
$19.1
$21.7
$6.2
$4.8
$0
$5
$10
$15
$20
$25
$30
Q1 2016 Q1 2017
M
I
L
L
I
O
N
S
Commercial Lines Personal Lines
Q1 2017 RESULTS OVERVIEW
Significant Net Earned Premium growth:
• Total gross written premium was $26.5 million
for Q1 2017
Up 4% over the same period in 2016
Net earned premium was $24.1 million,
up 20% for the same period
• Factors driving premium growth include:
Strong commercial lines experience in
hospitality & small business accounts,
particularly in commercial multi-peril
and other liability lines
Personal lines focus on low-value dwelling
business while reducing wind-exposed
homeowners
• Continuing Expense ratio improvement
Almost 500 basis point reduction quarter
over quarter from 49.8% in Q1 2016 to
44.9% in Q1 2017
Expect continued downward trend as earned
premiums ramp up
3
GROSS WRITTEN PREMIUM
COMMERCIAL LINES OVERVIEW
• Up 13% for Q1 2017 in gross written premium, compared to Q1 2016
• Seek leading position in specialized niche markets
Example: largest writer of liquor liability business in Michigan
• Writing commercial lines in all 50 states
4
GROSS WRITTEN PREMIUM
2017 YTD
Top Five States
GROSS WRITTEN PREMIUM
$ in thousands
Florida $ 5,366 24.8%
Michigan 4,660 21.5%
Pennsylvania 2,226 10.3%
Ohio 1,147 5.3%
Texas 1,143 5.3%
All Other 7,102 32.8%
Total $ 21,644 100.0% * Previous years were
not recorded using
the current breakout
$19.1
$0
$5
$10
$15
$20
$25
*Q1 2016
M
I
L
L
I
O
N
S
$11.7
$10.0
$0
$5
$10
$15
$20
$25
Q1 2017
M
I
L
L
I
O
N
S
Small Business
Hospitality
$3.9
$1.9
$2.3
$2.9
$0
$1
$2
$3
$4
$5
$6
$7
Q1 2016 Q1 2017
M
I
L
L
I
O
N
S
Wind-Exposed Low-Value Dwelling
• Gross written premium was down 23% during Q1 2017, compared to Q1 2016
• Decrease in wind-exposed homeowners, specifically Florida homeowners
• Low-value dwelling ramp-up in southern states, such as Texas and northern Louisiana
PERSONAL LINES: LOW-VALUE DWELLING & WIND-EXPOSED HOMEOWNERS
GROSS WRITTEN PREMIUM
$ in thousands
2017 YTD
Top Five States
Texas $ 1,894 39.2%
Hawaii 981 20.3%
Florida 952 19.7%
Indiana 695 14.4%
Illinois 193 4.0%
All Other 115 2.4%
Total $ 4,830 100.0%
5
GROSS WRITTEN PREMIUM
23% decrease
6
49.8% 48.0% 46.3% 45.3% 44.9%
62.4% 61.7% 61.6%
73.4%
64.2%
Q1 2016 Q2 2016 Q3 2016 Q4 2016 Q1 2017
Expense Ratio Loss Ratio
COMBINED RATIO REFLECTS IMPROVED BUSINESS MIX
• Changing the mix of business (reduced wind exposure) yielded positive results
• Continued premium growth will help drive ongoing combined ratio improvement as well
82% of total premiums in Q1 were from our core commercial business
For all of 2016, commercial lines accident year combined ratio was 88%
109.7%112.2% 107.9%
118.7%
109.1%
7
LOSS RATIO IMPROVEMENT: SHIFTING BUSINESS MIX TO DRIVE STABILITY
• The accident year loss ratio for Q1 2017 was 51.7%, versus 54.6% for Q1 2016
• With planned reduction in FL HO, expect loss ratio to continue improved trend.
Shifting away from wind exposed business and focusing on low value dwelling premium
(which runs at significantly improved loss ratios).
• Each renewal period has provided additional opportunities to re-underwrite, modify pricing
and adapt claims strategies.
• Even with prior year reserve development, the accident year Loss Ratios have consistently decreased
over 4 years – with 2016 AY Loss Ratio: 54%
NET EARNED PREMIUMS ACCIDENT YEAR NET LOSS RATIOS
Commercial Lines Personal Lines Consolidated
30.0%
40.0%
50.0%
60.0%
70.0%
80.0%
90.0%
2013 2014 2015 2016
-
10,000
20,000
30,000
40,000
50,000
60,000
70,000
2013 2014 2015 2016
8
• Total expense ratio of 44.9% in Q1 2017
• Sequential expense ratio improvement quarter to quarter
Versus 49.8% in Q1 2016
Versus 48.0% in Q2 2016
Versus 46.3% in Q3 2016
Versus 45.3% in Q4 2016
• 920 basis point improvement overall since Q4 2015
• Expect continuing downward trend in 2017
54.1%
49.8%
48.0%
46.3%
45.3% 44.9%
Q4 2015 Q1 2016 Q2 2016 Q3 2016 Q4 2016 Q1 2017
EXPENSE RATIO TRENDING DOWNWARD
Near-term
Expense Ratio
Target: 37%
920 basis point
reduction
9
CONSERVATIVE INVESTMENT STRATEGY
• Investment philosophy is to maintain a
highly liquid portfolio of investment-grade
fixed income securities
• Total cash & investment securities of
$144.0M at March 31, 2017:
Average duration to worst: 3.0 years
Average tax-equivalent yield: ~2.2%
Average credit quality: AA
FIXED INCOME PORTFOLIO
CREDIT RATING
$ in thousands March 31, 2017
Fair Value % of Total
AAA $ 22,785 20.0%
AA 50,314 44.1%
A 26,509 23.2%
BBB 13,357 11.7%
BB 1,121 1.0%
TOTAL FIXED INCOME
INVESTMENTS
$ 114,086 100%
PORTFOLIO ALLOCATION
U.S.
Government
Obligations
6.0%
State & Local
Governments
11.0%
Corporate
Debt
32.0%
Commercial
Mortgage &
Asset-Backed
Securities
47.0%
Equity
Securities
4.0%
10
Q1 2017 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
• Adjusted operating loss of $0.24 per diluted share for Q1 2017
• $1.19 per share for valuation allowance against deferred tax assets not reflected in book value
• $8.72 per share, or $66.6 million, of shareholders’ equity
Three Months Ended March 31,
($ in thousands, except per share data and ratios) 2017 2016
Gross Written Premium $ 26,474 $ 25,393
Net Written Premium 22,324 22,050
Net Earned Premium 24,140 20,109
Net Income (Loss) (1,798) (2,028)
EPS, Basic and Diluted (0.24) (0.27)
Adjusted Operating Income (Loss) (1,790) (2,020)
Adjusted Operating Income (Loss) per share (0.24) (0.27)
10
APPENDIX
13
FINANCIAL RESULTS: CHI CONSOLIDATED BALANCE SHEET
SUMMARY BALANCE SHEET
$ in thousands
March 31, 2017 December 31, 2016
Cash and invested assets $ 144,022 $ 141,023
Reinsurance recoverables 10,186 7,498
Goodwill and intangible assets 1,002 1,007
Total assets $ 207,966 $ 203,701
Unpaid losses and loss adjustment expenses 62,135 54,651
Unearned premiums 56,336 58,126
Senior debt 17,125 17,750
Total Liabilities $ 141,393 $ 135,907
Total Shareholders' Equity $ 66,573 $ 67,794
14
SUMMARY FINANCIAL STATEMENTS: INCOME STATEMENT
14
OPERATING RESULTS Three Months Ended March 31,
$ in thousands, except per share data 2017 2016
Gross Written Premiums 26,474 25,393
Ceded Written Premiums 4,150 3,343
Net Written Premiums 22,324 22,050
Net Earned Premiums 24,140 20,109
Net investment income 577 537
Net realized investment gains (8) (8)
Other gains 0 0
Other income 354 245
Total revenue 25,063 20,883
Losses and loss adjustment expenses, net 15,733 12,699
Policy acquisition costs 6,472 6,003
Operating expenses 4,530 4,139
Interest expense 224 157
Total expenses 26,959 22,998
Income (loss) before equity earnings and income taxes (1,896) (2,115)
Equity earnings (losses) of affiliates, net of tax 104 87
Income tax (benefit) expense 6 0
Net income (loss) (1,798) (2,028)
Earnings (loss) per common share, basic and diluted (0.24) (0.27)
Weighted average common shares outstanding, basic and diluted 7,633,069 7,638,780
15
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 01/01/2017 to 01/01/2018
CIC / WPIC / ACIC
Property-CAT Reinsurance Treaties
All layers 06/01/2016 to 06/01/2017
16
REINSURANCE: PRUDENT RISK MANAGEMENT TO PROTECT CAPITAL
Commercial Property Per Risk
Reinsurance Treaty
Effective 07/01/16 to 01/01/18
$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 01/01/18
$300,000
Retention
Property
$3,000,000
17
CONIFER HOLDINGS, INC.
Insurance Holding Company
MI Domicile
Incorporated: 10/27/2009
SYCAMORE INSURANCE
AGENCY
DBA Blue Spruce Underwriters
Insurance Agency
100% owned by CHI
MI Domicile
Created: 5/9/2012
DBA: 10/8/2015
CONIFER INSURANCE
COMPANY
Property & Casualty
Insurance Company
100% owned by CHI
MI Domicile
Acquired: 12/21/2009
RED CEDAR
INSURANCE COMPANY
Pure Captive
Insurance Company
100% owned by CHI
DC Domicile
Formed: 10/12/2011
WHITE PINE INSURANCE
COMPANY
Property & Casualty
Insurance Company
100% owned by CHI
MI Domicile
Acquired: 12/28/2010
VENTURE AGENCY
HOLDINGS, INC.
50% owned by SIAI
50% owned by JB
MI Domicile
Created: 12/29/2013
AMERICAN COLONIAL
INSURANCE SERVICES
f/k/a EGI - FL
Managing General Agency
100% owned by CHI
FL Domicile
Acquired: 11/30/2013
ORGANIZATION STRUCTURE: CORPORATE OVERVIEW
CHANNEL OAK
GENERAL AGENCY, INC.
50% owned by SIAI
50% owned by AIH
MI Domicile
Created: 1/19/2016
DBA: 3/1/2016