CNFR - Earnings call transcript Q4 2018

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Operator

Good morning, and welcome to the Conifer Holdings Fourth Quarter 2018 Investor Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like turn the conference over to Adam Prior. Please go ahead.

Adam Prior

Thank you, and good morning, everyone. fourth market year-end yesterday. XXXX the results its of close issued quarter financial and after Conifer

as that On find the well the company's copies slide the website, of earnings ir.cnfrh.com, release today. management's discussion accompanies you can the presentation as

at read the If to on webcast, you are the the be webcast selected large slide right-hand presentation may you that via of the page. find are slides can side looking in easier view, which

or reconciliation measures provided accounting therefore not of uncertainties, any those new the that Actual trends, and from has obligation information, Also whether GAAP. specifically was may differ results call and Before respect the the the Statutory to anticipated except future statements a result in the we note and data the news that rules made operations with conference materially non-GAAP laws the release. accordance update prepared company historical from filings relating including this those the and asked financial Conifer within get these the business a of is may result statements described, as otherwise. as time, statements information, of results forward-looking statements with results revise including subsidiaries. of federal time or in disclaims to securities SEC. from is any with Conifer's to I forward-looking with and developments statements accounting product of a risks statutory started, in Conifer company's forward-looking reconciled the in meaning and to to company constitute

Q&A to Officer. I'd to morning. Petcoff, and Mr. a turn ahead, session the Executive management's after We this that over prepared like go Chief And Jim Chairman Jim. call Please with will remarks conduct

James Petcoff

Thank everyone. Good morning, you, Adam.

Roney, Brian is management Andy Meloche from and Petcoff, Nick today us Petcoff. Harold Joining

increase earnings exit premium Our business visibility their Florida to homeowners volatility. from in mix market wind-exposed away strategy reduce been XXXX -- volatile has and efforts through the to homeowners shift and

significant result, has this a do adverse taken long development, ourselves, assumption we happy with business despite in company implement. and place, mix aren't mix shifted logically select results and building we've business, shift methodically the have by some term, address. the as to Florida taken to our measures so. commitment because are shareholders the we and successfully results successful been business business a to significant three-year board to positive we our across happened for of late With As time impacted and a admit shift this This

about and closing on economic in and reasonable forward, premium good While cost in pilots efforts very out XXXX to quarter. In practically claims prior many improve as going claims we mix we're mitigating as reduce and mindful outcomes, especially the we for the our reserve feel fourth focused XXXX, future on development. focused

process quarter. fourth us has the IBNR the we leave the additional and merits to it but still to to the led By claims ourselves thought litigation. amount successfully each reducing to utilize costs future close efforts future possible claims full ADC this opportunity Our was And for in the quickly, ongoing outstanding review of so the claim reduce in resolution. on claims -- count then today its for

exit been our commercial successfully manage and and changes we As the back select auto making to encountered homeowners, mainly we lines, underwriting year, auto the exposure. on Florida name look ongoing homeowners to Florida industry-wide in past several We've challenges commercial X. re-underwrite

many which than commercial 'XX, While losses core underwriting for other underwriting lines more of lines. these to pleased underwriting our significant was loss, XX% our positive were sizable in two we us see generated of results

and wind-exposed present, growing a simultaneously -- lessening personal from unprofitable while our continue exposure lines. line, achieving be our At the we to expand continues in business our top core lines to commercial moving conservatively strategy balance Have mix commercial earnings Our premium between line volatility believe can to -- we away with results has increase shift, our and by lessen class. smooth in The we the in been both accomplished by going offset business. business core having Florida forward. accomplished reduction geographically the operating

Our book today commercial business improve. profitable mostly We comprised products. of of our ratios to believe will specialty our loss is niche continue

are Our total down. premiums

our significant However, making difficult. a in is short-term reduction expense ratio

improved increased Florida wind-exposed our grub. growth in we XXXX, line run disciplined expect With expense already and coupled top off nonres in reduction, the efficiencies with growth business and

We several this results behind expense today. in the financial significant ratio an reductions expect a us, homeowners impact future. the say had are able on significant is making last minimal we years start over has our to To that With Florida understatement. development

this in planned that and place, then with and over and a changes top XXXX, drive me most I'll the Nick? in we premium position our in let closing turn to greater mix better Harold, now our Nick returns. With achieve growth, few much currently remarks. business that shareholder For to return importantly, is scale efficiency for line and positive believe

Nicholas Petcoff

year, you, at mix strategy to retain want profitable the shift Thank XX% a we sustainable quarter in percentage This business overall more business of keep and Jim. period. lines to to rate. commercial on premium even the business has focus fourth production. in is gross the result of the direct as specialty lines planned Commercial written of multiyear Conifer's to Throughout been our rising grew premiums during

premium year our gross lines been our what premium For solid a X% markets. commercial the and small commercial the in to fourth slightly growth In shifting of terms business from mix. hospitality we over with has coming XXXX, full achieve largely quarter, pleased during year lines transitional written growth we're grew

the surplus we states lines this for to continue our top we western growth potential all for contribute write access XXXX. see XX strong While in growth will leverage in lines states, believe we We where can commercial flexibility. line to and

lines hospitality since as we trimmed we have A the includes breakout for and the focus improve well to as liquor take our are results Florida growth consistent of The infrastructure the most focus across to lines and significant goal of those for relationships is remained homeowners, example, the sector. states restaurants, immediate profitable. have. bars specialty commercial enjoyed with bundled underwriting an certain the select This the formation, XXXX. effort board. accounts has an liability for California that our to is But taverns. The niche on future with in our As packages and key in element during mainly on primary liability exiting agent of Conifer the production advantage we

lines, in to efficient Our first expense expense ratio has We're to growth anticipated XXXX, reducing expect cost possible. improvement as over lowering will our by scale. remained with with the which base committed move return This to any costs earned ratio premium our we our in our will be coupled but in grow absolute way absolute operating reduction growth time. elevated, core select commercial we of

shift our on over as we grows, from regulated companies runway growth can existing our expense our see non-risk rate operating select commercial and our increases companies regulated and In revenue to time. policy for This Overall, markets. addition, we geographically new structure help group. continued expense non-regulated our will lower shift new

overall as This at have we last business touch of our operating gross briefly overarching results. XX% XXXX. de-emphasized business now volatility of lines reduce is year-end from written The significantly wind-exposed two personal which is is noted is on I'll goal expected part over our personal years. Now our lines. The X% the earlier down in our business our to premium, shift

a our has total, including remained to business personal XXXX. wind-exposed combined greater-than-anticipated In XX% the small largely very many our ratio by Overall, lines these coastal the Our of was personal weather down for elevated quarter in business lines loss. will premium markets, percentage in be XX% due factors and in period. in decreased

we low-value several and to Texas states. has us dwelling products our developing complement focus cycles. market this growth continue to agency Midwest in relationships on helped Historically, over in for As prospects, our those the

mix with expand underwriting As can lines. of clear focus that this enhance our business select our goal our core add in and believe transition with we value coupled on and claims bottom line, write active more we is to the solid We through especially commercial business strong returns. to commercial shareholder management our continue

business, ultimately XXXX, and now help we I'll value to the profitability expense to provide book and over our the as appreciation. achieve lower hand our scale, call greater this grow to Harold ratio will financial. a of company lead For our discussion

Harold Meloche

you, Nick. Thank

to our for overview of for questions. from investors review up million, including which up premiums homeowners when $XX.X additional last were available. then filings any a encourage it an decline slightly. prior to premiums was in I XX-K wind-exposed a In always, written provide XX% background year gross were quarter, we'll however, and reduction open to the the business. As due quick I'll the Compared quarter, fourth results, the

in XXX% XXXX. XXX%. was Conifer's year year, ratio XXXX the combined was combined For ratio The accident

XXXX. costs, ADC year under gain Before the million impact XXX% XXXX combined ratio XXX% significantly hurricane-related recognized the deferring the was the was losses in of of reserve development in The adverse $X.X reduced development by on cover. ceded prior before and and

additional XXXX, income. This when was of $X.X able an to it periods However, the amortize not we economic in be benefit recognize will under benefit in and into ADC. were million we deferred recognized future

the XX, had cover does IBNR additional company of yet limit $XX.X to the ceded the As remain entire ADC, XXXX, claims. million help December under

costs, Again, in gain before before Conifer of in deferred XXXX. in reported XX% a deferring and hurricane-related XXXX was XX% hurricane-related loss and costs, XXXX in our expense on XX% compared ratio XX% Before the ADC XXXX. ratio gain the the and to

our this see $XXX,XXX XX% investment compared period. number prior continue to of and as implement efforts. significantly the ratio year cost grow to increased commercial by we reduction quarter decline to Net a business in income the for expect We lines $XXX,XXX to

managed duration credit in conservatively tax X.X%. quality average equivalent majority of just AA, over income fixed of an an years three yield securities are investments average Our the a with of and with

however, or ratio a For net X.X:X. subsidiaries reported a ratio company of our and Both the share. $X.XX of net the with million insurance quarter, loss basis, premiums-to-surplus $X.X with reported -- combined income per combined combined a $X income, million fourth company statutory on of net of statutory a

were million. and the December Moving with of $XXX to balance XXXX, cash at investments Total $XXX total sheet. assets million XX,

value was that book $X remarks. a it company's as share turn year-end And back deferred result share with of $X.XX to not evaluation a tax. or per at allowance that, gain $X.XX like was for reflected share per approximately of against assets represents ADC the had to We Our $X.X Jim I'd and of value. That tax over book in the $X.XX of share. million per per closing net deferred

James Petcoff

Thank a to We a the improved decision enter and pathway ROEs. long of has urgency market the Florida positive realize Overcoming to been Harold. homeowners the process. see earnings you, painful

position book confident -- reduction conservatively our in current making expense while to and our ratio We reduction. expense on grow progress are

company for shareholders. or There's XXXX long-term was this and growing We not from its with profitably solely the benefit when are points. Development ADC focused we on prior, unique two XXXX important of the utilized XXXX. accounting,

implemented put to acted personally and right the forward. share in we We invest solid in infrastructure corporately, ones, Second, late profitable and and in mix allow we continue as mix to achieve existing are us buyback believe Conifer upon going program -- and that initiatives premium the we XXXX. place a have product will our growth

are take questions. ready Now we to any

Operator

Our [Operator Newsome comes Sandler ahead. O'Neill. Paul first Please Instructions] question with go from

Paul Newsome

little where And the and years heard thanks business what's us. you talk you beyond, -- bit I it severity frequency, would actually in more and and we detail, for bit came call. that lines from, I for the all Could development helpful from more a commercial of heard morning. Obviously, is? reserve a but Good the sources think, just it little be about it's XXXX

James Petcoff

outstanding a them at outstanding, looked and how the litigation When No costs of XXXX and spending the then to made and but future GL claims And were and the we down these were homeowners thing, by down was obviously, from went kind the Florida cut some we expense that we're just many continuing our carrying of total costs around X/X. a having claims get of there we by are on of on. how -- the numbers some number at claims And reserves. looked loss carrying significant prior claims it of problem, auto Paul. or much situation, to whether push lot

far have claims we and XXXX, outstanding the down XX%. by property of end the outstanding, at claims less went So

about over development, were let pay at amount, and and take but that when talk I had I'm you the we overall did some give some to that, in going to look the you So we it. there the specifics, -- to strategy why and Nick did we want

So go you Nick to want through.

Nicholas Petcoff

did then be a and which couple a line Commercial business. and law it XXXX made changes that liability prior an were exiting in on Pennsylvania, We're on the continued in the Montana another auto line that from came underwriting difficult and line quick that, of in in for XXXX side, -- development pretty on that liquor hurt have into And us process component in some Yes, some that line stopped of basis, really about there we where and business the was action we end development the was line end different of commercial we've the the since so took on that XXXX a we of spoken of where really we've exited Pennsylvania, liquor years, state the to areas. that past really us, on and XXXX development. then component. in

side. of areas on the drove the line commercial three those So really development most

James Petcoff

we to were I quickly, -- Pennsylvania $XXX,XXX, what's in immediately Nick, changed, try than right exit in monitored limit was limits to million it that try just the better standard. and Pennsylvania, it hold toward we want policy the XXXX contributed when $X law on to want liability it wondering to with if with I became to liquor but reduced -- going finish we $XXX,XXX and in change deal mean on XXXX off and -- from quite in the Nick, at And the could to we negligence our I any clear

get Montana. thing The line. that's true the We XXXX seeing books but Montana. in into good, you're they're the The not on development got So same pretty XXXX law or on of why and Montana is that that is as we difficult the XXXX. into was practicality courtroom, in is you that saw defend liquor those was not as the when we on so soon it XXXX, to exited liability cases,

we not lines. also see and seeing in XXXX, ratios and for development those the loss pointed started those Nick two in going So rate that made commercial significant policy to improved. have development form auto, years The both in we're out the changes

lines prior those the non-Florida us and So were homeowners. three that ones XXXX hurt were that

Paul Newsome

-- It in to just that sure the great. it we have, It we'll the make sense. the we've like, accounting I've got right, effect want sort on go the makes ADC so amortization of from deferred up used see sure of, ADC the component, just that's Great, future. as the that only the we the I've, I sounds to is correct? prospectively, make straight limit, perspectively is

James Petcoff

Yes that's correct.

Paul Newsome

-- then Okay, and any so be means in reserve the development will prospective reflected that and fully in XXXX.

James Petcoff

just...go Correct. But ahead. I think it's

Paul Newsome

Continue that's fine. please. No,

James Petcoff

ADC money both statutorily the so operating the being see the I think from of mentioned, you reverse here One thing statutorily ADC went I utilized, was to -- to side in is with going XXXX. on obviously, that good one recovery a amount, kind now, of you'll but it the hand of accounting, want to GAAP the the of is the as say Harold we of basis, our the a made result up, subsidiaries as

Paul Newsome

talk the the actually, sort the next are loss of major What the was, the versus GAAP that statutory of, and you why difference -- at question. that gain in Could level. about my is components at And level that different. the

James Petcoff

Harold tell but the from perspective, going it's Well, this to you side, is simple. my technical

as that's it as in get run through is. up loss, you ADC, You but, deferred. so are GAAP pay statutory the have credit up though doesn't when into when the income And immediate doesn't even reinsurance no to a put everything a statement them. put not you basis you irrespective the reserves you basis, They a Harold, to the ADC off for credit that get you the going the for get development -- reserves show write on on reinsurance, the

Harold Meloche

means layers, there's that. we so I matter don't why to $X.X essentially all $XX haven't do we that's we It just of that existence get so far GAAP get of value benefit, basis some recognized but degrees. credit that's right. Yes, of over a of that the we the for, $XX.X able million mean a on a million but had been we And have obviously million of we've it. take

right, recognize the an dollar. basis, dollar it, the we is we benefit the that extent get we to recognize get the ceded benefit On Jim for stat to so to well, to as get loss, full exactly actual

Paul Newsome

of reverse benefit follow that, statutory. deferred the that have be you'll Would in because prospectively, but the will kind not in true, GAAP,

Harold Meloche

Yes. however, we up still that have in IBNR that layer. was

So to it's stat the not line. any directly to development like going now is go

it yes, development, the that sufficient. on of we sufficient, part would as is IBNR and Should come some be we're be hoping go happens basis. through that have when We that over, stat that would not there layer

Paul Newsome

thinking. just I'm No,

way. Let's either assume XXXX, in there's development no

You're of will you but GAAP in stat. going benefit to in have the deferral

So profits in on GAAP a because make you up have sort have, the number deferral. stat you numbers, of to if some positive of basis, sort would X

James Petcoff

Yes, absolutely true.

Paul Newsome

Until Okay. ADC the the gone, underperform is the should statutory GAAP.

James Petcoff

Yes. All else being equal.

Harold Meloche

money, mean make not yes does we'll should That it but underperform.

Operator

from comes question with Bob ahead. Please go Scattergood. Boenning next Our and Farnam

Robert Farnam

Yes, good morning. thanks and

want theme I reserves. just I the to the continue on think

we're left what you figure protection know, to just, it and theoretically terms don't is before going what's any to I more could think years can to is there more XXXX there how Since try you have left prior. provide don't and in action the details so quantitatively, what's of from I any out develop? for ADC

James Petcoff

could the only from outstanding, X end down at left thing, I'll tell of which those you 'XX. that The tell of is, they X/ not I I are -- what think claims are all were

have ADC. know, reserves, significant those that IBNR of we All individually and I have allocated to

it 'XX normal and situation where for reserves case have reserve a So would IBNR. be and you I prior mean,

Robert Farnam

you've XXXX to what what reserved booking ones. for average that of kind been have So for terms amount remaining the you prior is far size comparable for and in of the of the claim thus

James Petcoff

that average to what lot has we develop and a case, we have versus IBNR are claims itself, -- I way. we we on I'm I -- put these hoping it specific we reserve does the development, does put are always what claims, of basis, per or any in -- not up win additional. are then analysis stated of we up, you so paid it excess, claim. the a pays perspective, have the basis, much claim when it's do of We have and net -- claim could so for growing that reserve and lose a mean through We and do have some But more lot allocate going but we're through mean yes -- it's we're been and claim. go are is we claim. could if going that accurately per could the some ADC, that on other But a -- are the stating retention, always the our reinsurance in on that that specific how we our go a can't doesn't the that go what have of And you severe claim still average reinsurance from but it up. on are have individual, take a up down ones saying to it's up per you case, to mean a and not

accurate, adequacy, comfortable reserves. they're not have and think with not feel is So know we be we which always looking that's to, adequate, We when you're IBNR. the or case some all going we're exactly what trying to that to get I whether at

Robert Farnam

the and to quarter. it you sounds claims in close a pretty Okay, the fourth big like made push property

property ballpark, many, remain just So maybe prior. for many -- XXXX still how open claims claims actually how

James Petcoff

but And for but know total a more we the claim they They Florida. statute. there's, we date XX it on Florida for four-year mean water I bring water I number a get that know doesn't guess, the in, could years because don't outstanding. do I claims amount, have said won't the occurred,

Robert Farnam

okay. - claims, homeowners was down claims, water Florida XX that And

James Petcoff

you of end the I XXXX in -- beginning the And had of to XXX. or idea, beginning give think of the we XXXX, an

Robert Farnam

guess to share of That's kind right, repurchases. All how constraints any giving some non be good. closed year. cash continue us Are your that's terms agencies to of so were able use rating -- related repurchase ability of I Are question one the repurchase to this the shares. to other your you under you is whatnot What's many of shares. context Okay capital from or in

James Petcoff

the we under for I affirmed are rating, agencies they rating our always. that. tell and something capital our as But were predicted, we has as would constraints. but you disappointing hoping been and that results statutory interaction we our no Because better with than are

surplus Our conservative writings are service.

they respect rating rating are think above to we All for have. be well the metrics need analysis we of with our to where

Robert Farnam

Okay, in be so repurchase you looking to can shares. market still the

that You out. haven't tapped really

James Petcoff

No.

Operator

Please next comes Preston Maven Scott Our with question Fund. from go ahead.

Scott Preston

morning, H, good guys.

last guess question. -- I first on Just off, just up following the

current the place before buyback the $X, and is the on a and of you to there. development kind book You bit a aggressive you this of, in adjusted constraints, or first we lines of half little be more you wait no expect levels have make see kind move in value of, commercial at capital something

James Petcoff

asking I you're for that's Brian. think buyback, the If about

Brian Roney

for we Yes, make plan cannot market but we as then buying be XX-hour can it we in or we the there's, when volume so do much expect can given volume and to buy in back constraints much market when no. there's share obviously, to Obviously, would day, how that we Actually can. we a window, any how to relates consistently sure. be the

Scott Preston

and how the costs through that of is your lines, top more might through. your the finally then ratio equally come and down housekeeping, commercial that cadence year, maybe, wind-exposed line Okay of I you, know, and can roll lower should should expenses your ceded expenses versus loaded, a we your kind back-end And the business reinsurance or could of, on absolute about how to moved that, XXXX will -- then XXXX and and then the but deferral, talk it other, in how the expect expenses you've, of, be out of as expect you kind growth XXXX? change benefit Florida this couple into and ADC kind

James Petcoff

the the of cost, handle I think should part Andy Well, question. and then Harold can second that reinsurance handle

Andrew Petcoff

of from perspective on I significantly is of book the will new cap X/X, a of Florida X/X, will and so until also the and that book business sale one based the But Hawaii of reduced reinsurance we Our business. the the should forward exit that, down come under X/X. current have say going at of we're the structure renewing still as cost after reinsurance homeowners a

Harold Meloche

I -- lower absolute absolute that from we And originally expect to asking year. that expenses heard expenses do and were about you bit be a this little

handful a play, have we're efforts on in are We now. and right that of cost reduction working those

James Petcoff

And expect kind to, then through how the of, year. do ADC you the roll in

Harold Meloche

pretty So through it then is of of and expect half what so a we XXXX $X.X into by then. little we're actually going in we be should to most bit and million, come the it with XXXX done see steadily earlier

Operator

next with Our David Idlemann comes Please from [Idlemann question Bran go Capital]. ahead.

Unidentified Analyst

startup. more Yes, like less a I view you stock maybe talk could the if or --

equity. forward, is normal big and wonder should into how years to seems do a -- you have went be you Florida return ratio if a goal ran expense you how equity on have ratio What number of challenge in many challenge circumstances, a about, on wonder opinion to the what would get big could years your to I up to and awfully how I under expense it? double-digit return double-digit high, and You going is of XX% a your get to ago homeowners. public if the kind But and what talk

James Petcoff

into side, impacted in I hopefully of mix certainly, written year liquor the in or our But I that return the that have the premium and XX core, industry, which continues business additionally end fashion. that's ratios as security would say went Pennsylvania coming took up of And layers. Florida by are premiums bleed the somewhere this reinstatement may and homeowners book With were bit down. double-digit going the pretty I mid-single issue. we last today, now premium as it's XX hospitality, and but the from see XX% some a giving layer, we of considering and reductions be we we're the significant be the should expense to we more cat the in -- good out, premium control Maybe little we clearing to of not. hope think into the the cetera. in premium out any all the loss that Do ratio ROE, the around really significant, liquor not things losses upper additionally et quarter-over-quarter, from guards, gross the a standpoint going reduction XXXX double-digit. which are even negative AOB Q&A ratio and product are a significant in move. volume feel expense be have issue a of ratio year? Montana get premium on our so entire Florida, way really measured Those cetera, books, cross the a End been on the year in the -- with significant see earned earned confident. which expense those by That by way the XX% and the we hurt to keeps improvement expense et be a pretty business, been is but was reduction than up mean as if natural significant We've The don't getting mix Irma growth, is on problem, have year, Irma that digit this We -- for efforts earned essentially expense may less the down ratio and and to gift to just hurt issues as double-digit to expense where of it earned the see as would ratio. get we we continue could down we more write in on We the naturally upper as book

Operator

This concludes remarks. closing would Petcoff turn over for conference I Jim like our to the session. back question-and-answer to

James Petcoff

and us unhappy it tough now much. with everybody having the I thank the through forward want with and as board able far in and much, times, so with We, management we're you think said, better and questions. look Thank happened, to very on you believing talking and gone we deal it we through to optimistic and really we're I prosperity worked appreciate staying all obviously you what hopefully. support your are But we got but who's to so being thank deal as off to the us. I in team for your future. to adversity, just for with as

Operator

now today's The Thank presentation. for you concluded. conference is attending

now You disconnect. may

Conifer (CNFR) 2 Mar 192018 Q4 Earnings call transcript