Best’s News & Research Service - December 19, 2017 03:28 PM (EST)
A.M. Best Removes From Under Review With Negative Implications, Affirms Credit Ratings of Conifer Holdings and Subsidiaries
- December 19, 2017 03:28 PM (EST)
Oldwick //BestWire// - A.M. Best has removed from under review with negative implications and affirmed the Financial Strength Rating (FSR) of B++ (Good) and the Long-Term Issuer Credit Rating (Long-Term ICR) of “bbb” of Conifer Insurance Company (Conifer); the FSR of B+ (Good) and the Long-Term ICR of “bbb-” of Conifer’s affiliate, White Pine Insurance Company (White Pine); and the Long-Term ICR of “bb” of its parent holding company, Conifer Holdings, Inc. (CHI) [NASDAQ: CNFR]. All are domiciled in Birmingham, MI. The outlooks assigned to Conifer’s and CHI’s Credit Ratings (ratings) are negative. The outlook assigned to White Pine’s ratings is stable.
The ratings reflect the companies’ balance sheet strength (which A.M. Best categorizes as strong for both Conifer and White Pine), the marginal operating performance of the companies, limited business profile and appropriate enterprise risk management framework.
Conifer’s negative outlooks reflect the recent history of unfavorable operating results due primarily to reserve strengthening and adverse reserve development primarily related to its commercial auto liability business and the possibility that underwriting results, excluding development covered under the adverse development cover (ADC), may be less profitable than projected and weaker than that of similarly rated peers.
White Pine’s stable outlooks reflect its recent and short history of favorable operating results under current CHI management, offset by the execution risk of rapid growth and the re-mixing of its book of business.
Each company’s ability to generate profits to help support organic capital growth is a very important issue that A.M. Best will monitor over the near term. The ratings of CHI reflect standard notching from its lead insurance subsidiary, Conifer, and the outlook reflects the linkage of CHI’s rating to that of Conifer. CHI completed its initial public offering in August 2015 and is traded on the NASDAQ Global Market. CHI’s leverage and coverage ratios are supportive of the ratings. Its status as a publicly traded company offers potential financial flexibility for the enterprise with access to public debt and equity markets.
These rating actions follow successful execution of strategic initiatives and corrective actions undertaken by the company since Sept. 1, 2017. The remedial actions include: execution of a significant ADC; private issuance of $30 million subordinated debt; and a private equity issuance of $5 million among management and board members. These actions alleviate for the near to medium term many of A.M. Best’s concerns and place CHI and its subsidiaries on more solid financial footing.
These actions appear to bolster capital and reserves of the operating companies as they counter the continued adverse loss reserve development reported by Conifer through 2017, as well as the prevailing challenges associated with this continued adverse development and the earnings and capital strain placed on CHI and its subsidiaries as a result.
Management is focused on exiting White Pine’s Florida homeowner line of business over the next 12 to 18 months, while also rehabilitating its commercial auto liability books at each of the subsidiaries. Concurrently, it is refocusing its growth toward its niche commercial specialty lines, including liability for restaurant/bars/taverns, quick service restaurants and security guards. A.M. Best expects underwriting results to improve in the medium term as the companies gain economies of scale in their specialty lines and grow into CHI’s infrastructure.
This press release relates to Credit Ratings that have been published on A.M. Best’s website. For all rating information relating to the release and pertinent disclosures, including details of the office responsible for issuing each of the individual ratings referenced in this release, please see A.M. Best’s Recent Rating Activity web page. For additional information regarding the use and limitations of Credit Rating opinions, please view Understanding Best’s Credit Ratings. For information on the proper media use of Best’s Credit Ratings and A.M. Best press releases, please view Guide for Media - Proper Use of Best’s Credit Ratings and A.M. Best Rating Action Press Releases.
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