First Acceptance Corporation Reports Operating Results for the Three and Six Months Ended June 30, 2016

/EIN News/ -- NASHVILLE, Tenn., Aug. 19, 2016 (GLOBE NEWSWIRE) -- First Acceptance Corporation (NYSE:FAC) today reported its financial results for the three and six months ended June 30, 2016.

Operating Results

For the three and six months ended June 30, 2016, we recognized $25.8 million and $31.0 million, respectively, of unfavorable prior period loss development.

Loss before income taxes, for the three months ended June 30, 2016 was $30.6 million, compared with income before income taxes of $0.7 million for the three months ended June 30, 2015. Net loss for the three months ended June 30, 2016 was $19.9 million, compared with net income of $0.3 million for the three months ended June 30, 2015. Basic and diluted net loss per share were $0.48 for the three months ended June 30, 2016, compared with basic and diluted net income per share of $0.01 for the same period in the prior year.

Loss before income taxes, for the six months ended June 30, 2016 was $39.0 million, compared with income before income taxes of $1.5 million for the six months ended June 30, 2015. Net loss for the six months ended June 30, 2016 was $25.4 million, compared with net income of $0.8 million for the six months ended June 30, 2015. Basic and diluted net loss per share were $0.62 for the six months ended June 30, 2016, compared with basic and diluted net income per share of $0.02 for the same period in the prior year.

Loss Ratio. The loss ratio was 124.6% for the three months ended June 30, 2016, compared with 81.7% for the three months ended June 30, 2015. The loss ratio was 110.8% for the six months ended June 30, 2016, compared with 79.2% for the six months ended June 30, 2015. We experienced unfavorable development related to prior periods of $25.8 million and $31.0 million for the three and six months ended June 30, 2016, respectively. This unfavorable development for the three and six months ended June 30, 2016 was the result of increased losses primarily from the 2015 accident year across all major coverages. The most significant causes of the development were a greater than usual emergence of reported claims and higher bodily injury severity.

Excluding prior period development, the loss ratios for the 2016 and 2015 accident years are now estimated to be 91.1% and 89.9%, respectively. These elevated loss ratios are primarily due to higher than expected claim frequency across all major coverages and higher bodily injury severity. We believe that an increase in distracted driving, along with an increase in the number of miles driven by insured drivers as a result of lower gas prices and a favorable economy has been a contributing factor to an industry-wide increase in frequency. In response, the Company has continued to implement aggressive rate and underwriting actions as warranted at a state and coverage level and strengthen its claims organization and processes.

Revenues. Revenues for the three months ended June 30, 2016 increased 28% to $102.8 million from $80.6 million in the same period in the prior year. Revenues for the six months ended June 30, 2016 increased 28% to $199.7 million from $155.7 million in the same period in the prior year.

Premiums earned increased by $13.6 million, or 20%, to $80.9 million for the three months ended June 30, 2016, from $67.3 million for the three months ended June 30, 2015. For the six months ended June 30, 2016 premiums earned increased by $27.4 million, or 21%, to $157.3 million from $129.9 million for the six months ended June 30, 2015. This improvement was primarily due to higher average premiums and an increase in the number of policies in force.

Commission and fee income increased by $7.3 million, or 61%, to $19.2 million for the three months ended June 30, 2016, from $11.9 million for the three months ended June 30, 2015. For the six months ended June 30, 2016, commission and fee income increased by $15.5 million, or 67%, to $38.8 million from $23.3 million for the six months ended June 30, 2015. Revenue from the former Titan retail locations acquired on July 1, 2015 contributed towards this increase. Commission and fee income also increased as a result of higher fee income related to commissionable ancillary products sold through our previously-existing retail locations and the increase in the number of policies in force.

Expense Ratio. The expense ratio was 14.8% for the three months ended June 30, 2016, compared with 18.0% for the three months ended June 30, 2015. The expense ratio was 14.6% for the six months ended June 30, 2016, compared with 20.2% for the six months ended June 30, 2015. The year-over-year decrease in the expense ratio was primarily due to the increase in premiums earned which resulted in a lower percentage of fixed expenses in our retail operations (such as rent and base salary) and our ongoing efforts on cost containment.

Combined Ratio. The combined ratio increased to 139.4% for the three months ended June 30, 2016 from 99.7% for the three months ended June 30, 2015. For the six months ended June 30, 2016, the combined ratio increased to 125.4% from 99.4% for the six months ended June 30, 2015.

Next Release of Financial Results

We currently plan to report our financial results for the three and nine months ending September 30, 2016 on November 8, 2016.

About First Acceptance Corporation

We are principally a retailer, servicer and underwriter of non-standard personal automobile insurance based in Nashville, Tennessee. Our insurance operations generate revenues from selling non-standard personal automobile insurance policies and related products in 17 states. We conduct our servicing and underwriting operations in 14 states and are licensed as an insurer in 12 additional states. Non-standard personal automobile insurance is made available to individuals because of their inability or unwillingness to obtain standard insurance coverage due to various factors, including payment history, payment preference, failure in the past to maintain continuous insurance coverage or driving record and/or vehicle type.

At June 30, 2016, we leased and operated 410 retail locations and a call center staffed with employee-agents. Our employee-agents primarily sell non-standard personal automobile insurance products underwritten by us, as well as certain commissionable ancillary products. In most states, our employee-agents also sell a complementary insurance product providing personal property and liability coverage for renters underwritten by us. In addition, retail locations in some markets offer non-standard personal automobile insurance serviced and underwritten by other third-party insurance carriers for which we receive a commission. In addition to our retail locations, we are able to complete the entire sales process over the phone via our call center or through the internet via our consumer-based website or mobile platform. On a limited basis, we also sell our products through selected retail locations operated by independent agents. Additional information about First Acceptance Corporation can be found online at www.acceptance.com.

This press release contains forward-looking statements, including statements about the expected effects of the recently completed acquisition. These statements, which have been included in reliance on the “safe harbor” provisions of the federal securities laws, involve risks and uncertainties. Investors are hereby cautioned that these statements may be affected by important factors, including, among others, the factors set forth under the caption “Risk Factors” in Item 1A. of our Annual Report on Form 10-K for the year ended December 31, 2015 and in our other filings with the Securities and Exchange Commission. Actual operations and results may differ materially from the results discussed in the forward-looking statements. Except as required by law, we undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future developments or otherwise.



FIRST ACCEPTANCE CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations and Comprehensive Loss
(unaudited)
(in thousands, except per share data)
 
    Three Months Ended   Six Months Ended
    June 30,   June 30,
      2016       2015       2016       2015  
Revenues:                
Premiums earned   $ 80,850     $ 67,300     $ 157,257     $ 129,915  
Commission and fee income     19,183       11,929       38,764       23,278  
Investment income     1,646       1,406       2,608       2,551  
Gain on sale of foreclosed real estate     1,237             1,237        
Net realized losses on investments, available-for-sale (includes $147 of accumulated other comprehensive  loss reclassification for unrealized loss in 2016)     (162 )     (4 )     (164 )     (7 )
      102,754       80,631       199,702       155,737  
Costs and expenses:                
Losses and loss adjustment expenses     100,765       55,003       174,184       102,937  
Insurance operating expenses     30,314       23,645       59,961       48,730  
Other operating expenses     283       263       563       586  
Litigation settlement           129             239  
Stock-based compensation     68       53       105       72  
Depreciation     616       392       1,267       800  
Amortization of identifiable intangibles assets     239       7       477       7  
Interest expense     1,076       449       2,126       872  
      133,361       79,941       238,683       154,243  
(Loss) income before income taxes     (30,607 )     690       (38,981 )     1,494  
(Benefit) provision for income taxes     (10,708 )     375       (13,577 )     693  
Net (loss) income   $ (19,899 )   $ 315     $ (25,404 )   $ 801  
Net (loss) income per share:                
Basic   $ (0.48 )   $ 0.01     $ (0.62 )   $ 0.02  
Diluted   $ (0.48 )   $ 0.01     $ (0.62 )   $ 0.02  
Number of shares used to calculate net (loss) income per share:                
Basic     41,064       41,020       41,062       41,018  
Diluted     41,064       41,384       41,062       41,347  
Reconciliation of net (loss) income to other comprehensive loss:                
Net (loss) income   $ (19,899 )   $ 315     $ (25,404 )   $ 801  
Net unrealized change in investments, net of tax of $757, $(938), $1,668 and $(592), respectively     1,407       (1,741 )     3,098       (1,099 )
Comprehensive loss   $ (18,492 )   $ (1,426 )   $ (22,306 )   $ (298 )
                 
                 
Detail of net realized losses on investments, available-for-sale:                
Net realized losses on redemptions   $ (15 )   $ (4 )   $ (17 )   $ (7 )
Other-than-temporary impairment charges     (147 )           (147 )      
Net realized losses on investments, available-for-sale   $ (162 )   $ (4 )   $ (164 )   $ (7 )
                                 



FIRST ACCEPTANCE CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
(in thousands, except per share data)
 
    June 30,     December 31,  
    2016     2015  
    (Unaudited)          
ASSETS                
Investments, available-for-sale at fair value (amortized cost of $121,218 and $128,304, respectively)   $ 129,088     $ 131,582  
Cash and cash equivalents     134,439       115,587  
Premiums, fees, and commissions receivable, net of allowance of $504 and $454, respectively     79,156       69,881  
Deferred tax assets, net     30,364       18,301  
Other investments     10,322       11,256  
Other assets     5,807       6,950  
Property and equipment, net     5,227       5,141  
Deferred acquisition costs     5,692       5,509  
Goodwill     29,384       29,429  
Identifiable intangible assets, net     8,054       8,491  
TOTAL ASSETS   $ 437,533     $ 402,127  
                 
LIABILITIES AND STOCKHOLDERS’ EQUITY                
Loss and loss adjustment expense reserves   $ 166,012     $ 122,071  
Unearned premiums and fees     95,346       83,426  
Debentures payable     40,279       40,256  
Term loan from principal stockholder     29,766       29,753  
Accrued expenses     7,675       7,345  
Other liabilities     16,946       15,606  
Total liabilities     356,024       298,457  
Stockholders’ equity:                
Preferred stock, $.01 par value, 10,000 shares authorized            
Common stock, $.01 par value, 75,000 shares authorized; 41,096 issued and outstanding     411       411  
Additional paid-in capital     457,621       457,476  
Accumulated other comprehensive income, net of tax of $1,730 and $62, respectively     6,589       3,491  
Accumulated deficit     (383,112 )     (357,708 )
Total stockholders’ equity     81,509       103,670  
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY   $ 437,533     $ 402,127  
                 

 
 

FIRST ACCEPTANCE CORPORATION AND SUBSIDIARIES
Supplemental Data
(Unaudited)
 
PREMIUMS EARNED BY STATE                                
 
    Three Months Ended     Six Months Ended  
    June 30,     June 30,  
    2016     2015     2016     2015  
Gross premiums earned:                                
Georgia   $ 16,271     $ 12,795     $ 31,328     $ 24,540  
Florida     12,176       10,566       23,785       20,408  
Texas     11,266       9,011       21,883       17,375  
Ohio     8,094       6,761       15,690       13,126  
South Carolina     7,352       6,226       13,946       12,183  
Alabama     7,286       6,249       14,050       12,095  
Illinois     5,516       4,954       11,256       9,576  
Tennessee     5,107       4,036       9,988       7,655  
Pennsylvania     2,575       2,361       4,993       4,620  
Indiana     2,395       2,021       4,672       3,866  
Missouri     1,633       1,462       3,386       2,864  
Mississippi     1,043       872       2,038       1,688  
Virginia     251       78       465       94  
Total gross premiums earned     80,965       67,392       157,480       130,090  
Premiums ceded to reinsurer     (115 )     (92 )     (223 )     (175 )
Total net premiums earned   $ 80,850     $ 67,300     $ 157,257     $ 129,915  
                                 
COMBINED RATIOS (INSURANCE OPERATIONS)                                
 
    Three Months Ended     Six Months Ended  
    June 30,     June 30,  
    2016     2015     2016     2015  
Loss     124.6 %     81.7 %     110.8 %     79.2 %
Expense     14.8 %     18.0 %     14.6 %     20.2 %
Combined     139.4 %     99.7 %     125.4 %     99.4 %
                                 
NUMBER OF RETAIL LOCATIONS                                
 
Retail location counts are based upon the date that a location commenced or ceased writing business.
 
    Three Months Ended     Six Months Ended  
    June 30,     June 30,  
    2016     2015     2016     2015  
Retail locations – beginning of period     414       355       440       356  
Opened     2       5       4       5  
Closed     (6 )     (1 )     (34 )     (2 )
Retail locations – end of period     410       359       410       359  
                                 

 

FIRST ACCEPTANCE CORPORATION AND SUBSIDIARIES
Supplemental Data (continued)
(Unaudited)
 
RETAIL LOCATIONS BY STATE                                
 
    March 31,     December 31,  
    2016     2015     2015     2014  
Alabama     24       24       24       24  
Arizona     10             10        
California     48             48        
Florida     39       31       39       31  
Georgia     60       60       60       60  
Illinois     39       60       61       60  
Indiana     17       17       17       17  
Mississippi     7       7       7       7  
Missouri     9       9       9       10  
Nevada     4             4        
New Mexico     5             5        
Ohio     27       27       27       27  
Pennsylvania     14       15       14       15  
South Carolina     23       25       24       25  
Tennessee     23       22       23       22  
Texas     65       58       68       58  
Total     414       355       440       356  
                                 

 

INVESTOR RELATIONS CONTACT: 
                    Michael J. Bodayle 
                    615.844.2885

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