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First Acceptance Corporation Reports Operating Results for the Three and Nine Months Ended September 30, 2016

NASHVILLE, Tenn., Nov. 10, 2016 (GLOBE NEWSWIRE) -- First Acceptance Corporation (NYSE:FAC) today reported its financial results for the three and nine months ended September 30, 2016.

/EIN News/ -- Operating Results

Loss before income taxes, for the three months ended September 30, 2016 was $0.3 million, compared with $4.5 million for the three months ended September 30, 2015. Net loss for the three months ended September 30, 2016 was $0.3 million, compared with $3.0 million for the three months ended September 30, 2015. Basic and diluted net loss per share were $0.01 for the three months ended September 30, 2016, compared with $0.07 for the same period in the prior year.

Loss before income taxes, for the nine months ended September 30, 2016 was $39.3 million, compared with $3.0 million for the nine months ended September 30, 2015. Net loss for the nine months ended September 30, 2016 was $25.7 million, compared with $2.2 million for the nine months ended September 30, 2015. Basic and diluted net loss per share were $0.63 for the nine months ended September 30, 2016, compared with $0.05 for the same period in the prior year.

For the three and nine months ended September 30, 2016, we recognized $0.1 million of favorable prior period loss development and $27.5 million of unfavorable prior period loss development, respectively. Additionally, the results for these periods were favorably impacted by net realized gains on investments of $4.9 million from the sales of fixed maturities that were sold to increase the statutory capital and surplus of our insurance company subsidiaries. The nine months ended September 30, 2016 also includes a $1.2 million gain on sale of foreclosed real estate. The three and nine months ended September 30, 2015 included $3.4 million and $3.6 million, respectively, of costs related to a litigation settlement.

Recently-appointed President and Chief Executive Officer, Ken Russell, commented, “There have been extreme challenges within the automobile insurance industry over the last year, particularly in the non-standard sector. My goal is to return the Company to profitability by combating these obstacles through a focus on appropriate pricing and risk segmentation of our product and efficient processing of claims.”

Loss Ratio. The loss ratio was 92.6% for the three months ended September 30, 2016, compared with 85.0% for the three months ended September 30, 2015. The loss ratio was 104.8% for the nine months ended September 30, 2016, compared with 81.2% for the nine months ended September 30, 2015. We experienced favorable development related to prior periods of $0.1 million and unfavorable development related to prior periods of $27.5 million for the three and nine months ended September 30, 2016, respectively. This unfavorable development for the nine months ended September 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 ratio for the 2016 accident year is now estimated to be 92.7%. This elevated loss ratio is 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 September 30, 2016 increased 17% to $102.1 million from $87.6 million in the same period in the prior year. Revenues for the nine months ended September 30, 2016 increased 24% to $301.8 million from $243.4 million in the same period in the prior year.

Premiums earned increased by $9.2 million, or 14%, to $76.7 million for the three months ended September 30, 2016, from $67.5 million for the three months ended September 30, 2015. For the nine months ended September 30, 2016 premiums earned increased by $36.6 million, or 19%, to $234.0 million from $197.4 million for the nine months ended September 30, 2015. This improvement was primarily due to higher average premiums resulting from our recent rate increases.

Commission and fee income increased by $0.3 million, or 1%, to $19.3 million for the three months ended September 30, 2016, from $19.0 million for the three months ended September 30, 2015. For the nine months ended September 30, 2016, commission and fee income increased by $15.8 million, or 37%, to $58.1 million from $42.3 million for the nine months ended September 30, 2015, primarily as a result of revenue from the former Titan retail locations acquired on July 1, 2015. 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.

Expense Ratio. The expense ratio was 13.8% for the three months ended September 30, 2016, compared with 16.3% for the three months ended September 30, 2015. The expense ratio was 14.3% for the nine months ended September 30, 2016, compared with 18.9% for the nine months ended September 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. increased to 106.4% for the three months ended September 30, 2016 from 101.3% for the three months ended September 30, 2015. For the nine months ended September 30, 2016, the combined ratio increased to 119.1% from 100.1% for the nine months ended September 30, 2015.

Next Release of Financial Results

We currently plan to report our financial results for the three months and year ending December 31, 2016 on March 14, 2017.

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 September 30, 2016, we leased and operated 369 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)  
   
    Three Months Ended     Nine Months Ended  
    September 30,     September 30,  
    2016     2015     2016     2015  
Revenues:                                
Premiums earned   $ 76,740     $ 67,508     $ 233,997     $ 197,423  
Commission and fee income     19,291       18,974       58,055       42,252  
Investment income     1,187       1,144       3,795       3,695  
Gain on sale of foreclosed real estate                 1,237        
Net realized gains (losses) on investments, available-for-
  sale (includes $4,892 and $4,745, respectively, of
  accumulated other comprehensive loss
  reclassification for net unrealized gains in 2016)
    4,897       (6 )     4,733       (13 )
      102,115       87,620       301,817       243,357  
Costs and expenses:                                
Losses and loss adjustment expenses     71,079       57,367       245,262       160,304  
Insurance operating expenses     28,940       29,309       88,901       78,039  
Other operating expenses     369       295       932       881  
Litigation settlement           3,406             3,645  
Stock-based compensation     59       37       164       109  
Depreciation     667       424       1,934       1,224  
Amortization of identifiable intangibles assets     240       254       717       261  
Interest expense     1,088       1,052       3,213       1,924  
      102,442       92,144       341,123       246,387  
Loss before income taxes     (327 )     (4,524 )     (39,306 )     (3,030 )
Provision (benefit) for income taxes     6       (1,506 )     (13,571 )     (813 )
Net loss   $ (333 )   $ (3,018 )   $ (25,735 )   $ (2,217 )
Net loss per share:                                
Basic and diluted   $ (0.01 )   $ (0.07 )   $ (0.63 )   $ (0.05 )
Number of shares used to calculate net loss per share:                                
Basic and diluted     41,096       41,041       41,074       41,026  
Reconciliation of net loss to other comprehensive loss:                                
Net loss   $ (333 )   $ (3,018 )   $ (25,735 )   $ (2,217 )
Unrealized change in investments:                                
Unrealized change in investments arising during
  the period, net of tax of $4, $(17), $1,621
  and $(609), respectively
    7       (32 )     3,009       (1,131 )
Reclassification of net realized gains on investments,
  available-for-sale, included in net loss, net of tax
  of $(1,712) and $(1,661), respectively, in 2016
    (3,180 )           (3,084 )      
Comprehensive loss   $ (3,506 )   $ (3,050 )   $ (25,810 )   $ (3,348 )
                                 
Detail of net realized gains (losses) on investments,
  available-for-sale:
                               
Net realized gains (losses) on sales and redemptions   $ 4,897     $ (6 )   $ 4,880     $ (13 )
Other-than-temporary impairment charges                 (147 )      
Net realized gains (losses) on investments, available-for-
  sale
  $ 4,897     $ (6 )   $ 4,733     $ (13 )


   
FIRST ACCEPTANCE CORPORATION AND SUBSIDIARIES  
Consolidated Balance Sheets  
(in thousands, except per share data)  
   
    September 30,     December 31,  
    2016     2015  
    (Unaudited)          
ASSETS                
Investments, available-for-sale at fair value (amortized cost of $119,780 and
  $128,304, respectively)
  $ 122,646     $ 131,582  
Cash, cash equivalents, and restricted cash     143,371       115,587  
Premiums, fees, and commissions receivable, net of allowance of $451 and
  $454, respectively
    75,770       69,881  
Receivable for securities     20,026        
Deferred tax assets, net     32,216       18,301  
Other investments     9,653       11,256  
Other assets     6,613       6,950  
Property and equipment, net     5,292       5,141  
Deferred acquisition costs     5,750       5,509  
Goodwill     29,384       29,429  
Identifiable intangible assets, net     7,814       8,491  
TOTAL ASSETS   $ 458,535     $ 402,127  
                 
LIABILITIES AND STOCKHOLDERS’ EQUITY                
Loss and loss adjustment expense reserves   $ 164,700     $ 122,071  
Unearned premiums and fees     89,820       83,426  
Debentures payable     40,290       40,256  
Term loan from principal stockholder     29,773       29,753  
Payable for securities     37,929        
Accrued expenses     7,265       7,345  
Other liabilities     10,693       15,606  
Total liabilities     380,470       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     457,681       457,476  
Accumulated other comprehensive income, net of tax of $22 and $62, respectively     3,416       3,491  
Accumulated deficit     (383,443 )     (357,708 )
Total stockholders’ equity     78,065       103,670  
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY   $ 458,535     $ 402,127  


   
FIRST ACCEPTANCE CORPORATION AND SUBSIDIARIES  
Supplemental Data  
(Unaudited)  
             
PREMIUMS EARNED BY STATE              
             
    Three Months Ended     Nine Months Ended  
    September 30,     September 30,  
    2016     2015     2016     2015  
Gross premiums earned:                                
Georgia   $ 16,344     $ 13,079     $ 47,672     $ 37,619  
Florida     11,524       10,231       35,309       30,639  
Texas     10,402       8,990       32,285       26,365  
Ohio     7,568       6,688       23,258       19,814  
Alabama     7,143       6,238       21,193       18,333  
South Carolina     6,718       5,115       20,664       14,691  
Illinois     4,982       6,030       16,238       18,213  
Tennessee     4,842       4,486       14,830       12,141  
Pennsylvania     2,406       2,303       7,399       6,923  
Indiana     2,322       2,003       6,994       5,869  
Missouri     1,307       1,451       4,693       4,315  
Mississippi     965       852       3,003       2,540  
Virginia     235       138       700       232  
California     99             99        
Total gross premiums earned     76,857       67,604       234,337       197,694  
Premiums ceded to reinsurer     (117 )     (96 )     (340 )     (271 )
 Total net premiums earned   $ 76,740     $ 67,508     $ 233,997     $ 197,423  


COMBINED RATIOS (INSURANCE OPERATIONS)            
             
    Three Months Ended     Nine Months Ended  
    September 30,     September 30,  
    2016     2015     2016     2015  
Loss     92.6 %     85.0 %     104.8 %     81.2 %
Expense     13.8 %     16.3 %     14.3 %     18.9 %
Combined     106.4 %     101.3 %     119.1 %     100.1 %


NUMBER OF RETAIL LOCATIONS            
             
Retail location counts are based upon the date that a location commenced or ceased writing business.  
             
    Three Months Ended     Nine Months Ended  
    September 30,     September 30,  
    2016     2015     2016     2015  
Retail locations – beginning of period     409       359       440       356  
Opened                 4       5  
Acquired           83             83  
Closed     (40 )     (4 )     (75 )     (6 )
Retail locations – end of period     369       438       369       438  


   
FIRST ACCEPTANCE CORPORATION AND SUBSIDIARIES  
Supplemental Data (continued)  
(Unaudited)  
                   
RETAIL LOCATIONS BY STATE                  
                   
    September 30,     June 30,     December 31,  
    2016     2015     2016     2015     2015     2014  
Alabama     23       24       24       24       24       24  
Arizona     10       10       10             10        
California     47       48       47             48        
Florida     34       39       34       35       39       31  
Georgia     53       60       60       60       60       60  
Illinois     39       58       41       60       61       60  
Indiana     16       17       17       17       17       17  
Mississippi     6       7       7       7       7       7  
Missouri     6       9       9       9       9       10  
Nevada     4       4       4             4        
New Mexico     5       5       5             5        
Ohio     27       27       27       27       27       27  
Pennsylvania     11       14       13       15       14       15  
South Carolina     20       25       23       25       24       25  
Tennessee     23       23       23       23       23       22  
Texas     45       68       65       57       68       58  
Total     369       438       409       359       440       356  


INVESTOR RELATIONS CONTACT: 
                    Michael J. Bodayle 
                    615.844.2885

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