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First Acceptance Corporation Reports Operating Results for the Quarter and Year Ended December 31, 2016

/EIN News/ -- NASHVILLE, Tenn., March 14, 2017 (GLOBE NEWSWIRE) -- First Acceptance Corporation (NYSE:FAC) today reported its financial results for the quarter and year ended December 31, 2016.

Operating Results

Revenues for the three months ended December 31, 2016 decreased 1% to $87.8 million from $88.5 million in the same period in the prior year. Revenues for the year ended December 31, 2016 increased 17% to $389.6 million from $331.9 million in the same period in the prior year. 

Loss before income taxes for the three months ended December 31, 2016 was $5.8 million, compared with income before income taxes of $0.5 million for the three months ended December 31, 2015. Net loss for the three months ended December 31, 2016 was $3.5 million, compared with net income of $0.3 million for the three months ended December 31, 2015. For the three months ended December 31, 2016, we recognized $2.6 million of unfavorable prior period loss development.

Loss before income taxes for the year ended December 31, 2016 was $45.1 million, compared with loss before income taxes of $2.6 million for the year ended December 31, 2015. Net loss for the year ended December 31, 2016 was $29.3 million, compared with net loss of $1.9 million for the year ended December 31, 2015.

For the year ended December 31, 2016, we recognized $30.6 million of unfavorable prior period loss development. Conversely, the year was favorably impacted by a $1.2 million gain on the sale of foreclosed real estate along with net realized gains on investments of $4.8 million from the sales of fixed maturities that were sold to increase the statutory capital and surplus of our insurance company subsidiaries. The year ended December 31, 2015 included $3.7 million of costs related to a litigation settlement.

President and Chief Executive Officer, Ken Russell, commented “While the loss ratio for the recent quarter was negatively impacted by additional loss development, we believe that there are indications that the cloud of uncertainty from prior period losses is coming to an end. Remaining committed to our goal of returning the Company to profitability, management has made significant efforts to improve our risk management through rate increases, risk segmentation and key additions to the senior staff of our claims handling and product teams. Numerous initiatives have been implemented as part of our strategic plan to curtail unprofitable production, and positive trends are anticipated regarding both claims severity and frequency.”

Loss Ratio. The loss ratio was 91.9% for the three months ended December 31, 2016, compared with 84.4% for the three months ended December 31, 2015. The loss ratio was 101.9% for the year ended December 31, 2016, compared with 82.0% for the year ended December 31, 2015.  We experienced unfavorable development related to prior periods of $2.6 million for the three months ended December 31, 2016, compared with favorable development related to prior periods of $0.1 million for the three months ended December 31, 2015. For the year ended December 31, 2016, we experienced unfavorable development related to prior periods of $30.6 million, compared with $0.8 million for the year ended December 31, 2015. The unfavorable loss development for the year ended December 31, 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 the development related to prior periods for the three months ended December 31, 2016 and 2015, the loss ratios were 88.2% and 88.5%, respectively. Excluding the development related to prior fiscal years, the loss ratios for the years ended December 31, 2016 and 2015 were 91.8% and 81.7%, respectively. The year-over-year increase in the loss ratio was primarily due to higher than expected claim frequency across all major coverages and higher bodily injury severity. We believe that an increase in the number of miles driven by insured drivers as a result of lower gas prices and a favorable economy, along with an increase in distracted driving, 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. These rate actions, as well as changes in coverage mix, the number of vehicles and vehicle type insured, have resulted in a 13.6% year-over-year increase in our average in-force premium.

Revenues. Premiums earned decreased slightly to $69.3 million for the three months ended December 31, 2016, from $69.6 million for the three months ended December 31, 2015. For the year ended December 31, 2016 premiums earned increased by $36.3 million, or 13.6%, to $303.3 million from $267.0 million for the year ended December 31, 2015. This improvement was due to higher average premiums resulting from our rate increases throughout the year. While during 2016, our total policies-in-force declined 14.5%, this targeted decline was more than offset by a 13.6% year-over-year increase in our average in-force premium.

Commission and fee income decreased slightly to $17.5 million for the three months ended December 31, 2016, from $17.6 million for the three months ended December 31, 2015. Commission and fee income increased by $15.7 million, or 26%, to $75.6 million for the year ended December 31, 2016, from $59.9 million for the year ended December 31, 2015. Revenue from the former Titan retail locations acquired on July 1, 2015 accounted for the majority of the year-over-year increase. The remaining increase in commission and fee income was a result of higher fee income related to commissionable ancillary products sold through our previously-existing retail locations.  

Expense Ratio. The expense ratio was 15.7% for the three months ended December 31, 2016, compared with 14.9% for the three months ended December 31, 2015. The expense ratio was 14.6% for the year ended December 31, 2016, compared with 17.8% for the year ended December 31, 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 our efforts on cost containment.

Combined Ratio. The combined ratio increased to 107.6% for the three months ended December 31, 2016 from 99.3% for the three months ended December 31, 2015. For the year ended December 31, 2016, the combined ratio increased to 116.5% from 99.8% for the year ended December 31, 2015.

Next Release of Financial Results

We currently plan to report our financial results for the three months ending March 31, 2017 on May 9, 2017 which will also serve at the date of our 2017 Annual Meeting of Stockholders.

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 December 31, 2016, we leased and operated 355 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.

Forward-Looking Statements

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, 2016 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
(in thousands, except per share data)
 
    Three Months Ended
December 31,
  Year Ended 
December 31,
    2016     2015   2016     2015
 
Revenues:                              
Premiums earned   $ 69,331     $ 69,564   $ 303,328     $ 266,987  
Commission and fee income     17,541       17,640     75,596       59,892  
Investment income     854       1,329     4,649       5,024  
Gain on sale of foreclosed real estate               1,237        
Net realized gains (losses) on investments, available-for-sale                              
(includes $4,745 of accumulated other comprehensive loss                              
reclassification for net unrealized gains in 2016)     80       2     4,813       (11 )
      87,806       88,535     389,623       331,892  
Costs and expenses:                              
Losses and loss adjustment expenses     63,740       58,727     309,002       219,031  
Insurance operating expenses     27,609       27,215     116,510       105,254  
Other operating expenses     287       245     1,219       1,126  
Litigation settlement           32           3,677  
Stock-based compensation     43       35     207       144  
Depreciation     606       527     2,540       1,751  
Amortization of identifiable intangible assets     239       253     956       514  
Interest expense     1,106       1,043     4,319       2,967  
      93,630       88,077     434,753       334,464  
(Loss) income before income taxes     (5,824 )     458     (45,130 )     (2,572 )
(Benefit) provision for income taxes     (2,277 )     171     (15,848 )     (642 )
Net (loss) income   $ (3,547 )   $ 287   $ (29,282 )   $ (1,930 )
Net (loss) income per share:                              
Basic   $ (0.09 )   $ 0.01   $ (0.71 )   $ (0.05 )
Diluted   $ (0.09 )   $ 0.01   $ (0.71 )   $ (0.05 )
Number of shares used to calculate net (loss) income per share:                              
Basic     41,041       41,041     41,085       41,030  
Diluted     41,041       41,375     41,085       41,030  
                               


FIRST ACCEPTANCE CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
(in thousands, except per share data)
    December 31,  
    2016     2015  
ASSETS                
Investments, available-for-sale at fair value (amortized cost of $117,902 and $128,304,                
respectively)   $ 117,212     $ 131,582  
Cash, cash equivalents, and restricted cash     118,681       115,587  
Premiums, fees, and commissions receivable, net of allowance of $279 and $454     66,393       69,881  
Deferred tax assets, net     35,641       18,301  
Other investments     9,994       11,256  
Other assets     6,078       6,950  
Property and equipment, net     4,213       5,141  
Deferred acquisition costs     4,852       5,509  
Goodwill     29,384       29,429  
Identifiable intangible assets, net     7,626       8,491  
TOTAL ASSETS   $ 400,074     $ 402,127  
                 
LIABILITIES AND STOCKHOLDERS’ EQUITY                
Loss and loss adjustment expense reserves   $ 161,079     $ 122,071  
Unearned premiums and fees     78,861       83,426  
Debentures payable     40,302       40,256  
Term loan from principal stockholder     29,779       29,753  
Accrued expenses     7,089       7,345  
Other liabilities     10,476       15,606  
Total liabilities     327,586       298,457  
Stockholders’ equity:                
Preferred stock, $.01 par value, 10,000 shares authorized            
Common stock, $.01 par value, 75,000 shares authorized; 41,160 and 41,060 issued and                
outstanding, respectively     412       411  
Additional paid-in capital     457,750       457,476  
Accumulated other comprehensive income, net of tax of $(1,110) and $62, respectively     1,316       3,491  
Accumulated deficit     (386,990 )     (357,708 )
Total stockholders’ equity     72,488       103,670  
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY   $ 400,074     $ 402,127  
                 


FIRST ACCEPTANCE CORPORATION AND SUBSIDIARIES
Supplemental Data
(Unaudited)
             
PREMIUMS EARNED BY STATE            
             
    Three Months Ended
December 31,
    Year Ended
December 31,
 
    2016     2015     2016     2015  
Gross premiums earned:                                
Georgia   $ 15,660     $ 13,668     $ 63,332     $ 51,287  
Florida     10,571       10,463       45,880       41,102  
Texas     8,869       9,406       41,154       35,771  
Ohio     7,118       6,931       30,376       26,745  
Alabama     6,970       6,278       28,163       24,611  
South Carolina     4,851       5,563       25,515       20,254  
Tennessee     4,500       4,561       19,330       16,702  
Illinois     4,495       5,837       20,733       24,050  
Indiana     2,250       2,085       9,244       7,954  
Pennsylvania     2,219       2,301       9,618       9,224  
Mississippi     869       858       3,872       3,398  
Missouri     704       1,529       5,397       5,844  
California     217             316        
Virginia     148       185       848       417  
Total gross premiums earned     69,441       69,665       303,778       267,359  
Premiums ceded to reinsurer     (110 )     (101 )     (450 )     (372 )
Total net premiums earned   $ 69,331     $ 69,564     $ 303,328     $ 266,987  
                                 

 

COMBINED RATIOS (INSURANCE OPERATIONS)                        
             
    Three Months Ended
December 31,
    Year Ended
December 31,
 
    2016     2015     2016     2015  
Loss   91.9 %   84.4 %   101.9 %   82.0 %
Expense   15.7 %   14.9 %   14.6 %   17.8 %
Combined   107.6 %   99.3 %   116.5 %   99.8 %


NUMBER OF RETAIL LOCATIONS
Retail location counts are based upon the date that a location commenced or ceased writing business.
             
    Three Months Ended
December 31,
    Year Ended
December 31,
 
    2016     2015     2016     2015  
Retail locations – beginning of period     369       438       440       356  
Opened           3       4       8  
Acquired                       83  
Closed     (14 )     (1 )     (89 )     (7 )
Retail locations – end of period     355       440       355       440  
                                 


FIRST ACCEPTANCE CORPORATION AND SUBSIDIARIES
Supplemental Data (continued)
(Unaudited)
 
RETAIL LOCATIONS BY STATE                                        
 
    December 31,     September 30,  
    2016     2015     2014     2016     2015  
Alabama     23       24       24       23       24  
Arizona     10       10             10       10  
California     47       48             47       48  
Florida     34       39       31       34       39  
Georgia     50       60       60       53       60  
Illinois     39       61       60       39       58  
Indiana     16       17       17       16       17  
Mississippi     6       7       7       6       7  
Missouri           9       10       6       9  
Nevada     4       4             4       5  
New Mexico     5       5             5       4  
Ohio     27       27       27       27       27  
Pennsylvania     11       14       15       11       14  
South Carolina     15       24       25       20       25  
Tennessee     23       23       22       23       23  
Texas     45       68       58       45       68  
Total     355       440       356       369       438  
                                         
INVESTOR RELATIONS CONTACT: 
                    Michael J. Bodayle 
                    615.844.2885 

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