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First Acceptance Corporation Reports Operating Results for the Quarter and Six Months Ended June 30, 2017

/EIN News/ -- NASHVILLE, Tenn., Aug. 09, 2017 (GLOBE NEWSWIRE) -- First Acceptance Corporation (NYSE:FAC) today reported its financial results for the quarter and six months ended June 30, 2017.

Operating Results

Revenues for the three months ended June 30, 2017 decreased 11% to $91.4 million from $102.8 million in the same period in the prior year. Revenues for the six months ended June 30, 2017 decreased 10% to $179.5 million from $199.7 million in the same period in the prior year.

Loss before income taxes, for the three months ended June 30, 2017 was $1.5 million, compared with a loss before income taxes of $30.6 million for the three months ended June 30, 2016. Net loss for the three months ended June 30, 2017 was $0.9 million, compared with a net loss of $19.9 million for the three months ended June 30, 2016. For the three months ended June 30, 2017 and 2016, we recognized $0.2 million and $25.8 million, respectively, of unfavorable prior period loss and LAE development.

Income before income taxes, for the six months ended June 30, 2017 was $96 thousand, compared with a loss before income taxes of $39.0 million for the six months ended June 30, 2016. Net loss for the six months ended June 30, 2017 was $173 thousand, compared with a net loss of $25.4 million for the six months ended June 30, 2016. For the six months ended June 30, 2017, we recognized $0.6 million of favorable prior period loss and LAE development, and for the six months ended June 30, 2016, we recognized $31.0 million of unfavorable prior period loss and LAE development.      

President and Chief Executive Officer, Ken Russell, commented, “The uptick in our loss ratio stemming from a somewhat seasonal spike in claims volume cannot overshadow the progress we have made, and continue to make, in our risk management and claims handling. Our recent efforts have made us a stronger company, and we will continue to make necessary adjustments on a market-by-market basis. This quarter our revenues from all channels, as well as operating costs, have positively met our expected targets.  We continue to evaluate and make changes to our captive distribution model, focusing on increased sales of third-party insurance products. This, along with the many operational changes that have been implemented over the past two quarters demonstrate that we have not lost our focus on profitability, and remain optimistic about achieving positive results for the balance of the year.”

Loss Ratio. The loss ratio was 85.5% for the three months ended June 30, 2017, compared with 124.6% for the three months ended June 30, 2016. For the six months ended June 30, 2017, the loss ratio was 83.1% compared with 110.8% for the six months ended June 30, 2016. We experienced unfavorable development related to prior periods of $0.2 million for the three months ended June 30, 2017, and favorable development of $0.6 million for the six months ended June 30, 2017, compared with unfavorable development of $25.8 million and $31.0 million for the three and six months ended June 30, 2016.

The development for the three and six months ended June 30, 2017 was the net result of favorable LAE development related to bodily injury claims over multiple prior accident periods and unfavorable development on losses related to bodily injury severity related to the 2016 and 2017 accident years. The unfavorable development for the three and six months ended June 30, 2016 was the result of an increase in losses across all major coverages and over multiple prior accident periods. The primary causes of the unfavorable development were a sharp increase in bodily injury severity and a greater than usual amount of subsequent payments on previously closed claims.

Excluding the development related to prior periods, the loss ratio for the three months ended June 30, 2017 was 85.2% as compared with 81.4% for the preceding three months ended March 31, 2017. The primary causes for this higher loss ratio were increases in frequency across all major coverages and in bodily injury severity.

Excluding the development related to prior periods, the loss ratio for the six months ended June 30, 2017 was 83.5% as compared with 91.8% for the year ended December 31, 2016. We believe that this improvement in the loss ratio was the result of our aggressive rate and underwriting actions in addition to a moderate reduction in claims frequency.

Revenues. Premiums earned decreased by $7.4 million, or 9%, to $73.5 million for the three months ended June 30, 2017, from $80.9 million for the three months ended June 30, 2016. For the six months ended June 30, 2017, premiums earned decreased by $14.0 million, or 9%, to $143.3 million from $157.3 million for the six months ended June 30, 2016. These decreases were the result of a targeted decline in new policies written to eliminate unprofitable business through store closures, rate increases and the tightening of underwriting standards. These actions resulted in a 23% decrease in our year-over-year policies in force which was partially offset by a 17% year-over-year increase in our average in-force premium that was driven by our recent rate actions. The estimated effective rate increase attained over the last twelve months was 12%.

Commission and fee income decreased by $2.4 million, or 12%, to $16.8 million for the three months ended June 30, 2017, from $19.2 million for the three months ended June 30, 2016. For the six months ended June 30, 2017, commission and fee income decreased by $4.7 million, or 12%, to $34.1 million from $38.8 million for the six months ended June 30, 2016. This decrease was primarily the result of a decrease in monthly billing fees as a result of the previously-mentioned decline in the number of policies in force.

Expense Ratio. The expense ratio was 16.0% for the three months ended June 30, 2017, compared with 14.8% for the three months ended June 30, 2016. For the six months ended June 30, 2017, the expense ratio was 16.3% compared with 14.6% for the six months ended June 30, 2016. The year-over-year increases in the expense ratio were primarily due to the decrease in premiums earned which resulted in a higher percentage of fixed expenses and the previously-mentioned decline in commission and fee income.

Combined Ratio. Overall, the combined ratio decreased to 101.5% for the three months ended June 30, 2017 from 139.4% for the three months ended June 30, 2016. For the six months ended June 30, 2017, the combined ratio decreased to 99.4% from 125.4% for the six months ended June 30, 2016.

Next Release of Financial Results

We currently plan to report our financial results for the quarter and nine months ending September 30, 2017 on November 7, 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 16 states. We currently conduct our servicing and underwriting operations in 13 states and are licensed as an insurer in 13 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, 2017, we leased and operated 354 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. All statements made other than statements of historical fact are forward-looking statements. You can identify these statements from our use of the words “may,” “should,” “could,” “potential,” “continue,” “plan,” “forecast,” “estimate,” “project,” “believe,” “intent,” “anticipate,” “expect,” “target,” “is likely,” “will,” “view,” or the negative of these terms and similar expressions. 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     Six Months Ended  
    June 30,     June 30,  
    2017       2016       2017       2016  
Revenues:                                
Premiums earned   $ 73,459     $ 80,850     $ 143,272     $ 157,257  
Commission and fee income     16,824       19,183       34,052       38,764  
Investment income     1,123       1,646       2,156       2,608  
Gain on sale of foreclosed real estate           1,237             1,237  
Net realized gains (losses) on investments, available-for-sale     5       (162 )           (164 )
      91,411       102,754       179,480       199,702  
Costs and expenses:                                
Losses and loss adjustment expenses     62,806       100,765       119,086       174,184  
Insurance operating expenses     27,879       30,314       55,935       59,961  
Other operating expenses     267       283       538       563  
Stock-based compensation     74       68       113       105  
Depreciation     540       616       1,086       1,267  
Amortization of identifiable intangibles assets     195       239       398       477  
Interest expense     1,130       1,076       2,228       2,126  
      92,891       133,361       179,384       238,683  
(Loss) income before income taxes     (1,480 )     (30,607 )     96       (38,981 )
(Benefit) provision for income taxes     (577 )     (10,708 )     269       (13,577 )
Net loss   $ (903 )   $ (19,899 )   $ (173 )   $ (25,404 )
Net loss per share:                                
Basic   $ (0.02 )   $ (0.48 )   $ (0.00 )   $ (0.62 )
Diluted   $ (0.02 )   $ (0.48 )   $ (0.00 )   $ (0.62 )
Number of shares used to calculate net loss per share:                                
Basic     41,164       41,064       41,162       41,062  
Diluted     41,164       41,064       41,162       41,062  

 

FIRST ACCEPTANCE CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
(in thousands, except per share data)
 
      June 30,       December 31,  
            2017             2016  
    (Unaudited)          
ASSETS                
Investments, available-for-sale at fair value (amortized cost of $115,233 and
  $117,902, respectively)
  $ 116,012     $ 117,212  
Cash, cash equivalents, and restricted cash     125,530       118,681  
Premiums, fees, and commissions receivable, net of allowance of $378 and
  $279, respectively
    76,847       66,393  
Deferred tax assets, net     34,784       35,641  
Other investments     10,468       9,994  
Other assets     5,753       6,078  
Property and equipment, net     3,475       4,213  
Deferred acquisition costs     5,332       4,852  
Goodwill     29,384       29,384  
Identifiable intangible assets, net     7,243       7,626  
TOTAL ASSETS   $ 414,828     $ 400,074  
                 
LIABILITIES AND STOCKHOLDERS’ EQUITY                
Loss and loss adjustment expense reserves   $ 162,232       $ 161,079  
Unearned premiums and fees     91,644       78,861  
Debentures payable     40,324       40,302  
Term loan from principal stockholder     29,792       29,779  
Accrued expenses     5,514       7,089  
Other liabilities     11,701       10,476  
Total liabilities     341,207       327,586  
Stockholders’ equity:                
Preferred stock, $.01 par value, 10,000 shares authorized            
Common stock, $.01 par value, 75,000 shares authorized; 41,200 and 41,160 issued and
outstanding, respectively
    412       412  
Additional paid-in capital     457,898       457,750  
Accumulated other comprehensive income, net of tax of $(486) and $(1,110), respectively         2,474       1,316  
Accumulated deficit     (387,163 )     (386,990 )
  Total stockholders’ equity     73,621       72,488  
  TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY   $ 414,828     $ 400,074  

 

FIRST ACCEPTANCE CORPORATION AND SUBSIDIARIES
Supplemental Data
(Unaudited)
 
PREMIUMS EARNED BY STATE
 
    Three Months Ended     Six Months Ended  
    June 30,     June 30,  
    2017     2016     2017     2016  
Gross premiums earned:                                      
Georgia   $ 17,402     $ 16,271     $ 33,663     $ 31,328  
Florida     10,761       12,176       21,012       23,785  
Texas     8,252       11,266       16,796       21,883  
Alabama     8,442       7,286       15,896       14,050  
Ohio     7,707       8,094       15,012       15,690  
South Carolina     5,281       7,352       10,231       13,946  
Tennessee     5,275       5,107       10,023       9,988  
Illinois     3,868       5,516       8,075       11,256  
Indiana     2,492       2,395       4,810       4,672  
Pennsylvania     2,395       2,575       4,646       4,993  
Mississippi     1,115       1,043       2,078       2,038  
California     420             734        
Missouri     60       1,633       302       3,386  
Virginia     96       251       206       465  
Total gross premiums earned     73,566       80,965       143,484       157,480  
Premiums ceded to reinsurer         (107 )     (115 )     (212 )     (223 )
 Total net premiums earned   $ 73,459     $ 80,850     $ 143,272     $ 157,257  


COMBINED RATIOS (INSURANCE OPERATIONS)
 
    Three Months Ended     Six Months Ended  
    June 30,     June 30,  
    2017       2016       2017       2016  
Loss     85.5 %     124.6 %     83.1 %     110.8 %
Expense     16.0 %     14.8 %     16.3 %     14.6 %
Combined                                                 101.5 %     139.4 %     99.4 %     125.4 %


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,  
    2017     2016     2017     2016  
Retail locations – beginning of period     355       414       355       440  
Opened           2             4  
Closed     (1 )     (6 )     (1 )     (34 )
Retail locations – end of period     354       410       354       410  

 

FIRST ACCEPTANCE CORPORATION AND SUBSIDIARIES
Supplemental Data (continued)
(Unaudited)
 
RETAIL LOCATIONS BY STATE
 
    June 30,     December 31,  
         2017              2016              2016              2015      
Alabama     23       24       23       24  
Arizona     10       10       10       10  
California     47       48       47       48  
Florida     34       34       34       39  
Georgia     50       60       50       60  
Illinois     38       41       39       61  
Indiana     16       17       16       17  
Mississippi     6       7       6       7  
Missouri           9             9  
Nevada     4       4       4       4  
New Mexico     5       5       5       5  
Ohio     27       27       27       27  
Pennsylvania     11       13       11       14  
South Carolina                                                         15       23       15       24  
Tennessee     23       23       23       23  
Texas     45       65       45       68  
Total     354       410       355       440  
INVESTOR RELATIONS CONTACT: 
                    Michael J. Bodayle 
                    615.844.2885

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