ADDISON, Texas, March 31, 2009 (GLOBE NEWSWIRE) -- Affirmative Insurance Holdings, Inc. (Nasdaq:AFFM) reported net income for the year ended December 31, 2008 of $1.4 million, or $0.09 per share, compared with net income of $9.7 million, or $0.63 per share, in the prior year. Significant items impacting 2008 results included the following:
* Total gross written premium production declined $57.6 million, or 13.0%, to $385.1 million in 2008, compared with $442.7 million in 2007. This decline was due to the macroeconomic effects that impacted the industry during the year including higher fuel prices as well as the ongoing overall "soft" insurance market. The Company had smaller declines in production in the fourth quarter than those in the third quarter. * The loss ratio for the year (losses and loss adjustment expenses divided by net premiums earned) increased to 76.8% in 2008, compared with 73.2% in 2007, primarily due to increased losses from Florida policies. The Florida losses were the result of our decision to push the full coverage product in Florida in 2007 in response to the Personal Injury Protection (PIP) sunset in that state on October 1, 2007. Inadequate pricing and product management of this product produced significantly higher losses than anticipated. We have drastically reduced the production of this product by restricting writings by agent, territory and coverage based on where significant loss ratio swings occurred. In addition, the Company had $2.5 million in losses in 2008 related to Hurricanes Gustav and Ike. * The Company had a net $1.5 million loss related to auction-rate securities in its investment portfolio. This is explained more fully below. * Selling, general and administrative expenses decreased $17.9 million, or 11.1%, to $144.3 million, compared with $162.2 million in 2007. The overall decrease was primarily due to a reduction in operating expenses primarily related to lower premium production and management's efforts to reduce expenses. * In the third quarter of 2008, the Company recorded a $4.6 million impairment loss related to its identified intangible assets related to our Florida operations.
The 2008 results included a net $1.5 million loss related to our auction-rate security holdings. In August 2008, our broker announced settlements in principle with each of the Division Enforcement of the U.S. Securities and Exchange Commission (SEC), the New York Attorney General and other state agencies to purchase all of its clients' auction-rate securities at par and several other items including fines. In October 2008, our broker filed a prospectus with the SEC, which published a legally-binding offer to all authorized holders of auction-rate securities in our broker's accounts ("the settlement"). The majority of our auction-rate securities qualify under the terms of our broker's prospectus. The time frames that our broker has set for buybacks have different start dates based upon the individual client's size, which is determined by each client's balance of investments held at our broker. For the majority of our auction-rate holdings, the buybacks are expected to occur between July 2010 and two years thereafter. In November 2008, the Company elected to participate in our broker's offer to purchase our auction-rate securities at par. In November 2008, we classified our portfolio of auction-rate securities as trading and recorded a realized loss of $11.1 million for the difference in fair value and carrying amount. The fair value of the settlement was $9.6 million which we elected to report in other assets with changes in fair value reported in other income. The $1.5 million loss is expected to reverse into income over the period until the settlement occurs.
On March 27, 2009, we entered into an amendment to our senior secured credit facility. The amendment included the following changes:
* The leverage ratio covenant calculation has been changed to include
only amounts borrowed under the facility. In addition, the
quarterly requirements have been changed for the remaining term of
the facility.
* The interest coverage ratio covenant calculation has been changed
to include only interest expense paid in cash. In addition, the
quarterly requirements have been changed for the remaining term of
the facility.
* The combined ratio covenant has been replaced with a loss ratio
covenant.
* The fixed charge coverage ratio covenant calculation has been
changed to include only interest expense paid in cash. In addition,
the annual requirements have been changed for the remaining term of
the facility.
* The consolidated net worth covenant calculation has been changed to
a covenant that excludes goodwill and includes subordinated debt.
* Asset sales are now allowed for transactions with less than 80% of
cash proceeds. Financing is limited to $5 million per transaction
and $10 million in the aggregate.
* A sale and leaseback transaction of capitalized technology assets
is allowed for up to $30 million.
* The pricing under the agreement has been changed as follows:
-- A LIBOR floor of 3.0% has been established.
-- Pricing depends on the amount of the leverage ratio. If the
leverage ratio is greater than 2.0, the pricing is LIBOR plus
6.25%. If the leverage ratio is greater than 1.5 and less than
or equal to 2.0, the pricing is LIBOR plus 6.00%. If the
leverage ratio is less than or equal to 1.5, the pricing is
LIBOR plus 5.75%.
* Common stock dividends are permitted only if the leverage ratio is
less than or equal to 1.5.
* The revolving facility was reduced from $20 million to $10 million.
In addition, we paid 0.50% to all lenders that approved the amendment. We believe that the changes made to the facility increases our ability to comply with all of the covenants in the future.
Affirmative Insurance Holdings, Inc. is a distributor and producer of non-standard personal automobile insurance policies and related products and services for individual consumers in targeted geographic markets. Non-standard personal automobile insurance policies provide coverage to drivers who find it difficult to obtain insurance from standard automobile insurance companies due to their lack of prior insurance, age, driving record, limited financial resources or other factors. Non-standard personal automobile insurance policies generally require higher premiums than standard automobile insurance policies.
The Affirmative Insurance Holdings, Inc. logo is available at http://www.globenewswire.com/newsroom/prs/?pkgid=3443
AFFIRMATIVE INSURANCE HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Unaudited)
(in thousands, except share data)
December 31,
----------------------
2008 2007
---------- ----------
Assets
Investment securities, at fair value
Trading securities $ 40,155 $ --
Available-for-sale securities 218,988 390,109
Cash and cash equivalents 66,513 44,048
Fiduciary and restricted cash 20,109 13,591
Accrued investment income 3,106 3,736
Premiums and fees receivable 57,805 69,154
Premium finance receivable, net 40,987 34,208
Commissions receivable 1,840 2,156
Receivable from reinsurers, net 63,331 66,839
Deferred acquisition costs 21,993 24,536
Deferred tax assets 16,459 10,973
Federal income taxes receivable 1,316 5,562
Investment in real property, net 5,848 5,964
Property and equipment, net 42,143 29,444
Goodwill 163,650 163,462
Other intangible assets, net 17,255 23,623
Prepaid expenses 8,967 11,011
Other assets, net of allowance for doubtful
accounts of $7,213 for 2008 and 2007
(includes Other receivables of $9,647) 11,586 2,221
---------- ----------
Total assets $ 802,051 $ 900,637
========== ==========
Liabilities and Stockholders' Equity
Liabilities
Reserves for losses, loss adjustment
expenses and deposits $ 204,637 $ 227,947
Unearned premium 109,097 126,289
Amounts due reinsurers 5,146 3,606
Deferred revenue 5,943 6,922
Senior secured credit facility 136,677 196,966
Notes payable 76,909 76,930
Other liabilities 47,159 44,932
---------- ----------
Total liabilities 585,568 683,592
---------- ----------
Stockholders' Equity
Common stock, $0.01 par value; 75,000,000
shares authorized, 17,768,721 shares issued
and 15,415,358 shares outstanding at
December 31, 2008; 17,768,721 shares issued
and 15,415,358 shares outstanding at
December 31, 2007 178 178
Additional paid-in capital 163,707 162,603
Treasury stock, at cost (2,353,363 shares at
December 31, 2008 and 2007) (32,880) (32,880)
Accumulated other comprehensive income (loss) (1,849) 22
Retained earnings 87,327 87,122
---------- ----------
Total stockholders' equity 216,483 217,045
---------- ----------
Total liabilities and stockholders' equity $ 802,051 $ 900,637
========== ==========
AFFIRMATIVE INSURANCE HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
(in thousands, except per share data)
Year Ended December 31,
----------------------------------
2008 2007 2006
---------- ---------- ----------
Revenues
Net premiums earned $ 357,301 $ 396,043 $ 288,110
Commission income and fees 78,926 88,146 60,995
Net investment income 13,749 16,444 8,829
Net realized losses (10,700) (599) (822)
Other income 9,647 -- --
---------- ---------- ----------
Total revenues 448,923 500,034 357,112
---------- ---------- ----------
Expenses
Losses and loss adjustment expenses 274,391 289,724 185,346
Selling, general and administrative
expenses 144,269 162,216 150,540
Depreciation and amortization 9,187 11,260 4,398
Impairment of intangible assets 4,609 -- --
Interest expense 18,404 25,060 4,342
---------- ---------- ----------
Total expenses 450,860 488,260 344,626
---------- ---------- ----------
Income (loss) before income tax
expense (benefit) and minority
interest (1,937) 11,774 12,486
Income tax expense (benefit) (3,375) 2,105 2,661
Minority interest, net of income
taxes -- -- 81
---------- ---------- ----------
Net income $ 1,438 $ 9,669 $ 9,744
========== ========== ==========
Net income per common share:
Basic $ 0.09 $ 0.63 $ 0.64
========== ========== ==========
Diluted $ 0.09 $ 0.63 $ 0.63
========== ========== ==========
Weighted average common shares
outstanding:
Basic 15,415 15,371 15,295
========== ========== ==========
Diluted 15,415 15,382 15,345
========== ========== ==========