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


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 
                 

 


            

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