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First Acceptance Corporation Reports Operating Results for the Quarter and Nine Months Ended September 30, 2017

NASHVILLE, Tenn., Nov. 07, 2017 (GLOBE NEWSWIRE) -- First Acceptance Corporation (NYSE:FAC) today reported its financial results for the quarter and nine months ended September 30, 2017. 

Operating Results

Income before income taxes, for the three months ended September 30, 2017 was $3.4 million, compared with a loss before income taxes of $0.3 million for the three months ended September 30, 2016. Net income for the three months ended September 30, 2017 was $2.0 million, compared with a net loss of $0.3 million for the three months ended September 30, 2016. For the three months ended September 30, 2017 and 2016, we recognized $3.6 million and $0.1 million, respectively, of favorable prior period loss and LAE development.

Income before income taxes, for the nine months ended September 30, 2017 was $3.4 million, compared with a loss before income taxes of $39.3 million for the nine months ended September 30, 2016. Net income for the nine months ended September 30, 2017 was $1.8 million, compared with a net loss of $25.7 million for the nine months ended September 30, 2016. For the nine months ended September 30, 2017, we recognized $0.7 million of favorable prior period loss and LAE development, and for the nine months ended September 30, 2016, we recognized $27.5 million of unfavorable prior period loss and LAE development.

The three and nine months ended September 30, 2017 also included approximately $2.4 million in loss and LAE related to Hurricanes Harvey and Irma.

Revenues for the three months ended September 30, 2017 decreased 16% to $86.0 million from $102.1 million in the same period in the prior year. Revenues for the nine months ended September 30, 2017 decreased 12% to $265.5 million from $301.8 million in the same period in the prior year.

President and Chief Executive Officer, Ken Russell, commented, “A year ago, I stated a goal of returning the Company to profitability through a focus on appropriate pricing and risk segmentation of our product and efficient processing of claims. I am pleased to report that although this process took time to develop, we have started to see the impact of these efforts on our financial results. While the current period was impacted favorably by loss development from recent periods and unfavorably by two hurricanes, exclusive of these items, the quarterly results reflected a profitable 78.4% accident period loss ratio. Having achieved this, our work is far from over, and as our business stabilizes, we are focused on our strategic plan to capitalize on the strengths of our retail business model, which may result in expanding the use of additional third party insurance products in selected markets.”

Mr. Russell further commented, “My heart goes out to our customers in Texas and Florida, as well as our employees in these states, who suffered personal hardship as a result of Hurricanes Harvey and Irma. I am also most appreciative of excellent efforts made by our claims-handling and customer service teams in settling over 700 storm-related claims and maintaining policyholder relations in the affected areas.”

Loss Ratio. The loss ratio was 76.7% for the three months ended September 30, 2017 compared with 92.6% for the three months ended September 30, 2016. For the nine months ended September 30, 2017, the loss ratio was 81.0% compared with 104.8% for the nine months ended September 30, 2016. We experienced favorable development related to prior periods of $3.6 million and $0.7 million for the three and nine months ended September 30, 2017, respectively, compared with favorable development of $0.1 million and unfavorable development of $27.5 million for the three and nine months ended September 30, 2016, respectively.

The development for the three months ended September 30, 2017 was the result of favorable LAE development on bodily injury claims primarily attributable to the late 2016 and 2017 accident periods and favorable development on losses related primarily to 2017 accident year property damage claims. The development for the nine months ended September 30, 2017 was the net result of favorable LAE development related to bodily injury claims over multiple prior accident periods, offset by unfavorable development on losses related to bodily injury severity over multiple prior accident periods.

The 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. The development for the three months ended September 30, 2016 was not material.

During the third quarter of 2017, Hurricane Harvey impacted Texas and Hurricane Irma impacted Florida before making landfall in Georgia and South Carolina. We received over 700 claims related to Hurricanes Harvey and Irma and incurred approximately $2.4 million in losses and LAE during the third quarter of 2017 from these events. Subsequent to third quarter of 2017, Hurricane Nate impacted the southeastern United States, and California was affected by wildfires. Other than an incidental store closure in California as a result of the wildfires, the impact of claims is not expected to be significant.

Excluding the development related to prior periods and the impact of the hurricanes, the loss ratio for the three months ended September 30, 2017 was 78.4% as compared with 85.2% for the preceding three months ended June 30, 2017. Excluding the development related to prior periods and the impact of the hurricanes, the loss ratio for the nine months ended September 30, 2017 was 80.2% as compared with 91.8% for the year ended December 31, 2016. We believe that these improvements in the loss ratio were the result of our aggressive rate and underwriting actions in addition to a moderate reduction in claims frequency.

Revenues. Premiums earned decreased by $7.5 million, or 10%, to $69.2 million for the three months ended September 30, 2017, from $76.7 million for the three months ended September 30, 2016. For the nine months ended September 30, 2017, premiums earned decreased by $21.6 million, or 9%, to $212.4 million from $234.0 million for the nine months ended September 30, 2016. These decreases were the result of a targeted decline in new policies written through the closing of 53 poorly performing stores, increasing rates and the tightening of underwriting standards. These actions resulted in a 19% decrease in our year-over-year policies in force which was partially offset by a 9% 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 5%. Additionally, premiums earned for the three months ended September 30, 2017 were slightly impacted by temporary store closures in Texas, Florida, Georgia and South Carolina as a result of the recent hurricanes.

Commission and fee income decreased by $3.7 million, or 19%, to $15.6 million for the three months ended September 30, 2017, from $19.3 million for the three months ended September 30, 2016. For the nine months ended September 30, 2017, commission and fee income decreased by $8.5 million, or 14%, to $49.6 million from $58.1 million for the nine months ended September 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. Additionally, we earned less commission as a result of a decline in the renewals of automobile insurance policies sold in California on behalf of third-party carriers.

Expense Ratio. The expense ratio was 18.1% for the three months ended September 30, 2017, compared with 13.8% for the three months ended September 30, 2016. For the nine months ended September 30, 2017, the expense ratio was 16.9% compared with 14.3% for the nine months ended September 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, which is a component of the expense ratio.

Combined Ratio. Overall, the combined ratio decreased to 94.8% for the three months ended September 30, 2017 from 106.4% for the three months ended September 30, 2016. For the nine months ended September 30, 2017, the combined ratio decreased to 97.9% from 119.1% for the nine months ended September 30, 2016.

Next Release of Financial Results

We currently plan to report our financial results for the quarter and year ending December 31, 2017 on March 6, 2018.

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 September 30, 2017, we leased and operated 350 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     Nine Months Ended  
  September 30,     September 30,  
  2017     2016     2017     2016  
Revenues:                              
Premiums earned $ 69,174     $ 76,740     $ 212,446     $ 233,997  
Commission and fee income   15,551       19,291       49,603       58,055  
Investment income   1,259       1,187       3,415       3,795  
Gain on sale of foreclosed real estate                     1,237  
Net realized gains on investments, available-for-sale         4,897             4,733  
    85,984       102,115       265,464       301,817  
Costs and expenses:                              
Losses and loss adjustment expenses   53,077       71,079       172,163       245,262  
Insurance operating expenses   27,326       28,940       83,261       88,901  
Other operating expenses   284       369       822       932  
Stock-based compensation   87       59       200       164  
Depreciation   517       667       1,603       1,934  
Amortization of identifiable intangibles assets   196       240       594       717  
Interest expense   1,146       1,088       3,374       3,213  
    82,633       102,442       262,017       341,123  
Income (loss) before income taxes   3,351       (327 )     3,447       (39,306 )
Provision (benefit) for income taxes   1,353       6       1,622       (13,571 )
Net income (loss) $ 1,998     $ (333 )   $ 1,825     $ (25,735 )
Net income (loss) per share:                              
Basic $ 0.05     $ (0.01 )   $ 0.04     $ (0.63 )
Diluted $ 0.05     $ (0.01 )   $ 0.04     $ (0.63 )
Number of shares used to calculate net income (loss) per share:                              
Basic   41,200       41,096       41,174       41,074  
Diluted   41,233       41,096       41,237       41,074  
                               

FIRST ACCEPTANCE CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
(in thousands, except per share data)

             
     September 30,     December 31,  
    2017     2016  
    (Unaudited)          
ASSETS                
Investments, available-for-sale at fair value (amortized cost of $132,417 and
  $117,902, respectively)
  $ 133,448     $ 117,212  
Cash, cash equivalents, and restricted cash     111,251       118,681  
Premiums, fees, and commissions receivable, net of allowance of $459 and
  $279, respectively
    78,409       66,393  
Deferred tax assets, net     33,519       35,641  
Other investments     10,486       9,994  
Other assets     6,551       6,078  
Property and equipment, net     3,131       4,213  
Deferred acquisition costs     5,816       4,852  
Goodwill     29,384       29,384  
Identifiable intangible assets, net     7,052       7,626  
TOTAL ASSETS   $ 419,047     $ 400,074  
                 
LIABILITIES AND STOCKHOLDERS’ EQUITY                
Loss and loss adjustment expense reserves   $ 162,756     $ 161,079  
Unearned premiums and fees     92,208       78,861  
Debentures payable     40,336       40,302  
Term loan from principal stockholder     29,799       29,779  
Accrued expenses     5,711       7,089  
Other liabilities     12,225       10,476  
Total liabilities     343,035       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     457,986       457,750  
Accumulated other comprehensive income, net of tax of $(321) and $(1,110), respectively     2,779       1,316  
Accumulated deficit     (385,165 )     (386,990 )
  Total stockholders’ equity     76,012       72,488  
  TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY   $ 419,047     $ 400,074  
                 


FIRST ACCEPTANCE CORPORATION AND SUBSIDIARIES

Supplemental Data
(Unaudited)

PREMIUMS EARNED BY STATE

             
    Three Months Ended     Nine Months Ended  
    September 30,     September 30,  
    2017     2016     2017     2016  
Gross premiums earned:                                
Georgia   $ 16,839     $ 16,344     $ 50,502     $ 47,672  
Florida     10,021       11,524       31,033       35,309  
Alabama     8,313       7,143       24,209       21,193  
Texas     7,564       10,402       24,360       32,285  
Ohio     6,852       7,568       21,864       23,258  
Tennessee     5,260       4,842       15,283       14,830  
South Carolina     4,727       6,718       14,958       20,664  
Illinois     3,290       4,982       11,365       16,238  
Indiana     2,377       2,322       7,187       6,994  
Pennsylvania     2,332       2,406       6,978       7,399  
Mississippi     1,096       965       3,174       3,003  
California     496       99       1,230       99  
Virginia     82       235       288       700  
Missouri     38       1,307       340       4,693  
Total gross premiums earned     69,287       76,857       212,771       234,337  
Premiums ceded to reinsurer     (113 )     (117 )     (325 )     (340 )
 Total net premiums earned   $ 69,174     $ 76,740     $ 212,446     $ 233,997  
                                 

COMBINED RATIOS (INSURANCE OPERATIONS)

             
    Three Months Ended     Nine Months Ended  
    September 30,     September 30,  
    2017     2016     2017     2016  
Loss     76.7 %     92.6 %     81.0 %     104.8 %
Expense     18.1 %     13.8 %     16.9 %     14.3 %
Combined     94.8 %     106.4 %     97.9 %     119.1 %
                                 

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,  
    2017     2016     2017     2016  
Retail locations – beginning of period     354       409       355       440  
Opened                       4  
Closed     (4 )     (40 )     (5 )     (75 )
Retail locations – end of period     350       369       350       369  
                                 


FIRST ACCEPTANCE CORPORATION AND SUBSIDIARIES

Supplemental Data (continued)
(Unaudited)

RETAIL LOCATIONS BY STATE

             
    September 30,     December 31,  
    2017     2016     2016     2015  
Alabama     23       23       23       24  
Arizona     10       10       10       10  
California     46       47       47       48  
Florida     34       34       34       39  
Georgia     49       53       50       60  
Illinois     37       39       39       61  
Indiana     16       16       16       17  
Mississippi     6       6       6       7  
Missouri           6             9  
Nevada     4       4       4       4  
New Mexico     5       5       5       5  
Ohio     27       27       27       27  
Pennsylvania     11       11       11       14  
South Carolina     15       20       15       24  
Tennessee     22       23       23       23  
Texas     45       45       45       68  
Total     350       369       355       440  
                                 


INVESTOR RELATIONS CONTACT:  
Michael J. Bodayle  
615.844.2885 

 

Source: First Acceptance Corporation