NASHVILLE, Tenn., Nov. 07, 2017 (GLOBE NEWSWIRE) -- First Acceptance Corporation 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
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