First Acceptance Corporation Reports Operating Results for the Quarter and Year Ended December 31, 2017

NASHVILLE, Tenn., March 06, 2018 (GLOBE NEWSWIRE) -- First Acceptance Corporation FAC today reported its financial results for the quarter and year ended December 31, 2017.

Operating Results

Income before income taxes for the three months ended December 31, 2017 was $3.1 million, compared with loss before income taxes of $5.8 million for the three months ended December 31, 2016. Net loss for the three months ended December 31, 2017 was $10.4 million, compared with net loss of $3.5 million for the three months ended December 31, 2016. For the three months ended December 31, 2017, we recognized $4.3 million of favorable prior period loss development, compared with unfavorable development of $2.6 million for the three months ended December 31, 2016.

Income before income taxes for the year ended December 31, 2017 was $6.6 million, compared with loss before income taxes of $45.1 million for the year ended December 31, 2016. Net loss for the year ended December 31, 2017 was $8.6 million, compared with net loss of $29.2 million for the year ended December 31, 2016. For the year ended December 31, 2017, we recognized $2.3 million of favorable prior period loss development, compared with unfavorable development of $30.6 million for the year ended December 31, 2016. The year ended December 31, 2017 was also unfavorably impacted by $2.4 million in catastrophic claims losses during the third quarter. Conversely, the year ended December 31, 2016 was favorably impacted by a $1.2 million gain on the sale of foreclosed real estate along with net realized gains on investments of $4.8 million from the sales of fixed maturities that were sold to increase the statutory capital and surplus of our insurance company subsidiaries.

The provision for income taxes for the three months and year ended December 31, 2017 includes a reduction in the deferred tax asset of $12.5 million as a result of the enactment of legislation to reduce the corporate income tax rate.

President and Chief Executive Officer, Ken Russell, commented, "Following the unprecedented underwriting losses in 2016 that impacted the automobile insurance industry, over the last 18 months, the Company held its focus on returning to profitability by improving pricing and risk management and strengthening its core business fundamentals. While higher rates and stricter underwriting meant less revenues, our 14% decline in policies-in-force since the beginning of the year, was partially offset by a 10% increase in our average in-force premium. Bolstered by improved claims-handling, these changes contributed to a 2017 accident year loss ratio of 80.2% (79.3% adjusted for the September catastrophic claims losses) which marked a significant improvement from 91.8% in 2016. All said, these efforts resulted in the Company exceeding its profitability goals set for 2017."

Mr. Russell further added "2017 was also a year for the Company to evaluate and better leverage the strengths of its retail operations. In doing so, we began to expand the offerings in our stores of additional commissionable products written through other carriers for both personal automobile and non-personal automobile coverages, including homeowners, renters, motorcycle, life and commercial automobile. Now, as we become better equipped as both an insurer and an agency, I look towards 2018 with great optimism and thank all of our stockholders for their patience and support through this transitionary time."

Loss Ratio. The loss ratio was 73.9% for the three months ended December 31, 2017, compared with 91.9% for the three months ended December 31, 2016. The loss ratio was 79.4% for the year ended December 31, 2017, compared with 101.9% for the year ended December 31, 2016. We recognized favorable development related to prior periods of $4.3 million for the three months ended December 31, 2017, compared with unfavorable development related to prior periods of $2.6 million for the three months ended December 31, 2016. For the year ended December 31, 2017, we recognized $2.3 million of favorable prior period loss development, compared with unfavorable development of $30.6 million for the year ended December 31, 2016.

Excluding the development related to prior periods for the three months ended December 31, 2017 and 2016, the loss ratios were 80.5% and 88.2%, respectively. Excluding the development related to prior fiscal years and the impact of the September 2017 hurricanes, the loss ratios for the years ended December 31, 2017 and 2016 were 79.3% and 91.8%, respectively. We believe that the 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 $3.5 million, or 5.1%, to $65.8 million for the three months ended December 31, 2017, from $69.3 million for the three months ended December 31, 2016. For the year ended December 31, 2017 premiums earned decreased by $25.1 million, or 13.6%, to $278.2 million from $303.3 million for the year ended December 31, 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 14% decrease in our year-over-year policies in force which was partially offset by a 10% year-over-year increase in our average in-force premium that was driven by our recent rate actions. The estimated effective rate increases attained over the last 18 and 12 months were 16% and 2%, respectively.

Commission and fee income decreased by $2.5 million, or 14.3%, to $15.0 million for the three months ended December 31, 2017, from $17.5 million for the three months ended December 31, 2016. Commission and fee income decreased by $11.0 million, or 14.6%, to $64.6 million for the year ended December 31, 2017, from $75.6 million for the year ended December 31, 2016. These decreases were 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 20.9% for the three months ended December 31, 2017, compared with 15.7% for the three months ended December 31, 2016. The expense ratio was 17.8% for the year ended December 31, 2017, compared with 14.6% for the year ended December 31, 2016. These 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. The combined ratio decreased to 94.8% for the three months ended December 31, 2017 from 107.6% for the three months ended December 31, 2016. For the year ended December 31, 2017, the combined ratio decreased to 97.2% from 116.5% for the year ended December 31, 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 revenue from selling non-standard personal automobile insurance products and related products in 16 states. We currently conduct our insurance servicing and underwriting operations in 13 states and operate only as an insurance agency in three states. We are also licensed as an insurance company in 13 states where we do not conduct any business. Non-standard personal automobile insurance is sought after by 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 December 31, 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 and through third-party carriers for which we receive a commission. We also offer a variety of additional commissionable products, and, in most states, our employee-agents also sell an insurance product providing personal property and liability coverage for renters that is underwritten by us. 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.

Forward-Looking Statements

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, 2017 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						Year Ended
	December 31,						December 31,
	2017			2016			2017			2016
Revenues:
Premiums earned	$	65,775		$	69,331		$	278,221		$	303,328
Commission and fee income		14,978			17,541			64,581			75,596
Investment income		1,304			854			4,719			4,649
Gain on sale of foreclosed real estate		—			—			—			1,237
Net realized (losses) gains on investments, available-for-sale (includes $4,745 of accumulated other comprehensive loss reclassification for net unrealized gains in 2016)		(3	)		80			(3	)		4,813
		82,054			87,806			347,518			389,623
Costs and expenses:
Losses and loss adjustment expenses		48,622			63,740			220,785			309,002
Insurance operating expenses		28,062			27,609			111,323			116,510
Other operating expenses		311			287			1,133			1,219

Stock-based compensation		99			43			299			207
Depreciation		465			606			2,068			2,540
Amortization of identifiable intangible assets		195			239			789			956
Interest expense		1,161			1,106			4,535			4,319
		78,915			93,630			340,932			434,753
Income (loss) before income taxes		3,139			(5,824	)		6,586			(45,130	)
Provision (benefit) for income taxes		13,568			(2,277	)		15,190			(15,848	)
Net loss	$	(10,429	)	$	(3,547	)	$	(8,604	)	$	(29,282	)
Net loss per share:
Basic	$	(0.25	)	$	(0.09	)	$	(0.21	)	$	(0.71	)
Diluted	$	(0.25	)	$	(0.09	)	$	(0.21	)	$	(0.71	)
Number of shares used to calculate net loss per share:
Basic		41,200			41,041			41,286			41,085
Diluted		41,200			41,041			41,286			41,085


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

	December 31,
	2017			2016
ASSETS
Investments, available-for-sale at fair value (amortized cost of $129,742 and $117,902, respectively)	$	129,945		$	117,212
Cash, cash equivalents, and restricted cash		115,477			118,681
Premiums, fees, and commissions receivable, net of allowance of $275 and $279		69,624			66,393
Deferred tax assets, net		20,549			35,641
Other investments		9,750			9,994
Other assets		6,438			6,078
Property and equipment, net		2,888			4,213
Deferred acquisition costs		4,947			4,852
Goodwill		29,384			29,384
Identifiable intangible assets, net		6,857			7,626
TOTAL ASSETS	$	395,859		$	400,074

LIABILITIES AND STOCKHOLDERS' EQUITY
Loss and loss adjustment expense reserves	$	159,130		$	161,079
Unearned premiums and fees		82,620			78,861
Debentures payable		40,348			40,302
Term loan from principal stockholder		29,805			29,779
Accrued expenses		5,975			7,089
Other liabilities		13,224			10,476
Total liabilities		331,102			327,586
Stockholders' equity:
Preferred stock, $.01 par value, 10,000 shares authorized		—			—
Common stock, $.01 par value, 75,000 shares authorized; 41,235 and 41,160 issued and outstanding, respectively		413			412
Additional paid-in capital		458,124			457,750
Accumulated other comprehensive income, net of tax of $(990) and $(1,110), respectively		1,900			1,316
Accumulated deficit		(395,680	)		(386,990	)
Total stockholders' equity		64,757			72,488
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	395,859		$	400,074


FIRST ACCEPTANCE CORPORATION AND SUBSIDIARIES Supplemental Data (Unaudited)

PREMIUMS EARNED BY STATE
	Three Months Ended						Year Ended
	December 31,						December 31,
	2017			2016			2017			2016
Gross premiums earned:
Georgia	$	16,811		$	15,660		$	67,313		$	63,332
Florida		9,025			10,571			40,058			45,880
Alabama		8,382			6,970			32,591			28,163
Texas		6,697			8,869			31,057			41,154
Ohio		6,298			7,118			28,162			30,376
Tennessee		5,366			4,500			20,649			19,330
South Carolina		4,276			4,851			19,234			25,515
Illinois		2,613			4,495			13,978			20,733
Indiana		2,359			2,250			9,546			9,244
Pennsylvania		2,285			2,219			9,263			9,618
Mississippi		1,098			869			4,272			3,872
California		565			217			1,795			316
Missouri		28			704			368			5,397
Virginia		72			148			360			848
Total gross premiums earned		65,875			69,441			278,646			303,778
Premiums ceded to reinsurer		(100	)		(110	)		(425	)		(450	)
Total net premiums earned	$	65,775		$	69,331		$	278,221		$	303,328

COMBINED RATIOS (INSURANCE OPERATIONS)


	Three Months Ended						Year Ended
	December 31,						December 31,
	2017			2016			2017			2016
Loss		73.9	%		91.9	%		79.4	%		101.9	%
Expense		20.9	%		15.7	%		17.8	%		14.6	%
Combined		94.8	%		107.6	%		97.2	%		116.5	%

NUMBER OF RETAIL LOCATIONS

Retail location counts are based upon the date that a location commenced or ceased writing business.


	Three Months Ended					Year Ended
	December 31,					December 31,
	2017		2016			2017			2016
Retail locations – beginning of period		350		369			355			440
Opened		—		—			—			4
Acquired		—		—			—			—
Closed		—		(14	)		(5	)		(89	)
Retail locations – end of period		350		355			350			355


FIRST ACCEPTANCE CORPORATION AND SUBSIDIARIES Supplemental Data (continued) (Unaudited)

RETAIL LOCATIONS BY STATE

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

INVESTOR RELATIONS CONTACT:
Michael J. Bodayle
615.844.2885

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