8-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

CURRENT REPORT

Pursuant To Section 13 or 15(d) of the

Securities Exchange Act of 1934

Date of report (Date of earliest event reported): November 10, 2015

FIRST ACCEPTANCE CORPORATION

(Exact Name of Registrant as Specified in Charter)

Delaware	001-12117	75-1328153
(State or Other Jurisdiction of Incorporation)	(Commission File Number)	(I.R.S. Employer Identification No.)

3813 Green Hills Village Drive Nashville, Tennessee	37215
(Address of Principal Executive Offices)	(Zip Code)

(615) 844-2800

(Registrant’s Telephone Number, Including Area Code)

(Former Name or Former Address, if Changed Since Last Report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Item 2.02. Results of Operations and Financial Condition.

On November 10, 2015, First Acceptance Corporation issued a press release announcing its results of operations for the quarter ended September 30, 2015. The text of the release is set forth in Exhibit 99 attached to this Current Report on Form 8-K and is incorporated herein by reference.

The information in this Current Report on Form 8-K is being furnished pursuant to Item 2.02 and shall not be deemed to be “filed” for the purposes of Section 18 of the Securities Exchange Act of 1934, or otherwise subject to liabilities of that section, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended, except as expressly set forth in such filing.

Item 9.01. Financial Statements and Exhibits.

(d) Exhibits

Exhibit No.	Description
99	Press release dated November 10, 2015

Forward-looking Statements

Statements about the expected effects of the recently completed acquisition and all other statements in this document, other than historical facts, constitute forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Readers and security holders are cautioned not to place undue reliance on these forward-looking statements and any such forward-looking statements are qualified in their entirety by reference to the following cautionary statements. All forward-looking statements speak only as of the date hereof and are based on current expectations and involve a number of assumptions, risks and uncertainties that could cause the actual results to differ materially from such forward-looking statements. The Company may not be able to realize any or all of the benefits contemplated by the recent acquisition because of a number of factors. Factors that may affect the business or financial results of the Company are described in the risk factors included in the Company’s filings with the Securities and Exchange Commission, including the Company’s 2014 Annual Report on Form 10-K and other reports filed with the Securities and Exchange Commission and available at the SEC’s website at www.sec.gov, which factors are incorporated herein by reference. Except as required by law, the Company expressly disclaims a duty to provide updates to forward-looking statements, whether as a result of new information, future events or other occurrences.

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, hereunto duly authorized.

	FIRST ACCEPTANCE CORPORATION
	By:	/s/ Brent J. Gay
		Brent J. Gay
		Chief Financial Officer
Date: November 10, 2015

INDEX TO EXHIBITS

Exhibit No.	Description
99	Press release dated November 10, 2015

EX-99

Exhibit 99

First Acceptance Corporation Reports Operating Results for the Three and Nine Month Periods Ended September 30, 2015

NASHVILLE, TN, November 10, 2015 – First Acceptance Corporation (NYSE: FAC) today reported its financial results for the three and nine month periods ended September 30, 2015.

Operating Results

Revenues for the three months ended September 30, 2015 increased 34% to $87.6 million from $65.6 million in the same period in the prior year. Revenues for the nine months ended September 30, 2015 increased 25% to $243.4 million from $195.3 million in the same period in the prior year.  

Loss before income taxes for the three months ended September 30, 2015 was $4.5 million, compared with income before income taxes of $2.4 million for the three months ended September 30, 2014. Net loss for the three months ended September 30, 2015 was $3.0 million, compared with net income of $2.1 million for the three months ended September 30, 2014. Basic and diluted net loss per share were $0.07 for the three months ended September 30, 2015, compared with basic and diluted net income per share of $0.05 for the same period in the prior year.

Excluding litigation settlement costs of $3.4 million and acquisition and integration costs (see “Titan Acquisition”) of $0.7 million, for the three months ended September 30, 2015, loss before income taxes was $0.4 million or $0.01 per basic and diluted share.

Loss before income taxes for nine months ended September 30, 2015 was $3.0 million, compared with income before income taxes of $6.6 million for the nine months ended September 30, 2014. Net loss for the nine months ended September 30, 2015 was $2.2 million, compared with net income of $6.1 million for the nine months ended September 30, 2014. Basic and diluted net loss per share were $0.05 for the nine months ended September 30, 2015, compared with basic and diluted net income per share of $0.15 for the same period in the prior year.

Excluding litigation settlement costs of $3.6 million and Titan acquisition and integration costs of $1.0 million, for the nine months ended September 30, 2015, income before income taxes was $1.6 million or $0.04 per basic and diluted share.

Joe Borbely, President and CEO, commented “During the quarter, our sustained revenue growth and positive results from the newly-acquired Titan operations were unfortunately overshadowed by elevated claims frequency, adverse loss development and a litigation settlement. However, this potentially-lengthy litigation is now behind us and 83 former Titan stores are integrating successfully.  I also believe that our loss ratio will soon begin to fully reflect the impact of our recent rate actions which will complement our 18.9% expense ratio.”

Premiums, Commissions and Fee Income. Premiums earned increased by $13.1 million, or 24%, to $67.5 million for the three months ended September 30, 2015, from $54.4 million for the three months ended September 30, 2014. For the nine months ended September 30, 2015 premiums earned increased by $35.4 million, or 22%, to $197.4 million from $162.0 million for the nine months ended September 30, 2014. This improvement was primarily due to an increase in the average policy life which resulted in an increase in PIF from 161,330 at September 30, 2014 to 184,524 at September 30, 2015, in addition to higher average premiums.

Commission and fee income increased by $8.9 million, or 88%, to $19.0 million for the three months ended September 30, 2015, from $10.1 million for the three months ended September 30, 2014. For the nine months ended September 30, 2015, commission and fee income increased by $13.0 million, or 44%, to $42.3 million from $29.3 million for the nine months ended September 30, 2014. Revenue from the former Titan retail locations acquired on July 1, 2015 accounted for $6.9 million of these increases. The remaining increase in commission and fee income was a result of higher fee income related to commissionable ancillary products sold through our previously-existing retail locations and the increase in PIF noted above.  

Loss Ratio. The loss ratio was 85.0% for the three months ended September 30, 2015, compared with 76.2% for the three months ended September 30, 2014. The loss ratio was 81.2% for the nine months ended September 30, 2015, compared with 73.7% for the nine months ended September 30, 2014. We experienced unfavorable development related to prior periods of $2.2 million for the three months ended September 30, 2015, compared with favorable development of $0.4 million for the three months ended September 30, 2014. For the nine months ended September 30, 2015, we experienced unfavorable development related to prior periods of $0.6 million, compared with favorable development of $4.5 million for the nine months ended September 30, 2014. The unfavorable development for the three and nine months ended September 30, 2015 was largely the result of an increase in bodily injury loss adjustment expenses (primarily outside legal costs) driven by the overall increase in claim frequency.  

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Excluding the development related to prior periods for the three months ended September 30, 2015 and 2014, the loss ratios were 81.8% and 77.0%, respectively. Excluding the development related to prior periods for the nine months ended September 30, 2015 and 2014, the loss ratios were 80.9% and 76.4%, respectively. The year-over-year increase in the loss ratio was primarily due to higher than expected claim frequency and severity across multiple coverages principally in property damage liability and collision claims. We believe that 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, we have continued to implement aggressive rate and underwriting actions as warranted at a state and coverage level.

Expense Ratio. The expense ratio was 16.3% for the three months ended September 30, 2015, compared with 20.2% for the three months ended September 30, 2014. The expense ratio was 18.9% for the nine months ended September 30, 2015, compared with 23.4% for the nine months ended September 30, 2014. 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 salaries).

Combined Ratio. The combined ratio increased to 101.3% for the three months ended September 30, 2015 from 96.4% for the three months ended September 30, 2014. For the nine months ended September 30, 2015, the combined ratio increased to 100.1% from 97.1% for the nine months ended September 30, 2014.

Titan Acquisition

EffectiveJuly 1, 2015, we acquired certain assets of Titan Insurance Services, Inc. and Titan Auto Insurance of New Mexico, Inc. (the “Titan Agencies”). These agencies sell private passenger non-standard automobile insurance through 83 retail stores, principally in California (48), but also in Texas (12), Arizona (10), Florida (4), Nevada (4) and New Mexico (5). Approximately 240 employees accepted offers of employment with us as a part of this acquisition. The Titan Agencies were previously owned and operated by Nationwide. The stores are in the process of being rebranded under our Acceptance Insurance name and completion is expected by the end of this year.

These new Acceptance stores have continued to write policies for both Nationwide and other unrelated insurance companies. Going forward, we plan to develop our own products for California, Arizona, Nevada and New Mexico, and introduce our current Texas and Florida products into stores in those states. One of our insurance companies has applied for an insurance company license in California and is already licensed in the three other states where it does not currently write business.

We anticipate introducing our own products in the states in which we currently have an insurance company license in early 2016. However, a California product is not expected to be available until later in 2016, subject to the approval of our California insurance company license application by the California Department of Insurance. Therefore, it is anticipated that for the remainder of the year, the Titan acquisition will operate primarily as an insurance agency operation for which our revenues will be in the form of commission and fee income.

Revenues and income before income taxes of the acquired retail locations included in our results for the three months ended September 30, 2015 were $6.9 million and $0.4 million (excluding acquisition and integration-related costs), respectively.

Next Release of Financial Results

We currently plan to report our financial results for the three months and year ending December 31, 2015 on March 15, 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 13 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. In most instances, these individuals are seeking to obtain the minimum amount of automobile insurance required by law.

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At November 10, 2015, we leased and operated 438 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, 2014 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.

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FIRST ACCEPTANCE CORPORATION AND SUBSIDIARIES

Consolidated Statements of Income

(unaudited)

(in thousands, except per share data)

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2015			2014			2015			2014
Revenues:
Premiums earned	$	67,508		$	54,369		$	197,423		$	161,971
Commission and fee income		18,974			10,097			42,252			29,323
Investment income		1,144			1,142			3,695			3,936
Net realized gains (losses) on investments, available-for-sale		(6	)		(4	)		(13	)		36
		87,620			65,604			243,357			195,266
Costs and expenses:
Losses and loss adjustment expenses		57,367			41,440			160,304			119,323
Insurance operating expenses		29,309			20,624			78,039			65,739
Other operating expenses		295			244			881			722
Litigation settlement		3,406			30			3,645			106
Stock-based compensation		37			39			109			151
Depreciation		424			423			1,224			1,303
Amortization of identifiable intangibles assets		254			-			261			-
Interest expense		1,052			427			1,924			1,275
		92,144			63,227			246,387			188,619
Income (loss) before income taxes		(4,524	)		2,377			(3,030	)		6,647
Provision (benefit) for income taxes		(1,506	)		257			(813	)		547
Net income (loss)	$	(3,018	)	$	2,120		$	(2,217	)	$	6,100
Net income (loss) per share:
Basic	$	(0.07	)	$	0.05		$	(0.05	)	$	0.15
Diluted	$	(0.07	)	$	0.05		$	(0.05	)	$	0.15
Number of shares used to calculate net income (loss) per share:
Basic		41,041			40,995			41,026			40,981
Diluted		41,041			41,297			41,026			41,285

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FIRST ACCEPTANCE CORPORATION AND SUBSIDIARIES

Consolidated Balance Sheets

(in thousands, except per share data)

	September 30,			December 31,
	2015			2014
	(Unaudited)
ASSETS
Investments, available-for-sale at fair value (amortized cost of $131,614 and $119,119,    respectively)	$	135,745		$	125,085
Cash and cash equivalents		107,207			102,429
Premiums, fees, and commissions receivable, net of allowance of $461 and $392		74,458			56,486
Deferred tax assets, net		18,241			16,521
Other investments		12,087			10,530
Other assets		7,530			5,962
Property and equipment, net		3,875			3,173
Deferred acquisition costs		5,428			3,459
Goodwill		30,200			-
Identifiable intangible assets, net		8,745			4,800
TOTAL ASSETS	$	403,516		$	328,445
LIABILITIES AND STOCKHOLDERS’ EQUITY
Loss and loss adjustment expense reserves	$	115,009		$	96,613
Unearned premiums and fees		86,877			67,942
Debentures payable		40,245			40,211
Term loan from principal stockholder		29,747			-
Accrued expenses		11,661			3,262
Other liabilities		16,207			13,453
Total liabilities		299,746			221,481
Stockholders’ equity:
Preferred stock, $.01 par value, 10,000 shares authorized		-			-
Common stock, $.01 par value, 75,000 shares authorized; 41,041 and 41,016 issued and    outstanding, respectively		411			410
Additional paid-in capital		457,395			457,242
Accumulated other comprehensive income, net of tax of $314 and $923, respectively		3,959			5,090
Accumulated deficit		(357,995	)		(355,778	)
Total stockholders’ equity		103,770			106,964
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	403,516		$	328,445

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FIRST ACCEPTANCE CORPORATION AND SUBSIDIARIES

Supplemental Data

(Unaudited)

PREMIUMS EARNED BY STATE

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2015			2014			2015			2014
Gross premiums earned:
Georgia	$	13,079		$	10,284		$	37,619		$	30,186
Florida		10,231			8,363			30,639			24,982
Texas		8,990			6,998			26,365			20,636
Ohio		6,688			5,605			19,814			16,511
Alabama		6,238			5,437			18,333			16,294
Illinois		6,030			5,205			18,213			15,026
South Carolina		5,115			4,042			14,691			12,284
Tennessee		4,486			3,131			12,141			9,526
Pennsylvania		2,303			1,861			6,923			6,265
Indiana		2,003			1,542			5,869			4,535
Missouri		1,451			1,224			4,315			3,637
Mississippi		852			745			2,540			2,285
Virginia		138			—			232			—
Total gross premiums earned		67,604			54,437			197,694			162,167
Premiums ceded to reinsurer		(96	)		(68	)		(271	)		(196	)
Total net premiums earned	$	67,508		$	54,369		$	197,423		$	161,971

COMBINED RATIOS (INSURANCE OPERATIONS)

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2015			2014			2015			2014
Loss		85.0	%		76.2	%		81.2	%		73.7	%
Expense		16.3	%		20.2	%		18.9	%		23.4	%
Combined		101.3	%		96.4	%		100.1	%		97.1	%

POLICIES IN FORCE

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2015		2014		2015		2014
Policies in force – beginning of period		183,829		159,293		163,712		143,077
Net change during period		695		2,037		20,812		18,253
Policies in force – end of period		184,524		161,330		184,524		161,330

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FIRST ACCEPTANCE CORPORATION AND SUBSIDIARIES

Supplemental Data (continued)

(Unaudited)

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,
	2015			2014			2015			2014
Retail locations – beginning of period		359			353			356			360
Opened		—			1			5			—
Acquired		83			—			83			—
Closed		(4	)		(1	)		(6	)		(7	)
Retail locations – end of period		438			353			438			353

RETAIL LOCATIONS BY STATE

	September 30,				June 30,				December 31,
	2015		2014		2015		2014		2014		2013
Alabama		24		24		24		24		24		24
Arizona		10		-		-		-		-		-
California		48		-		-		-		-		-
Florida		39		30		35		30		31		30
Georgia		60		60		60		60		60		60
Illinois		58		60		60		60		60		61
Indiana		17		17		17		17		17		17
Mississippi		7		7		7		7		7		7
Missouri		9		10		9		10		10		11
New Mexico		5		-		-		-		-		-
Nevada		4		-		-		-		-		-
Ohio		27		27		27		27		27		27
Pennsylvania		14		16		15		16		15		16
South Carolina		25		25		25		25		25		25
Tennessee		23		19		23		19		22		19
Texas		68		58		57		58		58		63
Total		438		353		359		353		356		360

SOURCE: First Acceptance Corporation

INVESTOR RELATIONS CONTACT:

Michael J. Bodayle

615.844.2885

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