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First Acceptance Corporation Reports Operating Results for the Three Months Ended March 31, 2016

NASHVILLE, TN, May 10, 2016 – First Acceptance Corporation (NYSE: FAC) today reported its financial results for the three months ended March 31, 2016.

Revenues for the three months ended March 31, 2016 increased 29% to $96.9 million from $75.1 million in the same period in the prior year.

Loss before income taxes for the three months ended March 31, 2016 was $8.4 million, compared with income before income taxes of $0.8 million for the three months ended March 31, 2015. Net loss for the three months ended March 31, 2016 was $5.5 million, compared with net income of $0.5 million for the three months ended March 31, 2015. Basic and diluted net loss per share were $0.13 for the three months ended March 31, 2016, compared with basic and diluted net income per share of $0.01 for the same period in the prior year.

For the three months ended March 31, 2016, income before income taxes excluding unfavorable prior period loss development of $10.3 million was $1.9 million. For the three months ended March 31, 2015, loss before income taxes excluding favorable prior period loss development of $1.1 million was $0.3 million.

Joe Borbely, President and CEO, commented “Recent industry results leave no doubt that a paradigm shift has occurred for automobile insurance. Like other carriers, we have been challenged by the unprecedented claims frequency causing us to dig deeper in updating our products to improve profitability. We are responding to this shift by re-evaluating our claims handling processes as well as improving our products to improve profitability. Despite the unfavorable loss development, our continued cost containment efforts and a slightly-improved loss ratio did result in a profitable accident-basis quarter. I was also pleased with the profitable results of the agency operations of the former Titan stores and the receipt of a California license for our insurance company. We are cautiously moving forward on all fronts in these challenging times.”

Premiums, Commissions and Fee Income. Premiums earned increased by $13.8 million, or 22%, to $76.4 million for the three months ended March 31, 2016, from $62.6 million for the three months ended March 31, 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 $8.3 million, or 73%, to $19.6 million for the three months ended March 31, 2016, from $11.3 million for the three months ended March 31, 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.

Loss Ratio. The loss ratio was 96.1% for the three months ended March 31, 2016, compared with 76.6% for the three months ended March 31, 2015. We experienced unfavorable development related to prior periods of $10.3 million (which increased the loss ratio by 13.5%) for the three months ended March 31, 2016, compared with favorable development of $1.1 million for the three months ended March 31, 2015. The unfavorable development for the three months ended March 31, 2016 was the result of an increase in losses across all major coverages and over multiple prior accident periods. The primary causes of the unfavorable development were a sharp increase in bodily injury severity and a greater than usual amount of subsequent payments on previously closed claims.

Excluding the development related to prior periods for the three months ended March 31, 2016 and 2015, the loss ratios were 82.6% and 78.4%, respectively. The year-over-year increase in the loss ratio was primarily due to higher than expected claim frequency and severity across all major coverages. 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, the Company has continued to implement aggressive rate and underwriting actions as warranted at a state and coverage level.

Expense Ratio. The expense ratio was 14.3% for the three months ended March 31, 2016, compared with 22.7% for the three months ended March 31, 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 110.4% for the three months ended March 31, 2016 from 99.3% for the three months ended March 31, 2015.

Effective July 1, 2015, we acquired certain assets of Titan Insurance Services, Inc. and Titan Auto Insurance of New Mexico, Inc. (the “Titan Agencies”). These 83 retail locations, which are now rebranded under our Acceptance Insurance name, sell private passenger non-standard automobile insurance policies for unrelated insurance companies for which our revenues are in the form of commission and fee income. We are currently developing our own products for California, Arizona, Nevada and New Mexico, and introducing our current Texas and Florida products into stores in those states. The California product is expected to be available in May 2016.

We currently plan to report our financial results for the three months ending June 30, 2016 on August 9, 2016.

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 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 March 31, 2016, we leased and operated 414 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.

	Three Months Ended
	March 31,
	2016			2015
Revenues:
Premiums earned	$	76,407		$	62,615
Commission and fee income		19,581			11,348
Investment income		962			1,145
Net realized losses on investments, available-for-sale		(2	)		(3	)
		96,948			75,105
Costs and expenses:
Losses and loss adjustment expenses		73,419			47,934
Insurance operating expenses		29,647			25,084
Other operating expenses		280			323
Litigation settlement		—			110
Stock-based compensation		37			19
Depreciation		651			407
Amortization of identifiable intangibles assets		238			—
Interest expense		1,050			424
		105,322			74,301
(Loss) income before income taxes		(8,374	)		804
(Benefit) provision for income taxes		(2,869	)		318
Net (loss) income	$	(5,505	)	$	486
Net (loss) income per share:
Basic	$	(0.13	)	$	0.01
Diluted	$	(0.13	)	$	0.01
Number of shares used to calculate net (loss) income per share:
Basic		41,060			41,016
Diluted		41,060			41,304

	March 31,			December 31,
	2016			2015
	(Unaudited)
ASSETS
Investments, available-for-sale at fair value (amortized cost of $125,019 and $128,304, respectively)	$	130,898		$	131,582
Cash and cash equivalents		128,906			115,587
Premiums, fees, and commissions receivable, net of allowance of $409 and $454		93,123			69,881
Deferred tax assets, net		20,358			18,301
Other investments		10,286			11,256
Other assets		6,719			6,950
Property and equipment, net		5,065			5,141
Deferred acquisition costs		6,502			5,509
Goodwill		29,429			29,429
Identifiable intangible assets, net		8,253			8,491
TOTAL ASSETS	$	439,539		$	402,127

LIABILITIES AND STOCKHOLDERS’ EQUITY
Loss and loss adjustment expense reserves	$	132,650		$	122,071
Unearned premiums and fees		109,757			83,426
Debentures payable		40,268			40,256
Term loan from principal stockholder		29,760			29,753
Accrued expenses		7,356			7,345
Other liabilities		19,855			15,606
Total liabilities		339,646			298,457
Stockholders’ equity:
Preferred stock, $.01 par value, 10,000 shares authorized		—			—
Common stock, $.01 par value, 75,000 shares authorized; 41,060 issued and outstanding		411			411
Additional paid-in capital		457,513			457,476
Accumulated other comprehensive income, net of tax of $973 and $62, respectively		5,182			3,491
Accumulated deficit		(363,213	)		(357,708	)
Total stockholders’ equity		99,893			103,670
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	439,539		$	402,127

	Three Months Ended
	March 31,
	2016			2015
Gross premiums earned:
Georgia	$	15,057		$	11,745
Florida		11,609			9,843
Texas		10,617			8,363
Ohio		7,596			6,365
Alabama		6,764			5,956
South Carolina		6,594			4,622
Illinois		5,740			5,846
Tennessee		4,881			3,619
Pennsylvania		2,418			2,260
Indiana		2,277			1,846
Missouri		1,753			1,402
Mississippi		995			815
Virginia		214			16
Total gross premiums earned		76,515			62,698
Premiums ceded to reinsurer		(108	)		(83	)
Total net premiums earned	$	76,407		$	62,615

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

	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