EX-99 2 fac-ex99_9.htm EX-99 fac-ex99_9.htm

Exhibit 99

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.

Operating Results

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.


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Titan Acquisition

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.

Next Release of Financial Results

 

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

 

2


FIRST ACCEPTANCE CORPORATION AND SUBSIDIARIES

Consolidated Statements of (Loss) Income

(unaudited)

(in thousands, except per share data)

 

  

 

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

 

 

3


FIRST ACCEPTANCE CORPORATION AND SUBSIDIARIES

Consolidated Balance Sheets

(in thousands, except per share data)

 

  

 

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

 

 

4


FIRST ACCEPTANCE CORPORATION AND SUBSIDIARIES

Supplemental Data

(Unaudited)

PREMIUMS EARNED BY STATE  

  

 

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

 

COMBINED RATIOS (INSURANCE OPERATIONS)

  

 

Three Months Ended

 

 

 

March 31,

 

 

 

2016

 

 

2015

 

Loss

 

 

96.1

%

 

 

76.6

%

Expense

 

 

14.3

%

 

 

22.7

%

Combined

 

 

110.4

%

 

 

99.3

%

NUMBER OF RETAIL LOCATIONS

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

 

  

 

Three Months Ended

 

 

 

March 31,

 

 

 

2016

 

 

2015

 

Retail locations – beginning of period

 

 

440

 

 

 

356

 

Opened

 

 

2

 

 

 

 

Closed

 

 

(28

)

 

 

(1

)

Retail locations – end of period

 

 

414

 

 

 

355

 

 

5


FIRST ACCEPTANCE CORPORATION AND SUBSIDIARIES

Supplemental Data (continued)

(Unaudited)

RETAIL LOCATIONS BY STATE

 

  

 

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

 

 

SOURCE: First Acceptance Corporation

INVESTOR RELATIONS CONTACT:

Michael J. Bodayle

615.844.2885

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