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 7, 2017

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):

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

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

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

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

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐    

Item 2.02. Results of Operations and Financial Condition.

On November 7, 2017, First Acceptance Corporation issued a press release announcing its results of operations for the quarter and nine months ended September 30, 2017. 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 7, 2017

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 7, 2017

EX-99

Exhibit 99

First Acceptance Corporation Reports Operating Results for the Quarter and Nine Months Ended September 30, 2017

NASHVILLE, TN, November 7, 2017 – First Acceptance Corporation (NYSE: 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.

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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.

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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

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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

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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,
	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

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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

SOURCE: First Acceptance Corporation

INVESTOR RELATIONS CONTACT:

Michael J. Bodayle

615.844.2885

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