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): August 9, 2006

AFFIRMATIVE INSURANCE HOLDINGS, INC.

(Exact Name of Registrant as Specified in Charter)

Delaware
(State or other jurisdiction
of incorporation 000-50795
(Commission File Number) 75-2770432
(I.R.S. Employer
Identification Number)

4450 Sojourn Drive, Suite 500
Addison, Texas
(Address of principal
executive offices) 75001
(Zip code)

(972) 728-6300
(Registrant’s telephone number, including area code)

Not Applicable
(Former name or former address, if changed since last report)

     Check the appropriate box below if the Form 8-K is intended to simultaneously satisfy the filing obligation of the Registrant under any of the following provisions:

o Written communications pursuant to Rule 425 under the Securities Act

o Soliciting material pursuant to Rule 14a-12 under the Exchange Act

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

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

Item 2.02 Results of Operations and Financial Condition.

On August 9, 2006, we issued a press release announcing our results of operations for the quarter ended June 30, 2006. The press release is attached hereto as Exhibit 99.1 to this Current Report on Form 8-K and incorporated by reference into this Item 2.02.

Item 7.01. Regulation FD Disclosure.

On August 9, 2006, we issued a press release announcing our results of operations for the quarter ended June 30, 2006. A copy of the press release is filed as Exhibit 99.1 to this Current Report on Form 8-K.

The information furnished pursuant to this Item 7.01, including the exhibit, shall not be deemed to be incorporated by reference into any of our filings with the SEC under the Securities Act of 1933, except as shall be expressly set forth by specific reference in any such filing, and shall not be deemed to be “filed” with the SEC under the Securities Exchange Act of 1934.

Item 9.01. Financial Statements and Exhibits.

(d) Exhibits.

Number	Exhibit
99.1*	Press release announcing our results of operations for the quarter ended June 30, 2006.

*Filed herewith.

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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.

AFFIRMATIVE INSURANCE HOLDINGS, INC.
By:	/s/ MARK E. PAPE
	Mark E. Pape Executive Vice President and Chief Financial Officer

Date: August 9, 2006

Number	Exhibit
99.1*	Press release announcing our results of operations for the quarter ended June 30, 2006.

* Filed herewith

EX-99.1

EXHIBIT 99.1

News Release

Contact: Mark Pape
Chief Financial Officer
Affirmative Insurance Holdings, Inc.
(972) 728-6481

AFFIRMATIVE INSURANCE ANNOUNCES 2006 SECOND QUARTER RESULTS

ADDISON, Texas (August 9, 2006) — Affirmative Insurance Holdings, Inc. (Nasdaq: AFFM), a producer and provider of personal non-standard automobile insurance, today announced financial results for the quarter and the six months ended June 30, 2006.

Key Financial Results for the Three and Six Month Periods Ended June 30, 2006

	Three months ended June 30,							Six months ended June 30,
	2006		2005		% Change			2006		2005		% Change
			Restated							Restated
	(dollars in millions, except per share data)
Gross premiums written	$	65.7	$	74.2		-11.4	%	$	154.5	$	179.3		-13.8	%
Net premiums written	$	68.1	$	72.7		-6.3	%	$	155.2	$	176.8		-12.2	%
Net premiums earned	$	73.8	$	77.4		-4.8	%	$	146.8	$	145.4		1.0	%
Total revenues	$	90.5	$	100.5		-10.0	%	$	182.7	$	190.7		-4.2	%
Net income	$	4.9	$	5.9		-16.8	%	$	11.1	$	13.6		-18.5	%
Net income per share — diluted	$	0.32	$	0.36		-11.1	%	$	0.72	$	0.81		-11.1	%

Second Quarter Financial Results

In the second quarter of 2006, we had net income of $4.9 million or $0.32 per diluted share, as compared to the net income of $5.9 million or $0.36 income per diluted share for the same period in 2005. Weighted average diluted shares outstanding for the first quarter were 15.4 million compared to 16.4 million for the year-ago period, largely as a result of our acquisition of 2.0 million shares of treasury stock in June 2005 and 302,400 shares in the second quarter of 2006.

Net premiums earned for the three months ended June 30, 2006 were $73.8 million, a decrease of $3.6 million or 4.8% compared to net premiums earned of $77.4 million for the three months ended June 30, 2005. The decrease was primarily due to our reduced levels of gross premiums written in both the current and previous periods. In the second quarter of 2006, our gross premiums written were down 11.4% as compared to the second quarter of 2005.

Net premiums written decreased 6.3% to $68.1 million due to the decline in our gross premiums written.

For the quarter ended June 30, 2006, our loss and loss adjustment expense ratio was 63.8% as compared to 66.1% in the second quarter of the prior year. This improvement reflects favorable loss development in the current period relative to the loss ratios estimated in previous periods.

Although our selling, general and administrative expenses decreased 9.8% to $34.2 million for the second quarter of 2006 from $37.9 million in the comparable period in 2005, our expense ratio increased to 28.1% from 22.2% in the prior year. This increase in our expense ratio reflects the effect of the widely used industry calculation method that offsets our operating expenses (selling, general and administrative expenses and depreciation and amortization) with our other revenues (commission income and fees) in the dividend, with the divisor consisting of only net premiums earned. The revenue from commission income and fees decreased to $14.6 million in the second quarter of 2006 from $21.7 million in the comparable period in 2005 in part as a result of the elimination entries related to our increased retention of business produced. In addition, revenue from commission income and fees has been adversely affected by both the decline in gross premiums written and the change in our corporate strategy during the second quarter that involved the reduction or elimination of the agency fee charged to a customer when a policy is written. This change allows us to offer the prospective customer a more affordable down payment, with the objective of building our sales momentum and gaining new customers.

Our combined ratio (the sum of the loss and loss adjustment expense ratio and the expense ratio) for the second quarter of 2006 was 91.9% as compared to 88.3% for the comparable quarter in 2005.

Year-to-date Financial Results

In the first six months of 2006, we had net income of $11.1 million or $0.72 per diluted share, as compared to the net income of $13.6 million or $0.81 income per diluted share for the same period in 2005. Weighted average diluted shares outstanding for the first six months were 15.4 million compared to 16.8 million for the year-ago period, largely as a result of our acquisition of 2.0 million shares of treasury stock in June 2005 and 301,400 shares in the second quarter of 2006.

Net premiums earned for the six months ended June 30, 2006 were $146.8 million, an increase of $1.4 million or 1.0% compared to net premiums earned of $145.4 million for the six months ended June 30, 2005. The increase was primarily due to our increased retention of gross premiums written in previous periods. In the first six months of 2006, our gross premiums written were down 13.8% as compared to the first six months of 2005

Net premiums written decreased 12.2% to $155.2 million due to the decline in our gross premiums written.

For the six months ended June 30, 2006, our loss and loss adjustment expense ratio was 64.5% as compared to 65.9% in the first six months of the prior year. This improvement reflects favorable loss development in the current period relative to the loss ratios estimated in previous periods.

For the six months ended June 30, 2006, our expense ratio was 25.1% as compared to 20.0% in the prior year. This increase in our expense ratio reflects the effect of the widely used industry calculation method that offsets our operating expenses (selling, general and administrative expenses and depreciation and amortization) with our other revenues (commission income and fees) in the dividend, with the divisor consisting of only net premiums earned. The revenue from commission income and fees included in our consolidated financial statements decreased to $32.1 million in the first six months of 2006 from $42.7 million in the comparable period in 2005 in part as a result of the elimination entries related to our increased retention of business produced. In addition, revenue from commission income and fees has been adversely affected by both the decline in gross premiums written and the change in our corporate strategy during the second quarter as described above.

Our combined ratio (the sum of the loss and loss adjustment expense ratio and the expense ratio) for the first six months of 2006 was 89.6% as compared to 85.9% for the comparable quarter in 2005.

Share Repurchase Program

As previously disclosed, on May 9, 2006, the board of directors approved a share repurchase program for up to $15.0 million of our common stock over the subsequent twelve months. In May and June 2006, we repurchased a total of 302,400 shares of our common stock at an average cost of $13.67 per share.

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Restatement
As previously disclosed in our Form 10-K for the year ended December 31, 2005, we restated certain of our previously issued financial statements to correct consolidating elimination entries made in prior periods that were not in conformity with generally accepted accounting principles, and to correct the allocation of commission income and fees among the first three quarters of 2005. The erroneous elimination entries had no effect on reported net income, earnings per share, cash, invested assets or stockholders’ equity, but did have the effect of materially understating gross revenues and expenses and misstating certain assets and liabilities. The restatement of misallocation of commission income and fees among the first three quarters of 2005 reduced commission and fee income by $138,000 ($89,000 after income taxes) for the second quarter of 2005 and $483,000 before income taxes ($312,000 after income taxes) for the six months ending June 30, 2005. The $483,000 before income taxes ($312,000 after income taxes) is reported as commission income and fees in the third quarter of 2005. The previously issued unaudited interim consolidated financial statements for the quarter ended June 30, 2005 have been restated. All financial information in this announcement gives effect to the restatement.

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Affirmative Insurance Holdings, Inc.
Consolidated Statements of Operations — Unaudited
(dollars in thousands, except per share data)

	Three months ended June 30,									Six months ended June 30,
	2006			2005			% Change			2006			2005			% Change
				Restated									Restated
Revenues
Net premiums earned	$	73,753		$	77,441			-4.8	%	$	146,791		$	145,377			1.0	%
Commission income and fees		14,552			21,707			-33.0	%		32,051			42,702			-24.9	%
Net investment income		2,154			1,353			59.2	%		4,214			2,610			61.5	%
Realized gains (losses)		1			3		NM				(366	)		6		NM
Total revenues		90,460			100,504			-10.0	%		182,690			190,695			-4.2	%
Expenses
Losses and loss adjustment expenses		47,081			51,217			-8.1	%		94,733			95,784			-1.1	%
Selling, general and administrative expenses		34,194			37,896			-9.8	%		66,795			69,822			-4.3	%
Depreciation and amortization		1,059			993			6.6	%		2,119			2,022			4.8	%
Interest expense		1,086			796			36.4	%		2,171			1,375			57.9	%
Total expenses		83,420			90,902			-8.2	%		165,818			169,003			-1.9	%
Net income before income taxes, minority interest and equity interest in unconsolidated subsidiaries		7,040			9,602			-26.7	%		16,872			21,692			-22.2	%
Income tax expense		2,156			3,403			-36.6	%		5,676			7,687			-26.2	%
Minority interest, net of income taxes		—			326		NM				81			359			-77.4	%
Net income (loss)	$	4,884		$	5,873			-16.8	%	$	11,115		$	13,646			-18.5	%
Net income (loss) per common share — Basic	$	0.32		$	0.36			-11.1	%	$	0.72		$	0.82			-12.2	%
Net income (loss) per common share — Diluted	$	0.32		$	0.36			-11.1	%	$	0.72		$	0.81			-11.1	%
Weighted average shares outstanding — Basic		15,321,771			16,218,769			-5.5	%		15,376,858			16,530,619			-7.0	%
Weighted average shares outstanding — Diluted		15,359,004			16,434,411			-6.5	%		15,414,733			16,774,473			-8.1	%
Operational Information
Gross premiums written	$	65,731		$	74,201			-11.4	%	$	154,480		$	179,303			-13.8	%
Net premiums written	$	68,120		$	72,689			-6.3	%	$	155,178		$	176,799			-12.2	%
Percentage retained		103.6	%		98.0	%					100.5	%		98.6	%
Loss Ratio		63.8	%		66.1	%					64.5	%		65.9	%
Expense Ratio		28.1	%		22.2	%					25.1	%		20.0	%
Combined Ratio		91.9	%		88.3	%					89.6	%		85.9	%

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Affirmative Insurance Holdings, Inc.
Condensed Consolidated Balance Sheets
(dollars in thousands, except share and per share data)

	June 30,			December 31,
Assets	2006			2005
Fixed maturities — available for sale	$	233,493		$	210,273
Short-term investments		251			477
Total invested assets		233,744			210,750
Cash and cash equivalents		25,095			48,037
Fiduciary and restricted cash		32,955			29,689
Premiums and fees receivable		85,597			81,680
Commissions receivable		5,147			2,144
Receivable from reinsurers		24,312			28,137
Deferred acquisition costs		26,944			24,453
Deferred tax asset, net		13,695			14,866
Goodwill and other intangible assets, net		83,694			80,616
Other assets		24,130			23,753
Total assets	$	555,313		$	544,125
Liabilities and Stockholders’ Equity
Liabilities
Reserves for losses and loss adjustment expenses		136,417			126,940
Unearned premium		102,766			97,344
Amounts due reinsurers		359			8,715
Deferred revenue		27,120			27,101
Notes payable		56,702			56,702
Other liabilities		25,472			27,361
Total liabilities		348,836			344,163
Stockholders’ equity
Common stock		175			175
Additional paid-in capital		159,318			158,904
Treasury stock, at cost		(32,880	)		(28,746	)
Accumulated other comprehensive income (loss)		(797	)		(529	)
Retained earnings		80,661			70,158
Total stockholders’ equity		206,477			199,962
Total liabilities and stockholders’ equity	$	555,313		$	544,125
Notes payable as % of capitalization		21.5	%		22.1	%
Actual shares outstanding		15,138,382			15,432,557
Book value per share	$	13.64		$	12.96
Tangible book value per share	$	8.11		$	7.73

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Forward-Looking Statements Disclosure
Certain information in this news release and other statements or materials are not historical facts but are forward-looking statements relating to such matters as future results of our business, financial condition, liquidity, results of operations, plans, and objectives. In connection with the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995, we provide the following cautionary remarks regarding important factors that, among others, could cause our actual results and experience to differ materially from the anticipated results or other expectations expressed in our forward-looking statements. The risks and uncertainties that may affect the operations, performance, results of our business, and the other matters referred to above include, but are not limited to: general volatility of the non-standard personal automobile and reinsurance markets; the market price of our common stock; changes in business strategy; severe weather conditions; availability, terms and deployment of capital; the degree and nature of competitor product and pricing activity; changes in the non-standard personal automobile insurance industry, interest rates or the general economy; identification and integration of potential acquisitions; claims experience; and availability of qualified personnel.

About Affirmative Insurance Holdings, Inc.
Headquartered in Addison, Texas, Affirmative Insurance Holdings, Inc. is a producer and provider of personal non-standard automobile insurance policies to individual consumers in highly targeted geographic markets. We currently offer products and services in 12 states, including Texas, Illinois, California and Florida.

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