First Acceptance Corporation (NYSE:FAC) today reported its
financial results for the quarter and year ended December 31,
2017.
Operating Results
Income before income taxes for the three months ended December
31, 2017 was $3.1 million, compared with loss before income taxes
of $5.8 million for the three months ended December 31, 2016. Net
loss for the three months ended December 31, 2017 was $10.4
million, compared with net loss of $3.5 million for the three
months ended December 31, 2016. For the three months ended
December 31, 2017, we recognized $4.3 million of favorable
prior period loss development, compared with unfavorable
development of $2.6 million for the three months ended December 31,
2016.
Income before income taxes for the year ended December 31, 2017
was $6.6 million, compared with loss before income taxes of $45.1
million for the year ended December 31, 2016. Net loss for the year
ended December 31, 2017 was $8.6 million, compared with net loss of
$29.2 million for the year ended December 31, 2016. For the year
ended December 31, 2017, we recognized $2.3 million of favorable
prior period loss development, compared with unfavorable
development of $30.6 million for the year ended December 31, 2016.
The year ended December 31, 2017 was also unfavorably impacted by
$2.4 million in catastrophic claims losses during the third
quarter. Conversely, the year ended December 31, 2016 was favorably
impacted by a $1.2 million gain on the sale of foreclosed real
estate along with net realized gains on investments of $4.8 million
from the sales of fixed maturities that were sold to increase the
statutory capital and surplus of our insurance company
subsidiaries.
The provision for income taxes for the three months and year
ended December 31, 2017 includes a reduction in the deferred tax
asset of $12.5 million as a result of the enactment of legislation
to reduce the corporate income tax rate.
President and Chief Executive Officer, Ken Russell, commented,
“Following the unprecedented underwriting losses in 2016 that
impacted the automobile insurance industry, over the last 18
months, the Company held its focus on returning to profitability by
improving pricing and risk management and strengthening its core
business fundamentals. While higher rates and stricter underwriting
meant less revenues, our 14% decline in policies-in-force since the
beginning of the year, was partially offset by a 10% increase in
our average in-force premium. Bolstered by improved
claims-handling, these changes contributed to a 2017 accident year
loss ratio of 80.2% (79.3% adjusted for the September catastrophic
claims losses) which marked a significant improvement from 91.8% in
2016. All said, these efforts resulted in the Company exceeding its
profitability goals set for 2017.”
Mr. Russell further added “2017 was also a year for the Company
to evaluate and better leverage the strengths of its retail
operations. In doing so, we began to expand the offerings in our
stores of additional commissionable products written through other
carriers for both personal automobile and non-personal automobile
coverages, including homeowners, renters, motorcycle, life and
commercial automobile. Now, as we become better equipped as both an
insurer and an agency, I look towards 2018 with great optimism and
thank all of our stockholders for their patience and support
through this transitionary time.”
Loss Ratio. The loss ratio was 73.9% for the
three months ended December 31, 2017, compared with 91.9% for the
three months ended December 31, 2016. The loss ratio was 79.4% for
the year ended December 31, 2017, compared with 101.9% for the
year ended December 31, 2016. We recognized favorable
development related to prior periods of $4.3 million for the three
months ended December 31, 2017, compared with unfavorable
development related to prior periods of $2.6 million for the three
months ended December 31, 2016. For the year ended December 31,
2017, we recognized $2.3 million of favorable prior period loss
development, compared with unfavorable development of $30.6 million
for the year ended December 31, 2016.
Excluding the development related to prior periods for the three
months ended December 31, 2017 and 2016, the loss ratios were 80.5%
and 88.2%, respectively. Excluding the development related to prior
fiscal years and the impact of the September 2017 hurricanes, the
loss ratios for the years ended December 31, 2017 and 2016 were
79.3% and 91.8%, respectively. We believe that the improvement in
the loss ratio was the result of our aggressive rate and
underwriting actions in addition to a moderate reduction in claims
frequency.
Revenues. Premiums earned decreased by $3.5
million, or 5.1%, to $65.8 million for the three months ended
December 31, 2017, from $69.3 million for the three months ended
December 31, 2016. For the year ended December 31, 2017 premiums
earned decreased by $25.1 million, or 13.6%, to $278.2 million from
$303.3 million for the year ended December 31, 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 14% decrease in our year-over-year
policies in force which was partially offset by a 10%
year-over-year increase in our average in-force premium that was
driven by our recent rate actions. The estimated effective rate
increases attained over the last 18 and 12 months were 16% and 2%,
respectively.
Commission and fee income decreased by $2.5 million, or 14.3%,
to $15.0 million for the three months ended December 31, 2017, from
$17.5 million for the three months ended December 31, 2016.
Commission and fee income decreased by $11.0 million, or 14.6%, to
$64.6 million for the year ended December 31, 2017, from $75.6
million for the year ended December 31, 2016. These decreases
were 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 20.9% for
the three months ended December 31, 2017, compared with 15.7% for
the three months ended December 31, 2016. The expense ratio was
17.8% for the year ended December 31, 2017, compared with
14.6% for the year ended December 31, 2016. These
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. The combined ratio decreased to
94.8% for the three months ended December 31, 2017 from 107.6% for
the three months ended December 31, 2016. For the year ended
December 31, 2017, the combined ratio decreased to 97.2% from
116.5% for the year ended December 31, 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 revenue from selling
non-standard personal automobile insurance products and related
products in 16 states. We currently conduct our insurance servicing
and underwriting operations in 13 states and operate only as an
insurance agency in three states. We are also licensed as an
insurance company in 13 states where we do not conduct any
business. Non-standard personal automobile insurance is sought
after by 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 December 31, 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 and through third-party
carriers for which we receive a commission. We also offer a variety
of additional commissionable products, and, in most states, our
employee-agents also sell an insurance product providing personal
property and liability coverage for renters that is underwritten by
us. 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.
Forward-Looking Statements
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, 2017 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.
|
|
|
|
|
|
|
FIRST ACCEPTANCE CORPORATION AND
SUBSIDIARIES Consolidated Statements of
Operations (in thousands, except per share
data) |
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Year Ended |
|
|
|
December 31, |
|
|
December 31, |
|
|
|
2017 |
|
|
2016 |
|
|
2017 |
|
|
2016 |
|
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Premiums
earned |
|
$ |
65,775 |
|
|
$ |
69,331 |
|
|
$ |
278,221 |
|
|
$ |
303,328 |
|
Commission and fee income |
|
|
14,978 |
|
|
|
17,541 |
|
|
|
64,581 |
|
|
|
75,596 |
|
Investment income |
|
|
1,304 |
|
|
|
854 |
|
|
|
4,719 |
|
|
|
4,649 |
|
Gain on
sale of foreclosed real estate |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1,237 |
|
Net
realized (losses) gains on investments, available-for-sale
(includes $4,745 of accumulated other comprehensive loss
reclassification for net unrealized gains in 2016) |
|
|
(3 |
) |
|
|
80 |
|
|
|
(3 |
) |
|
|
4,813 |
|
|
|
|
82,054 |
|
|
|
87,806 |
|
|
|
347,518 |
|
|
|
389,623 |
|
Costs and
expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Losses
and loss adjustment expenses |
|
|
48,622 |
|
|
|
63,740 |
|
|
|
220,785 |
|
|
|
309,002 |
|
Insurance
operating expenses |
|
|
28,062 |
|
|
|
27,609 |
|
|
|
111,323 |
|
|
|
116,510 |
|
Other
operating expenses |
|
|
311 |
|
|
|
287 |
|
|
|
1,133 |
|
|
|
1,219 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation |
|
|
99 |
|
|
|
43 |
|
|
|
299 |
|
|
|
207 |
|
Depreciation |
|
|
465 |
|
|
|
606 |
|
|
|
2,068 |
|
|
|
2,540 |
|
Amortization of identifiable intangible assets |
|
|
195 |
|
|
|
239 |
|
|
|
789 |
|
|
|
956 |
|
Interest
expense |
|
|
1,161 |
|
|
|
1,106 |
|
|
|
4,535 |
|
|
|
4,319 |
|
|
|
|
78,915 |
|
|
|
93,630 |
|
|
|
340,932 |
|
|
|
434,753 |
|
Income (loss) before
income taxes |
|
|
3,139 |
|
|
|
(5,824 |
) |
|
|
6,586 |
|
|
|
(45,130 |
) |
Provision (benefit) for
income taxes |
|
|
13,568 |
|
|
|
(2,277 |
) |
|
|
15,190 |
|
|
|
(15,848 |
) |
Net loss |
|
$ |
(10,429 |
) |
|
$ |
(3,547 |
) |
|
$ |
(8,604 |
) |
|
$ |
(29,282 |
) |
Net loss per
share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
(0.25 |
) |
|
$ |
(0.09 |
) |
|
$ |
(0.21 |
) |
|
$ |
(0.71 |
) |
Diluted |
|
$ |
(0.25 |
) |
|
$ |
(0.09 |
) |
|
$ |
(0.21 |
) |
|
$ |
(0.71 |
) |
Number of shares used
to calculate net loss per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
41,200 |
|
|
|
41,041 |
|
|
|
41,286 |
|
|
|
41,085 |
|
Diluted |
|
|
41,200 |
|
|
|
41,041 |
|
|
|
41,286 |
|
|
|
41,085 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FIRST ACCEPTANCE CORPORATION AND
SUBSIDIARIES Consolidated Balance Sheets
(in thousands, except per share data) |
|
|
|
|
|
|
December 31, |
|
|
|
2017 |
|
|
2016 |
|
ASSETS |
|
|
|
|
|
|
|
|
Investments,
available-for-sale at fair value (amortized cost of $129,742 and
$117,902, respectively) |
|
$ |
129,945 |
|
|
$ |
117,212 |
|
Cash, cash equivalents,
and restricted cash |
|
|
115,477 |
|
|
|
118,681 |
|
Premiums, fees, and
commissions receivable, net of allowance of $275 and $279 |
|
|
69,624 |
|
|
|
66,393 |
|
Deferred tax assets,
net |
|
|
20,549 |
|
|
|
35,641 |
|
Other investments |
|
|
9,750 |
|
|
|
9,994 |
|
Other assets |
|
|
6,438 |
|
|
|
6,078 |
|
Property and equipment,
net |
|
|
2,888 |
|
|
|
4,213 |
|
Deferred acquisition
costs |
|
|
4,947 |
|
|
|
4,852 |
|
Goodwill |
|
|
29,384 |
|
|
|
29,384 |
|
Identifiable intangible
assets, net |
|
|
6,857 |
|
|
|
7,626 |
|
TOTAL
ASSETS |
|
$ |
395,859 |
|
|
$ |
400,074 |
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY |
|
|
|
|
|
|
|
|
Loss and loss
adjustment expense reserves |
|
$ |
159,130 |
|
|
$ |
161,079 |
|
Unearned premiums and
fees |
|
|
82,620 |
|
|
|
78,861 |
|
Debentures payable |
|
|
40,348 |
|
|
|
40,302 |
|
Term loan from
principal stockholder |
|
|
29,805 |
|
|
|
29,779 |
|
Accrued expenses |
|
|
5,975 |
|
|
|
7,089 |
|
Other liabilities |
|
|
13,224 |
|
|
|
10,476 |
|
Total
liabilities |
|
|
331,102 |
|
|
|
327,586 |
|
Stockholders’
equity: |
|
|
|
|
|
|
|
|
Preferred stock, $.01
par value, 10,000 shares authorized |
|
|
— |
|
|
|
— |
|
Common stock, $.01 par
value, 75,000 shares authorized; 41,235 and 41,160 issued and
outstanding, respectively |
|
|
413 |
|
|
|
412 |
|
Additional paid-in
capital |
|
|
458,124 |
|
|
|
457,750 |
|
Accumulated other
comprehensive income, net of tax of $(990) and $(1,110),
respectively |
|
|
1,900 |
|
|
|
1,316 |
|
Accumulated
deficit |
|
|
(395,680 |
) |
|
|
(386,990 |
) |
Total
stockholders’ equity |
|
|
64,757 |
|
|
|
72,488 |
|
TOTAL
LIABILITIES AND STOCKHOLDERS’ EQUITY |
|
$ |
395,859 |
|
|
$ |
400,074 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FIRST ACCEPTANCE CORPORATION AND
SUBSIDIARIES Supplemental Data
(Unaudited) |
|
|
|
|
|
|
|
PREMIUMS EARNED BY STATE |
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Year Ended |
|
|
|
December 31, |
|
|
December 31, |
|
|
|
2017 |
|
|
2016 |
|
|
2017 |
|
|
2016 |
|
Gross premiums
earned: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Georgia |
|
$ |
16,811 |
|
|
$ |
15,660 |
|
|
$ |
67,313 |
|
|
$ |
63,332 |
|
Florida |
|
|
9,025 |
|
|
|
10,571 |
|
|
|
40,058 |
|
|
|
45,880 |
|
Alabama |
|
|
8,382 |
|
|
|
6,970 |
|
|
|
32,591 |
|
|
|
28,163 |
|
Texas |
|
|
6,697 |
|
|
|
8,869 |
|
|
|
31,057 |
|
|
|
41,154 |
|
Ohio |
|
|
6,298 |
|
|
|
7,118 |
|
|
|
28,162 |
|
|
|
30,376 |
|
Tennessee |
|
|
5,366 |
|
|
|
4,500 |
|
|
|
20,649 |
|
|
|
19,330 |
|
South
Carolina |
|
|
4,276 |
|
|
|
4,851 |
|
|
|
19,234 |
|
|
|
25,515 |
|
Illinois |
|
|
2,613 |
|
|
|
4,495 |
|
|
|
13,978 |
|
|
|
20,733 |
|
Indiana |
|
|
2,359 |
|
|
|
2,250 |
|
|
|
9,546 |
|
|
|
9,244 |
|
Pennsylvania |
|
|
2,285 |
|
|
|
2,219 |
|
|
|
9,263 |
|
|
|
9,618 |
|
Mississippi |
|
|
1,098 |
|
|
|
869 |
|
|
|
4,272 |
|
|
|
3,872 |
|
California |
|
|
565 |
|
|
|
217 |
|
|
|
1,795 |
|
|
|
316 |
|
Missouri |
|
|
28 |
|
|
|
704 |
|
|
|
368 |
|
|
|
5,397 |
|
Virginia |
|
|
72 |
|
|
|
148 |
|
|
|
360 |
|
|
|
848 |
|
Total gross premiums
earned |
|
|
65,875 |
|
|
|
69,441 |
|
|
|
278,646 |
|
|
|
303,778 |
|
Premiums
ceded to reinsurer |
|
|
(100 |
) |
|
|
(110 |
) |
|
|
(425 |
) |
|
|
(450 |
) |
Total net
premiums earned |
|
$ |
65,775 |
|
|
$ |
69,331 |
|
|
$ |
278,221 |
|
|
$ |
303,328 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COMBINED RATIOS (INSURANCE OPERATIONS)
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Year Ended |
|
|
|
December 31, |
|
|
December 31, |
|
|
|
2017 |
|
|
2016 |
|
|
2017 |
|
|
2016 |
|
Loss |
|
|
73.9 |
% |
|
|
91.9 |
% |
|
|
79.4 |
% |
|
|
101.9 |
% |
Expense |
|
|
20.9 |
% |
|
|
15.7 |
% |
|
|
17.8 |
% |
|
|
14.6 |
% |
Combined |
|
|
94.8 |
% |
|
|
107.6 |
% |
|
|
97.2 |
% |
|
|
116.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NUMBER OF RETAIL LOCATIONS
Retail location counts are based upon the date that a location
commenced or ceased writing business.
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Year Ended |
|
|
|
December 31, |
|
|
December 31, |
|
|
|
2017 |
|
|
2016 |
|
|
2017 |
|
|
2016 |
|
Retail locations –
beginning of period |
|
|
350 |
|
|
|
369 |
|
|
|
355 |
|
|
|
440 |
|
Opened |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
4 |
|
Acquired |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Closed |
|
|
— |
|
|
|
(14 |
) |
|
|
(5 |
) |
|
|
(89 |
) |
Retail locations – end
of period |
|
|
350 |
|
|
|
355 |
|
|
|
350 |
|
|
|
355 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FIRST ACCEPTANCE CORPORATION AND
SUBSIDIARIES Supplemental Data
(continued) (Unaudited) |
|
|
|
|
|
|
|
RETAIL LOCATIONS BY STATE |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
September 30, |
|
|
|
2017 |
|
|
2016 |
|
|
2015 |
|
|
2017 |
|
|
2016 |
|
Alabama |
|
|
23 |
|
|
|
23 |
|
|
|
24 |
|
|
|
23 |
|
|
|
23 |
|
Arizona |
|
|
10 |
|
|
|
10 |
|
|
|
10 |
|
|
|
10 |
|
|
|
10 |
|
California |
|
|
46 |
|
|
|
47 |
|
|
|
48 |
|
|
|
46 |
|
|
|
47 |
|
Florida |
|
|
34 |
|
|
|
34 |
|
|
|
39 |
|
|
|
34 |
|
|
|
34 |
|
Georgia |
|
|
49 |
|
|
|
50 |
|
|
|
60 |
|
|
|
49 |
|
|
|
53 |
|
Illinois |
|
|
37 |
|
|
|
39 |
|
|
|
61 |
|
|
|
37 |
|
|
|
39 |
|
Indiana |
|
|
16 |
|
|
|
16 |
|
|
|
17 |
|
|
|
16 |
|
|
|
16 |
|
Mississippi |
|
|
6 |
|
|
|
6 |
|
|
|
7 |
|
|
|
6 |
|
|
|
6 |
|
Missouri |
|
|
— |
|
|
|
— |
|
|
|
9 |
|
|
|
— |
|
|
|
6 |
|
Nevada |
|
|
4 |
|
|
|
4 |
|
|
|
4 |
|
|
|
4 |
|
|
|
4 |
|
New Mexico |
|
|
5 |
|
|
|
5 |
|
|
|
5 |
|
|
|
5 |
|
|
|
5 |
|
Ohio |
|
|
27 |
|
|
|
27 |
|
|
|
27 |
|
|
|
27 |
|
|
|
27 |
|
Pennsylvania |
|
|
11 |
|
|
|
11 |
|
|
|
14 |
|
|
|
11 |
|
|
|
11 |
|
South Carolina |
|
|
15 |
|
|
|
15 |
|
|
|
24 |
|
|
|
15 |
|
|
|
20 |
|
Tennessee |
|
|
22 |
|
|
|
23 |
|
|
|
23 |
|
|
|
22 |
|
|
|
23 |
|
Texas |
|
|
45 |
|
|
|
45 |
|
|
|
68 |
|
|
|
45 |
|
|
|
45 |
|
Total |
|
|
350 |
|
|
|
355 |
|
|
|
440 |
|
|
|
350 |
|
|
|
369 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INVESTOR RELATIONS CONTACT: Michael J.
Bodayle 615.844.2885
First Acceptance (QX) (USOTC:FACO)
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From Jul 2024 to Aug 2024
First Acceptance (QX) (USOTC:FACO)
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From Aug 2023 to Aug 2024