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First Acceptance Corporation Reports Operating Results for the Quarter and Year Ended December 31, 2016

NASHVILLE, Tenn., March 14, 2017 (GLOBE NEWSWIRE) -- First Acceptance Corporation (NYSE:FAC) today reported its financial results for the quarter and year ended December 31, 2016.

Operating Results

Revenues for the three months ended December 31, 2016 decreased 1% to $87.8 million from $88.5 million in the same period in the prior year. Revenues for the year ended December 31, 2016 increased 17% to $389.6 million from $331.9 million in the same period in the prior year.

Loss before income taxes for the three months ended December 31, 2016 was $5.8 million, compared with income before income taxes of $0.5 million for the three months ended December 31, 2015. Net loss for the three months ended December 31, 2016 was $3.5 million, compared with net income of $0.3 million for the three months ended December 31, 2015. For the three months ended December 31, 2016, we recognized $2.6 million of unfavorable prior period loss development.

Loss before income taxes for the year ended December 31, 2016 was $45.1 million, compared with loss before income taxes of $2.6 million for the year ended December 31, 2015. Net loss for the year ended December 31, 2016 was $29.3 million, compared with net loss of $1.9 million for the year ended December 31, 2015.

For the year ended December 31, 2016, we recognized $30.6 million of unfavorable prior period loss development. Conversely, the year 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 year ended December 31, 2015 included $3.7 million of costs related to a litigation settlement.

President and Chief Executive Officer, Ken Russell, commented “While the loss ratio for the recent quarter was negatively impacted by additional loss development, we believe that there are indications that the cloud of uncertainty from prior period losses is coming to an end. Remaining committed to our goal of returning the Company to profitability, management has made significant efforts to improve our risk management through rate increases, risk segmentation and key additions to the senior staff of our claims handling and product teams. Numerous initiatives have been implemented as part of our strategic plan to curtail unprofitable production, and positive trends are anticipated regarding both claims severity and frequency.”

Loss Ratio. The loss ratio was 91.9% for the three months ended December 31, 2016, compared with 84.4% for the three months ended December 31, 2015. The loss ratio was 101.9% for the year ended December 31, 2016, compared with 82.0% for the year ended December 31, 2015. We experienced unfavorable development related to prior periods of $2.6 million for the three months ended December 31, 2016, compared with favorable development related to prior periods of $0.1 million for the three months ended December 31, 2015. For the year ended December 31, 2016, we experienced unfavorable development related to prior periods of $30.6 million, compared with $0.8 million for the year ended December 31, 2015. The unfavorable loss development for the year ended December 31, 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.

Excluding the development related to prior periods for the three months ended December 31, 2016 and 2015, the loss ratios were 88.2% and 88.5%, respectively. Excluding the development related to prior fiscal years, the loss ratios for the years ended December 31, 2016 and 2015 were 91.8% and 81.7%, respectively. The year-over-year increase in the loss ratio was primarily due to higher than expected claim frequency across all major coverages and higher bodily injury severity. 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, along with an increase in distracted driving, 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 and strengthen its claims organization and processes. These rate actions, as well as changes in coverage mix, the number of vehicles and vehicle type insured, have resulted in a 13.6% year-over-year increase in our average in-force premium.

Revenues. Premiums earned decreased slightly to $69.3 million for the three months ended December 31, 2016, from $69.6 million for the three months ended December 31, 2015. For the year ended December 31, 2016 premiums earned increased by $36.3 million, or 13.6%, to $303.3 million from $267.0 million for the year ended December 31, 2015. This improvement was due to higher average premiums resulting from our rate increases throughout the year. While during 2016, our total policies-in-force declined 14.5%, this targeted decline was more than offset by a 13.6% year-over-year increase in our average in-force premium.

Commission and fee income decreased slightly to $17.5 million for the three months ended December 31, 2016, from $17.6 million for the three months ended December 31, 2015. Commission and fee income increased by $15.7 million, or 26%, to $75.6 million for the year ended December 31, 2016, from $59.9 million for the year ended December 31, 2015. Revenue from the former Titan retail locations acquired on July 1, 2015 accounted for the majority of the year-over-year increase. The remaining increase in commission and fee income was a result of higher fee income related to commissionable ancillary products sold through our previously-existing retail locations.

Expense Ratio. The expense ratio was 15.7% for the three months ended December 31, 2016, compared with 14.9% for the three months ended December 31, 2015. The expense ratio was 14.6% for the year ended December 31, 2016, compared with 17.8% for the year ended December 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 our efforts on cost containment.

Combined Ratio. The combined ratio increased to 107.6% for the three months ended December 31, 2016 from 99.3% for the three months ended December 31, 2015. For the year ended December 31, 2016, the combined ratio increased to 116.5% from 99.8% for the year ended December 31, 2015.

Next Release of Financial Results

We currently plan to report our financial results for the three months ending March 31, 2017 on May 9, 2017 which will also serve at the date of our 2017 Annual Meeting of Stockholders.

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 14 states and are licensed as an insurer in 12 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 December 31, 2016, we leased and operated 355 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.

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, 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.

FIRST ACCEPTANCE CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations
(in thousands, except per share data)
Three Months Ended
December 31,
Year Ended
December 31,
2016 2015 2016 2015
Revenues:
Premiums earned $69,331 $69,564 $303,328 $266,987
Commission and fee income 17,541 17,640 75,596 59,892
Investment income 854 1,329 4,649 5,024
Gain on sale of foreclosed real estate 1,237
Net realized gains (losses) on investments, available-for-sale
(includes $4,745 of accumulated other comprehensive loss
reclassification for net unrealized gains in 2016) 80 2 4,813 (11)
87,806 88,535 389,623 331,892
Costs and expenses:
Losses and loss adjustment expenses 63,740 58,727 309,002 219,031
Insurance operating expenses 27,609 27,215 116,510 105,254
Other operating expenses 287 245 1,219 1,126
Litigation settlement 32 3,677
Stock-based compensation 43 35 207 144
Depreciation 606 527 2,540 1,751
Amortization of identifiable intangible assets 239 253 956 514
Interest expense 1,106 1,043 4,319 2,967
93,630 88,077 434,753 334,464
(Loss) income before income taxes (5,824) 458 (45,130) (2,572)
(Benefit) provision for income taxes (2,277) 171 (15,848) (642)
Net (loss) income $(3,547) $287 $(29,282) $(1,930)
Net (loss) income per share:
Basic $(0.09) $0.01 $(0.71) $(0.05)
Diluted $(0.09) $0.01 $(0.71) $(0.05)
Number of shares used to calculate net (loss) income per share:
Basic 41,041 41,041 41,085 41,030
Diluted 41,041 41,375 41,085 41,030


FIRST ACCEPTANCE CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
(in thousands, except per share data)
December 31,
2016 2015
ASSETS
Investments, available-for-sale at fair value (amortized cost of $117,902 and $128,304,
respectively) $117,212 $131,582
Cash, cash equivalents, and restricted cash 118,681 115,587
Premiums, fees, and commissions receivable, net of allowance of $279 and $454 66,393 69,881
Deferred tax assets, net 35,641 18,301
Other investments 9,994 11,256
Other assets 6,078 6,950
Property and equipment, net 4,213 5,141
Deferred acquisition costs 4,852 5,509
Goodwill 29,384 29,429
Identifiable intangible assets, net 7,626 8,491
TOTAL ASSETS $400,074 $402,127
LIABILITIES AND STOCKHOLDERS’ EQUITY
Loss and loss adjustment expense reserves $161,079 $122,071
Unearned premiums and fees 78,861 83,426
Debentures payable 40,302 40,256
Term loan from principal stockholder 29,779 29,753
Accrued expenses 7,089 7,345
Other liabilities 10,476 15,606
Total liabilities 327,586 298,457
Stockholders’ equity:
Preferred stock, $.01 par value, 10,000 shares authorized
Common stock, $.01 par value, 75,000 shares authorized; 41,160 and 41,060 issued and
outstanding, respectively 412 411
Additional paid-in capital 457,750 457,476
Accumulated other comprehensive income, net of tax of $(1,110) and $62, respectively 1,316 3,491
Accumulated deficit (386,990) (357,708)
Total stockholders’ equity 72,488 103,670
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $400,074 $402,127


FIRST ACCEPTANCE CORPORATION AND SUBSIDIARIES
Supplemental Data
(Unaudited)
PREMIUMS EARNED BY STATE
Three Months Ended
December 31,
Year Ended
December 31,
2016 2015 2016 2015
Gross premiums earned:
Georgia $15,660 $13,668 $63,332 $51,287
Florida 10,571 10,463 45,880 41,102
Texas 8,869 9,406 41,154 35,771
Ohio 7,118 6,931 30,376 26,745
Alabama 6,970 6,278 28,163 24,611
South Carolina 4,851 5,563 25,515 20,254
Tennessee 4,500 4,561 19,330 16,702
Illinois 4,495 5,837 20,733 24,050
Indiana 2,250 2,085 9,244 7,954
Pennsylvania 2,219 2,301 9,618 9,224
Mississippi 869 858 3,872 3,398
Missouri 704 1,529 5,397 5,844
California 217 316
Virginia 148 185 848 417
Total gross premiums earned 69,441 69,665 303,778 267,359
Premiums ceded to reinsurer (110) (101) (450) (372)
Total net premiums earned $69,331 $69,564 $303,328 $266,987


COMBINED RATIOS (INSURANCE OPERATIONS)
Three Months Ended
December 31,
Year Ended
December 31,
2016 2015 2016 2015
Loss 91.9% 84.4% 101.9% 82.0%
Expense 15.7% 14.9% 14.6% 17.8%
Combined 107.6% 99.3% 116.5% 99.8%


NUMBER OF RETAIL LOCATIONS
Retail location counts are based upon the date that a location commenced or ceased writing business.
Three Months Ended
December 31,
Year Ended
December 31,
2016 2015 2016 2015
Retail locations – beginning of period 369 438 440 356
Opened 3 4 8
Acquired 83
Closed (14) (1) (89) (7)
Retail locations – end of period 355 440 355 440


FIRST ACCEPTANCE CORPORATION AND SUBSIDIARIES
Supplemental Data (continued)
(Unaudited)
RETAIL LOCATIONS BY STATE
December 31, September 30,
2016 2015 2014 2016 2015
Alabama 23 24 24 23 24
Arizona 10 10 10 10
California 47 48 47 48
Florida 34 39 31 34 39
Georgia 50 60 60 53 60
Illinois 39 61 60 39 58
Indiana 16 17 17 16 17
Mississippi 6 7 7 6 7
Missouri 9 10 6 9
Nevada 4 4 4 5
New Mexico 5 5 5 4
Ohio 27 27 27 27 27
Pennsylvania 11 14 15 11 14
South Carolina 15 24 25 20 25
Tennessee 23 23 22 23 23
Texas 45 68 58 45 68
Total 355 440 356 369 438

INVESTOR RELATIONS CONTACT: Michael J. Bodayle 615.844.2885

Source:First Acceptance Corporation