Atlas Financial Holdings Announces 2016 Fourth Quarter Financial Results
Company to Hold Conference Call on
Fourth Quarter 2016 Financial Performance Summary (comparisons to Fourth Quarter 2015 unless noted):
- Gross premium written decreased by 0.8% to
$52.0 million - In-force premium at
December 31, 2016 increased 6.6% to$224.6 million compared to$210.6 million - Total revenue for the three months ended
December 31, 2016 increased by 7.1% to$46.3 million - The combined ratio for the fourth quarter of 2016 was increased by 68.3 percentage points to 156.5%, primarily as a result of a 72.9% impact from previously announced claims reserves strengthening related to prior accident years
- Underwriting loss for the fourth quarter of 2016 was
$25.0 million , compared to underwriting income of$4.9 million , primarily due to claims reserve strengthening related to prior accident years - Net loss for the fourth quarter of 2016 was
$13.6 million , or$1.13 loss per common share diluted, compared to net income of$4.3 million , or$0.34 earnings per common share diluted - Book value per common share on
December 31, 2016 was$10.54 , compared to$10.15 atDecember 31, 2015 - Annualized return on equity (“ROE”) was a negative 39.6% in the fourth quarter 2016 compared to a positive 13.6% in the prior year period
Full Year 2016 Financial Performance Summary (comparisons to Full Year 2015 unless noted):
- Gross premium written increased by 7.6% to
$225.1 million , which included an increase of 7.7% in core commercial auto business - In-force premium as of
December 31, 2016 was$224.6 million , compared to$210.6 million as ofDecember 31, 2015 - The combined ratio increased by 14.7 percentage points to 102.9%, primarily as a result of a 19.1% impact from previously announced claims reserve strengthening related to prior accident years
- There was an underwriting loss of
$5.0 million , compared to underwriting income of$18.0 million , primarily due to claims reserve strengthening related to prior accident years - Net income was
$2.6 million , or$0.19 per common share diluted, compared to$14.4 million , or$1.13 per common share diluted, representing a decrease of 83.2% or$0.94 , of which$1.43 loss per common share diluted related to reserve strengthening for older accident years - Book value per common share as of
December 31, 2016 was$10.54 , compared to$10.15 as ofDecember 31, 2015 - Return on equity was 2.1% as compared to 12.1%
Management Comments
Financial and Operational Review
Premium Written: For the three month period ended
Geographic Distribution: The Company is licensed in 49 states and the
Combined Ratio: Atlas' combined ratio increased for the three month period ended
- Loss Ratio: The loss ratio relating to claims incurred for the three month period ended
December 31, 2016 was 135.7%, compared to 60.9% for the three month period endedDecember 31, 2015 . The loss ratio increase from the prior year period was primarily the result of the Company's re-estimation of its unpaid liabilities on prior accident years, creating a 74.8% increase in the loss ratio. Observations from the year-end 2016 reserve analysis that led to the conclusion that reserve strengthening for older years was appropriate, and confirmed the Company’s belief that changes made in its claim processes will yield an overall better result in ultimate loss costs going forward. Atlas introduced predictive analytics in our claim process in early 2016 and has compressed settlement time with the objective of amplifying the value proposition the Company has always delivered. As a result, particularly with respect to larger claims, severity in many jurisdiction appears to be improving and earlier settlement should provide earlier visibility into potentially changing claim trends. At this time, other thanMichigan there are no jurisdictions that show indications of above trend changes in frequency or severity. - Underwriting Expense Ratio: The underwriting expense ratio for the three month period ended
December 31, 2016 was 20.8% compared to 27.3% for the three month period endedDecember 31, 2015 . Expenses recovered pursuant to stock purchase agreements lowered the other underwriting ratio by 9.0%. Underwriting expense ratio (before expenses related to acquisitions and stock purchase agreements and stock based compensation expenses) increased 2.6% from the three month period endedDecember 31, 2015 . This increase primarily resulted from investment in research and development related to transportation network company focused initiatives, the re-estimation of the allowance for bad debt and the reserving for specific premium receivable accounts past due and other professional fees offset by retroactive reinsurance gains.
The table below details the comparisons of each component of the Company's combined ratio for the periods indicated (after accounting for the effect of quota share reinsurance):
Three Month Periods Ended | Year Ended | ||||||||||||||
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Loss Ratio: | |||||||||||||||
Current accident year | 62.8 | % | 55.9 | % | 59.7 | % | 59.1 | % | |||||||
Prior accident years | 72.9 | % | 5.0 | % | 19.1 | % | 0.1 | % | |||||||
Loss ratio | 135.7 | % | 60.9 | % | 78.8 | % | 59.2 | % | |||||||
Underwriting Expense Ratio: | |||||||||||||||
Acquisition cost ratio | 13.0 | % | 11.0 | % | 11.0 | % | 12.2 | % | |||||||
Other underwriting expense ratio | 15.9 | % | 15.3 | % | 15.9 | % | 14.4 | % | |||||||
Underwriting expense ratio before expenses related to acquisitions and stock purchase agreements and stock based compensation expenses | 28.9 | % | 26.3 | % | 26.9 | % | 26.6 | % | |||||||
Expenses (recovered) incurred related to stock purchase agreement ratio | (9.0 | ) | % | — | % | (3.7 | ) | % | 1.3 | % | |||||
Share based compensation expense ratio | 0.9 | % | 1.0 | % | 0.9 | % | 1.1 | % | |||||||
Underwriting expense ratio | 20.8 | % | 27.3 | % | 24.1 | % | 29.0 | % | |||||||
Total combined ratio | 156.5 | % | 88.2 | % | 102.9 | % | 88.2 | % | |||||||
Atlas’ underwriting expense ratio for the twelve months ended
As the Company continues the use of quota share reinsurance, and potentially changes the percentage of ceded premiums under its contract, the impact on the individual ratios of acquisition cost and other underwriting expense will vary. On a pro-forma basis, as if there was no quota share reinsurance in place, the components of the underwriting expense ratio for the periods indicated would have been as follows:
Three Month Periods Ended | Year Ended | ||||||
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Acquisition costs | 16.8% | 14.0% | 15.1% | 14.7% | |||
Other insurance general and administrative expenses | 13.6% | 12.9% | 13.3% | 12.9% | |||
Expenses (recovered) incurred related to stock purchase agreements | (7.7)% | —% | (3.1)% | 1.1% | |||
Share based compensation expense | 0.7% | 0.9% | 0.8% | 0.9% | |||
Underwriting Results: Underwriting results decreased to an underwriting loss of
Net (Loss) Income before Taxes: Net loss before taxes was
Income Taxes: Atlas recognized tax benefit of
Net (Loss) Income: Atlas reported net loss of
Earnings per share (“EPS”): Atlas generated a loss of
Share Count: The following chart illustrates Atlas’ potential dilutive common shares for the three month periods ended
Three Month Periods Ended | ||||||
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Weighted average common shares outstanding | 12,045,519 | 12,031,861 | ||||
Dilutive potential ordinary shares: | ||||||
Dilutive stock options | — | 197,593 | ||||
Dilutive shares upon preferred share conversion | — | 573,444 | ||||
Dilutive average common shares outstanding | 12,045,519 | 12,802,898 | ||||
The effects of convertible instruments are excluded from the computation of earnings per common share diluted in periods in which the effect would be anti-dilutive. For the three month period ended
Balance Sheet/Investment Overview
Book Value: Book value per common share was
(
(
Cash and Invested Assets: Cash and invested assets at
Investment Strategy: Atlas aligns its securities portfolio to support the liabilities and operating cash needs of its insurance subsidiaries, to preserve capital and to generate investment returns. Atlas invests predominantly in fixed income securities with overall maturities that correlate with the payout patterns of Atlas' claims liabilities and other liquidity needs. At
Investment Income / Yield: Atlas generated net investment income of
Outlook for 2017
Conference Call Details |
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Date/Time: | |
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Participant Dial-In Numbers: | |||
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877-423-9817 | ||
(International): | 201-493-6770 | ||
To access the call, please dial-in approximately five minutes before the start time and, when asked, provide the operator with passcode "Atlas".
An accompanying slide presentation will be available in .pdf format on the investor relations page of the Company’s website after issuance of the earnings release.
Webcast
The call will also be simultaneously webcast over the
About Atlas
The primary business of Atlas is commercial automobile insurance in
For more information about Atlas, please visit www.atlas-fin.com.
Financial Information
Atlas' financial statements reflect consolidated results of Atlas' subsidiaries:
Forward-Looking Statements:
This release includes forward-looking statements regarding Atlas and its insurance subsidiaries and businesses. Such statements are based on the current expectations of the management of each entity. The words "anticipate", "expect", "believe", "may", "should", "estimate", "project", "outlook", "forecast" or similar words are used to identify such forward looking information. The forward-looking events and circumstances discussed in this release may not occur and could differ materially as a result of known and unknown risk factors and uncertainties affecting the Companies, including risks regarding the insurance industry, economic factors and the equity markets generally and the risk factors discussed in the “Risk Factors” section of the Company's 2016 Annual Report on Form 10-K. No forward-looking statement can be guaranteed. Except as required by applicable securities laws, forward-looking statements speak only as of the date on which they are made and Atlas and its subsidiaries undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events, or otherwise.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME ($ in '000s, except for share and per share data) |
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Three Month Periods Ended | Year Ended | |||||||||||||||||
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Net premiums earned | $ | 44,252 | $ | 41,927 | $ | 171,058 | $ | 152,064 | ||||||||||
Net investment income | 1,656 | 1,085 | 4,824 | 3,976 | ||||||||||||||
Net realized investment gains | 206 | 183 | 1,230 | 455 | ||||||||||||||
Other income | 187 | 55 | 467 | 356 | ||||||||||||||
Total revenue | 46,301 | 43,250 | 177,579 | 156,851 | ||||||||||||||
Net claims incurred | 60,071 | 25,545 | 134,746 | 89,994 | ||||||||||||||
Acquisition costs | 5,767 | 4,609 | 18,803 | 18,592 | ||||||||||||||
Other underwriting expenses | 7,315 | 6,487 | 28,399 | 23,269 | ||||||||||||||
Amortization of intangible assets, net | 98 | 315 | 390 | 315 | ||||||||||||||
Interest expense | 270 | 247 | 1,026 | 694 | ||||||||||||||
Expenses (recovered) incurred pursuant to |
(4,000 | ) | — | (6,297 | ) | 942 | ||||||||||||
Expenses incurred related to acquisition of subsidiaries | — | 21 | — | 999 | ||||||||||||||
Total expenses | 69,521 | 37,224 | 177,067 | 134,805 | ||||||||||||||
(Loss) income from operations before income tax expense | (23,220 | ) | 6,026 | 512 | 22,046 | |||||||||||||
Income tax (benefit) expense | (9,659 | ) | 1,693 | (2,134 | ) | 7,616 | ||||||||||||
Net (loss) income | (13,561 | ) | 4,333 | 2,646 | 14,430 | |||||||||||||
Less: Preferred share dividends | 47 | 80 | 281 | 276 | ||||||||||||||
Net (loss) income attributable to common shareholders | $ | (13,608 | ) | $ | 4,253 | $ | 2,365 | $ | 14,154 | |||||||||
Basic weighted average common shares outstanding | 12,045,519 | 12,031,861 | 12,045,519 | 11,975,579 | ||||||||||||||
(Loss) earnings per common share, basic | $ | (1.13 | ) | $ | 0.35 | $ | 0.20 | $ | 1.18 | |||||||||
Diluted weighted average common shares outstanding | 12,045,519 | 12,802,898 | 12,222,883 | 12,735,679 | ||||||||||||||
(Loss) earnings per common share, diluted | $ | (1.13 | ) | $ | 0.34 | $ | 0.19 | $ | 1.13 | |||||||||
Condensed Consolidated Statements of Comprehensive Income | ||||||||||||||||||
Net (loss) income | $ | (13,561 | ) | $ | 4,333 | $ | 2,646 | $ | 14,430 | |||||||||
Other comprehensive income (loss): | ||||||||||||||||||
Changes in net unrealized investment (losses) gains | (3,237 | ) | (2,077 | ) | 855 | (1,912 | ) | |||||||||||
Reclassification to income of net realized investment gains | 41 | 4 | 394 | 203 | ||||||||||||||
Effect of income tax | 1,119 | 721 | (437 | ) | 597 | |||||||||||||
Other comprehensive (loss) income | (2,077 | ) | (1,352 | ) | 812 | (1,112 | ) | |||||||||||
Total comprehensive (loss) income | $ | (15,638 | ) | $ | 2,981 | $ | 3,458 | $ | 13,318 | |||||||||
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION ($ in '000s, except for share and per share data) |
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Assets |
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Investments, available for sale | ||||||||||
Fixed income securities, at fair value (amortized cost |
$ | 156,487 | $ | 183,773 | ||||||
Equity securities, at fair value (cost |
6,223 | 4,240 | ||||||||
Other investments | 32,181 | 22,937 | ||||||||
Total Investments | 194,891 | 210,950 | ||||||||
Cash and cash equivalents | 29,888 | 22,354 | ||||||||
Accrued investment income | 1,228 | 1,036 | ||||||||
Premiums receivable (net of allowance of |
77,386 | 82,529 | ||||||||
Reinsurance recoverables on amounts paid | 7,786 | 3,277 | ||||||||
Reinsurance recoverables on amounts unpaid | 35,370 | 29,399 | ||||||||
Prepaid reinsurance premiums | 13,372 | 17,412 | ||||||||
Deferred policy acquisition costs | 13,222 | 10,235 | ||||||||
Deferred tax asset, net | 18,498 | 17,166 | ||||||||
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2,726 | 2,726 | ||||||||
Intangible assets, net | 4,535 | — | 4,925 | |||||||
Property and equipment, net | 11,770 | 2,589 | ||||||||
Other assets | 12,905 | 6,694 | ||||||||
Total Assets | $ | 423,577 | $ | 411,292 | ||||||
Liabilities |
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Claims liabilities | $ | 139,004 | $ | 127,011 | ||||||
Unearned premiums | 113,171 | 108,202 | ||||||||
Due to reinsurers | 8,369 | 10,781 | ||||||||
Note payable, net | 19,187 | 17,219 | ||||||||
Other liabilities and accrued expenses | 16,504 | 18,457 | ||||||||
Total Liabilities | $ | 296,235 | $ | 281,670 | ||||||
Shareholders’ Equity |
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Preferred shares, |
$ | — | $ | 6,941 | ||||||
Ordinary voting common shares, |
36 | 36 | ||||||||
Restricted voting common shares, |
— | — | ||||||||
Additional paid-in capital | 199,244 | 198,041 | ||||||||
Retained deficit | (71,718 | ) | (74,364 | ) | ||||||
Accumulated other comprehensive loss, net of tax | (220 | ) | (1,032 | ) | ||||||
Total Shareholders’ Equity | 127,342 | 129,622 | ||||||||
Total Liabilities and Shareholders’ Equity | $ | 423,577 | $ | 411,292 | ||||||
Use of Non-
We use these non-GAAP financial measures in order to present our financial condition and results of operations in the way we believe will be most meaningful and representative of our business results. The non-GAAP financial measures that we present may not be comparable to similarly-named measures reported by other companies.
Adjusted operating income, before tax includes both underwriting income and loss and net investment income, but excludes net realized capital gains and losses, legal and professional expense incurred related to business combinations, interest expense, net impairment charges recognized in earnings and other items. Underwriting income is derived by reducing net premiums earned by losses and loss adjustment expenses incurred, policy acquisition costs and general operating expenses.
Reconciliation of |
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Three Month Periods Ended | Year Ended | |||||||||||||||||||||||||
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Net (loss) income | $ | (13,561 | ) | $ | (1.13 | ) | $ | 4,333 | $ | 0.34 | $ | 2,646 | $ | 0.19 | $ | 14,430 | $ | 1.13 | ||||||||
Add: income tax (benefit) expense | (9,659 | ) | (0.80 | ) | 1,693 | 0.13 | (2,134 | ) | (0.17 | ) | 7,616 | 0.61 | ||||||||||||||
Add: expenses incurred related to acquisition of subsidiaries | — | — | 21 | — | — | 0.00 | 999 | 0.08 | ||||||||||||||||||
Add: expenses (recovered) incurred pursuant to stock purchase agreements | (4,000 | ) | (0.33 | ) | — | — | (6,297 | ) | (0.52 | ) | 942 | 0.07 | ||||||||||||||
Add: interest expense | 271 | 0.02 | 246 | 0.02 | 1,026 | 0.08 | 694 | 0.05 | ||||||||||||||||||
Less: net realized investment gains | 206 | 0.02 | 183 | 0.01 | 1,230 | 0.10 | 455 | 0.04 | ||||||||||||||||||
Less: other income | 187 | 0.01 | 55 | — | 467 | 0.04 | 356 | 0.02 | ||||||||||||||||||
Adjusted operating (loss) income, before tax | $ | (27,342 | ) | $ | (2.27 | ) | $ | 6,055 | $ | 0.48 | $ | (6,456 | ) | $ | (0.56 | ) | $ | 23,870 | $ | 1.88 | ||||||
After-tax return on average common equity is derived by subtracting preferred share dividends accrued from net income and dividing by average common equity. Common equity is total shareholders' equity less preferred shares and cumulative preferred share dividends accrued. Average common equity is the average of common equity at the beginning and the ending of the reporting period.
Reconciliation of |
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As of: |
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Total shareholders' equity | $ | 127,342 | $ | 146,592 | $ | 129,622 | $ | 125,925 | $ | 109,399 | |||||||
Less: preferred shares | — | (4,000 | ) | (6,941 | ) | (6,941 | ) | (2,000 | ) | ||||||||
Less: accrued dividends on preferred shares | (333 | ) | (286 | ) | (460 | ) | (380 | ) | (184 | ) | |||||||
Total common equity | $ | 127,009 | $ | 142,306 | $ | 122,221 | $ | 118,604 | $ | 107,215 | |||||||
Reconciliation of |
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Three Month Periods Ended | Year Ended | |||||||||||||
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Net (loss) income | $ | (13,561 | ) | $ | 4,333 | $ | 2,646 | $ | 14,430 | |||||
Average equity | 136,967 | 127,773 | 128,482 | 119,511 | ||||||||||
Return on equity | (39.6 | )% | 13.6 | % | 2.1 | % | 12.1 | % | ||||||
Net (loss) income | $ | (13,561 | ) | $ | 4,333 | $ | 2,646 | $ | 14,430 | |||||
Less: preferred share dividends accrued | (47 | ) | (80 | ) | (281 | ) | (276 | ) | ||||||
Net (loss) income attributable to common shareholders | $ | (13,608 | ) | $ | 4,253 | $ | 2,365 | $ | 14,154 | |||||
Average common equity | 134,658 | 120,413 | 124,615 | 114,718 | ||||||||||
Return on average common equity | (40.4 | )% | 14.1 | % | 1.9 | % | 12.3 | % |
View source version on businesswire.com: http://www.businesswire.com/news/home/20170313006358/en/
At the Company
CEO
[email protected]
www.atlas-fin.com
or
Investor Relations
Senior Vice President
[email protected]
www.theequitygroup.com
Source:
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