Atlas Financial Holdings Announces Third Quarter 2018 Financial Results
Company to Hold Conference Call on
Third Quarter 2018 Financial Performance Summary (comparisons to Third Quarter 2017 unless noted):
- Gross premiums written was
$75.9 million for the three months endedSeptember 30, 2018 compared to$65.9 million - In-force premium as of
September 30, 2018 increased 7.7% to$286.7 million - Total revenue for the three months ended
September 30, 2018 decreased by 2.9% to$55.8 million - Underwriting income for the third quarter 2018 was
$6.3 million compared to$6.8 million - The combined ratio for the third quarter 2018 was 88.5% compared to 87.9%
- Net income for the third quarter 2018 was
$5.6 million , or$0.47 earnings per common share diluted, compared to$5.1 million , or$0.42 earnings per common share diluted, representing an increase of$0.05 or 11.9% - Book value per common share as of
September 30, 2018 was$8.53 , compared to$7.42 as ofDecember 31, 2017 - Annualized return on equity was 22.6% in the third quarter 2018 compared to 14.5%
Management Comments
Financial and Operational Review
Premiums Written: Gross premiums written was
Geographic Distribution: The Company is licensed in 49 states and the
Combined Ratio: Atlas’ combined ratio increased for the three months ended
- Loss Ratio: The loss ratio relating to claims incurred for the three months ended
September 30, 2018 was 61.6%, compared to 59.5% for the three months endedSeptember 30, 2017 . The loss ratio increased over the prior year period primarily as a result of the Company’s continued review of underwriting profitability by product. Excluding the impact of assigned risk business, the loss ratio relating to the net claims incurred was 61.2% for the three months endedSeptember 30, 2018 , compared to 59.0% for the three months endedSeptember 30, 2017 . - While the Company’s year-to-date loss ratio for 2018 is carried higher than the prior year, incremental loss ratio improvement is expected to generally trend in a positive direction based on prior year and potential future pricing, underwriting and claims activities. As previously announced, the Company is utilizing machine learning based predictive analytics in the claim area, in addition to using it as an underwriting tool, to further benefit from the data and experience within its organization. Atlas believes this approach amplifies the value of the assets accumulated over its operating subsidiaries’ many years spent focusing on niche target markets to model potential risk and deliver value for both customers and stakeholders.
- Underwriting Expense Ratio: The underwriting expense ratio for the three months ended
September 30, 2018 was 26.9% compared to 28.4% for the three months endedSeptember 30, 2017 . The ratio decreased mainly because of lower acquisition costs during the quarter. As previously indicated, due to seasonality and the timing of certain expenses, the Company believes the full year expense ratio is a more indicative measure of efficiency that the ratio in any given quarter. Atlas remains focused on continually enhancing its value proposition through re-investment into research and development to ensure that its organization is able to continue leading the industry in terms of existing and developing niche markets on which Atlas focuses.
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):
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2018 | 2017 | 2018 | 2017 | |||||||||
Loss Ratio: | ||||||||||||
Current accident year | 61.7 | % | 59.3 | % | 61.0 | % | 59.6 | % | ||||
Prior accident years | (0.1 | ) | 0.2 | 0.8 | 0.4 | |||||||
Loss Ratio | 61.6 | 59.5 | 61.8 | 60.0 | ||||||||
Underwriting Expense Ratio: | ||||||||||||
Acquisition cost ratio | 10.5 | 14.0 | 11.1 | 12.4 | ||||||||
Other underwriting expense ratio | 16.0 | 13.3 | 16.0 | 13.7 | ||||||||
Deferred policy acquisition cost (“DPAC”) amortization ratio | (0.1 | ) | 0.6 | (0.2 | ) | 0.3 | ||||||
Underwriting expense ratio before expenses related to stock purchase agreements and share-based compensation expenses | 26.4 | 27.9 | 26.9 | 26.4 | ||||||||
Expenses recovered related to stock purchase agreement ratio | — | — | (0.3 | ) | — | |||||||
Share-based compensation expense ratio | 0.5 | 0.5 | 0.5 | 0.6 | ||||||||
Underwriting expense ratio | 26.9 | % | 28.4 | % | 27.1 | % | 27.0 | % | ||||
Total combined ratio | 88.5 | 87.9 | 88.9 | 87.0 | ||||||||
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:
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2018 | 2017 | 2018 | 2017 | |||||||||
Acquisition costs | 13.6 | % | 16.1 | % | 15.3 | % | 14.9 | % | ||||
Other insurance general and administrative expenses | 13.2 | 11.9 | 13.9 | 12.4 | ||||||||
DPAC amortization | (0.1 | ) | 0.6 | (0.1 | ) | 0.2 | ||||||
Expenses recovered related to stock purchase agreements | — | — | (0.3 | ) | — | |||||||
Share-based compensation expense | 0.4 | 0.5 | 0.4 | 0.5 | ||||||||
Total underwriting expense ratio | 27.1 | % | 29.1 | % | 29.2 | % | 28.0 | % | ||||
Underwriting Results: Underwriting profit was
Net Income before Income Taxes: Net income before income taxes was
Income Taxes: Atlas recognized tax expense of
Net Income: Atlas reported net income of
Earnings per common share (“EPS”): Atlas generated
Share Count: The following chart illustrates Atlas’ potential dilutive common shares for the three months ended
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2018 | 2017 | |||
Weighted average common shares outstanding | 11,936,970 | 12,014,817 | ||
Dilutive potential ordinary shares: | ||||
Dilutive stock options | 14,247 | 16,921 | ||
Dilutive average common shares outstanding | 11,951,217 | 12,031,738 | ||
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 months ended
Balance Sheet/Investment Overview
Book Value: Book value per common share was
$ | 1.37 | increase related to net income after tax and before items indicated below; | ||
(0.01 | ) | decrease related to the loss from change in fair value of equity securities; | ||
0.03 | increase related to the change in net realized investment gains after tax; | |||
(0.25 | ) | decrease related to the change in unrealized gains/losses after tax; | ||
(0.09 | ) | decrease related to share repurchases; and | ||
0.06 | increase related to share-based compensation. | |||
$ | 1.11 | total increase from |
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Cash and Invested Assets: Cash and invested assets as of
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. Other than fixed income investments are limited to an appropriately small percentage of its portfolio and are generally opportunities identified through the Company’s specialty focus or by leveraging the resources of its business partners. As of
Net Investment Income / Net Investment Realized Gains: Atlas generated net investment income of
Beginning
Outlook for 2018
Conference Call Details
Date/Time: | |
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Participant Dial-In Numbers: | ||||
( |
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 Internet via the “Investor Relations” section of Atlas’ website at www.atlas-fin.com/investorrelations or by clicking on the conference call link: http://atlas-fin.equisolvewebcast.com/q3-2018. Audio and a transcript of the call will be archived on the Company’s website.
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 2017 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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Condensed Consolidated Statements of Income | 2018 | 2017 | 2018 | 2017 | ||||||||||||
(unaudited) | (unaudited) | |||||||||||||||
Net premiums earned | $ | 54,461 | $ | 55,865 | $ | 165,712 | $ | 158,340 | ||||||||
Net investment income | 1,070 | 902 | 3,201 | 3,311 | ||||||||||||
Loss from change in fair value of equity securities | (2 | ) | — | (97 | ) | — | ||||||||||
Net realized gains | 54 | 582 | 501 | 1,000 | ||||||||||||
Other income | 186 | 115 | 366 | 332 | ||||||||||||
Total revenue | 55,769 | 57,464 | 169,683 | 162,983 | ||||||||||||
Net claims incurred | 33,542 | 33,258 | 102,397 | 95,027 | ||||||||||||
Acquisition costs | 5,701 | 7,820 | 18,357 | 19,586 | ||||||||||||
Other underwriting expenses | 8,841 | 7,937 | 26,762 | 22,870 | ||||||||||||
Amortization of intangible assets | 97 | 97 | 292 | 292 | ||||||||||||
Interest expense | 465 | 467 | 1,381 | 1,379 | ||||||||||||
Expenses recovered pursuant to stock purchase agreement | — | — | (520 | ) | — | |||||||||||
Total expenses | 48,646 | 49,579 | 148,669 | 139,154 | ||||||||||||
Income from operations before income taxes | 7,123 | 7,885 | 21,014 | 23,829 | ||||||||||||
Income tax expense | 1,518 | 2,760 | 4,304 | 8,342 | ||||||||||||
Net income attributable to common shareholders | $ | 5,605 | $ | 5,125 | $ | 16,710 | $ | 15,487 | ||||||||
Basic weighted average common shares outstanding | 11,936,970 | 12,045,519 | 12,014,817 | 12,045,519 | ||||||||||||
Earnings per common share, basic | $ | 0.47 | $ | 0.43 | $ | 1.39 | $ | 1.29 | ||||||||
Diluted weighted average common shares outstanding | 11,951,217 | 12,207,537 | 12,031,738 | 12,197,365 | ||||||||||||
Earnings per common share, diluted | $ | 0.47 | $ | 0.42 | $ | 1.39 | $ | 1.27 | ||||||||
Condensed Consolidated Statements of Comprehensive Income | ||||||||||||||||
Net income | $ | 5,605 | $ | 5,125 | $ | 16,710 | $ | 15,487 | ||||||||
Other comprehensive (loss) income: | ||||||||||||||||
Changes in net unrealized investment (losses) gains | (307 | ) | 144 | (4,008 | ) | 1,226 | ||||||||||
Reclassification to net income | (19 | ) | 56 | 191 | (183 | ) | ||||||||||
Effect of income taxes | 69 | (70 | ) | 802 | (365 | ) | ||||||||||
Other comprehensive (loss) income | (257 | ) | 130 | (3,015 | ) | 678 | ||||||||||
Total comprehensive income | $ | 5,348 | $ | 5,255 | $ | 13,695 | $ | 16,165 | ||||||||
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION ($ in ‘000s, except for share and per share data) |
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Assets |
(unaudited) | |||||||
Investments | ||||||||
Fixed income securities, available for sale, at fair value (amortized cost |
$ | 127,937 | $ | 157,984 | ||||
Equity securities, at fair value (cost |
6,030 | 8,446 | ||||||
Short-term investments | 4,620 | — | ||||||
Other investments | 29,665 | 31,438 | ||||||
Total Investments | 168,252 | 197,868 | ||||||
Cash and cash equivalents | 49,251 | 45,615 | ||||||
Accrued investment income | 1,105 | 1,248 | ||||||
Premiums receivable (net of allowance of |
101,361 | 79,664 | ||||||
Reinsurance recoverables on amounts paid | 9,661 | 7,982 | ||||||
Reinsurance recoverables on amounts unpaid | 55,085 | 53,402 | ||||||
Prepaid reinsurance premiums | 34,798 | 12,878 | ||||||
Deferred policy acquisition costs | 10,394 | 14,797 | ||||||
Deferred tax asset, net | 13,042 | 16,985 | ||||||
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2,726 | 2,726 | ||||||
Intangible assets, net | 3,853 | 4,145 | ||||||
Property and equipment, net | 30,328 | 24,439 | ||||||
Other assets | 21,311 | 20,754 | ||||||
Total Assets | $ | 501,167 | $ | 482,503 | ||||
Liabilities |
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Claims liabilities | $ | 186,981 | $ | 211,648 | ||||
Unearned premium reserves | 149,363 | 128,043 | ||||||
Due to reinsurers | 19,153 | 8,411 | ||||||
Notes payable, net | 24,199 | 24,031 | ||||||
Other liabilities and accrued expenses | 19,616 | 19,725 | ||||||
Total Liabilities | $ | 399,312 | $ | 391,858 | ||||
Shareholders’ Equity |
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Ordinary voting common shares, |
$ | 36 | $ | 36 | ||||
Restricted voting common shares, |
— | — | ||||||
Additional paid-in capital | 201,953 | 201,105 | ||||||
|
(3,000 | ) | — | |||||
Retained deficit | (93,781 | ) | (110,535 | ) | ||||
Accumulated other comprehensive (loss) income, net of tax | (3,353 | ) | 39 | |||||
Total Shareholders’ Equity | 101,855 | 90,645 | ||||||
Total Liabilities and Shareholders’ Equity | $ | 501,167 | $ | 482,503 | ||||
Use of Non-
Atlas uses these non-GAAP financial measures in order to present its financial condition and results of operations in the way it believes will be most meaningful and representative of its business results. The non-GAAP financial measures that Atlas presents may not be comparable to similarly-named measures reported by other companies.
Adjusted operating income, before income taxes includes both underwriting income and loss and net investment income, but excludes net realized 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 net claims incurred, policy acquisition costs and general operating expenses.
Reconciliation of ($ in ‘000s, except per share data) |
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2018 | 2017 | 2018 | 2017 | ||||||||||||||||||||||||
Net income | $ | 5,605 | $ | 0.47 | $ | 5,125 | $ | 0.42 | $ | 16,710 | $ | 1.39 | $ | 15,487 | $ | 1.27 | |||||||||||
Add: income tax expense | 1,518 | 0.13 | 2,760 | 0.23 | 4,304 | 0.36 | 8,342 | 0.69 | |||||||||||||||||||
Add: expenses recovered pursuant to stock purchase agreement | — | — | — | — | (520 | ) | (0.04 | ) | — | — | |||||||||||||||||
Add: interest expense | 465 | 0.04 | 467 | 0.04 | 1,381 | 0.11 | 1,379 | 0.11 | |||||||||||||||||||
Less: loss from change in fair value of equity securities | (2 | ) | — | — | — | (97 | ) | (0.01 | ) | — | — | ||||||||||||||||
Less: net realized investment gains | 54 | — | 582 | 0.05 | 501 | 0.04 | 1,000 | 0.08 | |||||||||||||||||||
Less: other income | 186 | 0.02 | 115 | 0.01 | 366 | 0.03 | 332 | 0.03 | |||||||||||||||||||
Adjusted operating income, before income taxes | $ | 7,350 | $ | 0.62 | $ | 7,655 | $ | 0.63 | $ | 21,105 | $ | 1.76 | $ | 23,876 | $ | 1.96 | |||||||||||
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 | $ | 101,855 | $ | 96,222 | $ | 90,645 | $ | 144,397 | $ | 138,857 | $ | 127,342 | ||||||||||||
Accrued dividends on preferred shares | — | — | (333 | ) | (333 | ) | (333 | ) | (333 | ) | ||||||||||||||
Total common equity | $ | 101,855 | $ | 96,222 | $ | 90,312 | $ | 144,064 | $ | 138,524 | $ | 127,009 | ||||||||||||
Reconciliation of |
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2018 | 2017 | 2018 | 2017 | |||||||||||||
Net income | $ | 5,605 | $ | 5,125 | $ | 16,710 | $ | 15,487 | ||||||||
Average equity | 99,039 | 141,627 | 96,250 | 135,869 | ||||||||||||
Return on average equity (annualized) | 22.6 | % | 14.5 | % | 23.1 | % | 15.2 | % | ||||||||
Net income attributable to common shareholders | $ | 5,605 | $ | 5,125 | $ | 16,710 | $ | 15,487 | ||||||||
Average common equity | 99,039 | 141,294 | 96,084 | 135,537 | ||||||||||||
Return on average common equity (annualized) | 22.6 | % | 14.5 | % | 23.2 | % | 15.2 | % |
View source version on businesswire.com: https://www.businesswire.com/news/home/20181105005967/en/
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www.atlas-fin.com
or
Investor Relations:
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Source:
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