Atlas Financial Holdings Announces 2014 First Quarter Financial Results
Company to Hold Conference Call on May 8, 2014 at 8:30 a.m. ET
First Quarter 2014 Financial Performance Summary (comparisons to First Quarter 2013 unless noted):
| |
| • | Gross premium written increased by 39.7% to $31.2 million, which included an increase of 46.1% in our core commercial auto business |
| |
| • | Premium related to core products was written in 39 states during the three month period ended March 31, 2014 |
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| • | The combined ratio improved by 4.6 percentage points to 93.5% |
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| • | Underwriting results improved by $1.1 million |
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| • | Operating income was $2.2 million for the three month period ended March 31, 2014 as compared to $911,000 for the three month period ended March 31, 2013 |
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| • | Diluted earnings per common share was $0.22 |
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| • | Book value per common share on March 31, 2014 was $6.79, compared to $6.54 at December 31, 2013 and $6.20 at March 31, 2013 |
Chicago, Illinois (May 7, 2014) - Atlas Financial Holdings, Inc. (NASDAQ: AFH) ("Atlas" or the "Company") today reported its financial results for the first quarter ended March 31, 2014.
Financial and Operational Review
Net Income: Atlas generated net income of $2.2 million for the three month period ended March 31, 2014. This compares to net income of $602,000 in the three month period ended March 31, 2013.
Gross Premium Written: For the three month period ended March 31, 2014, gross premium written was $31.2 million compared to $22.4 million in the three month period ended March 31, 2013 representing an increase of 39.7%.
Geographic Distribution: Although Atlas' core lines of business are becoming increasingly diversified from a geographic standpoint on an annual basis, in the first quarter as a result of the significant volume of business written in Illinois, which is our most mature market and has a common January 1 renewal date for taxi business, 65.7% of gross premium written was generated in its five largest states.
Loss and Combined Ratio: The loss ratio relating to claims incurred in the three month period ended March 31, 2014 was 63.4% compared to 64.6% in the three month period ended March 31, 2013. Atlas' combined ratio improved for the three month period ended March 31, 2014 to 93.5%, compared to 98.1% for the corresponding prior year period. For the three month period ended March 31, 2014, we incurred $827,000 of expense related to discretionary management incentive compensation which was paid in the first quarter of 2014, $500,000 of which was an amount in excess of the first quarter 2014 discretionary bonus accrual. These expenses are included in the other underwriting expenses. The amount in excess of the accrual had an effect of approximately 2.3% on the underwriting expense ratio for the three month period ended March 31, 2014. The table below indicates the comparisons of each component of the Company's combined ratio for the periods indicated:
|
| | | | | | |
| | The Three Month Period Ended |
| | March 31, 2014 | March 31, 2013 |
| Loss ratio | 63.4 | % | | 64.6 | % | |
| Acquisition cost ratio | 14.1 | % | | 14.3 | % | |
| Other underwriting expense ratio (including discretionary management incentive compensation) | 16.0 | % | | 19.2 | % | |
| Combined ratio | 93.5 | % | | 98.1 | % | |
Underwriting Results: Underwriting results increased to $1.4 million for the three month period ended March 31, 2014, a $1.1 million improvement compared to the prior year same period.
Operating Income is an internal performance measure used in the management of the Company's operations. It
represents after-tax operational results excluding, as applicable, net realized gains or losses, net impairment charges recognized in earnings and other items. Operating Income should not be viewed as a substitute for U.S. Generally Accepted Accounting Principles (U.S. GAAP) net income. The table below reconciles U.S. GAAP net income to operating income ($ in '000's):
|
| | | | | | |
| | Three Month Period Ended |
| | March 31, 2014 | March 31, 2013 |
| U.S. GAAP net income | $ | 2,192 |
| $ | 602 |
|
| Add: Expenses incurred related to Gateway acquisition | $ | 0 |
| 406 |
|
| Less: Net realized (losses) gains | (11 | ) | 93 |
|
| Less: Other income | 2 |
| 4 |
|
| Operating Income | $ | 2,183 |
| $ | 911 |
|
Operating Income: Atlas' Operating Income for the three month period ended March 31, 2014 was $2.2 million compared to $911,000 in the three month period ended March 31, 2013. Eliminating the impact of discretionary management incentive compensation expenses in excess of amounts accrued in the first quarter of 2014, on a pro-forma adjusted basis operating income was $2.7 million for the three month period ended March 31, 2014.
Earnings per share ( "EPS" ): Atlas generated $0.23 per share basic and $0.22 per share diluted for the three month period ended March 31, 2014. This compares to $0.05 per share basic and diluted in the three month period ended March 31, 2013. Eliminating the impact of the discretionary management incentive compensation expenses in excess of amounts accrued in the first quarter of 2014, on a pro-forma Non-GAAP basis, Atlas generated $0.27 of diluted earnings per share for the three month period ended March 31, 2014.
Balance Sheet/Investment Overview
Book Value: Book value per common share was $6.79 based on 9,610,586 common shares outstanding at March 31, 2014, compared to $6.20 based on 8,095,892 common shares outstanding at March 31, 2013 and $6.54 based on 9,424,734 common shares outstanding at December 31, 2013. Book value changed relative to December 31, 2013 is as follows: an increase of $0.14 related to net income after tax, an increase of $0.09 related to change in net realized gains/losses after tax, an increase of $0.08 related to the change in deferred tax valuation allowance, and a decrease of $0.06 related to share based compensation.
Cash and Invested Assets: Cash and invested assets as of the period ended March 31, 2014 totaled $142.8 million, consisting primarily of fixed income securities as compared to $139.9 million as at December 31, 2013.
Investment Strategy: Atlas aligns its securities portfolio to support the liabilities and operating cash needs of our insurance subsidiaries, to preserve capital and to generate investment returns. Atlas invests predominantly in corporate and government bonds with overall durations that correlate with the payout patterns of Atlas' claims liabilities and other liquidity needs. At March 31, 2014 the Company's contractual duration on its portfolio was 3.9 years. The Company's investment allocations will be regularly reviewed based on market conditions with a continued emphasis on capital preservation to support growth in its operating business.
Investment and Other Income: During the three month period ended March 31, 2014, Atlas reported investment income and other income of $770,000, of which $11,000 are realized losses as compared to investment income and other revenues of $710,000, of which $93,000 were realized gains in the three month period ended March 31, 2013.
Investment Yield: The investment income and other revenues generated by the investment portfolio resulted in a 2.2% annualized yield for the three month periods ended March 31, 2014 and March 31, 2013.
Impact of Interest Rate Change: For Atlas’ available-for-sale fixed income securities held March 31, 2014, a 100 basis point increase in interest rates on such held fixed income securities would have increased net investment income and
income before taxes by approximately $66,000. Conversely, a 100 basis point decrease in interest rates on such held fixed income securities would decrease net investment income and income before taxes by $30,000. A 100 basis point increase would have also decreased other comprehensive income by approximately $5.1 million due to “mark-to-market” requirements; however, holding investments to maturity would mitigate this impact over time. Conversely, a 100 basis point decrease would increase other comprehensive income by the same amount. The impacts described here are approximately linear to the change in interest rates.
Conference Call
Date/Time: Thursday, May 8, 2014 - 8:30 a.m. ET
Participant Dial-In Numbers:
(United States): 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".
About Atlas
The primary business of Atlas is commercial automobile insurance in the United States, with a niche market orientation and focus on insurance for the "light" commercial automobile sector including taxi cabs, non-emergency paratransit, limousine/livery and business auto. The business of Atlas is carried on through its insurance subsidiaries American Country Insurance Company, American Service Insurance Company, Inc. and Gateway Insurance Company. Atlas' insurance subsidiaries have decades of experience with a commitment to always being an industry leader in these specialized areas of insurance. For more information about Atlas, please visit www.atlas-fin.com.
Financial Information
Atlas' financial statements reflect consolidated results of Atlas' subsidiaries: American Insurance Acquisition Inc., Camelot Services, Inc., American Country Insurance Company, American Service Insurance Company, Inc. and Gateway Insurance Company, Inc. Additional information about Atlas, including a copy of Atlas' 2013 Form 10-K financial statements and Management Discussion & Analysis, can be accessed via the U.S. Securities and Exchange Commission internet site at www.sec.gov, on the Canadian Securities Administrators' website at www.sedar.com, or through Atlas' website at http://www.atlas-fin.com/InvestorRelations/FinancialReports.aspx.
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 2013 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.
Contact Information:
At the Company Investor Relations
Atlas Financial Holdings, Inc. The Equity Group Inc.
Scott Wollney, CEO Adam Prior, Senior Vice President
Phone: 847-700-8600 212-836-9606
swollney@atlas-fin.com aprior@equityny.com
www.atlas-fin.com www.theequitygroup.com
Terry Downs, Associate
212-836-9615
tdowns@equityny.com
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ATLAS FINANCIAL HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (Unaudited)
(in '000s of US dollars, except for share and per share data)
|
| | | | | | |
| | Three Month Period Ended |
| | March 31, 2014 | March 31, 2013 |
| Net premiums earned | $ | 21,954 |
| $ | 15,888 |
|
| Net investment income | 779 |
| 613 |
|
| Net investment (losses)/gains | (11 | ) | 93 |
|
| Other income | 2 |
| 4 |
|
| Total revenue | 22,724 |
| 16,598 |
|
| Net claims incurred | 13,919 |
| 10,261 |
|
| Acquisition costs | 3,090 |
| 2,270 |
|
| Other underwriting expenses | 3,523 |
| 3,059 |
|
| Expenses incurred related to Gateway acquisition | — |
| 406 |
|
| Total expenses | 20,532 |
| 15,996 |
|
| Income from operations before income tax expense | 2,192 |
| 602 |
|
| Income tax expense | — |
| — |
|
| Net income attributable to Atlas | 2,192 |
| 602 |
|
| Less: Preferred share dividends | 23 |
| 276 |
|
| Net income attributable to common shareholders | $ | 2,169 |
| $ | 326 |
|
| | | |
| Basic weighted average common shares outstanding | 9,498,995 |
| 7,044,724 |
|
| Earnings per common share, basic | $ | 0.23 |
| $ | 0.05 |
|
| Diluted weighted average common shares outstanding | 9,883,555 |
| 7,062,409 |
|
| Earnings per common share, diluted | $ | 0.22 |
| $ | 0.05 |
|
| | | |
| Consolidated Statements of Comprehensive Income | | |
| | | |
| Net income attributable to Atlas | $ | 2,192 |
| $ | 602 |
|
| | | |
| Other comprehensive income/(loss): | | |
| Changes in net unrealized gains/(losses) | 1,268 |
| (166 | ) |
| Reclassification to income | 38 |
| (155 | ) |
| Effect of income tax | (444 | ) | 109 |
|
| Other comprehensive income/(loss) for the period | 862 |
| (212 | ) |
| Total comprehensive income | $ | 3,054 |
| $ | 390 |
|
Atlas’ management incentive compensation plan is based on a ROE target set annually by the Company’s board of directors. The Company has now reached its previously communicated minimum efficient operating scale of an annualized $50 to $60 million in earned premium and, therefore, anticipates that it is likely that the ROE targets will be reached and bonuses will be paid. As a result, the Company intends to begin bonus accruals based on projected future payments that will be made throughout the year. Note: Atlas’ executive management team received 100% of their bonuses for 2013 in stock, as opposed to cash, in the first quarter of 2014.
ATLAS FINANCIAL HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION |
| | | | | | |
| in $000's except for share and per share amounts | March 31, 2014 (unaudited) | December 31,
2013 |
| Assets | | |
| Investments, available for sale | | |
| Fixed income securities, at fair value (amortized cost $129,690 and $130,751) | $ | 128,785 |
| $ | 128,585 |
|
| Equity securities, at fair value (cost $252 and $258) | 298 |
| 258 |
|
| Other investments | 3,372 |
| 1,234 |
|
| Total Investments | 132,455 |
| 130,077 |
|
| Cash and cash equivalents | 10,349 |
| 9,811 |
|
| Accrued investment income | 713 |
| 694 |
|
| Accounts receivable and other assets (net of allowance of $510 and $776) | 45,135 |
| 37,944 |
|
| Reinsurance recoverables on amounts paid | 6,527 |
| 6,921 |
|
| Reinsurance recoverables on amounts unpaid | 11,942 |
| 12,225 |
|
| Prepaid reinsurance premiums | 2,017 |
| 2,207 |
|
| Deferred policy acquisition costs | 7,540 |
| 6,674 |
|
| Deferred tax asset, net | 9,289 |
| 9,319 |
|
| Intangible assets | 740 |
| 740 |
|
| Software and office equipment, net | 2,698 |
| 2,500 |
|
| Assets held for sale | 166 |
| 166 |
|
| Total Assets | $ | 229,571 |
| $ | 219,278 |
|
| | | |
| Liabilities | | |
| Claims liabilities | $ | 100,179 |
| $ | 101,385 |
|
| Unearned premiums | 51,302 |
| 44,232 |
|
| Due to reinsurers and other insurers | 2,564 |
| 2,613 |
|
| Other liabilities and accrued expenses | 8,131 |
| 7,350 |
|
| Total Liabilities | $ | 162,176 |
| $ | 155,580 |
|
| | | |
| Shareholders’ Equity | | |
| Preferred shares, par value per share $0.001, 100,000,000 shares authorized, 2,000,000 shares issued and outstanding at March 31, 2014 and December 31, 2013. Liquidation value $1.00 per share | $ | 2,000 |
| $ | 2,000 |
|
| | | |
| Ordinary voting common shares, par value per share $0.003, 266,666,667 shares authorized, 9,477,723 shares issued and outstanding at March 31, 2014 and 9,291,871 shares issued and outstanding at December 31, 2013 | 29 |
| 28 |
|
| | | |
| Restricted voting common shares, par value per share $0.003, 33,333,334 shares authorized, 132,863 shares issued and outstanding at March 31, 2014 and December 31, 2013 | — |
| — |
|
| | | |
| Additional paid-in capital | 170,237 |
| 169,595 |
|
| Retained deficit | (104,304 | ) | (106,496 | ) |
| Accumulated other comprehensive loss, net of tax | (567 | ) | (1,429 | ) |
| Total Shareholders’ Equity | 67,395 |
| 63,698 |
|
| Total Liabilities and Shareholders’ Equity | $ | 229,571 |
| $ | 219,278 |
|
