TORONTO, April 18 /PRNewswire-FirstCall/ - (TSX.V: AFH) Atlas Financial Holdings, Inc. ("Atlas" or the "Company") today announced its financial results for the fourth quarter and year ended December 31, 2010. All amounts are in U.S. dollars unless indicated otherwise.
As at December 31, 2010, after all adjustments relating to the Company's qualifying transaction and the fourth quarter results, shareholder's equity was $60.2 million. Factoring in the Company's $18 million convertible preferred shares, shareholder's equity was $42.2 million or $2.30 per outstanding share. Key elements affecting book value in the fourth quarter were:
- approximately $9.1 million of non-cash impairments and adjustments to deferred income tax assets and liabilities as a result of the qualifying transaction;
- approximately $0.4 million reduction relating to a non-cash adjustment to assets held for sale; and
- the remainder from fourth quarter results of operations and expenses including non-recurring management fees and interest expense of approximately $1.0 million relating to the former parent of the Company's subsidiaries.
The Company reported a net loss of $11.4 million or a loss of $0.62 per share diluted for the fourth quarter, and a net loss of $21.8 million or a loss of $1.19 per share diluted for the year ended December 31, 2010.
Activities Subsequent to Qualifying Transaction and Management Outlook
On January 6, 2011, the Company's ordinary voting shares began trading under the ticker symbol "AFH" on the TSX Venture Exchange. Following the listing, A.M. Best upgraded the issuer credit rating of each of American Country Insurance Company ("ACIC") and American Service Insurance Company, Inc. ("ASIC") to "B" with an outlook of "stable" from "B-" with an outlook of "under review".
Through the date of this release, the Company has been experiencing a positive reaction from its customers, agents and other strategic partners:
- applications for new business in the first quarter of 2011 are up 29% over the fourth quarter of 2010 and up 85% over the third quarter of 2010; and
- inquiries have been received from a number of new agents and commitments from existing agents to return to historic levels of production have been communicated.
Renewal of in-force business from 2010 is also trending in a positive direction:
- we renewed 69% of the policies in our core lines of business with expirations in the first quarter of 2011, on a weighted average basis where we offered renewals, versus 19% in the first quarter of 2010; and
- premium for first quarter renewal policies was marginally greater than expiring policies by 11%, as a result of pricing changes and changes in policy terms.
Though management believes that the foregoing statistics are leading indicators that suggest a positive effect on premium and the Company's results over time, no assurances can be made that these indicators will result in improved earnings or increased revenue. As a result of the Company's focus on writing only business that is adequately priced coupled with the earning of premium over a given policy period, results will be seen more gradually than the indicators themselves.
Effective with the release of its first quarter 2011 financial results, Atlas will be required to report under the principles of International Financial Reporting Standards, or IFRS.
Formation of Atlas (Major Events in 2010)
- in May 2010, the Company (then known as "JJR VI Acquisition Corp.") announced the proposed acquisition of ACIC and ASIC as the Company's qualifying transaction;
- on December 14, 2010, the Company entered into an agreement and plan of merger to effect the qualifying transaction;
- in connection with the qualifying transaction, the Company consolidated its common shares on the basis of one post-consolidation share for every ten pre-consolidation shares and continued its corporate existence from Ontario to the laws of the Cayman Islands;
- upon the continuance to the Cayman Islands, the Company changed its name to "Atlas Financial Holdings, Inc." and
- on December 31, 2010, the Company closed the qualifying transaction pursuant to which ACIC and ASIC, along with their direct parent American Insurance Acquisition Inc. ("AIAI"), became wholly-owned subsidiaries of the Company.
Because the Company was formed through a reverse triangular merger, the consolidated financial statements are those of Atlas and its subsidiaries and have been prepared in accordance Financial Accounting Standards Board ("FASB") Accounting Codification Standard ("ACS") 805.40 Reverse Acquisitions. Accordingly, and as a result of the December 31, 2010 merger date, shareholder's equity and earnings per share information provided herein reflect the ordinary voting shares outstanding at the date of the merger as well as the ordinary voting shares, restricted voting shares and preferred shares that were issued in connection with the merger, as if such capitalization structure were in place during each of the years for which financial information is being provided.
Financial Statement Presentation
These financial statements reflect the consolidated results of Atlas for the periods ended December 31, 2010 and 2009 based on historical financial statements of the Company's subsidiaries AIAI, ACIC and ASIC. These financial statements and the results reflected therein contain certain expenses and fees that supported the infrastructure of the previous parent of these subsidiaries. The Company does not expect to incur similar expenses, which included management fees, allocated overhead cost, and shared infrastructure expenses, after the date of the qualifying transaction. For more information with respect to the impact of these expenses on the Company, please see the Filing Statement dated as at December 16, 2010 with respect to the qualifying transaction, including the pro forma financial statements, as filed on SEDAR.
Operational results for the year ended December 31, 2010:
- net loss of $21.8 million was recorded for 2010;
- 29.3% of gross premiums written in 2010 was generated from commercial automobile insurance, the core line of the Company's business;
- gross premiums written from commercial automobile decreased by 74% to $13.7 million compared to $52.6 million in 2009. This decrease was primarily a result of the actions related to the strategy of the former parent company of ACIC and ASIC to focus on private passenger non-standard automobile insurance. This downward trend began to reverse in July 2010 as plans for Atlas' going forward strategy were communicated publicly; and
- investment income excluding net realized gains increased by 57.2% to $6.0 million in 2010 compared to $3.8 million in 2009. The increase was primarily due to the commutation of affiliated reinsurance contracts which increased the amount of invested assets held collectively by ACIC and ASIC by $134.5 million as at the date of such commutation.
| Financial Results
(In millions of U.S. dollars,
except per share amounts)
| For the three months ended
| For the year ended
|Gross premiums written||$||9.3||16.4||(43.4%)||$||46.7||107.6||(57.0%)|
|Net premiums earned||11.6||26.5||(56.3%)||53.6||76.2||(29.7%)|
|Underwriting profit (loss)||(5.0)||(9.1)||(44.7%)||(25.6)||(23.4)||9.3%|
|Investment income (loss)||1.4||1.3||7.9%||6.0||3.8||57.2%|
|Net realized gains (loss)||0.2||0.3||(34.1%)||0.9||(0.7)||(223.4%)|
|Misc Income (loss)||(0.1)||0.4||(127.6%)||(0.5)||2.0||(127.6%)|
|Net loss before taxes||(3.5)||(7.0)||(49.9%)||(19.2)||(18.3)||5.4%|
|Tax (benefit) impact||7.9||(1.9)||(512.6%)||2.6||(5.0)||(151.3%)|
|Net loss after taxes||(11.4)||(5.1)||124.0%||(21.8)||(13.2)||64.8%|
|Diluted loss per share- net loss||$ (0.62)||$(0.28)||$ (1.19)||$(0.72)|
For the Fourth Quarter 2010
Gross Premiums Written
Gross premiums written in the fourth quarter of 2010 decreased by 43.4% to $9.3 million compared to $16.4 million reported in the fourth quarter of 2009. The decrease was due to the various steps taken to discontinue unprofitable programs, elimination of managing general agents and initial activities undertaken to transition away from non-standard automobile insurance. In the fourth quarter, gross written premium related to Atlas' core lines of business represented $3.1 million or 33% of the Company's business. Business activity relating to core lines experienced a lift in the fourth quarter as a result of initiatives following public announcements relating to the qualifying transaction.
Also contributing to the reduction in overall premium volumes in 2010 was the poor economic condition in much of the U.S. and the "soft" property and casualty market environment.
Net Premiums Written
Net premiums written decreased 53.5% to $7.3 million for the fourth quarter of 2010 compared with $15.8 million for fourth quarter of 2009. This decrease was attributed to the same factors as described in the 'Gross Premiums Written' section above.
Net Premium Earned
Net premiums earned were $11.6 million in the fourth quarter of 2010, a decrease of 56.3% compared to $26.5 million for the fourth quarter of 2009. This decrease was attributed to the same factors as described in the 'Gross Premiums Written' section above.
Net Investment Income
Investment income increased 7.9% to a gain of $1.4 million in the fourth quarter of 2010 compared to a gain of $1.3 million for the fourth quarter of 2009, primarily due to increased yield from the investment portfolio.
Net Realized Gains and Losses
In the fourth quarter of 2010, the Company had net realized gains of $0.2 million, as compared to $0.3 million in the fourth quarter of 2009. These gains related to the rebalancing of the investment portfolio.
Miscellaneous Income and Loss
In the fourth quarter of 2010, the Company had net realized losses of $0.1 million, as compared to a gain of $0.4 million in the fourth quarter of 2009. In December 2010, a Mobile, Alabama property and office building was written down by $0.4 million to an estimated selling price less costs to sell, reducing miscellaneous income.
Claims incurred in the fourth quarter 2010 were $10.1 million, or 87% of net earned premium, as compared to $23.3 million, or 88% of net earned premium in the fourth quarter 2009. Claims incurred in the fourth quarter 2010 included the impact of non-core lines of business for which premium continued to earn.
Underwriting and general expenses in the fourth quarter 2010 decreased to $4.2 million from $5.8 million in the fourth quarter 2009. This 28.9% reduction was primarily due to elimination of non-recurring costs associated with strategic change initiatives in 2009 coupled with the resulting reductions in operating costs achieved in 2010 as a result of those initiatives. As a result of the Company's marginally greater decline in premiums, the expense ratio including acquisition costs increased to 53.7% from 44.3% for this period.
The combined ratio in the fourth quarter 2010 was 140.7% compared with 132.2% for the same quarter in 2009, which produced an underwriting loss of $5.0 million in the fourth quarter 2010 compared with a loss of $9.1 million in the fourth quarter 2009.
Income Tax Provision
Income tax provision for 2010 of $7.9 million included $1.2 million related to current year benefit on the operating loss of $3.5 million and the impact of the qualifying transaction on the amount of carry-forward net operating losses held in the gross deferred tax inventory. The net deferred tax expense was $9.1 million incurred in connection with the qualifying transaction.
Net Income and Earnings Per Share
In the fourth quarter of 2010, we incurred an after-tax loss from operations of $11.4 million compared to an after-tax loss from operations of $5.1 million in 2009. The loss in the fourth quarter of 2010 was largely due to underwriting results driven by the Company's relatively smaller book of business and the aforementioned business activities and tax impacts.
Including all non-recurring expenses and qualifying transaction related adjustments, the fourth quarter 2010 diluted pre-tax and after-tax losses per share were $0.19 and $0.62, respectively, compared to fourth quarter 2009 diluted pre-tax and after-tax losses per share of $0.38 and $0.28, respectively. The equity structure of the Company was restated to reflect the shares issued in the reverse merger at the date of the qualifying transaction and for the consolidated financials prepared post merger to retroactively adjust the legal capital to reflect the legal capital at the date of the qualifying transaction.
For the years ended December 31, 2010 and 2009
Gross Premiums Written
During the year ended December 31, 2010, gross premiums written were $46.7 million compared to $107.6 million in 2009 representing a 57.0% decrease. Written and earned premiums were reduced substantially in 2010 as compared to 2009 and prior years as a result of the changes in the business coupled with the overall reduction in premium seen industry-wide as a result of the U.S. economic condition and insurance cycle.
Gross premiums written from commercial automobile decreased by 73.9% to $13.7 million compared to $52.6 million in 2009. This decrease was primarily a result of the actions related to the former parent company's strategy which focused on private passenger non-standard automobile insurance. This downward trend began to reverse in July 2010 as plans for Atlas' go forward strategy were communicated publicly. There is a positive correlation between the economy and commercial automobile insurance in general. However, public automobile operators may be less likely than other business classes within the commercial auto segment to take vehicles out of service as their businesses and business reputations rely heavily on availability. With respect to certain business lines, such as taxi insurance, there are also other factors such as the cost and limited supply of medallions which may discourage a policy holder from taking vehicles out of service in the face of reduced demand for the use of the vehicle. Maintaining continuous insurance on all vehicles under dispatch is an important aspect of our target policyholders' businesses.
Gross premiums written from non-standard automobile insurance decreased 50.9% to $23.0 million. This reduction in premium was consistent with Atlas' strategic objective of transitioning away from this line of business. Although it is non-core business going forward, non-standard automobile insurance accounted for 49% and 44% of our gross premiums written for the years ended December 31, 2010 and 2009, respectively. The significant decrease in gross premiums written was due to the various steps taken to discontinue unprofitable lines, elimination of the managing general agents, and the run-off of Southern United Fire Insurance Company which was merged into ASIC in February 2010.
Also contributing to the reduction in premium volumes were continuing poor economic conditions in much of the U.S.
Net Premiums Written
Net premiums written decreased 65.7% to $32.5 million for the year ended December 31, 2010 compared with $94.6 million for the year ended December 31, 2009. This decrease was attributed to the same factors as described in the 'Gross Premiums Written' section above.
Net Premiums Earned
Net premiums earned decreased 29.7% to $53.6 million for the year ended December 31, 2010, compared with $76.2 million for 2009. This decrease was attributed to the same factors as described in the 'Gross Premiums Written' section above. The extent of the decrease was mitigated by the larger volume of business written in 2009 which was partially earned in 2010.
Net Investment Income
Net Investment income, excluding net realized gains, increased by 57.2% to $6.0 million in 2010, compared to $3.8 million in 2009. The increase was primarily due to the commutation of affiliated reinsurance contracts which increased the amount of invested assets held by the Company by $134.5 million at the date of the commutation.
Net Realized Gains and Losses
The Company incurred net realized investment gains in 2010 of $0.9 million compared to net losses of $0.7 million in 2009. The net gain in 2010 was due to rebalancing investments within the portfolio.
Miscellaneous Income and Losses
Miscellaneous loss for 2010 was $0.5 million compared to income of $2.0 million recorded in 2009. In 2010 the Company incurred other (non-investment) net realized losses of $2.1 million as a result of a write off a mortgage loan receivable from its former owner of $1.7 million in June plus a write down of $0.4 million of a Mobile, Alabama property and office building to an estimated selling price less costs to sell. These amounts were partially offset by policy installment fee income of $1.6 million associated with the Company's personal lines business.
The loss ratio for 2010 was 89.7% compared to 85.1% for 2009 due to increasing ultimate loss estimates for current and prior accident years. The results for 2010 reflected an increase in the provision for unpaid claims occurring prior to December 31, 2010. This increase was approximately $4.0 million, of which $2.2 million is related to discontinued and non-core lines of business, increasing the ratio by 7.4 percentage points for 2010.
The claims results included strengthening of prior years' loss reserves. This movement in incurred claims, net of reinsurance, for the years 2010, and 2009 were increases of $5.3 million and $5.9 million, respectively. Also factoring into the percentage increase in the claims incurred ratio were the impacts of the decreasing gross written premium volume and corresponding decrease in net earned premiums on the Company's internal claims adjusting costs or unallocated loss adjustment expenses ("ULAE").
The Company's total gross unpaid claims provision was $132.6 million and $169.5 million at year end 2010 and 2009, respectively. Net of reinsurance recoverables, the Company's unpaid claims provision was $126.1 million and $164.3 million at year end 2010 and 2009, respectively.
The expense ratio was 55.1% in 2010 and 42.9% in 2009. The higher ratio in 2010 was due to net premium earned decreasing at a greater rate than expense reductions. This is primarily due to timing of costs associated with the Company's strategic change program and management fees and costs allocated from the previous parent of the subsidiaries. Expenses including legal and other professional fees increased as a percentage of unearned premium but were reduced by 10% on an absolute cost basis. The reduction of expenses in 2010 was primarily due to elimination of non-recurring costs associated with strategic change initiatives in 2009 coupled with the resulting reductions in operating costs achieved as a result of those initiatives.
The combined ratio was 144.8% in 2010 compared with 128.0% in 2009, which produced an underwriting loss of $25.6 million compared with a loss of $23.4 million in 2009. The underwriting loss is attributable to the factors described in the 'Claims Incurred' and 'Underwriting Expenses' sections above.
Interest expense for 2010 was $0.8 million, compared to $0.2 million in 2009 representing a $0.6 million increase. The increase was primarily due to the interest accrued on surplus notes for the full year 2010 versus three months during 2009. The Company's obligation under these notes was eliminated in connection with the qualifying transaction effective December, 31, 2010.
Income Tax Provision
Income tax provision for 2010 of $2.6 million includes $6.5 million related to current year benefit on the operating loss of $19.2 million and the impact of the qualifying transaction on the amount of carry-forward net operating losses held in the gross deferred tax inventory. The net deferred tax expense was $9.1 million which was incurred in the fourth quarter in connection with the qualifying transaction.
Net Income and Earnings Per Share
In 2010 we incurred a loss from continuing operations of $21.8 million compared to a loss from continuing operations of $13.2 million in 2009. The loss in 2010 was largely due to underwriting losses, reserve strengthening and income tax impact as indicated above. These factors have been partially offset by net realized gains on investments and the reduction of operating expenses.
Including all non-recurring expenses and qualifying transaction related adjustments, the full year 2010 diluted pre-tax and after-tax losses per share were $1.05 and $1.19, respectively, compared to full year 2009 diluted pre-tax and after tax losses per share of $0.99 and $0.72, respectively. The equity structure of the Company is restated to reflect the shares issued in the reverse acquisition at the date of the qualifying transaction and for the consolidated financials prepared post merger to retroactively adjust the legal capital to reflect the legal capital at the date of the qualifying transaction.
Book Value Per Share
Book value per share increased by 22.1% to $2.30 at December 31, 2010 from $1.88 at December 31, 2009. The increase in book value was due to capital contributions made by the former parent of the subsidiaries prior to the qualifying transaction coupled with the factors described above, including adjustments relating to the accounting treatment of the qualifying transaction.
Summarized (without notes) consolidated balance sheets, statements of operations and comprehensive loss follow and form part of this news release.
|CONSOLIDATED BALANCE SHEETS|
|(In thousands of U.S. dollars, except per share amounts)|
|As at December 31|
|Cash and cash equivalents||$||19,037||$||6,695|
|Accrued investment income||1,293||1,710|
|Accounts receivable and other assets||13,340||28,109|
|Due from reinsurers and other insurers||11,276||5,811|
|Deferred policy acquisition costs||3,804||9,399|
|Income taxes recoverable||-||271|
|Future income taxes||6,399||9,273|
|Assets held for sale||15,004||-|
|Liabilities and Shareholders' Equity|
|Accounts payable and accrued liabilities||6,015||7,114|
|Due to reinsurers and other insurers||9,614||640|
|Ordinary voting stock||$||8,010||$||8,010|
|Restricted voting stock||27,760||27,760|
|Retained earnings (deficit)||(112,853)||(47,196)|
|Accumulated other comprehensive income||2,538||(951)|
|Total shareholders' equity||60,169||52,546|
|Total liabilities and shareholders' equity||$||225,438||$||277,601|
| CONSOLIDATED STATEMENTS OF OPERATIONS
Years ended December 31
(In thousands of U.S. dollars, except per share amounts)
|Gross premiums written||$||46,679||$||107,629|
|Net premiums written||$||32,478||$||94,593|
|Net premiums earned||$||53,603||$||76,233|
|Net investment income||6,037||3,880|
|Net realized investment gains (losses)||888||(719)|
|Miscellaneous income (loss)||(555)||2,012|
|Commissions and premium taxes||11,115||12,257|
|General, administrative and other expenses||20,021||22,529|
|Loss from operations before income taxes||(19,237)||(18,259)|
|Total income taxes (recovery)||2,575||(5,024)|
|Net loss after tax||$||(21,812)||$||(13,235)|
|Per share amounts|
|Loss per share - net loss|
|Dividends declared per common share||$||-||$||-|
|CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)|
|(In thousands of U.S. dollars)|
|Years ended December 31|
|Comprehensive income (loss)|
|Other comprehensive income (loss), net of taxes:|
|• Change in unrealized gains (losses) on available-for-sale securities:|
|Unrealized gains arising during the year, net of income taxes(1)||3,514||2,444|
|Reclassification adjustment for losses realized in the net loss, net of income tax benefit (2)||(203)||(910)|
|• Minimum pension liability adjustment||(153)||175|
|Other comprehensive income (loss)||(3,158)||1,709|
|Comprehensive income (loss)||$||(18,654)||$||(11,526)|
(1) Net of income tax expense of Nil in 2010, $(1,259) in 2009.
(2) Net of income tax benefit of Nil in 2010, $469 in 2009.
Additional information about Atlas, including a copy of its Annual Report for the year ended December 31, 2010 and its audited consolidated financial statements for the years ended December 31, 2010 and 2009, can be accessed on the Canadian Securities Administrators' website at www.sedar.com or through the Company's website at www.atlas-fin.com.
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 subsidiaries American Country Insurance Company and American Service Insurance Company, Inc. Atlas' operating subsidiaries have decades of experience with a commitment to always be an industry leader in these specialized areas of insurance.
Notice regarding forward-looking statements:
This release includes forward-looking statements regarding the Company and its 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 our Annual Report and Management Discussion and Analysis for the year ended December 31, 2010. 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 the Company 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.
Neither TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release.
SOURCE Atlas Financial Holdings, Inc.