ADDISON, Texas, Nov. 9, 2006 (PRIMEZONE) -- Affirmative Insurance Holdings, Inc. (Nasdaq:AFFM), a producer and provider of personal non-standard automobile insurance, today announced financial results for the quarter and the nine months ended September 30, 2006.
Key Financial Results for the Three and Nine Month Periods Ended September 30, 2006
Three months ended Nine months ended
September 30, September 30,
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2006 2005 % Change 2006 2005 % Change
---- ---- -------- ---- ---- --------
Restated Restated
(dollars in millions, except per share data)
Gross premiums
written $68.5 $74.8 -8.5% $223.0 $254.1 -12.3%
Net premiums
written $68.4 $72.8 -6.1% $223.5 $249.6 -10.4%
Net premiums
earned $71.9 $77.5 -7.3% $218.7 $222.9 -1.9%
Total revenues $88.5 $98.7 -10.4% $271.1 $289.4 -6.3%
Net income $ 5.0 $ 5.7 -13.4% $ 16.1 $ 19.4 -17.0%
Net income per
share - diluted $0.33 $0.38 -13.2% $ 1.05 $ 1.19 -11.8%
Third Quarter Financial Results
In the third quarter of 2006, we had net income of $5.0 million or $0.33 per diluted share, as compared to net income of $5.7 million or $0.38 income per diluted share for the same period in 2005. Weighted average diluted shares outstanding for the third quarter were 15,186,777 shares, up slightly from 15,165,677 shares for the year-ago period.
Net premiums earned for the three months ended September 30, 2006 were $71.9 million, a decrease of $5.6 million or 7.3% compared to net premiums earned of $77.5 million for the three months ended September 30, 2005. The decrease was primarily due to our reduced levels of gross premiums written in both the current and previous periods. In the third quarter of 2006, our gross premiums written were down 8.5% as compared to the third quarter of 2005.
Net premiums written decreased 6.1% to $68.4 million due to the decline in our gross premiums written.
For the quarter ended September 30, 2006, our loss and loss adjustment expense ratio was 64.1% as compared to 61.1% in the third quarter of the prior year. This increase in the loss ratio reflects the favorable loss development on previously written business that was recognized in the previous year's third quarter relative to the lesser amount of favorable development recognized in the third quarter of 2006.
Our selling, general and administrative expenses decreased 17.8% to $33.0 million for the third quarter of 2006 from $40.1 million in the comparable period in 2005 and our expense ratio decreased to 27.3% from 27.5% in the prior year. The relatively small decrease in our expense ratio reflects the effect of the widely used industry calculation method that offsets our operating expenses (selling, general and administrative expenses and depreciation and amortization) with our other revenues (commission income and fees) in the dividend, with the divisor consisting of only net premiums earned. The revenue from commission income and fees decreased to $14.4 million in the third quarter of 2006 from $19.7 million in the comparable period in 2005 in part as a result of our increased retention of business that we produced. In the previous year, we reinsured more of our business with other insurers and earned fees for servicing the policies. In addition, revenue from commission income and fees has been adversely affected by both the overall decline in gross premiums written and the change in our sales strategy during the third quarter that involved the reduction or elimination of the agency fee charged to a customer when a policy is written. This change allows us to offer the prospective customer a more affordable down payment, with the objective of gaining new customers, increasing premiums earned on policies written by our three affiliated insurance carriers and commission income on policies written on third party carriers, thereby enhancing the longer-term economic value of the company.
Our combined ratio (the sum of the loss and loss adjustment expense ratio and the expense ratio) for the third quarter of 2006 was 91.4% as compared to 88.5% for the comparable quarter in 2005.
Year-to-date Financial Results
In the first nine months of 2006, we had net income of $16.1 million or $1.05 per diluted share, as compared to the net income of $19.4 million or $1.19 income per diluted share for the same period in 2005. Weighted average diluted shares outstanding for the first nine months were 15,327,137 shares as compared to 16,231,333 shares for the year-ago period, largely as a result of our acquisition of 2.0 million shares of treasury stock in June 2005 and 302,400 shares in the second quarter of 2006.
Net premiums earned for the nine months ended September 30, 2006 were $218.7 million, a decrease of $4.2 million or 1.9% compared to net premiums earned of $222.9 million for the nine months ended September 30, 2005. The decrease was primarily due to the reduction in gross premiums written in current and previous periods. In the first nine months of 2006, our gross premiums written were down 12.3% as compared to the first nine months of 2005.
Net premiums written decreased 10.4% to $223.5 million due to the decline in our gross premiums written.
For the nine months ended September 30, 2006, our loss and loss adjustment expense ratio remained stable at 64.4% as compared to 64.2% in the first nine months of the prior year.
For the nine months ended September 30, 2006, our expense ratio was 25.8% as compared to 22.6% in the prior year. This increase in our expense ratio reflects the effect of the widely used industry calculation method that offsets our operating expenses (selling, general and administrative expenses and depreciation and amortization) with our other revenues (commission income and fees) in the dividend, with the divisor consisting of only net premiums earned. The revenue from commission income and fees included in our consolidated financial statements decreased to $46.5 million in the first nine months of 2006 from $62.4 million in the comparable period in 2005 in part as a result of our increased retention of business produced in the current year as compared to our greater use of reinsurance in prior years. In addition, revenue from commission income and fees has been adversely affected by both the decline in gross premiums written and the change in our sales strategy during the third quarter as described above.
Our combined ratio (the sum of the loss and loss adjustment expense ratio and the expense ratio) for the first nine months of 2006 was 90.2% as compared to 86.8% for the comparable quarter in 2005.
Restatement
As previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2005, we restated certain of our previously issued financial statements to correct consolidating elimination entries made in prior periods that were not in conformity with generally accepted accounting principles and to correct the allocation of commission income and fees among the first three quarters of 2005. The erroneous elimination entries had no effect on reported net income, earnings per share, cash, invested assets or stockholders' equity, but did have the effect of materially understating gross revenues and expenses and misstating certain assets and liabilities. The restatement of the misallocation of commission income and fees among the first three quarters of 2005 increased commission and fee income by $482,000 ($311,000 after income taxes) for the third quarter of 2005, but had no impact for the nine months ending September 30, 2005. The previously issued unaudited interim consolidated financial statements for the quarter ended September 30, 2005 have been restated. All financial information in this announcement gives effect to the restatement.
Affirmative Insurance Holdings, Inc.
Consolidated Statements of Operations - Unaudited
(dollars in thousands, except per share data)
Three months ended
September 30,
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2006 2005 % Change
---------- ---------- --------
Restated
Revenues
--------
Net premiums earned $ 71,877 $ 77,544 -7.3%
Commission income and fees 14,420 19,721 -26.9%
Net investment income 2,233 1,447 54.3%
Realized gains (losses) (78) 5 NM
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Total revenues 88,452 98,717 -10.4%
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Expenses
--------
Losses and loss adjustment expenses 46,044 47,350 -2.8%
Selling, general and administrative
expenses 32,979 40,097 -17.8%
Depreciation and amortization 1,094 912 20.0%
Interest expense 1,085 1,124 -3.5%
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Total expenses 81,202 89,483 -9.3%
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Net income before income taxes,
minority interest and equity
interest in unconsolidated
subsidiaries 7,250 9,234 -21.5%
Income tax expense 2,278 3,274 -30.4%
Minority interest, net of
income taxes -- 217 NM
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Net income (loss) $ 4,972 $ 5,743 -13.4%
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Net income (loss) per common
share - Basic $ 0.33 $ 0.39 -15.4%
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Net income (loss) per common
share - Diluted $ 0.33 $ 0.38 -13.2%
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Weighted average shares
outstanding - Basic 15,139,571 14,893,310 1.7%
Weighted average shares
outstanding - Diluted 15,186,777 15,165,677 0.1%
Operational Information
-----------------------
Gross premiums written $ 68,483 $ 74,821 -8.5%
Net premiums written $ 68,357 $ 72,777 -6.1%
Percentage retained 99.8% 97.3%
Loss Ratio 64.1% 61.1%
Expense Ratio 27.3% 27.5%
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Combined Ratio 91.4% 88.5%
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Nine months ended
September 30,
---------------------------------
2006 2005 % Change
---------- ---------- --------
Restated
Revenues
--------
Net premiums earned $ 218,668 $ 222,921 -1.9%
Commission income and fees 46,471 62,423 -25.6%
Net investment income 6,447 4,057 58.9%
Realized gains (losses) (444) 11 NM
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Total revenues 271,142 289,412 -6.3%
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Expenses
--------
Losses and loss adjustment expenses 140,777 143,134 -1.6%
Selling, general and administrative
expenses 99,774 109,919 -9.2%
Depreciation and amortization 3,213 2,934 9.5%
Interest expense 3,256 2,499 30.3%
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Total expenses 247,020 258,486 -4.4%
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Net income before income taxes,
minority interest and equity
interest in unconsolidated
subsidiaries 24,122 30,926 -22.0%
Income tax expense 7,954 10,961 -27.4%
Minority interest, net of
income taxes 81 576 -85.9%
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Net income (loss) $ 16,087 $ 19,389 -17.0%
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Net income (loss) per common
share - Basic $ 1.05 $ 1.21 -13.2%
========== ==========
Net income (loss) per common
share - Diluted $ 1.05 $ 1.19 -11.8%
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Weighted average shares
outstanding - Basic 15,296,893 15,978,852 -4.3%
Weighted average shares
outstanding - Diluted 15,327,137 16,231,333 -5.6%
Operational Information
-----------------------
Gross premiums written $ 222,963 $ 254,121 -12.3%
Net premiums written $ 223,535 $ 249,576 -10.4%
Percentage retained 100.3% 98.2%
Loss Ratio 64.4% 64.2%
Expense Ratio 25.8% 22.6%
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Combined Ratio 90.2% 86.8%
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Affirmative Insurance Holdings, Inc.
Condensed Consolidated Balance Sheets
(dollars in thousands, except share and per share data)
September 30, December 31,
2006 2005
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Assets (Unaudited)
------
Fixed maturities - available for sale $ 226,414 $ 210,273
Short-term investments 251 477
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Total invested assets 226,665 210,750
Cash and cash equivalents 57,267 48,037
Fiduciary and restricted cash 32,138 29,689
Premiums and fees receivable 85,611 81,680
Commissions receivable 5,154 2,144
Receivable from reinsurers 23,152 28,137
Deferred acquisition costs 26,005 24,453
Deferred tax asset, net 9,918 14,866
Goodwill and other intangible assets, net 83,467 80,616
Other assets 23,260 23,753
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Total assets $ 572,637 $ 544,125
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Liabilities and Stockholders' Equity
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Liabilities
Reserves for losses and loss
adjustment expenses 139,859 126,940
Unearned premium 99,221 97,344
Amounts due reinsurers 8,081 8,715
Deferred revenue 25,893 27,101
Notes payable 56,702 56,702
Other liabilities 31,271 27,361
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Total liabilities 361,027 344,163
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Stockholders' equity
Common stock 175 175
Additional paid-in capital 159,416 158,904
Treasury stock, at cost (32,880) (28,746)
Accumulated other comprehensive
income (loss) (431) (529)
Retained earnings 85,330 70,158
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Total stockholders' equity 211,610 199,962
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Total liabilities and
stockholders' equity $ 572,637 $ 544,125
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Notes payable as % of capitalization 21.1% 22.1%
Actual shares outstanding 15,140,486 15,432,557
Book value per share $ 13.98 $ 12.96
Forward-Looking Statements Disclosure
Certain information in this news release and other statements or materials are not historical facts but are forward-looking statements relating to such matters as future results of our business, financial condition, liquidity, results of operations, plans, and objectives. In connection with the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995, we provide the following cautionary remarks regarding important factors that, among others, could cause our actual results and experience to differ materially from the anticipated results or other expectations expressed in our forward-looking statements. The risks and uncertainties that may affect the operations, performance, results of our business, and the other matters referred to above include, but are not limited to: general volatility of the non-standard personal automobile and reinsurance markets; the market price of our common stock; changes in business strategy; severe weather conditions; availability, terms and deployment of capital; the degree and nature of competitor product and pricing activity; changes in the non-standard personal automobile insurance industry, interest rates or the general economy; identification and integration of potential acquisitions; claims experience; and availability of qualified personnel.
About Affirmative Insurance Holdings, Inc.
Headquartered in Addison, Texas, Affirmative Insurance Holdings, Inc. is a producer and provider of personal non-standard automobile insurance policies to individual consumers in highly targeted geographic markets. We currently offer products and services in 12 states, including Texas, Illinois, California and Florida.