Atlas Financial Holdings Announces 2013 Second Quarter Financial Results

Atlas Financial Holdings Announces 2013 Second Quarter Financial Results

Company to Hold Conference Call August 13, 2013 at 8:30 a.m. ET

Second Quarter 2013 Financial Performance Summary (Comparisons to Second Quarter 2012 Unless Noted):

  • Gross premium written increased by 79.2%, which included an increase of 90.6% in core commercial auto business

  • Premium related to core products was written in 39 states during the three month period ended June 30, 2013

  • Combined ratio improved by 16.5 percentage points to 95.0%

  • Underwriting results improved by $1.7 million

  • Operating Income was $1.3 million for the three month period ended June 30, 2013

  • Net income for the three month period ended June 30, 2013 was $1.7 million compared to income of $130,000 in the prior period

  • Diluted earnings per ordinary share was $0.16, net of the accounting treatment for preferred shares

  • Book value per common share on June 30, 2013 was $6.07, compared to $6.55 at December 31, 2012 and $6.15 at June 30, 2012


CHICAGO--(BUSINESS WIRE)-- Atlas Financial Holdings, Inc. (NAS: AFH) ("Atlas" or the "Company") today reported its financial results for the second quarter ended June 30, 2013.

Management Comments

Scott D. Wollney, Atlas' President & CEO stated, "In the second quarter of 2013 Atlas successfully built on a number of important first quarter milestones. We have successfully integrated Gateway into the Atlas platform following our acquisition of the company earlier this year. We also continued to grow our core commercial auto business, increased Operating Income, and improved on key operating metrics during the quarter. We are now actively distributing our core products in 40 states plus Washington D.C. (with premium generated in 39) and have further diversified our book of business geographically. At this point, we believe that our Company is poised to benefit from continuing favorable market conditions, particularly in the niche taxi / limo / para-transit sectors that we write. Finally, we expect that the recently announced discounted redemption of outstanding preferred shares will have a favorable impact on our results in future quarters."

Financial and Operational Review

  • Net Income: Atlas generated net income of $1.7 million, or $0.16 per diluted common share, for the three month period ended June 30, 2013. This compares to net income of $130,000 or a loss of $0.01 per diluted common share in the three month period ended June 30, 2012.

  • Purchase and Cancellation of Preferred Shares: On August 1, 2013, Atlas agreed to purchase all outstanding preferred shares that are eligible for redemption, for 90% of liquidation value, or $16.2 million. The below chart outlines the transaction's pro forma impact on earnings per share in the three month period ended June 30, 2013 "as if" the redemption had occurred in the second quarter of 2013:

(in '000s, except per share values)

Three Month Period Ended June 30, 2013

Actuals

Pro Forma

Basic:

Net income attributable to Atlas

$

1,701

$

1,701

Less: Preferred share dividends

225

23

Add: Accretion related to discounted purchase of preferred stock

1,800

Net income attributable to common shareholders

1,476

3,478

Weighted average basic common shares outstanding

8,131,450

8,131,450

Basic earnings per common share

$

0.18

$

0.43

Diluted:

Weighted average basic common shares outstanding

8,131,450

8,131,450

Add:

Dilutive stock options outstanding

44,161

44,161

Dilutive warrants

252,794

252,794

Preferred shares

2,540,000

254,000

Dilutive average common shares outstanding

10,968,405

8,682,405

Dilutive earnings per common share

$

0.16

$

0.40

Related to:

Net income attributable to common shareholders

$

0.19

Accretion related to discounted purchase of preferred stock

$

0.21

On a pro forma basis post-redemption, book value per share would have been $6.29, had the transaction occurred in the second quarter.

  • Gross Premium Written: For the three month period ended June 30, 2013, gross premium written was $16.6 million compared to $9.2 million in the three month period ended June 30, 2012, representing a 79.2% increase. In the three month period ended June 30, 2013, gross premium written from commercial automobile was $15.6 million, representing a 90.6% increase relative to the three month period ended June 30, 2012. Of the increase in commercial auto premium written, $2.7 million resulted from the Gateway acquisition, without which the growth would have been 58.1%.

  • Loss and Combined Ratio: The loss ratio relating to the claims incurred in the three month period ended June 30, 2013 was 64.6% compared to 71.6% in the three month period ended June 30, 2012. Atlas' combined ratio improved for the three month period ended June 30, 2013 to 95.0%, compared to 111.5% for the corresponding prior year period. The table below indicates the comparisons of each component of our combined ratio for the periods indicated:

Three Month Periods Ended

Six Month Periods Ended

June 30, 2013

June 30, 2012

June 30, 2013

June 30, 2012

Loss ratio

64.6

%

71.6

%

64.6

%

71.3

%

Acquisition cost ratio

13.1

%

18.5

%

13.7

%

17.5

%

Other underwriting expense ratio

17.3

%

21.4

%

18.2

%

20.6

%

Combined ratio

95.0

%

111.5

%

96.5

%

109.4

%

  • Underwriting Results: Underwriting results improved by $1.7 million to $828,000 three month period ended June 30, 2013 compared to a loss of $868,000 in the three month period ended June 30, 2012.

  • Operating Income: Atlas' Operating Income for the three month period ended June 30, 2013 was $1.3 million, or $0.12 per diluted common share, compared to an operating loss of $211,000 in the three month period ended June 30, 2012, or a loss of $0.03 per diluted common share. In both of these periods, substantially all the difference between net income and Operating Income was gain realized on the sale of investments. On a pro forma basis, Operating Income per diluted common share for the three month period ended June 30, 2013 was $0.15, had the preferred share redemption transaction occurred during the second quarter.

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. GAAP net income.

Balance Sheet/Investment Overview

  • Book Value: Book value per diluted common share on June 30, 2013 was $6.07, compared to $6.15 at June 30, 2012 and $6.55 at December 31, 2012. Year to date in 2013, book value was reduced relative to December 31, 2012 as follows: a reduction of $0.37 related to dilution from our company's U.S. IPO, a reduction of $0.04 from legal and professional fees related to its acquisition of Gateway, an increase of $0.27 from net income attributable to common shareholders, and a decrease of $0.34 related to the change in unrealized gains and losses. The impact on book value per common share related to the preferred share redemption, which was completed on August 1, 2013, is $0.22 per common share outstanding (the redemption of these shares is expected to result in accretion to book value in this amount in the third quarter).

  • Cash and Invested Assets: Cash and invested assets as of the period ended June 30, 2013 totaled $145.0 million, consisting primarily of fixed income securities.

  • 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 relatively short durations that correlate with the payout patterns of Atlas' claims liabilities and other liquidity needs. At June 30, 2013, the Company's average duration on its portfolio was 3.8 years.

  • Investment and Other Income: During the three month period ended June 30, 2013, Atlas reported investment income and other revenues of $945,000, of which $395,000 are realized gains.

  • Investment Yield: The investment income and other revenues generated by the investment portfolio resulted in a 2.6% annualized yield for the three month period ended June 30, 2013, versus 3.2% in the prior period. A portion of this yield relates to capital gains. Excluding the effect of these capital gains the annual investment yield for the year was 1.5%.

  • Impact of Interest Rate Change: Based on Atlas' invested assets in the quarter, a 1% increase or decrease in interest rates would result in an approximate increase or decrease, respectively, to investment income of $104,000. In the quarter ending June 30, 2013, Atlas had $3.9 million of unrealized losses as a result of the impact of rising interest rates on the market value of some of the securities we own. The duration of Atlas' portfolio is well matched to our liquidity needs and the Company expects to hold these assets until maturity. Therefore, Atlas does not expect the near term change in market value of these securities to be realized and anticipates the impact of the unrealized losses to reverse over time as the underlying securities mature.

Conference Call Details

Date / Time:

Tuesday, August 13, 2013 - 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". Questions will be taken at the end of the call.

Atlas will be utilizing an accompanying slideshow presentation in conjunction with this call. This presentation is available on the "earnings release info" section of the Company's website's investor relations tab at http://www.atlas-fin.com/InvestorRelations/EarningsReleaseInfo.aspx.

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/q2-2013. The webcast and a transcript of the call will be archived and accessible for approximately 30 days.

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., American Country Insurance Company, American Service Insurance Company, Inc. and Gateway Insurance Company, Inc Additional information about Atlas, including a copy of Atlas' 2012 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 www.atlas-fin.com.

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 2012 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.

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)

Consolidated Statements of Income

Three Month Periods Ended

Six Month Periods Ended

June 30, 2013

(unaudited)

June 30, 2012

(unaudited)

June 30, 2013

(unaudited)

June 30, 2012

(unaudited)

Net premiums earned

$

16,968

$

7,552

$

32,856

$

15,861

Net investment income

547

657

1,159

1,265

Net investment gains

395

291

488

319

Other income

3

50

8

167

Total revenue

17,913

8,550

34,511

17,612

Net claims incurred

10,957

5,408

21,218

11,312

Acquisition costs

2,227

1,395

4,497

2,768

Other underwriting expenses

2,956

1,617

6,015

3,267

Expenses incurred related to Gateway acquisition

406

Total expenses

16,140

8,420

32,136

17,347

Income from operations before income tax expense

1,773

130

2,375

265

Income tax expense

72

72

Net income attributable to Atlas

1,701

130

2,303

265

Less: Preferred share dividends

225

202

501

402

Net income/(loss) attributable to common shareholders

$

1,476

$

(72

)

$

1,802

$

(137

)

Basic weighted average common shares outstanding

8,131,450

6,144,385

7,591,092

6,145,099

Earnings/(loss) per common share, basic

0.18

(0.01

)

0.24

$

(0.02

)

Diluted weighted average common shares outstanding

10,968,405

6,144,385

10,346,756

6,145,099

Earnings/(loss) per common share, diluted

0.16

(0.01

)

0.22

$

(0.02

)

Consolidated Statements of Comprehensive Income

Net income attributable to Atlas

$

1,701

$

130

$

2,303

$

265

Other comprehensive (loss)/income:

Changes in net unrealized (losses)/gains

(3,890

)

798

(4,026

)

1,024

Reclassification to income of net realized gains

(25

)

(174

)

(210

)

(344

)

Effect of income tax

1,331

(210

)

1,440

(229

)

Other comprehensive (loss)/income for the period

(2,584

)

414

(2,796

)

451

Total comprehensive income

$

(883

)

$

544

$

(493

)

$

716

ATLAS FINANCIAL HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

(in '000s of US dollars, except for share and per share data)

June 30, 2013

(unaudited)

December 31,

2012

Assets

Investments, available for sale

Fixed income securities, at fair value (Amortized cost $119,537 and $95,423)

$

118,158

$

98,079

Equity securities, at fair value (cost $569 and $1,563)

375

1,571

Other investments

1,249

1,262

Total Investments

119,782

100,912

Cash and cash equivalents

25,258

19,912

Accrued investment income

666

517

Accounts receivable and other assets (Net of allowance of $740 and $484)

29,459

21,923

Reinsurance recoverables, net

23,826

6,020

Prepaid reinsurance premiums

2,970

2,111

Deferred policy acquisition costs

4,661

3,764

Deferred tax asset, net

8,045

6,605

Intangible assets

740

Software and office equipment, net

1,980

1,137