This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration. Need a new registration confirmation email? Click here
Atlas Financial Holdings, Inc. (NASDAQ: AFH) ("Atlas" or the "Company") today reported its financial results for the third quarter ended September 30, 2013.
“In the third quarter, we continued to increase underwriting profit, the primary value driver in our business,” Scott D. Wollney, Atlas' President & CEO stated, “We saw incremental signs of market improvement both in terms of competition and rates within our specialty commercial auto niche and believe this trend will continue as we transition towards a hard insurance market.”
Financial and Operational ReviewNet Income: Atlas generated net income of $1.7 million, or $0.18 per diluted common share, for the three month period ended September 30, 2013. Including the impact of the buyback discount of the preferred shares of $1.8 million or $0.21 per diluted common share, diluted earnings per common share in the three month period ended September 30, 2013 was $0.39. This compares to net income of $1.7 million or $0.17 per diluted common share in the three month period ended September 30, 2012.
Gross Premium Written: For the three month period ended September 30, 2013, gross premium written was $32.1 million compared to $23.4 million in the three month period ended September 30, 2012, representing a 37.3% increase. In the three month period ended September 30, 2013, gross premium written from commercial automobile was $31.0 million, representing a 40.2% increase relative to the three month period ended September 30, 2012. Of the $8.7 million increase in commercial auto premium written, $2.8 million resulted from the Gateway acquisition. Excluding the Company’s Excess Taxi program, which renewed in the third quarter but is not expected to vary considerable in size year over year, gross premium written on core lines increased 89.7% as compared to the same quarter 2012.
Geographic Distribution: Atlas experienced growth in gross premium written in 39 states in the three month period ended September 30, 2013. Of those 39 states, the Company experienced quarter over quarter growth of greater than 100% in 26. This includes the impact from the Gateway acquisition as well as organic expansion. Altogether, Atlas had written premium in 39 states in the three month period ended September 30, 2013 compared to 30 in the three month period ended September 30, 2012 and 39 in the three month period ended June 30, 2013.
Loss and Combined Ratio: The loss ratio relating to claims incurred in the three month period ended September 30, 2013 was 63.4% compared to 65.5% in the three month period ended September 30, 2012. Atlas' combined ratio improved for the three month period ended September 30, 2013 to 93.9%, compared to 97.6% 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
Nine Month Periods Ended
September 30, 2013
September 30, 2012
September 30, 2013
September 30, 2012
Acquisition cost ratio
Other underwriting expense ratio
Underwriting Results: Underwriting results increased to $1.1 million for the three month period ended September 30, 2013, an $832,000 improvement compared to the prior year same period.
Operating Income: Atlas' Operating Income for the three month period ended September 30, 2013 was $1.7 million, or $0.18 per diluted common share, compared to $877,000 in the three month period ended September 30, 2012, or $0.10 per diluted common share. In the 2012 period, substantially all the difference between net income and Operating Income was gain realized on the sale of investments (investment gains or losses were nominal in the third quarter of 2013).
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 OverviewBook Value: Book value per diluted common share on September 30, 2013 was $6.50, compared to $6.07 at June 30, 2013 and $6.55 at December 31, 2012. Year-to-date in 2013, book value changed relative to December 31, 2012 as follows: a reduction of $0.37 related to dilution from the Company’s U.S. IPO, a reduction of $0.04 from legal and professional fees related to the acquisition of Gateway, an increase of $0.47 from net income attributable to common shareholders, and a decrease of $0.32 related to the change in unrealized gains and losses. Additionally, the impact on book value per common share related to the preferred share redemption, which was completed on August 1, 2013, is an increase of $0.22 per common share outstanding. Other share based impact for warrant exercises and share based compensation negatively impacted book value by $0.01 per share on a year-to-date basis.
Cash and Invested Assets: Cash and invested assets as of the period ended September 30, 2013 totaled $140.1 million, consisting primarily of fixed income securities.
Investment Strategy: Atlas aligns its securities portfolio to support the liabilities and operating cash needs of Atlas’ 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 September 30, 2013, the Company's average duration on its portfolio was 3.9 years.
Investment and Other Income: During the three month period ended September 30, 2013, Atlas reported investment income and other revenues of $603,000, of which $33,000 are realized gains. Realized gains of $779,000 in the three month period ended September 30, 2012 and $395,000 in the three month period ended June 30, 2013 as well as significant gains in other prior periods related to market conditions, the acquisition of Gateway and restructuring of the duration of the Company’s portfolio.
Investment Yield: The investment income and other revenues generated by the investment portfolio resulted in a 1.7% annualized yield for the three month period ended September 30, 2013, versus 2.6% in the prior period. A more significant portion of the yield in the second quarter related to capital gains than in the third quarter. The annual investment yield on a year to date basis was 2.3%.
Impact of Interest Rate Change: In the quarter ending September 30, 2013, Atlas had $192,000 of unrealized gains as a result of the impact of the slight decrease in interest rates on the market value of some of the securities it owns, as compared to unrealized losses of $3.7 million in the second quarter to 2013 related to interest rate movement in the opposite direction. The duration of Atlas' portfolio is well matched to its 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. For Atlas’ available-for-sale fixed income securities held as of the period ended September 30, 2013, 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 $133,000. Conversely, a 100 basis point decrease in interest rates on such held fixed income securities would have decreased net investment income and income before taxes by $70,000. A 100 basis point increase would have also decreased other comprehensive income by approximately $4.2 million due to “mark-to-market” requirements; however, holding investments to maturity would mitigate this impact. Conversely, a 100 basis point decrease would have increased other comprehensive income by the same amount. The impacts described here are approximately linear to the change in interest rates.
Conference Call Details
Date / Time:
Tuesday, November 5, 2013 - 8:30 a.m. ET
Participant Dial-In Numbers:
(United States): 877-423-9817
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.