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Atlas Financial Holdings Announces 2013 Fourth Quarter Financial Results

Stocks in this article: AFH

Atlas Financial Holdings, Inc. (NASDAQ:AFH) ("Atlas" or the "Company") today reported its financial results for the fourth quarter and the full year ended December 31, 2013.

Management Comments

“In the fourth quarter, the unique attributes of our niche market created opportunities that appeared to be more positive than the overall commercial auto insurance segment,” Scott D. Wollney, Atlas' President & CEO stated, “We were successful in continuing to improve each of our operating ratios and to grow at a strong rate through recapture of historically written business as well as organic growth in expansion states."

Financial and Operational Review

Net Income: Atlas generated net income of $2.2 million for the three month period ended December 31, 2013. This compares to net income of $1.2 million in the three month period ended December 31, 2012.

Gross Premium Written: For the three month period ended December 31, 2013, gross premium written was $22.1 million compared to $10.7 million in the three month period ended December 31, 2012, representing an increase of 106.2%. Of the $11.4 million increase in commercial auto premium written, $2.5 million resulted from the Company's acquisition of Gateway Insurance Company in January 2013.

Geographic Distribution: Atlas' core lines of business are becoming increasingly diversified from a geographic standpoint, with 55% of gross premium written in 2013 generated in its five largest states as compared to 70% in 2012.

Loss and Combined Ratio: The loss ratio relating to claims incurred in the three month period ended December 31, 2013 was 63.3% compared to 67.7% in the three month period ended December 31, 2012. Atlas' combined ratio improved for the three month period ended December 31, 2013 to 91.4%, compared to 97.4% for the corresponding prior year period. The table below indicates the comparisons of each component of the Company's combined ratio for the periods indicated:

  Three Month Period Ended   Twelve Month Period Ended

December 31,

 

December 31,

 

December 31,

 

December 31,

2013

 

2012

 

2013

 

2012

Loss ratio 63.3 % 67.7 % 63.9 % 68.6 %
Acquisition cost ratio 14.7 % 15.9 % 14.5 % 16.7 %
Other underwriting expense ratio 13.4 %   13.8 %   16.0 %   17.1 %
Combined ratio 91.4 %   97.4 %   94.4 %   102.4 %
 

Underwriting Results: Underwriting results increased to $1.8 million for the three month period ended December 31, 2013, a $1.4 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   Twelve Month Period Ended

December 31,

 

December 31,

 

December 31,

 

December 31,

2013

 

2012

 

2013

 

2012

U.S. GAAP net income $ 2,178 $ 1,244 $ 6,180 $ 3,166
Add: Expenses incurred related to Gateway Acquisition - - 406 -
Less: Net investment gains 8 338 529 1,435
Less: Other income 5   26   13   194
Operating Income $ 2,165   $ 880   $ 6,044   $ 1,537
 

Operating Income: Atlas' Operating Income for the three month period ended December 31, 2013 was $2.2 million compared to $880,000 in the three month period ended December 31, 2012. 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 fourth quarter of 2013).

Earnings per share ("EPS"): Atlas generated $0.25 per share basic and $0.22 per share diluted for the three month period ended December 31, 2013. This compares to $0.17 per share basic and $0.15 per share diluted in the three month period ended December 31, 2012.

In computing the diluted earnings per share on a year to date basis, the Company included the dilutive impact of the convertible preferred shares that were redeemed during the third quarter of 2013 on a pro-rata basis for the period during which those convertible preferred shares were outstanding. This dilutive impact increased the denominator in the full year 2013 diluted EPS computation by 1,333,500 shares; however, this has no impact on the actual earnings used for the numerator in the EPS computation. The Company did not include the dilutive impact related to the third quarter redemption of the convertible preferred shares in its diluted EPS computations in the amounts of 762,000 shares and 1,778,000 shares for the third quarter 2013 or the year to date September 30, 2013 computation, respectively. This had no impact on the actual earnings used for the numerator in the EPS computation for the third quarter 2013. Including the dilutive impact of the redeemed convertible preferred shares on a pro-rata basis for the period during which those convertible preferred shares were outstanding, the diluted EPS for the third quarter 2013 would have been $0.36 and the diluted EPS for year to date September 30, 2013 would have been $0.56 as compared to the previously reported amounts of $0.39 and $0.69, respectively.

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