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CORRECTING and REPLACING Atlas Financial Holdings Announces 2014 First Quarter Financial Results

Stocks in this article: AFH

In the CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (Unaudited) financial table, the header dates should read: March 31, 2014 (instead of December 31, 2013) and March 31, 2013 (instead of December 31, 2012). This revised release has been issued solely to update the heading on the condensed consolidated statements of income and comprehensive income.

The corrected release reads:

ATLAS FINANCIAL HOLDINGS ANNOUNCES 2014 FIRST QUARTER FINANCIAL RESULTS

Company to Hold Conference Call on May 8, 2014 at 8:30 a.m. ET

First Quarter 2014 Financial Performance Summary (comparisons to First Quarter 2013 unless noted):

  • Gross premium written increased by 39.7% to $31.2 million, which included an increase of 46.1% in our core commercial auto business
  • Premium related to core products was written in 39 states during the three month period ended March 31, 2014
  • The combined ratio improved by 4.6 percentage points to 93.5%
  • Underwriting results improved by $1.1 million
  • Operating income was $2.2 million for the three month period ended March 31, 2014 as compared to $911,000 for the three month period ended March 31, 2013
  • Diluted earnings per common share was $0.22
  • Book value per common share on March 31, 2014 was $6.79, compared to $6.54 at December 31, 2013 and $6.20 at March 31, 2013

Atlas Financial Holdings, Inc. (NASDAQ:AFH) ("Atlas" or the "Company") today reported its financial results for the first quarter ended March 31, 2014.

Financial and Operational Review

Net Income: Atlas generated net income of $2.2 million for the three month period ended March 31, 2014. This compares to net income of $602,000 in the three month period ended March 31, 2013.

Gross Premium Written: For the three month period ended March 31, 2014, gross premium written was $31.2 million compared to $22.4 million in the three month period ended March 31, 2013 representing an increase of 39.7%.

Geographic Distribution: Although Atlas' core lines of business are becoming increasingly diversified from a geographic standpoint on an annual basis, in the first quarter as a result of the significant volume of business written in Illinois, which is our most mature market and has a common January 1 renewal date for taxi business, 65.7% of gross premium written was generated in its five largest states.

Loss and Combined Ratio: The loss ratio relating to claims incurred in the three month period ended March 31, 2014 was 63.4% compared to 64.6% in the three month period ended March 31, 2013. Atlas' combined ratio improved for the three month period ended March 31, 2014 to 93.5%, compared to 98.1% for the corresponding prior year period. For the three month period ended March 31, 2014, we incurred $827,000 of expense related to discretionary management incentive compensation which was paid in the first quarter of 2014, $500,000 of which was an amount in excess of the first quarter 2014 discretionary bonus accrual. These expenses are included in the other underwriting expenses. The amount in excess of the accrual had an effect of approximately 2.3% on the underwriting expense ratio for the three month period ended March 31, 2014. The table below indicates the comparisons of each component of the Company's combined ratio for the periods indicated:

       
The Three Month Period Ended
March 31, 2014     March 31, 2013
Loss ratio 63.4 %     64.6 %
Acquisition cost ratio 14.1 % 14.3 %
Other underwriting expense ratio (including discretionary management incentive compensation) 16.0 %       19.2 %
Combined ratio 93.5 %       98.1 %
 

Underwriting Results: Underwriting results increased to $1.4 million for the three month period ended March 31, 2014, a $1.1 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

March 31,

2014

   

March 31,

2013

U.S. GAAP net income $ 2,192     $ 602
Add: Expenses incurred related to Gateway acquisition $ 0 406
Less: Net realized (losses) gains (11 ) 93
Less: Other income 2       4
Operating Income $ 2,183       $ 911
 

Operating Income: Atlas' Operating Income for the three month period ended March 31, 2014 was $2.2 million compared to $911,000 in the three month period ended March 31, 2013. Eliminating the impact of discretionary management incentive compensation expenses in excess of amounts accrued in the first quarter of 2014, on a pro-forma adjusted basis operating income was $2.7 million for the three month period ended March 31, 2014.

Earnings per share ( "EPS" ): Atlas generated $0.23 per share basic and $0.22 per share diluted for the three month period ended March 31, 2014. This compares to $0.05 per share basic and diluted in the three month period ended March 31, 2013. Eliminating the impact of the discretionary management incentive compensation expenses in excess of amounts accrued in the first quarter of 2014, on a pro-forma Non-GAAP basis, Atlas generated $0.27 of diluted earnings per share for the three month period ended March 31, 2014.

Balance Sheet/Investment Overview

Book Value: Book value per common share was $6.79 based on 9,610,586 common shares outstanding at March 31, 2014, compared to $6.20 based on 8,095,892 common shares outstanding at March 31, 2013 and $6.54 based on 9,424,734 common shares outstanding at December 31, 2013. Book value changed relative to December 31, 2013 is as follows: an increase of $0.14 related to net income after tax, an increase of $0.09 related to change in net realized gains/losses after tax, an increase of $0.08 related to the change in deferred tax valuation allowance, and a decrease of $0.06 related to share based compensation.

Cash and Invested Assets: Cash and invested assets as of the period ended March 31, 2014 totaled $142.8 million, consisting primarily of fixed income securities as compared to $139.9 million as at December 31, 2013.

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 overall durations that correlate with the payout patterns of Atlas' claims liabilities and other liquidity needs. At March 31, 2014 the Company's contractual duration on its portfolio was 3.9 years. The Company's investment allocations will be regularly reviewed based on market conditions with a continued emphasis on capital preservation to support growth in its operating business.

Investment and Other Income: During the three month period ended March 31, 2014, Atlas reported investment income and other income of $770,000, of which $11,000 are realized losses as compared to investment income and other revenues of $710,000, of which $93,000 were realized gains in the three month period ended March 31, 2013.

Investment Yield: The investment income and other revenues generated by the investment portfolio resulted in a 2.2% annualized yield for the three month periods ended March 31, 2014 and March 31, 2013.

Impact of Interest Rate Change: For Atlas’ available-for-sale fixed income securities held March 31, 2014, 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 $66,000. Conversely, a 100 basis point decrease in interest rates on such held fixed income securities would decrease net investment income and income before taxes by $30,000. A 100 basis point increase would have also decreased other comprehensive income by approximately $5.1 million due to “mark-to-market” requirements; however, holding investments to maturity would mitigate this impact over time. Conversely, a 100 basis point decrease would increase 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: Thursday, May 8, 2014 – 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".

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