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.
"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
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:
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):
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.
Diluted earnings per share for the full year 2013 was $0.74. The impact
of accounting treatment for preferred shares redeemed decreased diluted
earnings per share for the year by $0.10. Future diluted earnings per
share computations will not be impacted by the convertible impact of the
preferred shares which were redeemed.
Balance Sheet/Investment Overview
Book Value: Book value per diluted common share on December 31,
2013 was $6.54, compared to $6.55 at December 31, 2012. Book value
changed relative to December 31, 2012 as follows: an increase of $0.42
from net income attributable to common shareholders, an increase of
$0.22 attributable to the decrease in deferred tax asset ("DTA")
valuation allowance, a decrease of $0.35 related to the change in
unrealized gains and losses, a reduction of $0.37 related to dilution
from Atlas' U.S. IPO, a reduction of $0.12 related to the dilution
impact of warrant exercises and share based compensation, and an
increase of $0.19 related to the discount on the preferred share buyback.
Cash and Invested Assets: Cash and invested assets as of the
period ended December 31, 2013 totaled $139.9 million, consisting
primarily of fixed income securities as compared to $120.8 million as at
December 31, 2012.
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 December 31, 2013, the
Company's contractual duration on its portfolio was 4.7 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
December 31, 2013, Atlas reported investment income and other revenues
of $424,000, of which $8,000 are realized gains as compared to
investment income and other revenues of $939,000, of which $338,000 were
realized gains in the three month period ended December 31, 2012.
Marking certain securities to market in the fourth quarter 2013 reduced
net income by $0.03 per diluted share.
Investment Yield: The investment income and other revenues
generated by the investment portfolio resulted in a 2.0% annualized
yield for the three month period ended December 31, 2013, versus 3.4% in
the for the three month period ended December 31,2012, with a
significant portion of the yield in the fourth quarter 2012 resulting
from capital gains. The annual investment yield on a year to date basis
Impact of Interest Rate Change: For Atlas' available-for-sale
fixed income securities held as of the year ended December 31, 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 $105,000. 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 $70,000. A 100 basis
point increase would have also decreased other comprehensive income by
approximately $4.3 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
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.
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/q4-2013.
Audio and a transcript of the call will be archived on the Company's
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.
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.
Atlas' financial statements reflect consolidated results of Atlas'
subsidiaries: American Insurance Acquisition Inc., Camelot Services,
Inc., American Country Insurance Company, American Service Insurance
Company, Inc. and Gateway Insurance Company, Inc. Additional information
about Atlas, including a copy of Atlas' 2013 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 http://www.atlas-fin.com/InvestorRelations/FinancialReports.aspx.
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 2013 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
(in '000s of US dollars, except for share and per share data)
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
Preferred shares, par value per share $0.001, 100,000,000 shares
authorized, 2,000,000 shares issued and outstanding at December
31, 2013 and 18,000,000 shares issued and outstanding December 31,
2012. Liquidation value $1.00 per share
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