First Acceptance Corporation Reports Operating Results for the Quarter and Nine Months Ended March 31, 2009

NASHVILLE, Tenn.--First Acceptance Corporation today reported its financial results for the third quarter and nine months ended March 31, 2009 of its fiscal year ending June 30, 2009.

Operating Results

Revenues for the three months ended March 31, 2009 were $67.1 million, compared with $84.0 million in the same period last year. Income before income taxes for the three months ended March 31, 2009 was $4.0 million, compared with $1.3 million in the same period last year. Net income for the three months ended March 31, 2009 was $2.4 million, or $0.05 per share on a diluted basis, compared with net income of $0.8 million, or $0.02 per share on a diluted basis, for the three months ended March 31, 2008.

Revenues for the nine months ended March 31, 2009 were $203.8 million, compared with $253.5 million in the same period last year. Income before income taxes for the nine months ended March 31, 2009 was $6.4 million, compared with $4.3 million in the same period last year. Net income for the nine months ended March 31, 2009 was $3.2 million, or $0.07 per share on a diluted basis, compared with a net loss of $9.1 million, or $0.19 per share on a diluted basis, for the nine months ended March 31, 2008.

The results for the nine months ended March 31, 2009 included charges of $5.2 million associated with the settlement of litigation described below, the recognition of $2.5 million in net realized gains on investments that were sold in order to utilize expiring tax net operating loss carryforwards and $2.0 million of other-than-temporary impairment charges related to investments. The results for the nine months ended March 31, 2008 included an increase in the valuation allowance for our deferred tax asset of $11.6 million, or $0.24 per share on a diluted basis.

Premiums earned for the three months ended March 31, 2009 were $54.8 million, compared with $72.2 million for the three months ended March 31, 2008. Premiums earned for the nine months ended March 31, 2009 were $171.5 million, compared with $217.5 million for the nine months ended March 31, 2008. The decreases in premiums earned were primarily due to the weak economic conditions which have caused both a decline in the number of policies written as well as an increase in the percentage of our customers purchasing liability only coverage. Rate increases taken in a number of states to improve underwriting profitability and the closure of stores also contributed toward the decreases in premiums earned. At March 31, 2009, the number of policies in force was 173,674, compared with 215,857 at March 31, 2008. At March 31, 2009, we operated 419 stores, compared with 432 stores at March 31, 2008.

Approximately 67% of the $17.4 million decline in premiums earned for the three months ended March 31, 2009 and approximately 68% of the $46.0 million decline in premiums earned for the nine months ended March 31, 2009 was in our Florida, Georgia, South Carolina and Texas markets. Our premiums earned in these states were adversely affected by the weak economic conditions, as well as a decline in used car sales, which have historically been a significant contributor to new policy growth in these markets.

Loss and Loss Adjustment Expense Ratio. The loss and loss adjustment expense ratio was 71.0% for the three months ended March 31, 2009, compared with 76.6% for the three months ended March 31, 2008. The loss and loss adjustment expense ratio was 70.1% for the nine months ended March 31, 2009, compared with 76.9% for the nine months ended March 31, 2008. We experienced favorable development of approximately $2.7 million and $6.9 million for the three and nine months ended March 31, 2009, respectively, for losses occurring prior to June 30, 2008. For the three and nine months ended March 31, 2008, we did not experience any significant development for losses occurring prior to June 30, 2008. In addition, we did not experience any significant weather-related losses during these periods.

Excluding the development noted above, the loss and loss adjustment expense ratio for the three and nine months ended March 31, 2009 was 75.9% and 74.1%, respectively. These improvements over the same periods last year were primarily the result of a revision in our estimate of the loss and loss adjustment expense ratio for calendar 2008 which improved from 76.5% at June 30, 2008 to 73.5% at March 31, 2009. We attribute this improvement to the impact of the rate increases taken in early calendar 2008 in Florida, Illinois, Indiana, Texas and South Carolina and the continued improvement in our underwriting and claim handling practices, as well as favorable severity trends most notably in our property damage and physical damage coverages.

Expense Ratio. Our expense ratio for the three months ended March 31, 2009 was 25.3%, compared with 21.0% for the same period in the prior year. Our expense ratio for the nine months ended March 31, 2009 was 23.9%, compared with 21.2% for the nine months ended March 31, 2008. These increases were primarily due to the declines in premiums earned discussed above.

Combined Ratio. The combined ratio decreased to 96.3% for the three months ended March 31, 2009 from 97.6% for the three months ended March 31, 2008. The combined ratio decreased to 94.0% for the nine months ended March 31, 2009 from 98.1% for the nine months ended March 31, 2008.

Litigation Settlement. As previously reported, we entered into a settlement agreement relating to the class action litigation brought against us in the State of Georgia, which was approved by the court in November 2008. In addition, during December 2008, we entered into a settlement agreement with the plaintiffs in similar litigation brought against us in the State of Alabama, which was approved by the court in February 2009. Eligible class members are entitled to certain premium credits or reimbursement certificates pursuant to the terms of the settlement agreements. Based upon our analysis of the premium credits available to class members, we have a remaining accrual of approximately $4.4 million as of March 31, 2009 for currently estimable costs associated with the utilization of available premium credits for Georgia and Alabama class members. We are currently in discussions with our insurance carriers regarding coverage for the costs and expenses incurred relating to the litigation settlements and are not able currently to estimate the amount, if any, that we may receive from our insurance carriers.