February 26, 2013 at 16:05 PM EST
First Acceptance Corporation Reports Operating Results for the Quarter and Year Ended December 31, 2012

NASHVILLE, TN, February 26, 2013 -- First Acceptance Corporation (NYSE: FAC) today reported its financial results for the quarter and year ended December 31, 2012.

Operating Results

Revenues for the three months ended December 31, 2012 were $55.1 million, compared with $49.1 million for the three months ended December 31, 2011. Income before income taxes for the three months ended December 31, 2012 was $0.2 million, compared with loss before income taxes of $25.7 million for the three months ended December 31, 2011. Income before income taxes for the three months ended December 31, 2012 included favorable development of $1.8 million for losses occurring in prior fiscal years, while the loss before income taxes for the three months ended December 31, 2011 included a goodwill impairment charge of $21.1 million, or $0.45 per share on a diluted basis, and unfavorable development of $4.6 million for losses occurring in prior periods. Net income for the three months ended December 31, 2012 was $0.1 million, or $0.00 per share on a diluted basis, compared with net loss of $25.8 million, or $0.55 per share on a diluted basis, for the three months ended December 31, 2011.

Revenues for the year ended December 31, 2012 were $228.1 million, compared with $205.0 million for the year ended December 31, 2011. Loss before income taxes for the year ended December 31, 2012 was $9.0 million, compared with loss before income taxes of $84.4 million for the year ended December 31, 2011. The loss before income taxes for the year ended December 31, 2012 included the recognition of a net realized gain on investments of $3.2 million, or $0.08 per share on a diluted basis, and unfavorable development of $4.0 million for losses occurring in prior fiscal years, while the loss before income taxes for the same period in the prior year included goodwill and intangible assets impairment charges of $73.5 million, or $0.99 per share on a diluted basis, unfavorable development of $3.1 million for losses occurring in prior fiscal years, charges of $1.7 million incurred in connection with the separation of certain executive officers during March 2011 (comprised of $1.3 million in accrued severance and benefits and a $0.4 million non-cash charge related to the vesting of certain stock awards) and $0.4 million of other-than-temporary impairment charges on investments. Net loss for the year ended December 31, 2012 was $9.0 million, or $0.22 per share on a diluted basis, compared with net loss of $84.5 million, or $1.76 per share on a diluted basis, for year ended December 31, 2011.

Premiums earned for the three months ended December 31, 2012 were $46.1 million, compared with $40.1 million for the three months ended December 31, 2011. Premiums earned for the year ended December 31, 2012 were $185.6 million, compared with $167.2 million for the year ended December 31, 2011. This improvement was primarily due to an increase in the number of policies in force ("PIF") from 141,862 at December 31, 2011 to 145,938 at December 31, 2012, which we attribute to the continued sales, marketing, customer interactions and product initiatives. Such factors led to a higher close ratio resulting in an increase in new policies sold on a year-over-year basis.

Loss and Loss Adjustment Expense Ratio. The loss and loss adjustment expense ratio was 73.4 percent for the three months ended December 31, 2012, compared with 81.0 percent for the three months ended December 31, 2011. The loss and loss adjustment expense ratio was 79.8 percent for the year ended December 31, 2012, compared with 77.5 percent for the year ended December 31, 2011. We experienced favorable development of $1.8 million related to the three months ended December 31, 2012, compared with unfavorable development of $4.6 million for the three months ended December 31, 2011. We experienced unfavorable development related to prior fiscal years of $4.0 million for the year ended December 31, 2012, compared with unfavorable development of $3.1 million for the year ended December 31, 2011. The unfavorable development for the year ended December 31, 2012 was primarily related to the strengthening of loss and loss adjustment expense reserves. Loss development was primarily related to higher than expected severity for ­­­­­­­Florida personal injury protection claims and for Georgia bodily injury claims in older accident years. Loss adjustment expense development was primarily related to higher than expected legal expenses for bodily injury claims for accident years 2010 and prior. The unfavorable development for the year ended December 31, 2011 included amounts related to the settlement of claims for extra-contractual damages.

Excluding the development related to prior fiscal years, the loss and loss adjustment expense ratios for the years ended December 31, 2012 and 2011 were 77.7 percent and 75.6 percent, respectively. The year-over-year increase in the loss and loss adjustment expense ratio was primarily due to higher loss driven by an increase in frequency experienced during the second quarter of 2012 and higher expected severity for bodily injury claims.

In December 2011, we completed the process of implementing new scored pricing programs. We believe these new scored pricing programs provide us with greater pricing segmentation and improve our pricing relative to the risk we are insuring. Approximately 74 percent of our current PIF have been underwritten using these new scored pricing programs.

We perform state-by-state reviews of all insurance pricing programs on a quarterly basis and alter rates as we believe necessary. In response to the increases in our loss ratio during recent quarters, we implemented rate increases on most of our non-scored pricing programs during the first quarter and for our scored pricing programs in most states during the second and third quarters. The full benefit of these rate actions will not be fully realized until all customers renew their policies under the new rates, typically six months from the date of rate change implementation.

Expense Ratio. The expense ratio was 26.4 percent for the three months ended December 31, 2012, compared with 30.5 percent for the three months ended December 31, 2011. The expense ratio was 26.7 percent for the year ended December 31, 2012, compared with 29.4 percent for the year ended December 31, 2011. Excluding the severance and related benefits charges noted above, the expense ratio for the year ended December 31, 2011 was 28.6 percent.

Combined Ratio. The combined ratio was 99.8 percent for the three months ended December 31, 2012, compared with 111.5 percent for the three months ended December 31, 2012. The combined ratio was 106.5 percent for the year ended December 31, 2012, compared with 106.9 percent for year ended December 31, 2011. Excluding the severance and related benefits charges noted above, the combined ratio for the year ended December 31, 2011 was 106.1 percent.

About First Acceptance Corporation

We are a retailer, servicer and underwriter of non-standard personal automobile insurance based in Nashville, Tennessee. We currently write non-standard personal automobile insurance in 12 states and are licensed as an insurer in 13 additional states. Non-standard personal automobile insurance is made available to individuals who are categorized as "non-standard" because of their inability or unwillingness to obtain standard insurance coverage due to various factors, including payment history, payment preference, failure in the past to maintain continuous insurance coverage, driving record and/or vehicle type, and in most instances who are required by law to buy a minimum amount of automobile insurance. At February 26, 2013, we leased and operated 368 retail locations, staffed with employee-agents. Our employee-agents primarily sell non-standard personal automobile insurance products underwritten by us, as well as certain commissionable ancillary products and other insurance products. In select markets, we are testing the sale of automobile insurance underwritten by third party carriers. We are able to complete the entire sales process over the phone or through our consumer-based website. In addition to our retail, website and call center sales, we also sell our products through 13 retail locations operated by independent agents. Additional information about First Acceptance Corporation can be found online at acceptanceinsurance.com.

This press release contains forward-looking statements. These statements, which have been included in reliance on the "safe harbor" provisions of the federal securities laws, involve risks and uncertainties. Investors are hereby cautioned that these statements may be affected by important factors, including, among others, the factors set forth under the caption "Risk Factors" in Item 1A. of our Annual Report on Form 10-K for the year ended December 31, 2012 and in our other filings with the Securities and Exchange Commission. Actual operations and results may differ materially from the results discussed in the forward-looking statements. Except as required by law, we undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future developments or otherwise.

FIRST ACCEPTANCE CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations
(in thousands, except per share data)

Three Months Ended Year Ended
December 31, December 31,
2012 2011 2012 2011
(Unaudited) (Unaudited)
Revenues:
Premiums earned  $     46,080  $  40,132  $185,644  $167,224
Commission and fee income           7,534        7,269      32,574      29,911
Investment income           1,443        1,909        6,599        8,064
Net realized gains (losses) on investments,
available-for-sale   22 (175) 3,242 (161)
        55,079      49,135    228,059    205,038
Costs and expenses:
Losses and loss adjustment expenses         33,805      32,505    148,223    129,525
Insurance operating expenses         19,716      19,529      82,127      79,075
Other operating expenses              240           250           922        1,185
Litigation settlement                 -                -                -                (4)
Stock-based compensation                97             80           604           804
Depreciation and amortization              597           407        2,203        1,415
Interest expense              449           990        3,025        3,928
Goodwill and intangible impairment                 -        21,090              -        73,524
        54,904      74,851    237,104    289,452
Income (loss) before income taxes              175    (25,716)       (9,045)     (84,414)
Provision (benefit) for income taxes              79             33             (5)           105
Net income (loss)  $         96  $ (25,749)  $   (9,040)  $ (84,519)
Net income (loss) per share:
Basic and diluted  $       0.00    $    (0.55)  $     (0.22)  $     (1.76)
Number of shares used to calculate net income (loss) per share:
Basic         40,877      47,182      40,861      47,979
Diluted         40,938      47,182      40,861      47,979

FIRST ACCEPTANCE CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
(in thousands, except per share data)

December 31,
2012 2011
ASSETS
Investments, available-for-sale at fair value (amortized cost of
  $130,342 and $162,575, respectively)
 $           139,046  $           172,825
Cash and cash equivalents                 59,104                 23,751
Premiums and fees receivable, net of allowance of $306 and $364                 45,286                 41,313
Other assets                   6,190                   6,986
Property and equipment, net                   4,656                   3,315
Deferred acquisition costs                   3,221                   3,243
Identifiable intangible assets                   4,800                   4,800
TOTAL ASSETS  $           262,303  $           256,233
LIABILITIES AND STOCKHOLDERS` EQUITY
Loss and loss adjustment expense reserves  $             79,260  $             69,436
Unearned premiums and fees                 55,092                 50,464
Debentures payable                 40,261                 40,221
Other liabilities                 14,897                 13,383
Total liabilities               189,510               173,504
Stockholders` equity:
Preferred stock, $.01 par value, 10,000 shares authorized                        -                          -  
Common stock, $.01 par value, 75,000 shares authorized; 40,962
    and 40,928 shares issued and outstanding, respectively
                     410                      409
Additional paid-in capital               456,705               456,056
Accumulated other comprehensive income                   8,704                 10,250
Accumulated deficit             (393,026)            (383,986)
Total stockholders` equity                 72,793                 82,729
TOTAL LIABILITIES AND STOCKHOLDERS` EQUITY  $           262,303  $           256,233

FIRST ACCEPTANCE CORPORATION AND SUBSIDIARIES
Supplemental Data
 (Unaudited)

PREMIUMS EARNED BY STATE

Three Months Ended Year  Ended
December 31, December 31,
2012 2011 2012 2011
Premiums earned:
Georgia  $        9,373  $        8,572  $      38,500  $      36,002
Florida            6,962            4,961          26,744          19,667
Texas            5,432            5,050          22,481          21,912
Illinois            5,379            5,188          21,896          21,784
Alabama            4,211            3,845          17,157          16,185
Ohio            4,046            3,364          15,788          13,752
South Carolina            3,231            2,471          12,637            9,811
Tennessee            2,848            2,562          11,819          10,415
Pennsylvania            2,070            1,933            8,301            8,409
Indiana            1,164            1,055            4,703            4,382
Missouri               777               617            3,172            2,630
Mississippi               634               557            2,638            2,456
Total gross premiums earned          46,127          40,175        185,836        167,405
Premiums ceded to reinsurer               (47)               (43)             (192)             (181)
Total net premiums earned  $      46,080  $      40,132  $    185,644  $    167,224

COMBINED RATIOS (INSURANCE OPERATIONS)

Three Months Ended Year  Ended
December 31, December 31,
2012 2011 2012 2011
Loss and loss adjustment expense 73.4% 81.0% 79.8% 77.5%
Expense 26.4% 30.5% 26.7% 29.4%
Combined 99.8% 111.5% 106.5% 106.9%

POLICIES IN FORCE

Three Months Ended Year  Ended
December 31, December 31,
2012 2011 2012 2011
Policies in force - beginning of period        148,799        140,930        141,862        144,582
    Net change during period          (2,861)               932            4,076          (2,720)
Policies in force - end of period        145,938        141,862        145,938        141,862

The following tables present total PIF for the insurance operations segregated by policies that were sold through our open and closed retail locations as well as our independent agents, call center and website. For our retail locations, PIF are further segregated by (i) new and renewal and (ii) liability-only or full coverage. New policies are defined as those policies issued to both first-time customers and customers who have reinstated a lapsed or cancelled policy. Renewal policies are those policies which renewed after completing their full uninterrupted policy term. Liability-only policies are defined as those policies including only bodily injury (or no-fault) and property damage coverages, which are the required coverages in most states. For comparative purposes, the PIF data with respect to closed retail locations for each of the periods presented below includes all retail locations closed at December 31, 2012.

December 31,
2012 2011
Retail locations:
Open retail locations:
New        65,097        63,250
Renewal        75,667        72,665
     140,764      135,915
Closed retail locations:
New               48          1,204
Renewal          1,521          2,775
         1,569          3,979
 Independent agents          1,725          1,890
 Call center and website          1,880               78
Total policies in force      145,938      141,862

December 31,
2012 2011
Retail locations:
Open retail locations:
Liability-only        81,014        81,849
Full coverage        59,750        54,066
     140,764      135,915
Closed retail locations:
Liability-only             904          2,473
Full coverage             665          1,506
         1,569          3,979
 Independent agents          1,725          1,890
 Call center and website          1,880               78
Total policies in force      145,938      141,862

NUMBER OF RETAIL LOCATIONS

  Retail location counts are based upon the date that a location commenced or ceased writing business.

Three Months Ended Year  Ended
December 31, December 31,
2012 2011 2012 2011
Retail locations - beginning of period             369             383             382             393
Opened  --  --  --  --
Closed  --                (1)              (13)              (11)
Retail locations - end of period             369             382             369             382

RETAIL LOCATIONS BY STATE

December 31, September 30,
2012 2011 2010 2012 2011
Alabama      24    24      25            24           24
Florida      30      30      31     30     31
Georgia      60      60      60     60           60
Illinois      63      67      73     63     67
Indiana      17      17      17     17     17
Mississippi        7        8        8       7       8
Missouri      11      12      12     11     12
Ohio      27      27      27     27     27
Pennsylvania      16      16      16     16     16
South Carolina      26      26      26     26     26
Tennessee      19      20      20     19     20
Texas      69      75      78     69     75
Total    369    382    393   369   383

SOURCE:  First Acceptance Corporation

INVESTOR RELATIONS CONTACT:  
Michael J. Bodayle
615.844.2885




This announcement is distributed by Thomson Reuters on behalf of Thomson Reuters clients.

The owner of this announcement warrants that:
(i) the releases contained herein are protected by copyright and other applicable laws; and
(ii) they are solely responsible for the content, accuracy and originality of the
information contained therein.

Source: First Acceptance Corporation via Thomson Reuters ONE

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