Form 8-K Atlas Financial Holdings For: Nov 10
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E-mailUNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
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FORM�8-K
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CURRENT REPORT
PURSUANT TO SECTION�13 OR 15(d)�OFTHE SECURITIES EXCHANGE ACT OF 1934
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Date of Report (Date of earliest event reported):��November 10, 2014.
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Atlas Financial Holdings, Inc.
(Exact name of Registrant as specified in its charter)
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Commission File Number | ||
000-54627 | ||
CAYMAN ISLANDS | �� | 27-5466079 |
(State or other jurisdiction of | �� | (I.R.S. Employer |
incorporation or organization) | �� | Identification No.) |
150 NW POINT BOULEVARD | �� | 60007 |
Elk Grove Village, IL | �� | (Zip Code) |
(Address of principal executive offices) | �� | |
�Registrants telephone number, including area code: (847) 472-6700
Not applicable
(Former name or former address, if changed since last report)
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Check the appropriate box below if the Form�8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
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o������������Written communication pursuant to Rule�425 under the Securities Act (17 CFR 230.425)
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o������������Soliciting material to Rule�14a-12 under the Exchange Act (17 CFR 240.14a-12)
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o������������Pre-commencement communications pursuant to Rule�14d-2(b)�under the Exchange Act (17 CFR 240.14d-2(b))
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o������������Pre-commencement communications pursuant to Rule�13e-4(c)�under the Exchange Act (17 CFR 240.13e-4(c))
Section 2 Financial Information
Item 2.02. Results of Operations and Financial Condition.
On November 10, 2014, Atlas Financial Holdings, Inc. ("Atlas") reported its results for the quarter ended September 30, 2014. The press release and the investor supplement are furnished as Exhibits 99.1 and 99.2 to this report. The information contained in the press release and the investor supplement are furnished and not filed pursuant to instruction B.2 of Form 8-K.
Section 9 Financial Statements and Exhibits
Item 9.01 Financial Statements and Exhibits
(d) Exhibits
Exhibit 99.1 - Earnings Press Release, dated November 10, 2014, issued by Atlas Financial Holdings, Inc.
Exhibit 99.2 - Investor Supplement, dated November 10, 2014, issued by Atlas Financial Holdings, Inc.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
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� | � | ATLAS FINANCIAL HOLDINGS, INC. (Registrant) | ||
� | � | /s/ Paul A. Romano By: Paul A. Romano (Vice President and Chief Financial Officer) | ||
� | � | November 10, 2014 | ||
Exhibit 99.1
Atlas Financial Holdings Announces 2014 Third Quarter Financial Results
Company to Hold Conference Call on November 11, 2014 at 8:30 a.m. ET
Third Quarter 2014 Financial Performance Summary (comparisons to Third Quarter 2013 unless noted):
" | Gross premium written increased by 31.1%, which included an increase of 33.0% in core commercial auto business |
" | Excluding premiums related to the Excess Taxi program, gross premium written increased by 53.7% in target owner operator and small fleet accounts |
" | The combined ratio improved by 4.3 percentage points to 89.6% |
" | Underwriting results improved by $1.6 million, representing a 143.2% increase |
" | Operating income was $3.4 million for the three month period ended September 30, 2014, compared to $1.7 million for the three month period ended September 30, 2013 |
" | Earnings per diluted common share were $0.29, representing a $0.12 increase before the impact of the $1.8 million discount upon redemption of preferred stock which occurred in the third quarter of 2013 |
" | Book value per common share on September 30, 2014 was $8.24, compared to $6.54 at December 31, 2013 and $6.50 at September 30, 2013 |
" | Annualized third quarter 2014 return on average common equity was 14.5% |
Chicago, Illinois (November 10, 2014) - Atlas Financial Holdings, Inc. (NASDAQ: AFH) ("Atlas" or the "Company") today reported its financial results for the third quarter ended September 30, 2014.
Management Comments
We captured additional share in each of our core markets, driven by vertical growth within the geographic footprint Atlas established over the past 24 months. Gross premiums written continued to grow at a meaningful rate and we reported continued improvements in our combined ratio, which dropped below 90% (89.6%) for the first time since Atlas initially came public. We believe that this trend will persist based upon a continuing favorable pricing environment coupled with our growing scale, which in turn will drive our bottom line and return-on-equity. Atlas continues to work closely with a specialized and dedicated group of independent agents located across the U.S. who are as committed to our specialty niche as we are. As the market leader, we work together with our efficient distribution channel to communicate Atlas value proposition to a growing market of owner-operators and small fleets in the public auto sector, stated Scott D. Wollney, Atlas President and CEO. We are also looking forward to completing the previously
Exhibit 99.1
announced acquisition of Global Liberty Insurance Company of NY and its affiliated underwriting and premium finance businesses to accelerate our expansion in key markets.
Financial and Operational Review
Net Income: Atlas generated net income of $3.5 million for the three month period ended September 30, 2014. This compares to net income of $1.7 million in the three month period ended September 30, 2013.
Premium Written: For the three month period ended September 30, 2014, gross premium written increased 31.1% to $42.0 million compared to $32.1 million in the three month period ended September 30, 2013. The improvement relative to the third quarter 2013 is attributable to improved pricing activity across the Companys core lines. Excluding the Companys Excess Taxi program, which renewed in the third quarter but is not expected to vary considerable in size year over year, gross premium written on core lines increased 53.7% as compared to the same quarter of 2013. As previously communicated, Atlas entered into a quota share reinsurance agreement effective July 1, 2014 to which 5% of gross premiums written were ceded in the quarter. The related gross unearned premium as of September 30, 2014 was $51.9 million.
Geographic Distribution: The Company reported year-over-year growth in gross written premium in 30 of the 49 states it is actively writing in during the three month period ended September 30, 2014. In 10 of those 30 states, we experienced quarter over quarter growth of greater than 100% due to continued marketing and underwriting efforts and the current market environment.
Combined Ratio:
Atlas' combined ratio improved for the three month period ended September 30, 2014 to 89.6%, compared to 93.9% in the prior year period and 91.9% in the second quarter of 2014. The table below details the comparisons of each component of the Company's combined ratio for the periods indicated:
Three Month Periods Ended | |||||
September 30, 2014 | September 30, 2013 | ||||
Loss ratio | 62.2 | % | 63.4 | % | |
Acquisition cost ratio | 14.4 | % | 15.9 | % | |
Other underwriting expense ratio | 13.0 | % | 14.6 | % | |
Combined ratio | 89.6 | % | 93.9 | % | |
" | Loss: The loss ratio relating to claims incurred in the three month period ended September 30, 2014 was 62.2% compared to 63.4% in the three month period ended September 30, 2013. The Company has continued to see incremental opportunities to leverage our decades of experience in the claims area coupled with opportunities to increase price during the third quarter of 2014. Atlas leverages data and experience accumulated over our companies many years spent focusing on our niche target markets to properly model potential risk and deliver real value in terms of claims support. |
Exhibit 99.1
" | Acquisition Costs: Acquisition costs were $3.7 million in the three month period ended September 30, 2014, or 14.4% of net premium earned, as compared to 15.9% in the three month period ended September 30, 2013. Geographic distribution of premium and the resulting impact on premium taxes may cause this ratio to vary quarter to quarter. |
" | Other Underwriting Expenses: The other underwriting expense ratio was 13.0% in the three month period ended September 30, 2014, compared to 14.6% in the three month period ended September 30, 2013. Although Atlas increased headcount by 16% from December 31, 2013 to ensure that the Company is well positioned to take advantage of favorable market conditions and continue to deliver its strong value proposition and above average underwriting results, a reduction in operating expense ratio was achieved through increased operating scale during the quarterly period. As communicated in the first quarter of 2014, the Company also began accruing for expected management and director incentive compensation. This expense represented 1.6% of the other underwriting expense ratio in the three month period ended September 30, 2014. |
Underwriting Results: Underwriting results increased to $2.7 million for the three month period ended September 30, 2014, compared to $1.1 million in the prior year same period.
Operating Income is an internal performance measure used in the management of the Company's operations. It represents after-tax operational results excluding, as applicable, net realized gains or losses, net impairment charges recognized in earnings and other items. Operating Income should not be viewed as a substitute for U.S. Generally Accepted Accounting Principles (U.S. GAAP) net income. The table below reconciles U.S. GAAP net income to operating income ($ in '000's):
Three Month Periods Ended | |||||||
September 30, 2014 | September 30, 2013 | ||||||
U.S. GAAP net income | $ | 3,493 | $ | 1,699 | |||
Less: Net realized gains | 68 | 33 | |||||
Less: Other income | (1 | ) | |||||
Operating Income | $ | 3,426 | $ | 1,666 | |||
Atlas' Operating Income for the three month period ended September 30, 2014 was $3.4 million compared to $1.7 million in the three month period ended September 30, 2013.
Earnings per share ( EPS" ): Atlas generated $0.29 per share basic and $0.29 per share diluted for the three month period ended September 30, 2014. This compares to $0.41 per share basic and $0.35 per share diluted in the three month period ended September 30, 2013. The EPS amounts for 2013 included $0.22 per share basic and $0.18 per share diluted related to the August 2013 preferred share redemption.
Share Count: In the third quarter, the Company completed its previously announced equity offering.� As of September 30, 2014, there were 12,210,583 total common shares outstanding.� The following table indicates the
Exhibit 99.1
weighted average common share amounts for basic and dilutive for the three and nine month periods ending September 30, 2014 and September 30, 2013.
Three Month Periods Ended | Nine Month Periods Ended | ||||||||||||
September 30, 2014 | September 30, 2013 | September 30, 2014 | September 30, 2013 | ||||||||||
Weighted average basic common shares outstanding | 11,808,624 | 8,217,692 | 10,643,507 | 7,802,253 | |||||||||
Add: | |||||||||||||
Dilutive stock options outstanding | 147,959 | 92,579 | 144,958 | 64,606 | |||||||||
Dilutive warrants | 0 | 508,807 | 0 | 438,796 | |||||||||
Preferred shares | 254,000 | 1,016,000 | 254,000 | 2,032,000 | |||||||||
Dilutive average common shares outstanding | 12,210,583 | 9,835,078 | 11,042,465 | 10,337,655 | |||||||||
Earnings per diluted common share | $ | 0.29 | $ | 0.35 | $ | 0.75 | $ | 0.50 | |||||
Balance Sheet/Investment Overview
Book Value: Book value per common share was $8.24 based on 11,808,624 common shares outstanding at September 30, 2014, compared to $6.54 based on 9,424,734 common shares outstanding at December�31, 2013. Book value changed relative to December�31, 2013 as follows: an increase of $0.94 related to the issuance of 2,161,000 ordinary voting common shares during the second quarter of 2014, an increase of $0.46 related to net income after tax, an increase of $0.11 related to the change in unrealized gains/losses after tax, an increase of $0.24 related to the change in deferred tax valuation allowance, a decrease of $0.04 related to share based compensation, and a decrease of $0.01 related to accumulated preferred share dividends.
Cash and Invested Assets: Cash and invested assets as of the period ended September 30, 2014 totaled $179.2 million as compared to $139.9 million as at December�31, 2013. The increase was largely due to the Companys completion of its public offering in May 2014.
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 September 30, 2014 the Company's duration on its portfolio was 4.3 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 Income / Yield: Atlas generated net investment income of $768,000 for the three month period ended September 30, 2014, as well as $67,000 of realized gains and other income. This resulted in a 1.9% annualized yield for the three month period ended September 30, 2014, compared to 1.7% in the prior year period. The increase in yield is attributable to the interest rate environment and the Company's increased cash and cash equivalent balances following the second quarter equity raise which are included in the average securities at cost.
Exhibit 99.1
Deferred Tax Assets: Atlas carries a $0.56 per share allowance against its deferred tax assets as of September 30, 2014. In recent quarters, the Company has been consistently reducing its valuation allowance against deferred tax assets by an amount equal to the amount of income tax expense generated for the period. The Company will continue this process in the fourth quarter of 2014. A comprehensive analysis of this policy will take place during the 2014 year-end audit which could result in future reductions or the elimination of the valuation allowance. This reassessment will include but is not limited to continued underwriting profitability, the lack of significant prior year loss reserve development, continuing favorable market conditions, continued positive trend in taxable earnings, and other such indications deemed positive.
Acquisition of Global Liberty
Subsequent to the end of the quarter, on October 17, 2014 Atlas announced that it had entered into a definitive agreement to acquire Global Liberty Insurance Company of New York along with its affiliated underwriting and premium finance companies (collectively, Global Liberty ) for approximately $25 million.�� This transaction is expected to significantly accelerate Atlas commercial automobile presence in select sub-segments of the large New York livery market and will add valuable infrastructure on the East Coast to support Atlas continuing growth.
The purchase price will include $4 million of AFH preferred shares with an annual dividend rate of 4.5%, payable in cash or in kind, which are convertible to AFH common stock after the fifth anniversary of issuance at an initial rate of .50 common shares per preferred share.� The final amount of preferred shares will be adjusted based on actual loss development related to Global Libertys pre-acquisition reserves.� Atlas and the seller have a mutual right to trigger the redemption of these shares for cash after the third anniversary of issuance at $1 per share plus any accrued interest, subject to certain conditions.� The remainder of the purchase price will be paid in cash.� An earn out of up to an additional $1 million may be paid based on underwriting profitability of the New York business during the three years subsequent to the transaction's effective date.� Completion of the transaction is subject to customary closing conditions, including regulatory approval of the change of control of Global Liberty, and is expected to be completed during the first quarter of 2015.�
Outlook for 2015
Mr. Wollney continued, We are continuing to work towards a proportionate market share of 20% in what we estimate to be an approximate $2 billion subset of the commercial auto insurance market. The recent announcement of our acquisition of Global Liberty allows Atlas to take a stronger position in the largest market for public auto in the United States while accelerating our ability to grow premium with expanding margins during the current favorable market cycle. We estimate the public auto premium universe in New York to be approximately $600 million, or approximately 30% of our total addressable market. This acquisition will provide Atlas with an immediate and complementary position in the livery business while improving our operating leverage with profitable premium.
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Mr. Wollney concluded, We have worked to manage growth while maintaining our strict underwriting profitability guidelines. We continue to run our business to maximize underwriting profit regardless of market cycle. While we
Exhibit 99.1
have been pleased with the improvements in return-on-equity in the first nine months of 2014, we feel that we can continue to drive this further based on the current pricing environment and our strategic growth.
Conference Call Details
Date/Time:������������Tuesday, November 11, 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".
Webcast
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/q3-2014. Audio and a transcript of the call will be archived on the Companys website.
Conference Call Presentation
An accompanying slide presentation will be available in .pdf format on the investor relations page of the Companys website after issuance of the earnings release. 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.
About Atlas
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.
Financial Information
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. Additional information about Atlas, including a copy of Atlas' 2013 Form 10-K financial
Exhibit 99.1
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.
Forward-Looking Statements:
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.
Contact Information:
At the Company����������������������������Investor Relations
Atlas Financial Holdings, Inc. ������������������������The Equity Group Inc.
Scott Wollney, CEO����������������������������Adam Prior, Senior Vice President
Phone: 847-700-8600�����������������������������������212-836-9606
[email protected]����������������������������[email protected]
www.atlas-fin.com����������������������������www.theequitygroup.com
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Exhibit 99.1
ATLAS FINANCIAL HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(in '000s of US dollars, except for share and per share data)
Three Month Periods Ended | Nine Month Periods Ended | |||||||||||||||
September 30, 2014 (unaudited) | September 30, 2013 (unaudited) | September 30, 2014 (unaudited) | September 30, 2013 (unaudited) | |||||||||||||
Net premiums earned | $ | 25,575 | $ | 17,976 | $ | 70,835 | $ | 50,832 | ||||||||
Net investment income | 768 | 569 | 2,226 | 1,728 | ||||||||||||
Net investment gains | 68 | 33 | 154 | 521 | ||||||||||||
Other income | (1 | ) | ) | 1 | 8 | |||||||||||
Total revenue | 26,410 | 18,578 | 73,216 | 53,089 | ||||||||||||
Net claims incurred | 15,894 | 11,399 | 44,235 | 32,617 | ||||||||||||
Acquisition costs | 3,686 | 2,862 | 10,252 | 7,359 | ||||||||||||
Other underwriting expenses | 3,329 | 2,618 | 10,377 | 8,633 | ||||||||||||
Expenses incurred related to Gateway acquisition | 406 | |||||||||||||||
Total expenses | 22,909 | 16,879 | 64,864 | 49,015 | ||||||||||||
Income from operations before income tax expense | 3,501 | 1,699 | 8,352 | 4,074 | ||||||||||||
Income tax expense | 8 | 108 | 72 | |||||||||||||
Net income attributable to Atlas | 3,493 | 1,699 | 8,244 | 4,002 | ||||||||||||
Add: Discount realized on preferred share buyback | 1,800 | 1,800 | ||||||||||||||
Less: Preferred share dividends | 24 | 95 | 70 | 596 | ||||||||||||
Net income attributable to common shareholders | $ | 3,469 | $ | 3,404 | $ | 8,174 | $ | 5,206 | ||||||||
Basic weighted average common shares outstanding | 11,808,624 | 8,217,692 | 10,643,507 | 7,802,253 | ||||||||||||
Earnings per common share, basic | $ | 0.29 | $ | 0.41 | $ | 0.77 | $ | 0.67 | ||||||||
Diluted weighted average common shares outstanding | 12,210,583 | 9,835,078 | 11,042,465 | 10,337,655 | ||||||||||||
Earnings per common share, diluted | $ | 0.29 | $ | 0.35 | $ | 0.75 | $ | 0.50 | ||||||||
Consolidated Statements of Comprehensive Income | ||||||||||||||||
Net income attributable to Atlas | $ | 3,493 | $ | 1,699 | $ | 8,244 | $ | 4,002 | ||||||||
Other comprehensive income/(loss): | ||||||||||||||||
Changes in net unrealized (losses)/gains | (773 | ) | ) | 226 | 1,748 | (3,800 | ) | ) | ||||||||
Reclassification to income | 60 | (29 | ) | ) | 172 | (239 | ) | ) | ||||||||
Effect of income tax | 242 | (65 | ) | ) | (653 | ) | ) | 1,375 | ||||||||
Other comprehensive (loss)/income for the period | (471 | ) | ) | 132 | 1,267 | (2,664 | ) | ) | ||||||||
Total comprehensive income | $ | 3,022 | $ | 1,831 | $ | 9,511 | $ | 1,338 | ||||||||
Exhibit 99.1
ATLAS FINANCIAL HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(in '000s of US dollars, except for share and per share data)
September 30, 2014 (unaudited) | December 31, �2013 | |||||||
Assets | ||||||||
Investments, available for sale | ||||||||
�����Fixed income securities, at fair value (amortized cost $127,282 and $130,751) | $ | 127,109 | $ | 128,585 | ||||
�����Equity securities, at fair value (cost $1,225 and $258) | 1,153 | 258 | ||||||
�����Other investments | 9,137 | 1,234 | ||||||
����������Total Investments | 137,399 | 130,077 | ||||||
Cash and cash equivalents | 41,816 | 9,811 | ||||||
Accrued investment income | 668 | 694 | ||||||
Accounts receivable and other assets (net of allowance of $620 and $776) | 51,769 | 37,944 | ||||||
Reinsurance recoverables on amounts paid | 4,660 | 6,921 | ||||||
Reinsurance recoverables on amounts unpaid | 10,676 | 12,225 | ||||||
Prepaid reinsurance premiums | 3,398 | 2,207 | ||||||
Deferred policy acquisition costs | 8,953 | 6,674 | ||||||
Deferred tax asset, net | 11,392 | 9,319 | ||||||
Intangible assets | 740 | 740 | ||||||
Software and office equipment, net | 2,683 | 2,500 | ||||||
Assets held for sale | 166 | 166 | ||||||
����������Total Assets | $ | 274,320 | $ | 219,278 | ||||
Liabilities | ||||||||
Claims liabilities | $ | 98,634 | $ | 101,385 | ||||
Unearned premiums | 62,927 | 44,232 | ||||||
Due to reinsurers and other insurers | 2,522 | 2,613 | ||||||
Other liabilities and accrued expenses | 10,763 | 7,350 | ||||||
����������Total Liabilities | $ | 174,846 | $ | 155,580 | ||||
Shareholders Equity | ||||||||
Preferred shares, par value per share $0.001, 100,000,000 shares authorized, 2,000,000 shares issued and outstanding at September 30, 2014 and December 31, 2013. Liquidation value $1.00 per share | $ | 2,000 | $ | 2,000 | ||||
Ordinary voting common shares, par value per share $0.003, 266,666,667 shares authorized, 11,638,723 shares issued and outstanding at September 30, 2014 and 9,291,871 shares issued and outstanding at December 31, 2013 | 35 | 28 | ||||||
Restricted voting common shares, par value per share $0.003, 33,333,334 shares authorized, 132,863 shares issued and outstanding at September 30, 2014 and December 31, 2013 | ||||||||
Additional paid-in capital | 195,853 | 169,595 | ||||||
Retained deficit | (98,252 | ) | ) | (106,496 | ) | ) | ||
Accumulated other comprehensive loss, net of tax | (162 | ) | ) | (1,429 | ) | ) | ||
����������Total Shareholders Equity | $ | 99,474 | $ | 63,698 | ||||
����������Total Liabilities and Shareholders Equity | $ | 274,320 | $ | 219,278 | ||||
Third Quarter 2014 Conference Call November 11, 2014
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Statements in this presentation, including the information set forth as to the future financial or operating performance of Atlas Financial Holdings, Inc., American Country Insurance Company, American Service Insurance Company and/or Gateway Insurance Company (collectively, Atlas ), that are not current or historical factual statements may constitute forward looking information within the meaning of securities laws. Such forward looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of Atlas, or industry results, to be materially different from any future results, performance or achievements expressed or implied by such forward looking statements. When used in this presentation, such statements may include, among other terms, such words as may, will, expect, believe, plan, anticipate, intend, estimate and other similar terminology. These statements reflect current expectations, estimates and projections regarding future events and operating performance and speak only as to the date of this presentation. Readers should not place undue importance on forward looking statements and should not rely upon this information as of any other date. These forward looking statements involve a number of risks and uncertainties. Some of the factors facing Atlas that could cause actual results to differ materially from those expressed in or underlying such forward looking statements include: (i) market fluctuations, changes in interest rates or the need to generate liquidity; (ii) access to capital; (iii) recognition of future tax benefits on realized and unrealized investment losses; (iv) managing expansion effectively; (v) conditions affecting the industries in which we operate; (vi) competition from industry participants; (vii) attracting and retaining independent agents and brokers; (viii) comprehensive industry regulation; (ix) our holding company structure; (x) our ratings with A.M. Best; (xi) new claim and coverage issues; (xii) claims payments and related expenses; (xiii) reinsurance arrangements; (xiv) credit risk; (xv) our ability to retain key personnel; (xvi) our ability to replace or remove management or Directors; (xvii) future sales of common shares; (xviii) public company challenges; and (xix) failure to effectively execute our business plan. The foregoing list of factors is not exhaustive. See also Risk Factors listed in the Companys most recent registration statement filed with the SEC. Many of these issues can affect Atlas actual results and could cause the actual results to differ materially from those expressed or implied in any forward looking statements made by, or on behalf of, Atlas. Readers are cautioned that forward looking statements are not guarantees of future performance, and should not place undue reliance on them. In formulating the forward looking statements contained in this presentation, it has been assumed that business and economic conditions affecting Atlas will continue substantially in the ordinary course. These assumptions, although considered reasonable at the time of preparation, may prove to be incorrect. When discussing our business operations, we may use certain terms of art which are not defined under U.S. GAAP. In the event of any unintentional difference between presentation materials and our GAAP results, investors should rely on the financial information in our public filings. Safe Harbor 2
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Atlas Snapshot 3 NASDAQ: AFH (at 9/30/2014) Corporate Headquarters Elk Grove Village, IL (Chicago suburb) Subsidiaries / Brands (see below) American Country American Service Gateway (including Alano) Core Target Markets Taxi / Limo / Paratransit Cash and Investments $179.1 million Total Assets $274.3 million Total Shareholders Equity $99.5 million Common Shares Outstanding 11.8 million Book Value Per Common Share $8.24
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Strong Quarterly Execution 4 Continued execution on multi-year growth strategy with 31.1% increase in GWP in Q314 to $42.0 million Combined ratio improved to 89.6% as company continues to see improving rate environment EPS of $0.29 / Annualized Return on Average Common Equity of 14.5% Pending acquisition of Global Liberty Insurance of New York accelerates trend toward proportionate market share Potential to write $400 million without disproportionate market share o Significant portion of growth from re-capture business (approx. 70% of current book) o Addressable market grew almost 20% in past two years to $2 Billion
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5 Premium Growth GPW increased by 31.1% to $42.0 million " Excluding Excess Taxi Program, GPW increased 53.7% in core light commercial auto business Strong Underwriting Results Combined ratio improved by 4.3 percentage points year- over-year to 89.6% " 6th straight quarter under 95% Book Value Growth Atlas has increased book value in each of the past 7 quarters " $8.24 at 9/30/2014 compared to $6.54 at 12/31/2013 and $6.50 at 9/30/2013 % Growth 31.1% 106.1% 105.6% 26.8% 2014 Third Quarter Underwriting / Financial Highlights $42.0 $32.1 $- $5.0 $10.0 $15.0 $20.0 $25.0 $30.0 $35.0 $40.0 $45.0 Q3 2014 Q3 2013 Gross Written Premium $3.4 $1.7 $- $0.5 $1.0 $1.5 $2.0 $2.5 $3.0 $3.5 $4.0 Q3 2014 Q3 2013 Operating Income $3.5 $1.7 $- $0.5 $1.0 $1.5 $2.0 $2.5 $3.0 $3.5 $4.0 Q3 2014 Q3 2013 Net Income $8.24 $6.50 $- $1.00 $2.00 $3.00 $4.00 $5.00 $6.00 $7.00 $8.00 $9.00 Q3 2014 Q3 2013 Book Value
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Considerable Underwriting Margin Improvement Since 2013 U.S. IPO 6 Combined Operating Ratio ( COR ) 98.1% 95.0% 93.9% 91.4% 93.5% 91.9% 89.6% 84.0% 86.0% 88.0% 90.0% 92.0% 94.0% 96.0% 98.0% 100.0% Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014 Q2 2014 Q3 2014
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Geographic Expansion " Distributing products in 40 states plus Washington D.C. " Licensed to write P&C insurance in 49 states and the District of Columbia " Currently distributing in all states that meet established criteria market size Competitive environment Underwriting profit 7 Atlas 2011 Atlas 2014
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Geographic Diversification 8 Gross premium written by state ($ in '000s) Gross premium written by state ($ in '000s) Three Months Ended 9/30/2014 Three Month Periods Ended Nine Month Periods Ended 30-Sep-14 Premium % of Book (Q) 30-Sep-13 Premium % of Book (Q) 30-Sep-14 Premium % of Book (Q) 30-Sep-13 Premium % of Book (Q) New York $16,645 39.6% $14,638 45.6% $25,313 26.3% $19,084 26.9% Louisiana 3,415 8.1% 2,863 8.9% 4,995 5.2% 4,472 6.3% California 3,317 7.9% 1,249 3.9% 5,908 6.1% 2,834 4.0% Michigan 2,226 5.3% 1,967 6.1% 8,130 8.5% 6,079 8.6% Pennsylvania 1,631 3.9% 124 0.4% 2,169 2.3% 393 0.6% Minnesota 1,481 3.5% 1,149 3.6% 5,217 5.4% 3,410 4.8% Texas 1,388 3.3% 992 3.1% 2,377 2.5% 2,957 4.2% Missouri 1,267 3.0% 749 2.3% 2,499 2.6% 1,759 2.5% Illinois 1,223 2.9% 1,962 6.1% 12,171 12.7% 9,939 14.0% South Carolina 1,185 2.8% 534 1.7% 2,943 3.1% 1,422 2.0% Other 8,268 19.7% 5,848 18.3% 24,349 25.3% 18,641 26.1% Total $42,046 100.0% $32,075 100.0% $96, 071 100.0% $70,990 100.0% New York, 39.6% Louisiana, 8.1% California, 7.9% Michigan, 5.3% Pennsylvania, 3.9% Minnesota, 3.5% Texas, 3.3% Missouri, 3.0% Illinois, 2.9% South Carolina, 2.8% Other, 19.7% Includes impact of excess taxi program, which historically renews in Atlas third quarter
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Operating Activities: Underwriting (commercial business only) Renewal Retention (Policy Count) New Business Submissions (Monthly Vehicles Submitted) Target of 85% based on current market conditions 9 1 2 3 4 5 6 7 8 9 10 11 12 VIF 2014 - Act & Frcst 24,9 25,8 26,3 25,7 26,1 26,5 27,3 27,7 28,5 29,8 30,7 31,5 VIF 2013 - Actual 11,7 12,8 13,5 14,2 15,3 15,7 16,1 17,1 18,0 19,4 20,7 21,9 - 5,000 10,000 15,000 20,000 25,000 30,000 35,000 Vehicles in Force - 1,000 2,000 3,000 4,000 5,000 6,000 7,000 Actual Last Year 0.00% 10.00% 20.00% 30.00% 40.00% 50.00% 60.00% 70.00% 80.00% 90.00% 100.00%
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0 50 100 150 200 250 300 New Agents Existing Agents Bound/Application Ratio Operating Activities: Underwriting (commercial business only) Current target of 60%. Continuing incremental application volume from new and existing agents 10 Note: Stacked Line 0% 10% 20% 30% 40% 50% 60% 70% 80% 90%
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Market Overview 11
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General Market Observations " Atlas is continuing to see steady rate increases across all lines within its light commercial base (Taxi / Para-transit / Livery) " Company is now beginning to see full effects of competitors exiting its niche market 12 Small Accounts Medium Accounts Large Accounts Average Third Quarter 2014 1.1% 0.3% -1.1% 0.1% Second Quarter 2014 1.2% -0.2% -2.6% -0.5% First Quarter 2014 3.0% 1.6% -0.1% 1.5% Fourth Quarter 2013 2.6% 2.4% 1.4% 2.1% Third Quarter 2013 3.8% 3.7% 2.6% 3.4% High (2001,Q4) 20.8% 31.7% 33% 28.5% Low (2007,Q3) -10% (2008, Q1) -15% -15.9% -13.3% Majority of Atlas Target Market are Individual Entrepreneurs and Small Fleet Operators; Rate declined driven by larger accounts / Property BY LINE: Commercial Auto Third Quarter 2014 2.6% Second Quarter 2014 1.7% First Quarter 2014 3.3% Fourth Quarter 2013 3.0% Third Quarter 2013 3.3% High 28.6% Low --11.6%
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Loss Ratio 70% Historical results from Atlas insurance subsidiaries have continued to produce loss ratios in the 70% range during soft market cycles Combined Ratio of 95 97%1 Current Investment Yield of 2.0% on total portfolio of 1.5X net premium earned Tax rate of 34%2 After tax ROE: 8% - 11% Loss Ratio 60% Consistent with Atlas current loss ratio of 62.2% in Q3 2014. Combined Ratio will drop as expenses continue to trend towards the following range. Combined Ratio of 85 87%1 Current Investment Yield of 2.0% on total portfolio of 1.5X net premium earned Tax rate of 34%2 After tax ROE: 21% - 24% Loss Ratio 50% Loss ratios for the insurance companies we own were in the low 50s for multiple years in prior hard market cycles. Combined Ratio of 75 77%1 Current Investment Yield of 2.0% on total portfolio of 1.5X net premium earned Tax rate of 34%2 After tax ROE: 34% - 37% Impact of Pricing Progression for Atlas Financial Niche insurance business that produces underwriting profits through all market cycles 1 Assumptions: Expense ratio of between 25-27% (Acquisition Costs = 15% / OUE = 10-12%) Company operating at efficient scale with 2:1 NWP Surplus Ratio 2 Based on existing DTAs, the 1st $2.6 mil of income is tax free from a cash perspective through 2032. 13 Carried loss ratio is approach 60% with new business pricing in 50s
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Financial Highlights 14
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Q3 2014 Financial Highlights (comparisons to prior year period) " Gross premium written increased by 31.1% to $42.0 million " Underwriting results improved to $1.6 million, a 143.2% increase " Net income was up to $3.5 million from $1.7 million " Earnings per diluted common share were $0.29, representing a $0.12 increase from the third quarter of 2013 before the impact related to the $1.8 million discount upon redemption of preferred stock that occurred in the third quarter of 2013 " Combined ratio declined by 4.3 percentage points to 89.6%, which included costs related to an increase in hiring in anticipation of continuing growth 15 Three Month Period Ended Sept.30, 2014 Sept 30, 2013 Loss ratio 62.2 % 63.4 % Acquisition cost ratio 14.4 % 15.9 % Other underwriting expense ratio 13.0 % 14.6 % Combined ratio 89.6 % 93.9 %
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16 Detailed Impact of Changes to Book Value per Common Share YTD 2014 Book Value Changed by $1.70 relative to December 31, 2013 Impacted by: $0.94 Increase related to issuance of 2,161,000 common shares during Q2 2014 0.46 Increase in net income after tax 0.11 Increase related to change in unrealized gains/losses after tax 0.24 Increase related to change in DTA valuation allowance (0.04) Reduction due share-based compensation (0.01) Accumulated preferred stock dividends $1.70 Total Change From December 31, 2013 Book Value per Common Share Book Value per Common Share (in '000s, except for shares and per share data) Sept.30, 2014 December 31, 2013 Shareholders' equity $99,474 $63,698 Less: Preferred stock in equity 2,000 2,000 Less: Accumulated dividends on preferred stock 160 90 Common equity $97,314 $61,608 Shares outstanding (includes Restricted Stock Units) 11,808,624 9,424,734 Book value per common share outstanding $8.24 $6.54
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" Attractive investment leverage " Long Term Debt-free balance sheet " Acquisitions with adverse development protection ($ in millions) September 30, 2014 December 31, 2013 Cash and Investments $179.2 $139.9 Total Assets $274.3 $219.3 Claim Reserves (Gross of Reinsurance) (1) (2) $98.6 $101.4 Unearned Premiums $62.9 $44.2 Total Shareholders Equity $99.5 $63.7 17 (1) Atlas purchase of American Country and American Service included $10 million limit of adverse development protection (90% quota share after $1 million) based on reserves as of September 30, 2010, which has not been utilized. (2) Gateway Acquisition included $2 million of adverse development protection Strong Balance Sheet
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Investment Portfolio Conservative Investment Approach " Emphasize preservation of capital, market liquidity to support payment of liabilities and diversification of risk " Investment duration re-positioned to match core commercial auto reserve liabilities (4.3 years) Investment Portfolio " As of Sept. 30, 2014, total investments equaled $137.4 million, of which fixed income consisted of 92.5% " Predominantly corporate and government bonds " Average S&P rating of AA " 86.4% A or better 18 Government 14% Corporate 35% Mortgage Backed 32% Other Asset Backed 11% Other Investments 7% Equities 1% Investment Portfolio (9/30/2014) (1) (1) American Country Insurance Company, American Service Insurance Company, Inc. and Gateway Insurance Company Credit ratings of fixed income securities portfolio (in '000s) As of: September 30, 2014 December 31, 2013 Amount % of Total Amount % of Total AAA/Aaa $74,100 58.7 % $76,616 59.8 % AA/Aa $11,624 9.2 % $12,733 10.0 % A/A $23,329 18.5 % $23,624 18.5 % BBB/Baa $17,152 13.6 % $14,995 11.7 % Total Securities $126,205 100.0 % $127,968 100.0 %
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Outlook for 2014 / 2015 19
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Global Liberty Insurance Acquisition 20 Near term focus on transactions within current niche markets to accelerate progress towards proportionate market share Previously stated goal: " On October 17th, Atlas announced Definitive Agreement to Acquire Global Liberty Insurance Company of New York for approximately $25 million " Currently underwrites $40 million of annual commercial auto direct written premiums (majority in large New York market) " Estimated annual pre-tax income is approximately $4 million on a pro-forma basis " Based in Melville, NY " Founded in 2003 (founder has 25+ yrs experience) " Admitted carrier in 14 states " Focused on insuring limousine, black car, and luxury vehicles Benefits to Atlas Highly complementary to existing infrastructure Increases presence in largest U.S. commercial auto market Accelerates ability to grow premium during the current favorable market cycle Increases operating leverage with profitable premium in core niche market
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Concluding Remarks Early Stages of Multi-year Growth Strategy " Companys goal is focused on maximizing ROE potential in current market cycle " Expect to exceed previously discussed $200 million in gross premiums written in 2015 " $400 million in written premium is proportionate share Expanding Margins " Combined Ratio improved 430 bps year-over-year and 850 bps in past 18 months " Targets imply meaningful additional margin expansion with increased scale Cyclical Tailwinds " Market showing signs of entering a hard market " In previous hard market, Atlas core business experienced loss ratios in low 50s four consecutive years " Atlas current loss ratio approaching 60% (62.2% in Q3 2014) and pricing to better than 60% M&A Opportunities to Accelerate Growth " Track record of successful transactions " Global Liberty Acquisition Expected to Accelerate Pace to Proportionate Market Share Attractive Valuation " Targets imply shares trading at low P/E 21
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0.00 0.50 1.00 1.50 2.00 2.50 3.00 3.50 8.00 13.00 18.00 23.00 28.00 P/ B RevGr(Factor of 1) * ROE Atlas from a Peer Perspective 22 Criteria " Companies in Insurance / Financial Services with ROEs in excess of 10% " Non-Homeowners / Property " Comps include: ACE, WR Berkley, Chubb, Travelers, RLI, " As of November 7, 2014 Source: Company Filings / Bloomberg
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For Additional Information At the Company: Scott Wollney Chief Executive Officer [email protected] 847-700-8600 Investor Relations: The Equity Group Inc. Adam Prior Senior Vice President [email protected] 212-836-9606 Terry Downs Associate [email protected] 212-836-9615 Nasdaq: AFH
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