Attached files
| file | filename |
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| EX-99.1 - EXHIBIT 99.1 - Atlas Financial Holdings, Inc. | q32016pressrelease.htm |
| 8-K - 8-K - Atlas Financial Holdings, Inc. | a8-kreq32016earningsrelease.htm |
2016 Third Quarter
Conference Call
November 1, 2016
Nasdaq: AFH
November 1, 2016 Atlas Financial Holdings, Inc. 2016 Third Quarter Conference Call 2
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, Gateway Insurance Company and/or Global Insurance Company of New York (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 Company’s 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
November 1, 2016 Atlas Financial Holdings, Inc. 2016 Third Quarter Conference Call 3 3
Atlas Key Quarterly Takeaways / Snapshot
NASDAQ: AFH At 9/30/2016 At 12/31/2015
Corporate
Headquarters
Elk Grove Village, IL
(Chicago suburb)
Core Target Markets Taxi / Limo / Livery / Paratransit
Cash and
Investments
$233.4 million $233.3 million
Total Assets $407.1 million $411.3 million
Total Atlas
Shareholders’ Equity
$146.6 million $129.6 million
Common Shares
Outstanding
(includes Restricted
Share Units)
12,045,519 12,045,519
Book Value Per
Outstanding
Common Share
$11.81 $10.15
• Earnings per common share diluted for the third quarter of 2016 was $0.51, compared
to $0.32 in the third quarter of 2015.
• In Q3 2016, Atlas retired 2,538,560 preferred shares held in connection of the Gateway
acquisition. Also, Atlas settled an additional aspect of the Gateway stock purchase
agreement relating to deferred tax assets which created a $1.9 million reduction of
underwriting expense in Q3 2016.
• Annualized return on equity (“ROE”) was 17.9% in the third quarter 2016 compared to
13.0% in the prior year period.
– Adjusted to eliminate the impact of the Gateway related items, ROE was 12.8% exceeding P&C Industry ROE by
Atlas’ target of 500 – 1000 basis points
• Company achieved improvements in underwriting income, loss ratio, and combined
ratio due to emphasis on underwriting profit.
• Book value per common share on September 30, 2016 was $11.81, compared to
$10.15 at December 31, 2015 and $9.88.
• GWP for 2016 to likely be relatively flat year-over-year, with a lessening impact from
changing market dynamics (taxis / TNCs) beginning to show signs of abating and other
segments remaining strong. Positive growth momentum expected to return in near
term.
• No indicators of new market entry and Company continues to expect price leadership
to optimize return on deployed capital via underwriting.
November 1, 2016 Atlas Financial Holdings, Inc. Third Quarter Conference Call 4
• In-force premium at September
30, 2016 increased 11% to
$220.4 million, compared to
$199.1 million at September 30,
2015
• Gross written premiums
decreased 7.0% to $60.7 million
• Decrease was primarily due to a
reduction in the Company’s taxi
and excess taxi and traditional
taxi business - this impact
began to abate Q3
Quarterly Premiums
Affected by Rate Decisions
/ Shift in Market Dynamics
2016 Financial
Expectations
Emphasis remains on
underwriting profit as
priority
Gross Written Premiums
likely to remain relatively
flat year over year until
taxi related pressure
flattens (expected near
term)
Expense ratio is a range of
24.5% to 26.5%
Exceed P&C industry Return
on Equity (“ROE”) by 500 –
1,000 bps
P&C Industry average
ROE was approximately
8% in the past year based
on data from SNL
Financial
2016 Q3 Financial and Operating Highlights
4
• Underwriting income
increased by 44.8% to $7.1
million
• Combined Ratio(1) (“CR”)
improved by 4.7 pts. To
83.5% (Includes benefit from
Gateway settlement)
• 14th consecutive quarter of
CR under 95%
• 9th straight under 90%
• 3rd straight under 85%
Pricing Improving
Underwriting
Performance
• Book value per share
improved to $11.81, a YoY
increase of 19.5%
• Annualized return on equity
("ROE") was 17.9% for the
quarter ended September
30, 2016 on a GAAP basis
• Adjusted to eliminate
the impact of the
Gateway related
items, non-GAAP ROE
was 12.8%
Book Value / ROE
(1) Ratios are computed as a percentage of net
premium earned.
November 1, 2016 Atlas Financial Holdings, Inc. 2016 Third Quarter Conference Call 5
Consistent Quarterly Year/Year Margin Improvement Since 2013 U.S. IPO
5
Combined Operating Ratio
63.9% 62.3% 59.2% 58.2%
30.5%
28.4%
27.8%
25.3%
2 0 1 3 2 0 1 4 2 0 1 5 Q 3 2 0 1 6
Loss & LAE Ratio Underwriting Expense Ratio
75%
80%
85%
90%
95%
100%
Q1 Q2 Q3 Q4
2013 2014 2015 2016
Three Month Periods Ended
Sept. 30, 2016 Sept. 30, 2015
Loss ratio 58.2 % 60.0 %
Underwriting expense ratio(1) 25.3 %(2) 28.2 %
Combined Operating Ratio 83.5 % 88.2 %
(1) Included stock based compensation expenses of 0.9 and 1.0 percentage points for the Three Month Periods Ended September 30, 2016 and September 30, 2015, respectively.
(2) Included a decrease of 4.4 percentage points related to recovered expenses from acquisitions and stock purchase agreement.
November 1, 2016 Atlas Financial Holdings, Inc. 2016 Third Quarter Conference Call 6
Q3 Premium Analysis
Taxi premium down
approximately 26% in Q3
year / year
Reduction of taxi related premiums written from the prior year quarter was 31.5%
as of Q2 2016 and reduced to 26.4% as of Q3 2016
TNC companies incenting drivers to try their service, many start with “ride share”
without Commercial Insurance
Excess Taxi renewed
lower by 27% or $3.3
million due to the non-
renewal of one large fleet
owner
This is a business arrangement that renews in the third quarter each year,
providing excess coverage above the levels of risk retained by the insured and
only a small number of medallion owners qualify for this program.
Strong growth from Limo
and paratransit
Limo and paratransit still show favorable growth at 6.0% and 14.8% Q3 yr/yr,
respectively
Average premium per vehicle increased mid to high single digits from Q3 2015 to
Q3 2016 for Limo and Para respectively.
Expectations:
Loss of taxi business has and
will continue to moderate
Q4 will have no impact from
excess taxi program due to
seasonal nature of renewal
Commercial drivers who
migrated to TNCs will pursue
commercial insurance
Full year GWP will likely be
relatively flat year over year
until taxi drop off flattens
November 1, 2016 Atlas Financial Holdings, Inc. 2016 Third Quarter Conference Call 7
Written Premium: Rate Activity
7
-10
-5
0
5
10
15
20
25
Q1 12 Q2 12 Q3 12 Q4 12 Q1 13 Q2 13 Q3 13 Q4 13 Q1 14 Q2 14 Q3 14 Q4 14 Q1 15 Q2 15 Q3 15 Q4 15 Q1 16 Q2 16 Q3 16
Sequential Rate Changes
Average ISO Recommendation (for period) Atlas Rate Change (Ave)
November 1, 2016 Atlas Financial Holdings, Inc. 2016 Third Quarter Conference Call 8
Written Premium: In-force
8
At September 30, 2016, in-force premium was $220.9 million and the Company’s gross unearned premium reserve was $117.8 million.
November 1, 2016 Atlas Financial Holdings, Inc. 2016 Third Quarter Conference Call 9
Geographic Diversification
9 9
NY, 35.1%
IL,
[VALUE] CA,
[VALUE]
NV,
[VALUE]
MI,
[VALUE]
CO, 3.0%
OH,
3.0%
TX,
2.7%
LA,
[VALUE]
OR,
[VALUE]
Other,
24.2%
NY, 39.7%
IL, [VALUE]
CA,
[VALUE]
NV,
[VALUE]
MI,
[VALUE]
CO, 2.7%
OH, 2.1%
TX, 2.1%
LA,
[VALUE]
OR,
[VALUE]
Other,
23.2%
Nationwide market share is estimated at approximately 10%,
with proportionate share forecast at 20%
Gross premium written by state (in $000)
Three Month Periods Ended
September 30, 2016 September 30, 2015
New York $21,340 35.1 % $25,922 39.7 %
California 8,761 14.4 % 7,870 12.0 %
Louisiana 4,280 7.0 % 4,498 6.9 %
Pennsylvania 2,068 3.4 % 1,126 1.7 %
Virginia 1,913 3.1 % 2,328 3.6 %
Colorado 1,843 3.0 % 1,732 2.7 %
Ohio 1,838 3.0 % 1,403 2.1 %
Texas 1,652 2.7 % 1,389 2.1 %
Michigan 1,293 2.1 % 2,976 4.6 %
Washington 1,206 2.0 % 894 1.4 %
Other 14,539 24.2 % 15,177 23.2 %
Total $60,733 100.0 % $65,315 100.0%
November 1, 2016 Atlas Financial Holdings, Inc. 2016 Third Quarter Conference Call 10
Operating Activities: Underwriting
(commercial business only: excludes Global Liberty)
10
Current target of 52%. Market conditions continue to
show support for mid single digit rate increases
(magnitude varies by geography).
Note: From Q4 ’15 forward, data is compiled from the newly
launched Atlas Xpress (Duck Creek) policy system. The basis for
hit ratio now includes additional submission information (not
just commercial auto accounts that are quoted)
Target of 85% based
on current market
conditions.
Increased use of pricing
relativity based on predictive
analytics tools are expected
to have a positive impact on
both ratios.
November 1, 2016 Atlas Financial Holdings, Inc. 2016 Third Quarter Conference Call 11
Operating Activities: Underwriting
(commercial business only: excludes Global Liberty)
11
0
2000
4000
6000
8000
0-100 101-200 201-300 301-400 401-500 501-600 601-700 701-800 801-900 901+
Score Group
Written Premium Policy Quote
0
200
400
600
800
0-100 101-200 201-300 301-400 401-500 501-600 601-700 701-800 801-900 901+
Score Group
Policy Count Policy Quote
Positive risk
differentiation using
predictive analytics
November 1, 2016 Atlas Financial Holdings, Inc. 2016 Third Quarter Conference Call 12
0
1000
2000
3000
4000
5000
6000
7000
8000
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
New Vehicles (incls Expiring) Prior Year
Operating Activities: Underwriting
(commercial business only: excludes Global Liberty)
New Business Submissions (Monthly Vehicles Submitted) Vehicles In Force
-
5,000
10,000
15,000
20,000
25,000
30,000
35,000
40,000
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Actual Prior Year
Primary gap relates to lost
Taxi business
Return to growth expected
as in force vehicles increase
on relative basis
November 1, 2016 Atlas Financial Holdings, Inc. 2016 Third Quarter Conference Call 13
Operating Leverage (Actual through Q3 2016)
STATUTORY Version
GAAP Version
Financial Highlights
14
November 1, 2016 Atlas Financial Holdings, Inc. 2016 Third Quarter Conference Call 15 15
% Increase -7.0% 39.6% 19.6%
2016 Q3 Financial and Underwriting Results
$65.3
$60.7
$50.0
$55.0
$60.0
$65.0
$70.0
$75.0
Q3 2015 Q3 2016
Gross Written Premium
$6.1
$8.6
$0.0
$1.0
$2.0
$3.0
$4.0
$5.0
$6.0
$7.0
$8.0
$9.0
$10.0
Q3 2015 Q3 2016
Income from Operating Activities
Before Tax
$0.32
$0.51
$0.00
$0.10
$0.20
$0.30
$0.40
$0.50
$0.60
Q3 2015 Q3 2016
Earnings per Common Share Diluted
$9.88
$11.81
$8.50
$9.00
$9.50
$10.00
$10.50
$11.00
$11.50
$12.00
Q3 2015 Q3 2016
Book Value per Common Share
57.1%
Premium
Results
GPW decreased by 7.0% to $60.7
million in seasonably highest GPW
quarter
• Overall premium shifted toward
limo / paratransit during period
• Excess taxi reduced by 27%
Strong Underwriting
Results
Combined ratio improved by 4.7
percentage points year-over-year to
83.5% (1)
Book Value
Growth
Atlas has increased book value in each of
the past 16 quarters
• $11.81 at 9/30/2016 compared to
$10.15 at 12/31/2015 and $9.88 at
9/30/2015
$ in millions except per share data
(1) Q3 2016 included a decrease of 4.4 percentage points to the Combined ratio related to
recovered expenses from acquisitions and stock purchase agreement and increase Earnings
per Common Share Diluted by $0.15.
November 1, 2016 Atlas Financial Holdings, Inc. 2016 Third Quarter Conference Call 16
Combined Ratio Analysis
The table below details the comparisons of each component of the Company's combined ratio for the
periods indicated (after accounting for the effect of quota share reinsurance):
Loss Ratio 58.2 % 60.0 % 58.9 % 58.6 %
Underwriting Expense Ratio:
Acquisition cost ratio 11.6 % 12.0 % 10.3 % 12.7 %
Other underwriting expense ratio 17.2 % 15.2 % 15.9 % 14.2 %
Underwriting expense ratio before
expenses related to acquisitions and stock
purchase agreements and stock based
compensation expenses
28.8 % 27.2 % 26.2 % 26.9 %
Expenses (recovered) related to
cqui itions and stock purchase agreement
ratio
(4.4 ) % — % (1.8 ) % 1.7 %
Share based compensation expense ratio 0.9 % 1.0 % 0.9 % 1.1 %
Underwriting expense ratio 25.3 % 28.2 % 25.3 % 29.7 %
Total combined ratio 83.5 % 88.2 % 84.2 % 88.3 %
Three Month Periods Ended
September 30, 2016 September 30, 2015
Nine Month Periods Ended
September 30, 2016 September 30, 2015
Within annual stated target of 24.5% to 26.5% of net earned premium
November 1, 2016 Atlas Financial Holdings, Inc. 2016 Third Quarter Conference Call 17 17
Detailed Impact of Changes to Book Value per Common Share
Book value per common share of $11.81 increased by $1.66 relative to December 31, 2015 as follows:
$1.10 increase related to net income after tax and before items below;
$0.05 increase related to the change in net realized investment gains after tax;
($0.02) decrease related to the preferred share dividend liquidation;
$0.24 increase related to the change in unrealized gains/losses after tax;
$0.10 increase related to share based compensation; and
$0.19 increase related to benefit inured from the acquisition of subsidiaries.
$1.66 total change from December 31, 2015 book value per common share
As of: (in '000s, except for shares and per share data) September 30, 2016 December 31, 2015
Atlas shareholders' equity $ 146,592 $ 129,622
Less: Preferred stock in equity 4,000 6,941
Less: Accumulated dividends on preferred stock 286 460
Common equity $ 142,306 $ 122,221
Participative shares:
Common shares outstanding 12,023,295 12,015,888
Restricted stock units (RSUs) 22,224 29,631
Total participative shares 12,045,519 12,045,519
Book value per participative share outstanding $ 11.81
$ 10.15
November 1, 2016 Atlas Financial Holdings, Inc. 2016 Third Quarter Conference Call 18
• Attractive investment leverage
• Credit Facility:
– $5 million one-year revolver, LIBOR + 2.75% ($2.4 million drawn)
– $30 million five-year draw facility, LIBOR + 4.5% ($17.0 million drawn)
Acquisitions with adverse development protection
($ in millions) June 30, 2016 December 31, 2015
Cash and Investments $233.4 $233.3
Total Assets $407.0 $411.3
Claim Reserves (Gross of Reinsurance) (1) (2) (3) $100.3 $127.0
Unearned Premiums $117.8 $108.2
Atlas Shareholders’ Equity $146.6 $129.6
18
(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
(3) Recently acquired Global Liberty included $4 million of adverse development protection
Strong Balance Sheet with Availability of Capital to Support Growth
November 1, 2016 Atlas Financial Holdings, Inc. 2016 Third Quarter Conference Call 19
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 (3.3 years)
Investment Portfolio
• As of September 30, 2016, total cash and invested assets were $233.4
million, of which fixed income consisted of 84.7%
• Predominantly corporate and government bonds
• Average S&P rating of AA
• 28.9% AAA
• 84.8% A or better
19
Government
17%
Corporate
27%
Mortgage
Backed
28%
Other Asset
Backed
10%
Other
Investments
15%
Equities
3%
Investment Portfolio (9/30/2016) (1)
(1) Investment portfolio is the combination of the portfolios of American Country Insurance Company, American Service Insurance Company, Inc., Gateway Insurance Company, and Global Liberty Insurance Co. of New York
Credit ratings of fixed income securities portfolio (in '000s)
As of: September 30, 2016 December 31, 2015
Amount % of Total Amount1 % of Total
AAA/Aaa1 $ 48,506 28.9 % $ 44,110 24.0 %
AA/Aa1 69,622 41.5 % 83,116 45.2 %
A/A 24,089 14.4 % 28,765 15.7 %
BBB/Baa 24,576 14.7 % 26,512 14.4 %
BB 738 0.4 % 1,270 0.7 %
B 98 0.1 % — — %
Total Fixed Income Securities $ 167,629 100.0 % $ 183,773 100.0 %
November 1, 2016 Atlas Financial Holdings, Inc. 2016 Third Quarter Conference Call 20
Outlook for Remainder of 2016
Favorable Outlook
• Goal is to maximize ROE potential in the current
cycle
– Strong operating margins
– Efficient and scalable capital structure
– Operating leverage
20
Core Goal: Across market cycles, our objective is to exceed industry ROE by 500 to 1,000 bps
Achieved in 2015 / Ahead of target through Nine Months Ended September 30, 2016
Remain proactive to changing market dynamics
– Mobile app dispatch
– More cars carrying people / items
– In-vehicle technology
Company has implemented measures to manage its
operating leverage to match that of its business,
with the objective of self-funding
– $35 Million Line of credit from Fifth Third Bank
– Quota share reinsurance
– Quarterly shifting of business from traditional taxi premiums to black car / TNCs
– Reduced average vehicles per policy expected due to larger percentage of owner operators
– $400 to $450 million in written premium is proportionate share
– Continued market share expansion in existing states
Emphasis on underwriting margin versus top-line growth
November 1, 2016 Atlas Financial Holdings, Inc. 2016 Third Quarter Conference Call 21
Nasdaq: AFH
For Additional Information
At the Company:
Scott Wollney
Chief Executive Officer
swollney@atlas-fin.com
847-700-8600
Investor Relations:
The Equity Group Inc.
Adam Prior
Senior Vice President
APrior@equityny.com
212-836-9606
21