Affirmative Insurance Holdings, Inc. Announces First Quarter 2005 Resu

Affirmative Insurance Holdings, Inc. Announces First Quarter 2005 Results

    Business Editors

    ADDISON, Texas--(BUSINESS WIRE)--May 12, 2005--Affirmative Insurance Holdings, Inc. (Nasdaq:AFFM), a producer and provider of personal non-standard automobile insurance, today announced financial results for the quarter ended March 31, 2005.

    Highlights for the Company's first quarter included:

--	Net income for the first quarter of 2005 was $8.0 million, an increase of 9.8% compared to net income of $7.3 million for the first quarter of 2004;
--	Earnings per share for the first quarter of 2005 were $0.47 per diluted share with an annualized return on equity of 15.3%; and
--	Total revenues for the first quarter of 2005 were $87.1 million, an increase of $14.9 million or 20.7% as compared to total revenue of $72.2 million for the same period of 2004.

    "Affirmative produced another quarter of solid profitability as we worked to fully employ the capital raised during 2004," said Thomas E. Mangold, chief executive officer of Affirmative Insurance Holdings, Inc. "We continue to remain focused on developing and deploying our multiple distribution channel strategy, both through organic and acquisition expansion. We saw competitive pressures accelerate during this quarter, particularly in the independent agency distribution channel. From an underwriting and pricing perspective, we continue to exercise strong discipline and have been unwilling to sacrifice underwriting margins for the sake of top line growth. In the quarter we have continued to see favorable loss experience from prior periods."

    First Quarter Financial Results

    First quarter consolidated net income was $8.0 million or $0.47 per diluted share, up 9.8% from net income of $7.3 million or $0.62 per diluted share for the same period in 2004. Increases in consolidated net income were primarily due to increased retention of gross premium written in our insurance companies at favorable margins. Weighted average diluted shares for the first quarter increased to 17.1 million compared to 11.7 million for the same quarter of the prior year, as a result of the Company's initial public offering in July of 2004.
    Consolidated revenues for the three months ended March 31, 2005 were $87.1 million, an increase of $14.9 million, or 20.7%, compared to revenues of $72.2 million for the three months ended March 31, 2004. The increase in consolidated revenues was primarily due to increased retention of gross premiums written and increased invested assets in our insurance companies.
    Total controlled premium decreased $5.6 million, or 4.7%, to $113.2 million in the first quarter of 2005 compared to total controlled premium of $118.8 million in the first quarter of 2004. In the Company's Retail distribution channel, total controlled premium increased $3.4 million, or 9.1%, to $41.0 million in the first quarter of 2005, principally due to increases in Texas. Total controlled premium from the Company's Independent Agency distribution channel decreased $6.9 million, or 12.7%, to $47.1 million primarily due to decreases in Florida, partially offset by increases in South Carolina and New Mexico. Total controlled premium from unaffiliated underwriting agencies decreased by $2.2 million, or 8.0%, to $25.1 million in the first quarter of 2005, primarily due to the continued run-off of a cancelled program in California partially offset by increases in two other programs in California.
    Revenues from agency operations increased 12.1% to $47.7 million with a pre-tax margin of 17.2%, compared to revenues of $42.6 million with a pre-tax margin of 19.0% for the first quarter of 2004. Net income from agency operations increased 3.0% to $5.3 million from $5.1 million in the same quarter of the prior year.
    Revenues from insurance company operations for the first quarter of 2005 were $76.1 million, an increase of 39.6% as compared to first quarter 2004 revenues of $54.5 million. The combined ratio for the first quarter of 2005 was 94.7% as compared to 93.2% for the first quarter of 2004. Net income from insurance company operations increased 34.3% to $3.3 million from $2.5 million in the same quarter of the prior year.

    Guidance and Supplemental Information

    Based on its current expectations of market conditions, Affirmative is adjusting its guidance for 2005 and estimates full year earnings to be in the range of $1.75 to $1.85 per diluted share from its earlier guidance of $1.90 to $2.10 per diluted share. This guidance is based on 17.1 million diluted shares and does not include the impact from any acquisitions that may occur in the future.
    To provide a more complete understanding of Affirmative's financial results, the Company has posted supplemental financial data on the investor relations portion of the Company's website, www.affirmativeholdings.com. The data pertains to first quarter financial results for 2004 and 2005.

    Conference call

    Affirmative will hold a conference today, Thursday, May 12th, at 11:00 a.m. Eastern Time, 10:00 a.m. Central Time. Following a brief presentation, participants will have the opportunity to ask questions. To participate in the call, dial 1-800-299-9086 (international dial 1-617-786-2903), ten minutes before the conference call begins and dial passcode 95900620.
    There will also be a real-time audio webcast of the conference call by CCBN. To listen to the live call, select the webcast icon from the investor relations section of Affirmative's website http://www.affirmativeholdings.com at least 15 minutes before the start of the call to register, download, and install any necessary audio software. Individuals accessing the audio webcast will be "listen only" and will not have the ability to take part in the Q&A session.
    A digital replay will be available one hour after the conclusion of the call. Interested individuals can access the webcast replay at http://www.affirmativeholdings.com, by clicking on the webcast link. The webcast replay will be available for 30 days after the call. Phone replay will be available through May 19th and may be accessed by dialing 1-888-286-8010 (international dial 1-617-801-6888), then enter passcode 27793299.

    About Affirmative Insurance Holdings, Inc.

    Headquartered in Addison, Texas, Affirmative Insurance Holdings, Inc., is a producer and provider of personal non-standard automobile insurance policies to individual consumers in highly targeted geographic markets. Affirmative currently offers products and services in 11 states, including Texas, Illinois, California and Florida.

    Forward-Looking Statements Disclosure

    Certain information in this news release and other statements or materials are not historical facts but are forward-looking statements relating to such matters as: assumed future results of the Company's business; financial condition; liquidity; results of operations; plans; and objectives. In connection with the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995, the Company provides the following cautionary remarks regarding important factors which, among others, could cause the Company's actual results and experience to differ materially from the anticipated results or other expectations expressed in the Company's forward-looking statements. The risks and uncertainties that may affect the operations, performance, results of the Company's business, and the other matters referred to above include, but are not limited to: general volatility of the non-standard personal automobile and reinsurance markets; the market price of our common stock; changes in business strategy; severe weather conditions; availability, terms and deployment of capital; the degree and nature of competitor product and pricing activity; changes in the non-standard personal automobile insurance industry, interest rates or the general economy; identification and integration of potential acquisitions; claims experience; availability of qualified personnel; and the loss of one or more members of the Company's management team.

Affirmative Insurance Holdings, Inc. Consolidated Statements of Operations - Unaudited (dollars in thousands, except per share data)

Three months ended March 31, 2005 2004 ------------- ------------ Revenues Net premiums earned $67,936 $47,210 Commissions and fees 17,902 24,761 Net investment income 1,257 227 Realized gains (losses) 3 (17) ------------- ------------ Total revenues 87,098 72,181 ------------- ------------

Expenses Losses and loss adjustment expenses 44,567 31,708 Policy acquisition and operating expenses 29,517 28,499 Interest expense 579 217 ------------- ------------ Total expenses 74,663 60,424 ------------- ------------ Net income before income taxes, minority interest and equity interest in unconsolidated subsidiaries 12,435 11,757 Income tax expense 4,406 4,207 Minority interest, net of income taxes 33 95 Equity interest in unconsolidated subsidiaries, net of income taxes - 173 ------------- ------------ Net income $7,996 $7,282 ============= ============

Net income per common share - Basic $0.47 $0.63 ============= ============ Net income per common share - Diluted $0.47 $0.62 ============= ============

Weighted average shares - Basic 16,845,934 11,582,422 Weighted average shares - Diluted 17,119,853 11,700,663

Affirmative Insurance Holdings, Inc. Condensed Consolidated Balance Sheets (dollars in thousands)

March 31, December 31, 2005 2004 ----------- ------------

Assets Fixed maturities - available for sale $158,866 $157,666 Short-term investments - 1,995 ----------------------- 158,866 159,661 Cash and cash equivalents 30,268 24,096 Fiduciary and restricted cash 27,230 16,267 Premiums and fees receivable 131,350 107,411 Commissions receivable 8,678 11,890 Receivable from reinsurers 55,294 75,403 Deferred acquisition costs 28,980 19,118 Other assets 111,559 107,074 ---------- ------------ Total assets $552,225 $520,920 ========== ============ Liabilities and Stockholders' Equity Liabilities Reserves for losses and loss adjustment expenses 103,808 93,030 Unearned premium 119,567 90,695 Amounts due reinsurers 28,673 43,167 Deferred revenue 28,076 24,478 Other liabilities 60,537 64,244 ---------- ------------ Total liabilities 340,661 315,614 ---------- ------------ Stockholders' equity Common stock 169 168 Additional paid-in capital 151,976 151,752 Accumulated other comprehensive income (loss) (1,375) 251 Retained earnings 60,794 53,135 ---------- ------------ Total stockholders' equity 211,564 205,306 ---------- ------------ Total liabilities and stockholders' equity $552,225 $520,920 =========== ============

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CONTACT: Affirmative Insurance Holdings, Inc., Addison Investor Relations Stewart Yee, 972-728-2117

KEYWORD: TEXAS INDUSTRY KEYWORD: INSURANCE BANKING EARNINGS CONFERENCE CALLS SOURCE: Affirmative Insurance Holdings, Inc.

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