Atlas Financial Holdings, Inc. (AFH) reported second-quarter 2014 earnings of 23 cents per share, missing Zacks Consensus Estimate by 11.5%. However, earnings results improved 53.3% year over year on higher revenues.
Behind the Headlines
Atlas Financial generated $24.1 million in revenues, improving 34.4% year over year on increased net premiums earned (up 37.3% year over year) and net investment income (up 24.1% year over year). However, it lagged the Zacks Consensus Estimate by 7.8%.
Including an increase of 57.1% in target owner operator and small fleet accounts, net premium written at Atlas Financial rose 42.6% year over year in the second quarter 2014.
The company’s total expenses increased 33% year over year to $21.4 million due to rise in net claims incurred, acquisition costs and other underwriting expense.
Atlas Financial’s underwriting income was $1.9 million, significantly improving from $0.8 million in the year ago quarter. Combined ratio improved by 310 basis points (bps) year over year to 91.9%, driven by improvement in loss ratio and other underwriting expense ratio, partially offset by a higher acquisition cost ratio.
Loss ratio improved 270 bps year over year due to the increased rate having been implemented for the past eighteen months. Underwriting expense ratio improved year over year by 220 bps, driven by continued premium growth and solid market opportunities in second-quarter 2014.
Acquisition cost ratio deteriorated by 180 basis points year over year due to the ceding commissions received in 2013 belonging to the reinsurance on the run-off workers' compensation program.
Financial Update
Atlas Financial exited the second quarter 2014 with cash and cash equivalents of $42.1 million, increasing more than fourfold from 2013 end-level.
Total assets of Atlas Financial increased 17% to $256 million in the reported quarter from Dec 31, 2013.
Total shareholders equity increased 51% to $96 million from 2013 end-level.
Book value per share was $7.96 on Jun 30, rising 22% from 2013 end-level.
Atlas Financial’s second-quarter 2014 return on average common equity was 12.7% as of Jun 30, 2014.
The company had 11.7 million shares outstanding as of Jun 30, 2014 after completing its equity offering. Atlas Financial issued about 2.2 million common shares, generating net proceeds of $25.0 million in May. As on Jun 30, the company had about 11.8 million shares outstanding.
2015 Outlook
Atlas Financial expects to increase its market share to 20% of the addressable market, which has grown with the help of pricing improvements and increase in the number of vehicles in the targeted market. This will improve the company’s underwriting results and top line.
The property and casualty insurer intends to deploy additional capital to implement its growth objectives over the next 12–18 months.
Atlas Financial expects gross written premiums for core lines of business to be $200 million in 2015.
Zacks Rank
Atlas Financial currently holds Zacks Rank #4 (Sell).
Performances of Other Property and Casualty Insurers
Progressive Corp. (PGR) reported second-quarter operating earnings of 45 cents per share, falling short of the Zacks Consensus Estimate by a couple of cents. However, earnings improved 10% year over year.
RLI Corp.’s (RLI) second-quarter operating income of 66 cents per share came in line with the Zacks Consensus Estimate. The figure also marked a 4.8% year-over-year increase.
Everest Re Group, Ltd. (RE) posted second-quarter operating income of $5.41 per share, lagging the Zacks Consensus Estimate by 6.3%. However, earnings improved 6.1% year over year.
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