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Affirmative Insurance Holdings Inc. Reports Operating Results (10-Q)
Posted by: gurufocus (IP Logged)
Date: May 15, 2012 04:30PM
Affirmative Insurance Holdings Inc. (AFFM) filed Quarterly Report for the period ended 2012-03-31.
Highlight of Business Operations:As part of our corporate strategy, we treat our retail stores as independent agents, encouraging them to sell to their individual customers whatever products are most appropriate for and affordable to those customers. We believe that this offers our retail customers the best combination of service and value, developing stronger customer loyalty and improving customer retention. In practice, this means that in our retail stores, the relative proportion of the sales of our own insurance products as compared to the sales of the third-party policies will vary depending upon the competitiveness of our insurance products in the marketplace during the period. This reflects our intention of maintaining the margins in our insurance company subsidiaries, even at the cost of business lost to third-party carriers.
Total gross premiums written for the three months ended March 31, 2012 decreased $12.2 million, or 15.7%, compared with the prior year quarter. This decrease was due to a decline in renewal policies because of a number of actions taken during 2010 into 2011 to increase prices and strengthen underwriting standards to improve the profitability of the gross premiums written. New business policies increased 2.4% for the first three months of 2012 compared to the prior year, which was comprised of a 2.6% increase from our retail stores and a 1.9% increase from independent agents.
Total revenues for the three months ended March 31, 2012 decreased $20.8 million, or 28.8%, compared with the three months ended March 31, 2011. The decrease was due to decreases in net premiums earned, commission income and fees, net investment income, net realized gains, and other income.
Commissions, premium finance and agency fees are earned on sales of third-party companies products sold by our retail agencies. As described above, in our owned stores, there can be a shift in the relative proportion of the sales of third-party insurance products as compared to sales of our own carriers products due to the relative competitiveness of our insurance products that could result in an increase in our commission income and fees from non-affiliated third-party insurers. We negotiate commission rates with the various third-party carriers whose products we agree to sell in our retail stores. As a result, the level of third-party commission income will also vary depending upon the mix by carrier of third-party products that are sold. In addition, we earn fees from the sales of other products and services such as auto club memberships and bond cards offered by unaffiliated companies.
State insurance laws restrict the ability of our insurance company subsidiaries to declare stockholder dividends. These subsidiaries may not make an extraordinary dividend until 30 days after the applicable commissioner of insurance has received notice of the intended dividend and has not objected in such time or until the commissioner has approved the payment of the extraordinary dividend within the 30-day period. In most states, an extraordinary dividend is defined as any dividend or distribution of cash or other property whose fair market value, together with that of other dividends and distributions made within the preceding 12 months, exceeds the greater of 10.0% of the insurance companys surplus as of the preceding year-end or the insurance companys net income for the preceding year, in each case determined in accordance with statutory accounting practices. In addition, dividends may only be paid from unassigned earnings and an insurance companys remaining surplus must be both reasonable in relation to its outstanding liabilities and adequate to its financial needs. As of March 31, 2012, our insurance companies could not pay ordinary dividends to us without prior regulatory approval due to a negative unassigned surplus position of Affirmative Insurance Company. However, as mentioned previously, our non-insurance company subsidiaries provide adequate cash flow to fund their own operations.
Stocks Discussed: AFFM,