First Acceptance posts big loss

Auto insurer takes goodwill charge almost as large as Q4 revenues

Auto insurer First Acceptance posted a net loss of more than $53 million in its fiscal fourth quarter after taking a large asset impairment charge.

The Green Hills-based company said it wrote down its goodwill and intangible assets by $52.4 million — which was only $700,000 less than its top line during the quarter — "as a result of recent trends in industry transaction and trading multiples as well as decisions made by management regarding entity-wide branding initiatives."

In its annual report filed Wednesday, the vast majority of that charge was due to a drop in the insurance industry's lower trading multiples. For example, the price-to-book ratio of industry leader Progressive over the last 12 months is 1.9, down from 2.2 for all of 2010. Similarly, Infinity Property & Casualty, an Alabama-based peer of First Acceptance, has seen its trailing-12-month price-to-book ratio fall from 1.2 at the end of 2010 to below 1.

First Acceptance was forced to take a similar non-cash charge in 2009, when it wrote down the value of its goodwill by $68 million. It said its latest move isn't expected to affect its liquidity or day-to-day operations.

Premium revenues for the quarter fell almost 8 percent to about $43 million, but losses as a percentage of revenue rose 6 basis points from a year ago to 74.6 percent. Shares of the company (Ticker: FAC) closed Wednesday trading at $1.45. Year to date, they're down almost 20 percent.