Affirmative Insurance Holdings Inc
Affirmative Insurance — Raymond James 26th Annual Institutional Investors Conference 2005
23 slides from Affirmative Insurance's conference presentation, Mar 9, 2005
Slide 1: Raymond James 26th Annual Institutional Investors Conference
Raymond James 26th Annual Institutional Investors Conference March 9, 2005 NASDAQ: AFFM
Slide 2: Forward-Looking Statements
Forward-Looking Statements Certain information included in this presentation and other statements or materials published or to be published by the Company are not historical facts but are forward-looking statements relating to such matters as assumed future results of the Company's business, financi
Slide 3: Overview of Affirmative Insurance
Overview of Affirmative Insurance Focused provider of personal non-standard automobile insurance Target 11 states representing 50% of overall market Two insurance companies licensed in 32 states with $139.3 million of policyholders surplus Differentiated and advantaged approach to marketing Five est
Slide 4: $34.1 billion non-standard personal auto insurance market
$34.1 billion non-standard personal auto insurance market Strong industry fundamentals Highly fragmented market with Affirmative market share less than 1.3% Attractive Industry Dynamics 1995 2003 East 104.2 155 1995 2003 East 0.162 0.22 Growth in Personal Auto Lines Non-Standard as a % of Personal A
Slide 5: The Typical Non-Standard Customer
The Typical Non-Standard Customer Lack of prior insurance Limited financial resources Need for flexible payment plans Purchase minimum coverage Young drivers Bad drivers However, 70% of Our Customers Have Clean Driving Records
Slide 6: Implications for Non-Standard Insurers
Implications for Non-Standard Insurers Requirements for Success Customer Characteristics Higher loss costs More fraudulent claims Higher frequency of payments and policy changes Higher churn, shorter duration Higher premium per exposure More rigorous claims processes and fraud detection More efficie
Slide 7: Experienced Management Team
Experienced Management Team Senior Vice President - Claims Thomas Mangold 25 Sean McPadden Executive Vice President - Underwriting 18 Katherine Nolan Executive Vice President - Administration 15 Timothy Bienek Executive Vice President - Chief Financial Officer 22 George Daly Senior Vice President -
Slide 8: Return on Equity Focused Culture
Return on Equity Focused Culture Fundamental focus of business model and operating strategies Permeates all levels of the organization Incentive compensation plans tied to bottom line results Target return on equity in the mid-teens Return on average equity 15.3% for full year 2004
Slide 9: Flexible Operating Model
Flexible Operating Model Operate as an integrated unit to capture: Fee income Commissions Underwriting profits Investment Income Operate with third-parties on an unbundled basis to: Maximize penetration Leverage developed infrastructure / capabilities Capture incremental fee income Maximizes Sales a
Slide 10: Market Sensitive Strategy: Hard Market
Unaffiliated Owned Underwriting Agencies Our Insurance Companies Underwriting Agencies Insurance Companies Market Sensitive Strategy When the market is "hard" Seek to capture a larger share of the Total Controlled Premium when the underwriting margins are most attractive Unaffiliated 181 Retail Agen
Slide 11: Market Sensitive Strategy: Soft Market
Unaffiliated Unaffiliated Owned Underwriting Agencies Our Insurance Companies Market Sensitive Strategy When the market is "soft" Will reduce our share of the Total Controlled Premium in favor of increased commission and fee revenues from third parties Underwriting Agencies Insurance Companies 181 R
Slide 12: Multiple Distribution Channels
Our Retail Stores Independent Agencies Through Our Underwriting Agencies Independent Agencies Through Unaffiliated Underwriting Agencies East 121.5 177.6 108.2 Multiple Distribution Channels $407.3 million in Total Controlled Premium for full year 2004 29.8% 43.6% 26.6%
Slide 13: Targeted Geographic Focus
Targeted Geographic Focus 11 States Represent Over 50% of Overall Market Solely through unaffiliated underwriting agencies Solely through independent agencies Through our retail stores and independent agencies
Slide 14: Strong Retail Branding
Strong Retail Branding 181 stores in six states Operate under five well-established retail brands Illinois Indiana Missouri Texas South Carolina Missouri Florida
Slide 15: Strong Retail Branding
Strong Retail Branding Strong Retail Branding Strong Retail Branding Strong Retail Branding Strong Retail Branding
Slide 16: Our Growth Strategy
Our Growth Strategy Continue to grow organically through: Increasing sales through our existing retail stores Opening new retail stores Franchising retail operations Developing and increasing our independent agency relationships Expanding and establishing relationships with unaffiliated insurance co
Slide 17: 2004 Highlights & Recent Events
2004 Highlights & Recent Events A breakout year for Affirmative Raised significant capital and contributed proceeds to insurance company surplus Initial public offering and separation from Vesta in July Trust preferred securities offering in December $139.3 million surplus in insurance companies as
Slide 18: Historical Results of Operations
Historical Results of Operations Total Revenues 2001 2002 2003 2004 East -2.45 13.715 19.057 24.4 Net Income 2001 2002 2003 2004 Actual 8.4 85.4 104 288.7 (in millions) (in millions)
Slide 19: Loss and Loss Adjustment Reserves
Short tailed line of business Ultimate results develop quickly Several layers of actuarial review Internal, opining independent actuary, reinsurers and annual certification by auditors Track record of earning profit sharing commissions from reinsurers $6.8 million in 2003 and $12.4 million in 2004 H
Slide 20: Key Operating Metrics
Key Operating Metrics 2003 2004 Loss Ratio 0.592 0.558 Expense Ratio 0.362 0.367 Insurance Segment Combined Ratio Expense Ratio Loss Ratio 95.2% Agency Segment Pretax Operating Margin 2002 2003 2004 Agency Segment 0.093 0.143 0.158 Pro Forma 93.6%
Slide 21: High Quality Investment Portfolio
High Quality Investment Portfolio Conservative investment philosophy Average duration of 3.8 years Average quality AA+ US Treasury MBS/ABS Municipal Corporate 5.33 18.99 110.92 24.42 $159.7 million Investment Portfolio at December 31, 2004
Slide 22: Capitalization
Capitalization Actual 12/31/04 Notes payable Total shareholders' equity Total capitalization (GAAP, in millions) $ 30.9 205.3 $ 236.2 *Note: at 2.8 premium to surplus ratio, net written premium would be approximately $390 million (Statutory, in millions) Statutory surplus $ 139.3* Debt to total capi
Slide 23: Investment Highlights
Investment Highlights Attractive industry dynamics Return on equity focused culture Flexible operating model with multiple distribution channels Strong retail branding Metrics-driven, best practices operations Acquisitions add to growth potential