Atlas Financial Holdings' CEO Discusses Q4 2013 Results - Earnings Call Transcript

Mar.11.14 | About: Atlas Financial (AFH)

Atlas Financial Holdings, Inc. (NASDAQ:AFH)

Q4 2013 Earnings Conference Call

March 11, 2014 8:30 AM ET

Executives

Scott D. Wollney – President and Chief Executive Officer

Paul A. Romano – Vice President and Chief Financial Officer

Analysts

Morgan Frank – Manchester Capital Management LLC

Brian Hollenden – Sidoti & Company, LLC

Matthew Berry – Lane Five Capital Management

John Barnidge – Sandler O'Neill & Partners LP

Operator

Greetings and welcome to the Atlas Financial 2013 Q4 and Year-End Financial Results Conference Call. At this time all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. (Operator Instructions)

As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Mr. Scott Wollney, Chief Executive Officer for Atlas Financial. Thank you. You may begin.

Scott D. Wollney

Thank you, very much, Bob, and good morning, everyone. With me today is Paul Romano, our Vice President and CFO. On this morning's call, I'll provide a brief update on our business operations in the market. Paul will review our fourth quarter results in detail and then I'll return for closing remarks. We will then open it up for Q&A.

Before I begin, I'll turn it over to Paul.

Paul A. Romano

Thank you, Scott, and good morning everyone. Yesterday after market close Atlas issued its 2013 fourth quarter and year-end financial results. Copies of this press release are available at the Investor Relation section at the Company's website at www.atlas-fin.com. We will be utilizing a slide show presentation in conjunction with this call.

This presentation is available on our website's Investor Relations section, and then under the Earnings Release Info selection. We welcome each of you to review this presentation and follow along.

On this call, we may make forward-looking statements regarding the Company, its subsidiaries, and businesses. Such statements are based on the current expectations of management of each entity. The words "anticipate", "expect", "believe", "may", "should", "estimate", "project", "outlook", "forecast", or similar words are used to identify such forward-looking information.

The forward-looking events and circumstances discussed on this call may not occur and could differ materially as a result of known and unknown risk factors and uncertainties affecting the companies, including risks regarding the insurance industry, economic factors, and the equity markets generally, and the risk factors discussed in the “Risk Factors” section of its Form 10-K for the year ended December 31, 2013, which was filed after market close yesterday.

No forward-looking statement can be guaranteed. Except as required by applicable securities laws, forward-looking statements speak only as of the date on which they are made and the Company and its subsidiaries undertake no obligation to publically update or revise any forward-looking statement, whether as a result of new information, future events, or otherwise.

When discussing our business operations, we may use certain terms of art, which are not defined under U.S. GAAP. In the event of any unintentional difference between the presentation materials and our GAAP results, investors should rely on the financial information in our public filings. All amounts discussed on this call are in U.S. dollars, unless otherwise indicated.

With that, I’d now like to turn the call back over to Scott.

Scott D. Wollney

Thanks, Paul. We were pleased to report strong financial results for our quarter and year, largely driven by solid underwriting gains and continued growth in our core light commercial vehicle business, specifically insurance for taxi, limousine and paratransit operators.

A number of important milestones were achieved during the year. We completed our U.S. IPO, culminating in the Company becoming listed on NASDAQ, closed the acquisition of Gateway Insurance Company last January, growing our geographic presence substantially, streamlined our capital structure through the redemption and cancellation of 18 million preferred shares at a discount and all outstanding warrants were exercised before their expiration on December 31, 2013.

Key elements of our financial results is highlighted on Slide 3; include increased underwriting gains, lower combined ratio and continued growth and gross premiums written and net premiums earned. Work over the past few years following the creation of Atlas has positioned us well with a clean balance sheet and an infrastructure that continue to sustain our current growth trajectory.

Slides 4 and 5 show the current geographic breakdown of the states in which we write. As you can see on Slide 5, we were $93 million in gross premiums during 2013, an increase of 69% as compared to the prior year. Our growth rate in the fourth quarter was substantially higher as Paul will discuss.

We are pleased that our growth is the result of increased premium writings across a widely dispersed geographic base. Excluding our excess taxi program in New York, we have no state representing more than 12.1% of our gross premium written. Further, we feel that there are still considerable room for additional vertical growth in all of the states in which we’re actively distributing our products. Atlas has approximately 7% market share nationwide and less than 5% market share in most states.

Our agents wrote nearly $150 million in commercial auto business only a few years ago through our three subsidiaries; American Country, American Service and Gateway. This premium level is achieved predominantly in a handful of states. Now, we’re in 40 plus Washington D.C.

However, we’re not only capturing back business that was written through these subsidiaries a few years ago, we’re also winning new business from competitors based on our strong value proposition. While we continue to increase our premiums written and expand vertically in our current geographies, our commitment remains to enhance underwriting profit and maximize return on equity.

Slide 6, illustrates the improvement in each of our operating ratios, reporting a combined ratio of 94.4% for the year and 91.4% for the quarter. This marks the sixth consecutive quarter of positive combined ratio trending.

On the next slide, we have our underwriting profit improvement. At the same time as quarter-over-quarter improvement in our combined operating ratio increased margin, greater operating leverage increases return on equity at an accelerating rate.

Our return on average common equity was 10.9% in 2013, as compared to 6.1% in 2012.

On a pro forma basis dividing annualized Q4 2013 income against average common equity for the quarter, ROE would be 15%. As we noticed on past calls, our agent compensation and incentive plans are linked directly to ROE and our ability to achieve an underwriting profit.

We do not distribute through wholesalers, managing general agents or other intermediaries were disconnected from the point of sales, which is critical to effective underwriting as well as understanding exposures and loss reserving. Our customers can crash alive, but typically with relatively low severity, as a result of our operating insurance subsidiaries’ history and constant communication within our network, Atlas has a significant amount of data from which to draw and feel that we can effectively price our exposure with a high degree of confidence.

Our agents know their customers, because commercial auto insurance is all they do. They understand our value proposition, know how to sell it and are just committed to our specialty niche as we are. We don’t think this is something that a larger player can come in and easily replicate at least not sustainably, in fact a number of generalist insurers exited the niche in the past year or so, creating incremental opportunity and which we are now capitalizing.

Atlas’s goal is to continue to strengthen the relationship with our agents and policy holders. Our executive team has frequent interactions with our cornerstone agents which ensures that we have an open and effective line of communication. This differentiates us from competitors, creates an avenue for us to share information with our distribution channel in an extremely timely way and keeps us plugged into market changes and opportunities.

Overall, we feel this approach does facilitates our service model, garners greater commitment across market cycles and supports effective pricing long-term.

And Slides 8 and 9, we note that trends we are saying in new business and retention rates. We’ve been pleased with the upward trend of new business submissions and of equal importance is our continuing to maintain a steady 85% renewal rate. Right now, we are pricing to 60% loss ratio or better and we use these and other operating metrics to evaluate our pricing power.

While industry wide commercial automobile rate increases appeared to have moderated in Q4, 2013 as seen on Slide 10, the environment in our niche continue to support mid to high single-digit rate increases. We are regularly renewing business at rate level that support our underwriting profit margin and are binding new business with incremental rate.

Our agents are doing well in the current marketplace and request from potential new agents continued to come in at record levels. As always we remained very selective about the agents with whom we do business.

As you can see on Slide 11, we still appear to be at early stages of market firming and have not yet entered a truly hard market. Rates have been going up at increasing marginal levels for the past two years and a slower less volatile market cycle is certainly something that will benefit Atlas in the short and long-term.

In our particular niche markets of taxis, limos and paratransit, we are beginning to see in recent quarters the benefit of larger competitors entering the markets over the past 12 to 18 months. In many cases these companies were distributing products through managing general agents or wholesalers and we are often the most price aggressive of our competition.

In addition competitors in our market they may have struggles in other lines of business and are distracted from our specialty niche or are raising rates across the board. Atlas remains wholly committed to the specialty commercial auto markets we serve, without the distractions facing many other companies with whom we’ve been competing in recent years. We don’t see any significant factors moderating our pricing strategy for 2014 and are optimistic that we will be able to further increase our margin targets as the year goes on.

It’s also worth noting that Atlas is not materially exposed to catatropic risks, which eliminates potential volatility in that regard. With that I will turn the call over to Paul for a review of our financial results.

Paul A. Romano

Thanks, Scott. I'll briefly go through the quarterly highlights, but encourage each of you to review the press release and filings for additional details.

As shown on Slide 13 of the presentation, Atlas' gross premium written increased 106.2% to $22.1 million in the fourth quarter of 2013, 124% increase from our core commercial auto lines. Of the $11.4 million improvement in total gross premium written, approximately $2.5 million is attributable to the Gateway acquisition that occurred in 2013 January. The remaining improvement is due to Atlas' vertical expansion of core lines of business across our current distribution footprint.

Our net premium written increased 122.8% to $20.4 million during the fourth quarter of 2013, which was all related to Atlas' specialty commercial auto lines. Our net premiums earned ratably over the term of our policies, which are generally 12 months in lengths.

For the three month period ended December 31, 2013, net premiums earned increased 72.2% over the prior year quarter to $20.5 million.

Let me take a moment now to summarize our operating ratios for the quarter. For the fourth quarter 2013, Atlas' loss ratio was 63.3% compared to 67.7% in the prior year quarter, and remained consistent with the loss ratio reported in the third quarter of 2013. for the full year 2013, our loss ratio was 63.9%.

As Scott mentioned earlier, we are pricing our business to 60% loss ratio and believe our expertise in claims handling provides for real economic value with respect to getting our customers’ vehicles back into service. We will continue to maintain steady pricing discipline in this current market cycle.

Acquisition costs were 14.7% of net premiums earned in the fourth quarter 2013 as compared to 15.9% in the prior year period. For the full year 2013, our acquisition costs were 14.5% as we’ve noted in the past, this percentage represents a good annualized run rate level.

The ratio for other underwriting expenses, or OUE, was 13.4% for the fourth quarter 2013, an improvement over the 14.6% reported in the third quarter of 2013, as well as an improvement over the 13.8% reported in the same quarter last year. For the full year 2013, our OUE ratio was 16% compared to 17.1% for the full year of 2012.

As previously communicated, we anticipate the OUE ratio will continue trending towards the 10% to 12% range as we’ve now reached a minimum efficient scale. We believe the ratio will remain towards the higher end of the range, while the Company continues to benefit from favorable market conditions and takes advantage of above average growth opportunities.

As a result of these improvements the Company’s combined ratio for the fourth quarter 2013 was 91.4% compared to 97.4% in the prior year quarter, and 93.9% for the third quarter of 2013. For the year the combined ratio was 94.4% compared to 102.4% in the prior year or a year-over-year reduction of 8 percentage points. Net income for the quarter was $2.2 million, a 75% increase over the $1.2 million reported in the fourth quarter of 2012. This was all driven by our quarterly increases in underwriting profit, which in the fourth quarter 2013 improved to $1.8 million, compared with $305,000 in the prior year quarter.

Diluted earnings per share were $0.22 for the fourth quarter 2013 based on $9.8 million diluted weighted average shares as compared to diluted earnings per share of $0.15 in the prior year period based on $8.4 million diluted weighted average shares.

For the full year 2013, diluted earnings per share were $0.74. The preferred shares that were redeemed during Q3 2013 decreased the full year 2013 diluted earnings per share by $0.10 as a result of including the pro-rata share impact as if the preferred shares had converted at the beginning of the period. Future diluted earnings per share will not be affected by the convertible impact of these shares that were redeemed in 2013.

On a pro forma basis without the impact of these preferred shares diluted earnings per share for the full year 2013 would be $0.84. As mentioned during the third quarter call, we regained and canceled $18 million preferred shares at a $1.8 million discount in the third quarter of this year. This was an important move for our Company, as we simplified the capital structure while also purchasing the preferred stock back at a discount.

In addition, during the period 1.2 million warrants were exercised for cash consideration of $6.4 million. At the present time Atlas has 9,424,734 common shares outstanding and a simplified capital structure.

In Slide 14, we highlight some of the particulars surrounding our current book value per share. As we discussed, 2013 was eventful with the acquisition of Gateway, our U.S. IPO, the preferred share redemption and the warrant exercises. We thought it will be helpful to illustrate how these key events impacted our book value during 2013.

As you can see, for the full year these non-recurring activities, which were beneficial to our business and capital structure, coupled with the mark-to-market impact on our investment portfolio, collectively reduced book value by $0.65 per share. During the same period net income attributable to common shareholders increased book value by $0.42 per share, while the change to our deferred tax valuation allowance increased book value by $0.22 per share.

It is also worth noting, as previously discussed via press release, Atlas’ deferred tax assets were recast based on a triggering event as defined under IRS Code Section 382 in August of 2013. As a result, Atlas’ gross and net deferred tax assets were reduced by $1.7 million and $587,000 respectively. This triggering event did not affect book value based on the previous allowance held against these assets. Atlas currently has $1.62 per share in post-triggering event DTAs with an allowance of $1 per share held against these assets as of December 31, 2013.

Now, let me touch quickly on investments. As shown on Slide 15 of our presentation, Atlas’ cash and invested assets at December 31, 2013, were $139.9 million, as compared to $120.8 million at December 31, 2012.

Investment income was $424,000 in the quarter, which includes net realized gains of $8,000. The duration of our investment portfolio matches the expected liquidity requirements of our client payment needs. With our philosophy centered around preservation of capital to support our growth, our current duration is 4.7 years and fixed income securities with an S&P rating of A or better, represent 89% of our investment holdings. The average rating of our portfolio is AA.

With that, let me turn the call back over to Scott for his concluding remarks.

Scott D. Wollney

Thanks, Paul. In 2013, we completed a number of steps to ensure that Atlas is well positioned for future growth. Looking forward, we plan to continue to execute on our strategic business plan.

In 2014, we expect to leverage the infrastructure we build and grow our customer base within current niche markets while we begin to explore potential horizontal expansion for the future. As we’ve discussed with many of you, our goal is to gain a proportionate share in the niche markets where we operate.

According to A.M. Best, the commercial auto segment in the U.S. is approximately $24 billion in written premiums. We represent 0.3% of that at this point in time. The addressable market in our target niche areas of taxi, limo and paratransit insurance is about $1.5 billion and our goal is to get to approximately 20% of that in the current market cycle. Right now we’re at $93 million in gross written premiums and see substantial opportunity to continue our profitable growth.

We think we’re on the right track, continuing to cultivate our current relationships with specialized independent agents, our large geographic footprint, remaining strict in our underwriting and pricing criteria, all while leveraging a focused client service and expertise that we feel is difficult to replicate. Importantly, our model dictates that we remain more committed than our competition in any market where we write.

We recently rang the bell at NASDAQ on our one year anniversary of becoming a U.S. listed company. It was a nice opportunity to thank our employees and reiterate the fact that we are a hyper focused company that understands its markets, which we believe are underserved both in capacity and expertise.

We’re relatively small business and every one of our 107 employees are aligned and motivated to help Atlas grow and build on a long heritage of the insurance companies we operate. We’ve a great team. We’re very proud of what we accomplished last year and we like where we’re heading.

With that, let’s open it up for questions.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions) Our first question comes from the line of Morgan Frank with Manchester Management. Please proceed with your question.

Morgan Frank – Manchester Capital Management LLC

Hi, guys. Great quarter. Question for you on gross premium written. That was a big jump and a big acceleration in terms of year-on-year comparables. Was this something kind of one-time, an idiosyncratic here, or could we sort of extrapolate this triple digit growth in gross written premium going forward in the next couple of quarters, and if so, what’s the big change? Is that just how we’re believing or…?

Scott D. Wollney

It isn’t limited just to that. I guess, first of all, we want to be clear we don’t want to give a specific forecast in terms of the extrapolation part of the question, but it was not a correction. It really is the effect of a number of competitors that have exited the niche over the past year to year and a half where their books of business really just began non-renewing in the second half of the year. And so, we did get obviously significant benefit from that capacity fully exiting in the fourth quarter and we do expect to continue to get similar kinds of benefit during this year as those programs continue to run off.

Morgan Frank – Manchester Capital Management LLC

Okay. Well, that’s really exciting. Thanks very much.

Scott D. Wollney

Thanks for the question, Morgan.

Operator

Thank you. Our next question comes from the line of Brian Hollenden with Sidoti. Please proceed with your question.

Brian Hollenden – Sidoti & Company, LLC

Good morning, guys. Thanks for taking my call. Can you give us a sense of how long you expect this quasi-hard market to last?

Scott D. Wollney

We hope it will continue to last for a while. As I touched on, we like the idea of a longer flatter firm market as opposed to a market that hardens sharply, the way that it did in early 2000. Right now the data suggests that’s what’s happening. Obviously quarter-to-quarter we’ve seen some sort of fits and starts in terms of rate increase. For the recent – our niche, we feel very good about the market environment in 2014. We want to hold off on trying to forecast potential duration of the market because this is market after all and we don’t say that we can predict the length of the market cycle.

But as we see it right now we feel like our niche is supporting higher rate levels than commercial auto appears to be getting generally and for the reason I touched on when responding to the Morgan’s question there is a significant lot of capacity that’s come out, which give us incremental opportunity not only to increase rate, but also to capture market share.

Brian Hollenden – Sidoti & Company, LLC

All right. Thank you.

Scott D. Wollney

Thanks for the question, Brian.

Operator

Thank you. (Operator Instructions) Our next question comes from the line of Matthew Berry with Lane Five Capital. Please proceed with your question.

Matthew Berry – Lane Five Capital Management

Hello, gentleman.

Scott D. Wollney

Hello.

Paul A. Romano

Hi, Matthew.

Matthew Berry – Lane Five Capital Management

Hi. I got a couple of questions. One is rather esoteric. So I’ll go with that one. Second, the first one is, I noticed the yield on your investment portfolio is probably not as high or is well performing as your current level of underwriting profits, which are excellent. I was wondering if you could comment on what do you think you could do to improve the yield on the investment portfolio, whether that is an areas of focus for you at all, and how you think it stacks up against how some of your competitors manage their investment portfolios?

Scott D. Wollney

Sure. That’s a great question. You may have seen the duration on the portfolio did extent a bit going out to 4.7 years. Our goal principally is preservation of capital. We want that capital to be there to support the incremental underwriting profit that we expect to generate in the favorable market conditions we’re experiencing. So we have put a very high priority on managing risk in the portfolio so that we don’t put that capital expense in jeopardy.

That said, we did extend the duration a little bit to try to capture some incremental yield. In the second half of the year there were some opportunities, we felt to do that. But the reality of it is that I’m sure everyone on the call knows, the current fixed income market even if you begin to go even further out and the yield curve just doesn’t provide a lot of bank to your buck.

So we don’t plan to continue pushing yield out further and further. We also don’t want to look at particularly risky assets, but we do record a look at opportunities and we actively have a dialogue with our investment managers to seek primarily fixed income opportunities to grow yield a debt because our surplus is growing and that surplus is theoretically permanent capital, we do feel like we have an opportunity to look at investments that may have a longer duration, but only if the incremental yield really justifies committing that capital, and there’s definitely something to be said too keeping some powder dry, so that if we see the rate environment improve or if we see other investment opportunities become available, private placement for example, we want to be in a position to capitalize on it. So we definitely look very closely at it.

We don’t want to make decisions today that are going to have an adverse effect on our ability to grow the business tomorrow, but we’d like to see that yield go up to the extent we can – meeting the criteria that I set out.

In terms of how it compares to other companies, I think if you looked at other insurance companies with similar payment patterns in other words, if it tail on their business with similar to ours, we’d see a fairly similar yield. I think there are a number of P&C companies that have as much as 20% or more in equities. Their yields will obviously be outperforming ours, but then they are taking market risk in terms of those investments and right now, we’d rather commit to having our capital available for our own business, because we know we’re generating higher than average underwriting results as opposed to betting on the stock market.

Matthew Berry – Lane Five Capital Management

Okay. Could you also remind me just on the same point, how many basis points you give up in asset management fees?

Scott D. Wollney

It’s small, it’s about 11 bps all in, and that includes some accounting support as well.

Matthew Berry – Lane Five Capital Management

Okay. Okay, thanks. Got. Okay. So then the second question follows on, I think neatly from what you said about keeping powder dry and managing the portfolio for risk and so on. And it’s that when we look at various insurance companies some operates slightly different to the others. One of them in particular is always able – have never had a year when it’s not been able to pay all of the claims out of the incoming premiums, and therefore in that situation all of the value of investments accrues to the shareholders.

Could you talk to us about how you think about balancing – you’re a little more niche and a little more focused than that firm. In terms of your markets that you write full, but could you talk to us about how you think about managing the size of the claims that you write or the claims that you might have to pay versus the premiums that you write and whether or not we, whatever, expect to see years where you’re paying out more than you’re bringing in cash.

Paul A. Romano

So we are cash flow positive as of 2013, and in some of the earlier years we were cash flow negative as larger volumes of claimants from the bigger book of business were being paid out against the smaller premium pool. So today it is the case that on a cash flow basis more money is coming in than going out. As a result, the investment portfolio will continue to grow presumably at an incrementally higher rate. And so, from that perspective you would expect to see that happening until such time where our top line begins to shrink. And as we’ve said in the past, right now it’s a firm market.

We are growing and increasing marginal profit and are able to increase rates. When we eventually see the market turning soft, which it will at some point, that’s the point where we expect to maintain pricing discipline and would lose some amount of market share. And so when you see the top line come down as the point where the business could on a cash basis be paying more claims out in dollars than taking in new premiums, but the important thing to recognize is that those future claim payouts are being made against claim reserve liabilities that have already been booked.

So from an insurance company accounting standpoint in every calendar year, every accident year, we are putting up reserves against the premium we earned, and the expectation is that future cash out the door is going to bump up against the reserves already made. So from a balance sheet perspective, you’d still expect book value to remain strong…

Matthew Berry – Lane Five Capital Management

Absolutely.

Scott D. Wollney

Cash flow is potentially going the other way.

Matthew Berry – Lane Five Capital Management

Yes. In terms of peak to trough when things do soften given that you are sort of only concentrated in one niche. Do you have a sense of how hard that could – I mean, it’s going to depend on how much market share you have at the time, and how it reacts to yield, your specific niche reacts to your pricing actions? But do you have a sense of how far your niche has fallen historically from peak to trough?

Paul A. Romano

Well, the overall size of the niche has not generally shrunken in terms of total premium. The question is how price aggressive are naïve competitors in a soft market environment. And so I think it’s hard to forecast what would small be once we get to proportionate market share. In other words, if we get to 20% of the $1.5 billion addressable market that’s $250 million to $300 million in premium, so that’s peak.

What trough would be following that, I think it’s a difficult thing to forecast because we can’t know today what a naïve competitor might do in the future, particularly if it’s three to five years from now, but what we do know is that we intend to maintain a pricing discipline, where we would stop giving rate in a soft market environment at about a 70% fully developed loss ratio.

And so that’s the point where we would always want to lag the market in terms of giving rate in a soft market environment, hence losing some amount of share, but then hold the line at a 70%, because it is 70% in our current cost structure, which we’d expect to maintain. We never expect to fall below minimum efficient scale again. That would still keep our combined ratio under 100%, so that we are always generating some amount of underwriting profit as opposed to allowing that ratio to go over 100% the way that the property-casualty industry generally does in soft market.

Matthew Berry – Lane Five Capital Management

Okay. And do you think when you get up to, assuming you do get up to 20% sort of level that having a player in the market with that kind of scale, and your niche imposes or allows anybody else to act with more price discipline or do you think that people will continue to be as irrational and erratic as they had in the past?

Scott D. Wollney

Well, our goal will always be to provide price leadership. We think that as what will be the only real middle-market player in our niche, it does give some guidance to somebody who perhaps doesn’t understand what they’re competing with. It's not uncommon for insurance companies to look at other insurance companies public filings to get a sense for what pricing should be.

But that said, if we see an insurance company coming in, particularly through managing general agents or wholesalers it’s unclear whether those managing general agents or wholesalers are going to have the kind of disciplined than a insurance company would. And so, I think we have to expect that there is always the potential for irrationable pricing, particularly in a soft market, because there always seems to be an insurance carrier out there that's going to sign up those managing general agent, despite the fact that historically that hasn’t worked out well in most cases.

Matthew Berry – Lane Five Capital Management

Okay, all right. Thank you very much.

Scott D. Wollney

Well, thanks for the questions Matthew.

Operator

Thank you. Our next question comes from the line of John Barnidge with Sandler O’Neill. Please proceed with your question.

John Barnidge – Sandler O'Neill & Partners LP

Good morning and thanks for taking my call. You touched on where you want the other underwriting expense ratio to trend over time, and I may have missed this, but where do you see the acquisition cost ratio settling in?

Paul A. Romano

So I think from a modelling perspective, for the full year, I would use 14.5% that’s going to very quarter-over-quarter principally based on geographic weighting, the premium tax and let’s get it like New York, for example is upwards of 2%, whereas in a state like Illinois, it’s less than half percent. So depending on a given quarter where the bulk of our premium is written you will see that fluctuate. The second component of acquisition cost, which is our commission levels, remained pretty constant quarter-over-quarter.

John Barnidge – Sandler O'Neill & Partners LP

Great, thanks very much.

Scott D. Wollney

Thanks for the question, John.

Operator

(Operator Instructions) There are no further questions at this time. I would like to turn the floor back to Scott Wollney for closing comments.

Scott D. Wollney

Thank you, Bob, and thanks to everyone for joining us. We are available to answer any follow-up questions you might have and look forward to speaking with you again in May in connection with our first quarter financial results.

Operator

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.

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Atlas Financial Holdings (AFH): Q4 EPS of $0.22 beats by $0.01. Revenue of $20.9M beats by $1.84M.