Affirmative Insurance Holdings Reports Second Quarter 2009 Financial Results

Affirmative Insurance Holdings, Inc. (Nasdaq:AFFM), a leading distributor and producer of non-standard personal automobile insurance policies, today reported consolidated financial results for the second quarter ended June 30, 2009.

The Company reported a loss from continuing operations for the three months ended June 30, 2009 of $8.0 million compared with income from continuing operations of $2.9 million in the second quarter of 2008. The net loss for the quarter, including the effects of discontinued operations, was $9.0 million compared with net income of $2.3 million in last year's second quarter.

Operating Performance

Total gross premiums written for the three months ended June 30, 2009 decreased $8.9 million to $82.3 million, or 9.8%, compared with last year's second quarter, primarily due to macroeconomic factors and the continued soft market conditions.

Net premiums earned increased by $0.7 million, or 0.7%, to $94.2 million for the three months ended June 30, 2009. The increase was primarily due to reduced dependence on reinsurance in 2009.

Commission income and fees for the three months ended June 30, 2009 increased $0.5 million, or 2.7%, compared with the same period a year ago. Results were positively impacted by increases in premium finance revenue and commissions and fees generated from third-party products. These were partially offset by the reduction in policyholder fees.

Net investment income declined by $1.1 million, or 30.4%, to $2.4 million for the three months ended June 30, 2009, compared with $3.5 million in the second quarter of 2008. The average investment yield was 2.6% (4.0% on a taxable equivalent basis) in the current quarter, compared with 3.4% (5.2% on taxable equivalent basis) in the prior year quarter.

Losses and loss adjustment expenses for the three months ended June 30, 2009 increased $11.7 million, or 16.6%, to 86.9% of net earned premium (the loss ratio), compared with a loss ratio of 75.1% in the second quarter of 2008. The major contributing factor was $11.0 million of adverse loss development for prior accident years related to Florida, Michigan and Louisiana business. Excluding prior period development, the current accident quarter loss ratio slightly increased from 75.0% in the second quarter of 2008 to 75.2% in the second quarter of 2009.

Selling, general and administrative expenses increased $3.7 million, or 10.4%, to $39.5 million, compared with $35.8 million in the second quarter of 2008. This increase was due to a reduction in ceding commission income of $2.8 million due to the termination of the quota share agreement for Louisiana and Alabama business, contingent commission expense of $1.3 million related to prior period development and a previously announced charge of $1 million related to management severance. These increases were partially offset by cost reduction initiatives.

Total interest expense was $6.6 million, compared with $4.3 million in the same period of the prior year. The increase was due to $2.0 million of loan discount amortization and a higher interest rate related to the senior secured credit facility modification in March 2009.

Discontinued Operations

As previously reported, the Company sold all of its retail stores and its franchise business in Florida. The Company closed on the sale on June 24, 2009. The sale of these stores is expected to improve pretax income from $1.0 million to $1.5 million annually.

About Affirmative

Affirmative Insurance Holdings, Inc. is a distributor and producer of non-standard personal automobile insurance policies and related products and services for individual consumers in targeted geographic markets. Non-standard personal automobile insurance policies provide coverage to drivers who find it difficult to obtain insurance from standard automobile insurance companies due to their lack of prior insurance, age, driving record, limited financial resources or other factors. Non-standard personal automobile insurance policies generally require higher premiums than standard automobile insurance policies.

The Affirmative Insurance Holdings, Inc. logo is available at http://www.globenewswire.com/newsroom/prs/?pkgid=3443

This press release contains forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements may be identified by, among other things, the use of forward-looking terms such as "likely," "typically," "may," "intends," "expects," "believes," "anticipates," "estimates," "projects," "targets," "forecasts," "seeks," "potential," "hopeful," or "attempts" or the negative of such terms or other variations on such terms or comparable terminology. By their nature, these statements are subject to risks, uncertainties and other factors, which could cause actual future results to differ materially from those results expressed or implied by such forward-looking statements.

Do not unduly rely on forward-looking statements. They give the Company's expectations about the future and are not guarantees. Forward-looking statements speak only as of the date they are made, and, except as required by law, the Company does not intend to update them to reflect changes that occur after that date. For a discussion of factors that may cause actual results to differ from expectations, refer to the Company's filings with the Securities and Exchange Commission, including its Annual Report on Form 10-K for the year ended December 31, 2008 and subsequent quarterly reports on Form 10-Q. Any factor described in this press release or in any document referred to in this press release could, by itself or together with one or more other factors, adversely affect the Company's business, earnings and/or financial condition.

AFFIRMATIVE INSURANCE HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (LOSS) (in thousands, except per share data) Three Months Ended Six Months Ended June 30, June 30, ------------------ ------------------ 2009 2008 2009 2008 -------- -------- -------- -------- (Unaudited) Revenues Net premiums earned $ 94,221 $ 93,523 $187,445 $188,391 Commission income and fees 19,879 19,353 40,451 40,198 Net investment income 2,416 3,471 4,885 8,030 Net realized gains 2,592 86 589 108 Other income (loss) (2,061) -- 537 -- -------- -------- -------- -------- Total revenues 117,047 116,433 233,907 236,727 -------- -------- -------- -------- Expenses Losses and loss adjustment expenses 81,890 70,217 151,568 141,578 Selling, general and administrative expenses 39,516 35,800 79,636 70,003 Depreciation and amortization 2,397 2,406 4,790 4,720 -------- -------- -------- -------- Total expenses 123,803 108,423 235,994 216,301 -------- -------- -------- -------- Operating income (loss) (6,756) 8,010 (2,087) 20,426 Gain on extinguishment of debt -- -- 19,434 -- Loss on interest rate swaps 516 -- 4,946 -- Interest expense 6,576 4,318 10,718 9,831 -------- -------- -------- -------- Income (loss) from continuing operations before income tax expense (13,848) 3,692 1,683 10,595 Income tax expense (benefit) (5,821) 828 (1,462) 2,699 -------- -------- -------- -------- Income (loss) from continuing operations (8,027) 2,864 3,145 7,896 Discontinued operations (Note 13) Loss from operations (including loss on disposal of $961) (1,322) (728) (1,789) (1,291) Income tax benefit (344) (205) (462) (364) -------- -------- -------- -------- Loss from discontinued operations (978) (523) (1,327) (927) -------- -------- -------- -------- Net income (loss) $(9,005) $ 2,341 $ 1,818 $ 6,969 ======== ======== ======== ======== Basic income (loss) per common share: Continuing operations $ (0.52) $ 0.18 $ 0.21 $ 0.51 Discontinued operations (0.06) (0.03) (0.09) (0.06) -------- -------- -------- -------- Net income (loss) $ (0.58) $ 0.15 $ 0.12 $ 0.45 ======== ======== ======== ======== Diluted income (loss) per common share: Continuing operations $ (0.52) $ 0.18 $ 0.21 $ 0.51 Discontinued operations (0.06) (0.03) (0.09) (0.06) -------- -------- -------- -------- Net income (loss) $ (0.58) $ 0.15 $ 0.12 $ 0.45 ======== ======== ======== ======== Weighted average common shares outstanding: Basic 15,415 15,415 15,415 15,415 ======== ======== ======== ======== Diluted 15,415 15,415 15,415 15,415 ======== ======== ======== ======== Dividends declared per common share $ -- $ 0.02 $ -- $ 0.04 ======== ======== ======== ========

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CONTACT: Affirmative Insurance Holdings, Inc. Michael J. McClure, Chief Financial Officer (630) 560-7205