First Acceptance Corporation Reports Operating Results for the Quarter Ended September 30, 2009

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NASHVILLE, Tenn.--(Business Wire)--
First Acceptance Corporation (NYSE: FAC) today reported its financial results
for the first quarter ended September 30, 2009 of its fiscal year ending June
30, 2010.

Operating Results

Revenues for the three months ended September 30, 2009 were $57.3 million,
compared with $71.6 million for the same period in fiscal year 2009. Income
before income taxes for the three months ended September 30, 2009 was $2.9
million, compared with $3.8 million in the same period in fiscal year 2009. Net
income for the three months ended September 30, 2009 was $2.8 million, or $0.06
per share on a diluted basis, compared with $1.8 million, or $0.04 per share on
a diluted basis, for the same period in fiscal year 2009.

Premiums earned for the three months ended September 30, 2009 were $48.5
million, compared with $61.8 million for the same period in fiscal year 2009.
This decline was primarily due to the weak economic conditions, which have
caused both a decline in the number of policies written, as well as an increase
in the percentage of our customers purchasing liability only coverage. Rate
actions taken in a number of states to improve underwriting profitability and
the closure of underperforming stores also contributed toward the decreases in
policies written and premiums earned. At September 30, 2009, the number of
policies in force was 152,866, compared with 170,555 at September 30, 2008. At
September 30, 2009, we operated 415 stores, compared with 429 stores at
September 30, 2008.

Loss and Loss Adjustment Expense Ratio. The loss and loss adjustment expense
ratio was 68.4 percent for the three months ended September 30, 2009, compared
with 70.7 percent for the same period in fiscal year 2009. For the three months
ended September 30, 2009 and 2008, we experienced favorable development on
losses related to prior periods of approximately $3.7 million and $4.3 million,
respectively.

The favorable development for the three months ended September 30, 2009 was due
to lower than anticipated severity and frequency of accidents. Excluding
favorable development, the loss and loss adjustment expense ratios for the three
months ended September 30, 2009 and 2008 were 75.9 percent and 77.7 percent,
respectively. The year-over-year improvement reflects among other things,
favorable severity trends in property and physical damage coverages, rate
actions taken in a number of states to improve underwriting profitability,
improvement in our underwriting and claim handling practices, and the shift in
business mix toward renewal policies, which have lower loss ratios than new
policies.

Expense Ratio. Our expense ratio for the three months ended September 30, 2009
was 26.0 percent, compared with 21.4 percent for the same period in fiscal year
2009. The year-over-year increase in the expense ratio was due to the drop in
premiums earned, which resulted in a higher percentage of fixed expenses (e.g.,
rent, base salary).

Combined Ratio. The combined ratio increased to 94.4 percent for the three
months ended September 30, 2009 from 92.1 percent for the same period in fiscal
year 2009.

Litigation Settlement. As previously reported, we entered into settlement
agreements related to litigation brought against us in Georgia and Alabama with
respect to certain sales practices. Pursuant to the terms of the settlement
agreements, eligible class members are entitled to certain premium credits or
reimbursement certificates. At December 31, 2008, we accrued $5.2 million
associated with the estimated utilization of available premium credits for class
members. During the three months ended September 30, 2009, eligible class
members utilized $1.0 million of available premium credits and $0.4 million were
forfeited, resulting in a remaining settlement accrual of $1.6 million at
September 30, 2009.

Provision for Income Taxes. The provision for income taxes for the three months
ended September 30, 2009 was $0.1 million, compared with $1.9 million for the
same period in fiscal year 2009. The provision for income taxes for the three
months ended September 30, 2009 related to current state income taxes for
certain subsidiaries with taxable income. At September 30, 2009 and June 30,
2009, we established a full valuation allowance against all net deferred tax
assets. In assessing our ability to support the realizability of our deferred
tax assets, we have considered both positive and negative evidence. We have
placed greater weight on historical results than on our outlook for future
profitability. The deferred tax valuation allowance may be adjusted in future
periods if we consider that it is more likely than not that some portion or all
of the deferred tax assets will be realized. In the event the deferred tax
valuation allowance is adjusted, we would record an income tax benefit for the
amount of the adjustment.

About First Acceptance Corporation

First Acceptance Corporation provides non-standard private passenger automobile
insurance, primarily through employee-agents. At September 30, 2009, we leased
and operated 415 retail offices in 12 states. Our insurance company subsidiaries
are licensed to do business in 25 states. Additional information about First
Acceptance Corporation can be found online at www.firstacceptancecorp.com.

This press release contains forward-looking statements. These statements, which
have been included in reliance on the "safe harbor" provisions of the federal
securities laws, involve risks and uncertainties. Investors are hereby cautioned
that these statements may be affected by important factors, including, among
others, the factors set forth under the caption "Risk Factors" in Item 1A. of
our Annual Report on Form 10-K and in our other filings with the Securities and
Exchange Commission. Actual operations and results may differ materially from
the results discussed in the forward-looking statements. We undertake no
obligation to publicly update or revise any forward-looking statement, whether
as a result of new information, future developments or otherwise.

FIRST ACCEPTANCE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
(in thousands, except per share data)

Three Months Ended

September 30,

2009 2008
Revenues:
Premiums earned $ 48,467 $ 61,838
Commission and fee income 6,954 8,243
Investment income 1,913 2,723
Net realized losses on fixed maturities, available-for-sale (22 ) (1,215 )
57,312 71,589

Costs and expenses:
Losses and loss adjustment expenses 33,153 43,732
Insurance operating expenses 19,570 21,446
Other operating expenses 273 392
Litigation settlement (381 ) 145
Stock-based compensation 383 495
Depreciation and amortization 464 469
Interest expense 989 1,157
54,451 67,836

Income before income taxes 2,861 3,753
Provision for income taxes 101 1,912
Net income $ 2,760 $ 1,841

Net income per share:
Basic and diluted $ 0.06 $ 0.04

Number of shares used to calculate net income per share:
Basic 47,877 47,655
Diluted 48,853 49,244

FIRST ACCEPTANCE CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
(in thousands, except per share data)

September 30, June 30,
2009 2009
(Unaudited)
ASSETS
Fixed maturities, available-for-sale at fair value (amortized cost of $178,003 and $140,849, respectively) $ 181,640 $ 140,311
Cash and cash equivalents 37,271 77,201
Premiums and fees receivable, net of allowance of $458 and $419 45,633 45,309
Other assets 9,845 11,866
Property and equipment, net 3,604 3,921
Deferred acquisition costs 4,197 3,896
Goodwill 70,092 70,092
Identifiable intangible assets 6,360 6,360
TOTAL ASSETS $ 358,642 $ 358,956

LIABILITIES AND STOCKHOLDERS` EQUITY
Loss and loss adjustment expense reserves $ 81,736 $ 83,973
Unearned premiums and fees 56,608 57,350
Debentures payable 41,240 41,240
Other liabilities 11,884 16,537
Total liabilities 191,468 199,100

Stockholders` equity:
Preferred stock, $.01 par value, 10,000 shares authorized -- --
Common stock, $.01 par value, 75,000 shares authorized; 48,308 and 48,312 shares issued and outstanding, respectively 483 483
Additional paid-in capital 465,103 464,720
Accumulated other comprehensive income (loss) 3,637 (538 )
Accumulated deficit (302,049 ) (304,809 )
Total stockholders` equity 167,174 159,856
TOTAL LIABILITIES AND STOCKHOLDERS` EQUITY $ 358,642 $ 358,956

FIRST ACCEPTANCE CORPORATION AND SUBSIDIARIES
Supplemental Data
(Unaudited)

GROSS PREMIUMS EARNED BY STATE

Three Months Ended
September 30,
2009 2008
Premiums earned:
Georgia $ 10,902 $ 13,427
Illinois 6,331 7,361
Texas 5,912 7,002
Florida 5,261 7,616
Alabama 5,210 6,572
South Carolina 3,138 5,450
Tennessee 3,104 4,415
Ohio 2,952 3,451
Pennsylvania 2,819 2,787
Indiana 1,221 1,563
Missouri 827 1,128
Mississippi 790 1,066
Total premiums earned $ 48,467 $ 61,838

COMBINED RATIOS (INSURANCE COMPANIES)

Three Months Ended
September 30,
2009 2008
Loss and loss adjustment expense 68.4 % 70.7 %
Expense 26.0 % 21.4 %
Combined 94.4 % 92.1 %

POLICIES IN FORCE

Three Months Ended
September 30,
2009 2008
Policies in force - beginning of period 158,222 194,079
Net decrease during period (5,356 ) (23,524 )
Policies in force - end of period 152,866 170,555

FIRST ACCEPTANCE CORPORATION AND SUBSIDIARIES
Supplemental Data (continued)
(Unaudited)

NUMBER OF RETAIL LOCATIONS

Retail location counts are based upon the date that a location commenced or ceased writing business.

Three Months Ended
September 30,
2009 2008

Retail locations - beginning of period 418 431
Opened -- 1
Closed (3 ) (3 )
Retail locations - end of period 415 429

RETAIL LOCATIONS BY STATE

June 30, September 30,
2009 2008 2009 2008

Alabama 25 25 25 25
Florida 39 40 36 39
Georgia 61 61 61 61
Illinois 78 80 78 81
Indiana 18 19 18 19
Mississippi 8 8 8 8
Missouri 12 14 12 13
Ohio 27 29 27 29
Pennsylvania 17 19 17 18
South Carolina 27 28 27 28
Tennessee 20 20 20 20
Texas 86 88 86 88
Total 418 431 415 429

First Acceptance Corporation
Michael Bodayle, 615-844-2885

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