First Acceptance : Quarterly Financial Statements

This report reviews the financial condition and results of operations of First Acceptance Corporation. The information in this report updates the Annual Information and Disclosure Statement and Annual Report for the year ended December 31, 2021 previously filed by the Company with the OTCQX. Accordingly, this report should therefore be reviewed in conjunction with these year-end reports and any other interim reports or updates since provided.

Forward-Looking Statements

This report contains forward-looking statements. All statements made in this report, other than statements of historical fact, are forward-looking statements. You can identify these statements from our use of the words "may," "should," "could," "potential," "continue," "plan," "forecast," "estimate," "project," "believe," "intent," "anticipate," "expect," "target," "is likely," "will," or the negative of these terms and similar expressions. These forward-looking statements may include, among other things, statements and assumptions relating to:

• the accuracy and adequacy of our loss reserving methodologies;
• (loss) income, (loss) income per share and other financial performance measures;
• the anticipated effects on our results of operations or financial condition from recent and expected economic developments;
• the financial condition of, and other issues relating to the strength of and liquidity available to, issuers of securities held in our investment portfolio;
• and our business and growth strategies.

We believe that our expectations are based on reasonable assumptions. However, these forward-looking statements involve known and unknown risks, uncertainties and other important factors that could cause our actual results, performance or achievements, or industry results to differ materially from our expectations of future results, performance or achievements expressed or implied by these forward-looking statements. In addition, our past results of operations do not necessarily indicate our future results. We discuss these and other uncertainties in "Risk Factors" of our Annual Report for the year ended December 31, 2021 filed by the Company with the OTCQX.

You should not place undue reliance on any forward-looking statements. These statements speak only as of the date of this report. Except as otherwise required by applicable laws, we undertake no obligation to publicly update or revise any forward-looking statements or the risk factors described in this report, whether as a result of new information, future events, changed circumstances or any other reason after the date of this report.

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Item 1. Exact Name of the Issuer and Address and Telephone Number of Issuer's Principal Office

Name of the Company or Issuer:

First Acceptance Corporation

Address of Principal Office:

3813 Green Hills Village Drive Nashville, TN 37215 Telephone: 615-844-2800 Web: www.acceptance.com

Item 3. Interim Consolidated Financial Statements

The interim consolidated financial statements of First Acceptance Corporation as of June 30, 2022 are attached hereto as Exhibit 3.1 and are hereby incorporated by reference into this Quarterly Report, including:

1. Consolidated Balance Sheets;
2. Consolidated Statements of Operations;
3. Consolidated Statements of Stockholders' Equity;
4. Consolidated Statements of Cash Flows; and
5. Notes to Consolidated Financial Statements

Item 4. Management's Discussion and Analysis of Financial Condition and Consolidated Results of Operations

Management's Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements which involve risks and uncertainties. Our actual results may differ significantly from the results discussed in the forward-looking statements. Factors that might cause such a difference include those discussed in "Risk Factors" in our Annual Report for year ended December 31, 2021 filed by the Company with OTCQX. The following discussion should be read in conjunction with our consolidated financial statements included with this report and our consolidated financial statements and related Management's Discussion and Analysis of Financial Condition and Results of Operations for year ended December 31, 2021 included in our Annual Report for the year ended December 31, 2021 filed by the Company with the OTCQX.

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General

We own and operate "Acceptance Insurance," an insurance agency headquartered in Nashville, Tennessee. We operate under an "Agency Model" and sell insurance and related products underwritten and serviced by our own insurance companies, known as the First Acceptance Insurance Group, ("Acceptance business") and through third-party carriers for which we receive a commission ("3PC business"). We are also licensed to write insurance in 11 other states that are not currently utilized.

Acceptance Insurance primarily sells non-standard personal automobile insurance through our own insurance companies and third-party carriers. Non-standard personal automobile insurance is sought after by individuals because of their inability or unwillingness to obtain standard insurance coverage due to various factors including their payment preference, failure to have maintained continuous insurance coverage, or their driving record. We also offer a variety of other commissionable third-party products such as roadside assistance and in most states, we also sell an insurance product for renters that we underwrite. We believe that our agency-focused operations provide us with a variety of insurance alternatives for our core customers as well as the ability to provide products that suit other potential customers.

Acceptance Insurance currently leases and operates 337 retail locations (as presented below) staffed with employee-agents. In addition to our retail locations, we can complete sales over the phone through employee-agents in our call center or over the internet through our consumer-based website and mobile platform. (The states of Missouri and Virginia are internet and call center only.)

Approximately 9% of our Acceptance business policies in force are now sold through independent agents as compared to 3% this time last year.

During the first six months of 2022, we closed one unprofitable location in both Texas and Illinois, and a new location was added in Tennessee. While additional locations may be added in 2022, the total number of locations is not expected to increase significantly. However, in 2022, the Company has worked actively to increase the number of appointed independent agents. This process is expected to continue throughout the year, and the Company believes that the variable cost structure of this sales channel will contribute towards reducing its expense ratio.

Retail Locations by State

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