How Are Claims Handled?
Text Size: A   A   A

News Releases

<< Back
02/25/19

National General Holdings Corp. Reports 2018 Results

  • Fourth quarter 2018 net income of $17.3 million compared to net loss of $9.9 million in the fourth quarter of 2017. Year ended 2018 net income was $174.9 million compared to $74.3 million in the year ended 2017.
  • Fourth quarter 2018 net income per diluted share of $0.16 compared to net loss per diluted share of $0.09 in the fourth quarter of 2017. Year ended 2018 net income per diluted share was $1.59 compared to $0.68 in the year ended 2017.
  • Fourth quarter 2018 operating earnings (non-GAAP)(1) was $33.6 million compared to $30.0 million in the fourth quarter of 2017. Year ended 2018 operating earnings (non-GAAP)(1) was $231.5 million compared to $118.1 million in the year ended 2017.
  • Fourth quarter 2018 operating earnings per share (non-GAAP)(1) was $0.30 compared to $0.28 in the fourth quarter of 2017. Year ended 2018 operating earnings per share (non-GAAP)(1) was $2.09 compared to $1.09 in the year ended 2017.

NEW YORK, Feb. 25, 2019 (GLOBE NEWSWIRE) -- National General Holdings Corp. (Nasdaq:NGHC) reported fourth quarter and full year 2018 results, highlighting the strength of the well-diversified, niche portfolio.

Fourth Quarter 2018 Highlights Versus Fourth Quarter 2017*

  • Gross written premium grew $108.5 million or 10.2% to $1,175.7 million, driven by continued organic growth in our P&C segment of 8.8% and in our A&H segment of 19.2%.

  • In the fourth quarter, our homeowners’ product experienced organic growth of 17.8% driven by continued growth from strategic partnerships and the expansion in our high net worth product offering. Our personal auto product experienced organic growth of 7.8% driven by rate increases and PIF growth.

  • The overall combined ratio(9,13) was 95.9% in the fourth quarter compared to 96.9% in the prior year’s quarter and 92.6% for the full year compared to 96.1% in 2017, excluding non-cash impairment of goodwill and amortization of intangible assets. The P&C segment reported an increase in combined ratio to 100.5% from 98.2% in the prior year’s quarter. The combined ratio includes $59.0 million of losses, or 7.9 P&C loss ratio points, primarily related to Hurricane Michael and November California Fires in the fourth quarter 2018, compared to $52.9 million of losses, or 7.5 P&C loss ratio points, from events in the fourth quarter 2017. The A&H segment reported a combined ratio of 73.6% compared to 89.9% in the prior year’s quarter with the decrease driven by strong operating results in our small group self-funded and individual products.

  • Service and fee income grew 11.0% to $162.2 million, driven by organic growth in both our Accident & Health and Property & Casualty segments.

  • Shareholders’ equity was $2.22 billion and fully diluted book value per share was $15.25 at December 31, 2018, growth of 15.2% and 10.0%, respectively, from December 31, 2017. Our trailing twelve month operating return on average equity (ROE)(14) was 14.6% as of December 31, 2018. In November we completed a 5.75 million share secondary common stock offering.

  • Fourth quarter 2018 operating earnings (non-GAAP)(1) exclude the following items, net of tax: $7.9 million or $0.07 per share of estimated litigation resolution expense, $6.3 million or $0.06 per share of non-cash amortization of intangible assets and $3.7 million or $0.03 per share of net loss on investments.

Barry Karfunkel, National General’s CEO, stated: “I’m pleased to report a year of record earnings for National General despite continued elevated catastrophe losses for the industry. Our diversified approach to niche areas in personal lines insurance is paying dividends, with strength in our Accident and Health segment driving an increasing share of underwriting income. In the quarter, we entered into an agreement to acquire National Farmers Union Insurance. This acquisition brings new competencies to National General through geographic diversification as well as a new distribution partner with the National Farmers Union. I think the strength of the platform that we have built since National General’s founding was evident this year, and I expect it to drive continued out-performance in the coming years.”

Overview of Fourth Quarter 2018 as Compared to Fourth Quarter 2017 by Segment

  • Property & Casualty - Gross written premium grew by 8.8% to $1,012.1 million, net written premium increased by 6.3% to $716.4 million, and net earned premium increased by 5.4% to $747.5 million. P&C gross written premium growth was primarily driven by organic growth of 17.8% from our homeowners’ product and 7.8% from our personal auto product. Service and fee income grew 11.6% to $110.8 million. Excluding non-cash impairment of goodwill and amortization of intangible assets, the combined ratio(9,13) was 100.5% with a loss ratio of 79.6% and an expense ratio(9,12) of 20.9%, versus a prior year combined ratio of 98.2% with a loss ratio of 76.9% and an expense ratio of 21.3%. The loss ratio was impacted by pre-tax catastrophe losses of approximately $59.0 million primarily related to Hurricane Michael and November California Fires in the fourth quarter 2018.
     
  • Accident & Health - Gross written premium grew by 19.2% to $163.5 million, net written premium grew by 11.6% to $140.4 million, and net earned premium grew by 12.9% to $151.0 million. The A&H gross written premium increase was driven by the continued growth across the entire book. Service and fee income was $51.4 million compared to $46.8 million in the prior year’s quarter. Excluding non-cash impairment of goodwill and amortization of intangible assets, the combined ratio(9,13) was 73.6% with a loss ratio of 45.7% and an expense ratio(9,12) of 27.9%, versus a prior year combined ratio of 89.9% with a loss ratio of 59.9% and an expense ratio of 30.0%. The loss ratio reflects continued strong performance in both small group self-funded and individual products.
     
  • Reciprocal Exchanges - Results for the Reciprocal Exchanges are not included in net income available to NGHC common stockholders. Gross written premium was $111.9 million, net written premium was $51.3 million, and net earned premium was $45.8 million. Reciprocal Exchanges combined ratio(9,13) excluding non-cash amortization of intangible assets was 105.8% with a loss ratio of 79.3% and an expense ratio(9,12) of 26.5%.

Fourth quarter 2018 investment income grew to $37.7 million, compared to $20.6 million in the fourth quarter of 2017, with the increase primarily driven by an improvement in the book yield, increased income from our remaining minority interest life settlement investment and increased investment of cash. Total investments and cash and cash equivalents (including restricted cash) were $4.2 billion as of December 31, 2018. Accumulated other comprehensive income (loss) increased to a $52.1 million loss at December 31, 2018 from a $8.1 million loss at December 31, 2017, primarily due to the impact of higher interest rates which negatively impacted bond valuations.

Interest expense was $12.7 million, up from $12.5 million in the prior year’s quarter. Debt was $675.4 million at December 31, 2018, down from $713.7 million at December 31, 2017.

The fourth quarter of 2018 provision for income taxes was $12.6 million and the effective tax rate for the quarter was 32.5% compared with income taxes of $24.8 million and an effective rate of 81.9% in the fourth quarter of 2017, which was impacted by the re-evaluation of our deferred tax asset related to the Tax Cuts and Jobs Act. The effective tax rate for the year ended December 31, 2018 was 21.6%.

Shareholders’ equity was $2,220.8 million at December 31, 2018, growth of 15.2% from $1,928.6 million at December 31, 2017. Fully diluted book value per share was $15.25 at December 31, 2018, growth of 10.0% from $13.86 at December 31, 2017. Our trailing twelve month operating return on average equity (ROE)(14) was 14.6% as of December 31, 2018.

*NOTE: Unless specified otherwise, discussion of our fourth quarter 2018 and 2017 results do not include financial results from the Reciprocal Exchanges, which are presented within our consolidated financial results within this release but are not included in net income available to NGHC common stockholders.

Year-to-Date P&C Segment Notable Large Losses
2018 Quarter     P&C Notable Large Losses and LAE
($ millions)
  P&C Loss Ratio Points*   EPS Impact After Tax
Q4 Hurricane Michael and November California Fires   $59.0   7.9%   $0.41
Q3 California Fires and Hurricane Florence   $35.0   4.7%   $0.25
Q2 Spring Weather-related and Texas Hail Events   $20.5   2.8%   $0.15
Q1 Northeastern Winter Weather   $14.2   2.0%   $0.10

* Loss ratio points related to P&C net earned premium in quarter the loss event was recorded.

Additional Items

  • Auto quota share reduction. Effective January 1, 2019, we reduced the amount ceded under new and renewal auto policies written on or after January 1, 2019 on our auto quota share agreement to 7% from 15%.
  • Revolving credit agreement. On February 25th, 2019, National General entered into a new credit agreement with a $340 million base revolving credit facility with a letter of credit sublimit of $150 million and an expansion feature of up to $50 million, replacing the previous $245 million base revolving credit facility. The credit agreement will bear interest at LIBOR plus 1.75% and a commitment fee of 0.225%, depending on our leverage ratio. There is currently $160 million outstanding under the new credit agreement.
  • Class action lawsuit.  National General is a defendant in a consolidated multi-district class action litigation alleging improper practices in the placement of insurance in the historical and no longer existing collateral protection insurance program for Wells Fargo.  Management believes that the Company’s actions were, at all times, in compliance with applicable requirements and that the Company has a meritorious defense in litigation.  The estimated probable net pre-tax impact to the company to resolve this matter is $10 million.

Conference Call

On Tuesday, February 26, 2019 at 9:30 AM ET, Chief Executive Officer Barry Karfunkel and Chief Financial Officer Mike Weiner will review results and discuss business conditions via a conference call that may be accessed as follows:

Toll-Free U.S. Dial-in:
International Dial-in:
Conference Entry Code:
Webcast Registration:
800-346-7359
973-528-0008
986437
http://ir.nationalgeneral.com/events-and-presentations

A replay of the conference call will be accessible from 2:00 PM ET on Tuesday, February 26, 2019 to 11:59 PM ET on Tuesday, March 12, 2019 by dialing either 800-332-6854 (toll-free) within the U.S. or 973-528-0005 outside the U.S. and entering passcode 986437. In addition, a replay of the webcast can also be retrieved at http://ir.nationalgeneral.com/events-and-presentations.

About National General Holdings Corp.

National General Holdings Corp., headquartered in New York City, is a specialty personal lines insurance holding company. National General traces its roots to 1939, has a financial strength rating of A- (excellent) from A.M. Best, and provides personal and commercial automobile, homeowners, umbrella, recreational vehicle, motorcycle, lender-placed, supplemental health and other niche insurance products.

Forward Looking Statements

This news release contains “forward-looking statements” that are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. The forward-looking statements are based on the Company’s current expectations and beliefs concerning future developments and their potential effects on the Company. Forward-looking statements can generally be identified by the use of forward-looking terminology, such as “may,” “will,” “plan,” “expect,” “project,” “intend,” “estimate,” “anticipate” and “believe” or their variations or similar terminology. There can be no assurance that actual developments will be those anticipated by the Company. Actual results may differ materially from those expressed or implied in these statements as a result of significant risks and uncertainties, including, but not limited to, non-receipt of expected payments from insureds or reinsurers, changes in interest rates, a downgrade in the financial strength ratings of our insurance subsidiaries, the effect of the performance of financial markets on our investment portfolio, our ability to accurately underwrite and price our products and to maintain and establish accurate loss reserves, estimates of the fair value of investments, development of claims and the effect on loss reserves, large loss activity including hurricanes and wildfires, the cost and availability of reinsurance coverage, the effects of emerging claim and coverage issues, the effect of unpredictable catastrophic losses, changes in the demand for our products, our degree of success in integrating acquired businesses, the effect of general economic conditions, state and federal legislation, the effects of tax reform, regulations and regulatory investigations into industry practices, risks associated with conducting business outside the United States, developments relating to existing agreements, disruptions to our business relationships with third party or vendor agencies, breaches in data security or other disruptions involving our technology, heightened competition, changes in pricing environments, and changes in asset valuations. The forward-looking statements contained in this news release are made only as of the date of this release. The Company undertakes no obligation to publicly update any forward-looking statement except as may be required by law. Additional information about these risks and uncertainties, as well as others that may cause actual results to differ materially from those projected is contained in the Company’s filings with the Securities and Exchange Commission.

Income Statement - Fourth Quarter
$ in thousands
(Unaudited)

    Three Months Ended December 31,
    2018     2017  
    NGHC   Reciprocal Exchanges   Consolidated     NGHC   Reciprocal Exchanges   Consolidated  
Revenues:                            
Gross written premium   $ 1,175,687     $ 111,902     $ 1,287,589       $ 1,067,188     $ 97,994     $ 1,164,382   (G)
Net written premium   856,746     51,325     908,071       799,816     39,172     838,988    
Net earned premium   898,479     45,752     944,231       843,034     46,605     889,639    
                             
Ceding commission income   48,495     17,226     65,721       19,229     5,623     24,852    
Service and fee income   162,170     1,285     146,270   (A)   146,098     (1,864 )   129,283   (H)
Net investment income   37,666     2,182     37,332   (B)   20,615     2,105     20,225   (I)
Net gain (loss) on investments   (4,689 )   (2,100 )   (6,789 )     2,755     (10 )   2,745    
Total revenues   $ 1,142,121     $ 64,345     $ 1,186,765   (C)   $ 1,031,731     $ 52,459     $ 1,066,744   (J)
                             
Expenses:                            
Loss and loss adjustment expense   $ 664,125     $ 36,297     $ 700,422       $ 625,862     $ 31,064     $ 656,926    
Acquisition costs and other underwriting expenses   184,195     9,031     193,226       142,005     3,324     145,329    
General and administrative expenses   242,340     21,724     246,879   (D)   228,601     18,540     232,190   (K)
Interest expense   12,650     2,516     12,650   (E)   12,496     2,495     12,496   (L)
Total expenses   $ 1,103,310     $ 69,568     $ 1,153,177   (F)   $ 1,008,964     $ 55,423     $ 1,046,941   (M)
                             
Income (loss) before provision (benefit) for income taxes   $ 38,811     $ (5,223 )   $ 33,588       $ 22,767     $ (2,964 )   $ 19,803    
Provision (benefit) for income taxes   12,595     2,628     15,223       24,822     (4,300 )   20,522    
Net income (loss) before non-controlling interest and dividends on preferred shares   26,216     (7,851 )   18,365       (2,055 )   1,336     (719 )  
Less: net income (loss) attributable to non-controlling interest       (7,851 )   (7,851 )         1,336     1,336    
Net income (loss) before dividends on preferred shares   26,216         26,216       (2,055 )       (2,055 )  
Less: dividends on preferred shares   8,867         8,867       7,875         7,875    
Net income (loss) available to common stockholders   $ 17,349     $     $ 17,349       $ (9,930 )   $     $ (9,930 )  

NOTES: Consolidated column includes eliminations as follows: (A) $(17,185), (B) $(2,516), (C) $(19,701), (D) $(17,185), (E) $(2,516), (F) $(19,701), || (G) $(800), (H) $(14,951), (I) $(2,495), (J) $(17,446), (K) $(14,951), (L) $(2,495) and (M) $(17,446).

Income Statement - Year to Date
$ in thousands
(Unaudited)

    Year Ended December 31,
    2018     2017  
    NGHC   Reciprocal Exchanges   Consolidated     NGHC   Reciprocal Exchanges   Consolidated  
Revenues:                            
Gross written premium   $ 4,969,517     $ 448,923     $ 5,416,839   (A)   $ 4,375,414     $ 383,773     $ 4,755,985   (H)
Net written premium   3,644,148     183,565     3,827,713       3,401,946     175,649     3,577,595    
Net earned premium   3,545,441     186,761     3,732,202       3,484,305     169,871     3,654,176    
                             
Ceding commission income   167,948     56,749     224,697       56,276     60,180     116,456    
Service and fee income   625,463     5,751     561,583   (B)   552,580     5,794     502,927   (I)
Net investment income   119,852     8,875     119,034   (C)   102,229     9,325     101,950   (J)
Net gain (loss) on investments   (26,179 )   (3,366 )   (29,545 )     40,640     6,123     46,763    
Other income (expense)                 (198 )       (198 )  
Total revenues   $ 4,432,525     $ 254,770     $ 4,607,971   (D)   $ 4,235,832     $ 251,293     $ 4,422,074   (K)
                             
Expenses:                            
Loss and loss adjustment expense   $ 2,499,508     $ 162,718     $ 2,662,226       $ 2,506,242     $ 119,840     $ 2,626,082    
Acquisition costs and other underwriting expenses   693,283     41,983     735,266       622,269     50,160     672,429    
General and administrative expenses   923,921     83,756     938,046   (E)   887,472     80,971     912,996   (L)
Interest expense   51,425     9,693     51,425   (F)   47,086     9,604     47,086   (M)
Total expenses   $ 4,168,137     $ 298,150     $ 4,386,963   (G)   $ 4,063,069     $ 260,575     $ 4,258,593   (N)
                             
Income (loss) before provision (benefit) for income taxes   $ 264,388     $ (43,380 )   $ 221,008       $ 172,763     $ (9,282 )   $ 163,481    
Provision (benefit) for income taxes   57,034     (3,550 )   53,484       66,918     (5,645 )   61,273    
Net income (loss) before non-controlling interest and dividends on preferred shares   207,354     (39,830 )   167,524       105,845     (3,637 )   102,208    
Less: net income (loss) attributable to non-controlling interest       (39,830 )   (39,830 )         (3,637 )   (3,637 )  
Net income before dividends on preferred shares   207,354         207,354       105,845         105,845    
Less: dividends on preferred shares   32,492         32,492       31,500         31,500    
Net income available to common stockholders   $ 174,862     $     $ 174,862       $ 74,345     $     $ 74,345    

NOTES: Consolidated column includes eliminations as follows: (A) $(1,601), (B) $(69,631), (C) $(9,693), (D) $(79,324), (E) $(69,631), (F) $(9,693), (G) $(79,324), || (H) $(3,202), (I) $(55,447), (J) $(9,604), (K) $(65,051), (L) $(55,447), (M) $(9,604) and (N) $(65,051).

Earnings and Per Share Data
$ in thousands, except shares and per share data
(Unaudited)

  Three Months Ended December 31,   Year Ended
December 31,
  2018   2017   2018   2017
Net income (loss) available to common stockholders $ 17,349   $ (9,930 )   $ 174,862   $ 74,345
Basic net income (loss) per common share $ 0.16   $ (0.09 )   $ 1.62   $ 0.70
Diluted net income (loss) per common share $ 0.16   $ (0.09 )   $ 1.59   $ 0.68
               
Operating earnings attributable to NGHC (non-GAAP)(1) $ 33,590   $ 29,974     $ 231,495   $ 118,065
Basic operating earnings per common share (non-GAAP)(1) $ 0.31   $ 0.28     $ 2.15   $ 1.11
Diluted operating earnings per common share (non-GAAP)(1) $ 0.30   $ 0.28     $ 2.09   $ 1.09
               
Dividends declared per common share $ 0.04   $ 0.04     $ 0.16   $ 0.16
               
Weighted average number of basic shares outstanding 109,782,543   106,682,586     107,659,813   106,588,402
Weighted average number of diluted shares outstanding 112,947,180   108,793,184     110,822,056   108,752,262
Shares outstanding, end of period 112,940,595   106,697,648          
Fully diluted shares outstanding, end of period 116,105,232   108,808,246          
Book value per share $ 15.68   $ 14.14          
Fully diluted book value per share $ 15.25   $ 13.86          
                     

Reconciliation of Net Income to Operating Earnings (Non-GAAP)
$ in thousands, except per share data
(Unaudited)

  Three Months Ended December 31,   Year Ended
December 31,
  2018   2017   2018   2017
Net income (loss) available to common stockholders $ 17,349     $ (9,930 )   $ 174,862     $ 74,345  
Add (subtract):              
Net (gain) loss on investments 4,689     (2,755 )   26,179     (40,640 )
Other (income) expense 10,000         10,000     198  
Equity in (earnings) losses of equity method investments (3,144 )   7,537     (165 )   8,795  
Non-cash impairment of goodwill (non-deductible)     4,884         4,884  
Non-cash amortization of intangible assets 7,926     9,428     31,323     51,729  
Income tax expense (benefit) (3,230 )   (4,973 )   (10,704 )   (7,029 )
Tax reform impact     25,783         25,783  
Operating earnings attributable to NGHC (non-GAAP)(1) $ 33,590     $ 29,974     $ 231,495     $ 118,065  
               
Operating earnings per common share (non-GAAP):              
Basic operating earnings per common share (non-GAAP) $ 0.31     $ 0.28     $ 2.15     $ 1.11  
Diluted operating earnings per common share (non-GAAP) $ 0.30     $ 0.28     $ 2.09     $ 1.09  
                               

Balance Sheet
$ in thousands
(Unaudited)

    December 31, 2018     December 31, 2017  
ASSETS   NGHC   Reciprocal Exchanges   Consolidated     NGHC   Reciprocal Exchanges   Consolidated  
Total investments (2)   $ 4,013,699     $ 314,411     $ 4,226,806   (A)   $ 3,411,730     $ 327,213     $ 3,649,788   (H)
Cash and cash equivalents, including restricted cash   233,383     200     233,583       351,433     6,051     357,484    
Premiums and other receivables, net   1,338,485     61,327     1,399,812       1,268,330     56,792     1,324,321   (I)
Reinsurance activity (3)   2,023,911     253,501     2,277,412       1,616,103     195,184     1,811,287    
Intangible assets, net   376,532     3,405     379,937       400,385     3,685     404,070    
Goodwill   180,183         180,183       174,153         174,153    
Other (4)   739,068     27,879     741,547   (B)   705,321     29,174     718,640   (J)
Total assets   $ 8,905,261     $ 660,723     $ 9,439,280   (C)   $ 7,927,455     $ 618,099     $ 8,439,743   (K)
LIABILITIES AND STOCKHOLDERS’ EQUITY                            
Liabilities:                            
Unpaid loss and loss adjustment expense reserves   $ 2,778,689     $ 178,470     $ 2,957,159       $ 2,520,204     $ 143,353     $ 2,663,557    
Unearned premiums and other revenue   2,014,965     265,763     2,280,728       1,807,210     225,395     2,032,605    
Reinsurance payable   615,872     40,393     656,265       329,772     69,076     398,047   (L)
Accounts payable and accrued expenses (5)   390,338     33,120     398,058   (D)   390,507     24,682     399,334   (M)
Debt   675,449     101,304     675,449   (E)   713,710     89,155     713,710   (N)
Other   209,110     61,640     270,750       237,483     41,582     279,065    
Total liabilities   $ 6,684,423     $ 680,690     $ 7,238,409   (F)   $ 5,998,886     $ 593,243     $ 6,486,318   (O)
Stockholders’ equity:                            
Common stock (6)   $ 1,129     $     $ 1,129       $ 1,067     $     $ 1,067    
Preferred stock (7)   450,000         450,000       420,000         420,000    
Additional paid-in capital   1,057,783         1,057,783       917,751         917,751    
Accumulated other comprehensive income (loss)   (52,130 )       (52,130 )     (8,112 )       (8,112 )  
Retained earnings   764,056         764,056       597,863         597,863    
Total National General Holdings Corp. stockholders’ equity   2,220,838         2,220,838       1,928,569         1,928,569    
Non-controlling interest       (19,967 )   (19,967 )         24,856     24,856    
Total stockholders’ equity   $ 2,220,838     $ (19,967 )   $ 2,200,871       $ 1,928,569     $ 24,856     $ 1,953,425    
Total liabilities and stockholders’ equity   $ 8,905,261     $ 660,723     $ 9,439,280   (G)   $ 7,927,455     $ 618,099     $ 8,439,743   (P)

NOTES: Consolidated column includes eliminations as follows: (A) $(101,304), (B) $(25,400), (C) $(126,704), (D) $(25,400), (E) $(101,304), (F) $(126,704), (G) $(126,704), || (H) $(89,155), (I) $(801), (J) $(15,855), (K) $(105,811), (L) $(801), (M) $(15,855), (N) $(89,155), (O) $(105,811) and (P) $(105,811).

Segment Information - Fourth Quarter
$ in thousands
(Unaudited)

    Three Months Ended December 31,
    2018     2017
    P&C   A&H   NGHC     Reciprocal
Exchanges
    P&C   A&H   NGHC     Reciprocal Exchanges
Gross written premium   $ 1,012,138     $ 163,549     $ 1,175,687       $ 111,902       $ 929,981     $ 137,207     $ 1,067,188       $ 97,994  
Net written premium   716,394     140,352     856,746       51,325       674,080     125,736     799,816       39,172  
Net earned premium   747,457     151,022     898,479       45,752       709,256     133,778     843,034       46,605  
                                       
Ceding commission income   42,281     6,214     48,495       17,226       19,000     229     19,229       5,623  
Service and fee income   110,776     51,394     162,170       1,285       99,292     46,806     146,098       (1,864 )
Total underwriting revenues   $ 900,514     $ 208,630     $ 1,109,144       $ 64,263       $ 827,548     $ 180,813     $ 1,008,361       $ 50,364  
                                       
Loss and loss adjustment expense (A)   595,144     68,981     664,125       36,297       545,726     80,136     625,862       31,064  
Acquisition costs and other underwriting expenses   135,968     48,227     184,195       9,031       99,201     42,804     142,005       3,324  
General and administrative expenses (B)   178,797     53,543     232,340       21,724       179,622     48,979     228,601       18,540  
Total underwriting expenses   $ 909,909     $ 170,751     $ 1,080,660       $ 67,052       $ 824,549     $ 171,919     $ 996,468       $ 52,928  
                                       
Underwriting income (loss)   (9,395 )   37,879     28,484       (2,789 )     2,999     8,894     11,893       (2,564 )
Non-cash impairment of goodwill                       4,884         4,884        
Non-cash amortization of intangible assets   5,835     2,091     7,926       111       4,852     4,576     9,428       (27 )
Underwriting income (loss) before amortization and impairment   $ (3,560 )   $ 39,970     $ 36,410       $ (2,678 )     $ 12,735     $ 13,470     $ 26,205       $ (2,591 )
                                       
Underwriting ratios                                      
Loss and loss adjustment expense ratio (8)   79.6 %   45.7 %   73.9 %     79.3 %     76.9 %   59.9 %   74.2 %     66.7 %
Operating expense ratio (Non-GAAP) (9,10)   21.6 %   29.2 %   22.9 %     26.8 %     22.6 %   33.4 %   24.4 %     38.8 %
Combined ratio (Non-GAAP) (9,11)   101.2 %   74.9 %   96.8 %     106.1 %     99.5 %   93.3 %   98.6 %     105.5 %
                                       
Underwriting ratios (before amortization and impairment)                                      
Loss and loss adjustment expense ratio (8)   79.6 %   45.7 %   73.9 %     79.3 %     76.9 %   59.9 %   74.2 %     66.7 %
Operating expense ratio (Non-GAAP) (9,12)   20.9 %   27.9 %   22.0 %     26.5 %     21.3 %   30.0 %   22.7 %     38.9 %
Combined ratio before amortization and impairment (Non-GAAP) (9,13)   100.5 %   73.6 %   95.9 %     105.8 %     98.2 %   89.9 %   96.9 %     105.6 %

NOTE: (A) Loss and loss adjustment expenses for the three months ended December 31, 2018 included $8,558 of unfavorable development on prior accident year loss and loss adjustment expense reserves in the P&C segment, and $6,354 of favorable development in the A&H segment, versus $8,096 of unfavorable development in the P&C segment, and $1,280 of unfavorable development in the A&H segment for the three months ended December 31, 2017. (B) General and administrative expenses includes expenses allocated to segments only.

Segment Information - Year to Date
$ in thousands
(Unaudited)

    Year Ended December 31,
    2018     2017
    P&C   A&H   NGHC     Reciprocal
Exchanges
    P&C   A&H   NGHC     Reciprocal Exchanges
Gross written premium   $ 4,271,408     $ 698,109     $ 4,969,517       $ 448,923       $ 3,794,012     $ 581,402     $ 4,375,414       $ 383,773  
Net written premium   3,017,609     626,539     3,644,148       183,565       2,866,650     535,296     3,401,946       175,649  
Net earned premium   2,929,028     616,413     3,545,441       186,761       2,951,022     533,283     3,484,305       169,871  
                                       
Ceding commission income   160,945     7,003     167,948       56,749       55,263     1,013     56,276       60,180  
Service and fee income   439,483     185,980     625,463       5,751       397,966     154,614     552,580       5,794  
Total underwriting revenues   $ 3,529,456     $ 809,396     $ 4,338,852       $ 249,261       $ 3,404,251     $ 688,910     $ 4,093,161       $ 235,845  
                                       
Loss and loss adjustment expense (A)   2,178,163     321,345     2,499,508       162,718       2,187,779     318,463     2,506,242       119,840  
Acquisition costs and other underwriting expenses   508,557     184,726     693,283       41,983       467,390     154,879     622,269       50,160  
General and administrative expenses (B)   712,113     201,808     913,921       83,756       715,975     171,497     887,472       80,971  
Total underwriting expenses   $ 3,398,833     $ 707,879     $ 4,106,712       $ 288,457       $ 3,371,144     $ 644,839     $ 4,015,983       $ 250,971  
                                       
Underwriting income (loss)   130,623     101,517     232,140       (39,196 )     33,107     44,071     77,178       (15,126 )
Non-cash impairment of goodwill                       4,884         4,884        
Non-cash amortization of intangible assets   23,960     7,363     31,323       44       42,858     8,871     51,729       6,882  
Underwriting income (loss) before amortization and impairment   $ 154,583     $ 108,880     $ 263,463       $ (39,152 )     $ 80,849     $ 52,942     $ 133,791       $ (8,244 )
                                       
Underwriting ratios                                      
Loss and loss adjustment expense ratio (8)   74.4 %   52.1 %   70.5 %     87.1 %     74.1 %   59.7 %   71.9 %     70.5 %
Operating expense ratio (Non-GAAP) (9,10)   21.2 %   31.4 %   23.0 %     33.9 %     24.7 %   32.0 %   25.9 %     38.4 %
Combined ratio (Non-GAAP) (9,11)   95.6 %   83.5 %   93.5 %     121.0 %     98.8 %   91.7 %   97.8 %     108.9 %
                                       
Underwriting ratios (before amortization and impairment)                                      
Loss and loss adjustment expense ratio (8)   74.4 %   52.1 %   70.5 %     87.1 %     74.1 %   59.7 %   71.9 %     70.5 %
Operating expense ratio (Non-GAAP) (9,12)   20.4 %   30.2 %   22.1 %     33.8 %     23.1 %   30.4 %   24.2 %     34.3 %
Combined ratio before amortization and impairment (Non-GAAP) (9,13)   94.8 %   82.3 %   92.6 %     120.9 %     97.2 %   90.1 %   96.1 %     104.8 %

NOTE: (A) Loss and loss adjustment expenses for the year ended December 31, 2018 included $4,760 of favorable development on prior accident year loss and loss adjustment expense reserves in the P&C segment, and $30,977 of favorable development in the A&H segment, versus $15,273 of unfavorable development in the P&C segment, and $8,826 of favorable development in the A&H segment for the year ended December 31, 2017.
(B) General and administrative expenses includes expenses allocated to segments only.

Reconciliation of Operating Expense Ratio (Non-GAAP)
$ in thousands
(Unaudited)

    Three Months Ended December 31,
    2018     2017
    P&C   A&H   NGHC     Reciprocal Exchanges     P&C   A&H   NGHC     Reciprocal Exchanges
Total underwriting expenses   $ 909,909     $ 170,751     $ 1,080,660       $ 67,052       $ 824,549     $ 171,919     $ 996,468       $ 52,928  
Less: Loss and loss adjustment expense   595,144     68,981     664,125       36,297       545,726     80,136     625,862       31,064  
Less: Ceding commission income   42,281     6,214     48,495       17,226       19,000     229     19,229       5,623  
Less: Service and fee income   110,776     51,394     162,170       1,285       99,292     46,806     146,098       (1,864 )
Operating expense   161,708     44,162     205,870       12,244       160,531     44,748     205,279       18,105  
Net earned premium   $ 747,457     $ 151,022     $ 898,479       $ 45,752       $ 709,256     $ 133,778     $ 843,034       $ 46,605  
Operating expense ratio (Non-GAAP)   21.6 %   29.2 %   22.9 %     26.8 %     22.6 %   33.4 %   24.4 %     38.8 %
                                       
Total underwriting expenses   $ 909,909     $ 170,751     $ 1,080,660       $ 67,052       $ 824,549     $ 171,919     $ 996,468       $ 52,928  
Less: Loss and loss adjustment expense   595,144     68,981     664,125       36,297       545,726     80,136     625,862       31,064  
Less: Ceding commission income   42,281     6,214     48,495       17,226       19,000     229     19,229       5,623  
Less: Service and fee income   110,776     51,394     162,170       1,285       99,292     46,806     146,098       (1,864 )
Less: Non-cash impairment of goodwill                       4,884         4,884        
Less: Non-cash amortization of intangible assets   5,835     2,091     7,926       111       4,852     4,576     9,428       (27 )
Operating expense before amortization and impairment   155,873     42,071     197,944       12,133       150,795     40,172     190,967       18,132  
Net earned premium   $ 747,457     $ 151,022     $ 898,479       $ 45,752       $ 709,256     $ 133,778     $ 843,034       $ 46,605  
Operating expense ratio before amortization and impairment (Non-GAAP)   20.9 %   27.9 %   22.0 %     26.5 %     21.3 %   30.0 %   22.7 %     38.9 %
                                                       

Reconciliation of Operating Expense Ratio (Non-GAAP)
$ in thousands
(Unaudited)

    Year Ended December 31,
    2018     2017
    P&C   A&H   NGHC     Reciprocal Exchanges     P&C   A&H   NGHC     Reciprocal Exchanges
Total underwriting expenses   $ 3,398,833     $ 707,879     $ 4,106,712       $ 288,457       $ 3,371,144     $ 644,839     $ 4,015,983       $ 250,971  
Less: Loss and loss adjustment expense   2,178,163     321,345     2,499,508       162,718       2,187,779     318,463     2,506,242       119,840  
Less: Ceding commission income   160,945     7,003     167,948       56,749       55,263     1,013     56,276       60,180  
Less: Service and fee income   439,483     185,980     625,463       5,751       397,966     154,614     552,580       5,794  
Operating expense   620,242     193,551     813,793       63,239       730,136     170,749     900,885       65,157  
Net earned premium   $ 2,929,028     $ 616,413     $ 3,545,441       $ 186,761       $ 2,951,022     $ 533,283     $ 3,484,305       $ 169,871  
Operating expense ratio (Non-GAAP)   21.2 %   31.4 %   23.0 %     33.9 %     24.7 %   32.0 %   25.9 %     38.4 %
                                       
Total underwriting expenses   $ 3,398,833     $ 707,879     $ 4,106,712       $ 288,457       $ 3,371,144     $ 644,839     $ 4,015,983       $ 250,971  
Less: Loss and loss adjustment expense   2,178,163     321,345     2,499,508       162,718       2,187,779     318,463     2,506,242       119,840  
Less: Ceding commission income   160,945     7,003     167,948       56,749       55,263     1,013     56,276       60,180  
Less: Service and fee income   439,483     185,980     625,463       5,751       397,966     154,614     552,580       5,794  
Less: Non-cash impairment of goodwill                       4,884         4,884        
Less: Non-cash amortization of intangible assets   23,960     7,363     31,323       44       42,858     8,871     51,729       6,882  
Operating expense before amortization and impairment   596,282     186,188     782,470       63,195       682,394     161,878     844,272       58,275  
Net earned premium   $ 2,929,028     $ 616,413     $ 3,545,441       $ 186,761       $ 2,951,022     $ 533,283     $ 3,484,305       $ 169,871  
Operating expense ratio before amortization and impairment (Non-GAAP)   20.4 %   30.2 %   22.1 %     33.8 %     23.1 %   30.4 %   24.2 %     34.3 %
                                                       

Premiums by Business Line
$ in thousands
(Unaudited)

    Three Months Ended December 31,
    Gross Written Premium     Net Written Premium     Net Earned Premium
    2018   2017   Change     2018   2017   Change     2018   2017   Change
Property & Casualty                                        
Personal Auto   $ 619,180     $ 574,179     7.8%     $ 474,173     $ 437,908     8.3%     $ 490,874     $ 450,552     8.9%
Homeowners   164,698     139,848     17.8%     75,830     57,423     32.1%     87,689     66,968     30.9%
RV/Packaged   43,967     40,195     9.4%     43,806     39,737     10.2%     51,347     46,182     11.2%
Small Business Auto   72,851     70,396     3.5%     52,142     50,495     3.3%     59,285     57,998     2.2%
Lender-placed insurance   103,061     94,263     9.3%     67,439     83,186     (18.9)%     53,182     80,005     (33.5)%
Other   8,381     11,100     (24.5)%     3,004     5,331     (43.7)%     5,080     7,551     (32.7)%
Property & Casualty   1,012,138     929,981     8.8%     716,394     674,080     6.3%     747,457     709,256     5.4%
                                         
Accident & Health   163,549     137,207     19.2%     140,352     125,736     11.6%     151,022     133,778     12.9%
Total National General   $ 1,175,687     $ 1,067,188     10.2%     $ 856,746     $ 799,816     7.1%     $ 898,479     $ 843,034     6.6%
                                         
Reciprocal Exchanges                                        
Personal Auto   $ 36,527     $ 30,424     20.1%     $ 20,899     $ 17,052     22.6%     $ 21,111     $ 18,042     17.0%
Homeowners   74,421     66,844     11.3%     30,049     21,649     38.8%     24,228     28,115     (13.8)%
Other   954     726     31.4%     377     471     (20.0)%     413     448     (7.8)%
Reciprocal Exchanges   $ 111,902     $ 97,994     14.2%     $ 51,325     $ 39,172     31.0%     $ 45,752     $ 46,605     (1.8)%
                                         
Consolidated Total (A)   $ 1,287,589     $ 1,164,382     10.6%     $ 908,071     $ 838,988     8.2%     $ 944,231     $ 889,639     6.1%

NOTES: (A) Consolidated Total includes eliminations between National General and the Reciprocal Exchanges of $(254) in Personal Auto and $(546) in Homeowners Gross Written Premium in 2017, respectively.

Premiums by Business Line
$ in thousands
(Unaudited)

    Year Ended December 31,
    Gross Written Premium     Net Written Premium     Net Earned Premium
    2018   2017   Change     2018   2017   Change     2018   2017   Change
Property & Casualty                                        
Personal Auto   $ 2,637,743     $ 2,335,958     12.9%     $ 2,016,858     $ 1,824,932     10.5%     $ 1,927,667     $ 1,828,304     5.4%
Homeowners   689,040     560,909     22.8%     331,120     275,013     20.4%     329,850     349,709     (5.7)%
RV/Packaged   208,394     187,475     11.2%     206,740     185,993     11.2%     197,258     175,888     12.1%
Small Business Auto   319,299     316,958     0.7%     233,456     246,072     (5.1)%     237,587     251,576     (5.6)%
Lender-placed insurance   363,056     345,354     5.1%     202,069     313,124     (35.5)%     215,811     321,995     (33.0)%
Other   53,876     47,358     13.8%     27,366     21,516     27.2%     20,855     23,550     (11.4)%
Property & Casualty   4,271,408     3,794,012     12.6%     3,017,609     2,866,650     5.3%     2,929,028     2,951,022     (0.7)%
                                         
Accident & Health   698,109     581,402     20.1%     626,539     535,296     17.0%     616,413     533,283     15.6%
Total National General   $ 4,969,517     $ 4,375,414     13.6%     $ 3,644,148     $ 3,401,946     7.1%     $ 3,545,441     $ 3,484,305     1.8%
                                         
Reciprocal Exchanges                                        
Personal Auto   $ 153,129     $ 132,844     15.3%     $ 61,759     $ 68,292     (9.6)%     $ 59,923     $ 66,565     (10.0)%
Homeowners   291,907     247,460     18.0%     120,875     105,536     14.5%     125,806     101,648     23.8%
Other   3,887     3,469     12.0%     931     1,821     (48.9)%     1,032     1,658     (37.8)%
Reciprocal Exchanges   $ 448,923     $ 383,773     17.0%     $ 183,565     $ 175,649     4.5%     $ 186,761     $ 169,871     9.9%
                                         
Consolidated Total (A)   $ 5,416,839     $ 4,755,985     13.9%     $ 3,827,713     $ 3,577,595     7.0%     $ 3,732,202     $ 3,654,176     2.1%

NOTES: (A) Consolidated Total includes eliminations between National General and the Reciprocal Exchanges of $(567) in Personal Auto and $(1,034) in Homeowners Gross Written Premium in 2018, respectively, and $(1,120) in Personal Auto and $(2,082) in Homeowners Gross Written Premium in 2017, respectively.

Additional Disclosures

(1) References to operating earnings and basic and diluted operating earnings per share (“EPS”) are non-GAAP financial measures defined by the Company as net income/loss and basic and diluted earnings per share excluding after-tax net gain or loss on investments (including foreign exchange gain or loss), other-than-temporary impairment losses, earnings or losses of equity method investments (related parties), deferred tax asset impairment, non-cash impairment of goodwill and non-cash amortization of intangible assets, and any significant non-recurring or infrequent items that may not be indicative of ongoing operations. The Company believes operating earnings and basic and diluted operating EPS are relevant measures of the Company’s profitability because operating earnings and basic and diluted operating EPS contain the components of net income upon which the Company’s management has the most influence and excludes factors outside management’s direct control and non-recurring items. Other companies may calculate these measures differently, and therefore, their measures may not be comparable to those used by National General. Please see the Non-GAAP Financial Measures table within this release for the reconciliation of these non-GAAP measures to the most directly comparable GAAP measure.

(2) Total investments includes $233,723 and $347,548 in related parties at December 31, 2018 and December 31, 2017, respectively.

(3) Reinsurance activity includes $7,425 and $15,688 from related parties at December 31, 2018 and December 31, 2017, respectively.

(4) Other includes $2,362 and $2,334 from related parties at December 31, 2018 and December 31, 2017, respectively.

(5) Accounts payable and accrued expenses includes $69,874 and $140,057 to related parties at December 31, 2018 and December 31, 2017, respectively.

(6) Common stock: $0.01 par value - authorized 150,000,000 shares, issued and outstanding 112,940,595 shares - December 31, 2018; authorized 150,000,000 shares, issued and outstanding 106,697,648 shares - December 31, 2017.

(7) Preferred stock: $0.01 par value - authorized 10,000,000 shares, issued and outstanding 2,565,120 shares - December 31, 2018; authorized 10,000,000 shares, issued and outstanding 2,565,000 shares - December 31, 2017.

(8) Loss and loss adjustment expense ratio is calculated by dividing loss and loss adjustment expense by net earned premium.

(9) Operating expense ratio and combined ratio are considered non-GAAP financial measures under applicable SEC rules because a component of those ratios, operating expense, is calculated by offsetting acquisition and other underwriting costs and general and administrative expenses by ceding commission income, service and fee income and significant corporate litigation expenses. Management uses operating expense ratio (non-GAAP) and combined ratio (non-GAAP) to evaluate financial performance against historical results and establish targets on a consolidated basis. The Company believes this presentation enhances the understanding of our results by eliminating what we believe are volatile and unusual events and presenting the ratios with what we believe are the underlying run rates of the business. Other companies may calculate these measures differently, and, therefore, their measures may not be comparable to those used by National General. Please see the Non-GAAP Financial Measures table within this release for the reconciliation of these non-GAAP measures to the most directly comparable GAAP measure.

(10) Operating expense ratio is a non-GAAP measure defined by the Company, that is commonly used in the insurance industry. The Company calculates the ratio by dividing operating expense by net earned premium. Operating expense consists of the sum of acquisition and other underwriting costs and general and administrative expenses less ceding commission income, service and fee income and significant corporate litigation expenses. The ratio is used as an indicator of the Company’s efficiency in acquiring and servicing its business. Other companies may calculate these measures differently, and therefore, their measures may not be comparable to those used by National General. Please see the Non-GAAP Financial Measures table within this release for the reconciliation of these non-GAAP measures to the most directly comparable GAAP measure.

(11) Combined ratio is a non-GAAP measure defined by the Company, that is commonly used in the insurance industry. The Company calculates the ratio by adding the loss and loss adjustment expense ratio and the operating expense ratio (non-GAAP) together. The ratio is used as an indicator of the Company’s underwriting discipline, efficiency in acquiring and servicing its business, and overall underwriting profit. A combined ratio under 100% generally indicates an underwriting profit, while over 100% an underwriting loss. Other companies may calculate these measures differently, and therefore, their measures may not be comparable to those used by National General.

(12) Operating expense ratio before amortization and impairment is a non-GAAP measure defined by the Company, that is commonly used in the insurance industry. The Company calculates the ratio by dividing the operating expense before amortization and impairment by net earned premium. Operating expense before amortization and impairment consists of the sum of acquisition and other underwriting costs and general and administrative expenses less ceding commission income, service and fee income and significant corporate litigation expenses less non-cash amortization of intangible assets and non-cash impairment of goodwill. The ratio is used as an indicator of the Company’s efficiency in acquiring and servicing its business. Other companies may calculate these measures differently, and therefore, their measures may not be comparable to those used by National General. Please see the Non-GAAP Financial Measures table within this release for the reconciliation of these non-GAAP measures to the most directly comparable GAAP measure.

(13) Combined ratio before amortization and impairment is a non-GAAP measure defined by the Company, that is commonly used in the insurance industry. The Company calculates the ratio by adding the loss and loss adjustment expense ratio and the operating expense ratio before amortization and impairment (non-GAAP) together. The ratio is used as an indicator of the Company’s underwriting discipline, efficiency in acquiring and servicing its business, and overall underwriting profit. A combined ratio under 100% generally indicates an underwriting profit, while over 100% an underwriting loss. Other companies may calculate these measures differently, and therefore, their measures may not be comparable to those used by National General. Please see the Non-GAAP Financial Measures table within this release for the reconciliation of these non-GAAP measures to the most directly comparable GAAP measure.

(14) Trailing twelve month operating return on average equity is the ratio of the previous twelve months operating earnings (non-GAAP) to average shareholders’ equity for the periods presented. Average shareholders’ equity is the sum of the shareholders’ equity excluding preferred stock at the beginning and end of the period presented divided by two. In the opinion of the Company’s management this ratio is an important indicator of how well management creates value for its shareholders through its operating activities and capital management. Other companies may calculate these measures differently, and therefore, their measures may not be comparable to those used by National General. Please see the Non-GAAP Financial Measures table within this release for the reconciliation of net income to operating earnings, which is the Non-GAAP component of the operating return on average equity.

(15) Combined ratio excluding losses from various Q4'18 weather-related events, and is calculated by taking the combined ratio as defined in Note 13, and adjusting it to exclude the total net losses of $59.0 million from these events. The company believes this measure enhances investors’ understanding of our results by eliminating what we believe are volatile and unusual events.

    Q4'18 Combined Ratio   Impact of Q4'18 Weather-related Events   Q4'18 Combined Ratio Excluding Weather-related Events
P&C Segment   100.5%   7.9%   92.6%
             
Overall NGHC   95.9%   6.6%   89.3%

Investor Contact

Christine Worley
Director of Investor Relations
Phone: 212-380-9462
Email: Christine.Worley@NGIC.com

National General Holdings Corp. logo

Source: National General Holdings Corp