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02/20/20

National General Holdings Corp. Reports 2019 Results

NEW YORK, Feb. 20, 2020 (GLOBE NEWSWIRE) -- National General Holdings Corp. (Nasdaq:NGHC) reported fourth quarter 2019 net income of $98.4 million or $0.85 per diluted share, compared to net income of $17.3 million or $0.16 per diluted share in the fourth quarter of 2018. Fourth quarter 2019 operating earnings (non-GAAP)(1) was $83.1 million or $0.72 per diluted share compared to $33.6 million or $0.30 per diluted share in the fourth quarter of 2018.

Full year 2019 net income was $314.5 million or $2.73 per diluted share, compared to net income of $174.9 million or $1.59 per diluted share in 2018. 2019 operating earnings (non-GAAP)(1) was $319.2 million or $2.75 per diluted share compared to $231.5 million or $2.09 per diluted share in 2018.

Fourth Quarter 2019 Highlights versus Fourth Quarter 2018*

  • Gross written premium grew $46.1 million or 3.9% to $1,221.8 million, primarily driven by the acquisition of National Farmers Union Property and Casualty Company (“Farmers Union Insurance”) which closed on August 1, 2019, and continued organic growth in our A&H segment of 7.5%, partially offset by the impact of the Euro Accident Health and Care Insurance (“Euroaccident”) sale which closed on December 2, 2019.
  • The overall combined ratio(12,13) was 91.4% in the fourth quarter compared to 95.9% in the prior year’s quarter and 91.0% for the full year compared to 92.6% in 2018, excluding non-cash amortization of intangible assets. The P&C segment reported a decrease in combined ratio to 94.2% from 100.5% in the prior year’s quarter. The combined ratio includes $9.2 million of catastrophe losses related to weather-related events compared to $59.0 million of Hurricane Michael and California fires catastrophe losses in the prior year’s quarter. The A&H segment reported an increase in combined ratio to 77.1% from 73.6% in the prior year’s quarter.
  • Service and fee income grew 10.5% to $179.3 million, driven by organic growth primarily in our group administration fees and third party technology services fees within our A&H segment.
  • Stockholders’ equity was $2.65 billion and fully diluted book value per share was $19.06 at December 31, 2019, growth of 19.3% and 25.0%, respectively, from December 31, 2018. Our trailing twelve month operating return on average equity (ROE)(14) was 16.1% as of December 31, 2019.
  • Fourth quarter 2019 operating earnings (non-GAAP)(1) excludes the following items, net of tax: $3.4 million or $0.03 per share earnings from equity method investments, $33.8 million or $0.29 per share of net gain on investments (including $20.9 million gain on the sale of Euroaccident, net of tax), $10.7 million or $0.09 per share of non-cash amortization of intangible assets and $11.3 million or $0.10 per share of other expenses reflecting an acquisition related arbitration award.

Barry Karfunkel, National General’s CEO, stated: “2019 was an exceptional year for National General generating a 91.0% combined ratio, $319.2 million of operating earnings, ROE of 16.1% and growth in diluted book value per share of 25.0%. While our P&C segment earnings were negatively impacted by reserve strengthening within our small business auto product line, the P&C segment continued its strong performance via both our independent agency and direct to consumer distribution channels. Our A&H segment reported very strong profitability within our group and individual products. I am pleased with the continued execution of our strategy of focused underwriting discipline and long term growth initiatives.”

*NOTE: Unless specified otherwise, discussion of our fourth quarter 2019 and 2018 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.

Overview of Fourth Quarter 2019 as Compared to Fourth Quarter 2018

  • Property & Casualty - Gross written premium grew by 3.3% to $1,045.9 million, net written premium increased by 12.7% to $807.6 million, and net earned premium increased by 12.7% to $842.3 million. P&C gross written premium growth was primarily driven by $47.4 million of added premiums from the acquisition of Farmers Union Insurance. Service and fee income was $107.5 million compared to $110.8 million in the prior year’s quarter. Excluding amortization of intangible assets, the combined ratio(12,13) was 94.2% with a loss and LAE ratio of 73.6% and an expense ratio(11,13) of 20.6%, versus a prior year combined ratio of 100.5% with a loss and LAE ratio of 79.6% and an expense ratio of 20.9%. The loss and LAE ratio was impacted by pre-tax catastrophe losses of approximately $9.2 million primarily related to weather-related events in the fourth quarter 2019, compared to $59.0 million of losses in the fourth quarter 2018. Prior year loss development was $26.8 million unfavorable in the fourth quarter 2019 primarily driven by small business auto, compared to unfavorable loss development of $8.6 million in the fourth quarter 2018.
     
  • Accident & Health - Gross written premium grew by 7.5% to $175.8 million, net written premium grew by 14.3% to $160.4 million, and net earned premium grew by 10.2% to $166.5 million. The A&H gross written premium increase was driven by the continued growth in our domestic A&H business. Service and fee income grew 39.7% to $71.8 million compared to $51.4 million in the prior year’s quarter, primarily driven by group administrative fees and third party technology services fees. Excluding non-cash amortization of intangible assets, the combined ratio(12,13) was 77.1% with a loss and LAE ratio of 41.4% and an expense ratio(11,13) of 35.7%, versus a prior year combined ratio of 73.6% with a loss and LAE ratio of 45.7% and an expense ratio of 27.9%. The loss and LAE ratio reflects continued strong performance in both small group self-funded and individual products. Prior year loss development was $7.6 million favorable in the fourth quarter 2019, compared to favorable loss development of $6.4 million in the fourth quarter 2018.
     
  • Reciprocal Exchanges - Results for the Reciprocal Exchanges are not included in net income available to NGHC common stockholders. Gross written premium was $102.5 million, net written premium was $62.0 million, and net earned premium was $60.8 million. Reciprocal Exchanges combined ratio(12,13) excluding non-cash amortization of intangible assets was 113.8% with a loss and LAE ratio of 86.4% and an expense ratio(11,13) of 27.4%.

Fourth quarter 2019 investment income grew to $38.5 million, compared to $37.7 million in the fourth quarter of 2018. Total investments and cash and cash equivalents (including restricted cash) were $4.8 billion as of December 31, 2019. Accumulated other comprehensive income (loss) increased to a $74.5 million gain at December 31, 2019 from a $52.1 million loss at December 31, 2018, primarily due to the impact of lower interest rates which positively impacted bond valuations.

Interest expense was $12.7 million for both the current and prior year’s quarter. Debt was $686.0 million at December 31, 2019, down from $705.8 million at December 31, 2018.

The fourth quarter of 2019 provision for income taxes was $20.3 million and the effective tax rate for the quarter was 15.9% compared with income taxes of $12.6 million and an effective rate of 32.5% in the fourth quarter of 2018. The effective tax rate for the year ended December 31, 2019 was 19.8%.

Stockholders’ equity was $2,649.5 million at December 31, 2019, growth of 19.3% from $2,220.8 million at December 31, 2018. Fully diluted book value per share was $19.06 at December 31, 2019, growth of 25.0% from $15.25 at December 31, 2018. Our trailing twelve month operating return on average equity (ROE)(14) was 16.1% as of December 31, 2019.

    Year-to-Date P&C Segment Notable Large Losses
Year   Quarter   Event   P&C Notable Large
Losses and LAE

($ millions)
  P&C Loss
and LAE
Ratio Points*
  EPS Impact
After Tax
2019   Q4   Weather-related Events   $9.2   1.1%   $0.06
2019   Q3   Weather-related Events   $11.5   1.4%   $0.08
2019   Q2   Weather-related Events   $18.4   2.2%   $0.13
2019   Q1   Winter Weather   $12.1   1.6%   $0.08
                     
2018   Q4   Hurricane Michael and November California Fires   $59.0   7.9%   $0.41
2018   Q3   California Fires and Hurricane Florence   $35.0   4.7%   $0.25
2018   Q2   Spring Weather-related and Texas Hail Events   $20.5   2.8%   $0.15
2018   Q1   Winter Weather   $14.2   2.0%   $0.10

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

Additional item

Auto Quota Share - Effective January 1, 2020, we cede 5.0% of net liability under our auto quota share reinsurance agreement.

Conference Call

On Friday, February 21, 2020 at 9:00 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:

800 Access Number: 800-346-7359
973 Access Number:      973-528-0008
Conference Entry Code:  652437
Webcast Registration:        http://ir.nationalgeneral.com/events-and-presentations

A replay of the conference call will be accessible from 2:00 PM ET on Friday, February 21, 2020 to 11:59 PM ET on Friday, March 6, 2020 by dialing either 800-332-6854 (toll-free) within the U.S. or 973-528-0005 outside the U.S. and entering passcode 652437. 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 potential effect of changes in LIBOR reporting practices, 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 vendors or 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,
    2019     2018  
    NGHC   Reciprocal
Exchanges
  Consolidated     NGHC   Reciprocal
Exchanges
  Consolidated  
Revenues:                            
Gross written premium   $ 1,221,772     $ 102,465     $ 1,324,237       $ 1,175,687     $ 111,902     $ 1,287,589    
Net written premium   967,943     62,012     1,029,955       856,746     51,325     908,071    
Net earned premium   1,008,770     60,826     1,069,596       898,479     45,752     944,231    
                             
Ceding commission income   38,085     13,055     51,140       48,495     17,226     65,721    
Service and fee income   179,276     1,284     165,924   (A)   162,170     1,285     146,270   (G)
Net investment income   38,491     2,184     38,917   (B)   37,666     2,182     37,332   (H)
Net gain (loss) on investments   16,393     707     17,100       (4,689 )   (2,100 )   (6,789 )  
Other income   26,428         26,428                  
Total revenues   $ 1,307,443     $ 78,056     $ 1,369,105   (C)   $ 1,142,121     $ 64,345     $ 1,186,765   (I)
                             
Expenses:                            
Loss and loss adjustment expense   $ 689,262     $ 52,528     $ 741,790       $ 664,125     $ 36,297     $ 700,422    
Acquisition costs and other underwriting expenses   199,523     12,710     212,233       184,195     9,031     193,226    
General and administrative expenses   278,331     18,352     282,047   (D)   242,340     21,724     246,879   (J)
Interest expense   12,722     1,758     12,722   (E)   12,650     2,516     12,650   (K)
Total expenses   $ 1,179,838     $ 85,348     $ 1,248,792   (F)   $ 1,103,310     $ 69,568     $ 1,153,177   (L)
                             
Income (loss) before provision (benefit) for income taxes   $ 127,605     $ (7,292 )   $ 120,313       $ 38,811     $ (5,223 )   $ 33,588    
Provision (benefit) for income taxes   20,324     (4,805 )   15,519       12,595     2,628     15,223    
Net income (loss) before noncontrolling interest and dividends on preferred shares   107,281     (2,487 )   104,794       26,216     (7,851 )   18,365    
Less: net income (loss) attributable to noncontrolling interest       (2,487 )   (2,487 )         (7,851 )   (7,851 )  
Net income before dividends on preferred shares   107,281         107,281       26,216         26,216    
Less: dividends on preferred shares   8,925         8,925       8,867         8,867    
Net income available to common stockholders   $ 98,356     $     $ 98,356       $ 17,349     $     $ 17,349    

Consolidated column includes eliminations as follows: (A) $(14,636), (B) $(1,758), (C) $(16,394), (D) $(14,636), (E) $(1,758), (F) $(16,394), (G) $(17,185), (H) $(2,516), (I) $(19,701), (J) $(17,185), (K) $(2,516) and (L) $(19,701).

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

    Year Ended December 31,
    2019     2018  
    NGHC   Reciprocal
Exchanges
  Consolidated     NGHC   Reciprocal
Exchanges
  Consolidated  
Revenues:                            
Gross written premium   $ 5,135,633     $ 447,447     $ 5,583,080       $ 4,969,517     $ 448,923     $ 5,416,839   (G)
Net written premium   3,990,149     234,472     4,224,621       3,644,148     183,565     3,827,713    
Net earned premium   3,907,811     210,231     4,118,042       3,545,441     186,761     3,732,202    
                             
Ceding commission income   174,952     63,501     238,453       167,948     56,749     224,697    
Service and fee income   705,006     5,755     641,965   (A)   625,463     5,751     561,583   (H)
Net investment income   142,174     8,638     141,233   (B)   119,852     8,875     119,034   (I)
Net gain (loss) on investments   13,603     (130 )   13,473       (26,179 )   (3,366 )   (29,545 )  
Other income   26,428         26,428                  
Total revenues   $ 4,969,974     $ 287,995     $ 5,179,594   (C)   $ 4,432,525     $ 254,770     $ 4,607,971   (J)
                             
Expenses:                            
Loss and loss adjustment expense   $ 2,677,356     $ 177,112     $ 2,854,468       $ 2,499,508     $ 162,718     $ 2,662,226    
Acquisition costs and other underwriting expenses   782,328     45,039     827,367       693,283     41,983     735,266    
General and administrative expenses   1,024,574     85,994     1,041,772   (D)   923,921     83,756     938,046   (K)
Interest expense   51,544     9,579     51,544   (E)   51,425     9,693     51,425   (L)
Total expenses   $ 4,535,802     $ 317,724     $ 4,775,151   (F)   $ 4,168,137     $ 298,150     $ 4,386,963   (M)
                             
Income (loss) before provision (benefit) for income taxes   $ 434,172     $ (29,729 )   $ 404,443       $ 264,388     $ (43,380 )   $ 221,008    
Provision (benefit) for income taxes   86,103     (9,090 )   77,013       57,034     (3,550 )   53,484    
Net income (loss) before noncontrolling interest and dividends on preferred shares   348,069     (20,639 )   327,430       207,354     (39,830 )   167,524    
Less: net income (loss) attributable to noncontrolling interest       (20,639 )   (20,639 )         (39,830 )   (39,830 )  
Net income before dividends on preferred shares   348,069         348,069       207,354         207,354    
Less: dividends on preferred shares   33,600         33,600       32,492         32,492    
Net income available to common stockholders   $ 314,469     $     $ 314,469       $ 174,862     $     $ 174,862    

Consolidated column includes eliminations as follows: (A) $(68,796), (B) $(9,579), (C) $(78,375), (D) $(68,796), (E) $(9,579), (F) $(78,375), (G) $(1,601), (H) $(69,631), (I) $(9,693), (J) $(79,324), (K) $(69,631), (L) $(9,693) and (M) $(79,324).

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

    Three Months Ended
December 31,
  Year Ended
December 31,
    2019   2018   2019   2018
Net income available to common stockholders   $ 98,356     $ 17,349     $ 314,469     $ 174,862  
Basic net income per common share   $ 0.87     $ 0.16     $ 2.78     $ 1.62  
Diluted net income per common share   $ 0.85     $ 0.16     $ 2.73     $ 1.59  
                 
Operating earnings attributable to NGHC (non-GAAP)(1)   $ 83,081     $ 33,590     $ 319,174     $ 231,495  
Basic operating earnings per common share (non-GAAP)(1)   $ 0.73     $ 0.31     $ 2.82     $ 2.15  
Diluted operating earnings per common share (non-GAAP)(1)   $ 0.72     $ 0.30     $ 2.75     $ 2.09  
                 
Dividends declared per common share   $ 0.05     $ 0.04     $ 0.18     $ 0.16  
                 
Weighted average number of basic shares outstanding   113,337,130     109,782,543     113,199,501     107,659,813  
Weighted average number of diluted shares outstanding   115,344,349     112,947,180     116,096,972     110,822,056  
Shares outstanding, end of period   113,368,811     112,940,595          
Fully diluted shares outstanding, end of period   115,376,030     116,105,232          
Book value per share   $ 19.40     $ 15.68          
Fully diluted book value per share   $ 19.06     $ 15.25          

Reconciliation of Net Income to Operating Earnings (Non-GAAP)(1)(14)
$ in thousands, except per share data
(Unaudited)

    Three Months Ended
December 31,
  Year Ended
December 31,
    2019   2018   2019   2018
Net income available to common stockholders   $ 98,356     $ 17,349     $ 314,469     $ 174,862  
Add (subtract):                
Equity in earnings of equity method investments   (4,359 )   (3,144 )   (2,951 )   (165 )
Net (gain) loss on investments and gain on sale of a business   (42,821 )   4,689     (40,031 )   26,179  
Non-cash amortization of intangible assets   13,572     7,926     34,665     31,323  
Arbitration award / Litigation settlement   14,273     10,000     14,273     10,000  
Income tax expense (benefit)   4,060     (3,230 )   (1,251 )   (10,704 )
Operating earnings attributable to NGHC (non-GAAP)(1)   $ 83,081     $ 33,590     $ 319,174     $ 231,495  
                 
Operating earnings per common share (non-GAAP)(1):                
Basic operating earnings per common share (non-GAAP)(1)   $ 0.73     $ 0.31     $ 2.82     $ 2.15  
Diluted operating earnings per common share (non-GAAP)(1)   $ 0.72     $ 0.30     $ 2.75     $ 2.09  

Balance Sheet
$ in thousands
(Unaudited)

    December 31, 2019     December 31, 2018  
ASSETS   NGHC   Reciprocal
Exchanges
  Consolidated     NGHC   Reciprocal
Exchanges
  Consolidated  
Total investments (2)   $ 4,632,960     $ 329,494     $ 4,854,998   (A)   $ 4,013,699     $ 314,411     $ 4,226,806   (H)
Cash and cash equivalents, including restricted cash   163,480     983     164,463       233,383     200     233,583    
Premiums and other receivables, net   1,373,089     55,859     1,428,948       1,338,485     61,327     1,399,812    
Reinsurance balances (3)   1,745,036     225,019     1,970,055       2,023,911     253,501     2,277,412    
Intangible assets, net   362,598     3,225     365,823       376,532     3,405     379,937    
Goodwill   179,328         179,328       180,183         180,183    
Other (4)   798,675     29,070     792,919   (B)   739,068     27,879     741,547   (I)
Total assets   $ 9,255,166     $ 643,650     $ 9,756,534   (C)   $ 8,905,261     $ 660,723     $ 9,439,280   (J)
LIABILITIES AND STOCKHOLDERS’ EQUITY                            
Liabilities:                            
                             
Unpaid loss and loss adjustment expense reserves   $ 2,680,628     $ 205,786     $ 2,886,414       $ 2,778,689     $ 178,470     $ 2,957,159    
Unearned premiums and other revenue   2,059,688     252,553     2,312,241       2,014,965     265,763     2,280,728    
Reinsurance payable   527,155     35,689     562,844       615,872     40,393     656,265    
Accounts payable and accrued expenses (5)   306,869     43,323     315,366   (D)   390,338     33,120     398,058   (K)
Debt   686,006     107,456     686,006   (E)   705,795     101,304     705,795   (L)
Other   345,366     30,803     376,169       178,764     61,640     240,404    
Total liabilities   $ 6,605,712     $ 675,610     $ 7,139,040   (F)   $ 6,684,423     $ 680,690     $ 7,238,409   (M)
Stockholders’ equity:                            
Common stock (6)   $ 1,134     $     $ 1,134       $ 1,129     $     $ 1,129    
Preferred stock (7)   450,000         450,000       450,000         450,000    
Additional paid-in capital   1,065,634         1,065,634       1,057,783         1,057,783    
                                         
Accumulated other comprehensive income (loss)   74,548         74,548       (52,130 )       (52,130 )  
Retained earnings   1,058,138         1,058,138       764,056         764,056    
Total National General Holdings Corp. stockholders’ equity   2,649,454         2,649,454       2,220,838         2,220,838    
Noncontrolling interest       (31,960 )   (31,960 )         (19,967 )   (19,967 )  
Total stockholders’ equity   $ 2,649,454     $ (31,960 )   $ 2,617,494       $ 2,220,838     $ (19,967 )   $ 2,200,871    
Total liabilities and stockholders’ equity   $ 9,255,166     $ 643,650     $ 9,756,534   (G)   $ 8,905,261     $ 660,723     $ 9,439,280   (N)

Consolidated column includes eliminations as follows: (A) $(107,456), (B) $(34,826), (C) $(142,282), (D) $(34,826), (E) $(107,456), (F) $(142,282), (G) $(142,282), (H) $(101,304), (I) $(25,400), (J) $(126,704), (K) $(25,400), (L) $(101,304), (M) $(126,704) and (N) $(126,704).

Segment Information - Fourth Quarter
$ in thousands
(Unaudited)

    Three Months Ended December 31,
    2019     2018
    P&C   A&H   NGHC     Reciprocal
Exchanges
    P&C   A&H   NGHC     Reciprocal
Exchanges
Gross written premium   $ 1,045,926     $ 175,846     $ 1,221,772       $ 102,465       $ 1,012,138     $ 163,549     $ 1,175,687       $ 111,902  
Net written premium   807,574     160,369     967,943       62,012       716,394     140,352     856,746       51,325  
Net earned premium   842,283     166,487     1,008,770       60,826       747,457     151,022     898,479       45,752  
                                       
Ceding commission income   35,926     2,159     38,085       13,055       42,281     6,214     48,495       17,226  
Service and fee income   107,474     71,802     179,276       1,284       110,776     51,394     162,170       1,285  
Total underwriting revenues   $ 985,683     $ 240,448     $ 1,226,131       $ 75,165       $ 900,514     $ 208,630     $ 1,109,144       $ 64,263  
                                       
Loss and loss adjustment expense (A)   620,267     68,995     689,262       52,528       595,144     68,981     664,125       36,297  
Acquisition costs and other underwriting expenses   130,238     69,285     199,523       12,710       135,968     48,227     184,195       9,031  
General and administrative expenses (B)   198,077     65,981     264,058       18,352       178,797     53,543     232,340       21,724  
Total underwriting expenses   $ 948,582     $ 204,261     $ 1,152,843       $ 83,590       $ 909,909     $ 170,751     $ 1,080,660       $ 67,052  
                                       
Underwriting income (loss)   37,101     36,187     73,288       (8,425 )     (9,395 )   37,879     28,484       (2,789 )
Non-cash amortization of intangible assets   11,766     1,806     13,572       30       5,835     2,091     7,926       111  
Underwriting income (loss) before amortization and impairment   $ 48,867     $ 37,993     $ 86,860       $ (8,395 )     $ (3,560 )   $ 39,970     $ 36,410       $ (2,678 )
                                       
Underwriting ratios                                      
Loss and loss adjustment expense ratio (8)   73.6 %   41.4 %   68.3 %     86.4 %     79.6 %   45.7 %   73.9 %     79.3 %
Operating expense ratio (Non-GAAP) (9)   22.0 %   36.8 %   24.4 %     27.5 %     21.6 %   29.2 %   22.9 %     26.8 %
Combined ratio (Non-GAAP) (10)   95.6 %   78.2 %   92.7 %     113.9 %     101.2 %   74.9 %   96.8 %     106.1 %
                                       
Underwriting ratios (before amortization and impairment)                                      
Loss and loss adjustment expense ratio (8)   73.6 %   41.4 %   68.3 %     86.4 %     79.6 %   45.7 %   73.9 %     79.3 %
Operating expense ratio (Non-GAAP) (11)   20.6 %   35.7 %   23.1 %     27.4 %     20.9 %   27.9 %   22.0 %     26.5 %
Combined ratio before amortization and impairment (Non-GAAP) (12)   94.2 %   77.1 %   91.4 %     113.8 %     100.5 %   73.6 %   95.9 %     105.8 %

(A) Loss and loss adjustment expenses for the three months ended December 31, 2019 included $26,832 of unfavorable development on prior accident year loss and loss adjustment expense reserves in the P&C segment, and $7,581 of favorable development in the A&H segment, versus $8,558 of unfavorable development in the P&C segment, and $6,354 of favorable development in the A&H segment for the three months ended December 31, 2018.

(B) General and administrative expenses includes expenses allocated to segments only.

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

    Year Ended December 31,
    2019     2018
    P&C   A&H   NGHC     Reciprocal
Exchanges
    P&C   A&H   NGHC     Reciprocal Exchanges
Gross written premium   $ 4,367,016     $ 768,617     $ 5,135,633       $ 447,447       $ 4,271,408     $ 698,109     $ 4,969,517       $ 448,923  
Net written premium   3,329,543     660,606     3,990,149       234,472       3,017,609     626,539     3,644,148       183,565  
Net earned premium   3,244,792     663,019     3,907,811       210,231       2,929,028     616,413     3,545,441       186,761  
                                       
Ceding commission income   164,013     10,939     174,952       63,501       160,945     7,003     167,948       56,749  
Service and fee income   455,519     249,487     705,006       5,755       439,483     185,980     625,463       5,751  
Total underwriting revenues   $ 3,864,324     $ 923,445     $ 4,787,769       $ 279,487       $ 3,529,456     $ 809,396     $ 4,338,852       $ 249,261  
                                       
Loss and loss adjustment expense (A)   2,366,676     310,680     2,677,356       177,112       2,178,163     321,345     2,499,508       162,718  
Acquisition costs and other underwriting expenses   559,980     222,348     782,328       45,039       508,557     184,726     693,283       41,983  
General and administrative expenses (B)   756,093     254,208     1,010,301       85,994       712,113     201,808     913,921       83,756  
Total underwriting expenses   $ 3,682,749     $ 787,236     $ 4,469,985       $ 308,145       $ 3,398,833     $ 707,879     $ 4,106,712       $ 288,457  
                                       
Underwriting income (loss)   181,575     136,209     317,784       (28,658 )     130,623     101,517     232,140       (39,196 )
Non-cash amortization of intangible assets   27,920     6,745     34,665       71       23,960     7,363     31,323       44  
Underwriting income (loss) before amortization and impairment   $ 209,495     $ 142,954     $ 352,449       $ (28,587 )     $ 154,583     $ 108,880     $ 263,463       $ (39,152 )
                                       
Underwriting ratios                                      
Loss and loss adjustment expense ratio (8)   72.9 %   46.9 %   68.5 %     84.2 %     74.4 %   52.1 %   70.5 %     87.1 %
Operating expense ratio (Non-GAAP) (9)   21.5 %   32.6 %   23.4 %     29.4 %     21.2 %   31.4 %   23.0 %     33.9 %
Combined ratio (Non-GAAP) (10)   94.4 %   79.5 %   91.9 %     113.6 %     95.6 %   83.5 %   93.5 %     121.0 %
                                       
Underwriting ratios (before amortization and impairment)                                      
Loss and loss adjustment expense ratio (8)   72.9 %   46.9 %   68.5 %     84.2 %     74.4 %   52.1 %   70.5 %     87.1 %
Operating expense ratio (Non-GAAP) (11)   20.6 %   31.6 %   22.5 %     29.4 %     20.4 %   30.2 %   22.1 %     33.8 %
Combined ratio before amortization and impairment (Non-GAAP) (12)   93.5 %   78.5 %   91.0 %     113.6 %     94.8 %   82.3 %   92.6 %     120.9 %

(A) Loss and loss adjustment expenses for the year ended December 31, 2019 included $46,623 of unfavorable development on prior accident year loss and loss adjustment expense reserves in the P&C segment, and $45,356 of favorable development in the A&H segment, versus $4,760 of favorable development in the P&C segment, and $30,977 of favorable development in the A&H segment for the year ended December 31, 2018.

(B) General and administrative expenses includes expenses allocated to segments only.

Reconciliation of Operating Expense Ratio (Non-GAAP)(9,11,13)
$ in thousands
(Unaudited)

    Three Months Ended December 31,
    2019     2018
    P&C   A&H   NGHC     Reciprocal
Exchanges
    P&C   A&H   NGHC     Reciprocal
Exchanges
Total underwriting expenses   $ 948,582     $ 204,261     $ 1,152,843       $ 83,590       $ 909,909     $ 170,751     $ 1,080,660       $ 67,052  
Less: Loss and loss adjustment expense   620,267     68,995     689,262       52,528       595,144     68,981     664,125       36,297  
Less: Ceding commission income   35,926     2,159     38,085       13,055       42,281     6,214     48,495       17,226  
Less: Service and fee income   107,474     71,802     179,276       1,284       110,776     51,394     162,170       1,285  
Operating expense   184,915     61,305     246,220       16,723       161,708     44,162     205,870       12,244  
Net earned premium   $ 842,283     $ 166,487     $ 1,008,770       $ 60,826       $ 747,457     $ 151,022     $ 898,479       $ 45,752  
Operating expense ratio (Non-GAAP) (9)   22.0 %   36.8 %   24.4 %     27.5 %     21.6 %   29.2 %   22.9 %     26.8 %
                                       
Total underwriting expenses   $ 948,582     $ 204,261     $ 1,152,843       $ 83,590       $ 909,909     $ 170,751     $ 1,080,660       $ 67,052  
Less: Loss and loss adjustment expense   620,267     68,995     689,262       52,528       595,144     68,981     664,125       36,297  
Less: Ceding commission income   35,926     2,159     38,085       13,055       42,281     6,214     48,495       17,226  
Less: Service and fee income   107,474     71,802     179,276       1,284       110,776     51,394     162,170       1,285  
Less: Non-cash amortization of intangible assets   11,766     1,806     13,572       30       5,835     2,091     7,926       111  
Operating expense before amortization and impairment   173,149     59,499     232,648       16,693       155,873     42,071     197,944       12,133  
Net earned premium   $ 842,283     $ 166,487     $ 1,008,770       $ 60,826       $ 747,457     $ 151,022     $ 898,479       $ 45,752  
                                                       
Operating expense ratio before amortization and impairment (Non-GAAP) (11)   20.6 %   35.7 %   23.1 %     27.4 %     20.9 %   27.9 %   22.0 %     26.5 %

Reconciliation of Operating Expense Ratio (Non-GAAP)(9,11,13)
$ in thousands
(Unaudited)

    Year Ended December 31,
    2019     2018
    P&C   A&H   NGHC     Reciprocal
Exchanges
    P&C   A&H   NGHC     Reciprocal
Exchanges
Total underwriting expenses   $ 3,682,749     $ 787,236     $ 4,469,985       $ 308,145       $ 3,398,833     $ 707,879     $ 4,106,712       $ 288,457  
Less: Loss and loss adjustment expense   2,366,676     310,680     2,677,356       177,112       2,178,163     321,345     2,499,508       162,718  
Less: Ceding commission income   164,013     10,939     174,952       63,501       160,945     7,003     167,948       56,749  
Less: Service and fee income   455,519     249,487     705,006       5,755       439,483     185,980     625,463       5,751  
Operating expense   696,541     216,130     912,671       61,777       620,242     193,551     813,793       63,239  
Net earned premium   $ 3,244,792     $ 663,019     $ 3,907,811       $ 210,231       $ 2,929,028     $ 616,413     $ 3,545,441       $ 186,761  
Operating expense ratio (Non-GAAP) (9)   21.5 %   32.6 %   23.4 %     29.4 %     21.2 %   31.4 %   23.0 %     33.9 %
                                       
Total underwriting expenses   $ 3,682,749     $ 787,236     $ 4,469,985       $ 308,145       $ 3,398,833     $ 707,879     $ 4,106,712       $ 288,457  
Less: Loss and loss adjustment expense   2,366,676     310,680     2,677,356       177,112       2,178,163     321,345     2,499,508       162,718  
Less: Ceding commission income   164,013     10,939     174,952       63,501       160,945     7,003     167,948       56,749  
Less: Service and fee income   455,519     249,487     705,006       5,755       439,483     185,980     625,463       5,751  
Less: Non-cash amortization of intangible assets   27,920     6,745     34,665       71       23,960     7,363     31,323       44  
Operating expense before amortization and impairment   668,621     209,385     878,006       61,706       596,282     186,188     782,470       63,195  
Net earned premium   $ 3,244,792     $ 663,019     $ 3,907,811       $ 210,231       $ 2,929,028     $ 616,413     $ 3,545,441       $ 186,761  
                                                       
Operating expense ratio before amortization and impairment (Non-GAAP) (11)   20.6 %   31.6 %   22.5 %     29.4 %     20.4 %   30.2 %   22.1 %     33.8 %

Premiums by Product Line
$ in thousands
(Unaudited)

  Three Months Ended December 31,
  Gross Written Premium     Net Written Premium     Net Earned Premium
  2019   2018   Change     2019   2018   Change     2019   2018   Change
Property & Casualty                                      
Personal Auto $ 637,500     $ 619,180     3.0 %     $ 529,481     $ 474,173     11.7 %     $ 569,014     $ 490,874     15.9 %
Homeowners 174,763     164,698     6.1 %     128,028     75,830     68.8 %     132,715     87,689     51.3 %
RV/Packaged 43,950     43,967     %     36,690     43,806     (16.2 )%     44,900     51,347     (12.6 )%
Small Business Auto 68,875     72,851     (5.5 )%     52,846     52,142     1.4 %     62,402     59,285     5.3 %
Lender-placed insurance 110,002     103,061     6.7 %     57,308     67,439     (15.0 )%     23,636     53,182     (55.6 )%
Other 10,836     8,381     29.3 %     3,221     3,004     7.2 %     9,616     5,080     89.3 %
Total Premium $ 1,045,926     $ 1,012,138     3.3 %     $ 807,574     $ 716,394     12.7 %     $ 842,283     $ 747,457     12.7 %
                                       
Accident & Health                                      
Group $ 75,352     $ 62,693     20.2 %     $ 60,477     $ 51,626     17.1 %     $ 60,477     $ 51,618     17.2 %
Individual 88,012     76,232     15.5 %     87,733     76,181     15.2 %     88,129     75,883     16.1 %
International 12,482     24,624     (49.3 )%     12,159     12,545     (3.1 )%     17,881     23,521     (24.0 )%
Total Premium $ 175,846     $ 163,549     7.5 %     $ 160,369     $ 140,352     14.3 %     $ 166,487     $ 151,022     10.2 %
                                       
Total National General $ 1,221,772     $ 1,175,687     3.9 %     $ 967,943     $ 856,746     13.0 %     $ 1,008,770     $ 898,479     12.3 %
                                       
Reciprocal Exchanges                                      
Personal Auto $ 32,676     $ 36,527     (10.5 )%     $ 33,498     $ 20,899     60.3 %     $ 40,642     $ 21,111     92.5 %
Homeowners 68,953     74,421     (7.3 )%     29,829     30,049     (0.7 )%     19,489     24,228     (19.6 )%
Other 836     954     (12.4 )%     (1,315 )   377     nm       695     413     68.3 %
Total Premium $ 102,465     $ 111,902     (8.4 )%     $ 62,012     $ 51,325     20.8 %     $ 60,826     $ 45,752     32.9 %
                                       
Consolidated Total $ 1,324,237     $ 1,287,589     2.8 %     $ 1,029,955     $ 908,071     13.4 %     $ 1,069,596     $ 944,231     13.3 %

nm - not meaningful

Premiums by Product Line
$ in thousands
(Unaudited)

  Year Ended December 31,
  Gross Written Premium     Net Written Premium     Net Earned Premium
  2019   2018   Change     2019   2018   Change     2019   2018   Change
Property & Casualty                                      
Personal Auto $ 2,721,202     $ 2,637,743     3.2 %     $ 2,260,385     $ 2,016,858     12.1 %     $ 2,190,748     $ 1,927,667     13.6 %
Homeowners 718,819     689,040     4.3 %     404,278     331,120     22.1 %     405,306     329,850     22.9 %
RV/Packaged 212,746     208,394     2.1 %     198,737     206,740     (3.9 )%     195,639     197,258     (0.8 )%
Small Business Auto 315,569     319,299     (1.2 )%     249,067     233,456     6.7 %     252,359     237,587     6.2 %
Lender-placed insurance 342,267     363,056     (5.7 )%     198,171     202,069     (1.9 )%     182,231     215,811     (15.6 )%
Other 56,413     53,876     4.7 %     18,905     27,366     (30.9 )%     18,509     20,855     (11.2 )%
Total Premium $ 4,367,016     $ 4,271,408     2.2 %     $ 3,329,543     $ 3,017,609     10.3 %     $ 3,244,792     $ 2,929,028     10.8 %
                                       
Accident & Health                                      
Group $ 288,549     $ 239,729     20.4 %     $ 231,388     $ 197,386     17.2 %     $ 231,398     $ 197,406     17.2 %
Individual 340,731     308,122     10.6 %     340,049     308,065     10.4 %     340,251     307,952     10.5 %
International 139,337     150,258     (7.3 )%     89,169     121,088     (26.4 )%     91,370     111,055     (17.7 )%
Total Premium $ 768,617     $ 698,109     10.1 %     $ 660,606     $ 626,539     5.4 %     $ 663,019     $ 616,413     7.6 %
                                       
Total National General $ 5,135,633     $ 4,969,517     3.3 %     $ 3,990,149     $ 3,644,148     9.5 %     $ 3,907,811     $ 3,545,441     10.2 %
                                       
Reciprocal Exchanges                                      
Personal Auto $ 152,688     $ 153,129     (0.3 )%     $ 134,958     $ 61,759     nm       $ 106,549     $ 59,923     77.8 %
Homeowners 290,972     291,907     (0.3 )%     98,009     120,875     (18.9 )%     101,964     125,806     (19.0 )%
Other 3,787     3,887     (2.6 )%     1,505     931     61.7 %     1,718     1,032     66.5 %
Total Premium $ 447,447     $ 448,923     (0.3 )%     $ 234,472     $ 183,565     27.7 %     $ 210,231     $ 186,761     12.6 %
                                       
Consolidated Total (A) $ 5,583,080     $ 5,416,839     3.1 %     $ 4,224,621     $ 3,827,713     10.4 %     $ 4,118,042     $ 3,732,202     10.3 %

nm - not meaningful

(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 the year ended December 31, 2018, respectively.

Fee Income
$ in thousands
(Unaudited)

  Three Months Ended December 31,   Year Ended December 31,
  2019   2018   Change   2019   2018   Change
Property & Casualty                      
Service and Fee Income $ 107,474     $ 110,776     (3.0 )%   $ 455,519     $ 439,483     3.6 %
Ceding Commission Income 35,926     42,281     (15.0 )%   164,013     160,945     1.9 %
Property & Casualty $ 143,400     $ 153,057     (6.3 )%   $ 619,532     $ 600,428     3.2 %
                       
Accident & Health                      
Service and Fee Income                      
Group $ 36,122     $ 29,736     21.5 %   $ 134,206     $ 104,504     28.4 %
Individual 4,144     1,331     nm     9,650     9,304     3.7 %
Third Party Fee 31,536     20,327     55.1 %   105,631     72,172     46.4 %
Total Service and Fee Income 71,802     51,394     39.7 %   249,487     185,980     34.1 %
Ceding Commission Income 2,159     6,214     (65.3 )%   10,939     7,003     56.2 %
Accident and Health $ 73,961     $ 57,608     28.4 %   $ 260,426     $ 192,983     34.9 %
                       
Total National General $ 217,361     $ 210,665     3.2 %   $ 879,958     $ 793,411     10.9 %
                       
Reciprocal Exchanges                      
Service and Fee Income $ 1,284     $ 1,285     (0.1 )%   $ 5,755     $ 5,751     0.1 %
Ceding Commission Income 13,055     17,226     (24.2 )%   63,501     56,749     11.9 %
Reciprocal Exchanges $ 14,339     $ 18,511     (22.5 )%   $ 69,256     $ 62,500     10.8 %
                       
Consolidated Total (A) $ 217,064     $ 211,991     2.4 %   $ 880,418     $ 786,280     12.0 %

nm - not meaningful

(A) Consolidated Total includes eliminations between National General and the Reciprocal Exchanges in Service and Fee Income of $(14,636) and $(17,185) in the three months ended December 31, 2019 and 2018, respectively, and $(68,796) and $(69,631) in the year ended December 31, 2019 and 2018, 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 financial measures to the most directly comparable GAAP measure.

(2) Total investments includes $238,841 and $233,723 in related parties at December 31, 2019 and December 31, 2018, respectively.

(3) Reinsurance balances includes $0 and $7,425 from related parties at December 31, 2019 and December 31, 2018, respectively.

(4) Other includes $2,391 and $2,362 from related parties at December 31, 2019 and December 31, 2018, respectively.

(5) Accounts payable and accrued expenses includes $639 and $69,874 to related parties at December 31, 2019 and December 31, 2018, respectively.

(6) Common stock: $0.01 par value - authorized 150,000,000 shares, issued and outstanding 113,368,811 shares - December 31, 2019; authorized 150,000,000 shares, issued and outstanding 112,940,595 shares - December 31, 2018.

(7) Preferred stock: $0.01 par value - authorized 10,000,000 shares, issued and outstanding 2,565,120 shares - December 31, 2019; authorized 10,000,000 shares, issued and outstanding 2,565,120 shares - December 31, 2018.

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

(9) Operating expense ratio is a non-GAAP financial measure defined by the Company, which 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 other general and administrative expenses (arbitration award / litigation settlement expense). The ratio is used as an indicator of the Company’s efficiency in acquiring and servicing its business.

(10) Combined ratio is a non-GAAP financial measure defined by the Company, which is commonly used in the insurance industry. The Company calculates the ratio by adding the loss and loss adjustment expense ratio(8) and the operating expense ratio (non-GAAP)(9) 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. Management uses operating expense ratio (non-GAAP) and combined ratio (non-GAAP) to evaluate financial performance against historical results and establish targets. A combined ratio under 100% generally indicates an underwriting profit, while over 100% an underwriting loss.

(11) Operating expense ratio before amortization and impairment is a non-GAAP financial measure defined by the Company, which 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 other general and administrative expenses (arbitration award / litigation settlement expense) 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. Management believes that this measure provides a more useful comparison to the operating expense ratio of other insurance companies involved in fewer acquisitions.

(12) Combined ratio before amortization and impairment is a non-GAAP financial measure defined by the Company, which is commonly used in the insurance industry. The Company calculates the ratio by adding the loss and loss adjustment expense ratio(8) and the operating expense ratio before amortization and impairment (non-GAAP)(11) 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. Management believes that this measure of underwriting profitability provides a more useful comparison to the combined ratio of other insurance companies involved in fewer acquisitions. A combined ratio under 100% generally indicates an underwriting profit, while over 100% an underwriting loss.

(13) Combined ratio (non-GAAP), operating expense ratio (non-GAAP), combined ratio before amortization and impairment (non-GAAP) and operating expense ratio before amortization and impairment (non-GAAP) are considered non-GAAP financial measures under applicable SEC rules. Other companies may calculate these ratios 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 financial 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 same twelve-month period. Average shareholders’ equity is the sum of the shareholders’ equity excluding preferred stock at the beginning and end of the period 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) Our products in the P&C segment include personal auto, homeowners, RV/Packaged, small business auto, lender-placed insurance and other products. The personal auto product includes policies for standard, preferred and nonstandard automobile insurance. The homeowners product includes multiple-peril policies and personal umbrella coverage to the homeowner. The RV/Packaged product offers policies that include RV automatic personal effects coverage, optional replacement cost coverage, RV storage coverage and full-time liability coverage. The small business auto product offers policies that include liability and physical damage coverage for light-to-medium duty commercial vehicles. The lender-placed insurance product offers fire, home and flood products, as well as collateral protection insurance and guaranteed asset protection products for automobiles. Our products and revenue in the A&H segment include group, individual and third party fees. The group product includes revenue from our small group self-funded product. The individual product line includes revenue from our supplemental products including short-term medical, accident/AD&D, hospital indemnity, cancer/critical illness, dental and term life insurance. Third party fees include commission and general agent fees for selling policies issued by third-party insurance companies, fees generated through selling our technology products to third parties and fees from our international health insurance offerings.

Investor Contact

Paul Anderson
Director of Investor Relations
Phone: 212-380-9462
Email: Paul.Anderson@NGIC.com

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Source: National General Holdings Corp