National General
02/27/17
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National General Holdings Corp. Reports Fourth Quarter 2016 Results

NEW YORK, Feb. 27, 2017 (GLOBE NEWSWIRE) -- National General Holdings Corp. (NASDAQ:NGHC) today reported fourth quarter 2016 net income of $30.9 million or $0.28 per diluted share, compared to $13.7 million or $0.13 per diluted share in the fourth quarter of 2015. Fourth quarter 2016 operating earnings(1) was $32.6 million or $0.30 per diluted share, compared to $42.3 million or $0.39 per diluted share in the fourth quarter of 2015.

Fourth Quarter 2016 Highlights Versus Fourth Quarter 2015*

Barry Karfunkel, National General's President and CEO, stated: "This was a year of growth for National General.  We experienced significant top line expansion, driven by both organic opportunities and recent acquisitions, entered into a renewal rights transaction with Nationwide for its non-standard auto business, and recorded a solid ROE of 12% despite an increase in catastrophe losses in our Property and Casualty segment.  So far in 2017, we have announced our acquisition of Quotit® Corporation and HealthCompare® from The Word & Brown Companies, which will allow us to provide a single quote and bind platform to our agents for both major medical and supplemental products.  We continue to leverage our industry leading technology infrastructure and take advantage of the vast opportunity that we are experiencing in the market today.  All of these pieces contribute to building a premier personal lines company from which we expect to generate strong results."

*NOTE: Unless specified otherwise, discussion of our fourth quarter 2016 and 2015 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 2016 as Compared to Fourth Quarter 2015

Gross written premium grew 20.7% to $818.7 million, net written premium grew 19.8% to $740.5 million, and net earned premium grew 27.2% to $817.2 million. Premium growth was driven by several key factors: underlying organic growth within our P&C segment, continued growth of our A&H segment, additional premiums from the acquisitions of Direct General which closed on November 1, 2016, Standard Property and Casualty Insurance Company (f/k/a Standard Mutual) which closed on October 7, 2016, Century-National which closed on June 1, 2016, and added premium volume from Assigned Risk Solutions (ARS), which we began writing on National General paper in the first quarter of 2016.

Service and fee income grew 9.4% to $108.6 million, driven by added service and fee income from our recently completed transactions, primarily Direct General, partially offset by a decrease in our A&H segment. Other revenue in the fourth quarter 2016 included $24.3 million pre-tax bargain purchase gain related to our acquisitions of Standard Property and Casualty Insurance Company and Direct General.

Excluding non-cash amortization of intangible assets, the combined ratio(10,14) was 96.3% with a loss ratio of 66.8% and an expense ratio(10, 13) of 29.5%, compared to a prior year combined ratio of 94.2% with a loss ratio of 69.3% and an expense ratio of 24.9%.

Underwriting results detailed by each of our business segments are as follows:

Investment income grew 9.7% to $22.0 million, reflecting an increase in the size of our investment portfolio as compared to the prior year's quarter. Fourth quarter 2016 results included $6.5 million of net realized and unrealized investment gain compared with a loss of $0.6 million in the fourth quarter of 2015. The fourth quarter of 2016 included no other-than-temporary impairment losses versus $6.8 million in the prior year's quarter. Total investments and cash equivalents were $3.5 billion as of December 31, 2016. Accumulated other comprehensive income decreased to $12.7 million at December 31, 2016 from $67.4 million at September 30, 2016.

Interest expense was $11.6 million, up from $8.2 million in the prior year's quarter due to an increased amount of debt on our balance sheet. Debt was $752.0 million at December 31, 2016, up from $446.1 million at December 31, 2015 as a result of our May 2016 borrowing of $50.0 million under our credit facility, our June 2016 promissory note of $178.9 million for the acquisition of Century-National, and $72.2 million in subordinated debentures from our Direct General acquisition.

Equity in earnings of unconsolidated subsidiaries (predominantly our investment in Life Settlement Entities and Real Estate investments) was a $8.4 million gain in the fourth quarter of 2016 versus a $1.7 million gain in the prior year's quarter, reflecting fair value adjustments on life settlement contracts and income from our real estate investments.

The fourth quarter of 2016 provision for income taxes was $10.4 million and the effective tax rate for the quarter was 25.5%. Included in the fourth quarter of 2016 provision for income taxes was a $5.5 million expense attributable to an increase of the deferred tax liability associated with the equalization reserves of our Luxembourg Reinsurance Companies (LRC). As of December 31, 2016, the remaining deferred tax liability associated with our LRC was $8.3 million.

National General Holding Corp.'s shareholders' equity was $1,893.8 million at December 31, 2016, growth of 25.1% from $1,514.0 million at December 31, 2015. Fully diluted book value per share was $13.52 at December 31, 2016, growth of 13.0% from $11.96 at December 31, 2015. Our trailing twelve month operating return on average equity (ROE)(15) was 12.0% as of December 31, 2016.

 
Year-to-Date P&C Segment Notable Large Losses
  P&C Notable Large
Losses and ALAE
($ millions)
 P&C Loss Ratio
Points*
 EPS Impact After
Tax
Q4Development on Louisiana Flood$2.3 0.3% $0.01
Q4Hurricane Matthew in the Southeast$13.7 1.9% $0.08
Q3Development on April Dallas and San
Antonio Hail Storms
$3.7 0.6% $0.02
Q3August Louisiana Flood$15.0 2.4% $0.09
Q2April Dallas and San Antonio Hail Storms$18.4 3.2% $0.11
Q1March Dallas Hail Storm$5.0 0.9% $0.03

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


Additional Items

Delayed 10-K Filing

National General Holdings Corp. intends to file a Form 12b-25 with the Securities and Exchange Commission on or prior to March 2, 2017 noting that it will be unable to file its Annual Report on Form 10-K for the year ended December 31, 2016 in a timely manner.  This filing will give the Company an additional 15 day period in which to submit its Form 10-K and still be deemed a timely filer. The Company is unable to file its Form 10-K for the year ended December 31, 2016 in a timely manner because the Company is still finalizing the Form 10-K and is still preparing analyses and providing documentation requested by its auditors. The Company does not anticipate any changes from the results reported in this Earnings Release. The Company expects that its Form10-K will be filed with the SEC prior to the end of the 15-day period.

Conference Call

On Monday, February 27, 2017 at 11:00 AM ET, President and 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: 888-267-2845
International Dial-in:  973-413-6102
Conference Entry Code:  561289
Webcast Registration: http://ir.nationalgeneral.com/events.cfm

A replay of the conference call will be accessible from 2:00 PM ET on Monday, February 27, 2017 to 11:59 PM ET on Monday, March 6, 2017 by dialing either 800-332-6854 (toll-free) within the U.S. or 973-528-0005 outside the U.S. and entering passcode 561289. In addition, a replay of the webcast can also be retrieved at http://ir.nationalgeneral.com/events.cfm.

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 our life settlement contracts, development of claims and the effect on loss reserves, accuracy in projecting loss reserves, the cost and availability of reinsurance coverage, the effects of emerging claim and coverage issues, 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, 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 AmTrust Financial Services, Inc., ACP Re Ltd., Maiden Holdings, Ltd., or third party 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, 
  2016  2015 
  NGHC Reciprocal Exchanges Consolidated  NGHCReciprocal ExchangesConsolidated 
Revenues:                            
Gross written premium $818,667  $83,392  $901,348  (A) $678,175  $65,752  $743,927   
Ceded premiums  (78,134)  (41,040)  (118,463) (B)  (60,041)  (32,714)  (92,755)  
Net written premium  740,533   42,352   782,885     618,134   33,038   651,172   
Net earned premium  817,211   38,860   856,071     642,299   36,269   678,568   
                             
Ceding commission income/(loss)  5,042   16,152   21,194     (1,261)  17,851   16,590   
Service and fee income  108,562   1,307   98,194  (C)  99,265   10,236   100,213  (I)
Net investment income  21,977   3,063   22,712  (D)  20,026   2,359   22,385   
Net gain/(loss) on investments  6,530   278   6,808     (609)  75   (534)  
Other-than-temporary impairment loss             (6,755)     (6,755)  
Bargain purchase gain and other revenue (expense)  26,200      26,200     (461)     (461)  
Total revenues $985,522  $59,660  $1,031,179  (E) $752,504  $66,790  $810,006  (J)
                             
Expenses:                            
Loss and loss adjustment expense $546,004  $21,280  $567,284    $445,130  $40,737  $485,867   
Acquisition costs and other underwriting expenses  125,673   8,972   134,645     103,839   7,005   110,799  (K)
General and administrative expenses  261,351   27,954   277,630  (F)  179,636   16,528   186,921  (L)
Interest expense  11,645   2,328   11,645  (G)  8,198   (6,422)  1,776   
Total expenses $944,673  $60,534  $991,204  (H) $736,803  $57,848  $785,363  (M)
                             
Income (loss) before provision/(benefit) for income taxes and equity in earnings of unconsolidated subsidiaries $40,849  $(874) $39,975    $15,701  $8,942  $24,643   
Provision/(benefit) for income taxes  10,409   (9,232)  1,177     (464)  (5,472)  (5,936)  
Income before equity in earnings of unconsolidated subsidiaries  30,440   8,358   38,798     16,165   14,414   30,579   
Equity in earnings of unconsolidated subsidiaries  8,410      8,410     1,743      1,743   
Net income before non-controlling interest and dividends on preferred shares  38,850   8,358   47,208     17,908   14,414   32,322   
Less: net income attributable to non-controlling interest  61   8,358   8,419     64   14,414   14,478   
Net income before dividends on preferred shares  38,789      38,789     17,844      17,844   
Less: dividends on preferred shares  7,875      7,875     4,125      4,125   
Net income available to common stockholders $30,914  $  $30,914    $13,719  $  $13,719   

NOTE: Consolidated column includes eliminations as follows: (A) $(711), (B) $711, (C) $(11,675), (D) $(2,328), (E) $(14,003), (F) $(11,675), (G) $(2,328), (H) $(14,003), (I) $(9,288), (J) $(9,288), (K) $(45), (L) $(9,243) and (M) $(9,288).


  
Income Statement - Year to Date
$ in thousands
(Unaudited)
 
  
  Twelve Months Ended December 31,
  
  2016
  2015
  
  NGHC Reciprocal Exchanges Consolidated (1)  NGHC Reciprocal Exchanges Consolidated 
Revenues:              
Gross written premium $3,260,280  $241,540  $3,499,508 (A) $2,309,756  $283,582  $2,589,748 (J)
Ceded premiums (309,522) (120,992) (428,202)(B) (249,601) (157,491) (403,502)(K)
Net written premium 2,950,758  120,548  3,071,306   2,060,155  126,091  2,186,246  
Net earned premium 2,883,386  110,395  2,993,781   1,995,101  134,709  2,129,810  
               
Ceding commission income/(loss) 2,078  43,522  45,600   (2,510) 46,300  43,790  
Service and fee income 410,771  3,862  380,817 (C) 300,114  13,226  273,548 (L)
Net investment income 97,376  8,716  99,586 (D) 66,429  8,911  75,340  
Net gain on investments 25,441  515  25,956   4,594  346  4,940  
Other-than-temporary impairment loss (22,102)   (22,102)  (15,247)   (15,247) 
Bargain purchase gain and other revenue (expense) 26,458    26,458   (788)   (788) 
Total revenues $3,423,408  $167,010  $3,550,096 (E) $2,347,693  $203,492  $2,511,393 (M)
               
Expenses:              
Loss and loss adjustment expense $1,901,624  $56,921  $1,958,545   $1,284,080  $97,561  $1,381,641  
Acquisition costs and other underwriting expenses 482,016  15,148  497,158 (F) 378,066  27,972  405,930 (N)
General and administrative expenses 800,253  77,671  844,114 (G) 504,672  65,359  530,347 (O)
Interest expense 40,180  6,506  40,180 (H) 24,229  4,656  28,885  
Total expenses $3,224,073  $156,246  $3,339,997 (I) $2,191,047  $195,548  $2,346,803 (P)
               
Income before provision/(benefit) for income taxes and equity in earnings of unconsolidated subsidiaries $199,335  $10,764  $210,099   $156,646  $7,944  $164,590  
Provision/(benefit) for income taxes 52,407  (9,791) 42,616   24,905  (5,949) 18,956  
Income before equity in earnings of unconsolidated subsidiaries 146,928  20,555  167,483   131,741  13,893  145,634  
Equity in earnings of unconsolidated subsidiaries 25,401    25,401   10,643    10,643  
Net income before non-controlling interest and dividends on preferred shares 172,329  20,555  192,884   142,384  13,893  156,277  
Less: net income attributable to non-controlling interest 113  20,555  20,668   132  13,893  14,025  
Net income before dividends on preferred shares 172,216    172,216   142,252    142,252  
Less: dividends on preferred shares 24,333    24,333   14,025    14,025  
Net income available to common stockholders $147,883  $  $147,883   $128,227  $  $128,227  

NOTES: Consolidated column includes eliminations as follows: (A) $(2,312), (B) $2,312, (C) $(33,816), (D) $(6,506), (E) $(40,322), (F) $(6), (G) $(33,810), (H) $(6,506), (I) $(40,322), (J) $(3,590), (K) $3,590, (L) $(39,792), (M) $(39,792), (N) $(108), (O) $(39,684) and (P) $(39,792).

(1) Consolidated column for the Twelve Months Ended December 31, 2016 excludes Reciprocal Exchanges' operating results from January 1, 2016 to March 31, 2016, as these entities did not meet the criteria for consolidation under GAAP.

 
Earnings and Per Share Data
$ in thousands, except shares and per share data
(Unaudited)
 
 Three Months Ended December 31,  Twelve Months Ended December 31,
 2016 2015  2016 2015
Net income available to common stockholders$30,914  $13,719   $147,883  $128,227 
Basic net income per common share$0.29  $0.13   $1.40  $1.31 
Diluted net income per common share$0.28  $0.13   $1.37  $1.27 
         
Operating earnings attributable to NGHC(1)$32,557  $42,257   $166,297  $165,457 
Basic operating earnings per common share(1)$0.31  $0.40   $1.57  $1.68 
Diluted operating earnings per common share(1)$0.30  $0.39   $1.54  $1.64 
         
Dividends declared per common share$0.04  $0.03   $0.14  $0.09 
         
Weighted average number of basic shares outstanding106,395,429  105,503,021   105,951,752  98,241,904 
Weighted average number of diluted shares outstanding108,973,892  108,161,786   108,278,318  100,723,936 
Shares outstanding, end of period106,428,092  105,554,331   106,428,092  105,554,331 
Fully diluted shares outstanding, end of period109,006,555  108,213,095   108,754,658  108,036,363 
         
Book value per share$13.85  $12.26   $13.85  $12.26 
Fully diluted book value per share$13.52  $11.96   $13.55  $11.98 


 
Reconciliation of Net Income to Operating Earnings (Non-GAAP)
$ in thousands, except per share data
(Unaudited)
 
 Three Months Ended December 31,  Twelve Months Ended December 31,
 2016 2015  2016 2015
         
Net income available to common stockholders$30,914  $13,719   $147,883  $128,227 
Add (subtract) net of tax:        
Net realized and unrealized (gain)/loss on investments(4,245) 396   (16,537) (2,986)
Other-than-temporary impairment losses  4,391   14,366  9,911 
Foreign exchange (gain)/loss(1,210) 902   (1,325) 1,837 
Bargain purchase gain(15,801)    (15,801)  
Equity in (earnings)/losses of unconsolidated subsidiaries (other than LSC Entities and Real Estate investments)(206) 67   (200) 216 
Non-cash impairment of goodwill6,626  17,467   6,626  17,467 
Non-cash amortization of intangible assets16,479  5,315   31,285  10,785 
Operating earnings attributable to NGHC (1)$32,557  $42,257   $166,297  $165,457 
         
Operating earnings per common share:        
Basic operating earnings per common share$0.31  $0.40   $1.57  $1.68 
Diluted operating earnings per common share$0.30  $0.39   $1.54  $1.64 


 
Balance Sheets
$ in thousands
      
  December 31, 2016 (unaudited)  December 31, 2015 (audited)
ASSETS NGHC Reciprocal Exchanges Consolidated  NGHC Reciprocal Exchanges Consolidated
Total investments $3,331,112  $306,345  $3,548,449 (A) $2,425,168  $242,542  $2,667,710 
Cash and cash equivalents 212,894  7,405  220,299   217,537  8,393  225,930 
Premiums and other receivables, net (2) 1,097,931  60,978  1,158,108 (B) 702,439  56,194  758,633 
Reinsurance recoverable on unpaid losses (3) 838,605  42,192  880,797   794,091  39,085  833,176 
Intangible assets, net 456,695  11,025  467,720   344,073  4,825  348,898 
Goodwill 155,290    155,290   112,414    112,414 
Other 746,679  89,764  814,318 (C) 515,966  100,665  616,631 
Total assets $6,839,206  $517,709  $7,244,981 (D) $5,111,688  $451,704  $5,563,392 
LIABILITIES AND STOCKHOLDERS' EQUITY             
Liabilities:             
Unpaid loss and loss adjustment expense reserves $2,127,997  $137,075  $2,265,072   $1,623,232  $132,392  $1,755,624 
Unearned premiums 1,472,299  163,326  1,635,625   1,046,313  146,186  1,192,499 
Reinsurance payable (4) 73,985  20,640  93,824 (E) 54,815  14,357  69,172 
Accounts payable and accrued expenses (5) 335,174  13,201  341,977 (F) 265,057  19,845  284,902 
Debt (6) 752,001  89,008  752,001 (G) 446,061  45,476  491,537 
Other 183,921  62,784  230,978 (H) 162,189  70,829  233,018 
Total liabilities $4,945,377  $486,034  $5,319,477 (I) $3,597,667  $429,085  $4,026,752 
Stockholders' equity:             
Common stock (7) $1,064  $  $1,064   $1,056  $  $1,056 
Preferred stock (8) 420,000    420,000   220,000    220,000 
Additional paid-in capital 914,706    914,706   900,114    900,114 
Accumulated other comprehensive income (loss) 12,710    12,710   (19,414)   (19,414)
Retained earnings 545,106    545,106   412,044    412,044 
Total National General Holdings Corp. stockholders' equity 1,893,586    1,893,586   1,513,800    1,513,800 
Non-controlling interest 243  31,675  31,918   221  22,619  22,840 
Total stockholders' equity $1,893,829  $31,675  $1,925,504   $1,514,021  $22,619  $1,536,640 
Total liabilities and stockholders' equity $6,839,206  $517,709  $7,244,981 (J) $5,111,688  $451,704  $5,563,392 

NOTE: Consolidated column includes eliminations as follows: (A) $(89,008), (B) (801), (C) $(22,125), (D) $(111,934), (E) (801), (F) $(6,398), (G) $(89,008), (H) $(15,727), (I) $(111,934) and (J) $(111,934).

 
Segment Information - Fourth Quarter
$ in thousands
(Unaudited)
 
  Three Months Ended December 31,
  2016  2015
  P&C A&H NGHC  Reciprocal Exchanges  P&C A&H NGHC  Reciprocal Exchanges
Gross written premium $710,029  $108,638  $818,667   $83,392   $579,662  $98,513  $678,175   $65,752 
Net written premium 643,430  97,103  740,533   42,352   528,964  89,170  618,134   33,038 
Net earned premium 710,648  106,563  817,211   38,860   543,547  98,752  642,299   36,269 
                    
Ceding commission income/(loss) 4,766  276  5,042   16,152   (1,532) 271  (1,261)  17,851 
Service and fee income 82,096  26,466  108,562   1,307   55,206  44,059  99,265   10,236 
Total underwriting revenues $797,510  $133,305  $930,815   $56,319   $597,221  $143,082  $740,303   $64,356 
                    
Loss and loss adjustment expense 478,904  67,100  546,004   21,280   353,560  91,570  445,130   40,737 
Acquisition costs and other 104,115  21,558  125,673   8,972   78,116  25,723  103,839   7,005 
General and administrative 223,793  37,558  261,351   27,954   139,764  39,872  179,636   16,528 
Total underwriting expenses $806,812  $126,216  $933,028   $58,206   $571,440  $157,165  $728,605   $64,270 
                    
Underwriting income (loss) (9,302) 7,089  (2,213)  (1,887)  25,781  (14,083) 11,698   86 
Non-cash impairment of goodwill 3,552  3,074  6,626      11,222  6,245  17,467    
Non-cash amortization of intangible assets 19,694  5,657  25,351   7,069   4,516  3,661  8,177   (841)
Underwriting income (loss) before amortization and impairment $13,944  $15,820  $29,764   $5,182   $41,519  $(4,177) $37,342   $(755)
                    
Underwriting ratios                   
Loss and loss adjustment expense ratio (9) 67.4% 63.0% 66.8%  54.8%  65.0% 92.7% 69.3%  112.3%
Operating expense ratio (Non-GAAP) (10,11) 33.9% 30.4% 33.5%  50.1%  30.2% 21.5% 28.9%  (12.6)%
Combined ratio (Non-GAAP) (10,12) 101.3% 93.4% 100.3%  104.9%  95.2% 114.2% 98.2%  99.7%
                    
Underwriting ratios (before amortization and impairment)                   
Loss and loss adjustment expense ratio (9) 67.4% 63.0% 66.8%  54.8%  65.0% 92.7% 69.3%  112.3%
Operating expense ratio (Non-GAAP) (10,13) 30.6% 22.2% 29.5%  31.9%  27.3% 11.5% 24.9%  (10.2)%
Combined ratio before amortization and impairment (Non-GAAP) (10,14) 98.0% 85.2% 96.3%  86.7%  92.3% 104.2% 94.2%  102.1%


   
Segment Information - Year to Date
$ in thousands
(Unaudited)
   
  Twelve Months Ended December 31,
  2016  2015
  P&C A&H NGHC  Reciprocal Exchanges (1)  P&C A&H NGHC  Reciprocal Exchanges
Gross written premium $2,796,270  $464,010  $3,260,280   $241,540   $2,057,834  $251,922  $2,309,756   $283,582 
Net written premium 2,532,090  418,668  2,950,758   120,548   1,844,202  215,953  2,060,155   126,091 
Net earned premium 2,468,959  414,427  2,883,386   110,395   1,783,800  211,301  1,995,101   134,709 
                    
Ceding commission income/(loss) 747  1,331  2,078   43,522   (3,601) 1,091  (2,510)  46,300 
Service and fee income 271,835  138,936  410,771   3,862   201,304  98,810  300,114   13,226 
Total underwriting revenues $2,741,541  $554,694  $3,296,235   $157,779   $1,981,503  $311,202  $2,292,705   $194,235 
                    
Loss and loss adjustment expense 1,602,257  299,367  1,901,624   56,921   1,112,758  171,322  1,284,080   97,561 
Acquisition costs and other 379,286  102,730  482,016   15,148   312,067  65,999  378,066   27,972 
General and administrative 668,846  131,407  800,253   77,671   422,561  82,111  504,672   65,359 
Total underwriting expenses $2,650,389  $533,504  $3,183,893   $149,740   $1,847,386  $319,432  $2,166,818   $190,892 
                    
Underwriting income (loss) 91,152  21,190  112,342   8,039   134,117  (8,230) 125,887   3,343 
Non-cash impairment of goodwill 3,552  3,074  6,626      11,222  6,245  17,467    
Non-cash amortization of intangible assets 37,537  10,593  48,130   20,795   9,995  6,597  16,592   4,380 
Underwriting income before amortization and impairment $132,241  $34,857  $167,098   $28,834   $155,334  $4,612  $159,946   $7,723 
                    
Underwriting ratios                   
Loss and loss adjustment expense ratio (9) 64.9% 72.2% 66.0%  51.6%  62.4% 81.1% 64.4%  72.4%
Operating expense ratio (Non-GAAP) (10,11) 31.4% 22.7% 30.2%  41.2%  30.1% 22.8% 29.3%  25.1%
Combined ratio (Non-GAAP) (10,12) 96.3% 94.9% 96.2%  92.8%  92.5% 103.9% 93.7%  97.5%
                    
Underwriting ratios (before amortization and impairment)                   
Loss and loss adjustment expense ratio (9) 64.9% 72.2% 66.0%  51.6%  62.4% 81.1% 64.4%  72.4%
Operating expense ratio (Non-GAAP) (10,13) 29.7% 19.4% 28.3%  22.3%  28.9% 16.7% 27.6%  21.8%
Combined ratio before amortization and impairment (Non-GAAP) (10,14)

 
 94.6% 91.6% 94.3%  73.9%  91.3% 97.8% 92.0%  94.2%

NOTE: (1) Reciprocal Exchanges' column for the Twelve Months Ended December 31, 2016 excludes its operating results from January 1, 2016 to March 31, 2016, as these entities did not meet the criteria for consolidation under GAAP.

 
Reconciliation of Operating Expense Ratio (Non-GAAP)
$ in thousands
(Unaudited)
 
  Three Months Ended December 31,
  2016  2015
  P&C A&H NGHC  Reciprocal Exchanges  P&C A&H NGHC  Reciprocal Exchanges
Total underwriting expenses $806,812  $126,216  $933,028   $58,206   $571,440  $157,165  $728,605   $64,270 
Less: Loss and loss adjustment expense 478,904  67,100  546,004   21,280   353,560  91,570  445,130   40,737 
Less: Ceding commission income/(loss) 4,766  276  5,042   16,152   (1,532) 271  (1,261)  17,851 
Less: Service and fee income 82,096  26,466  108,562   1,307   55,206  44,059  99,265   10,236 
Operating expense 241,046  32,374  273,420   19,467   164,206  21,265  185,471   (4,554)
Net earned premium $710,648  $106,563  $817,211   $38,860   $543,547  $98,752  $642,299   $36,269 
Operating expense ratio (Non-GAAP) 33.9% 30.4% 33.5%  50.1%  30.2% 21.5% 28.9%  (12.6)%
                    
Total underwriting expenses $806,812  $126,216  $933,028   $58,206   $571,440  $157,165  $728,605   $64,270 
Less: Loss and loss adjustment expense 478,904  67,100  546,004   21,280   353,560  91,570  445,130   40,737 
Less: Ceding commission income/(loss) 4,766  276  5,042   16,152   (1,532) 271  (1,261)  17,851 
Less: Service and fee income 82,096  26,466  108,562   1,307   55,206  44,059  99,265   10,236 
Less: Non-cash impairment of goodwill 3,552  3,074  6,626      11,222  6,245  17,467    
Less: Non-cash amortization of intangible assets 19,694  5,657  25,351   7,069   4,516  3,661  8,177   (841)
Operating expense before amortization and impairment 217,800  23,643  241,443   12,398   148,468  11,359  159,827   (3,713)
Net earned premium $710,648  $106,563  $817,211   $38,860   $543,547  $98,752  $642,299   $36,269 
Operating expense ratio before amortization and impairment (Non-GAAP) 30.6% 22.2% 29.5%  31.9%  27.3% 11.5% 24.9%  (10.2)%


   
Reconciliation of Operating Expense Ratio (Non-GAAP)
$ in thousands
(Unaudited)
   
  Twelve Months Ended December 31,
  2016  2015
  P&C A&H NGHC  Reciprocal Exchanges  P&C A&H NGHC  Reciprocal Exchanges
Total underwriting expenses $2,650,389  $533,504  $3,183,893   $149,740   $1,847,386  $319,432  $2,166,818   $190,892 
Less: Loss and loss adjustment expense 1,602,257  299,367  1,901,624   56,921   1,112,758  171,322  1,284,080   97,561 
Less: Ceding commission income/(loss) 747  1,331  2,078   43,522   (3,601) 1,091  (2,510)  46,300 
Less: Service and fee income 271,835  138,936  410,771   3,862   201,304  98,810  300,114   13,226 
Operating expense 775,550  93,870  869,420   45,435   536,925  48,209  585,134   33,805 
Net earned premium $2,468,959  $414,427  $2,883,386   $110,395   $1,783,800  $211,301  $1,995,101   $134,709 
Operating expense ratio (Non-GAAP) 31.4% 22.7% 30.2%  41.2%  30.1% 22.8% 29.3%  25.1%
                    
Total underwriting expenses $2,650,389  $533,504  $3,183,893   $149,740   $1,847,386  $319,432  $2,166,818   $190,892 
Less: Loss and loss adjustment expense 1,602,257  299,367  1,901,624   56,921   1,112,758  171,322  1,284,080   97,561 
Less: Ceding commission income/(loss) 747  1,331  2,078   43,522   (3,601) 1,091  (2,510)  46,300 
Less: Service and fee income 271,835  138,936  410,771   3,862   201,304  98,810  300,114   13,226 
Less: Non-cash impairment of goodwill 3,552  3,074  6,626      11,222  6,245  17,467    
Less: Non-cash amortization of intangible assets 37,537  10,593  48,130   20,795   9,995  6,597  16,592   4,380 
Operating expense before amortization and impairment 734,461  80,203  814,664   24,640   515,708  35,367  551,075   29,425 
Net earned premium $2,468,959  $414,427  $2,883,386   $110,395   $1,783,800  $211,301  $1,995,101   $134,709 
Operating expense ratio before amortization and impairment (Non-GAAP) 29.7% 19.4% 28.3%  22.3%  28.9% 16.7% 27.6%  21.8%


 
Premiums by Business Line
$ in thousands
(Unaudited)
 
  Three Months Ended December 31,
  Gross Written Premium  Net Written Premium  Net Earned Premium
  2016 2015 Change  2016 2015 Change  2016 2015 Change
Property & Casualty                    
Personal Auto $441,128  $304,885  44.7%  $402,913  $265,771  51.6%  $417,083  $268,132  55.6%
Homeowners 104,696  63,755  64.2%  93,133  58,901  58.1%  96,358  67,287  43.2%
RV/Packaged 36,659  33,836  8.3%  36,443  33,720  8.1%  40,995  38,249  7.2%
Commercial Auto 65,866  47,806  37.8%  59,370  42,967  38.2%  62,814  43,074  45.8%
Lender-placed insurance 50,622  126,570  (60.0)%  46,690  125,693  (62.9)%  87,569  123,274  (29.0)%
Other 11,058  2,810  293.5%  4,881  1,912  155.3%  5,829  3,531  65.1%
Property & Casualty 710,029  579,662  22.5%  643,430  528,964  21.6%  710,648  543,547  30.7%
                     
Accident & Health 108,638  98,513  10.3%  97,103  89,170  8.9%  106,563  98,752  7.9%
Total National General $818,667  $678,175  20.7%  $740,533  $618,134  19.8%  $817,211  $642,299  27.2%
                     
Reciprocal Exchanges                    
Personal Auto $25,214  $20,853  20.9%  $16,161  $12,067  33.9%  $15,385  $13,512  13.9%
Homeowners 56,340  43,223  30.3%  24,884  19,561  27.2%  21,869  21,113  3.6%
Other 1,838  1,676  9.7%  1,307  1,410  (7.3)%  1,606  1,644  (2.3)%
Reciprocal Exchanges $83,392  $65,752  26.8%  $42,352  $33,038  28.2%  $38,860  $36,269  7.1%
                     
Consolidated Total $901,348  $743,927  21.2%  $782,885  $651,172  20.2%  $856,071  $678,568  26.2%

NOTE: Consolidated Total includes eliminations of $(711) and $0 within 2016 and 2015 Gross Written Premium, respectively.

   
  Twelve Months Ended December 31,
  Gross Written Premium  Net Written Premium  Net Earned Premium
  2016 2015 Change  2016 2015 Change  2016 2015 Change
Property & Casualty                    
Personal Auto $1,549,091  $1,241,282  24.8%  $1,380,125  $1,070,852  28.9%  $1,292,563  $1,054,529  22.6%
Homeowners 412,151  329,440  25.1%  369,810  309,775  19.4%  353,228  286,920  23.1%
RV/Packaged 165,919  154,929  7.1%  165,025  153,501  7.5%  158,256  150,290  5.3%
Commercial Auto 257,075  187,686  37.0%  234,101  170,720  37.1%  217,919  154,565  41.0%
Lender-placed insurance 376,058  126,570  NA  363,896  125,693  NA  422,645  123,274  NA
Other 35,976  17,927  100.7%  19,133  13,661  40.1%  24,348  14,222  71.2%
Property & Casualty 2,796,270  2,057,834  35.9%  2,532,090  1,844,202  37.3%  2,468,959  1,783,800  38.4%
                     
Accident & Health 464,010  251,922  84.2%  418,668  215,953  93.9%  414,427  211,301  96.1%
Total National General $3,260,280  $2,309,756  41.2%  $2,950,758  $2,060,155  43.2%  $2,883,386  $1,995,101  44.5%
                     
Reciprocal Exchanges                    
Personal Auto $73,680  $88,494  NA  $44,661  $50,686  NA  $42,225  $74,477  NA
Homeowners 161,510  187,424  NA  71,367  67,796  NA  61,748  54,565  NA
Other 6,350  7,664  NA  4,520  7,609  NA  6,422  5,667  NA
Reciprocal Exchanges (1) $241,540  $283,582  NA  $120,548  $126,091  NA  $110,395  $134,709  NA
                     
Consolidated Total $3,499,508  $2,589,748  35.1%  $3,071,306  $2,186,246  40.5%  $2,993,781  $2,129,810  40.6%

NOTES: Consolidated Total includes eliminations of $(2,312) and $(3,590) within 2016 and 2015 Gross Written Premium, respectively.
(1) Reciprocal Exchanges for the Twelve Months Ended December 31, 2016 excludes its operating results from January 1, 2016 to March 31, 2016, as these entities did not meet the criteria for consolidation under GAAP.


Additional Disclosures

(1) References to operating earnings and basic and diluted operating EPS are non-GAAP financial measures defined by the Company as net income and basic earnings per share excluding after-tax net realized and unrealized gain or loss on investments, other-than-temporary impairment losses, foreign exchange gain or loss, bargain purchase gain, equity in earnings or losses of unconsolidated subsidiaries (other than LSC Entities and Real Estate investment gains or losses), non-cash impairment of goodwill and non-cash amortization of intangible assets. The Company believes operating earnings and basic and diluted operating EPS are more 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) Premiums and other receivables, net includes $10,264 and $62,306 from related parties at December 31, 2016 and December 31, 2015, respectively.

(3) Reinsurance recoverable on unpaid losses includes $26,782 and $42,774 from related parties at December 31, 2016 and December 31, 2015, respectively.

(4) Reinsurance payable includes $33,419 and $31,923 due to related parties at December 31, 2016 and December 31, 2015, respectively.

(5) Accounts payable and accrued expenses includes $29,271 and $51,755 to related parties at December 31, 2016 and December 31, 2015, respectively.

(6) Debt (Exchanges owed to related party) includes $0 and $45,476 at December 31, 2016 and December 31, 2015, respectively.

(7) Common stock: $0.01 par value - authorized 150,000,000 shares, issued and outstanding 106,428,092 shares - December 31, 2016; authorized 150,000,000 shares, issued and outstanding 105,554,331 shares - December 31, 2015.

(8) Preferred stock: $0.01 par value - authorized 10,000,000 shares, issued and outstanding 2,565,000 shares - December 31, 2016; authorized 10,000,000 shares, issued and outstanding 2,365,000 shares - December 31, 2015.

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

(10) 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 and service and fee income. 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.

(11) 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 and service and fee income. 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.

(12) 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.

(13) 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 and service and fee income 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.

(14) 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.

(15) Trailing twelve month operating return on average equity is the ratio of the previous twelve months operating earnings 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.

 

Investor Contact

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