National General
03/12/14
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National General Holdings Corp. Announces Strong Fourth Quarter 2013 and Full Year 2013 Earnings

Financial Highlights

Fourth Quarter 2013

Full Year 2013

NEW YORK, March 12, 2014 (GLOBE NEWSWIRE) -- National General Holdings Corp. (Nasdaq:NGHC) today reported fourth quarter 2013 operating earnings(1) of $10.1 million, or $0.13 diluted operating earnings per share compared to $0.0 million, or $0.00 diluted operating earnings per share in the fourth quarter of 2012. Fourth quarter 2013 net income totaled $8.0 million, or $0.10 diluted earnings per share, compared to $0.6 million, or $0.01 diluted earnings per share in the fourth quarter of 2012.

Full Year 2013 operating earnings(1) were $46.8 million, or $0.72 diluted operating earnings per share compared to $26.7 million, or $0.46 diluted operating earnings per share in 2012. Full Year 2013 net income totaled $42.4 million, or $0.59 diluted earnings per share, compared to $32.7 million, or $0.56 diluted earnings per share in 2012.

Michael Karfunkel, National General's Chairman and Chief Executive Officer stated "Our fourth quarter and year end results continue to develop favorably and we have had a number of recent accomplishments that we believe will position us for an excellent 2014. These accomplishments include our previously announced agreement to acquire the Tower Group personal lines business scheduled to close this Summer and the related cut-through reinsurance agreement under which we currently reinsure new and renewal Tower Group personal lines business; our completion of our transition of 100% of our P&C policies onto our new policy administration system; and the completion of our follow-on 144A equity offering of 13.57 million shares at $14 per share on February 19, 2014 and our commencement of trading on NASDAQ on February 20, 2014.

Fourth Quarter 2013 Results

Total revenue was $269.3 million, an increase of $56.3 million, or 26%, compared to $213.0 million in the fourth quarter 2012. Gross written premium of $317.7 million decreased $4.8 million from $322.5 million in the same period a year ago reflecting our exit from certain unprofitable, non-core business. Net earned premium of $215.2 million increased $64.1 million, or 42%, from $151.1 million in the fourth quarter 2012 reflecting the run-off of the third party quota share.

Ceding commission income of $14.0 million decreased $11.1 million from $25.1 million for the fourth quarter 2012 reflecting the run-off of the third party quota share.

Service, fees, and other income of $34.5 million increased $9.7 million from $24.8 million for the fourth quarter 2012 primarily reflecting the acquisition of Euro Accident.

Investment income, excluding net realized gains and losses, totaled $8.7 million, an increase of 14% from $7.6 million in the fourth quarter 2012. In addition, fourth quarter 2013 results included net realized investment losses of $0.3 million on certain fixed income and equity investments compared with a gain of $0.8 million in the fourth quarter 2012. Other than temporary impairment losses of $(2.9) million increased $2.9 million from $0.0 million in the fourth quarter of 2012.

Loss and loss adjustment expense totaled $152.0 million, an increase of $33.9 million from $118.1 million in the fourth quarter 2012, reflecting the runoff of the third party quota share. Our loss ratio for the fourth quarter 2013 was 70.6% compared with 78.1% for the fourth quarter 2012, reflecting our exit from certain unprofitable, non-core business.

Acquisition costs and other expenses of $40.6 million increased $11.2 million from $29.4 million for the fourth quarter 2012. General and administrative expenses of $71.1 million increased $0.3 million from $70.8 million for the fourth quarter 2012. Expenses reflect the full cost of operating our new policy system and the runoff of our three legacy policy administration systems and the continued transition to our Cleveland, Ohio operational center.

Interest expense of $0.6 million increased $0.2 million from $0.4 million for the fourth quarter 2012.

Equity in earnings of unconsolidated subsidiaries of $1.7 million increased $0.3 million from $1.4 million for the fourth quarter 2012.

Full Year 2013 Results

Total revenue was $931.9 million, an increase of $123.7 million, or 15%, compared to $808.2 million for the year ended 2012. Gross written premium of $1.3 billion decreased $13.2 million from the same period a year ago reflecting our exit from certain unprofitable, non-core business. Net earned premium of $688.1 million increased $113.8 million, or 20%, from $574.3 million for the year ended 2012 reflecting the run-off of the third party quota share.

Ceding commission income of $87.1 million decreased $2.3 million from $89.4 million for the year ended 2012 reflecting the run-off of the third party quota share.

Service, fees, and other income of $127.5 million increased $33.8 million from $93.7 million for the year ended 2012 reflecting a full year from our Accident and Health (A&H) segment.

Investment income, excluding net realized gains and losses, totaled $30.8 million, an increase of 1% from $30.6 million in the year ended 2012. In addition, the year ended 2013 results included net realized investment gain of $1.2 million on certain fixed income and equity investments compared with a gain of $16.6 million in the year ended 2012. Other than temporary impairment losses of $(2.9) million increased $2.9 million from $0.0 for the year ended 2012.

Loss and loss adjustment expense totaled $462.1 million, an increase of $59.4 million from $402.7 million in the year ended 2012, reflecting the runoff of the third party quota share. Our loss ratio for the year ended 2013 was 67.2% compared with 70.1% for the year ended 2012, reflecting our exit from certain unprofitable, non-core business.

Acquisition costs and other expenses of $134.9 million increased $24.1 million from $110.8 million for the year ended 2012. General and administrative costs of $280.6 million increased $34.0 million from $246.6 million for the year ended 2012. Expenses reflect the full cost of operating our new policy system and the runoff our three legacy policy administration systems and the continued transition to our Cleveland, Ohio operational center.

Interest expense of $2.0 million increased $0.2 million from $1.8 million for the year ended 2012.

Equity in earnings (loss) of unconsolidated subsidiaries of $1.3 million increased $2.6 million from $(1.3) million for the year ended 2012.

Total assets of $2.8 billion increased $124.2 million, or 4.6%, from $2.7 billion at year end 2012. Total cash, cash equivalents and investments of $1.1 billion increased $124.8 million, or 12.6%, from $991.9 million as of year end 2012. Shareholders' equity of $642.9 million increased $229.9 million, or 55.7%, from $413.0 million at year end 2012.

(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 investment gain or loss on securities, equity in earnings (losses) of unconsolidated subsidiaries, and non-cash amortization of certain intangible assets. Please see the Non-GAAP Financial Measures table at the end of this release for important information about the use of these Non-GAAP measures and their reconciliation to GAAP.

Conference Call:

On March 12, 2014 at 11:00 AM ET, Chairman and CEO Michael Karfunkel and CFO Mike Weiner will review these results via a conference call that may be accessed as follows:

Toll-Free Dial-in: 888-267-2860

Toll Dial-in (outside the U.S.): 973-413-6102

Conference Entry Code: 842046

Webcast Registration: http://ir.nationalgeneral.com/events.cfm

A replay of the conference call will be accessible from 2:00 PM ET on Wednesday, March 12, 2014 to Wednesday, March 19, 2014 at 11:59 PM ET by dialing either toll-free 888.267.2860 within the U.S. or 973.413.6102 outside the U.S. and entering passcode 842046. In addition, a replay of the webcast can be also retrieved at http://ir.nationalgeneral.com/events.cfm

About National General Holdings Corp.

National General Holdings Corp. is an insurance holding company headquartered in New York, NY. It offers both personal lines property and casualty and accident and health insurance products, including personal and commercial automobile and recreational vehicle insurance, supplemental health insurance products 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. 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, estimates of the fair value of 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, 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 statements 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
($ in thousands, except per share data)
(Unaudited, except as noted)
         
  Three-Months Ended December 31,  Year Ended December 31, 
 2013201220132012
        Audited 
Revenues:        
Gross premium written 317,739 322,527 1,338,755 1,351,925
Ceded gross premium written (116,066) (181,391) (659,439) (719,431)
         
Net premium written 201,673 141,136 679,316 632,494
Change in unearned premiums 13,561 9,942 8,750 (58,242)
Net earned premium 215,234 151,078 688,066 574,252
Ceding commission income (primarily related parties) 13,999 25,074 87,100 89,360
Service, fees, and other income 34,488 24,793 127,541 93,739
Net investment income 8,715 7,569 30,808 30,550
Net realized gain (loss) on investments (263) 756 1,200 16,612
Other than temporary impairment losses (2,869) 0 (2,869) 0
Other revenue 0 3,760 16 3,728
Total revenue 269,304 213,030 931,862 808,241
         
Expenses:        
Loss and loss adjustment expense 151,994 118,057 462,124 402,686
Acquisition costs and other 40,622 29,419 134,887 110,771
General and administrative 71,102 70,826 280,552 246,644
Interest expense 586 445 2,042 1,787
Total expenses 264,304 218,747 879,605 761,888
         
         
Equity in earnings (loss) of unconsolidated subsidiaries 1,726 1,355 1,274 (1,338)
Income (loss) before provision for income taxes 6,726 (4,362) 53,531 45,015
Provision for income taxes (1,252) (4,931) 11,140 12,309
Net Income 7,978 569 42,391 32,706
Less: net income attributable to non-controlling interest 38 0 82 0
Net Income attributable to NGHC 7,940 569 42,309 32,706
Less: cumulative dividends on preferred shares 0 1,167 2,158 4,674
Income available to common stockholders 7,940 (598) 40,151 28,032
         
Earnings per share data:        
Basic earnings per share 0.10  (0.01) 0.62 0.62
Diluted earnings per share 0.10 0.01 0.59 0.56
Dividends declared per common share 0.01 0.00 0.01 0.00
Operating Earnings 10,061  (49) 46,821 26,698
Basic operating earnings per common share 0.13  (0.00) 0.72 0.59
Diluted operating earnings per common share 0.13  (0.00) 0.65 0.46
Weighted average number of basic shares outstanding 79,719,219 45,554,570 65,017,579 45,554,570
Weighted average number of diluted shares outstanding 80,365,105 58,343,761 71,801,613 58,286,700
         
     
Balance Sheet Highlights
($ in thousands)
(Unaudited, except as noted)
     
 December 31, 2013December 31, 2012
   Audited
     
 Cash and investments  1,116,707 991,865
 Premiums and other receivables  449,252 450,140
 Reinsurance recoverable on unpaid losses  950,828  991,447
 Total assets  2,837,514  2,713,323
 Unpaid loss and loss adjustment expense reserves  1,259,241 1,286,533
 Unearned premiums  476,232 488,598
 Shareholders' equity  642,867 413,042
     
         
Non-GAAP Financial Measures
Reconciliation of net income attributable to NGHC to operating earnings attributable to NGHC:
($ in thousands, except per share data)
(Unaudited, except as noted)
         
 Three-Months Ended December 31,Year Ended December 31,
 2013201220132012
       Audited
         
Net income7,97856942,39132,706
Add (subtract) net of tax:        
Net realized gain (loss) on investments 171 (491) (780) (10,798)
Other than temporary impairment losses 1,865 0 1,865 0
Equity in earnings of unconsolidated subsidiaries (1,122) (881) (828) 870
Non cash amortization of certain intangible assets 1,169 754 4,173 3,920
Operating earnings attributable to NGHC  10,061  (49)  46,821  26,698
Operating earnings per common share:        
Basic operating earnings per common share 0.13 (0.00) 0.72 0.59
Diluted operating earnings per common share 0.13 (0.00) 0.65 0.46
         
                 
Segment Information
($ in thousands, except per share data)
(Unaudited, except as noted)
                 
 Three-Months Ended December 31,Year Ended December 31,
 2013201220132012
       Audited
                 
 P&CA&HP&CA&HP&CA&HP&CA&H
Revenues:                
Gross premium written 309,220 8,519 316,307 6,220 1,305,254 33,501 1,343,658 8,267
Ceded gross premium written (115,936) (130) (181,198) (193) (659,154) (285) (719,205) (226)
                 
Net premium written 193,284 8,389 135,109 6,027 646,100 33,216 624,453 8,041
Change in unearned premiums 13,565 (4) 9,941 1 8,749 1 (58,243) 1
Net earned premium 206,849 8,385 145,050 6,028 654,849 33,217 566,210 8,042
Ceding commission income (primarily related parties) 13,999 0 25,074 0 87,100 0 89,360 0
Service, fees, and other income 19,756 14,732 18,761 6,032 82,752 44,789 77,373 16,366
Total revenue 240,604 23,117 188,885 12,060 824,701 78,006 732,943 24,408
                 
Expenses:                
Loss and loss adjustment expense 142,591 9,403 106,299 11,758 435,989 26,135 387,628 15,058
Acquisition costs and other 33,659 6,963 25,977 3,442 110,509 24,378 99,699 11,072
General and administrative 60,669 10,433 69,051 1,775 252,345 28,207 241,046 5,598
Total expenses 236,919 26,799 201,327 16,975 798,843 78,720 728,373 31,728
         
Underwriting Income (Loss) 3,685 (3,682) (12,442) (4,915) 25,858 (714) 4,570 (7,320)
                 
Loss and loss adjustment expense (2) 68.9% 112.1% 73.3% 195.1% 66.6% 78.7% 68.5% 187.2%
Net expense ratio (3) 29.3% 31.8% 35.3% (13.6)% 29.5% 23.4% 30.7% 3.8%
Combined ratio (4) 98.2% 143.9% 108.6% 181.5% 96.1% 102.1% 99.2% 191.0%
                 
(2) Calculated by dividing net loss and loss adjustment expenses by net premiums earned.
(3) Calculated by dividing general and administrative expenses plus acquisitions costs and other expenses less service, fees, and other income less ceding commission income by net premiums earned.
(4) Calculated by adding together loss and loss expense ratio and net expense ratio.
                 
CONTACT: Investor and Press Contact:

         

         National General Holdings Corp.

         

         Office of the CFO

         

         (212) 380-9500

         

         Email: investors@ngic.com