National General
05/04/15
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National General Holdings Corp. Reports First Quarter 2015 Results; Operating Earnings(1) Per Share Grows 29% to $0.41

NEW YORK, May 4, 2015 (GLOBE NEWSWIRE) -- National General Holdings Corp. (Nasdaq:NGHC) today reported first quarter 2015 operating earnings(1) of $39.7 million or $0.41 per diluted share, compared to $27.8 million or $0.32 per diluted share in the first quarter of 2014. Net income was $41.7 million or $0.43 per diluted share, compared to $26.4 million or $0.30 per diluted share in the first quarter of 2014.

First Quarter 2015 Highlights Versus First Quarter 2014*

Michael Karfunkel, National General's Chairman and CEO, stated: "The first quarter was a very strong start to 2015 for National General, as our underlying business continues to deliver both strong growth and excellent underwriting profitability. Within P&C, we continue to see benefits from adding the homeowners product line and realize efficiencies from our state-of-the-art technology platform. We have seen excellent performance from both our legacy business and our recent acquisitions. Within A&H, we are happy with the positive contribution this division made. We believe we have finally turned the corner toward profitability, and we expect to build on this success as the year unfolds. We were also busy on the acquisition front in early 2015, closing on Healthcare Solutions Team on January 26 and Assigned Risk Solutions on April 1, two transactions that we expect will be immediately accretive to earnings and will enhance the value of our franchise. To date in 2015, we have strengthened our capital position by adding $165 million in preferred equity, which puts us in a better position to continue to profitably grow our business through additional accretive M&A opportunities."

*NOTE: Unless specified otherwise, discussion of our first quarter 2015 results does 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. Attorney-in-Fact management fees referenced within this release are eliminated in consolidated financial results.

Overview of First Quarter 2015 as Compared to First Quarter 2014

Gross written premium declined 9.3% to $585.8 million, net written premium declined 9.9% to $511.4 million, and net earned premium grew 22.2% to $437.3 million, with the gross and net written premium declines resulting from the addition of $158.8 million of premiums from the unearned premium reserve (UPR) transfer related to the Tower Personal Lines transaction in the first quarter of 2014. Excluding the impact of the 1Q14 UPR transfer, gross written premium grew 20.2% and net written premium grew 25.1%. Underlying premium growth was driven by several key factors: a continued increase in net retention due to the run-off of our terminated third party quota share, which was 100% complete as of July 31, 2014; additional premiums from acquisitions completed during the past year; underlying organic growth within our P&C segment (including the Tower Personal Lines book); and continued expansion of our A&H segment.

Ceding commission income decreased to $1.1 million from $5.4 million in the prior year's quarter, reflecting the run-off of our terminated third-party quota share. Service and fee income grew 70.7% to $62.7 million, driven by growth in both the P&C and A&H segments, and including management fees of $8.6 million related to the Attorneys-in-Fact that manage the Reciprocal Exchanges within the P&C segment.

Excluding non-cash amortization of intangible assets, the combined ratio was 91.2% with a loss ratio of 63.7% and an expense ratio of 27.5%, versus a prior year combined ratio of 92.4% with a loss ratio of 63.0% and an expense ratio of 29.4%. The modestly higher loss ratio was driven by an increase in the A&H loss ratio, partially offset by an improved P&C loss ratio, while the improved expense ratio was driven by decreases in both the P&C and A&H segment expense ratios. We estimate a negative impact of approximately 2.1 points on the first quarter 2015 loss ratio relating to inclement winter weather losses in excess of the normal 5-year average first quarter loss pattern, compared to 3.3 points in the first quarter of 2014.

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

Investment income grew 53.1% to $14.1 million, reflecting an increase in the size of our investment portfolio as a result of our capital raising actions in the first half of 2014 and our continued growth in retained earnings, as well as $2.1 million of interest earned on our credit agreement with ACP Re. First quarter 2015 results included $1.5 million of net realized investment gains compared with no realized gains or losses in the first quarter of 2014, as well as an other than temporary impairment (OTTI) loss of $1.0 million compared to zero OTTI impact in the first quarter of 2014. Total cash, cash equivalents and investments grew to $1.85 billion at March 31, 2015 from $1.75 billion at December 31, 2014. Accumulated other comprehensive income (AOCI) increased to $32.7 million at March 31, 2015 from $20.2 million at December 31, 2014.

Other revenue was $1.2 million in the first quarter of 2015, with a negligible amount of other revenue in the prior year's quarter. The first quarter 2015 other revenue line item includes a $0.4 million foreign exchange gain from currency fluctuations within our European subsidiaries as well as a $0.8 million gain related to a state grant received by Imperial.

Interest expense of $5.4 million increased from $0.6 million in the prior year's quarter due primarily to an increased amount of debt on our balance sheet. Debt was $255.0 million as of March 31, 2015, up from $79.9 million at March 31, 2014, primarily as a result of our $250 million May 2014 senior note issuance.

Equity in earnings of unconsolidated subsidiaries (predominantly our investment in Life Settlement Entities) was $5.0 million in the first quarter of 2015 versus $1.1 million in the prior year's quarter, reflecting fair value adjustments on life settlement contracts.

The first quarter 2015 provision for income taxes was $8.4 million and the effective tax rate for the quarter was 18.2%. Included in the first quarter 2015 provision for income taxes was a $9.5 million benefit attributable to a reduction of the deferred tax liability associated with the equalization reserves of our Luxembourg Reinsurance Company (LRC) subsidiaries. Excluding this benefit, the adjusted first quarter 2015 effective tax rate was 38.8%. As of March 31, 2015, the DTL associated with our LRC subsidiaries was $30.9 million.

National General Holding Corp. shareholders' equity was $1,258.6 million at March 31, 2015, growth of 18.8% from $1,059.8 million at December 31, 2014, reflecting the addition of $150 million of preferred stock from our March 2015 offering, as well as the quarter's retained earnings. Fully diluted book value per share was $10.96 at March 31, 2015, growth of 4.6% from $10.48 at December 31, 2014, and growth of 21.0% from $9.06 at March 31, 2014. Annualized operating return on average common equity (ROE) was 15.4% for the first quarter of 2015.

Additional Items   

Conference Call

On Tuesday, May 5, 2015 at 11:00 AM ET, Chairman and Chief Executive Officer Michael Karfunkel and Chief Financial Officer Mike Weiner will review these results via a conference call that may be accessed as follows:

Toll-Free U.S. Dial-in:  888-267-2860
International Dial-in:  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 Tuesday, May 5, 2015 to 11:59 PM ET on Tuesday, May 19, 2015 by dialing either 800-332-6854 (toll-free) within the U.S. or 973-528-0005 outside the U.S. and entering passcode 842046. 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, 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, 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 with AmTrust Financial Services, Inc., ACP Re Ltd., Maiden Holdings, Ltd. or third parties, 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
$ in thousands
(Unaudited)
           
 Three Months Ended March 31,
 2015  2014
   Reciprocal      
 NGHCExchangesConsolidated  NGHC
Revenues:          
Gross written premium  $ 585,808  $ 61,237  $ 643,455(A)  $ 646,142
Ceded premiums (related parties -- $348, $3,590, and $348 in 2015 and $30,277 in 2014) (74,420) (42,600) (113,430)(B) (78,657)
Net written premium 511,388 18,637 530,025   567,485
Net earned premium 437,269 41,896 479,165   357,852
           
Ceding commission income 1,053 4,027 5,080   5,370
Service and fee income 62,653 795 54,870(C) 36,706
Net investment income 14,109 2,039 16,148   9,214
Net realized gain/(loss) on investments 1,510 693 2,203  
Other than temporary impairment loss (1,016) (1,016)  
Other revenue 1,245 1,245   7
Total revenues $ 516,823  $ 49,450  $ 557,695 (D) $ 409,149
           
Expenses:          
Loss and loss adjustment expense  $ 278,682  $ 28,004  $ 306,686    $ 225,347
Acquisition costs and other underwriting expenses 86,629 3,261 89,885(E) 74,373
General and administrative 99,876 14,384 105,687(F) 76,199
Interest expense 5,383 3,697 9,080   593
Total expenses $ 470,570  $ 49,346  $ 511,338 (G) $ 376,512
           
Income before provision for income taxes and equity in earnings (losses) of unconsolidated subsidiaries  $ 46,253  $ 104  $ 46,357    $ 32,637
Provision for income taxes 8,419 (32) 8,387   7,336
Income before equity in earnings (losses) of unconsolidated subsidiaries 37,834 136 37,970   25,301
Equity in earnings (losses) of unconsolidated subsidiaries 4,958 4,958   1,123
Net income before non-controlling interest and dividends on preferred shares 42,792 136 42,928   26,424
Less: net income attributable to non-controlling interest 24 136 160   32
Net income before dividends on preferred shares 42,768 42,768   26,392
Less: dividends on preferred shares 1,031 1,031  
Net income available to common stockholders $ 41,737 $ — $ 41,737   $ 26,392
           
NOTE: Consolidated column includes eliminations as follows: (A) $(3,590), (B) $3,590, (C) $(8,578), (D) $(8,578), (E) $(5), (F) $(8,573), and (G) $(8,578).
           
           
Earnings and Per Share Data
$ in thousands, except shares and per share data
(Unaudited)
     
 Three Months Ended March 31,
 20152014
Net income available to common stockholders  $ 41,737  $ 26,392
Basic net income per common share  $ 0.45  $ 0.31
Diluted net income per common share  $ 0.43  $ 0.30
     
Operating earnings attributable to NGHC(1)  $ 39,690  $ 27,751
Basic operating earnings per common share(1)  $ 0.42  $ 0.32
Diluted operating earnings per common share(1)  $ 0.41  $ 0.32
     
Dividends declared per common share  $ 0.02  $ 0.01
     
Weighted average number of basic shares outstanding 93,454,236 85,774,057
Weighted average number of diluted shares outstanding 96,087,952 86,884,898
Shares outstanding, end of period 93,495,258 93,344,400
Fully diluted shares outstanding, end of period 96,128,974 94,455,241
     
Book value per share  $ 11.27  $ 9.17
Fully diluted book value per share  $ 10.96  $ 9.06
     
     
Reconciliation of Net Income to Operating Earnings (Non-GAAP)
$ in thousands, except per share data
(Unaudited)
     
 Three Months Ended March 31,
 20152014
     
Net income available to common stockholders $ 41,737  $ 26,392
Add (subtract) net of tax:    
Net realized (gain)/loss on investments (982)
Other than temporary impairment losses 661
Foreign exchange (gain)/loss (277)
Equity in (earnings)/losses of unconsolidated subsidiaries (3,223) (730)
Non-cash amortization of intangible assets 1,774 2,089
Non-cash impairment of goodwill
Operating earnings attributable to NGHC (1) $ 39,690  $ 27,751
     
Operating earnings per common share:    
Basic operating earnings per common share  $ 0.42  $ 0.32
Diluted operating earnings per common share  $ 0.41  $ 0.32
     
     
Balance Sheet
$ in thousands
(Unaudited)
             
 March 31, 2015December 31, 2014
 (unaudited)(audited)
ASSETS Reciprocal  Reciprocal 
 NGHCExchangesConsolidatedNGHCExchangesConsolidated
Investments:            
Fixed maturities (2)  $ 1,406,561  $ 212,570  $ 1,619,131  $ 1,374,087  $ 222,739  $ 1,596,826
Equity securities (3) 48,194 2,865 51,059 45,802 2,817 48,619
Short-term investments 18,447 3,385 21,832 50 10,490 10,540
Equity investment in unconsolidated subsidiaries 167,568 167,568 155,900 155,900
Other investments 5,798 5,798 4,764 4,764
Securities pledged (4) 49,456 49,456
Total investments 1,646,568 218,820 1,865,388 1,630,059 236,046 1,866,105
Cash and cash equivalents 200,497 28,605 229,102 123,178 9,437 132,615
Accrued investment income 11,421 1,854 13,275 12,553 1,898 14,451
Premiums and other receivables, net (5) 754,352 60,292 814,644 589,205 58,238 647,443
Deferred acquisition costs 142,482 12,547 155,029 121,514 4,485 125,999
Reinsurance recoverable on unpaid losses (6) 857,987 15,444 873,431 888,215 23,583 911,798
Prepaid reinsurance premiums 82,579 70,340 152,919 75,837 26,924 102,761
Notes receivable from related party 126,434 126,434 125,000 125,000
Due from affiliate 4,098 4,098 5,129 5,129
Premises and equipment, net 29,466 29,466 30,583 30,583
Intangible assets, net 234,836 9,182 244,018 237,404 11,433 248,837
Goodwill 92,141 92,141 70,764 70,764
Prepaid and other assets 53,049 41 53,090 48,083 71 48,154
Total assets $ 4,235,910  $ 417,125  $ 4,653,035  $ 3,957,524  $ 372,115  $ 4,329,639
LIABILITIES AND STOCKHOLDERS' EQUITY            
Liabilities:            
Unpaid loss and loss adjustment expense reserves  $ 1,439,993  $ 111,631  $ 1,551,624  $ 1,450,305  $ 111,848  $ 1,562,153
Unearned premiums 821,825 140,154 961,979 744,438 119,998 864,436
Unearned service contract and other revenue 9,549 20,172 29,721 8,527 8,527
Reinsurance payable (7) 133,227 19,878 153,105 97,830 13,811 111,641
Accounts payable and accrued expenses (8) 192,519 9,431 201,950 189,430 17,691 207,121
Due to affiliate 1,521 1,521 1,552 1,552
Securities sold under agreements to repurchase, at contract value 46,804 46,804
Deferred tax liability 13,740 38,370 52,110 29,133 38,402 67,535
Income tax payable 55,118 1,059 56,177 29,532 1,059 30,591
Notes payable (9) 255,000 50,417 305,417 255,631 48,374 304,005
Other liabilities 56,321 8,985 65,306 46,114 5,710 51,824
Total liabilities $ 2,977,292  $ 401,618  $ 3,378,910  $ 2,897,744  $ 358,445  $ 3,256,189
Stockholders' equity:            
Common stock (10)  $ 935 $ —  $ 935  $ 934 $ —  $ 934
Preferred stock (11) 205,000 205,000 55,000 55,000
Additional paid-in capital 687,189 687,189 690,736 690,736
Accumulated other comprehensive income 32,683 32,683 20,192 20,192
Retained earnings 332,701 332,701 292,832 292,832
Total National General Holdings Corp. stockholders' equity 1,258,508 1,258,508 1,059,694 1,059,694
Non-controlling interest 110 15,507 15,617 86 13,670 13,756
Total stockholders' equity1,258,61815,5071,274,1251,059,78013,6701,073,450
Total liabilities and stockholders' equity $ 4,235,910  $ 417,125  $ 4,653,035  $ 3,957,524  $ 372,115  $ 4,329,639
             
             
Segment Information
$ in thousands
(Unaudited)
               
 Three Months Ended March 31,
 20152014
    Reciprocal   
 P&CA&HNGHCExchangesP&CA&HNGHC
Gross written premium  $ 510,451  $ 75,357  $ 585,808  $ 61,237  $ 606,608  $ 39,534  $ 646,142
Net written premium 444,260 67,128 511,388 18,637 527,999 39,486 567,485
Net earned premium 406,094 31,175 437,269 41,896 327,220 30,632 357,852
               
Ceding commission income 771 282 1,053 4,027 5,370 5,370
Service and fee income 45,234 17,419 62,653 795 21,673 15,033 36,706
Total underwriting revenue  $ 452,099  $ 48,876  $ 500,975  $ 46,718  $ 354,263  $ 45,665  $ 399,928
               
Loss and loss adjustment expense  $ 258,579  $ 20,103  $ 278,682  $ 28,004  $ 209,430  $ 15,917  $ 225,347
Acquisition costs and other 75,337 11,292 86,629 3,261 55,773 18,600 74,373
General and administrative 85,729 14,147 99,876 14,384 63,521 12,678 76,199
Total underwriting expenses  $ 419,645  $ 45,542  $ 465,187  $ 45,649  $ 328,724  $ 47,195  $ 375,919
               
Underwriting income (loss)  $ 32,454  $ 3,334  $ 35,788  $ 1,069  $ 25,539  $ (1,530)   $ 24,009
Non-cash impairment of goodwill
Non-cash amortization of intangible assets 2,019 710 2,729 2,252 843 2,370 3,213
Underwriting income (loss) before amortization and impairment $ 34,473  $ 4,044  $ 38,517  $ 3,321  $ 26,382  $ 840  $ 27,222
               
Underwriting ratios              
Loss and loss adjustment expense ratio (12) 63.7% 64.5% 63.7% 66.8% 64.0% 52.0% 63.0%
Operating expense ratio (Non-GAAP) (13,14) 28.3% 24.8% 28.1% 30.6% 28.2% 53.0% 30.3%
Combined ratio (Non-GAAP) (13,15)92.0%89.3%91.8%97.4%92.2%105.0%93.3%
               
Underwriting ratios (before amortization and impairment)              
Loss and loss adjustment expense ratio (12) 63.7% 64.5% 63.7% 66.8% 64.0% 52.0% 63.0%
Operating expense ratio(Non-GAAP) (13,16) 27.8% 22.5% 27.5% 25.2% 27.9% 45.3% 29.4%
Combined ratio (Non-GAAP) (13,15)91.5%87.0%91.2%92.1%91.9%97.3%92.4%
               
NOTE: Loss and loss adjustment expense ratio and operating expense ratio may not sum to combined ratio due to rounding.
               
               
Reconciliation of Operating Expense Ratio (Non-GAAP)
$ in thousands
(Unaudited)
               
 Three Months Ended March 31,
 20152014
       Reciprocal      
 P&CA&HNGHCExchangesP&CA&HNGHC
Total underwriting expenses  $ 419,645  $ 45,542  $ 465,187  $ 45,649  $ 328,724  $ 47,195  $ 375,919
Less: Loss and loss adjustment expense 258,579 20,103 278,682 28,004 209,430 15,917 225,347
Less: Ceding commission income 771 282 1,053 4,027 5,370 5,370
Less: Service and fee income 45,234 17,419 62,653 795 21,673 15,033 36,706
Operating expense 115,061 7,738 122,799 12,823 92,251 16,245 108,496
Net earned premium  $ 406,094  $ 31,175  $ 437,269  $ 41,896  $ 327,220  $ 30,632  $ 357,852
Operating expense ratio (Non-GAAP)28.3%24.8%28.1%30.6%28.2%53.0%30.3%
               
Total underwriting expenses  $ 419,645  $ 45,542  $ 465,187  $ 45,649  $ 328,724  $ 47,195  $ 375,919
Less: Loss and loss adjustment expense 258,579 20,103 278,682 28,004 209,430 15,917 225,347
Less: Ceding commission income 771 282 1,053 4,027 5,370 5,370
Less: Service and fee income 45,234 17,419 62,653 795 21,673 15,033 36,706
Less: Non-cash impairment of goodwill
Less: Non-cash amortization of intangible assets 2,019 710 2,729 2,252 843 2,370 3,213
Operating expense before amortization and impairment 113,042 7,028 120,070 10,571 91,408 13,875 105,283
Net earned premium  $ 406,094  $ 31,175  $ 437,269  $ 41,896  $ 327,220  $ 30,632  $ 357,852
Operating expense ratio before amortization and impairment (Non-GAAP)27.8%22.5%27.5%25.2%27.9%45.3%29.4%
               
               
Premiums by Business Line
$ in thousands
(Unaudited)
                   
 Three Months Ended March 31,
 Gross Written PremiumNet Written PremiumNet Earned Premium
 20152014Change20152014Change20152014Change
Property & Casualty                  
Personal Auto $339,334 $348,684 (2.7)% $295,243 $276,651 6.7% $267,531 $207,202 29.1%
Homeowners 87,824 182,067 (51.8)% 70,390 182,067 (61.3)% 64,123 57,753 11.0%
RV/Packaged 37,550 38,545 (2.6)% 36,894 36,157 2.0% 35,976 34,141 5.4%
Commercial Auto 41,346 34,284 20.6% 37,993 30,121 26.1% 34,622 24,775 39.7%
Other 4,397 3,028 45.2% 3,740 3,003 24.5% 3,842 3,349 14.7%
Property & Casualty Total 510,451 606,608 (15.9)% 444,260 527,999 (15.9)% 406,094 327,220 24.1%
                   
Accident & Health 75,357 39,534 90.6% 67,128 39,486 70.0% 31,175 30,632 1.8%
Total National General585,808646,142(9.3)%511,388567,485(9.9)%437,269357,85222.2%
                   
Reciprocal Exchanges                  
Personal Auto 17,691 NA 16,439 NA 22,930 NA
Homeowners 36,813 NA (4,782) NA 15,414 NA
Other 6,733 NA 6,980 NA 3,552 NA
Reciprocal Exchanges Total 61,237 NA 18,637 NA 41,896 NA
Consolidated Total$643,455 $646,142 (0.4)%$530,025 $567,485 (6.6)%$479,165 $357,852 33.9%
                   
NOTE: Consolidated Total includes elimination of $(3,590) within 2015 Gross Written Premium.
                   

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 investment gain or loss on securities, other than temporary impairment losses, foreign exchange gain or loss, equity in earnings or losses of unconsolidated subsidiaries, non-cash amortization of intangible assets, and non-cash impairment of goodwill. 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) Fixed maturities, available-for-sale, at fair value (amortized cost $1,345,963, $210,300, $1,556,263 at March 31, 2015 and $1,330,760, $222,121, $1,522,881 at December 31, 2014).

(3) Equity securities, available-for-sale, at fair value (cost $52,551, $2,752, $55,303 at March 31, 2015 and $52,272, $2,752, $55,024 at December 31, 2014).

(4) Securities pledged (amortized cost $0, $0, $0 at March 31, 2015 and $47,546, $0, $47,546 at December 31, 2014).

(5) Premiums and other receivables, net (NGHC) includes $163,999 and $64,129 from related parties at March 31, 2015 and December 31, 2014, respectively.

(6) Reinsurance recoverable on unpaid losses (NGHC) includes $73,771 and $88,970 from related parties at March 31, 2015 and December 31, 2014, respectively.

(7)Reinsurance payable (NGHC) includes $61,914 and $41,965 to related parties at March 31, 2015 and December 31, 2014, respectively.

(8) Accounts payable and accrued expenses (NGHC) includes $61,489 and $38,576 to related parties at March 31, 2015 and December 31, 2014, respectively.

(9) Notes payable (Reciprocal Exchanges) includes $50,417 and $48,374 owed to related party at March 31, 2015 and December 31, 2014, respectively.

(10) Common stock: $0.01 par value - authorized 150,000,000 shares, issued and outstanding 93,495,258 shares - March 31, 2015; authorized 150,000,000 shares, issued and outstanding 93,427,382 - December 31, 2014.

(11) Preferred stock: $0.01 par value, authorized 10,000,000 shares, issued and outstanding 2,350,000 shares and 2,200,000 shares at March 31, 2015 and December 31, 2014, respectively.

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

(13) 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 expense 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.

(14) Operating expense ratio (non-GAAP) is calculated by dividing operating expense by net earned premium. Operating expense consists of the sum of acquisition and other underwriting costs and general and administrative expense less ceding commission income and service and fee income.

(15) Combined ratio (non-GAAP) is calculated by adding the loss and loss adjustment expense ratio and the operating expense ratio (non-GAAP) together.

(16) Operating expense ratio (non-GAAP) before amortization and impairment is calculated 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 expense less ceding commission income and service and fee income less non-cash amortization of intangible assets and non-cash impairment of goodwill.

CONTACT: Investor Contact

         Dean Evans

         Director of Investor Relations

         Phone: 212-380-9462

         Email: Dean.Evans@NGIC.com