National General
11/02/15
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National General Holdings Corp. Reports Third Quarter 2015 Results; Increases Quarterly Dividend to $0.03 Per Share

NEW YORK, Nov. 02, 2015 (GLOBE NEWSWIRE) --  National General Holdings Corp. (Nasdaq:NGHC) today reported third quarter 2015 operating earnings(1) of $43.8 million or $0.43 per diluted share, compared to $34.5 million or $0.36 per diluted share in the third quarter of 2014. Net income was $39.0 million or $0.38 per diluted share, compared to $32.1 million or $0.34 per diluted share in the third quarter of 2014.  In addition, National General's Board of Directors has approved a 50% increase in the quarterly dividend to $0.03 per share from $0.02 per share, effective with the fourth quarter dividend.

Third Quarter 2015 Highlights Versus Third Quarter 2014*

Michael Karfunkel, National General's Chairman and CEO, stated: "Our third quarter results displayed strong growth and solid underwriting profitability in both of our operating segments. Within P&C, we have seen excellent performance from both our legacy business and recent acquisitions, with the homeowners product line delivering particularly good results during the quarter.  Within A&H, we again posted a profitable quarter, and while this division remains a work in progress, we believe that we are well positioned to capitalize on what we view as a huge opportunity. We continue to make considerable progress integrating all of our recent acquisitions, and are constantly monitoring the M&A landscape for other opportunities that can enhance our franchise. The third quarter and early stages of the fourth quarter also proved to be a very busy and important time for National General on several fronts.  In August, we completed a $100 million subordinated notes offering and an 11.5 million share secondary common stock offering.  In October, we closed on the acquisitions of the QBE Lender-Placed Insurance and the Assurant Health businesses, and closed on a $100 million private debt issuance. These actions strengthened our capital position and added two attractive businesses to our growing personal lines insurance franchise, which we expect will lead to enhanced shareholder value going forward."

*NOTE: Unless specified otherwise, discussion of our third quarter 2014 and 2015 results does not include financial results from the Reciprocal Exchanges, which are presented within 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 Third Quarter 2015 as Compared to Third Quarter 2014

Gross written premium grew 12.1% to $546.8 million, net written premium grew 13.6% to $482.0 million, and net earned premium grew 8.6% to $469.0 million. Premium growth was driven by strong organic growth within our P&C segment and substantial growth within our A&H operations.

Ceding commission income was a loss of $2.3 million compared to a gain of $0.7 million in the prior year's quarter, reflecting a sliding scale adjustment related to our terminated third-party quota share. Service and fee income grew 54.5% to $70.9 million, driven by growth in both the P&C and A&H segments, and including management fees of $11.2 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 90.2% with a loss ratio of 61.6% and an expense ratio of 28.6%, versus a prior year combined ratio of 90.9% with a loss ratio of 62.5% and an expense ratio of 28.5%. The improved loss ratio was driven by a reduction in the P&C loss ratio, partially offset by an increased A&H loss ratio, while the overall expense ratio was flat with the prior year as a higher P&C expense ratio was offset by a lower A&H expense ratio. 

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

Investment income grew 17.8% to $16.1 million, reflecting an increase in the size of our investment portfolio as compared to the prior year's quarter and our continued growth in retained earnings. Third quarter 2015 results included $1.3 million of net realized investment gains compared with realized losses of $1.1 million in the third quarter of 2014.  The current year's quarter also includes an other than temporary impairment (OTTI) loss of $6.0 million compared to no OTTI impact in the prior year's quarter. Total cash, cash equivalents and investments grew to $2.25 billion at September 30, 2015 from $1.91 billion at June 30, 2015. Accumulated other comprehensive income (AOCI) declined to $2.4 million at September 30, 2015, down from $15.0 million at June 30, 2015.

Other revenue was a loss of $0.2 million compared to a gain of $0.4 million in the prior year's quarter, with the loss in the current year's quarter driven by foreign exchange losses from currency fluctuations within our European subsidiaries.

Interest expense of $5.8 million increased from $4.4 million in the prior year's quarter, reflecting the addition of a partial quarter of interest payments from our August 2015 issuance of $100 million of subordinated notes.  Debt was $347.0 million as of September 30, 2015.

Equity in earnings of unconsolidated subsidiaries, which includes both our investment in Life Settlement Entities (LSC Entities) and our real estate investments, was a gain of $2.3 million in the third quarter of 2015 versus a loss of $1.6 million in the prior year's quarter, reflecting fair value adjustments on life settlement contracts of $2.1 million in the current period.

The third quarter 2015 provision for income taxes was $7.8 million and the effective tax rate for the quarter was 16.1%. Included in the third quarter 2015 provision for income taxes was a $3.6 million detriment attributable to an increase of the deferred tax liability (DTL) associated with the equalization reserves of our Luxembourg Reinsurance Company (LRC) subsidiaries. Excluding this detriment, the adjusted third quarter 2015 effective tax rate was 8.7%. As of September 30, 2015, the DTL associated with our LRC subsidiaries was $32.0 million.  Additionally, the third quarter 2015 provision for income taxes also included a $2.1 million benefit primarily attributable to an increase in excludable foreign income related to a prior year return. 

National General Holding Corp. shareholders' equity was $1,521.9 million at September 30, 2015, growth of 18.0% from $1,289.7 million at June 30, 2015, reflecting the quarter's retained earnings as well as the proceeds from our August 2015 common stock offering, partially offset by a reduction in AOCI. Fully diluted book value per share was $12.06 at September 30, 2015, growth of 8.5% from $11.11 at June 30, 2015 and growth of 15.9% from $10.40 at September 30, 2014. Annualized operating return on average common equity (ROE) was 14.7% for the third quarter of 2015.

Additional Items          

Conference Call

On Tuesday, November 3, 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, November 3, 2015 to 11:59 PM ET on Tuesday, November 17, 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 - Third Quarter
$ in thousands
(Unaudited)
 
  Three Months Ended September 30,
  2015  2014
  NGHC Reciprocal
Exchanges
 Consolidated  NGHC Reciprocal
Exchanges
 Consolidated
Revenues:             
Gross written premium $546,821  $79,864  $626,685   $487,602  $9,993  $497,595 
Ceded premiums (related parties $387, $64, $451 for 2015; $964, $216, $1,180 for 2014) (64,832) (36,214) (101,046)  (63,237) (2,788) (66,025)
Net written premium 481,989  43,650  525,639   424,365  7,205  431,570 
Net earned premium 468,965  34,296  503,261   431,714  6,692  438,406 
              
Ceding commission income (2,348) 14,498  12,150   668  37  705 
Service and fee income 70,853  1,248  60,907 (A) 45,872  22  45,894 
Net investment income 16,140  2,332  18,472   13,697    13,697 
Net realized gain/(loss) on investments 1,291  124  1,415   (1,118)   (1,118)
Other than temporary impairment loss (6,009)   (6,009)       
Other revenue (157)   (157)  373    373 
Total revenues $548,735  $52,498  $590,039 (B) $491,206  $6,751  $497,957 
              
Expenses:             
Loss and loss adjustment expense $288,684  $13,575  $302,259   $269,668  $5,351  $275,019 
Acquisition costs and other underwriting expenses 98,686  10,095  108,744 (C) 83,642  273  83,915 
General and administrative expenses 106,832  22,906  118,581 (D) 88,317  1,811  90,128 
Interest expense 5,844  3,584  9,428   4,437  272  4,709 
Total expenses $500,046  $50,160  $539,012 (E) $446,064  $7,707  $453,771 
              
Income before provision for income taxes and equity in earnings (losses) of unconsolidated subsidiaries $48,689  $2,338  $51,027   $45,142  $(956) $44,186 
Provision for income taxes 7,840  774  8,614   10,237  (211) 10,026 
Income before equity in earnings (losses) of unconsolidated subsidiaries 40,849  1,564  42,413   34,905  (745) 34,160 
Equity in earnings (losses) of unconsolidated subsidiaries 2,288    2,288   (1,611)   (1,611)
Net income before non-controlling interest and dividends on preferred shares 43,137  1,564  44,701   33,294  (745) 32,549 
Less: net income attributable to non-controlling interest 24  1,564  1,588   (25) (745) (770)
Net income before dividends on preferred shares 43,113    43,113   33,319    33,319 
Less: dividends on preferred shares 4,125    4,125   1,260    1,260 
Net income available to common stockholders $38,988  $  $38,988   $32,059  $  $32,059 
                          

NOTE: Consolidated column includes eliminations as follows: (A) $(11,194), (B) $(11,194), (C) $(37), (D) $(11,157), (E) $(11,194).

 
Income Statement - Year to Date
$ in thousands
(Unaudited)
 
  Nine Months Ended September 30,
  2015  2014
  NGHC Reciprocal
Exchanges
 Consolidated  NGHC Reciprocal
Exchanges
 Consolidated
Revenues:             
Gross written premium $1,631,581  $217,830  $1,845,821 (A) $1,602,217  $9,993  $1,612,210 
Ceded premiums  (related parties $1,107, $74, $1,181 for 2015; $43,931, $216, $44,147 for 2014) (189,560) (124,777) (310,747)(B) (191,811) (2,788) (194,599)
Net written premium 1,442,021  93,053  1,535,074   1,410,406  7,205  1,417,611 
Net earned premium 1,352,802  98,440  1,451,242   1,181,032  6,692  1,187,724 
              
Ceding commission income (1,249) 28,449  27,200   7,595  37  7,632 
Service and fee income 200,849  2,990  173,335 (C) 121,064  22  121,086 
Net investment income 46,403  6,552  52,955   34,232    34,232 
Net realized gain/(loss) on investments 5,203  271  5,474   (1,118)   (1,118)
Other than temporary impairment loss (8,492)   (8,492)       
Other revenue (327)   (327)  480    480 
Total revenues $1,595,189  $136,702  $1,701,387 (D) $1,343,285  $6,751  $1,350,036 
              
Expenses:             
Loss and loss adjustment expense $838,950  $56,824  $895,774   $750,619  $5,351  $755,970 
Acquisition costs and other underwriting expenses 274,227  20,967  295,131 (E) 232,433  273  232,706 
General and administrative expenses 325,036  48,831  343,426 (F) 241,575  1,811  243,386 
Interest expense 16,031  11,078  27,109   7,549  272  7,821 
Total expenses $1,454,244  $137,700  $1,561,440 (G) $1,232,176  $7,707  $1,239,883 
              
Income before provision for income taxes and equity in earnings (losses) of unconsolidated subsidiaries $140,945  $(998) $139,947   $111,109  $(956) $110,153 
Provision for income taxes 25,369  (477) 24,892   17,997  (211) 17,786 
Income before equity in earnings (losses) of unconsolidated subsidiaries 115,576  (521) 115,055   93,112  (745) 92,367 
Equity in earnings (losses) of unconsolidated subsidiaries 8,900    8,900   (3,098)   (3,098)
Net income before non-controlling interest and dividends on preferred shares 124,476  (521) 123,955   90,014  (745) 89,269 
Less: net income attributable to non-controlling interest 68  (521) (453)  (31) (745) (776)
Net income before dividends on preferred shares 124,408    124,408   90,045    90,045 
Less: dividends on preferred shares 9,900    9,900   1,260    1,260 
Net income available to common stockholders $114,508  $  $114,508   $88,785  $  $88,785 
                          

NOTE: Consolidated column includes eliminations as follows: (A) $(3,590), (B) $3,590, (C) $(30,504), (D) $(30,504), (E) $(63), (F) $(30,441), and (G) $(30,504).

 
Earnings and Per Share Data
$ in thousands, except shares and per share data
(Unaudited)
 
 Three Months Ended September 30,  Nine Months Ended September 30,
 2015 2014  2015 2014
Net income available to common stockholders$38,988  $32,059   $114,508  $88,785 
Basic net income per common share$0.39  $0.34   $1.19  $0.98 
Diluted net income per common share$0.38  $0.34   $1.16  $0.96 
         
Operating earnings attributable to NGHC(1)$43,845  $34,499   $122,847  $95,324 
Basic operating earnings per common share(1)$0.44  $0.37   $1.28  $1.05 
Diluted operating earnings per common share(1)$0.43  $0.36   $1.25  $1.03 
         
         
Dividends declared per common share$0.02  $0.01   $0.06  $0.03 
         
Weighted average number of basic shares outstanding100,360,687  93,359,265   95,877,178  90,853,536 
Weighted average number of diluted shares outstanding102,940,728  95,663,429   98,314,808  92,615,198 
Shares outstanding, end of period105,433,893  93,408,212   105,433,893  93,408,212 
Fully diluted shares outstanding, end of period107,983,933  95,765,403   107,841,523  92,857,313 
         
Book value per share$12.35  $10.67   $12.35  $10.67 
Fully diluted book value per share$12.06  $10.40   $12.07  $10.73 


 
Reconciliation of Net Income to Operating Earnings (Non-GAAP)
$ in thousands, except per share data
(Unaudited)
 
 Three Months Ended September 30,  Nine Months Ended September 30,
 2015 2014  2015 2014
         
Net income available to common stockholders$38,988  $32,059   $114,508  $88,785 
Add (subtract) net of tax:        
Net realized (gain)/loss on investments(839) 362   (3,382) 362 
Other than temporary impairment losses3,906     5,520   
Foreign exchange (gain)/loss152  365   935  365 
Equity in (earnings)/losses of unconsolidated subsidiaries (other than LSC Entities)(137) 101   (203) 330 
Non-cash amortization of intangible assets1,775  1,612   5,469  5,482 
Non-cash impairment of goodwill        
Operating earnings attributable to NGHC (1)$43,845  $34,499   $122,847  $95,324 
         
Operating earnings per common share:        
Basic operating earnings per common share$0.44  $0.37   $1.28  $1.05 
Diluted operating earnings per common share$0.43  $0.36   $1.25  $1.03 
                 

NOTE: Our definition of Operating Earnings has been revised and now only excludes the impact of equity in earnings of unconsolidated subsidiaries other than LSC Entities. Please see item (1) under "Additional Disclosures" on page 14 for further information. Additionally, to facilitate period-to-period comparisons, certain reclassifications have been made to prior period amounts within Reconciliation of Net Income to Operating Earnings (Non-GAAP).

 
Balance Sheet
$ in thousands
(Unaudited)
 
  September 30, 2015 (unaudited)  December 31, 2014 (audited)
ASSETS NGHC Reciprocal
Exchanges
 Consolidated  NGHC Reciprocal
Exchanges
 Consolidated
Investments:             
Fixed maturities (2) $1,631,552  $285,705  $1,917,257   $1,374,087  $222,739  $1,596,826 
Equity securities (3) 61,928  1,544  63,472   45,802  2,817  48,619 
Short-term investments 5,000  4,030  9,030   50  10,490  10,540 
Equity investment in unconsolidated subsidiaries 233,538    233,538   155,900    155,900 
Other investments 6,041    6,041   4,764    4,764 
Securities pledged (4) 43,711    43,711   49,456    49,456 
Total investments 1,981,770  291,279  2,273,049   1,630,059  236,046  1,866,105 
Cash and cash equivalents 267,131  11,765  278,896   123,178  9,437  132,615 
Accrued investment income 14,371  2,287  16,658   12,553  1,898  14,451 
Premiums and other receivables, net (5) 660,532  62,846  723,378   589,205  58,238  647,443 
Deferred acquisition costs 125,422  27,154  152,576   121,514  4,485  125,999 
Reinsurance recoverable on unpaid losses (6) 828,424  64,848  893,272   888,215  23,583  911,798 
Prepaid reinsurance premiums 68,891  63,477  131,468 (A) 75,837  26,924  102,761 
Notes receivable from related party 127,188    127,188   125,000    125,000 
Income tax receivable   1,884  1,884        
Due from affiliate 53,776  8,242  25,752 (B) 5,129    5,129 
Premises and equipment, net 31,869    31,869   30,583    30,583 
Intangible assets, net 260,647  6,212  266,859   237,404  11,433  248,837 
Goodwill 125,246    125,246   70,764    70,764 
Prepaid and other assets 30,343  5,895  36,238   43,160  71  43,231 
Total assets $4,575,610  $545,889  $5,084,333 (C) $3,952,601  $372,115  $4,324,716 
LIABILITIES AND STOCKHOLDERS' EQUITY             
Liabilities:             
Unpaid loss and loss adjustment expense reserves $1,428,541  $136,777  $1,565,318   $1,450,305  $111,848  $1,562,153 
Unearned premiums 824,479  151,163  974,742 (D) 744,438  119,998  864,436 
Unearned service contract and other revenue 12,871    12,871   8,527    8,527 
Reinsurance payable (7) 75,569  17,243  92,812   97,830  13,811  111,641 
Accounts payable and accrued expenses (8) 186,773  42,209  228,982   189,430  17,691  207,121 
Due to affiliate   36,266   (E)   1,552  1,552 
Securities sold under agreements to repurchase, at contract value 41,441    41,441   46,804    46,804 
Deferred tax liability 27,678  40,036  67,714   29,133  38,402  67,535 
Income tax payable 734    734   29,532  1,059  30,591 
Notes payable (9) 347,031  54,455  401,486   250,708  48,374  299,082 
Other liabilities 108,612  59,065  167,677   46,114  5,710  51,824 
Total liabilities $3,053,729  $537,214  $3,553,777 (F) $2,892,821  $358,445  3,251,266 
Stockholders' equity:             
Common stock (10) $1,054  $  $1,054   $934  $  $934 
Preferred stock (11) 220,000    220,000   55,000    55,000 
Additional paid-in capital 896,700    896,700   690,736    690,736 
Accumulated other comprehensive income 2,446    2,446   20,192    20,192 
Retained earnings 401,527    401,527   292,832    292,832 
Total National General Holdings Corp. stockholders' equity 1,521,727    1,521,727   1,059,694    1,059,694 
Non-controlling interest 154  8,675  8,829   86  13,670  13,756 
Total stockholders' equity 1,521,881  8,675  1,530,556   1,059,780  13,670  1,073,450 
Total liabilities and stockholders' equity $4,575,610  $545,889  $5,084,333 (G) $3,952,601  $372,115  $4,324,716 
                          

NOTE: Consolidated column includes eliminations as follows: (A) $(900), (B) $(36,266), (C) $(37,166), (D) $(900), (E) $(36,266), (F) $(37,166), and (G) $(37,166).

 
Segment Information - Third Quarter
$ in thousands
(Unaudited)
 
  Three Months Ended September 30,
  2015  2014
  P&C A&H NGHC  Reciprocal
Exchanges
  P&C A&H NGHC  Reciprocal
Exchanges
Gross written premium $503,227  $43,594  $546,821   $79,864   $469,873  $17,729  $487,602   $9,993 
Net written premium 448,140  33,849  481,989   43,650   406,699  17,666  424,365   7,205 
Net earned premium 423,858  45,107  468,965   34,296   402,246  29,468  431,714   6,692 
                    
Ceding commission income (2,615) 267  (2,348)  14,498   668    668   37 
Service and fee income 51,193  19,660  70,853   1,248   31,356  14,516  45,872   22 
Total underwriting revenue 472,436  65,034  537,470   50,042   434,270  43,984  478,254   6,751 
                    
Loss and loss adjustment expense 255,165  33,519  288,684   13,575   251,418  18,250  269,668   5,351 
Acquisition costs and other 81,321  17,365  98,686   10,095   68,146  15,496  83,642   273 
General and administrative 92,771  14,061  106,832   22,906   77,267  11,050  88,317   1,811 
Total underwriting expenses 429,257  64,945  494,202   46,576   396,831  44,796  441,627   7,435 
                    
Underwriting income (loss) 43,179  89  43,268   3,466   37,439  (812) 36,627   (684)
Non-cash impairment of goodwill                   
Non-cash amortization of intangible assets 1,727  1,005  2,732   1,355   1,565  916  2,481   353 
Underwriting income (loss) before amortization and impairment $44,906  $1,094  $46,000   $4,821   $39,004  $104  $39,108   $(331)
                    
Underwriting ratios                   
Loss and loss adjustment expense ratio (12) 60.2% 74.3% 61.6%  39.6%  62.5% 61.9% 62.5%  80.0%
Operating expense ratio (Non-GAAP) (13,14) 29.6% 25.5% 29.2%  50.3%  28.2% 40.8% 29.1%  30.3%
Combined ratio (Non-GAAP) (13,15) 89.8% 99.8% 90.8%  89.9%  90.7% 102.8% 91.5%  110.2%
                    
Underwriting ratios (before amortization and impairment)                   
Loss and loss adjustment expense ratio (12) 60.2% 74.3% 61.6%  39.6%  62.5% 61.9% 62.5%  80.0%
Operating expense ratio (Non-GAAP) (13,16) 29.2% 23.3% 28.6%  46.4%  27.8% 37.7% 28.5%  25.0%
Combined ratio (Non-GAAP) (13,15) 89.4% 97.6% 90.2%  85.9%  90.3% 99.6% 90.9%  104.9%
                            

NOTE: Loss and loss adjustment expense ratio and operating expense ratio may not sum to combined ratio due to rounding.

 
Segment Information - Year to Date
$ in thousands
(Unaudited)
 
  Nine Months Ended September 30,
  2015  2014
  P&C A&H NGHC  Reciprocal
Exchanges
  P&C A&H NGHC  Reciprocal
Exchanges
Gross written premium $1,478,172  $153,409  $1,631,581   $217,830   $1,484,344  $117,873  $1,602,217   $9,993 
Net written premium 1,315,238  126,783  1,442,021   93,053   1,292,793  117,613  1,410,406   7,205 
Net earned premium 1,240,253  112,549  1,352,802   98,440   1,091,088  89,944  1,181,032   6,692 
                    
Ceding commission income (2,069) 820  (1,249)  28,449   7,595    7,595   37 
Service and fee income 146,098  54,751  200,849   2,990   76,418  44,646  121,064   22 
Total underwriting revenue 1,384,282  168,120  1,552,402   129,879   1,175,101  134,590  1,309,691   6,751 
                    
Loss and loss adjustment expense 759,198  79,752  838,950   56,824   691,856  58,763  750,619   5,351 
Acquisition costs and other 233,951  40,276  274,227   20,967   185,359  47,074  232,433   273 
General and administrative 282,797  42,239  325,036   48,831   205,503  36,072  241,575   1,811 
Total underwriting expenses 1,275,946  162,267  1,438,213   126,622   1,082,718  141,909  1,224,627   7,435 
                    
Underwriting income (loss) 108,336  5,853  114,189   3,257   92,383  (7,319) 85,064   (684)
Non-cash impairment of goodwill                   
Non-cash amortization of intangible assets 5,479  2,936  8,415   5,221   3,181  5,253  8,434   353 
Underwriting income (loss) before amortization and impairment $113,815  $8,789  $122,604   $8,478   $95,564  $(2,066) $93,498   $(331)
                    
Underwriting ratios                   
Loss and loss adjustment expense ratio (12) 61.2% 70.9% 62.0%  57.7%  63.4% 65.3% 63.6%  80.0%
Operating expense ratio (Non-GAAP) (13,14) 30.1% 23.9% 29.5%  39.0%  28.1% 42.8% 29.2%  30.3%
Combined ratio (Non-GAAP) (13,15) 91.3% 94.8% 91.6%  96.7%  91.5% 108.1% 92.8%  110.2%
                    
Underwriting ratios (before amortization and impairment)                   
Loss and loss adjustment expense ratio (12) 61.2% 70.9% 62.0%  57.7%  63.4% 65.3% 63.6%  80.0%
Operating expense ratio (Non-GAAP) (13,16) 29.6% 21.3% 28.9%  33.7%  27.8% 37.0% 28.5%  25.0%
Combined ratio (Non-GAAP) (13,15) 90.8% 92.2% 90.9%  91.4%  91.2% 102.3% 92.1%  104.9%
                            

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 September 30,   
  2015  2014
  P&C A&H NGHC  Reciprocal
Exchanges
  P&C A&H NGHC  Reciprocal
Exchanges
Total underwriting expenses $429,257  $64,945  $494,202   $46,576   $396,831  $44,796  $441,627   $7,435 
Less: Loss and loss adjustment expense 255,165  33,519  288,684   13,575   251,418  18,250  269,668   5,351 
Less: Ceding commission income (2,615) 267  (2,348)  14,498   668    668   37 
Less: Service and fee income 51,193  19,660  70,853   1,248   31,356  14,516  45,872   22 
Operating expense 125,514  11,499  137,013   17,255   113,389  12,030  125,419   2,025 
Net earned premium $423,858  $45,107  $468,965   $34,296   $402,246  $29,468  $431,714   $6,692 
Operating expense ratio (Non-GAAP) 29.6% 25.5% 29.2%  50.3%  28.2% 40.8% 29.1%  30.3%
                    
Total underwriting expenses $429,257  $64,945  $494,202   $46,576   $396,831  $44,796  $441,627   $7,435 
Less: Loss and loss adjustment expense 255,165  33,519  288,684   13,575   251,418  18,250  269,668   5,351 
Less: Ceding commission income (2,615) 267  (2,348)  14,498   668    668   37 
Less: Service and fee income 51,193  19,660  70,853   1,248   31,356  14,516  45,872   22 
Less: Non-cash impairment of goodwill                   
Less: Non-cash amortization of intangible assets 1,727  1,005  2,732   1,355   1,565  916  2,481   353 
Operating expense before amortization and impairment 123,787  10,494  134,281   15,900   111,824  11,114  122,938   1,672 
Net earned premium $423,858  $45,107  $468,965   $34,296   $402,246  $29,468  $431,714   $6,692 
Operating expense ratio before amortization and impairment (Non-GAAP) 29.2% 23.3% 28.6%  46.4%  27.8% 37.7% 28.5%  25.0%


 
  Nine Months Ended September 30,   
  2015  2014
  P&C A&H NGHC  Reciprocal
Exchanges
  P&C A&H NGHC  Reciprocal
Exchanges
Total underwriting expenses $1,275,946  $162,267  $1,438,213   $126,622   $1,082,718  $141,909  $1,224,627   $7,435 
Less: Loss and loss adjustment expense 759,198  79,752  838,950   56,824   691,856  58,763  750,619   5,351 
Less: Ceding commission income (2,069) 820  (1,249)  28,449   7,595    7,595   37 
Less: Service and fee income 146,098  54,751  200,849   2,990   76,418  44,646  121,064   22 
Operating expense 372,719  26,944  399,663   38,359   306,849  38,500  345,349   2,025 
Net earned premium $1,240,253  $112,549  $1,352,802   $98,440   $1,091,088  $89,944  $1,181,032   $6,692 
Operating expense ratio (Non-GAAP) 30.1% 23.9% 29.5%  39.0%  28.1% 42.8% 29.2%  30.3%
                    
Total underwriting expenses $1,275,946  $162,267  $1,438,213   $126,622   $1,082,718  $141,909  $1,224,627   $7,435 
Less: Loss and loss adjustment expense 759,198  79,752  838,950   56,824   691,856  58,763  750,619   5,351 
Less: Ceding commission income (2,069) 820  (1,249)  28,449   7,595    7,595   37 
Less: Service and fee income 146,098  54,751  200,849   2,990   76,418  44,646  121,064   22 
Less: Non-cash impairment of goodwill                   
Less: Non-cash amortization of intangible assets 5,479  2,936  8,415   5,221   3,181  5,253  8,434   353 
Operating expense before amortization and impairment 367,240  24,008  391,248   33,138   303,668  33,247  336,915   1,672 
Net earned premium $1,240,253  $112,549  $1,352,802   $98,440   $1,091,088  $89,944  $1,181,032   $6,692 
Operating expense ratio before amortization and impairment (Non-GAAP) 29.6% 21.3% 28.9%  33.7%  27.8% 37.0% 28.5%  25.0%


 
Premiums by Business Line
$ in thousands
(Unaudited)
 
  Three Months Ended September 30,
  Gross Written Premium  Net Written Premium  Net Earned Premium
   2015   2014  Change   2015   2014  Change   2015   2014  Change
Property & Casualty                    
  Personal Auto $307,799   $315,672    (2.5)%  $257,432   $273,922    (6.0)%  $251,754   $268,155    (6.1)%
  Homeowners 103,423  74,583   38.7%  105,028  57,105   83.9%  92,283  58,730   57.1%
  RV/Packaged 40,447  39,490   2.4%  40,113  38,900   3.1%  38,489  38,885   (1.0)%
  Commercial Auto 48,052  35,619   34.9%  43,502  32,249   34.9%  39,440  31,920   23.6%
  Other 3,506  4,509   (22.2)%  2,065  4,523   (54.3)%  1,892  4,556   (58.5)%
Property & Casualty Total 503,227  469,873   7.1%  448,140  406,699   10.2%  423,858  402,246   5.4%
                     
Accident & Health 43,594  17,729   145.9%  33,849  17,666   91.6%  45,107  29,468   53.1%
Total National General 546,821  487,602   12.1%  481,989  424,365   13.6%  468,965  431,714   8.6%
                     
Reciprocal Exchanges                    
  Personal Auto 24,177  4,330  NA  (3,516) 4,063  NA  14,494  4,043  NA
  Homeowners 48,229  5,013  NA  46,902  2,636  NA  17,105  2,221  NA
  Other 7,458  650  NA  264  506  NA  2,697  428  NA
Reciprocal Exchanges Total 79,864  9,993  NA  43,650  7,205  NA  34,296  6,692  NA
Consolidated Total $626,685  $497,595   25.9%  $525,639  $431,570   21.8%  $503,261  $438,406   14.8%


  Nine Months Ended September 30,
  Gross Written Premium  Net Written Premium  Net Earned Premium
   2015   2014  Change   2015   2014  Change   2015   2014  Change
Property & Casualty                    
  Personal Auto $936,397   $953,010    (1.7)%  $805,081   $795,511    1.2%  $786,397   $719,483    9.3%
  Homeowners 265,685  290,667   (8.6)%  250,874  273,190   (8.2)%  219,633  165,507   32.7%
  RV/Packaged 121,093  120,183   0.8%  119,781  115,263   3.9%  112,041  109,746   2.1%
  Commercial Auto 139,880  107,173   30.5%  127,753  96,009   33.1%  111,491  84,841   31.4%
  Other 15,117  13,311   13.6%  11,749  12,820   (8.4)%  10,691  11,511   (7.1)%
Property & Casualty Total 1,478,172  1,484,344   (0.4)%  1,315,238  1,292,793   1.7%  1,240,253  1,091,088   13.7%
                     
Accident & Health 153,409  117,873   30.1%  126,783  117,613   7.8%  112,549  89,944   25.1%
Total National General 1,631,581  1,602,217   1.8%  1,442,021  1,410,406   2.2%  1,352,802  1,181,032   14.5%
                     
Reciprocal Exchanges                    
  Personal Auto 67,641  4,330  NA  38,619  4,063  NA  60,965  4,043  NA
  Homeowners 128,951  5,013  NA  40,079  2,636  NA  26,991  2,221  NA
  Other 21,238  650  NA  14,355  506  NA  10,484  428  NA
Reciprocal Exchanges Total 217,830  9,993  NA  93,053  7,205  NA  98,440  6,692  NA
Consolidated Total $1,845,821  $1,612,210   14.5%  $1,535,074  $1,417,611   8.3%  $1,451,242  $1,187,724   22.2%
                                       

NOTE: Consolidated Total includes elimination of $(3,590) within Gross Written Premium for Nine Months Ended September 30, 2015.

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 (other than LSC Entities), 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 $1,621,363, $276,302, $1,897,665 at September 30, 2015 and $1,330,760, $222,121, $1,522,881 at December 31, 2014).

(3) Equity securities, available-for-sale, at fair value (cost $67,113, $1,501, $68,614 at September 30, 2015 and $52,272, $2,752, $55,024 at December 31, 2014).

(4) Securities pledged (amortized cost $42,806, $0, $42,806 at September 30, 2015 and $47,546, $0, $47,546 at December 31, 2014).

(5) Premiums and other receivables, net (NGHC) includes $68,219 and $64,129 from related parties at September 30, 2015 and December 31, 2014, respectively.

(6)  Reinsurance recoverable on unpaid losses (NGHC) includes $54,458 and $88,970 from related parties at September 30, 2015 and December 31, 2014, respectively.

(7) Reinsurance payable (NGHC) includes $26,779 and $41,965 to related parties at September 30, 2015 and December 31, 2014, respectively.

(8) Accounts payable and accrued expenses (NGHC) includes $45,707 and $38,576 to related parties at September 30, 2015 and December 31, 2014, respectively.

(9) Notes payable (Reciprocal Exchanges) includes $54,455 and $48,374 owed to related party at September 30, 2015 and December 31, 2014, respectively.

(10) Common stock: $0.01 par value - authorized 150,000,000 shares, issued and outstanding 105,433,893 shares - September 30, 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 2,365,000 shares and 2,200,000 shares at September 30, 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.

 

Investor Contact
Dean Evans
Director of Investor Relations
Phone: 212-380-9462
Email: Dean.Evans@NGIC.com