National General
11/02/16
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National General Holdings Corp. Reports Third Quarter 2016 Results

NEW YORK, Nov. 02, 2016 (GLOBE NEWSWIRE) -- National General Holdings Corp. (NASDAQ:NGHC) today reported third quarter 2016 net income of $19.9 million or $0.18 per diluted share, compared to $39.0 million or $0.38 per diluted share in the third quarter of 2015. Third quarter 2016 operating earnings(1) was $33.6 million or $0.31 per diluted share, compared to $44.1 million or $0.43 per diluted share in the third quarter of 2015.

Third Quarter 2016 Highlights Versus Third Quarter 2015*

Barry Karfunkel, National General's President and CEO, stated: "Our third quarter results reflect strong top line momentum, both from organic opportunities that we are seeing in the market and the benefit of recently closed acquisitions.  Since we last reported earnings, we have closed on our acquisitions of both Standard Mutual, which further expands our packaged home and auto offerings in Illinois and Indiana, and Direct General, which adds a direct marketing distribution channel to our core non-standard auto business and expands our presence in this product line in the Southeast.  Our acquisition pipeline remains active, as we are at a point in the cycle where some competitors are having difficulty maintaining profitability and lack the technological capabilities to compete effectively in a challenging market.  This dislocation is also benefiting us organically.  As always, we will remain opportunistic in our deal selection process."

*NOTE: Unless specified otherwise, discussion of our third 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 Third Quarter 2016 as Compared to Third Quarter 2015

Gross written premium grew 55.7% to $851.4 million, net written premium grew 59.2% to $767.3 million, and net earned premium grew 56.6% to $734.3 million. Premium growth was driven by several key factors: underlying organic growth within our P&C segment, continued expansion of our A&H segment, additional premiums from the acquisition of Century-National which closed on June 1, 2016, the National General Lender Services (formerly QBE Lender-Placed Insurance) and Assurant Health transactions which both closed on October 1, 2015, 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 49.1% to $105.6 million, driven by added service and fee income from our recently completed transactions, primarily National General Lender Services and Assurant Health, and underlying growth within our A&H segment.

Excluding non-cash amortization of intangible assets, the combined ratio(10,14) was 94.6% with a loss ratio of 67.0% and an expense ratio(10, 13) of 27.6%, compared to a prior year combined ratio of 90.2% with a loss ratio of 61.6% and an expense ratio of 28.6%.

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

Investment income grew 63.4% to $26.4 million, reflecting an increase in the size of our investment portfolio as compared to the prior year's quarter. Third quarter 2016 results included $11.1 million of net realized and unrealized investment gain compared with a gain of $1.3 million in the third quarter of 2015. The third quarter of 2016 included $22.1 million of other-than-temporary impairment losses versus $6.0 million in the prior year's quarter. Total investments and cash equivalents were $3.6 billion as of September 30, 2016. Accumulated other comprehensive income increased to $67.4 million at September 30, 2016 from $44.7 million at June 30, 2016.

Interest expense was $10.5 million, up from $5.8 million in the prior year's quarter due to an increased amount of debt on our balance sheet. Debt was $675.5 million at September 30, 2016, up from $347.0 million at September 30, 2015 as a result of our October 2015 issuance of $100.0 million of senior unsecured notes, our May 2016 borrowing of $50.0 million under our credit facility, and our June 2016 promissory note of $178.9 million for the acquisition of Century-National.

Equity in earnings of unconsolidated subsidiaries (predominantly our investment in Life Settlement Entities and Real Estate investments) was a $3.0 million gain in the third quarter of 2016 versus a $2.3 million gain in the prior year's quarter, reflecting fair value adjustments on life settlement contracts and income from our real estate investments.

The third quarter of 2016 provision for income taxes was $9.1 million and the effective tax rate for the quarter was 26.5%. Included in the third quarter of 2016 provision for income taxes was a $1.6 million benefit attributable to a reduction of the deferred tax liability associated with the equalization reserves of our Luxembourg Reinsurance Companies (LRC). As of September 30, 2016, the remaining deferred tax liability associated with our LRC was $2.9 million.

National General Holding Corp.'s shareholders' equity was $1,912.9 million at September 30, 2016, growth of 25.7% from $1,521.9 million at September 30, 2015. Fully diluted book value per share was $13.76 at September 30, 2016, growth of 14.1% from $12.06 at September 30, 2015. Our trailing twelve month operating return on average equity (ROE)(15) was 12.6% as of September 30, 2016.

Year-to-Date P&C Segment Notable Large Losses ($ million)
 
   P&C Notable Large
Losses and ALAE
 P&C Loss Ratio
Points*
 EPS Impact After
Tax
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

Conference Call

On Thursday, November 3, 2016 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: 888-267-2860
International Dial-in: 973-413-6102
Conference Entry Code: 870411
Webcast Registration: http://ir.nationalgeneral.com/events.cfm
   

A replay of the conference call will be accessible from 2:00 PM ET on Thursday, November 3, 2016 to 11:59 PM ET on Thursday, November 10, 2016 by dialing either 800-332-6854 (toll-free) within the U.S. or 973-528-0005 outside the U.S. and entering passcode 870411. 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, our ability to accurately underwrite and price our products and to maintain and establish accurate loss reserves, 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 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 - Third Quarter
$ in thousands
(Unaudited)
 
  Three Months Ended September 30, 
  2016  2015 
  NGHC Reciprocal Exchanges Consolidated  NGHC Reciprocal Exchanges Consolidated 
Revenues:              
Gross written premium $851,371  $80,978  $931,459 (A) $546,821  $79,864  $626,685  
Ceded premiums (84,052) (41,912) (125,074)(B) (64,832) (36,214) (101,046) 
Net written premium 767,319  39,066  806,385   481,989  43,650  525,639  
Net earned premium 734,343  35,507  769,850   468,965  34,296  503,261  
               
Ceding commission income/(loss) 2,136  12,461  14,597   (2,348) 14,498  12,150  
Service and fee income 105,636  1,360  95,662 (C) 70,853  1,248  60,907 (I)
Net investment income 26,368  3,405  27,676 (D) 16,140  2,332  18,472  
Net gain on investments 11,053  96  11,149   1,291  124  1,415  
Other-than-temporary impairment loss (22,102)   (22,102)  (6,009)   (6,009) 
Other revenue (expense) (56)   (56)  (157)   (157) 
Total revenues $857,378  $52,829  $896,776 (E) $548,735  $52,498  $590,039 (J)
               
Expenses:              
Loss and loss adjustment expense $491,948  $17,905  $509,853   $288,684  $13,575  $302,259  
Acquisition costs and other underwriting expenses 135,057  5,683  140,740   98,686  10,095  108,744 (K)
General and administrative expenses 185,615  24,456  198,737 (F) 106,832  22,906  118,581 (L)
Interest expense 10,455  2,097  10,455 (G) 5,844  3,584  9,428  
Total expenses $823,075  $50,141  $859,785 (H) $500,046  $50,160  $539,012 (M)
               
Income before provision/(benefit) for income taxes and equity in earnings of unconsolidated subsidiaries $34,303  $2,688  $36,991   $48,689  $2,338  $51,027  
Provision/(benefit) for income taxes 9,090  (285) 8,805   7,840  774  8,614  
Income before equity in earnings of unconsolidated subsidiaries 25,213  2,973  28,186   40,849  1,564  42,413  
Equity in earnings of unconsolidated subsidiaries 2,953    2,953   2,288    2,288  
Net income before non-controlling interest and dividends on preferred shares 28,166  2,973  31,139   43,137  1,564  44,701  
Less: net income attributable to non-controlling interest 36  2,973  3,009   24  1,564  1,588  
Net income before dividends on preferred shares 28,130    28,130   43,113    43,113  
Less: dividends on preferred shares 8,208    8,208   4,125    4,125  
Net income available to common stockholders $19,922  $  $19,922   $38,988  $  $38,988  
                           

NOTE: Consolidated column includes eliminations as follows: (A) $(890), (B) $890, (C) $(11,334), (D) $(2,097), (E) $(13,431), (F) $(11,334), (G) $(2,097), (H) $(13,431), (I) $(11,194), (J) $(11,194), (K) $(37), (L) $(11,157), and (M) $(11,194).


Income Statement - Year to Date
$ in thousands
(Unaudited)
 
  Nine Months Ended September 30, 
  2016  2015 
  NGHC Reciprocal Exchanges Consolidated (1)  NGHC Reciprocal Exchanges Consolidated 
Revenues:              
Gross written premium $2,441,613  $158,148  $2,598,160 (A) $1,631,581  $217,830  $1,845,821 (J)
Ceded premiums (231,388) (79,952) (309,739)(B) (189,560) (124,777) (310,747)(K)
Net written premium 2,210,225  78,196  2,288,421   1,442,021  93,053  1,535,074  
Net earned premium 2,066,175  71,535  2,137,710   1,352,802  98,440  1,451,242  
               
Ceding commission income/(loss) (2,964) 27,370  24,406   (1,249) 28,449  27,200  
Service and fee income 302,209  2,555  282,623 (C) 200,849  2,990  173,335 (L)
Net investment income 75,399  5,653  76,874 (D) 46,403  6,552  52,955  
Net gain on investments 18,911  237  19,148   5,203  271  5,474  
Other-than-temporary impairment loss (22,102)   (22,102)  (8,492)   (8,492) 
Other revenue (expense) 258    258   (327)   (327) 
Total revenues $2,437,886  $107,350  $2,518,917 (E) $1,595,189  $136,702  $1,701,387 (M)
               
Expenses:              
Loss and loss adjustment expense $1,355,620  $35,641  $1,391,261   $838,950  $56,824  $895,774  
Acquisition costs and other underwriting expenses 356,343  6,176  362,513 (F) 274,227  20,967  295,131 (N)
General and administrative expenses 538,902  49,717  566,484 (G) 325,036  48,831  343,426 (O)
Interest expense 28,535  4,178  28,535 (H) 16,031  11,078  27,109  
Total expenses $2,279,400  $95,712  $2,348,793 (I) $1,454,244  $137,700  $1,561,440 (P)
               
Income (loss) before provision/(benefit) for income taxes and equity in earnings of unconsolidated subsidiaries $158,486  $11,638  $170,124   $140,945  $(998) $139,947  
Provision/(benefit) for income taxes 41,998  (559) 41,439   25,369  (477) 24,892  
Income (loss) before equity in earnings of unconsolidated subsidiaries 116,488  12,197  128,685   115,576  (521) 115,055  
Equity in earnings of unconsolidated subsidiaries 16,991    16,991   8,900    8,900  
Net income (loss) before non-controlling interest and dividends on preferred shares 133,479  12,197  145,676   124,476  (521) 123,955  
Less: net income (loss) attributable to non-controlling interest 52  12,197  12,249   68  (521) (453) 
Net income before dividends on preferred shares 133,427    133,427   124,408    124,408  
Less: dividends on preferred shares 16,458    16,458   9,900    9,900  
Net income available to common stockholders $116,969  $  $116,969   $114,508  $  $114,508  
                           

NOTES: Consolidated column includes eliminations as follows: (A) $(1,601), (B) $1,601, (C) $(22,141), (D) $(4,178), (E) $(26,319), (F) $(6), (G) $(22,135), (H) $(4,178), (I) $(26,319), (J) $(3,590), (K) $3,590, (L) $(30,504), (M) $(30,504), (N) $(63), (O) $(30,441), and (P) $(30,504).

(1) Consolidated column for the nine months ended September 30, 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 September 30,  Nine Months Ended September 30,
 2016 2015  2016 2015
Net income available to common stockholders$19,922  $38,988   $116,969  $114,508 
Basic net income per common share$0.19  $0.39   $1.11  $1.19 
Diluted net income per common share$0.18  $0.38   $1.08  $1.16 
         
Operating earnings attributable to NGHC(1)$33,590  $44,051   $133,740  $123,199 
Basic operating earnings per common share(1)$0.32  $0.44   $1.26  $1.28 
Diluted operating earnings per common share(1)$0.31  $0.43   $1.24  $1.25 
         
Dividends declared per common share$0.04  $0.02   $0.10  $0.06 
         
Weighted average number of basic shares outstanding106,002,337  100,360,687   105,801,817  95,877,178 
Weighted average number of diluted shares outstanding108,423,998  102,940,728   108,053,177  98,314,808 
Shares outstanding, end of period106,088,008  105,433,893   106,088,008  105,433,893 
Fully diluted shares outstanding, end of period108,509,669  107,983,933   108,339,368  107,841,523 
         
Book value per share$14.07  $12.35   $14.07  $12.35 
Fully diluted book value per share$13.76  $12.06   $13.78  $12.07 
                 



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,
 2016 2015  2016 2015
         
Net income available to common stockholders$19,922  $38,988   $116,969  $114,508 
Add (subtract) net of tax:        
Net realized and unrealized gain on investments(7,184) (839)  (12,292) (3,382)
Other-than-temporary impairment losses14,366  3,906   14,366  5,520 
Foreign exchange (gain)/loss36  152   (115) 935 
Equity in (earnings)/losses of unconsolidated subsidiaries (other than LSC Entities and Real Estate investments)(2) 69   6  149 
Non-cash amortization of intangible assets6,452  1,775   14,806  5,469 
Operating earnings attributable to NGHC (1)$33,590  $44,051   $133,740  $123,199 
         
Operating earnings per common share:        
Basic operating earnings per common share$0.32  $0.44   $1.26  $1.28 
Diluted operating earnings per common share$0.31  $0.43   $1.24  $1.25 
                 


Balance Sheets
$ in thousands
 
  September 30, 2016 (unaudited)  December 31, 2015 (audited)
ASSETS NGHC Reciprocal Exchanges Consolidated  NGHC Reciprocal Exchanges Consolidated
Total investments $3,360,497  $298,616  $3,570,141 (A) $2,425,168  $242,542  $2,667,710 
Cash and cash equivalents 194,544  21,830  216,374   273,884  8,393  282,277 
Premiums and other receivables, net (2) 867,315  56,443  923,758   702,439  56,194  758,633 
Reinsurance recoverable on unpaid losses (3) 872,263  45,445  917,708   794,091  39,085  833,176 
Intangible assets, net 347,973  18,229  366,202   344,073  4,825  348,898 
Goodwill 211,702    211,702   112,414    112,414 
Other 573,656  96,575  651,543 (B) 459,619  100,665  560,284 
Total assets $6,427,950  $537,138  $6,857,428 (C) $5,111,688  $451,704  $5,563,392 
LIABILITIES AND STOCKHOLDERS' EQUITY             
Liabilities:             
Unpaid loss and loss adjustment expense reserves $1,946,113  $140,821  $2,086,934   $1,623,232  $132,392  $1,755,624 
Unearned premiums 1,313,124  156,042  1,469,166   1,046,313  146,186  1,192,499 
Reinsurance payable (4) 80,293  20,415  100,708   54,815  14,357  69,172 
Accounts payable and accrued expenses (5) 318,543  9,061  323,499 (D) 265,057  19,845  284,902 
Debt (6) 675,507  88,972  675,507 (E) 446,061  45,476  491,537 
Other 181,476  86,951  253,844 (F) 162,189  70,829  233,018 
Total liabilities $4,515,056  $502,262  $4,909,658 (G) $3,597,667  $429,085  4,026,752 
Stockholders' equity:             
Common stock (7) $1,061  $  $1,061   $1,056  $  $1,056 
Preferred stock (8) 420,000    420,000   220,000    220,000 
Additional paid-in capital 905,772    905,772   900,114    900,114 
Accumulated other comprehensive income (loss) 67,430    67,430   (19,414)   (19,414)
Retained earnings 518,418    518,418   412,044    412,044 
Total National General Holdings Corp. stockholders' equity 1,912,681    1,912,681   1,513,800    1,513,800 
Non-controlling interest 213  34,876  35,089   221  22,619  22,840 
Total stockholders' equity $1,912,894  $34,876  $1,947,770   $1,514,021  $22,619  $1,536,640 
Total liabilities and stockholders' equity $6,427,950  $537,138  $6,857,428 (H) $5,111,688  $451,704  $5,563,392 
                          

NOTE: Consolidated column includes eliminations as follows: (A) $(88,972), (B) $(18,688), (C) $(107,660), (D) $(4,105), (E) $(88,972), (F) $(14,583), (G) $(107,660), and (H) $(107,660).


Segment Information - Third Quarter
$ in thousands
(Unaudited)
 
  Three Months Ended September 30,
  2016  2015
  P&C A&H NGHC  Reciprocal Exchanges  P&C A&H NGHC  Reciprocal Exchanges
Gross written premium $753,747  $97,624  $851,371   $80,978   $503,227  $43,594  $546,821   $79,864 
Net written premium 679,944  87,375  767,319   39,066   448,140  33,849  481,989   43,650 
Net earned premium 629,261  105,082  734,343   35,507   423,858  45,107  468,965   34,296 
                    
Ceding commission income/(loss) 1,809  327  2,136   12,461   (2,615) 267  (2,348)  14,498 
Service and fee income 65,478  40,158  105,636   1,360   51,193  19,660  70,853   1,248 
Total underwriting revenues $696,548  $145,567  $842,115   $49,328   $472,436  $65,034  $537,470   $50,042 
                    
Loss and loss adjustment expense 414,801  77,147  491,948   17,905   255,165  33,519  288,684   13,575 
Acquisition costs and other 102,221  32,836  135,057   5,683   81,321  17,365  98,686   10,095 
General and administrative 153,246  32,369  185,615   24,456   92,771  14,061  106,832   22,906 
Total underwriting expenses $670,268  $142,352  $812,620   $48,044   $429,257  $64,945  $494,202   $46,576 
                    
Underwriting income 26,280  3,215  29,495   1,284   43,179  89  43,268   3,466 
Non-cash amortization of intangible assets 8,368  1,559  9,927   7,000   1,727  1,005  2,732   1,355 
Underwriting income before amortization and impairment $34,648  $4,774  $39,422   $8,284   $44,906  $1,094  $46,000   $4,821 
                    
Underwriting ratios                   
Loss and loss adjustment expense ratio (9) 65.9% 73.4% 67.0%  50.4%  60.2% 74.3% 61.6%  39.6%
Operating expense ratio (Non-GAAP) (10,11) 29.9% 23.5% 29.0%  46.0%  29.6% 25.5% 29.2%  50.3%
Combined ratio (Non-GAAP) (10,12) 95.8% 96.9% 96.0%  96.4%  89.8% 99.8% 90.8%  89.9%
                    
Underwriting ratios (before amortization and impairment)                   
Loss and loss adjustment expense ratio (9) 65.9% 73.4% 67.0%  50.4%  60.2% 74.3% 61.6%  39.6%
Operating expense ratio (Non-GAAP) (10,13) 28.6% 22.0% 27.6%  26.2%  29.2% 23.3% 28.6%  46.4%
Combined ratio before amortization and impairment (Non-GAAP) (10,14) 94.5% 95.4% 94.6%  76.6%  89.4% 97.6% 90.2%  86.0%
                            


Segment Information - Year to Date
$ in thousands
(Unaudited)
 
  Nine Months Ended September 30,
  2016  2015
  P&C A&H NGHC  Reciprocal Exchanges (1)  P&C A&H NGHC  Reciprocal Exchanges
Gross written premium $2,086,241  $355,372  $2,441,613   $158,148   $1,478,172  $153,409  $1,631,581   $217,830 
Net written premium 1,888,660  321,565  2,210,225   78,196   1,315,238  126,783  1,442,021   93,053 
Net earned premium 1,758,311  307,864  2,066,175   71,535   1,240,253  112,549  1,352,802   98,440 
                    
Ceding commission income/(loss) (4,019) 1,055  (2,964)  27,370   (2,069) 820  (1,249)  28,449 
Service and fee income 189,739  112,470  302,209   2,555   146,098  54,751  200,849   2,990 
Total underwriting revenues $1,944,031  $421,389  $2,365,420   $101,460   $1,384,282  $168,120  $1,552,402   $129,879 
                    
Loss and loss adjustment expense 1,123,353  232,267  1,355,620   35,641   759,198  79,752  838,950   56,824 
Acquisition costs and other 275,171  81,172  356,343   6,176   233,951  40,276  274,227   20,967 
General and administrative 445,053  93,849  538,902   49,717   282,797  42,239  325,036   48,831 
Total underwriting expenses $1,843,577  $407,288  $2,250,865   $91,534   $1,275,946  $162,267  $1,438,213   $126,622 
                    
Underwriting income 100,454  14,101  114,555   9,926   108,336  5,853  114,189   3,257 
Non-cash amortization of intangible assets 17,843  4,936  22,779   13,726   5,479  2,936  8,415   5,221 
Underwriting income before amortization and impairment $118,297  $19,037  $137,334   $23,652   $113,815  $8,789  $122,604   $8,478 
                    
Underwriting ratios                   
Loss and loss adjustment expense ratio (9) 63.9% 75.4% 65.6%  49.8%  61.2% 70.9% 62.0%  57.7%
Operating expense ratio (Non-GAAP) (10,11) 30.4% 20.0% 28.8%  36.3%  30.1% 23.9% 29.5%  39.0%
Combined ratio (Non-GAAP) (10,12) 94.3% 95.4% 94.4%  86.1%  91.3% 94.8% 91.5%  96.7%
                                    
Underwriting ratios (before amortization and impairment)                                   
Loss and loss adjustment expense ratio (9) 63.9% 75.4% 65.6%  49.8%  61.2% 70.9% 62.0%  57.7%
Operating expense ratio (Non-GAAP) (10,13) 29.4% 18.4% 27.7%  17.1%  29.6% 21.3% 28.9%  33.7%
Combined ratio before amortization and impairment (Non-GAAP) (10,14)
 93.3% 93.8% 93.3%  66.9%  90.8% 92.2% 90.9%  91.4%
                            

NOTE: (1) Reciprocal Exchanges' column for the nine months ended September 30, 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 September 30,
  2016  2015
  P&C A&H NGHC  Reciprocal Exchanges  P&C A&H NGHC  Reciprocal Exchanges
Total underwriting expenses $670,268  $142,352  $812,620   $48,044   $429,257  $64,945  $494,202   $46,576 
Less: Loss and loss adjustment expense 414,801  77,147  491,948   17,905   255,165  33,519  288,684   13,575 
Less: Ceding commission income/(loss) 1,809  327  2,136   12,461   (2,615) 267  (2,348)  14,498 
Less: Service and fee income 65,478  40,158  105,636   1,360   51,193  19,660  70,853   1,248 
Operating expense 188,180  24,720  212,900   16,318   125,514  11,499  137,013   17,255 
Net earned premium $629,261  $105,082  $734,343   $35,507   $423,858  $45,107  $468,965   $34,296 
Operating expense ratio (Non-GAAP) 29.9% 23.5% 29.0%  46.0%  29.6% 25.5% 29.2%  50.3%
                    
Total underwriting expenses $670,268  $142,352  $812,620   $48,044   $429,257  $64,945  $494,202   $46,576 
Less: Loss and loss adjustment expense 414,801  77,147  491,948   17,905   255,165  33,519  288,684   13,575 
Less: Ceding commission income/(loss) 1,809  327  2,136   12,461   (2,615) 267  (2,348)  14,498 
Less: Service and fee income 65,478  40,158  105,636   1,360   51,193  19,660  70,853   1,248 
Less: Non-cash amortization of intangible assets 8,368  1,559  9,927   7,000   1,727  1,005  2,732   1,355 
Operating expense before amortization and impairment 179,812  23,161  202,973   9,318   123,787  10,494  134,281   15,900 
Net earned premium $629,261  $105,082  $734,343   $35,507   $423,858  $45,107  468,965   34,296 
Operating expense ratio before amortization and impairment (Non-GAAP) 28.6% 22.0% 27.6%  26.2%  29.2% 23.3% 28.6%  46.4%
                            



Reconciliation of Operating Expense Ratio (Non-GAAP)
$ in thousands
(Unaudited)
 
  Nine Months Ended September 30,
  2016  2015
  P&C A&H NGHC  Reciprocal Exchanges  P&C A&H NGHC  Reciprocal Exchanges
Total underwriting expenses $1,843,577  $407,288  $2,250,865   $91,534   $1,275,946  $162,267  $1,438,213   $126,622 
Less: Loss and loss adjustment expense 1,123,353  232,267  1,355,620   35,641   759,198  79,752  838,950   56,824 
Less: Ceding commission income/(loss) (4,019) 1,055  (2,964)  27,370   (2,069) 820  (1,249)  28,449 
Less: Service and fee income 189,739  112,470  302,209   2,555   146,098  54,751  200,849   2,990 
Operating expense 534,504  61,496  596,000   25,968   372,719  26,944  399,663   38,359 
Net earned premium $1,758,311  $307,864  $2,066,175   $71,535   $1,240,253  $112,549  $1,352,802   $98,440 
Operating expense ratio (Non-GAAP) 30.4% 20.0% 28.8%  36.3%  30.1% 23.9% 29.5%  39.0%
                    
Total underwriting expenses $1,843,577  $407,288  $2,250,865   $91,534   $1,275,946  $162,267  $1,438,213   $126,622 
Less: Loss and loss adjustment expense 1,123,353  232,267  1,355,620   35,641   759,198  79,752  838,950   56,824 
Less: Ceding commission income/(loss) (4,019) 1,055  (2,964)  27,370   (2,069) 820  (1,249)  28,449 
Less: Service and fee income 189,739  112,470  302,209   2,555   146,098  54,751  200,849   2,990 
Less: Non-cash amortization of intangible assets 17,843  4,936  22,779   13,726   5,479  2,936  8,415   5,221 
Operating expense before amortization and impairment 516,661  56,560  573,221   12,242   367,240  24,008  391,248   33,138 
Net earned premium $1,758,311  $307,864  $2,066,175   $71,535   $1,240,253  $112,549  $1,352,802   $98,440 
Operating expense ratio before amortization and impairment (Non-GAAP) 29.4% 18.4% 27.7%  17.1%  29.6% 21.3% 28.9%  33.7%
                            


Premiums by Business Line
$ in thousands
(Unaudited)
 
  Three Months Ended September 30,
  Gross Written Premium  Net Written Premium  Net Earned Premium
  2016 2015 Change  2016 2015 Change  2016 2015 Change
Property & Casualty                    
Personal Auto $384,670  $307,799   25.0%  $344,605  $257,432   33.9%  $312,654  $251,754   24.2%
Homeowners 136,437  103,423   31.9%  120,242  105,028   14.5%  100,875  92,283   9.3%
RV/Packaged 42,964  40,447   6.2%  42,705  40,113   6.5%  40,727  38,489   5.8%
Commercial Auto 72,692  48,052   51.3%  66,790  43,502   53.5%  59,791  39,440   51.6%
Lender-placed insurance 105,249     NA   99,824     NA   103,751     NA 
Other 11,735  3,506   234.7%  5,778  2,065   179.8%  11,463  1,892   505.9%
Property & Casualty 753,747  503,227   49.8%  679,944  448,140   51.7%  629,261  423,858   48.5%
                     
Accident & Health 97,624  43,594   123.9%  87,375  33,849   158.1%  105,082  45,107   133.0%
Total National General 851,371  546,821   55.7%  767,319  481,989   59.2%  734,343  468,965   56.6%
                     
Reciprocal Exchanges                    
Personal Auto 25,345  24,177   4.8%  15,047  (3,683)  (508.6)%  13,860  14,494   (4.4)%
Homeowners 53,534  53,836   (0.6)%  22,948  45,686   (49.8)%  20,275  18,404   10.2%
Other 2,099  1,851   13.4%  1,071  1,647   (35.0)%  1,372  1,398   (1.9)%
Reciprocal Exchanges 80,978  79,864   1.4%  39,066  43,650   (10.5)%  35,507  34,296   3.5%
                     
Consolidated Total 931,459  626,685   48.6%  806,385  525,639   53.4%  769,850  503,261   53.0%
                                 

NOTE: Consolidated Total includes eliminations of $(890) and $0 within 2016 and 2015 Gross Written Premium, respectively.


  Nine Months Ended September 30,
  Gross Written Premium  Net Written Premium  Net Earned Premium
  2016 2015 Change  2016 2015 Change  2016 2015 Change
Property & Casualty                    
Personal Auto $1,107,963  $936,397   18.3%  $977,212  $805,081   21.4%  $875,480  $786,397   11.3%
Homeowners 307,455  265,685   15.7%  276,677  250,874   10.3%  256,870  219,633   17.0%
RV/Packaged 129,260  121,093   6.7%  128,582  119,781   7.3%  117,261  112,041   4.7%
Commercial Auto 191,209  139,880   36.7%  174,731  127,753   36.8%  155,105  111,491   39.1%
Lender-placed insurance 325,436     NA   317,206     NA   335,076     NA 
Other 24,918  15,117   64.8%  14,252  11,749   21.3%  18,519  10,691   73.2%
Property & Casualty 2,086,241  1,478,172   41.1%  1,888,660  1,315,238   43.6%  1,758,311  1,240,253   41.8%
                     
Accident & Health 355,372  153,409   131.7%  321,565  126,783   153.6%  307,864  112,549   173.5%
Total National General 2,441,613  1,631,581   49.6%  2,210,225  1,442,021   53.3%  2,066,175  1,352,802   52.7%
                     
Reciprocal Exchanges                    
Personal Auto 48,466  67,641   NA   28,500  38,619   NA   26,840  60,965   NA 
Homeowners 105,170  144,201   NA   46,483  48,235   NA   39,879  33,452   NA 
Other 4,512  5,988   NA   3,213  6,199   NA   4,816  4,023   NA 
Reciprocal Exchanges (1) 158,148  217,830   NA   78,196  93,053   NA   71,535  98,440   NA 
                     
Consolidated Total 2,598,160  1,845,821   40.8%  2,288,421  1,535,074   49.1%  2,137,710  1,451,242   47.3%
                                 

NOTES: Consolidated Total includes eliminations of $(1,601) and $(3,590) within 2016 and 2015 Gross Written Premium, respectively.

(1) Reciprocal Exchanges for the nine months ended September 30, 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 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 and Real Estate investment gains or losses), 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 $19,481 and $62,306 from related parties at September 30, 2016 and December 31, 2015, respectively.

(3) Reinsurance recoverable on unpaid losses includes $33,173 and $42,774 from related parties at September 30, 2016 and December 31, 2015, respectively.

(4) Reinsurance payable includes $38,096 and $31,923 due to related parties at September 30, 2016 and December 31, 2015, respectively.

(5) Accounts payable and accrued expenses includes $27,285 and $51,755 to related parties at September 30, 2016 and December 31, 2015, respectively.

(6) Debt (Exchanges owed to related party) includes $0 and $45,476 at September 30, 2016 and December 31, 2015, respectively.

(7) Common stock: $0.01 par value - authorized 150,000,000 shares, issued and outstanding 106,088,008 shares - September 30, 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 - September 30, 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 expenses 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 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.

(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 expense 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 expense 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