National General
National General Holdings Corp. (Form: 8-K, Received: 08/07/2017 16:16:18)


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 8-K


CURRENT REPORT
Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Date of Report (date of earliest event reported): August 7, 2017

NATIONAL GENERAL HOLDINGS CORP.
(Exact name of registrant as specified in its charter)


Delaware
 
001-36311
 
27-1046208
(State or other jurisdiction
of incorporation or organization)
 
(Commission
File Number)
 
(I.R.S. Employer
Identification Number)

59 Maiden Lane, 38th Floor
New York, New York 10038
(Address of principal executive offices) (zip code)
(212) 380-9500
(Registrant’s telephone number, including area code)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

¨

Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

¨

Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

¨

Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

¨

Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act (§240.12b-2 of this chapter).
 
 
                                            Emerging Growth Company o

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o





Item 2.02    
Results of Operations and Financial Condition
    
On August 7, 2017, National General Holdings Corp. issued a press release announcing its results of operations for the second quarter ended June 30, 2017 and the scheduling of a conference call on August 8, 2017 with respect thereto. A copy of the press release is attached hereto as Exhibit 99.1 and is incorporated herein by reference. The press release is furnished and not filed pursuant to instruction B.2 of Form 8-K.

Item 9.01
Financial Statements And Exhibits.
(d) Exhibits.
Exhibit Number
 
Description
99.1
 
Press release dated August 7, 2017






SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
 
 
 
 
 
NATIONAL GENERAL HOLDINGS CORP.
 
 
 
 
Date: August 7, 2017
 
 
 
By:
 
/s/ Jeffrey Weissmann
 
 
 
 
 
 
Jeffrey Weissmann
 
 
 
 
 
 
General Counsel and Secretary




NGHCLOGOA10.JPG
 
 
                            


National General Holdings Corp. Reports Second Quarter 2017 Results

NEW YORK, August 7, 2017 (GLOBE NEWSWIRE) - National General Holdings Corp. (NASDAQ:NGHC) today reported a second quarter 2017 net loss of $5.1 million or $0.05 per diluted share, compared to net income of $44.3 million or $0.41 per diluted share in the second quarter of 2016 . Second quarter 2017 operating earnings (1) was $11.9 million or $0.11 per diluted share, compared to $46.4 million or $0.43 per diluted share in the second quarter of 2016 .

Second Quarter 2017 Highlights Versus Second Quarter 2016 *
Net written premium grew $242.4 million or 34.7% to $940.8 million , driven by added premiums from the acquisitions of Direct General, Century-National and Standard Property and Casualty Insurance Company, and organic growth within our P&C business of 15.8% , or 23.1% excluding the decline in lender-placed premiums and continued growth of our A&H segment.
The overall combined ratio (10,14) was 96.2% compared to 94.0% in the prior year’s quarter, excluding non-cash amortization of intangible assets. The P&C segment reported an increase in combined ratio to 96.8% from 94.2% in the prior year’s quarter, which was impacted by poor results from National General Lender Services, an increase in estimated losses from first quarter West Coast precipitation and hail events recognized in the second quarter and continued investment in our platform. The A&H segment reported a combined ratio of 93.1% compared to 92.9% in the prior year’s quarter.
Total revenues grew by $291.1 million or 36.2% to $1,095.7 million , primarily driven by the aforementioned premium growth, service and fee income growth of $37.9 million or 38.1% , and net investment income growth of $2.3 million or 8.5% .
Shareholders’ equity was $1.94 billion and fully diluted book value per share was $13.88 at June 30, 2017 , growth of 2.4% and 2.7% , respectively, from December 31, 2016 . Our trailing twelve month operating return on average equity (ROE) (16) was 8.0% as of June 30, 2017 .
Second quarter 2017 operating earnings exclude the following material items, net of tax: $5.4 million or $0.05 per share of net loss on investments and $7.6 million or $0.07 per share of non-cash amortization of intangible assets.
Second quarter 2017 operating earnings include approximately $16.1 million or $0.09 per share of losses related to an increase in estimated loss from first quarter West Coast precipitation and hail events that were recognized in the second quarter and $19.3 million or $0.11 per share loss impacting equity method investments related to losses recorded based on our proportionate share of investments in certain real estate joint ventures.

Barry Karfunkel, National General’s President and CEO, stated: “The results this quarter were disappointing due to the poor performance from National General Lender Services and weather losses impacting our home product.
Within both our home and auto product lines, we continue to experience tremendous organic growth that is meeting our underwriting return hurdles. We expect the opportunity for profitable growth to continue as we have the scale and underwriting sophistication to compete in a largely fragmented market.

Effective July 1, 2017, we entered into two quota share reinsurance agreements with a group of high quality third-party reinsurance providers, a testament to the value placed on the business that we have built.”






*NOTE: Unless specified otherwise, discussion of our second quarter 2017 and 2016 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.

1



Overview of Second Quarter 2017 as Compared to Second Quarter 2016

Gross written premium grew 33.8% to $1,035.6 million , net written premium grew 34.7% to $940.8 million , and net earned premium grew 38.8% to $939.5 million . Premium growth was driven by several key factors: underlying organic growth within our P&C segment, continued growth of our A&H segment, and additional premiums from the acquisitions of Direct General, Century-National, and Standard Property and Casualty Insurance Company.

Service and fee income grew 38.1% to $137.6 million , driven by added service and fee income from our recent completed transactions, primarily the Direct General acquisition which contributed an additional $24.4 million in the quarter and additional fees in our A&H segment.

Excluding non-cash amortization of intangible assets, the combined ratio (10,14,15) was 96.2% with a loss ratio (15) of 72.0% and an expense ratio (10,13,15) of 24.2% , compared to a prior year combined ratio of 94.0% with a loss ratio of 67.2% and an expense ratio of 26.8% . In the current year’s quarter, certain costs associated with claims handling were reclassified from general and administrative expenses to loss adjustment expenses when compared with the previous year’s quarter, resulting in an increase in loss and loss adjustment expense ratio and a decrease in expense ratio in corresponding amounts (15) .

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

Property & Casualty - Gross written premium grew by 34.8% to $904.6 million , net written premium grew by 35.3% to $822.5 million , and net earned premium grew by 39.9% to $804.6 million . P&C net written premium growth was driven by several key factors: organic growth of 15.8% , or 23.1% excluding the decline in lender-placed premiums, $77.9 million from the Direct General acquisition, $12.2 million from the Standard Property and Casualty Insurance Company acquisition and $31.1 million from the Century-National acquisition, partially offset by a decrease in our lender-placed premiums. Service and fee income grew 55.5% to $94.5 million , driven by increased premium volume in the quarter and the addition of service and fee income from acquisitions completed during the prior year, particularly Direct General. Excluding non-cash amortization of intangible assets, the combined ratio (10,14) was 96.8% with a loss ratio of 73.6% and an expense ratio (10,13) of 23.2% , versus a prior year combined ratio of 94.2% with a loss ratio of 65.4% and an expense ratio of 28.8% . The loss ratio was impacted by pre-tax catastrophe losses of approximately $16.1 million related to an increase in estimated loss from first quarter West Coast precipitation and hail events that were recognized in the second quarter. In the current year’s quarter, the reclassification of certain costs associated with claims handling from general and administrative expenses to loss adjustment expenses impacted both the loss and expense ratios by identical amounts (15) .

Accident & Health - Gross written premium grew to $131.0 million , net written premium grew to $118.2 million , and net earned premium grew to $134.9 million , from $102.9 million , $90.4 million , and $101.9 million , respectively, in the prior year’s quarter. The A&H net written premium increase was driven by the continued growth across the entire book. Service and fee income was $43.0 million compared to $38.9 million in the prior year’s quarter. The increase in service and fee income primarily relates to continued growth in our book. Excluding non-cash amortization of intangible assets, the combined ratio (10,14) was 93.1% with a loss ratio of 62.8% and an expense ratio (10,13,15) of 30.3% , versus a prior year combined ratio of 92.9% with a loss ratio of 77.3% and an expense ratio of 15.6% . The improvement in our loss ratio reflects the strong performance across our entire book.

Reciprocal Exchanges - Results for the Reciprocal Exchanges are not included in net income available to NGHC common stockholders. Gross written premium was $99.2 million , net written premium was $51.2 million , and net earned premium was $42.3 million . Reciprocal Exchanges combined ratio (10,14,15) excluding non-cash amortization of intangible assets was 114.4% with a loss ratio of 80.0% and an expense ratio (10,13) of 34.4% , which was elevated by weather events recognized in the second quarter.

2



Investment income grew 8.5% to $29.7 million , reflecting an increase in the size of our investment portfolio as compared to the prior year’s quarter. Second quarter 2017 results included $8.4 million of net investment losses compared to a gain of $3.9 million in the second quarter of 2016 . Total investments and cash and cash equivalents were $3.8 billion as of June 30, 2017 . Accumulated other comprehensive income increased to $32.9 million at June 30, 2017 from $12.7 million at December 31, 2016 .

Interest expense was $11.6 million , up from $8.9 million in the prior year’s quarter due to an increased amount of debt on our balance sheet. Debt was $754.7 million at June 30, 2017 , up from $678.7 million at June 30, 2016 , as a result of debt assumed from our prior acquisitions.

Earnings (losses) of equity investments (predominantly our investment in Life Settlement Entities and alternative investments) was a $18.9 million loss in the second quarter of 2017 versus a $7.4 million gain in the prior year’s quarter.

The second quarter of 2017 provision for income taxes was $5.7 million and the effective tax rate for the quarter was 20.9% compared with incomes taxes of $14.8 million and an effective tax rate of 26.5% in the second quarter of 2016.

National General Holding Corp.’s shareholders’ equity was $1,939.9 million at June 30, 2017 , growth of 2.4% from $1,893.8 million at December 31, 2016 . Fully diluted book value per share was $13.88 at June 30, 2017 , growth of 2.7% from $13.52 at December 31, 2016 . Our trailing twelve month operating return on average equity (ROE) (16) was 8.0% as of June 30, 2017 .

Year-to-Date P&C Segment Notable Large Losses
2017 Quarter
 
 
P&C Notable Large Losses and LAE
($ millions)
 
P&C Loss Ratio Points*
 
EPS Impact After Tax
Q2
Hail event
 
$7.0
 
0.9%
 
$0.04
Q2
Increased Loss Estimate from Q1 West Coast Storms
 
$9.1
 
1.1%
 
$0.05
Q1
West Coast Storms
 
$8.9
 
1.2%
 
$0.05

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


3



Conference Call

On Tuesday , August 8, 2017 at 11:00 AM ET, President and Chief Executive Officer Barry Karfunkel and Chief Financial Officer Mike Weiner will review results and discuss business conditions via a conference call that may be accessed as follows:

Toll-Free U.S. Dial-in:        888-267-2845
International Dial-in:        973-413-6102
Conference Entry Code:         583127
Webcast Registration:         http://ir.nationalgeneral.com/events.cfm

A replay of the conference call will be accessible from 2:00 PM ET on Tuesday , August 8, 2017 to 11:59 PM ET on Tuesday , August 22, 2017 by dialing either 800-332-6854 (toll-free) within the U.S. or 973-528-0005 outside the U.S. and entering passcode 583127 . In addition, a replay of the webcast can also be retrieved at
http://ir.nationalgeneral.com/events.cfm .


About National General Holdings Corp.

National General Holdings Corp., headquartered in New York City, is a specialty personal lines insurance holding company. National General traces its roots to 1939, has a financial strength rating of A- (excellent) from A.M. Best, and provides personal and commercial automobile, homeowners, umbrella, recreational vehicle, motorcycle, lender-placed, supplemental health and other niche insurance products.


4



Forward Looking Statements

This news release contains “forward-looking statements” that are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. The forward-looking statements are based on the Company’s current expectations and beliefs concerning future developments and their potential effects on the Company. Forward-looking statements can generally be identified by the use of forward-looking terminology, such as “may,” “will,” “plan,” “expect,” “project,” “intend,” “estimate,” “anticipate” and “believe” or their variations or similar terminology. There can be no assurance that actual developments will be those anticipated by the Company. Actual results may differ materially from those expressed or implied in these statements as a result of significant risks and uncertainties, including, but not limited to, non-receipt of expected payments from insureds or reinsurers, changes in interest rates, a downgrade in the financial strength ratings of our insurance subsidiaries, the effect of the performance of financial markets on our investment portfolio, our ability to accurately underwrite and price our products and to maintain and establish accurate loss reserves, estimates of the fair value of our life settlement contracts, development of claims and the effect on loss reserves, accuracy in projecting loss reserves, the cost and availability of reinsurance coverage, the effects of emerging claim and coverage issues, changes in the demand for our products, our degree of success in integrating acquired businesses, the effect of general economic conditions, state and federal legislation, regulations and regulatory investigations into industry practices, risks associated with conducting business outside the United States, developments relating to existing agreements, disruptions to our business relationships with AmTrust Financial Services, Inc., ACP Re Ltd., Maiden Holdings, Ltd., or third party agencies, breaches in data security or other disruptions involving our technology, heightened competition, changes in pricing environments, and changes in asset valuations. The forward-looking statements contained in this news release are made only as of the date of this release. The Company undertakes no obligation to publicly update any forward-looking statement except as may be required by law. Additional information about these risks and uncertainties, as well as others that may cause actual results to differ materially from those projected is contained in the Company’s filings with the Securities and Exchange Commission.


5




Income Statement - Second Quarter
$ in thousands
(Unaudited)
 
 
Three Months Ended June 30,
 
 
 
2017
 
 
2016
 
 
 
NGHC
 
Reciprocal Exchanges
 
Consolidated
 
 
NGHC
 
Reciprocal Exchanges
 
Consolidated
 
Revenues:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Gross written premium
 
$
1,035,552

 
$
99,157

 
$
1,133,909

(A)  
 
$
774,048

 
$
77,170

 
$
850,507

(H)  
Net written premium
 
940,757

 
51,243

 
992,000

 
 
698,319

 
39,130

 
737,449

 
Net earned premium
 
939,495

 
42,256

 
981,751

 
 
676,912

 
36,028

 
712,940

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Ceding commission income (loss)
 
3,399

 
18,109

 
21,508

 
 
(3,205
)
 
14,909

 
11,704

 
Service and fee income
 
137,562

 
1,494

 
125,176

(B)  
 
99,629

 
1,195

 
90,017

(I)  
Net investment income
 
29,680

 
2,147

 
29,446

(C)  
 
27,361

 
2,248

 
27,528

(J)  
Net gain (loss) on investments
 
(8,362
)
 
6,187

 
(2,175
)
 
 
3,854

 
141

 
3,995

 
Other income (expense)
 
(6,098
)
 

 
(6,098
)
 
 

 

 

 
Total revenues
 
$
1,095,676

 
$
70,193

 
$
1,149,608

(D)  
 
$
804,551

 
$
54,521

 
$
846,184

(K)  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Expenses:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Loss and loss adjustment expense
 
$
676,587

 
$
33,820

 
$
710,407

 
 
$
454,622

 
$
17,736

 
$
472,358

 
Acquisition costs and other underwriting expenses
 
173,255

 
15,540

 
188,795

 
 
108,387

 
493

 
108,874

(L)  
General and administrative expenses
 
206,865

 
18,509

 
211,494

(E)  
 
176,660

 
25,261

 
191,120

(M)  
Interest expense
 
11,550

 
2,381

 
11,550

(F)  
 
8,939

 
2,081

 
8,939

(N)  
Total expenses
 
$
1,068,257

 
$
70,250

 
$
1,122,246

(G)  
 
$
748,608

 
$
45,571

 
$
781,291

(O)  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Income (loss) before provision (benefit) for income taxes and earnings (losses) of equity method investments
 
$
27,419

 
$
(57
)
 
$
27,362

 
 
$
55,943

 
$
8,950

 
$
64,893

 
Provision (benefit) for income taxes
 
5,740

 
72

 
5,812

 
 
14,825

 
(274
)
 
14,551

 
Income (loss) before earnings (losses) of equity method investments
 
21,679

 
(129
)
 
21,550

 
 
41,118

 
9,224

 
50,342

 
Earnings (losses) of equity method investments
 
(18,915
)
 

 
(18,915
)
 
 
7,356

 

 
7,356

 
Net income (loss) before non-controlling interest and dividends on preferred shares
 
2,764

 
(129
)
 
2,635

 
 
48,474

 
9,224

 
57,698

 
Less: net income (loss) attributable to non-controlling interest
 
(30
)
 
(129
)
 
(159
)
 
 
4

 
9,224

 
9,228

 
Net income before dividends on preferred shares
 
2,794

 

 
2,794

 
 
48,470

 

 
48,470

 
Less: dividends on preferred shares
 
7,875

 

 
7,875

 
 
4,125

 

 
4,125

 
Net income (loss) available to common stockholders
 
$
(5,081
)
 
$

 
$
(5,081
)
 
 
$
44,345

 
$

 
$
44,345

 

NOTES :
Consolidated column includes eliminations as follows: (A) $(800) , (B) $(13,880) , (C) $(2,381) , (D) $(16,261) , (E) $(13,880) , (F) $(2,381) , (G) $(16,261) , (H) $(711) , (I) $(10,807) , (J) $(2,081) , (K) $(12,888) , (L) $(6) , (M) $(10,801) , (N) $(2,081) and (O) $(12,888) .









6




Income Statement - Year to Date
$ in thousands
(Unaudited)
 
 
Six Months Ended June 30,
 
 
 
2017
 
 
2016 (1)
 
 
 
NGHC
 
Reciprocal Exchanges
 
Consolidated
 
 
NGHC
 
Reciprocal Exchanges
 
Consolidated
 
Revenues:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Gross written premium
 
$
2,209,206

 
$
181,373

 
$
2,388,978

(A)  
 
$
1,590,242

 
$
77,170

 
$
1,666,701

(H)  
Net written premium
 
2,025,795

 
92,944

 
2,118,739

 
 
1,442,906

 
39,130

 
1,482,036

 
Net earned premium
 
1,820,634

 
81,288

 
1,901,922

 
 
1,331,832

 
36,028

 
1,367,860

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Ceding commission income (loss)
 
6,146

 
35,356

 
41,502

 
 
(5,100
)
 
14,909

 
9,809

 
Service and fee income
 
273,425

 
3,574

 
251,118

(B)  
 
196,573

 
1,195

 
186,961

(I)  
Net investment income
 
55,449

 
5,031

 
55,836

(C)  
 
49,031

 
2,248

 
49,198

(J)  
Net gain (loss) on investments
 
(7,874
)
 
6,187

 
(1,687
)
 
 
8,172

 
141

 
8,313

 
Other income (expense)
 
3,703

 

 
3,703

 
 

 

 

 
Total revenues
 
$
2,151,483

 
$
131,436

 
$
2,252,394

(D)  
 
$
1,580,508

 
$
54,521

 
$
1,622,141

(K)  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Expenses:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Loss and loss adjustment expense
 
$
1,264,812

 
$
61,920

 
$
1,326,732

 
 
$
863,672

 
$
17,736

 
$
881,408

 
Acquisition costs and other underwriting expenses
 
334,376

 
29,720

 
364,096

 
 
221,286

 
493

 
221,773

(L)  
General and administrative expenses
 
448,948

 
43,612

 
466,679

(E)  
 
353,287

 
25,261

 
367,747

(M)  
Interest expense
 
23,095

 
4,644

 
23,095

(F)  
 
18,080

 
2,081

 
18,080

(N)  
Total expenses
 
$
2,071,231

 
$
139,896

 
$
2,180,602

(G)  
 
$
1,456,325

 
$
45,571

 
$
1,489,008

(O)  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Income (loss) before provision (benefit) for income taxes and earnings (losses) of equity method investments
 
$
80,252

 
$
(8,460
)
 
$
71,792

 
 
$
124,183

 
$
8,950

 
$
133,133

 
Provision (benefit) for income taxes
 
21,506

 
(2,176
)
 
19,330

 
 
32,908

 
(274
)
 
32,634

 
Income (loss) before earnings (losses) of equity method investments
 
58,746

 
(6,284
)
 
52,462

 
 
91,275

 
9,224

 
100,499

 
Earnings (losses) of equity method investments
 
(13,961
)
 

 
(13,961
)
 
 
14,038

 

 
14,038

 
Net income (loss) before non-controlling interest and dividends on preferred shares
 
44,785

 
(6,284
)
 
38,501

 
 
105,313

 
9,224

 
114,537

 
Less: net income (loss) attributable to non-controlling interest
 

 
(6,284
)
 
(6,284
)
 
 
16

 
9,224

 
9,240

 
Net income before dividends on preferred shares
 
44,785

 

 
44,785

 
 
105,297

 

 
105,297

 
Less: dividends on preferred shares
 
15,750

 

 
15,750

 
 
8,250

 

 
8,250

 
Net income available to common stockholders
 
$
29,035

 
$

 
$
29,035

 
 
$
97,047

 
$

 
$
97,047

 

NOTES :
(1) The Reciprocal Exchanges did not meet the criteria for consolidation under GAAP for the Three Months Ended March 31, 2016 .

Consolidated column includes eliminations as follows: (A) $(1,601) , (B) $(25,881) , (C) $(4,644) , (D) $(30,525) , (E) $(25,881) , (F) $(4,644) , (G) $(30,525) , (H) $(711) , (I) $(10,807) , (J) $(2,081) , (K) $(12,888) , (L) $(6) , (M) $(10,801) , (N) $(2,081) and (O) $(12,888) .


7




Earnings and Per Share Data
$ in thousands, except shares and per share data
(Unaudited)
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
2017
 
2016
 
2017
 
2016
Net income (loss) available to common stockholders
 
$
(5,081
)
 
$
44,345

 
$
29,035

 
$
97,047

Basic net income (loss) per common share
 
$
(0.05
)
 
$
0.42

 
$
0.27

 
$
0.92

Diluted net income (loss) per common share
 
$
(0.05
)
 
$
0.41

 
$
0.27

 
$
0.90

 
 
 
 
 
 
 
 
 
Operating earnings attributable to NGHC (1)
 
$
11,864

 
$
46,416

 
$
53,149

 
$
100,150

Basic operating earnings per common share (1)
 
$
0.11

 
$
0.44

 
$
0.50

 
$
0.95

Diluted operating earnings per common share (1)
 
$
0.11

 
$
0.43

 
$
0.49

 
$
0.93

 
 
 
 
 
 
 
 
 
Dividends declared per common share
 
$
0.04

 
$
0.03

 
$
0.08

 
$
0.06

 
 
 
 
 
 
 
 
 
Weighted average number of basic shares outstanding
 
106,560,000

 
105,803,802

 
106,514,396

 
105,700,682

Weighted average number of diluted shares outstanding
 
109,447,812

 
108,197,897

 
109,364,273

 
107,987,406

Shares outstanding, end of period
 
106,607,110

 
105,932,281

 
106,607,110

 
105,932,281

Fully diluted shares outstanding, end of period
 
109,507,711

 
108,326,376

 
109,507,711

 
108,219,006

 
 
 
 
 
 
 
 
 
Book value per share
 
$
14.26

 
$
13.75

 
$
14.26

 
$
13.75

Fully diluted book value per share
 
$
13.88

 
$
13.45

 
$
13.88

 
$
13.46



Reconciliation of Net Income to Operating Earnings (Non-GAAP)
$ in thousands, except per share data
(Unaudited)
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
2017
 
2016
 
2017
 
2016
 
 
 
 
 
 
 
 
 
Net income (loss) available to common stockholders
 
$
(5,081
)
 
$
44,345

 
$
29,035

 
$
97,047

Add (subtract):
 
 
 
 
 
 
 
 
Net (gain) loss on investments
 
8,362

 
(3,854
)
 
7,874

 
(8,172
)
Bargain purchase gain
 
6,098

 

 
(3,703
)
 

Equity in (earnings) losses of unconsolidated subsidiaries (other than LSC investment and certain Real Estate investments)
 
(82
)
 
(148
)
 
(100
)
 
13

Non-cash amortization of intangible assets
 
11,690

 
7,188

 
33,027

 
12,852

Income tax at 35%
 
(9,123
)
 
(1,115
)
 
(12,984
)
 
(1,590
)
Operating earnings attributable to NGHC (1)
 
$
11,864

 
$
46,416

 
$
53,149

 
$
100,150

 
 
 
 
 
 
 
 
 
Operating earnings per common share:
 
 
 
 
 
 
 
 
Basic operating earnings per common share
 
$
0.11

 
$
0.44

 
$
0.50

 
$
0.95

Diluted operating earnings per common share
 
$
0.11

 
$
0.43

 
$
0.49

 
$
0.93


8




Balance Sheet
$ in thousands
 
 
June 30, 2017 (unaudited)
 
 
December 31, 2016 (audited)
 
ASSETS
 
NGHC
 
Reciprocal Exchanges
 
Consolidated
 
 
NGHC
 
Reciprocal Exchanges
 
Consolidated
 
Total investments (2)
 
$
3,606,723

 
$
389,017

 
$
3,906,659

(A)  
 
$
3,456,112

 
$
306,345

 
$
3,673,449

(J)  
Cash and cash equivalents
 
237,815

 
4,023

 
241,838

 
 
212,894

 
7,405

 
220,299

 
Premiums and other receivables, net
 
1,284,584

 
48,911

 
1,332,694

(B)  
 
1,044,272

 
47,198

 
1,090,669

(K)  
Reinsurance recoverable (3)
 
900,456

 
68,625

 
969,081

 
 
892,264

 
55,972

 
948,236

 
Intangible assets, net
 
406,880

 
3,775

 
410,655

 
 
456,695

 
11,025

 
467,720

 
Goodwill
 
189,587

 

 
189,587

 
 
155,290

 

 
155,290

 
Other (4)
 
639,600

 
107,987

 
736,618

(C)  
 
621,679

 
89,764

 
689,318

(L)  
Total assets
 
$
7,265,645

 
$
622,338

 
$
7,787,132

(D)  
 
$
6,839,206

 
$
517,709

 
$
7,244,981

(M)  
LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Unpaid loss and loss adjustment expense reserves
 
$
2,220,251

 
$
139,905

 
$
2,360,156

 
 
$
2,127,997

 
$
137,075

 
$
2,265,072

 
Unearned premiums
 
1,698,598

 
182,874

 
1,881,472

 
 
1,472,299

 
163,326

 
1,635,625

 
Reinsurance payable (5)
 
101,510

 
27,317

 
128,026

(E)  
 
78,949

 
20,662

 
98,810

(N)  
Accounts payable and accrued expenses (6)
 
397,164

 
81,855

 
468,050

(F)  
 
330,210

 
13,179

 
336,991

(O)  
Debt
 
754,736

 
89,081

 
754,736

(G)  
 
752,001

 
89,008

 
752,001

(P)  
Other
 
153,485

 
78,239

 
231,724

 
 
183,921

 
62,784

 
230,978

(Q)  
Total liabilities
 
$
5,325,744

 
$
599,271

 
$
5,824,164

(H)  
 
$
4,945,377

 
$
486,034

 
$
5,319,477

(R)  
Stockholders’ equity:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Common stock (7)
 
$
1,066

 
$

 
$
1,066

 
 
$
1,064

 
$

 
$
1,064

 
Preferred stock (8)
 
420,000

 

 
420,000

 
 
420,000

 

 
420,000

 
Additional paid-in capital
 
920,310

 

 
920,310

 
 
914,706

 

 
914,706

 
Accumulated other comprehensive income
 
32,876

 

 
32,876

 
 
12,710

 

 
12,710

 
Retained earnings
 
565,649

 

 
565,649

 
 
545,106

 

 
545,106

 
Total National General Holdings Corp. stockholders’ equity
 
1,939,901

 

 
1,939,901

 
 
1,893,586

 

 
1,893,586

 
Non-controlling interest
 

 
23,067

 
23,067

 
 
243

 
31,675

 
31,918

 
Total stockholders’ equity
 
$
1,939,901

 
$
23,067

 
$
1,962,968

 
 
$
1,893,829

 
$
31,675

 
$
1,925,504

 
Total liabilities and stockholders’ equity
 
$
7,265,645

 
$
622,338

 
$
7,787,132

(I)  
 
$
6,839,206

 
$
517,709

 
$
7,244,981

(S)  

NOTES :
Consolidated column includes eliminations as follows: (A) $(89,081) , (B) $(801) , (C) $(10,969) , (D) $(100,851) , (E) $(801) , (F) $(10,969) , (G) $(89,081) , (H) $(100,851) , (I) $(100,851) , (J) $(89,008) , (K) $(801) , (L) $(22,125) , (M) $(111,934) , (N) $(801) , (O) $(6,398) , (P) $(89,008) , (Q) $(15,727) , (R) $(111,934) and (S) $(111,934) .



9




Segment Information - Second Quarter
$ in thousands
(Unaudited)
 
 
Three Months Ended June 30,
 
 
 
 
 
2017
 
 
2016
 
 
P&C
 
A&H
 
NGHC
 
 
Reciprocal
Exchanges
 
 
P&C
 
A&H
 
NGHC
 
 
Reciprocal Exchanges
Gross written premium
 
$
904,578

 
$
130,974

 
$
1,035,552

 
 
$
99,157

 
 
$
671,157

 
$
102,891

 
$
774,048

 
 
$
77,170

Net written premium
 
822,508

 
118,249

 
940,757

 
 
51,243

 
 
607,942

 
90,377

 
698,319

 
 
39,130

Net earned premium
 
804,643

 
134,852

 
939,495

 
 
42,256

 
 
575,002

 
101,910

 
676,912

 
 
36,028

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Ceding commission income (loss)
 
3,128

 
271

 
3,399

 
 
18,109

 
 
(3,564
)
 
359

 
(3,205
)
 
 
14,909

Service and fee income
 
94,519

 
43,043

 
137,562

 
 
1,494

 
 
60,773

 
38,856

 
99,629

 
 
1,195

Total underwriting revenues
 
$
902,290

 
$
178,166

 
$
1,080,456

 
 
$
61,859

 
 
$
632,211

 
$
141,125

 
$
773,336

 
 
$
52,132

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Loss and loss adjustment expense
 
591,844

 
84,743

 
676,587

 
 
33,820

 
 
375,893

 
78,729

 
454,622

 
 
17,736

Acquisition costs and other
 
126,496

 
46,759

 
173,255

 
 
15,540

 
 
81,291

 
27,096

 
108,387

 
 
493

General and administrative
 
168,023

 
38,842

 
206,865

 
 
18,509

 
 
147,113

 
29,547

 
176,660

 
 
25,261

Total underwriting expenses
 
$
886,363

 
$
170,344

 
$
1,056,707

 
 
$
67,869

 
 
$
604,297

 
$
135,372

 
$
739,669

 
 
$
43,490

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Underwriting income (loss)
 
15,927

 
7,822

 
23,749

 
 
(6,010
)
 
 
27,914

 
5,753

 
33,667

 
 
8,642

Non-cash amortization of intangible assets
 
10,278

 
1,412

 
11,690

 
 
(91
)
 
 
5,628

 
1,560

 
7,188

 
 
6,726

Underwriting income (loss) before amortization and impairment
 
$
26,205

 
$
9,234

 
$
35,439

 
 
$
(6,101
)
 
 
$
33,542

 
$
7,313

 
$
40,855

 
 
$
15,368

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Underwriting ratios
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Loss and loss adjustment expense ratio (9)
 
73.6
%
 
62.8
%
 
72.0
%
 
 
80.0
%
 
 
65.4
%
 
77.3
%
 
67.2
%
 
 
49.2
%
Operating expense ratio (Non-GAAP) (10,11)
 
24.5
%
 
31.4
%
 
25.5
%
 
 
34.2
%
 
 
29.8
%
 
17.1
%
 
27.9
%
 
 
26.8
%
Combined ratio (Non-GAAP) (10,12)
 
98.1
%
 
94.2
%
 
97.5
%
 
 
114.2
%
 
 
95.2
%
 
94.4
%
 
95.1
%
 
 
76.0
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Underwriting ratios (before amortization and impairment)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Loss and loss adjustment expense ratio (9)
 
73.6
%
 
62.8
%
 
72.0
%
 
 
80.0
%
 
 
65.4
%
 
77.3
%
 
67.2
%
 
 
49.2
%
Operating expense ratio   (Non-GAAP) (10,13)
 
23.2
%
 
30.3
%
 
24.2
%
 
 
34.4
%
 
 
28.8
%
 
15.6
%
 
26.8
%
 
 
8.1
%
Combined ratio before amortization and impairment (Non-GAAP) (10,14)
 
96.8
%
 
93.1
%
 
96.2
%
 
 
114.4
%
 
 
94.2
%
 
92.9
%
 
94.0
%
 
 
57.3
%

Note: Loss and loss adjustment expenses for the three months ended June 30, 2017 included $6,570 of unfavorable development on prior accident year loss and loss adjustment expense reserves in the P&C segment, and $4,524 of favorable development in the A&H segment, versus $6,756 of favorable development in the P&C segment, and $4,350 of unfavorable development in the A&H segment for the three months ended June 30, 2016.




10




Segment Information - Year to Date
$ in thousands
(Unaudited)
 
 
Six Months Ended June 30,
 
 
 
 
 
2017
 
 
2016
 
 
P&C
 
A&H
 
NGHC
 
 
Reciprocal
Exchanges
 
 
P&C
 
A&H
 
NGHC
 
 
Reciprocal Exchanges (1)
Gross written premium
 
$
1,886,277

 
$
322,929

 
$
2,209,206

 
 
$
181,373

 
 
$
1,332,494

 
$
257,748

 
$
1,590,242

 
 
$
77,170

Net written premium
 
1,726,432

 
299,363

 
2,025,795

 
 
92,944

 
 
1,208,716

 
234,190

 
1,442,906

 
 
39,130

Net earned premium
 
1,556,856

 
263,778

 
1,820,634

 
 
81,288

 
 
1,129,050

 
202,782

 
1,331,832

 
 
36,028

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Ceding commission income (loss)
 
5,588

 
558

 
6,146

 
 
35,356

 
 
(5,828
)
 
728

 
(5,100
)
 
 
14,909

Service and fee income
 
198,109

 
75,316

 
273,425

 
 
3,574

 
 
124,261

 
72,312

 
196,573

 
 
1,195

Total underwriting revenues
 
$
1,760,553

 
$
339,652

 
$
2,100,205

 
 
$
120,218

 
 
$
1,247,483

 
$
275,822

 
$
1,523,305

 
 
$
52,132

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Loss and loss adjustment expense
 
1,113,178

 
151,634

 
1,264,812

 
 
61,920

 
 
708,552

 
155,120

 
863,672

 
 
17,736

Acquisition costs and other
 
256,127

 
78,249

 
334,376

 
 
29,720

 
 
172,950

 
48,336

 
221,286

 
 
493

General and administrative
 
364,893

 
84,055

 
448,948

 
 
43,612

 
 
291,807

 
61,480

 
353,287

 
 
25,261

Total underwriting expenses
 
$
1,734,198

 
$
313,938

 
$
2,048,136

 
 
$
135,252

 
 
$
1,173,309

 
$
264,936

 
$
1,438,245

 
 
$
43,490

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Underwriting income (loss)
 
26,355

 
25,714

 
52,069

 
 
(15,034
)
 
 
74,174

 
10,886

 
85,060

 
 
8,642

Non-cash amortization of intangible assets
 
30,012

 
3,015

 
33,027

 
 
6,978

 
 
9,475

 
3,377

 
12,852

 
 
6,726

Underwriting income (loss) before amortization and impairment
 
$
56,367

 
$
28,729

 
$
85,096

 
 
$
(8,056
)
 
 
$
83,649

 
$
14,263

 
$
97,912

 
 
$
15,368

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Underwriting ratios
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Loss and loss adjustment expense ratio (9)
 
71.5
%
 
57.5
%
 
69.5
%
 
 
76.2
%
 
 
62.8
%
 
76.5
%
 
64.8
%
 
 
49.2
%
Operating expense ratio (Non-GAAP) (10,11)
 
26.8
%
 
32.8
%
 
27.7
%
 
 
42.3
%
 
 
30.7
%
 
18.1
%
 
28.8
%
 
 
26.8
%
Combined ratio (Non-GAAP) (10,12)
 
98.3
%
 
90.3
%
 
97.2
%
 
 
118.5
%
 
 
93.5
%
 
94.6
%
 
93.6
%
 
 
76.0
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Underwriting ratios (before amortization and impairment)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Loss and loss adjustment expense ratio (9)
 
71.5
%
 
57.5
%
 
69.5
%
 
 
76.2
%
 
 
62.8
%
 
76.5
%
 
64.8
%
 
 
49.2
%
Operating expense ratio   (Non-GAAP) (10,13)
 
24.9
%
 
31.6
%
 
25.9
%
 
 
33.7
%
 
 
29.8
%
 
16.5
%
 
27.8
%
 
 
8.1
%
Combined ratio before amortization and impairment (Non-GAAP) (10,14)
 
96.4
%
 
89.1
%
 
95.4
%
 
 
109.9
%
 
 
92.6
%
 
93.0
%
 
92.6
%
 
 
57.3
%

Note: (1) Reciprocal Exchanges' column for the  six months ended June 30, 2016  excludes its operating results from January 1, 2016 to March 31, 2016.
Loss and loss adjustment expenses for the six months ended June 30, 2017 included $2,216 of unfavorable development on prior accident year loss and loss adjustment expense reserves in the P&C segment, and $12,844 of favorable development in the A&H segment, versus $7,334 of favorable development in the P&C segment, and $3,584 of unfavorable development in the A&H segment for the six months ended June 30, 2016.


11




Reconciliation of Operating Expense Ratio (Non-GAAP)
$ in thousands
(Unaudited)
 
 
Three Months Ended June 30,
 
 
 
 
 
2017
 
 
2016
 
 
P&C
 
A&H
 
NGHC
 
 
Reciprocal Exchanges
 
 
P&C
 
A&H
 
NGHC
 
 
Reciprocal Exchanges
Total underwriting expenses
 
$
886,363

 
$
170,344

 
$
1,056,707

 
 
$
67,869

 
 
$
604,297

 
$
135,372

 
$
739,669

 
 
$
43,490

Less: Loss and loss adjustment expense
 
591,844

 
84,743

 
676,587

 
 
33,820

 
 
375,893

 
78,729

 
454,622

 
 
17,736

Less: Ceding commission income (loss)
 
3,128

 
271

 
3,399

 
 
18,109

 
 
(3,564
)
 
359

 
(3,205
)
 
 
14,909

Less: Service and fee income
 
94,519

 
43,043

 
137,562

 
 
1,494

 
 
60,773

 
38,856

 
99,629