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*
  • Net written premium grew $285.3 million or 59.2% to $767.3 million, driven by added 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, the addition of Assigned Risk Solutions (ARS) premium volume which is now written on National General paper, underlying organic growth within our P&C business, and continued expansion of our A&H segment.
  • The overall combined ratio (10, 14) was 94.6% compared to 90.2% in the prior year's quarter, excluding non-cash amortization of intangible assets. The P&C segment reported an increase in combined ratio to 94.5% from 89.4% in the prior year's quarter, which was elevated by significant storm losses as described below, while the A&H segment reported a combined ratio of 95.4% compared to 97.6% in the prior year's quarter, driven by increased scale and strong results from our Assurant Health book.
  • Total revenues grew by $308.6 million or 56.2% to $857.4 million, primarily driven by the aforementioned premium growth, service and fee income growth of $34.8 million or 49.1%, and net investment income growth of $10.2 million or 63.4%.
  • Shareholders' equity was $1.91 billion and fully diluted book value per share was $13.76 at September 30, 2016, growth of 25.7% and 14.1%, respectively, from September 30, 2015. Our trailing twelve month operating return on average equity (ROE) (15) was 12.6% as of September 30, 2016.
  • Third quarter 2016 operating earnings exclude the following items, net of tax: $7.2 million or $0.07 per share of realized investment gains, $14.4 million or $0.13 per share of other-than-temporary impairment losses, less than $0.01 per share of foreign exchange loss, less than $0.01 per share of equity in earnings of unconsolidated subsidiaries (other than our Life Settlement Contracts Entities and Real Estate investments), and $6.5 million or $0.06 per share of non-cash amortization of intangible assets.
  • Third quarter 2016 operating earnings include approximately $15.0 million or $0.09 per share of losses related to floods that occurred in Louisiana in August 2016.

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:
  • Property & Casualty - Gross written premium grew by 49.8% to $753.7 million, net written premium grew by 51.7% to $679.9 million, and net earned premium grew by 48.5% to $629.3 million. P&C net written premium growth was driven by several key factors: underlying organic growth of $56.6 million or 12.6% increase, the addition of $61.2 million from the Century-National acquisition, the addition of $99.8 million from the National General Lender Services transaction, and the addition of $14.1 million from ARS, which we began writing on National General paper during the first quarter of 2016. Service and fee income grew 27.9% to $65.5 million, driven by increased premium volume in the quarter, the addition of service and fee income from acquisitions completed during the current and prior year (including ARS, National General Lender Services and Century-National). Excluding non-cash amortization of intangible assets, the combined ratio (10,14) was 94.5% with a loss ratio of 65.9% and an expense ratio (10,13) of 28.6%, versus a prior year combined ratio of 89.4% with a loss ratio of 60.2% and an expense ratio of 29.2%. The loss ratio was impacted by pre-tax catastrophe losses of approximately $15.0 million related to floods that occurred in Louisiana in August 2016, a $3.7 million pre-tax increase in losses related to hail storms that occurred in San Antonio and Dallas, Texas in April 2016, and increased severe loss activity in our Northeast monoline homeowners' product that had a $4.1 million pre-tax impact in the quarter. 
  • Accident & Health - Gross written premium grew to $97.6 million, net written premium grew to $87.4 million, and net earned premium grew to $105.1 million, from $43.6 million, $33.8 million, and $45.1 million, respectively, in the prior year's quarter. A&H net written premium growth was driven by the addition of $46.4 million from the Assurant Health transaction, as well as continued growth from our domestic business, with $33.5 million in premium at our U.S. underwriting subsidiaries compared to $23.6 million in the prior year's quarter. Service and fee income grew to $40.2 million from $19.7 million in the prior year's quarter, driven by the addition of service and fee income from the Assurant Health transaction and strong growth at our agencies. Excluding non-cash amortization of intangible assets, the combined ratio (10,14) was 95.4% with a loss ratio of 73.4% and an expense ratio (10,13) of 22.0%, versus a prior year combined ratio of 97.6% with a loss ratio of 74.3% and an expense ratio of 23.3%. The loss ratio was impacted by a higher level of losses within our legacy small group self-funded product, which was more than offset by strong results from our Assurant book. 
  • Reciprocal Exchanges - Results for the Reciprocal Exchanges are not included in net income available to NGHC common stockholders. Gross written premium was $81.0 million, net written premium was $39.1 million, and net earned premium was $35.5 million. Reciprocal Exchanges combined ratio (10, 12) was 96.4% with a loss ratio of 50.4% and an expense ratio (10, 11) of 46.0%.

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
Q3 Development on April Dallas and San Antonio Hail Storms   $ 3.7       0.6 %   $ 0.02  
Q3 August Louisiana Flood   $ 15.0       2.4 %   $ 0.09  
Q2 April Dallas and San Antonio Hail Storms   $ 18.4       3.2 %   $ 0.11  
Q1 March 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
  • Standard Property and Casualty Insurance Company - On October 7, 2016, we closed the acquisition of Standard Property and Casualty Insurance Company (f/k/a Standard Mutual Insurance Company), an Illinois based property and casualty insurance underwriter ("SPCIC").
  • Direct General Acquisition - On November 1, 2016, we closed the acquisition of Elara Holdings, Inc., the parent company of Direct General Corporation, a Tennessee based P&C insurance company that predominantly writes non-standard auto business in the Southeastern United States. The estimated purchase price for the transaction was approximately $161.6 million, subject to customary post-closing adjustments.

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 outstanding 106,002,337     100,360,687       105,801,817     95,877,178  
Weighted average number of diluted shares outstanding 108,423,998     102,940,728       108,053,177     98,314,808  
Shares outstanding, end of period 106,088,008     105,433,893       106,088,008     105,433,893  
Fully diluted shares outstanding, end of period 108,509,669     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 losses 14,366     3,906       14,366     5,520  
Foreign exchange (gain)/loss 36     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 assets 6,452     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 ContactChristine WorleyDirector of Investor RelationsPhone: 212-380-9462Email: Christine.Worley@NGIC.com

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