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National General Holdings Corp. Reports Fourth Quarter 2014 Results; Operating Earnings(1) Per Share Grows 106% to $0.30

NEW YORK, Feb. 10, 2015 (GLOBE NEWSWIRE) -- National General Holdings Corp. (Nasdaq:NGHC) today reported fourth quarter 2014 operating earnings(1) of $28.3 million or $0.30 per diluted share, compared to $11.6 million or $0.14 per diluted share in the fourth quarter of 2013. Net income was $11.2 million or $0.12 per diluted share, compared to $7.9 million or $0.10 per diluted share in the fourth quarter of 2013.

Full year 2014 operating earnings(1) were $125.3 million or $1.34 per diluted share, compared to $46.2 million or $0.67 per diluted share in 2013. Full year 2014 net income was $100.0 million or $1.07 per diluted share, compared to $40.2 million or $0.59 per diluted share in 2013.

Fourth Quarter 2014 Highlights Versus Fourth Quarter 2013*

  • Net written premium grew by $204.9 million or 101.6% to $406.5 million, driven by the run-off of our third-party quota share treaty, assumed premiums from Tower Personal Lines, additional premiums from other acquisitions completed during the past year, underlying organic growth within our P&C business, and continued expansion of our A&H segment.
  • The combined ratio was 94.2% compared to 98.5% in the prior year's quarter, excluding non-cash amortization of intangible assets and impairment of goodwill. The 4.3 point combined ratio improvement was driven by a reduction in both the loss and expense ratios within our P&C segment, while our A&H segment posted a reduced loss ratio but an increased expense ratio due to our continued investment in the expansion of this segment.
  • Total revenues grew $205.1 million or 76.1% to $474.4 million, driven by the aforementioned premium growth, service and fee income growth of $22.8 million or 66.1% (including Attorney-in-Fact management fees of $8.4 million), and net investment income growth of $7.3 million or 83.2%, partially offset by a $14.0 million or 99.7% decline in ceding commission income reflecting the run-off of our terminated third-party quota share.
  • Shareholders' equity was $1.06 billion and fully diluted book value per share was $10.48 at December 31, 2014, growth of 0.9% and 0.8%, respectively, from September 30, 2014. Annualized operating return on average equity (ROE) was 11.3% for the fourth quarter and 14.1% for the full year ended December 31, 2014.
  • Fourth quarter 2014 operating earnings exclude the following items, net of tax: $15.8 million or $0.16 per share of non-cash impairment of goodwill, $2.8 million or $0.03 per share of equity in earnings of unconsolidated subsidiaries, $1.9 million or $0.02 per share of non-cash amortization of intangible assets, $1.5 million or $0.02 per share of other than temporary impairment losses, $0.7 million or $0.01 per share of foreign exchange losses, and $0.1 million or less than $0.01 per share of realized investment losses. Additionally, fourth quarter 2014 net income and operating earnings include a $1.3 million pre-tax expense relating to a sliding scale adjustment on our terminated third-party quota share, which is reported within the acquisition costs and other underwriting expenses line item.

Michael Karfunkel, National General's Chairman and CEO, stated: "Our fourth quarter results were a strong finish to a transformational year at National General. We continue to deliver significant top line growth and solid underwriting profitability, and are well positioned to continue these trends going forward. Within P&C, our legacy business continues to perform at a high level, and the addition of the homeowners product has already proven to be a positive contributor to our business, greatly increasing the overall value of our franchise. Within A&H, the quarter included increased expenses relating to our commitment to building this business from the ground up, and we believe we have significant momentum heading into 2015, a year in which we expect to see the fruits of our labor. We continue to focus our efforts on profitably growing our business both organically and through additional accretive M&A opportunities, maintaining an intense emphasis on disciplined expense management, and delivering strong returns to our shareholders."

*NOTE: Unless specified otherwise, discussion of our fourth quarter 2014 results does not include financial results from the Reciprocal Exchanges, which are presented within our consolidated financial results within this release but are not included in net income available to NGHC common stockholders. Attorney-in-Fact management fees referenced within this release are eliminated in consolidated financial results.

Overview of Fourth Quarter 2014 as Compared to Fourth Quarter 2013

Gross written premium grew 45.7% to $462.8 million, net written premium grew 101.6% to $406.5 million, and net earned premium grew 88.0% to $404.6 million. Premium growth was driven by several key factors: a continued increase in net retention due to the run-off of our terminated third party quota share, which was 100% complete as of July 31, 2014; new and renewal business from the Tower Personal Lines book; additional premiums from other acquisitions completed during the past year; underlying organic growth within our P&C segment; and continued expansion of our A&H segment.

Ceding commission income decreased to $0.0 million from $14.0 million in the prior year's quarter, reflecting the run-off of our terminated third-party quota share. Service and fee income grew 66.1% to $57.3 million, driven by strong growth in the P&C segment, including management fees of $8.4 million related to the Attorneys-in-Fact that manage the Reciprocal Exchanges, partially offset by a modest decline in A&H service and fee income.

Excluding non-cash amortization of intangible assets and impairment of goodwill, the combined ratio was 94.2% with a loss ratio of 68.2% and an expense ratio of 26.1%, versus a prior year combined ratio of 98.5% with a loss ratio of 70.6% and an expense ratio of 27.9%. The improved loss ratio was driven by a reduction in both the P&C and A&H loss ratios, while the expense ratio decrease was the result of an improved P&C expense ratio, partially offset by an elevated A&H expense ratio due to our continued investment in the expansion of this segment.

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

  • Property & Casualty - Gross written premium grew 42.4% to $440.3 million, net written premium grew 98.8% to $384.2 million, and net earned premium grew 80.8% to $374.0 million. P&C premium growth was driven by four key factors: (1) a continued increase in net retention due to the run-off of our terminated third party quota share, which was 100% complete as of July 31, 2014; (2) the addition of new and renewal business from Tower Personal Lines, which produced $79.6 million in net written premiums during the quarter; (3) additional premiums from other acquisitions completed during the past year, which contributed $31.0 million in net written premium during the quarter ($26.1 million from Imperial and $4.9 million from Personal Express Insurance Company); and (4) underlying organic growth of 1.1%. Ceding commission income decreased to $0.0 million from $14.0 million in the prior year's quarter, reflecting the run-off of our terminated third-party quota share. Service and fee income grew 120.0% to $43.5 million, driven by increased premium volume in the quarter, the addition of service and fee income from acquisitions completed during the past year, and the addition of $8.4 million of fees earned by the Attorneys-in-Fact that manage the Reciprocal Exchanges. Excluding non-cash amortization of intangible assets and impairment of goodwill, the combined ratio was 92.8% with a loss ratio of 66.5% and an expense ratio of 26.3%, versus a prior year combined ratio of 97.1% with a loss ratio of 68.9% and an expense ratio of 28.2%. The quarter's improved underwriting profitability was driven primarily by business mix changes, most notably the addition of homeowners, as well as a reduction in our underlying expense ratio resulting from expense reduction initiatives and technology enhancements enacted in recent years. Additionally, fourth quarter 2014 P&C underwriting results include a $1.3 million expense relating to a sliding scale adjustment on our terminated third-party quota share, reported within the acquisition costs and other underwriting expenses line item.
  • Accident & Health - Gross written premium grew to $22.5 million, net written premium grew to $22.4 million, and net earned premium grew to $30.5 million, from $8.5 million, $8.4 million, and $8.4 million, respectively, in the prior year's quarter. A&H premium growth was driven by continued progress in the expansion of our domestic business, with a total of $9.8 million in net written premium at our U.S. underwriting subsidiaries, as well as the addition of $12.6 million of premium from EuroAccident (our Swedish group life and health MGA). Service and fee income declined 6.3% to $13.8 million, with strong growth at VelaPoint (our call center general agency) and TABS (our domestic stop loss business) offset by a decline at EuroAccident. We note that EuroAccident fee income going forward will be eliminated in consolidation as it is now being written on National General paper. Excluding non-cash amortization of intangible assets and impairment of goodwill, the combined ratio was 112.1% with a loss ratio of 88.8% and an expense ratio of 23.3%, versus a prior year combined ratio of 133.2% with a loss ratio of 112.1% and an expense ratio of 21.0%. The decrease in the fourth quarter loss ratio reflects the continued maturation of the A&H business, while the higher expense ratio included increased expenses related to our continued investment in the expansion of our A&H business, most notably added expenses related to open enrollment, which began on November 15, 2014. Importantly, while many of the associated costs for A&H policies written during open enrollment are incurred up front, revenue is not recognized until after the effective date of the policy, which is predominantly in 2015.
  • Reciprocal Exchanges - Results for the Reciprocal Exchanges are not included in net income available to NGHC common stockholders. Gross written premium was $60.0 million, net written premium was $45.9 million, and net earned premium was $40.9 million. Excluding non-cash amortization of intangible assets, the combined ratio was 74.6% with a loss ratio of 52.2% and an expense ratio of 22.4%.

Investment income grew 83.2% to $16.0 million, reflecting an increase in the size of our investment portfolio, mainly as a result of our capital raising actions in the first half of 2014, as well as $2.2 million of interest earned on our credit agreement with ACP Re. Fourth quarter 2014 results included $0.1 million of net realized investment losses compared with a loss of $0.3 million in the fourth quarter of 2013, as well as an other than temporary impairment loss of $2.2 million compared to a loss of $2.9 million in the fourth quarter of 2013. Total cash, cash equivalents and investments were $1.75 billion as of December 31, 2014. Accumulated other comprehensive income (AOCI) declined modestly to $20.2 million at December 31, 2014 from $20.9 million at September 30, 2014.

Other revenue was a loss of $1.2 million in the fourth quarter of 2014, with no corresponding amount in the prior year's quarter, primarily resulting from a $1.1 million foreign exchange loss from currency fluctuations within our European subsidiaries.

Interest expense of $4.5 million increased from $0.6 million in the prior year's quarter due to an increased amount of debt on our balance sheet. Debt was $255.6 million as of December 31, 2014, up from $81.1 million at December 31, 2013, primarily as a result of our $250 million May 2014 senior note issuance.

Equity in earnings of unconsolidated subsidiaries (predominantly our investment in Life Settlement Entities) was $4.3 million in the fourth quarter versus $1.7 million in the prior year's quarter, reflecting fair value adjustments on life settlement contracts.

The fourth quarter 2014 provision for income taxes was $4.7 million and the effective tax rate for the quarter was 37.2%. Included in the fourth quarter 2014 provision for income taxes was a $4.6 million benefit attributable to a reduction of the deferred tax liability associated with the equalization reserves of our Luxembourg Reinsurance Company subsidiaries. Excluding this item and the $15.8 million non-cash impairment of goodwill, which is not tax deductible, the adjusted 2014 fourth quarter effective tax rate was 32.7%.

National General Holding Corp.'s shareholders' equity was $1,060.8 million at December 31, 2014, growth of 0.9% from $1,051.3 million at September 30, 2014. Fully diluted book value per share was $10.48 at December 31, 2014, growth of 0.8% from $10.40 at September 30, 2014, and growth of 31.7% from $7.96 at December 31, 2013. Annualized operating return on average equity (ROE) was 11.3% for the fourth quarter and 14.1% for the year ended December 31, 2014.

Luxembourg Reinsurance Companies (LRC)

  • Included in the fourth quarter 2014 provision for income taxes was a $4.6 million benefit attributable to a reduction of the deferred tax liability (DTL) associated with the equalization reserves of our LRC subsidiaries. For the full year 2014, the provision for income taxes included a benefit of $21.1 million attributable to a reduction of the DTL associated with the equalization reserves of our LRC subsidiaries. As of December 31, 2014, the DTL associated with our LRC subsidiaries was $40.5 million.
  • Fourth quarter 2014 results include a $15.8 million expense related to a non-cash impairment of goodwill ($9.4 million attributed to the P&C segment and $6.4 million attributed to the A&H segment), compared to an expense of $1.4 million in the fourth quarter of 2013 (entirely attributed to the P&C segment). Both the 2014 and 2013 non-cash impairment of goodwill expenses relate to goodwill balances associated with our LRC subsidiaries. The remaining goodwill balance associated with LRC subsidiaries stood at $25.9 million as of December 31, 2014.
  • The full year 2014 net benefit related to our LRC subsidiaries was $5.3 million, including the benefit attributable to a reduction in DTL and the expense related to non-cash impairment of goodwill.

Healthcare Solutions Team Acquisition

On January 26, 2015 we announced that we had closed upon the acquisition of Healthcare Solutions Team, LLC ("HST"), an Illinois based healthcare insurance managing general agency, for cash consideration. The purchase price for the transaction includes an upfront cash payment of $15 million and potential future earn out payments based on HST's overall profitability. Based in Lombard, Illinois, HST was created in 2007 with the goal of providing families, individuals and groups with the best health insurance coverage for their needs and budgets. HST partners with approximately 500 independent agents across the country to provide a wide range of products to customers. In addition to health care insurance, HST offers an array of coverages including: short-term medical coverage; critical illness plans; dental insurance; Medicare supplements and life insurance; simple Health Savings Accounts (HSA); small business, self-employed and group health care; and major medical plans for individuals and families.

Conference Call

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

Toll-Free U.S. Dial-in: 888-267-2860
International Dial-in: 973-413-6102
Conference Entry Code: 842046
Webcast Registration: http://ir.nationalgeneral.com/events.cfm

A replay of the conference call will be accessible from 2:00 PM ET on Wednesday, February 11, 2015 to 11:59 PM ET on Wednesday, February 25, 2015 by dialing either 800-332-6854 (toll-free) within the U.S. or 973-528-0005 outside the U.S. and entering passcode 842046. In addition, a replay of the webcast can also be retrieved at http://ir.nationalgeneral.com/events.cfm.

About National General Holdings Corp.

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

Forward Looking Statements

This news release contains "forward-looking statements" that are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. The forward-looking statements are based on the Company's current expectations and beliefs concerning future developments and their potential effects on the Company. Forward-looking statements can generally be identified by the use of forward-looking terminology, such as "may," "will," "plan," "expect," "project," "intend," "estimate," "anticipate" and "believe" or their variations or similar terminology. There can be no assurance that actual developments will be those anticipated by the Company. Actual results may differ materially from those expressed or implied in these statements as a result of significant risks and uncertainties, including, but not limited to, non-receipt of expected payments from insureds or reinsurers, changes in interest rates, a downgrade in the financial strength ratings of our insurance subsidiaries, the effect of the performance of financial markets on our investment portfolio, estimates of the fair value of life settlement contracts, development of claims and the effect on loss reserves, accuracy in projecting loss reserves, the cost and availability of reinsurance coverage, the effects of emerging claim and coverage issues, changes in the demand for our products, our degree of success in integrating acquired businesses, the effect of general economic conditions, state and federal legislation, regulations and regulatory investigations into industry practices, risks associated with conducting business outside the United States, developments relating to existing agreements, disruptions to our business relationships, 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 - Fourth Quarter
$ in thousands
(Unaudited)
Three Months Ended December 31,
2014 2013

NGHC
Reciprocal
Exchanges

Consolidated

NGHC
Revenues:
Gross written premium $ 462,848 $ 60,049 $ 522,897 $ 317,739
Ceded premiums (related parties -- $1,005 in 2014 and $77,808 in 2013) (56,306) (14,178) (70,484) (116,066)
Net written premium 406,542 45,871 452,413 201,673
Net earned premium 404,566 40,930 445,496 215,234
Ceding commission income (primarily related parties) 48 4,750 4,798 13,999
Service and fee income 57,269 117 48,979 (A) 34,488
Net investment income 15,969 1,799 17,768 8,715
Net realized gain/(loss) on investments (91) (91) (263)
Other than temporary impairment loss (2,244) (2,244) (2,869)
Other revenue (1,153) (1,153)
Total revenues $ 474,364 $ 47,596 $ 513,553 (B) $ 269,304
Expenses:
Loss and loss adjustment expense $ 275,727 $ 21,368 $ 297,095 $ 151,994
Acquisition costs and other underwriting expenses 76,389 5,994 82,383 40,622
General and administrative 105,122 10,156 106,871 (C) 71,102
Interest expense 4,463 5,452 9,915 586
Total expenses $ 461,701 $ 42,970 $ 496,264 (D) $ 264,304
Income before provision for income taxes and equity in earnings (losses) of unconsolidated subsidiaries $ 12,663 $ 4,626 $ 17,289 $ 5,000
Provision for income taxes 4,715 1,375 6,090 (1,252)
Income before equity in earnings (losses) of unconsolidated subsidiaries 7,948 3,251 11,199 6,252
Equity in earnings (losses) of unconsolidated subsidiaries 4,278 4,278 1,726
Net income before non-controlling interest and dividends on preferred shares 12,226 3,251 15,477 7,978
Less: net income attributable to non-controlling interest 29 3,251 3,280 38
Net income before dividends on preferred shares 12,197 12,197 7,940
Less: dividends on preferred shares 1,031 1,031
Net income available to common stockholders $ 11,166 $ — $ 11,166 $ 7,940
NOTE: Consolidated column includes eliminations as follows: (A) $(8,407), (B) $(8,407), (C) $(8,407), and (D) $(8,407).
Income Statement - Year to Date
$ in thousands
(Unaudited)
Twelve Months Ended December 31,
2014 2013

NGHC
Reciprocal
Exchanges

Consolidated

NGHC
Revenues:
Gross written premium $ 2,065,065 $ 70,042 $ 2,135,107 $ 1,338,755
Ceded premiums (related parties -- $44,936 in 2014 and $501,067 in 2013) (248,117) (16,966) (265,083) (659,439)
Net written premium 1,816,948 53,076 1,870,024 679,316
Net earned premium 1,585,598 47,622 1,633,220 688,066
Ceding commission income (primarily related parties) 7,643 4,787 12,430 87,100
Service and fee income 178,333 139 168,571 (A) 127,541
Net investment income 50,627 1,799 52,426 30,808
Net realized gain/(loss) on investments (648) (648) 1,200
Other than temporary impairment loss (2,244) (2,244) (2,869)
Other revenue (1,660) (1,660) 16
Total revenues $ 1,817,649 $ 54,347 $ 1,862,095 (B) $ 931,862
Expenses:
Loss and loss adjustment expense $ 1,026,346 $ 26,719 $ 1,053,065 $ 462,124
Acquisition costs and other underwriting expenses 308,822 6,267 315,089 134,887
General and administrative 346,696 11,967 348,762 (C) 280,552
Interest expense 12,012 5,724 17,736 2,042
Total expenses $ 1,693,876 $ 50,677 $ 1,734,652 (D) $ 879,605
Income before provision for income taxes and equity in earnings (losses) of unconsolidated subsidiaries $ 123,773 $ 3,670 $ 127,443 $ 52,257
Provision for income taxes 22,712 1,164 23,876 11,140
Income before equity in earnings (losses) of unconsolidated subsidiaries 101,061 2,506 103,567 41,117
Equity in earnings (losses) of unconsolidated subsidiaries 1,180 1,180 1,274
Net income before non-controlling interest and dividends on preferred shares 102,241 2,506 104,747 42,391
Less: net income attributable to non-controlling interest (2) 2,506 2,504 82
Net income before dividends on preferred shares 102,243 102,243 42,309
Less: dividends on preferred shares 2,291 2,291 2,158
Net income available to common stockholders $ 99,952 $ — $ 99,952 $ 40,151
NOTE: Consolidated column includes eliminations as follows: (A) $(9,901), (B) $(9,901), (C) $(9,901), and (D) $(9,901).
Earnings and Per Share Data
$ in thousands, except shares and per share data
(Unaudited)
Three Months Ended
December 31,
Twelve Months Ended
December 31,
2014 2013 2014 2013
Net income available to common stockholders $ 11,166 $ 7,940 $ 99,952 $ 40,151
Basic net income per common share $ 0.12 $ 0.10 $ 1.09 $ 0.62
Diluted net income per common share* $ 0.12 $ 0.10 $ 1.07 $ 0.59
Operating earnings attributable to NGHC(1) $ 28,297 $ 11,585 $ 125,306 $ 46,154
Basic operating earnings per common share(1) $ 0.30 $ 0.15 $ 1.37 $ 0.71
Diluted operating earnings per common share(1)* $ 0.30 $ 0.14 $ 1.34 $ 0.67
Dividends declared per common share $ 0.02 $ 0.01 $ 0.05 $ 0.01
Weighted average number of basic shares outstanding 93,411,409 79,719,219 91,499,122 65,017,579
Weighted average number of diluted shares outstanding 95,916,749 80,711,272 93,515,483 71,801,613
Shares outstanding, end of period 93,427,382 79,731,800 93,427,382 79,731,800
Fully diluted shares outstanding, end of period 95,932,723 80,723,853 95,624,982 81,368,306
Book value per share $ 10.77 $ 8.06 $ 10.77 $ 8.06
Fully diluted book value per share $ 10.48 $ 7.96 $ 10.52 $ 7.90
Reconciliation of Net Income to Operating Earnings (Non-GAAP)
$ in thousands, except per share data
(Unaudited)
Three Months Ended
December 31,
Twelve Months Ended
December 31,
2014 2013 2014 2013
Net income available to common stockholders $ 11,166 $ 7,940 $ 99,952 $ 40,151
Add (subtract) net of tax:
Net realized (gain)/loss on investments 59 171 421 (780)
Other than temporary impairment losses 1,459 1,865 1,459 1,865
Foreign exchange (gain)/loss 723 130 1,088 130
Equity in (earnings)/losses of unconsolidated subsidiaries (2,781) (1,122) (767) (828)
Non-cash amortization of intangible assets 1,879 1,156 7,361 4,172
Non-cash impairment of goodwill 15,792 1,445 15,792 1,445
Operating earnings attributable to NGHC $ 28,297 $ 11,585 $ 125,306 $ 46,154
Operating earnings per common share:
Basic operating earnings per common share $ 0.30 $ 0.15 $ 1.37 $ 0.71
Diluted operating earnings per common share* $ 0.30 $ 0.14 $ 1.34 $ 0.67
* NOTE: Diluted net income per common share and diluted operating earnings per common share for Three Months and Twelve Months Ended December 31, 2013 are adjusted for preferred dividends of $0 and $2,158, respectively, from the 8% cumulative convertible Series A Preferred stock converted on June 5, 2013.
Balance Sheet
$ in thousands
(Unaudited)
December 31, 2014 December 31, 2013
(unaudited) (audited)
ASSETS
NGHC
Reciprocal
Exchanges

Consolidated

NGHC
Investments:
Fixed maturities, available-for-sale, at fair value (amortized cost $1,317,772, $222,121, $1,539,893 and $757,188, respectively) $ 1,361,099 $ 222,739 $ 1,583,838 $ 766,589
Equity securities, available-for-sale, at fair value (cost $52,272, $2,752, $55,024 and $6,939, respectively) 45,802 2,817 48,619 6,287
Short-term investments 50 10,490 10,540
Equity investment in unconsolidated subsidiaries 155,900 155,900 133,193
Other investments 17,752 17,752 2,893
Securities pledged (amortized cost $47,546, $0, $47,546 and $133,013, respectively) 49,456 49,456 133,922
Total investments 1,630,059 236,046 1,866,105 1,042,884
Cash and cash equivalents 123,178 9,437 132,615 73,823
Accrued investment income 12,553 1,898 14,451 9,263
Premiums and other receivables, net 699,553 58,238 757,791 449,252
Deferred acquisition costs 121,514 4,485 125,999 60,112
Reinsurance recoverable on unpaid losses (2) 888,215 23,583 911,798 950,828
Prepaid reinsurance premiums 75,837 26,924 102,761 50,878
Notes receivable from related party 125,000 125,000
Due from affiliate 5,129 5,129 4,785
Premises and equipment, net 30,583 30,583 29,535
Intangible assets, net 237,404 11,433 248,837 86,564
Goodwill 71,818 71,818 70,351
Prepaid and other assets 48,083 71 48,154 9,240
Total assets $ 4,068,926 $ 372,115 $ 4,441,041 $ 2,837,515
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Unpaid loss and loss adjustment expense reserves $ 1,450,305 $ 105,217 $ 1,555,522 $ 1,259,241
Unearned premiums 744,438 119,998 864,436 476,232
Unearned service contract and other revenue 8,527 8,527 7,319
Reinsurance payable (3) 97,830 13,811 111,641 93,534
Accounts payable and accrued expenses 299,778 17,691 317,469 91,143
Due to affiliate 1,552 1,552
Securities sold under agreements to repurchase, at contract value 46,804 46,804 109,629
Deferred tax liability 29,133 38,402 67,535 24,476
Income tax payable 29,532 1,059 30,591 1,987
Notes payable (Reciprocal Exchanges owed to related party -- $48,374) 255,631 48,374 304,005 81,142
Other liabilities 46,114 5,710 51,824 49,945
Total liabilities $ 3,008,092 $ 351,814 $ 3,359,906 $ 2,194,648
Stockholders' equity:
Common stock (4) $ 934 $ 934 $ 797
Preferred stock (5) 55,000 55,000
Additional paid-in capital 691,790 691,790 437,006
Retained earnings 292,832 292,832 197,552
Accumulated other comprehensive income 20,192 20,192 7,425
Total National General Holdings Corp. stockholders' equity 1,060,748 1,060,748 642,780
Non-controlling interest 86 20,301 20,387 87
Total stockholders' equity 1,060,834 20,301 1,081,135 642,867
Total liabilities and stockholders' equity $ 4,068,926 $ 372,115 $ 4,441,041 $ 2,837,515
Segment Information - Fourth Quarter
$ in thousands
(Unaudited)
Three Months Ended December 31,
2014 2013

P&C

A&H

NGHC
Reciprocal
Exchanges

P&C

A&H

NGHC
Gross written premium $ 440,322 $ 22,526 $ 462,848 $ 60,049 $ 309,220 $ 8,519 $ 317,739
Net written premium 384,153 22,389 406,542 45,871 193,284 8,389 201,673
Net earned premium 374,034 30,532 404,566 40,930 206,849 8,385 215,234
Ceding commission income (primarily related parties) 48 48 4,750 13,999 13,999
Service and fee income 43,458 13,811 57,269 117 19,756 14,732 34,488
Total underwriting revenue $ 417,540 $ 44,343 $ 461,883 $ 45,797 $ 240,604 $ 23,117 $ 263,721
Loss and loss adjustment expense $ 248,606 $ 27,121 $ 275,727 $ 21,368 $ 142,591 $ 9,403 $ 151,994
Acquisition costs and other 68,771 7,618 76,389 5,994 33,659 6,963 40,622
General and administrative 84,577 20,545 105,122 10,156 60,669 10,433 71,102
Total underwriting expenses $ 401,954 $ 55,284 $ 457,238 $ 37,518 $ 236,919 $ 26,799 $ 263,718
Underwriting income (loss) $ 15,586 $ (10,941) $ 4,645 $ 8,279 $ 3,685 $ (3,682) $ 3
Non-cash impairment of goodwill 9,419 6,373 15,792 1,445 1,445
Non-cash amortization of intangible assets 2,026 864 2,890 2,115 877 902 1,779
Underwriting income (loss) before amortization and impairment $ 27,031 $ (3,704) $ 23,327 $ 10,394 $ 6,007 $ (2,780) $ 3,227
Underwriting ratios
Loss and loss adjustment expense ratio (6) 66.5% 88.8% 68.2% 52.2% 68.9% 112.1% 70.6%
Operating expense ratio (Non-GAAP) (7,8) 29.4% 47.0% 30.7% 27.6% 29.3% 31.8% 29.4%
Combined ratio (Non-GAAP) (7,9) 95.8% 135.8% 98.9% 79.8% 98.2% 143.9% 100.0%
Underwriting ratios (before amortization and impairment)
Loss and loss adjustment expense ratio (6) 66.5% 88.8% 68.2% 52.2% 68.9% 112.1% 70.6%
Operating expense ratio (Non-GAAP) (7,10) 26.3% 23.3% 26.1% 22.4% 28.2% 21.0% 27.9%
Combined ratio (Non-GAAP) (7,9) 92.8% 112.1% 94.2% 74.6% 97.1% 133.2% 98.5%
NOTE: Loss and loss adjustment expense ratio and operating expense ratio may not sum to combined ratio due to rounding.
Segment Information - Year to Date
$ in thousands
(Unaudited)
Twelve Months Ended December 31,
2014 2013

P&C

A&H

NGHC
Reciprocal
Exchanges

P&C

A&H

NGHC
Gross written premium $ 1,924,666 $ 140,399 $ 2,065,065 $ 70,042 $ 1,305,254 $ 33,501 $ 1,338,755
Net written premium 1,676,946 140,002 1,816,948 53,076 646,100 33,216 679,316
Net earned premium 1,465,122 120,476 1,585,598 47,622 654,849 33,217 688,066
Ceding commission income (primarily related parties) 7,643 7,643 4,787 87,100 87,100
Service and fee income 119,876 58,457 178,333 139 82,752 44,789 127,541
Total underwriting revenue $ 1,592,641 $ 178,933 $ 1,771,574 $ 52,548 $ 824,701 $ 78,006 $ 902,707
Loss and loss adjustment expense $ 940,457 $ 85,889 $ 1,026,346 $ 26,719 $ 435,989 $ 26,135 $ 462,124
Acquisition costs and other 254,130 54,692 308,822 6,267 110,509 24,378 134,887
General and administrative 290,079 56,617 346,696 11,967 252,345 28,207 280,552
Total underwriting expenses $ 1,484,666 $ 197,198 $ 1,681,864 $ 44,953 $ 798,843 $ 78,720 $ 877,563
Underwriting income (loss) $ 107,975 $ (18,265) $ 89,710 $ 7,595 $ 25,858 $ (714) $ 25,144
Non-cash impairment of goodwill 9,419 6,373 15,792 1,445 1,445
Non-cash amortization of intangible assets 5,208 6,117 11,325 2,468 4,590 1,828 6,418
Underwriting income (loss) before amortization and impairment $ 122,602 $ (5,775) $ 116,827 $ 10,063 $ 31,893 $ 1,114 $ 33,007
Underwriting ratios
Loss and loss adjustment expense ratio (6) 64.2% 71.3% 64.7% 56.1% 66.6% 78.7% 67.2%
Operating expense ratio (Non-GAAP) (7,8) 28.4% 43.9% 29.6% 27.9% 29.5% 23.5% 29.2%
Combined ratio (Non-GAAP) (7,9) 92.6% 115.2% 94.3% 84.1% 96.1% 102.1% 96.3%
Underwriting ratios (before amortization and impairment)
Loss and loss adjustment expense ratio (6) 64.2% 71.3% 64.7% 56.1% 66.6% 78.7% 67.2%
Operating expense ratio (Non-GAAP) (7,10) 27.4% 33.5% 27.9% 22.8% 28.6% 18.0% 28.0%
Combined ratio (Non-GAAP) (7,9) 91.6% 104.8% 92.6% 78.9% 95.1% 96.6% 95.2%
NOTE: Loss and loss adjustment expense ratio and operating expense ratio may not sum to combined ratio due to rounding.
Reconciliation of Operating Expense Ratio and Operating Expense Ratio Before Amortization (Non-GAAP)
$ in thousands
(Unaudited)
Three Months Ended December 31,
2014 2013

P&C

A&H

NGHC
Reciprocal
Exchanges

P&C

A&H

NGHC
Total underwriting expenses $ 401,954 $ 55,284 $ 457,238 $ 37,518 $ 236,919 $ 26,799 $ 263,718
Less: Loss and loss adjustment expense 248,606 27,121 275,727 21,368 142,591 9,403 151,994
Less: Ceding commission income 48 48 4,750 13,999 13,999
Less: Service and fee income 43,458 13,811 57,269 117 19,756 14,732 34,488
Operating expense 109,842 14,352 124,194 11,283 60,573 2,664 63,237
Net earned premium $ 374,034 $ 30,532 $ 404,566 $ 40,930 $ 206,849 $ 8,385 $ 215,234
Operating expense ratio (Non-GAAP) 29.4% 47.0% 30.7% 27.6% 29.3% 31.8% 29.4%
Total underwriting expenses $ 401,954 $ 55,284 $ 457,238 $ 37,518 $ 236,919 $ 26,799 $ 263,718
Less: Loss and loss adjustment expense 248,606 27,121 275,727 21,368 142,591 9,403 151,994
Less: Ceding commission income 48 48 4,750 13,999 13,999
Less: Service and fee income 43,458 13,811 57,269 117 19,756 14,732 34,488
Less: Non-cash impairment of goodwill 9,419 6,373 15,792 1,445 1,445
Less: Non-cash amortization of intangible assets 2,026 864 2,890 2,115 877 902 1,779
Operating expense before amortization and impairment 98,397 7,115 105,512 9,168 58,251 1,762 60,013
Net earned premium $ 374,034 $ 30,532 $ 404,566 $ 40,930 $ 206,849 $ 8,385 $ 215,234
Operating expense ratio before amortization and impairment (Non-GAAP) 26.3% 23.3% 26.1% 22.4% 28.2% 21.0% 27.9%
Twelve Months Ended December 31,
2014 2013

P&C

A&H

NGHC
Reciprocal
Exchanges

P&C

A&H

NGHC
Total underwriting expenses $ 1,484,666 $ 197,198 $ 1,681,864 $ 44,953 $ 798,843 $ 78,720 $ 877,563
Less: Loss and loss adjustment expense 940,457 85,889 1,026,346 26,719 435,989 26,135 462,124
Less: Ceding commission income 7,643 7,643 4,787 87,100 87,100
Less: Service and fee income 119,876 58,457 178,333 139 82,752 44,789 127,541
Operating expense 416,690 52,852 469,542 13,308 193,002 7,796 200,798
Net earned premium $ 1,465,122 $ 120,476 $ 1,585,598 $ 47,622 $ 654,849 $ 33,217 $ 688,066
Operating expense ratio (Non-GAAP) 28.4% 43.9% 29.6% 27.9% 29.5% 23.5% 29.2%
Total underwriting expenses $ 1,484,666 $ 197,198 $ 1,681,864 $ 44,953 $ 798,843 $ 78,720 $ 877,563
Less: Loss and loss adjustment expense 940,457 85,889 1,026,346 26,719 435,989 26,135 462,124
Less: Ceding commission income 7,643 7,643 4,787 87,100 87,100
Less: Service and fee income 119,876 58,457 178,333 139 82,752 44,789 127,541
Less: Non-cash impairment of goodwill 9,419 6,373 15,792 1,445 1,445
Less: Non-cash amortization of intangible assets 5,208 6,117 11,325 2,468 4,590 1,828 6,418
Operating expense before amortization and impairment 402,063 40,362 442,425 10,840 186,967 5,968 192,935
Net earned premium $ 1,465,122 $ 120,476 $ 1,585,598 $ 47,622 $ 654,849 $ 33,217 $ 688,066
Operating expense ratio before amortization and impairment (Non-GAAP) 27.4% 33.5% 27.9% 22.8% 28.6% 18.0% 28.0%
Premiums by Business Line
$ in thousands
(Unaudited)
Three Months Ended December 31,
Gross Written Premium Net Written Premium Net Earned Premium
2014 2013 Change 2014 2013 Change 2014 2013 Change
Property & Casualty
Personal Auto $288,565 $240,890 19.8% $252,284 $145,917 72.9% $259,599 $155,904 66.5%
Homeowners 76,330 992 NA 60,396 992 NA 38,778 326 NA
RV/Packaged 33,370 35,648 (6.4)% 33,193 25,298 31.2% 37,841 28,344 33.5%
Commercial Auto 38,951 29,841 30.5% 35,993 19,680 82.9% 33,918 19,456 74.3%
Other 3,106 1,849 68.0% 2,287 1,397 63.7% 3,898 2,819 38.3%
Property & Casualty Total 440,322 309,220 42.4% 384,153 193,284 98.8% 374,034 206,849 80.8%
Accident & Health 22,526 8,519 164.4% 22,389 8,389 166.9% 30,532 8,385 264.1%
Total National General 462,848 317,739 45.7% 406,542 201,673 101.6% 404,566 215,234 88.0%
Reciprocal Exchanges
Personal Auto 28,106 NA 28,012 NA 24,362 NA
Homeowners 28,015 NA 14,491 NA 13,558 NA
Other 3,928 NA 3,368 NA 3,010 NA
Reciprocal Exchanges Total 60,049 NA 45,871 NA 40,930 NA
Consolidated Total $522,897 $317,739 64.6% $452,413 $201,673 124.3% $445,496 $215,234 107.0%
Twelve Months Ended December 31,
Gross Written Premium Net Written Premium Net Earned Premium
2014 2013 Change 2014 2013 Change 2014 2013 Change
Property & Casualty
Personal Auto $ 1,241,575 $ 1,016,728 22.1% $ 1,047,795 $ 487,311 115.0% $ 979,082 $ 502,160 95.0%
Homeowners 366,997 1,389 NA 333,586 1,389 NA 204,285 444 NA
RV/Packaged 153,553 158,300 (3.0)% 148,456 88,553 67.6% 147,587 88,494 66.8%
Commercial Auto 146,124 116,774 25.1% 132,002 61,163 115.8% 118,759 54,913 116.3%
Other 16,417 12,063 36.1% 15,107 7,684 96.6% 15,409 8,838 74.3%
Property & Casualty Total 1,924,666 1,305,254 47.5% 1,676,946 646,100 159.5% 1,465,122 654,849 123.7%
Accident & Health 140,399 33,501 319.1% 140,002 33,216 321.5% 120,476 33,217 262.7%
Total National General 2,065,065 1,338,755 54.3% 1,816,948 679,316 167.5% 1,585,598 688,066 130.4%
Reciprocal Exchanges
Personal Auto 32,436 NA 32,075 NA 28,405 NA
Homeowners 33,028 NA 17,127 NA 15,779 NA
Other 4,578 NA 3,874 NA 3,438 NA
Reciprocal Exchanges Total 70,042 NA 53,076 NA 47,622 NA
Consolidated Total $2,135,107 $1,338,755 59.5% $1,870,024 $679,316 175.3% $ 1,633,220 $688,066 137.4%

Additional Disclosures

(1) References to operating earnings and basic and diluted operating EPS are Non-GAAP financial measures defined by the Company as net income and basic earnings per share excluding after-tax net realized investment gain or loss on securities, foreign exchange gain or loss, equity in earnings or losses of unconsolidated subsidiaries, non-cash amortization of intangible assets, and non-cash impairment of goodwill. The Company believes operating earnings and basic and diluted operating EPS are more relevant measures of the Company's profitability because operating earnings and basic and diluted operating EPS contain the components of net income upon which the Company's management has the most influence and excludes factors outside management's direct control and non-recurring items. Other companies may calculate these measures differently, and therefore, their measures may not be comparable to those used by National General. Please see the Non-GAAP Financial Measures table within this release for the reconciliation of these Non-GAAP measures to the most directly comparable GAAP measure.

(2) Reinsurance recoverable on unpaid losses includes $88,970 and $176,241 from related parties at December 31, 2014 and December 31, 2013, respectively; includes $23,583 relating to Reciprocal Exchanges at December 31, 2014.

(3) Reinsurance payable includes $26,241 and $76,360 to related parties at December 31, 2014 and December 31, 2013, respectively; includes $13,811 relating to Reciprocal Exchanges at December 31, 2014.

(4) Common stock: $0.01 par value - authorized 150,000,000 shares, issued and outstanding 93,427,382 shares - December 31, 2014; authorized 150,000,000 shares, issued and outstanding 79,731,800 shares - December 31, 2013.

(5) Preferred stock: $0.01 par value - authorized 10,000,000 shares, issued and outstanding 2,200,000 shares and 0 shares - December 31, 2014 and December 31, 2013.

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

(7) 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.

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

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

(10) Operating expense ratio (non-GAAP) before amortization and impairment is calculated by dividing the operating expense before amortization and impairment by net earned premium. Operating expense before amortization and impairment consists of the sum of acquisition and other underwriting costs and general and administrative expense less ceding commission income and service and fee income less non-cash amortization of intangible assets and non-cash impairment of goodwill.

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

Source:National General Holdings Corp.