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National General Holdings Corp. Reports Second Quarter 2015 Results

NEW YORK, Aug. 3, 2015 (GLOBE NEWSWIRE) -- National General Holdings Corp. (Nasdaq:NGHC) today reported second quarter 2015 operating earnings(1) of $35.1 million or $0.36 per diluted share, compared to $34.1 million or $0.36 per diluted share in the second quarter of 2014. Net income was $33.8 million or $0.35 per diluted share, compared to $30.3 million or $0.32 per diluted share in the second quarter of 2014.

Second Quarter 2015 Highlights Versus Second Quarter 2014*

  • Net written premium grew by $30.1 million or 7.2% to $448.6 million, driven by the run-off of our third-party quota share treaty, additional premiums from acquisitions completed during the past year, and underlying organic growth within our P&C business.
  • The combined ratio was 91.5% compared to 93.1% in the prior year's quarter, excluding non-cash amortization of intangible assets, driven by improvement within both our P&C and A&H segments.
  • Total revenue grew $86.7 million or 19.6% to $529.6 million, driven by $55.1 million or 14.1% growth in net earned premiums, $28.9 million or 75.0% growth in service and fee income (including Attorney-in-Fact management fees of $10.7 million), and $4.8 million or 42.7% growth in net investment income, partially offset by a $1.5 million or 97.0% decline in ceding commission income from the run-off of our terminated third-party quota share.
  • Shareholders' equity grew 2.5% from March 31, 2015 to $1.29 billion, while fully diluted book value per share grew 1.3% to $11.11 at June 30, 2015. Annualized operating return on average common equity (ROE) was 13.2% for the second quarter of 2015.
  • Second quarter 2015 operating earnings exclude the following items, net of tax: $1.9 million or $0.02 per share of non-cash amortization of intangible assets, $1.6 million or $0.02 per share of net realized investment gains, $1.1 million or $0.01 per share of equity in earnings of unconsolidated subsidiaries, $1.1 million or $0.01 per share of foreign exchange losses, and $1.0 million or $0.01 per share of other than temporary impairment losses. Second quarter 2015 operating earnings include $7.2 million, or approximately $0.05 per share, of additional expenses related to transition and integration costs for to the Tower Personal Lines business.

Michael Karfunkel, National General's Chairman and CEO, stated: "We are pleased with our second quarter results, which included underlying growth and solid underwriting profitability in both of our operating segments. Within P&C, we have seen strong performance from both our legacy business and recent acquisitions, including our newest addition Assigned Risk Solutions (ARS), which closed early in the second quarter. We continue to make progress transitioning the homeowners product to our state-of-the-art technology platform, as we have already moved several key states and expect to be completed with the others by year-end, putting the majority of homeowners products on our system. Within A&H, we again posted solid profitability, and we believe we have only scratched the surface on the potential for what this business can become. We remained busy on the acquisition front, announcing our acquisition of the QBE Lender-Placed Insurance business on July 15 and announcing an agreement in principle to acquire certain business lines from Assurant Health on June 10. We expect both of these transactions will be immediately accretive to earnings and will greatly enhance the value of our franchise. Through the first half of 2015, we have profitably grown our business and made several great additions to our platform, and we now stand in an excellent position to capitalize on these moves during the rest of this year and throughout 2016. Going forward, we plan to continue to grow our business both organically and through additive transactions like these, building a premier personal lines insurer and further enhancing shareholder value."

*NOTE: Unless specified otherwise, discussion of our second quarter 2015 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 Second Quarter 2015 as Compared to Second Quarter 2014

Gross written premium grew 6.5% to $499.0 million, net written premium grew 7.2% to $448.6 million, and net earned premium grew 14.1% to $446.6 million. Underlying 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; additional premiums from acquisitions completed during the past year; and underlying organic growth within our P&C segment.

Ceding commission income decreased to $0.0 million from $1.6 million in the prior year's quarter, reflecting the run-off of our terminated third-party quota share. Service and fee income grew 75.0% to $67.3 million, driven by growth in both the P&C and A&H segments, and including management fees of $10.7 million related to the Attorneys-in-Fact that manage the Reciprocal Exchanges within the P&C segment.

Excluding non-cash amortization of intangible assets, the combined ratio was 91.5% with a loss ratio of 60.8% and an expense ratio of 30.7%, versus a prior year combined ratio of 93.1% with a loss ratio of 65.3% and an expense ratio of 27.8%. The lower loss ratio was driven by an improvement in both P&C and A&H loss ratios, and the higher expense ratio was driven by an increased P&C expense ratio partially offset by a reduced A&H expense ratio.

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

  • Property & Casualty - Gross written premium grew 13.9% to $464.5 million, net written premium grew 18.1% to $422.8 million, and net earned premium grew 13.5% to $410.3 million. Underlying P&C premium growth was driven by three 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) additional premiums from acquisitions completed during the past year, including Imperial which was acquired during the second quarter of 2014; and (3) underlying organic growth of approximately 6%. Ceding commission income decreased to $(0.2) million from $1.6 million in the prior year's quarter, reflecting the run-off of our terminated third-party quota share. Service and fee income grew 112.4% to $49.7 million, driven by increased underlying premium volume in the quarter, the addition of service and fee income from acquisitions completed during the past year (including our acquisition of Assigned Risk Solutions which closed on April 1, 2015), and the addition of $10.7 million of fees earned by the Attorneys-in-Fact that manage the Reciprocal Exchanges. Excluding non-cash amortization of intangible assets, the combined ratio was 91.6% with a loss ratio of 59.8% and an expense ratio of 31.8%, versus a prior year combined ratio of 91.7% with a loss ratio of 63.9% and an expense ratio of 27.8%. The improved loss ratio versus the prior year's quarter is the result of business mix changes, most notably a growing proportion of homeowners business within our product portfolio. The increased expense ratio is primarily the result of $7.2 million, or approximately 1.8 points, of additional expenses related to transition and integration costs for the Tower Personal Lines business, which relate to IT, facilities management, operations, underwriting, and claims.
  • Accident & Health - Gross written premium declined 43.1% to $34.5 million, net written premium declined 57.3% to $25.8 million, and net earned premium grew 21.5% to $36.3 million. The decline in gross and net written premium was driven by a reduction in written premium at EuroAccident (our Swedish group life and health MGA), partially offset by growth within our domestic operations. EuroAccident net written premium declined to $10.0 million from $49.7 million in the prior year's quarter driven by two key factors: (1) a substantial shift in exchange rates between U.S. Dollars and Swedish Krona between the two periods; and (2) as previously expected, a reduction from a higher level of second quarter 2014 premiums as the 2014 quarter included both a portion of year-to-date reinsured premium and the initial quarter of EuroAccident business being written on National General paper, while the 2015 second quarter includes only business written on National General paper. Our domestic operations continue to demonstrate strong growth, with a total of $15.9 million in net written premium at our U.S. underwriting subsidiaries, compared to $10.7 million in the prior year's quarter. Service and fee income grew 17.1% to $17.7 million, with strong growth at VelaPoint (our call center general agency) and TABS (our domestic stop loss business), and added service and fee income from HST (which was acquired in the first quarter of 2015), partially offset by a decline at EuroAccident, where fee income is eliminated in consolidation as business is now written on National General paper. Excluding non-cash amortization of intangible assets, the combined ratio was 89.9% with a loss ratio of 72.0% and an expense ratio of 17.9%, versus a prior year combined ratio of 110.1% with a loss ratio of 82.4% and an expense ratio of 27.7%. The improved profitability was driven by a reduction in both the loss and expense ratios, reflecting the continued maturation of the A&H business and higher service and fee income.
  • Reciprocal Exchanges - Results for the Reciprocal Exchanges are not included in net income available to NGHC common stockholders. Gross written premium was $76.7 million, net written premium was $30.8 million, and net earned premium was $22.2 million. Excluding non-cash amortization of intangible assets, the combined ratio was 98.5% with a loss ratio of 68.5% and an expense ratio of 30.0%.

Investment income grew 42.7% to $16.2 million, reflecting an increase in the size of our investment portfolio as compared to the prior year's quarter and our continued growth in retained earnings. Second quarter 2015 results included $2.4 million of net realized investment gains compared with no realized gains or losses in the second quarter of 2014, as well as an other than temporary impairment (OTTI) loss of $1.5 million compared to zero OTTI impact in the second quarter of 2014. Total cash, cash equivalents and investments grew to $1.91 billion at June 30, 2015 from $1.85 billion at March 31, 2015. Accumulated other comprehensive income (AOCI) declined to $15.0 million at June 30, 2015 from $32.7 million at March 31, 2015.

Other revenue was a loss of $1.4 million, with a negligible amount of other revenue in the prior year's quarter, driven by a $1.6 million foreign exchange loss from currency fluctuations within our European subsidiaries.

Interest expense of $4.8 million increased from $2.5 million in the prior year's quarter, as the second quarter 2014 did not reflect a full quarter of interest payments on our $250 million May 2014 senior note issuance. Debt was $250.3 million as of June 30, 2015.

Equity in earnings of unconsolidated subsidiaries (predominantly our investment in Life Settlement Entities) was $1.7 million in the second quarter of 2015 versus a loss of $2.6 million in the prior year's quarter, reflecting fair value adjustments on life settlement contracts.

The second quarter 2015 provision for income taxes was $9.1 million and the effective tax rate for the quarter was 19.8%. Included in the second quarter 2015 provision for income taxes was a $2.6 million benefit attributable to a reduction of the deferred tax liability (DTL) associated with the equalization reserves of our Luxembourg Reinsurance Company (LRC) subsidiaries. Excluding this benefit, the adjusted second quarter 2015 effective tax rate was 25.4%. As of June 30, 2015, the DTL associated with our LRC subsidiaries was $28.4 million.

National General Holding Corp. shareholders' equity was $1,289.7 million at June 30, 2015, growth of 2.5% from $1,258.9 million at March 31, 2015, reflecting the quarter's retained earnings as well as the addition of $15 million of preferred stock from the exercise of the underwriters' over-allotment option on our March 2015 preferred share offering, partially offset by a reduction in AOCI. Fully diluted book value per share was $11.11 at June 30, 2015, growth of 1.3% from $10.96 at March 31, 2015, and growth of 17.2% from $9.48 at June 30, 2014. Annualized operating return on average common equity (ROE) was 13.2% for the second quarter of 2015.

Additional Items

  • Assurant Health - On June 10, 2015 we announced that we had reached an agreement in principle, subject to final documentation and regulatory approval, to acquire certain business lines and assets from Assurant Health, which is a business segment of Assurant, Inc. (NYSE:AIZ). Included in the transaction are the small group self-funded and supplemental product lines, as well as the right to acquire certain other assets including North Star Marketing, a proprietary small group sales channel. In total, these businesses will provide National General with access to up to approximately $280 million of potential additional A&H revenues. Assurant Health will continue sales of its small group self-funded and supplemental products while the transaction is finalized. The transaction will be subject to customary closing conditions and regulatory approvals. In addition, National General and Assurant have entered into an exclusivity arrangement until a definitive agreement can be reached, during which National General will reinsure business written by Assurant Health.
  • QBE Lender-Placed Insurance - On July 15, 2015 we announced that we had reached an agreement to acquire the Lender-Placed Insurance business of QBE North America, a division of QBE Insurance Group Limited (ASX:QBE.AX). The transaction includes the acquisition of certain assets, including loan-tracking systems and technology, client servicing accounts, intellectual property, and vendor relationships, as well as the assumption of all related insurance liabilities in a reinsurance transaction through which National General will receive the loss reserves, unearned premium reserves, and invested assets at closing. As of June 30, 2015 these amounts were approximately $92 million, $247 million, and $342 million, respectively. The purchase price will be an aggregate cash payment of $90 million, payable at closing, which is expected to occur within 90 days. The transaction is subject to customary closing conditions and regulatory approvals. QBE LPI is the second largest lender-placed insurance platform in the U.S., produced $576 million of gross written and managed premium in 2014 and tracked 10.7 million home and auto loans as of December 31, 2014. QBE LPI offers a full suite of lender-placed insurance products to customers through three business segments: (1) LPI Home offers fire, home, and flood products, wrote $390 million GWP and tracked 7.8 million loans in 2014; (2) LPI Auto offers collateral protection insurance and guaranteed asset protection products for automobiles, wrote $150 million GWP and tracked 2.9 million loans in 2014; and (3) Seattle Specialty Insurance Services is an agency and tracking business focused on the smaller niche loan servicing market which wrote $36 million of GWP primarily on behalf of third-parties and tracked 595,000 loans in 2014. The company has an industry leading technology platform supported by comprehensive enterprise risk management capabilities, and a seasoned management team with significant operational expertise.

Conference Call

On Tuesday, August 4, 2015 at 11:00 AM ET, Chairman and Chief Executive Officer Michael Karfunkel and Chief Financial Officer Mike Weiner will review these results via a conference call that may be accessed as follows:

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

A replay of the conference call will be accessible from 2:00 PM ET on Tuesday, August 4, 2015 to 11:59 PM ET on Tuesday, August 18, 2015 by dialing either 800-332-6854 (toll-free) within the U.S. or 973-528-0005 outside the U.S. and entering passcode 842046. In addition, a replay of the webcast can also be retrieved at http://ir.nationalgeneral.com/events.cfm.

About National General Holdings Corp.

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

Forward Looking Statements

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

Income Statement - Second Quarter
$ in thousands
(Unaudited)
Three Months Ended June 30,
2015 2014
NGHC Reciprocal
Exchanges
Consolidated NGHC
Revenues:
Gross written premium $ 498,952 $ 76,729 $ 575,681 $ 468,473
Ceded premiums (related parties - $373, $(20), and $353 in 2015 and $12,690 in 2014) (50,308) (45,963) (96,271) (49,917)
Net written premium 448,644 30,766 479,410 418,556
Net earned premium 446,568 22,248 468,816 391,466
Ceding commission income 46 9,924 9,970 1,557
Service and fee income 67,343 947 57,558 (A) 38,486
Net investment income 16,154 2,181 18,335 11,321
Net realized gain/(loss) on investments 2,402 (546) 1,856
Other than temporary impairment loss (1,467) (1,467)
Other revenue (1,415) (1,415) 100
Total revenues $ 529,631 $ 34,754 $ 553,653 (B) $ 442,930
Expenses:
Loss and loss adjustment expense $ 271,584 $ 15,245 $ 286,829 $ 255,604
Acquisition costs and other underwriting expenses 88,912 7,611 96,502 (C) 74,418
General and administrative 118,328 11,541 119,158 (D) 77,059
Interest expense 4,804 3,797 8,601 2,519
Total expenses $ 483,628 $ 38,194 $ 511,090 (E) $ 409,600
Income before provision for income taxes and equity in earnings (losses) of unconsolidated subsidiaries $ 46,003 $ (3,440) $ 42,563 $ 33,330
Provision for income taxes 9,110 (1,219) 7,891 424
Income before equity in earnings (losses) of unconsolidated subsidiaries 36,893 (2,221) 34,672 32,906
Equity in earnings (losses) of unconsolidated subsidiaries 1,654 1,654 (2,610)
Net income before non-controlling interest and dividends on preferred shares 38,547 (2,221) 36,326 30,296
Less: net income attributable to non-controlling interest 20 (2,221) (2,201) (38)
Net income before dividends on preferred shares 38,527 38,527 30,334
Less: dividends on preferred shares 4,744 4,744
Net income available to common stockholders $ 33,783 $ — $ 33,783 $ 30,334
NOTE: Consolidated column includes eliminations as follows: (A) $(10,732), (B) $(10,732), (C) $(21), (D) $(10,711), (E) $(10,732).
Income Statement - Year to Date
$ in thousands
(Unaudited)
Six Months Ended June 30,
2015 2014
NGHC Reciprocal
Exchanges
Consolidated NGHC
Revenues:
Gross written premium $ 1,084,760 $ 137,966 $ 1,219,136 (A) $ 1,114,615
Ceded premiums (related parties - $721, $3,570, and $4,291 in 2015 and $42,967 in 2014) (124,728) (88,563) (209,701) (B) (128,574)
Net written premium 960,032 49,403 1,009,435 986,041
Net earned premium 883,837 64,144 947,981 749,318
Ceding commission income 1,099 13,951 15,050 6,927
Service and fee income 129,996 1,742 112,428 (C) 75,192
Net investment income 30,263 4,220 34,483 20,535
Net realized gain/(loss) on investments 3,912 147 4,059
Other than temporary impairment loss (2,483) (2,483)
Other revenue (170) (170) 107
Total revenues $ 1,046,454 $ 84,204 $ 1,111,348 (D) $ 852,079
Expenses:
Loss and loss adjustment expense $ 550,266 $ 43,249 $ 593,515 $ 480,951
Acquisition costs and other underwriting expenses 175,541 10,872 186,387 (E) 148,791
General and administrative 218,204 25,925 224,845 (F) 153,258
Interest expense 10,187 7,494 17,681 3,112
Total expenses $ 954,198 $ 87,540 $ 1,022,428 (G) $ 786,112
Income before provision for income taxes and equity in earnings (losses) of unconsolidated subsidiaries $ 92,256 $ (3,336) $ 88,920 $ 65,967
Provision for income taxes 17,529 (1,251) 16,278 7,760
Income before equity in earnings (losses) of unconsolidated subsidiaries 74,727 (2,085) 72,642 58,207
Equity in earnings (losses) of unconsolidated subsidiaries 6,612 6,612 (1,487)
Net income before non-controlling interest and dividends on preferred shares 81,339 (2,085) 79,254 56,720
Less: net income attributable to non-controlling interest 44 (2,085) (2,041) (6)
Net income before dividends on preferred shares 81,295 81,295 56,726
Less: dividends on preferred shares 5,775 5,775
Net income available to common stockholders $ 75,520 $ — $ 75,520 $ 56,726
NOTE: Consolidated column includes eliminations as follows: (A) $(3,590), (B) $3,590, (C) $(19,310), (D) $(19,310), (E) $(26), (F) $(19,284), and (G) $(19,310).
Earnings and Per Share Data
$ in thousands, except shares and per share data
(Unaudited)
Three Months Ended June 30, Six Months Ended June 30,
2015 2014 2015 2014
Net income available to common stockholders $ 33,783 $ 30,334 $ 75,520 $ 56,726
Basic net income per common share $ 0.36 $ 0.32 $ 0.81 $ 0.63
Diluted net income per common share $ 0.35 $ 0.32 $ 0.79 $ 0.62
Operating earnings attributable to NGHC(1) $ 35,082 $ 34,057 $ 74,770 $ 61,808
Basic operating earnings per common share(1) $ 0.37 $ 0.36 $ 0.80 $ 0.69
Diluted operating earnings per common share(1) $ 0.36 $ 0.36 $ 0.78 $ 0.68
Dividends declared per common share $ 0.02 $ 0.01 $ 0.04 $ 0.02
Weighted average number of basic shares outstanding 93,597,448 93,344,400 93,527,977 89,526,029
Weighted average number of diluted shares outstanding 96,181,037 94,819,307 96,005,397 90,898,518
Shares outstanding, end of period 93,713,986 93,344,400 93,713,986 93,344,400
Fully diluted shares outstanding, end of period 96,297,575 94,819,307 96,191,405 94,819,307
Book value per share $ 11.41 $ 9.63 $ 11.41 $ 9.63
Fully diluted book value per share $ 11.11 $ 9.48 $ 11.12 $ 9.48
Reconciliation of Net Income to Operating Earnings (Non-GAAP)
$ in thousands, except per share data
(Unaudited)
Three Months Ended June 30, Six Months Ended June 30,
2015 2014 2015 2014
Net income available to common stockholders $ 33,783 $ 30,334 $ 75,520 $ 56,726
Add (subtract) net of tax:
Net realized (gain)/loss on investments (1,561) (2,543)
Other than temporary impairment losses 954 1,614
Foreign exchange (gain)/loss 1,062 246 783 247
Equity in (earnings)/losses of unconsolidated subsidiaries (1,075) 1,697 (4,298) 967
Non-cash amortization of intangible assets 1,920 1,780 3,694 3,869
Non-cash impairment of goodwill
Operating earnings attributable to NGHC (1) $ 35,082 $ 34,057 $ 74,770 $ 61,808
Operating earnings per common share:
Basic operating earnings per common share $ 0.37 $ 0.36 $ 0.80 $ 0.69
Diluted operating earnings per common share $ 0.36 $ 0.36 $ 0.78 $ 0.68
Balance Sheet
$ in thousands
(Unaudited)
June 30, 2015
(unaudited)
December 31, 2014
(audited)
ASSETS NGHC Reciprocal
Exchanges
Consolidated NGHC Reciprocal
Exchanges
Consolidated
Investments:
Fixed maturities (2) $ 1,461,944 $ 223,453 $ 1,685,397 $ 1,374,087 $ 222,739 $ 1,596,826
Equity securities (3) 55,848 1,515 57,363 45,802 2,817 48,619
Short-term investments 50 9,261 9,311 50 10,490 10,540
Equity investment in unconsolidated subsidiaries 178,557 178,557 155,900 155,900
Other investments 7,607 7,607 4,764 4,764
Securities pledged (4) 68,826 68,826 49,456 49,456
Total investments 1,772,832 234,229 2,007,061 1,630,059 236,046 1,866,105
Cash and cash equivalents 132,791 35,270 168,061 123,178 9,437 132,615
Accrued investment income 13,463 1,976 15,439 12,553 1,898 14,451
Premiums and other receivables, net (5) 711,439 54,716 766,155 589,205 58,238 647,443
Deferred acquisition costs 122,232 19,028 141,260 121,514 4,485 125,999
Reinsurance recoverable on unpaid losses (6) 836,627 42,039 878,666 888,215 23,583 911,798
Prepaid reinsurance premiums 64,847 59,047 123,894 75,837 26,924 102,761
Notes receivable from related party 125,000 125,000 125,000 125,000
Due from affiliate 24,701 24,701 5,129 5,129
Premises and equipment, net 28,709 28,709 30,583 30,583
Intangible assets, net 264,863 7,567 272,430 237,404 11,433 248,837
Goodwill 113,843 113,843 70,764 70,764
Prepaid and other assets 18,351 24,348 42,699 43,160 71 43,231
Total assets $ 4,229,698 $ 478,220 $ 4,707,918 $ 3,952,601 $ 372,115 $ 4,324,716
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Unpaid loss and loss adjustment expense reserves $ 1,429,244 $ 124,328 $ 1,553,572 $ 1,450,305 $ 111,848 $ 1,562,153
Unearned premiums 808,395 137,380 945,775 744,438 119,998 864,436
Unearned service contract and other revenue 9,336 35,145 44,481 8,527 8,527
Reinsurance payable (7) 83,008 6,675 89,683 97,830 13,811 111,641
Accounts payable and accrued expenses (8) 165,912 22,923 188,835 189,430 17,691 207,121
Due to affiliate 38,056 38,056 1,552 1,552
Securities sold under agreements to repurchase, at contract value 61,154 61,154 46,804 46,804
Deferred tax liability (7,559) 38,855 31,296 29,133 38,402 67,535
Income tax payable 46,500 35 46,535 29,532 1,059 30,591
Notes payable (9) 250,337 52,547 302,884 250,708 48,374 299,082
Other liabilities 93,697 14,809 108,506 46,114 5,710 51,824
Total liabilities $ 2,940,024 $ 470,753 $ 3,410,777 $ 2,892,821 $ 358,445 $ 3,251,266
Stockholders' equity:
Common stock (10) $ 937 $ — $ 937 $ 934 $ — $ 934
Preferred stock (11) 220,000 220,000 55,000 55,000
Additional paid-in capital 688,967 688,967 690,736 690,736
Accumulated other comprehensive income 14,993 14,993 20,192 20,192
Retained earnings 364,609 364,609 292,832 292,832
Total National General Holdings Corp. stockholders' equity 1,289,506 1,289,506 1,059,694 1,059,694
Non-controlling interest 168 7,467 7,635 86 13,670 13,756
Total stockholders' equity 1,289,674 7,467 1,297,141 1,059,780 13,670 1,073,450
Total liabilities and stockholders' equity $ 4,229,698 $ 478,220 $ 4,707,918 $ 3,952,601 $ 372,115 $ 4,324,716
Segment Information - Second Quarter
$ in thousands
(Unaudited)
Three Months Ended June 30,
2015 2014
P&C A&H NGHC Reciprocal
Exchanges
P&C A&H NGHC
Gross written premium $ 464,494 $ 34,458 $ 498,952 $ 76,729 $ 407,863 $ 60,610 $ 468,473
Net written premium 422,838 25,806 448,644 30,766 358,096 60,460 418,556
Net earned premium 410,301 36,267 446,568 22,248 361,623 29,843 391,466
Ceding commission income (225) 271 46 9,924 1,557 1,557
Service and fee income 49,671 17,672 67,343 947 23,389 15,097 38,486
Total underwriting revenue $ 459,747 $ 54,210 $ 513,957 $ 33,119 $ 386,569 $ 44,940 $ 431,509
Loss and loss adjustment expense $ 245,454 $ 26,130 $ 271,584 $ 15,245 $ 231,008 $ 24,596 $ 255,604
Acquisition costs and other 77,293 11,619 88,912 7,611 61,440 12,978 74,418
General and administrative 104,297 14,031 118,328 11,541 64,715 12,344 77,059
Total underwriting expenses $ 427,044 $ 51,780 $ 478,824 $ 34,397 $ 357,163 $ 49,918 $ 407,081
Underwriting income (loss) $ 32,703 $ 2,430 $ 35,133 $ (1,278) $ 29,406 $ (4,978) $ 24,428
Non-cash impairment of goodwill
Non-cash amortization of intangible assets 1,733 1,221 2,954 1,615 773 1,966 2,739
Underwriting income (loss) before amortization and impairment $ 34,436 $ 3,651 $ 38,087 $ 337 $ 30,179 $ (3,012) $ 27,167
Underwriting ratios
Loss and loss adjustment expense ratio (12) 59.8% 72.0% 60.8% 68.5% 63.9% 82.4% 65.3%
Operating expense ratio (Non-GAAP) (13,14) 32.2% 21.3% 31.3% 37.2% 28.0% 34.3% 28.5%
Combined ratio (Non-GAAP) (13,15) 92.0% 93.3% 92.1% 105.7% 91.9% 116.7% 93.8%
Underwriting ratios (before amortization and impairment)
Loss and loss adjustment expense ratio (12) 59.8% 72.0% 60.8% 68.5% 63.9% 82.4% 65.3%
Operating expense ratio(Non-GAAP) (13,16) 31.8% 17.9% 30.7% 30.0% 27.8% 27.7% 27.8%
Combined ratio (Non-GAAP) (13,15) 91.6% 89.9% 91.5% 98.5% 91.7% 110.1% 93.1%
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)
Six Months Ended June 30,
2015 2014
P&C A&H NGHC Reciprocal
Exchanges
P&C A&H NGHC
Gross written premium $ 974,945 $ 109,815 $ 1,084,760 $ 137,966 $ 1,014,471 $ 100,144 $ 1,114,615
Net written premium 867,098 92,934 960,032 49,403 886,094 99,947 986,041
Net earned premium 816,395 67,442 883,837 64,144 688,842 60,476 749,318
Ceding commission income 546 553 1,099 13,951 6,927 6,927
Service and fee income 94,905 35,091 129,996 1,742 45,062 30,130 75,192
Total underwriting revenue $ 911,846 $ 103,086 $ 1,014,932 $ 79,837 $ 740,831 $ 90,606 $ 831,437
Loss and loss adjustment expense $ 504,033 $ 46,233 $ 550,266 $ 43,249 $ 440,438 $ 40,513 $ 480,951
Acquisition costs and other 152,630 22,911 175,541 10,872 117,213 31,578 148,791
General and administrative 190,026 28,178 218,204 25,925 128,236 25,022 153,258
Total underwriting expenses $ 846,689 $ 97,322 $ 944,011 $ 80,046 $ 685,887 $ 97,113 $ 783,000
Underwriting income (loss) $ 65,157 $ 5,764 $ 70,921 $ (209) $ 54,944 $ (6,507) $ 48,437
Non-cash impairment of goodwill
Non-cash amortization of intangible assets 3,752 1,931 5,683 3,866 1,616 4,336 5,952
Underwriting income (loss) before amortization and impairment $ 68,909 $ 7,695 $ 76,604 $ 3,657 $ 56,560 $ (2,171) $ 54,389
Underwriting ratios
Loss and loss adjustment expense ratio (12) 61.7% 68.6% 62.3% 67.4% 63.9% 67.0% 64.2%
Operating expense ratio (Non-GAAP) (13,14) 30.3% 22.9% 29.7% 32.9% 28.1% 43.8% 29.4%
Combined ratio (Non-GAAP) (13,15) 92.0% 91.5% 92.0% 100.3% 92.0% 110.8% 93.5%
Underwriting ratios (before amortization and impairment)
Loss and loss adjustment expense ratio (12) 61.7% 68.6% 62.3% 67.4% 63.9% 67.0% 64.2%
Operating expense ratio(Non-GAAP) (13,16) 29.8% 20.0% 29.1% 26.9% 27.9% 36.6% 28.6%
Combined ratio (Non-GAAP) (13,15) 91.6% 88.6% 91.4% 94.3% 91.8% 103.6% 92.8%
NOTE: Loss and loss adjustment expense ratio and operating expense ratio may not sum to combined ratio due to rounding.
Reconciliation of Operating Expense Ratio (Non-GAAP)
$ in thousands
(Unaudited)
Three Months Ended June 30,
2015 2014
P&C A&H NGHC Reciprocal
Exchanges
P&C A&H NGHC
Total underwriting expenses $ 427,044 $ 51,780 $ 478,824 $ 34,397 $ 357,163 $ 49,918 $ 407,081
Less: Loss and loss adjustment expense 245,454 26,130 271,584 15,245 231,008 24,596 255,604
Less: Ceding commission income (225) 271 46 9,924 1,557 1,557
Less: Service and fee income 49,671 17,672 67,343 947 23,389 15,097 38,486
Operating expense 132,144 7,707 139,851 8,281 101,209 10,225 111,434
Net earned premium $ 410,301 $ 36,267 $ 446,568 $ 22,248 $ 361,623 $ 29,843 $ 391,466
Operating expense ratio (Non-GAAP) 32.2% 21.3% 31.3% 37.2% 28.0% 34.3% 28.5%
Total underwriting expenses $ 427,044 $ 51,780 $ 478,824 $ 34,397 $ 357,163 $ 49,918 $ 407,081
Less: Loss and loss adjustment expense 245,454 26,130 271,584 15,245 231,008 24,596 255,604
Less: Ceding commission income (225) 271 46 9,924 1,557 1,557
Less: Service and fee income 49,671 17,672 67,343 947 23,389 15,097 38,486
Less: Non-cash impairment of goodwill
Less: Non-cash amortization of intangible assets 1,733 1,221 2,954 1,615 773 1,966 2,739
Operating expense before amortization and impairment 130,411 6,486 136,897 6,666 100,436 8,259 108,695
Net earned premium $ 410,301 $ 36,267 $ 446,568 $ 22,248 $ 361,623 $ 29,843 $ 391,466
Operating expense ratio before amortization and impairment (Non-GAAP) 31.8% 17.9% 30.7% 30.0% 27.8% 27.7% 27.8%
Six Months Ended June 30,
2015 2014
P&C A&H NGHC Reciprocal
Exchanges
P&C A&H NGHC
Total underwriting expenses $ 846,689 $ 97,322 $ 944,011 $ 80,046 $ 685,887 $ 97,113 $ 783,000
Less: Loss and loss adjustment expense 504,033 46,233 550,266 43,249 440,438 40,513 480,951
Less: Ceding commission income 546 553 1,099 13,951 6,927 6,927
Less: Service and fee income 94,905 35,091 129,996 1,742 45,062 30,130 75,192
Operating expense 247,205 15,445 262,650 21,104 193,460 26,470 219,930
Net earned premium $ 816,395 $ 67,442 $ 883,837 $ 64,144 $ 688,842 $ 60,476 $ 749,318
Operating expense ratio (Non-GAAP) 30.3% 22.9% 29.7% 32.9% 28.1% 43.8% 29.4%
Total underwriting expenses $ 846,689 $ 97,322 $ 944,011 $ 80,046 $ 685,887 $ 97,113 $ 783,000
Less: Loss and loss adjustment expense 504,033 46,233 550,266 43,249 440,438 40,513 480,951
Less: Ceding commission income 546 553 1,099 13,951 6,927 6,927
Less: Service and fee income 94,905 35,091 129,996 1,742 45,062 30,130 75,192
Less: Non-cash impairment of goodwill
Less: Non-cash amortization of intangible assets 3,752 1,931 5,683 3,866 1,616 4,336 5,952
Operating expense before amortization and impairment 243,453 13,514 256,967 17,238 191,844 22,134 213,978
Net earned premium $ 816,395 $ 67,442 $ 883,837 $ 64,144 $ 688,842 $ 60,476 $ 749,318
Operating expense ratio before amortization and impairment (Non-GAAP) 29.8% 20.0% 29.1% 26.9% 27.9% 36.6% 28.6%
Premiums by Business Line
$ in thousands
(Unaudited)
Three Months Ended June 30,
Gross Written Premium Net Written Premium Net Earned Premium
2015 2014 Change 2015 2014 Change 2015 2014 Change
Property & Casualty
Personal Auto $289,264 $288,654 0.2% $252,406 $244,938 3.0% $267,112 $244,126 9.4%
Homeowners 74,438 34,018 118.8% 75,456 34,018 121.8% 63,227 49,024 29.0%
RV/Packaged 43,096 42,148 2.2% 42,774 40,206 6.4% 37,576 36,720 2.3%
Commercial Auto 50,482 37,269 35.5% 46,258 33,639 37.5% 37,429 28,146 33.0%
Other 7,214 5,774 24.9% 5,944 5,295 12.3% 4,957 3,607 37.4%
Property & Casualty Total 464,494 407,863 13.9% 422,838 358,096 18.1% 410,301 361,623 13.5%
Accident & Health 34,458 60,610 (43.1)% 25,806 60,460 (57.3)% 36,267 29,843 21.5%
Total National General 498,952 468,473 6.5% 448,644 418,556 7.2% 446,568 391,466 14.1%
Reciprocal Exchanges
Personal Auto 25,773 NA 25,696 NA 23,541 NA
Homeowners 43,909 NA (2,041) NA (5,528) NA
Other 7,047 NA 7,111 NA 4,235 NA
Reciprocal Exchanges Total 76,729 NA 30,766 NA 22,248 NA
Consolidated Total $575,681 $468,473 22.9% $479,410 $418,556 14.5% $468,816 $391,466 19.8%
Six Months Ended June 30,
Gross Written Premium Net Written Premium Net Earned Premium
2015 2014 Change 2015 2014 Change 2015 2014 Change
Property & Casualty
Personal Auto $628,598 $637,338 (1.4)% $547,649 $521,589 5.0% $534,643 $451,328 18.5%
Homeowners 162,262 216,085 (24.9)% 145,846 216,085 (32.5)% 127,350 106,777 19.3%
RV/Packaged 80,646 80,693 (0.1)% 79,668 76,363 4.3% 73,552 70,861 3.8%
Commercial Auto 91,828 71,553 28.3% 84,251 63,760 32.1% 72,051 52,921 36.1%
Other 11,611 8,802 31.9% 9,684 8,297 16.7% 8,799 6,955 26.5%
Property & Casualty Total 974,945 1,014,471 (3.9)% 867,098 886,094 (2.1)% 816,395 688,842 18.5%
Accident & Health 109,815 100,144 9.7% 92,934 99,947 (7.0)% 67,442 60,476 11.5%
Total National General 1,084,760 1,114,615 (2.7)% 960,032 986,041 (2.6)% 883,837 749,318 18.0%
Reciprocal Exchanges
Personal Auto 43,464 NA 42,135 NA 46,471 NA
Homeowners 80,722 NA (6,823) NA 9,886 NA
Other 13,780 NA 14,091 NA 7,787 NA
Reciprocal Exchanges Total 137,966 NA 49,403 NA 64,144 NA
Consolidated Total $1,219,136 $1,114,615 9.4% $1,009,435 $986,041 2.4% $947,981 $749,318 26.5%
NOTE: Consolidated Total includes elimination of $(3,590) within Gross Written Premium for Six Months Ended June 30, 2015.

Additional Disclosures

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

(2) Fixed maturities, available-for-sale, at fair value (amortized cost $1,436,983, $225,924, $1,662,907 at June 30, 2015 and $1,330,760, $222,121, $1,522,881 at December 31, 2014).

(3) Equity securities, available-for-sale, at fair value (cost $55,937, $1,501, $57,438 at June 30, 2015 and $52,272, $2,752, $55,024 at December 31, 2014).

(4) Securities pledged (amortized cost $68,942, $0, $68,942 at June 30, 2015 and $47,546, $0, $47,546 at December 31, 2014).

(5) Premiums and other receivables, net (NGHC) includes $108,542 and $64,129 from related parties at June 30, 2015 and December 31, 2014, respectively.

(6) Reinsurance recoverable on unpaid losses (NGHC) includes $60,384 and $88,970 from related parties at June 30, 2015 and December 31, 2014, respectively.

(7)Reinsurance payable (NGHC) includes $41,600 and $41,965 to related parties at June 30, 2015 and December 31, 2014, respectively.

(8) Accounts payable and accrued expenses (NGHC) includes $47,550 and $38,576 to related parties at June 30, 2015 and December 31, 2014, respectively.

(9) Notes payable (Reciprocal Exchanges) includes $52,547 and $48,374 owed to related party at June 30, 2015 and December 31, 2014, respectively.

(10) Common stock: $0.01 par value - authorized 150,000,000 shares, issued and outstanding 93,713,986 shares - June 30, 2015; authorized 150,000,000 shares, issued and outstanding 93,427,382 - December 31, 2014.

(11) Preferred stock: $0.01 par value, authorized 10,000,000 shares, issued and outstanding 2,365,000 shares and 2,200,000 shares at June 30, 2015 and December 31, 2014, respectively.

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

(13) Operating expense ratio and combined ratio are considered non-GAAP financial measures under applicable SEC rules because a component of those ratios, operating expense, is calculated by offsetting acquisition and other underwriting costs and general and administrative expense by ceding commission income and service and fee income. Management uses operating expense ratio (non-GAAP) and combined ratio (non-GAAP) to evaluate financial performance against historical results and establish targets on a consolidated basis. The Company believes this presentation enhances the understanding of our results by eliminating what we believe are volatile and unusual events and presenting the ratios with what we believe are the underlying run rates of the business. Other companies may calculate these measures differently, and, therefore, their measures may not be comparable to those used by National General. Please see the Non-GAAP Financial Measures table within this release for the reconciliation of these Non-GAAP measures to the most directly comparable GAAP measure.

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

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

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

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

Source:National General Holdings Corp.