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National General Holdings Corp. Reports Third Quarter 2015 Results; Increases Quarterly Dividend to $0.03 Per Share

NEW YORK, Nov. 02, 2015 (GLOBE NEWSWIRE) -- National General Holdings Corp. (Nasdaq:NGHC) today reported third quarter 2015 operating earnings(1) of $43.8 million or $0.43 per diluted share, compared to $34.5 million or $0.36 per diluted share in the third quarter of 2014. Net income was $39.0 million or $0.38 per diluted share, compared to $32.1 million or $0.34 per diluted share in the third quarter of 2014. In addition, National General's Board of Directors has approved a 50% increase in the quarterly dividend to $0.03 per share from $0.02 per share, effective with the fourth quarter dividend.

Third Quarter 2015 Highlights Versus Third Quarter 2014*

  • Net written premium grew by $57.6 million or 13.6% to $482.0 million, driven by strong organic growth within our P&C business and substantial growth within our A&H operations.
  • The combined ratio was 90.2% compared to 90.9% 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 $57.5 million or 11.7% to $548.7 million, driven by $37.3 million or 8.6% growth in net earned premiums, $25.0 million or 54.5% growth in service and fee income (including Attorney-in-Fact management fees of $11.2 million), and $2.4 million or 17.8% growth in net investment income, partially offset by a $3.0 million decline in ceding commission income.
  • Shareholders' equity grew 18.0% from June 30, 2015 to $1.52 billion, while fully diluted book value per share grew 8.5% to $12.06 at September 30, 2015. Annualized operating return on average common equity (ROE) was 14.7% for the third quarter of 2015.
  • Third quarter 2015 operating earnings exclude the following items, net of tax: $3.9 million or $0.04 per share of other than temporary impairment losses, $1.8 million or $0.02 per share of non-cash amortization of intangible assets, $0.8 million or less than $0.01 per share of net realized investment gains, $0.2 million or less than $0.01 per share of foreign exchange losses, and $0.1 million or less than $0.01 per share of equity in earnings of unconsolidated subsidiaries (other than LSC Entities).

Michael Karfunkel, National General's Chairman and CEO, stated: "Our third quarter results displayed strong growth and solid underwriting profitability in both of our operating segments. Within P&C, we have seen excellent performance from both our legacy business and recent acquisitions, with the homeowners product line delivering particularly good results during the quarter. Within A&H, we again posted a profitable quarter, and while this division remains a work in progress, we believe that we are well positioned to capitalize on what we view as a huge opportunity. We continue to make considerable progress integrating all of our recent acquisitions, and are constantly monitoring the M&A landscape for other opportunities that can enhance our franchise. The third quarter and early stages of the fourth quarter also proved to be a very busy and important time for National General on several fronts. In August, we completed a $100 million subordinated notes offering and an 11.5 million share secondary common stock offering. In October, we closed on the acquisitions of the QBE Lender-Placed Insurance and the Assurant Health businesses, and closed on a $100 million private debt issuance. These actions strengthened our capital position and added two attractive businesses to our growing personal lines insurance franchise, which we expect will lead to enhanced shareholder value going forward.”

*NOTE: Unless specified otherwise, discussion of our third quarter 2014 and 2015 results does not include financial results from the Reciprocal Exchanges, which are presented within 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 Third Quarter 2015 as Compared to Third Quarter 2014

Gross written premium grew 12.1% to $546.8 million, net written premium grew 13.6% to $482.0 million, and net earned premium grew 8.6% to $469.0 million. Premium growth was driven by strong organic growth within our P&C segment and substantial growth within our A&H operations.

Ceding commission income was a loss of $2.3 million compared to a gain of $0.7 million in the prior year's quarter, reflecting a sliding scale adjustment related to our terminated third-party quota share. Service and fee income grew 54.5% to $70.9 million, driven by growth in both the P&C and A&H segments, and including management fees of $11.2 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 90.2% with a loss ratio of 61.6% and an expense ratio of 28.6%, versus a prior year combined ratio of 90.9% with a loss ratio of 62.5% and an expense ratio of 28.5%. The improved loss ratio was driven by a reduction in the P&C loss ratio, partially offset by an increased A&H loss ratio, while the overall expense ratio was flat with the prior year as a higher P&C expense ratio was offset by a lower A&H expense ratio.

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

  • Property & Casualty - Gross written premium grew 7.1% to $503.2 million, net written premium grew 10.2% to $448.1 million, and net earned premium grew 5.4% to $423.9 million. P&C net written premium growth was driven by organic growth of approximately 10%, which was driven by mid-to-high single digit growth within our legacy book and low-double-digit growth from our recent acquisitions, most notably the Tower Personal Lines and Imperial books. Ceding commission income was a loss of $2.6 million compared to a gain of $0.7 million in the prior year's quarter, reflecting a sliding scale adjustment related to our terminated third-party quota share. Service and fee income grew 63.3% to $51.2 million, driven by increased premium volume in the quarter, the addition of service and fee income from recent acquisitions (including the acquisition of Assigned Risk Solutions which closed on April 1, 2015), and the addition of $11.2 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 89.4% with a loss ratio of 60.2% and an expense ratio of 29.2%, versus a prior year combined ratio of 90.3% with a loss ratio of 62.5% 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 expense ratio reflects a more normalized run rate in the third quarter of 2015, compared to an artificially lower expense ratio in the prior year’s quarter as business written under the cut-through reinsurance agreement for the Tower Personal Lines transaction was recorded with a lower expense level prior to closing of the transaction on September 15, 2014.

  • Accident & Health - Gross written premium grew 145.9% to $43.6 million, net written premium grew 91.6% to $33.8 million, and net earned premium grew 53.1% to $45.1 million. Premium growth was driven by substantial growth within both our domestic operations and at EuroAccident (our Swedish group life and health MGA). Our domestic operations continue to deliver strong growth, with a total of $23.6 million in net written premium at our U.S. underwriting subsidiaries, compared to $11.1 million in the prior year's quarter, while EuroAccident net written premium grew to $10.2 million from $6.6 million in the prior year's quarter. Service and fee income grew 35.4% to $19.7 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 97.6% with a loss ratio of 74.3% and an expense ratio of 23.3%, versus a prior year combined ratio of 99.6% with a loss ratio of 61.9% and an expense ratio of 37.7%. The higher loss ratio was the result of increased loss activity in the current year’s quarter within TABS, while the reduced expense ratio was a reflection of the continued maturation of the A&H business and increased 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 $79.9 million, net written premium was $43.7 million, and net earned premium was $34.3 million. Excluding non-cash amortization of intangible assets, the combined ratio was 85.9% with a loss ratio of 39.6% and an expense ratio of 46.4%. Third quarter 2014 results include only 15 days of results of the Reciprocal Exchanges as the Attorneys-in-Fact were acquired with the closing of the Tower Personal Lines transaction on September 15, 2014.

Investment income grew 17.8% to $16.1 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. Third quarter 2015 results included $1.3 million of net realized investment gains compared with realized losses of $1.1 million in the third quarter of 2014. The current year’s quarter also includes an other than temporary impairment (OTTI) loss of $6.0 million compared to no OTTI impact in the prior year’s quarter. Total cash, cash equivalents and investments grew to $2.25 billion at September 30, 2015 from $1.91 billion at June 30, 2015. Accumulated other comprehensive income (AOCI) declined to $2.4 million at September 30, 2015, down from $15.0 million at June 30, 2015.

Other revenue was a loss of $0.2 million compared to a gain of $0.4 million in the prior year’s quarter, with the loss in the current year's quarter driven by foreign exchange losses from currency fluctuations within our European subsidiaries.

Interest expense of $5.8 million increased from $4.4 million in the prior year's quarter, reflecting the addition of a partial quarter of interest payments from our August 2015 issuance of $100 million of subordinated notes. Debt was $347.0 million as of September 30, 2015.

Equity in earnings of unconsolidated subsidiaries, which includes both our investment in Life Settlement Entities (LSC Entities) and our real estate investments, was a gain of $2.3 million in the third quarter of 2015 versus a loss of $1.6 million in the prior year's quarter, reflecting fair value adjustments on life settlement contracts of $2.1 million in the current period.

The third quarter 2015 provision for income taxes was $7.8 million and the effective tax rate for the quarter was 16.1%. Included in the third quarter 2015 provision for income taxes was a $3.6 million detriment attributable to an increase of the deferred tax liability (DTL) associated with the equalization reserves of our Luxembourg Reinsurance Company (LRC) subsidiaries. Excluding this detriment, the adjusted third quarter 2015 effective tax rate was 8.7%. As of September 30, 2015, the DTL associated with our LRC subsidiaries was $32.0 million. Additionally, the third quarter 2015 provision for income taxes also included a $2.1 million benefit primarily attributable to an increase in excludable foreign income related to a prior year return.

National General Holding Corp. shareholders' equity was $1,521.9 million at September 30, 2015, growth of 18.0% from $1,289.7 million at June 30, 2015, reflecting the quarter's retained earnings as well as the proceeds from our August 2015 common stock offering, partially offset by a reduction in AOCI. Fully diluted book value per share was $12.06 at September 30, 2015, growth of 8.5% from $11.11 at June 30, 2015 and growth of 15.9% from $10.40 at September 30, 2014. Annualized operating return on average common equity (ROE) was 14.7% for the third quarter of 2015.

Additional Items

  • Common Stock Offering - On August 18, 2015, we completed the sale of 11,500,000 shares of common stock, including 1,500,000 shares purchased by the underwriters pursuant to an over-allotment option. The common stock offering was priced at $19.00 per share, and generated approximately $210.9 million of net proceeds.
  • Subordinated Notes Issuance - On August 18, 2015, we completed the sale of $100 million aggregate principal amount of 7.625% Subordinated Notes due 2055, generating approximately $96.85 million of net proceeds. Interest will be payable quarterly in arrears on March 15, June 15, September 15 and December 15 of each year, commencing December 15, 2015. The Notes have a maturity date of September 15, 2055, and can be redeemed on or after September 15, 2020.
  • Real Estate Investments - In August 2015, we invested $53.7 million in Illinois Center, a limited partnership that owns an office building in Chicago, Illinois. AmTrust and ACP Re are also limited partners in Illinois Center and the general partner is NA Advisors (an entity controlled by Michael Karfunkel and managed by an unrelated third party). National General received a 37.5% limited partnership interest in Illinois Center for our investment. In addition, in August 2015, we invested $10.5 million in 4455 LBJ Freeway, LLC for the purposes of acquiring an office building in Dallas, Texas. National General and AmTrust each have a 50% ownership interest in 4455 LBJ Freeway, LLC.
  • National General Lender Services Acquisition - On October 1, 2015, we closed on the acquisition of 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 the related insurance liabilities in a reinsurance transaction through which National General received loss reserves, unearned premium reserves, and invested assets. The purchase price was an aggregate cash payment of $90 million (including ceding commission) subject to certain adjustments. The business has been branded National General Lender Services.
  • Assurant Health Acquisition - On October 1, 2015, we closed on the acquisition of certain business lines and assets from Assurant Health, a business segment of Assurant, Inc. (NYSE:AIZ). Included in the transaction were the small group self-funded and supplemental product lines, as well as the acquisition of North Star Marketing, a proprietary small group sales channel. The purchase price was an aggregate cash payment of $14 million.
  • Senior Unsecured Debt Issuance - On October 8, 2015, we closed on a private issuance of $100.0 million aggregate principal amount of 6.75% notes due 2024. The Notes bear interest at 6.75% per year, payable semiannually in arrears on May 15th and November 15th of each year, beginning on November 15, 2015. The Notes will mature on May 15, 2024, unless earlier redeemed or purchased by National General. Net proceeds of the issuance are approximately $98.85 million. The Company intends to use the net proceeds for general corporate purposes, including strategic acquisitions and to support its current and future policy writings.
  • Quarterly Common Stock Dividend Increase - National General's Board of Directors has approved an increase in the company's quarterly cash dividend on its common stock to $0.03 per share from $0.02 per share, effective with the fourth quarter dividend payment. The 50% dividend increase equates to an annualized dividend of $0.12 per share, or a dividend yield of 0.6% at current share price levels. The fourth quarter dividend will be payable on January 15, 2016 to shareholders of record as of January 4, 2016.

  • Preferred Stock Dividends - National General's Board of Directors has also approved quarterly cash dividends on Series A Preferred Stock in the amount of $0.46875 per share and Series B Preferred Stock in the amount of $18.75 per share (equivalent to $0.46875 per Depositary Share). Both dividends will be payable on January 15, 2016 to shareholders of record as of January 4, 2016.

Conference Call

On Tuesday, November 3, 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, November 3, 2015 to 11:59 PM ET on Tuesday, November 17, 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 - Third Quarter
$ in thousands
(Unaudited)
Three Months Ended September 30,
2015 2014
NGHC Reciprocal
Exchanges
Consolidated NGHC Reciprocal
Exchanges
Consolidated
Revenues:
Gross written premium $546,821 $79,864 $626,685 $487,602 $9,993 $497,595
Ceded premiums (related parties $387, $64, $451 for 2015; $964, $216, $1,180 for 2014) (64,832) (36,214) (101,046) (63,237) (2,788) (66,025)
Net written premium 481,989 43,650 525,639 424,365 7,205 431,570
Net earned premium 468,965 34,296 503,261 431,714 6,692 438,406
Ceding commission income (2,348) 14,498 12,150 668 37 705
Service and fee income 70,853 1,248 60,907 (A) 45,872 22 45,894
Net investment income 16,140 2,332 18,472 13,697 13,697
Net realized gain/(loss) on investments 1,291 124 1,415 (1,118) (1,118)
Other than temporary impairment loss (6,009) (6,009)
Other revenue (157) (157) 373 373
Total revenues $548,735 $52,498 $590,039 (B) $491,206 $6,751 $497,957
Expenses:
Loss and loss adjustment expense $288,684 $13,575 $302,259 $269,668 $5,351 $275,019
Acquisition costs and other underwriting expenses 98,686 10,095 108,744 (C) 83,642 273 83,915
General and administrative expenses 106,832 22,906 118,581 (D) 88,317 1,811 90,128
Interest expense 5,844 3,584 9,428 4,437 272 4,709
Total expenses $500,046 $50,160 $539,012 (E) $446,064 $7,707 $453,771
Income before provision for income taxes and equity in earnings (losses) of unconsolidated subsidiaries $48,689 $2,338 $51,027 $45,142 $(956) $44,186
Provision for income taxes 7,840 774 8,614 10,237 (211) 10,026
Income before equity in earnings (losses) of unconsolidated subsidiaries 40,849 1,564 42,413 34,905 (745) 34,160
Equity in earnings (losses) of unconsolidated subsidiaries 2,288 2,288 (1,611) (1,611)
Net income before non-controlling interest and dividends on preferred shares 43,137 1,564 44,701 33,294 (745) 32,549
Less: net income attributable to non-controlling interest 24 1,564 1,588 (25) (745) (770)
Net income before dividends on preferred shares 43,113 43,113 33,319 33,319
Less: dividends on preferred shares 4,125 4,125 1,260 1,260
Net income available to common stockholders $38,988 $ $38,988 $32,059 $ $32,059

NOTE: Consolidated column includes eliminations as follows: (A) $(11,194), (B) $(11,194), (C) $(37), (D) $(11,157), (E) $(11,194).

Income Statement - Year to Date
$ in thousands
(Unaudited)
Nine Months Ended September 30,
2015 2014
NGHC Reciprocal
Exchanges
Consolidated NGHC Reciprocal
Exchanges
Consolidated
Revenues:
Gross written premium $1,631,581 $217,830 $1,845,821 (A) $1,602,217 $9,993 $1,612,210
Ceded premiums (related parties $1,107, $74, $1,181 for 2015; $43,931, $216, $44,147 for 2014) (189,560) (124,777) (310,747)(B) (191,811) (2,788) (194,599)
Net written premium 1,442,021 93,053 1,535,074 1,410,406 7,205 1,417,611
Net earned premium 1,352,802 98,440 1,451,242 1,181,032 6,692 1,187,724
Ceding commission income (1,249) 28,449 27,200 7,595 37 7,632
Service and fee income 200,849 2,990 173,335 (C) 121,064 22 121,086
Net investment income 46,403 6,552 52,955 34,232 34,232
Net realized gain/(loss) on investments 5,203 271 5,474 (1,118) (1,118)
Other than temporary impairment loss (8,492) (8,492)
Other revenue (327) (327) 480 480
Total revenues $1,595,189 $136,702 $1,701,387 (D) $1,343,285 $6,751 $1,350,036
Expenses:
Loss and loss adjustment expense $838,950 $56,824 $895,774 $750,619 $5,351 $755,970
Acquisition costs and other underwriting expenses 274,227 20,967 295,131 (E) 232,433 273 232,706
General and administrative expenses 325,036 48,831 343,426 (F) 241,575 1,811 243,386
Interest expense 16,031 11,078 27,109 7,549 272 7,821
Total expenses $1,454,244 $137,700 $1,561,440 (G) $1,232,176 $7,707 $1,239,883
Income before provision for income taxes and equity in earnings (losses) of unconsolidated subsidiaries $140,945 $(998) $139,947 $111,109 $(956) $110,153
Provision for income taxes 25,369 (477) 24,892 17,997 (211) 17,786
Income before equity in earnings (losses) of unconsolidated subsidiaries 115,576 (521) 115,055 93,112 (745) 92,367
Equity in earnings (losses) of unconsolidated subsidiaries 8,900 8,900 (3,098) (3,098)
Net income before non-controlling interest and dividends on preferred shares 124,476 (521) 123,955 90,014 (745) 89,269
Less: net income attributable to non-controlling interest 68 (521) (453) (31) (745) (776)
Net income before dividends on preferred shares 124,408 124,408 90,045 90,045
Less: dividends on preferred shares 9,900 9,900 1,260 1,260
Net income available to common stockholders $114,508 $ $114,508 $88,785 $ $88,785

NOTE: Consolidated column includes eliminations as follows: (A) $(3,590), (B) $3,590, (C) $(30,504), (D) $(30,504), (E) $(63), (F) $(30,441), and (G) $(30,504).

Earnings and Per Share Data
$ in thousands, except shares and per share data
(Unaudited)
Three Months Ended September 30, Nine Months Ended September 30,
2015 2014 2015 2014
Net income available to common stockholders$38,988 $32,059 $114,508 $88,785
Basic net income per common share$0.39 $0.34 $1.19 $0.98
Diluted net income per common share$0.38 $0.34 $1.16 $0.96
Operating earnings attributable to NGHC(1)$43,845 $34,499 $122,847 $95,324
Basic operating earnings per common share(1)$0.44 $0.37 $1.28 $1.05
Diluted operating earnings per common share(1)$0.43 $0.36 $1.25 $1.03
Dividends declared per common share$0.02 $0.01 $0.06 $0.03
Weighted average number of basic shares outstanding100,360,687 93,359,265 95,877,178 90,853,536
Weighted average number of diluted shares outstanding102,940,728 95,663,429 98,314,808 92,615,198
Shares outstanding, end of period105,433,893 93,408,212 105,433,893 93,408,212
Fully diluted shares outstanding, end of period107,983,933 95,765,403 107,841,523 92,857,313
Book value per share$12.35 $10.67 $12.35 $10.67
Fully diluted book value per share$12.06 $10.40 $12.07 $10.73


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,
2015 2014 2015 2014
Net income available to common stockholders$38,988 $32,059 $114,508 $88,785
Add (subtract) net of tax:
Net realized (gain)/loss on investments(839) 362 (3,382) 362
Other than temporary impairment losses3,906 5,520
Foreign exchange (gain)/loss152 365 935 365
Equity in (earnings)/losses of unconsolidated subsidiaries (other than LSC Entities)(137) 101 (203) 330
Non-cash amortization of intangible assets1,775 1,612 5,469 5,482
Non-cash impairment of goodwill
Operating earnings attributable to NGHC (1)$43,845 $34,499 $122,847 $95,324
Operating earnings per common share:
Basic operating earnings per common share$0.44 $0.37 $1.28 $1.05
Diluted operating earnings per common share$0.43 $0.36 $1.25 $1.03

NOTE: Our definition of Operating Earnings has been revised and now only excludes the impact of equity in earnings of unconsolidated subsidiaries other than LSC Entities. Please see item (1) under "Additional Disclosures" on page 14 for further information. Additionally, to facilitate period-to-period comparisons, certain reclassifications have been made to prior period amounts within Reconciliation of Net Income to Operating Earnings (Non-GAAP).

Balance Sheet
$ in thousands
(Unaudited)
September 30, 2015 (unaudited) December 31, 2014 (audited)
ASSETS NGHC Reciprocal
Exchanges
Consolidated NGHC Reciprocal
Exchanges
Consolidated
Investments:
Fixed maturities (2) $1,631,552 $285,705 $1,917,257 $1,374,087 $222,739 $1,596,826
Equity securities (3) 61,928 1,544 63,472 45,802 2,817 48,619
Short-term investments 5,000 4,030 9,030 50 10,490 10,540
Equity investment in unconsolidated subsidiaries 233,538 233,538 155,900 155,900
Other investments 6,041 6,041 4,764 4,764
Securities pledged (4) 43,711 43,711 49,456 49,456
Total investments 1,981,770 291,279 2,273,049 1,630,059 236,046 1,866,105
Cash and cash equivalents 267,131 11,765 278,896 123,178 9,437 132,615
Accrued investment income 14,371 2,287 16,658 12,553 1,898 14,451
Premiums and other receivables, net (5) 660,532 62,846 723,378 589,205 58,238 647,443
Deferred acquisition costs 125,422 27,154 152,576 121,514 4,485 125,999
Reinsurance recoverable on unpaid losses (6) 828,424 64,848 893,272 888,215 23,583 911,798
Prepaid reinsurance premiums 68,891 63,477 131,468 (A) 75,837 26,924 102,761
Notes receivable from related party 127,188 127,188 125,000 125,000
Income tax receivable 1,884 1,884
Due from affiliate 53,776 8,242 25,752 (B) 5,129 5,129
Premises and equipment, net 31,869 31,869 30,583 30,583
Intangible assets, net 260,647 6,212 266,859 237,404 11,433 248,837
Goodwill 125,246 125,246 70,764 70,764
Prepaid and other assets 30,343 5,895 36,238 43,160 71 43,231
Total assets $4,575,610 $545,889 $5,084,333 (C) $3,952,601 $372,115 $4,324,716
LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities:
Unpaid loss and loss adjustment expense reserves $1,428,541 $136,777 $1,565,318 $1,450,305 $111,848 $1,562,153
Unearned premiums 824,479 151,163 974,742 (D) 744,438 119,998 864,436
Unearned service contract and other revenue 12,871 12,871 8,527 8,527
Reinsurance payable (7) 75,569 17,243 92,812 97,830 13,811 111,641
Accounts payable and accrued expenses (8) 186,773 42,209 228,982 189,430 17,691 207,121
Due to affiliate 36,266 (E) 1,552 1,552
Securities sold under agreements to repurchase, at contract value 41,441 41,441 46,804 46,804
Deferred tax liability 27,678 40,036 67,714 29,133 38,402 67,535
Income tax payable 734 734 29,532 1,059 30,591
Notes payable (9) 347,031 54,455 401,486 250,708 48,374 299,082
Other liabilities 108,612 59,065 167,677 46,114 5,710 51,824
Total liabilities $3,053,729 $537,214 $3,553,777 (F) $2,892,821 $358,445 3,251,266
Stockholders’ equity:
Common stock (10) $1,054 $ $1,054 $934 $ $934
Preferred stock (11) 220,000 220,000 55,000 55,000
Additional paid-in capital 896,700 896,700 690,736 690,736
Accumulated other comprehensive income 2,446 2,446 20,192 20,192
Retained earnings 401,527 401,527 292,832 292,832
Total National General Holdings Corp. stockholders' equity 1,521,727 1,521,727 1,059,694 1,059,694
Non-controlling interest 154 8,675 8,829 86 13,670 13,756
Total stockholders’ equity 1,521,881 8,675 1,530,556 1,059,780 13,670 1,073,450
Total liabilities and stockholders’ equity $4,575,610 $545,889 $5,084,333 (G) $3,952,601 $372,115 $4,324,716

NOTE: Consolidated column includes eliminations as follows: (A) $(900), (B) $(36,266), (C) $(37,166), (D) $(900), (E) $(36,266), (F) $(37,166), and (G) $(37,166).

Segment Information - Third Quarter
$ in thousands
(Unaudited)
Three Months Ended September 30,
2015 2014
P&C A&H NGHC Reciprocal
Exchanges
P&C A&H NGHC Reciprocal
Exchanges
Gross written premium $503,227 $43,594 $546,821 $79,864 $469,873 $17,729 $487,602 $9,993
Net written premium 448,140 33,849 481,989 43,650 406,699 17,666 424,365 7,205
Net earned premium 423,858 45,107 468,965 34,296 402,246 29,468 431,714 6,692
Ceding commission income (2,615) 267 (2,348) 14,498 668 668 37
Service and fee income 51,193 19,660 70,853 1,248 31,356 14,516 45,872 22
Total underwriting revenue 472,436 65,034 537,470 50,042 434,270 43,984 478,254 6,751
Loss and loss adjustment expense 255,165 33,519 288,684 13,575 251,418 18,250 269,668 5,351
Acquisition costs and other 81,321 17,365 98,686 10,095 68,146 15,496 83,642 273
General and administrative 92,771 14,061 106,832 22,906 77,267 11,050 88,317 1,811
Total underwriting expenses 429,257 64,945 494,202 46,576 396,831 44,796 441,627 7,435
Underwriting income (loss) 43,179 89 43,268 3,466 37,439 (812) 36,627 (684)
Non-cash impairment of goodwill
Non-cash amortization of intangible assets 1,727 1,005 2,732 1,355 1,565 916 2,481 353
Underwriting income (loss) before amortization and impairment $44,906 $1,094 $46,000 $4,821 $39,004 $104 $39,108 $(331)
Underwriting ratios
Loss and loss adjustment expense ratio (12) 60.2% 74.3% 61.6% 39.6% 62.5% 61.9% 62.5% 80.0%
Operating expense ratio (Non-GAAP) (13,14) 29.6% 25.5% 29.2% 50.3% 28.2% 40.8% 29.1% 30.3%
Combined ratio (Non-GAAP) (13,15) 89.8% 99.8% 90.8% 89.9% 90.7% 102.8% 91.5% 110.2%
Underwriting ratios (before amortization and impairment)
Loss and loss adjustment expense ratio (12) 60.2% 74.3% 61.6% 39.6% 62.5% 61.9% 62.5% 80.0%
Operating expense ratio (Non-GAAP) (13,16) 29.2% 23.3% 28.6% 46.4% 27.8% 37.7% 28.5% 25.0%
Combined ratio (Non-GAAP) (13,15) 89.4% 97.6% 90.2% 85.9% 90.3% 99.6% 90.9% 104.9%

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)
Nine Months Ended September 30,
2015 2014
P&C A&H NGHC Reciprocal
Exchanges
P&C A&H NGHC Reciprocal
Exchanges
Gross written premium $1,478,172 $153,409 $1,631,581 $217,830 $1,484,344 $117,873 $1,602,217 $9,993
Net written premium 1,315,238 126,783 1,442,021 93,053 1,292,793 117,613 1,410,406 7,205
Net earned premium 1,240,253 112,549 1,352,802 98,440 1,091,088 89,944 1,181,032 6,692
Ceding commission income (2,069) 820 (1,249) 28,449 7,595 7,595 37
Service and fee income 146,098 54,751 200,849 2,990 76,418 44,646 121,064 22
Total underwriting revenue 1,384,282 168,120 1,552,402 129,879 1,175,101 134,590 1,309,691 6,751
Loss and loss adjustment expense 759,198 79,752 838,950 56,824 691,856 58,763 750,619 5,351
Acquisition costs and other 233,951 40,276 274,227 20,967 185,359 47,074 232,433 273
General and administrative 282,797 42,239 325,036 48,831 205,503 36,072 241,575 1,811
Total underwriting expenses 1,275,946 162,267 1,438,213 126,622 1,082,718 141,909 1,224,627 7,435
Underwriting income (loss) 108,336 5,853 114,189 3,257 92,383 (7,319) 85,064 (684)
Non-cash impairment of goodwill
Non-cash amortization of intangible assets 5,479 2,936 8,415 5,221 3,181 5,253 8,434 353
Underwriting income (loss) before amortization and impairment $113,815 $8,789 $122,604 $8,478 $95,564 $(2,066) $93,498 $(331)
Underwriting ratios
Loss and loss adjustment expense ratio (12) 61.2% 70.9% 62.0% 57.7% 63.4% 65.3% 63.6% 80.0%
Operating expense ratio (Non-GAAP) (13,14) 30.1% 23.9% 29.5% 39.0% 28.1% 42.8% 29.2% 30.3%
Combined ratio (Non-GAAP) (13,15) 91.3% 94.8% 91.6% 96.7% 91.5% 108.1% 92.8% 110.2%
Underwriting ratios (before amortization and impairment)
Loss and loss adjustment expense ratio (12) 61.2% 70.9% 62.0% 57.7% 63.4% 65.3% 63.6% 80.0%
Operating expense ratio (Non-GAAP) (13,16) 29.6% 21.3% 28.9% 33.7% 27.8% 37.0% 28.5% 25.0%
Combined ratio (Non-GAAP) (13,15) 90.8% 92.2% 90.9% 91.4% 91.2% 102.3% 92.1% 104.9%

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 September 30,
2015 2014
P&C A&H NGHC Reciprocal
Exchanges
P&C A&H NGHC Reciprocal
Exchanges
Total underwriting expenses $429,257 $64,945 $494,202 $46,576 $396,831 $44,796 $441,627 $7,435
Less: Loss and loss adjustment expense 255,165 33,519 288,684 13,575 251,418 18,250 269,668 5,351
Less: Ceding commission income (2,615) 267 (2,348) 14,498 668 668 37
Less: Service and fee income 51,193 19,660 70,853 1,248 31,356 14,516 45,872 22
Operating expense 125,514 11,499 137,013 17,255 113,389 12,030 125,419 2,025
Net earned premium $423,858 $45,107 $468,965 $34,296 $402,246 $29,468 $431,714 $6,692
Operating expense ratio (Non-GAAP) 29.6% 25.5% 29.2% 50.3% 28.2% 40.8% 29.1% 30.3%
Total underwriting expenses $429,257 $64,945 $494,202 $46,576 $396,831 $44,796 $441,627 $7,435
Less: Loss and loss adjustment expense 255,165 33,519 288,684 13,575 251,418 18,250 269,668 5,351
Less: Ceding commission income (2,615) 267 (2,348) 14,498 668 668 37
Less: Service and fee income 51,193 19,660 70,853 1,248 31,356 14,516 45,872 22
Less: Non-cash impairment of goodwill
Less: Non-cash amortization of intangible assets 1,727 1,005 2,732 1,355 1,565 916 2,481 353
Operating expense before amortization and impairment 123,787 10,494 134,281 15,900 111,824 11,114 122,938 1,672
Net earned premium $423,858 $45,107 $468,965 $34,296 $402,246 $29,468 $431,714 $6,692
Operating expense ratio before amortization and impairment (Non-GAAP) 29.2% 23.3% 28.6% 46.4% 27.8% 37.7% 28.5% 25.0%


Nine Months Ended September 30,
2015 2014
P&C A&H NGHC Reciprocal
Exchanges
P&C A&H NGHC Reciprocal
Exchanges
Total underwriting expenses $1,275,946 $162,267 $1,438,213 $126,622 $1,082,718 $141,909 $1,224,627 $7,435
Less: Loss and loss adjustment expense 759,198 79,752 838,950 56,824 691,856 58,763 750,619 5,351
Less: Ceding commission income (2,069) 820 (1,249) 28,449 7,595 7,595 37
Less: Service and fee income 146,098 54,751 200,849 2,990 76,418 44,646 121,064 22
Operating expense 372,719 26,944 399,663 38,359 306,849 38,500 345,349 2,025
Net earned premium $1,240,253 $112,549 $1,352,802 $98,440 $1,091,088 $89,944 $1,181,032 $6,692
Operating expense ratio (Non-GAAP) 30.1% 23.9% 29.5% 39.0% 28.1% 42.8% 29.2% 30.3%
Total underwriting expenses $1,275,946 $162,267 $1,438,213 $126,622 $1,082,718 $141,909 $1,224,627 $7,435
Less: Loss and loss adjustment expense 759,198 79,752 838,950 56,824 691,856 58,763 750,619 5,351
Less: Ceding commission income (2,069) 820 (1,249) 28,449 7,595 7,595 37
Less: Service and fee income 146,098 54,751 200,849 2,990 76,418 44,646 121,064 22
Less: Non-cash impairment of goodwill
Less: Non-cash amortization of intangible assets 5,479 2,936 8,415 5,221 3,181 5,253 8,434 353
Operating expense before amortization and impairment 367,240 24,008 391,248 33,138 303,668 33,247 336,915 1,672
Net earned premium $1,240,253 $112,549 $1,352,802 $98,440 $1,091,088 $89,944 $1,181,032 $6,692
Operating expense ratio before amortization and impairment (Non-GAAP) 29.6% 21.3% 28.9% 33.7% 27.8% 37.0% 28.5% 25.0%


Premiums by Business Line
$ in thousands
(Unaudited)
Three Months Ended September 30,
Gross Written Premium Net Written Premium Net Earned Premium
2015 2014 Change 2015 2014 Change 2015 2014 Change
Property & Casualty
Personal Auto $307,799 $315,672 (2.5)% $257,432 $273,922 (6.0)% $251,754 $268,155 (6.1)%
Homeowners 103,423 74,583 38.7% 105,028 57,105 83.9% 92,283 58,730 57.1%
RV/Packaged 40,447 39,490 2.4% 40,113 38,900 3.1% 38,489 38,885 (1.0)%
Commercial Auto 48,052 35,619 34.9% 43,502 32,249 34.9% 39,440 31,920 23.6%
Other 3,506 4,509 (22.2)% 2,065 4,523 (54.3)% 1,892 4,556 (58.5)%
Property & Casualty Total 503,227 469,873 7.1% 448,140 406,699 10.2% 423,858 402,246 5.4%
Accident & Health 43,594 17,729 145.9% 33,849 17,666 91.6% 45,107 29,468 53.1%
Total National General 546,821 487,602 12.1% 481,989 424,365 13.6% 468,965 431,714 8.6%
Reciprocal Exchanges
Personal Auto 24,177 4,330 NA (3,516) 4,063 NA 14,494 4,043 NA
Homeowners 48,229 5,013 NA 46,902 2,636 NA 17,105 2,221 NA
Other 7,458 650 NA 264 506 NA 2,697 428 NA
Reciprocal Exchanges Total 79,864 9,993 NA 43,650 7,205 NA 34,296 6,692 NA
Consolidated Total $626,685 $497,595 25.9% $525,639 $431,570 21.8% $503,261 $438,406 14.8%


Nine Months Ended September 30,
Gross Written Premium Net Written Premium Net Earned Premium
2015 2014 Change 2015 2014 Change 2015 2014 Change
Property & Casualty
Personal Auto $936,397 $953,010 (1.7)% $805,081 $795,511 1.2% $786,397 $719,483 9.3%
Homeowners 265,685 290,667 (8.6)% 250,874 273,190 (8.2)% 219,633 165,507 32.7%
RV/Packaged 121,093 120,183 0.8% 119,781 115,263 3.9% 112,041 109,746 2.1%
Commercial Auto 139,880 107,173 30.5% 127,753 96,009 33.1% 111,491 84,841 31.4%
Other 15,117 13,311 13.6% 11,749 12,820 (8.4)% 10,691 11,511 (7.1)%
Property & Casualty Total 1,478,172 1,484,344 (0.4)% 1,315,238 1,292,793 1.7% 1,240,253 1,091,088 13.7%
Accident & Health 153,409 117,873 30.1% 126,783 117,613 7.8% 112,549 89,944 25.1%
Total National General 1,631,581 1,602,217 1.8% 1,442,021 1,410,406 2.2% 1,352,802 1,181,032 14.5%
Reciprocal Exchanges
Personal Auto 67,641 4,330 NA 38,619 4,063 NA 60,965 4,043 NA
Homeowners 128,951 5,013 NA 40,079 2,636 NA 26,991 2,221 NA
Other 21,238 650 NA 14,355 506 NA 10,484 428 NA
Reciprocal Exchanges Total 217,830 9,993 NA 93,053 7,205 NA 98,440 6,692 NA
Consolidated Total $1,845,821 $1,612,210 14.5% $1,535,074 $1,417,611 8.3% $1,451,242 $1,187,724 22.2%

NOTE: Consolidated Total includes elimination of $(3,590) within Gross Written Premium for Nine Months Ended September 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 (other than LSC Entities), 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 $1,621,363, $276,302, $1,897,665 at September 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 $67,113, $1,501, $68,614 at September 30, 2015 and $52,272, $2,752, $55,024 at December 31, 2014).

(4) Securities pledged (amortized cost $42,806, $0, $42,806 at September 30, 2015 and $47,546, $0, $47,546 at December 31, 2014).

(5) Premiums and other receivables, net (NGHC) includes $68,219 and $64,129 from related parties at September 30, 2015 and December 31, 2014, respectively.

(6) Reinsurance recoverable on unpaid losses (NGHC) includes $54,458 and $88,970 from related parties at September 30, 2015 and December 31, 2014, respectively.

(7) Reinsurance payable (NGHC) includes $26,779 and $41,965 to related parties at September 30, 2015 and December 31, 2014, respectively.

(8) Accounts payable and accrued expenses (NGHC) includes $45,707 and $38,576 to related parties at September 30, 2015 and December 31, 2014, respectively.

(9) Notes payable (Reciprocal Exchanges) includes $54,455 and $48,374 owed to related party at September 30, 2015 and December 31, 2014, respectively.

(10) Common stock: $0.01 par value - authorized 150,000,000 shares, issued and outstanding 105,433,893 shares - September 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 September 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.


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

Source:National General Holdings Corp.