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National General Holdings Corp. Reports Fourth Quarter 2015 Results

NEW YORK, Feb. 09, 2016 (GLOBE NEWSWIRE) -- National General Holdings Corp. (NASDAQ:NGHC) today reported fourth quarter 2015 operating earnings(1) of $42.3 million or $0.39 per diluted share, compared to $31.2 million or $0.33 per diluted share in the fourth quarter of 2014. Net income was $13.7 million or $0.13 per diluted share, compared to $11.2 million or $0.12 per diluted share in the fourth quarter of 2014.

Full year 2015 operating earnings(1) were $165.5 million or $1.64 per diluted share, compared to $126.5 million or $1.35 per diluted share in 2014. Full year 2015 net income was $128.2 million or $1.27 per diluted share, compared to $100.0 million or $1.07 per diluted share in 2014.

Fourth Quarter 2015 Highlights Versus Fourth Quarter 2014*

  • Net written premium grew $211.6 million or 52.0% to $618.1 million, driven by added premiums from the National General Lender Services (formerly QBE Lender-Placed Insurance) and Assurant Health transactions which closed on October 1, 2015, underlying organic growth within our P&C business, and continued expansion of our A&H segment.
  • The combined ratio was 94.2%, in-line with 94.2% in the prior year's quarter, excluding non-cash amortization of intangible assets and impairment of goodwill, with both the P&C and A&H segments reporting an improvement in their respective combined ratios.
  • Total revenues grew by $278.1 million or 58.6% to $752.5 million, driven by the aforementioned premium growth, service and fee income growth of $42.0 million or 73.3% (including Attorney-in-Fact management fees of $9.3 million), and net investment income growth of $4.1 million or 25.4%, partially offset by a $1.3 million decline in ceding commission income.
  • Shareholders' equity was $1.51 billion and fully diluted book value per share was $11.96 at December 31, 2015, growth of 42.9% and 14.2%, respectively, from December 31, 2014. Annualized operating return on average equity (ROE) was 13.0% for the fourth quarter and 14.6% for the full year ended December 31, 2015.
  • Fourth quarter 2015 operating earnings exclude the following items, net of tax: $17.5 million or $0.16 per share of non-cash impairment of goodwill, $5.3 million or $0.05 per share of non-cash amortization of intangible assets, $4.4 million or $0.04 per share of other than temporary impairment losses, $0.9 million or $0.01 per share of foreign exchange losses, and $0.4 million or less than $0.01 per share of realized investment losses, and $0.1 million or less than $0.01 per share of equity in losses of unconsolidated subsidiaries (other than LSC Entities and Real Estate investments).
  • Fourth quarter 2015 operating earnings include approximately $4.0 million or approximately $0.02 per share of losses related to the string of tornadoes that hit the Dallas, Texas area in late December 2015, and a net negative impact of $7.5 million or approximately $0.05 per share within our EuroAccident subsidiary as reserve strengthening was partially offset by a deferred purchase price adjustment.

Michael Karfunkel, National General's Chairman and CEO, stated: "Our fourth quarter results were a solid finish to an excellent year at National General. We continue to produce significant top line growth and strong underwriting profitability, and we enjoyed another busy year on the M&A front, completing two significant deals during the fourth quarter when we closed the National General Lender Services and Assurant Health transactions. We expect that both of these transactions will be accretive to our personal lines franchise and our earnings power going forward. We continue to focus on profitably growing our business both organically and through additional accretive M&A opportunities, maintaining an intense emphasis on disciplined expense management, integrating acquisitions, and delivering strong returns to our shareholders.”

*NOTE: Unless specified otherwise, discussion of our fourth quarter 2015 and 2014 results do not include financial results from the Reciprocal Exchanges, which are presented within our consolidated financial results within this release but are not included in net income available to NGHC common stockholders. Attorney-in-Fact management fees referenced within this release are eliminated in consolidated financial results.

Overview of Fourth Quarter 2015 as Compared to Fourth Quarter 2014

Gross written premium grew 46.5% to $678.2 million, net written premium grew 52.0% to $618.1 million, and net earned premium grew 58.8% to $642.3 million. Premium growth was driven by several key factors: underlying organic growth within our P&C business, continued expansion of our A&H segment, and additional premiums from the National General Lender Services (formerly QBE Lender-Placed Insurance) and Assurant Health acquisitions which closed on October 1, 2015.

Ceding commission income was a loss of $1.3 million reflecting a sliding scale adjustment related to our terminated third-party quota share. Service and fee income grew 73.3% to $99.3 million, driven by added service and fee income from recently completed acquisitions and underlying growth within both our A&H and P&C operations, with the latter including management fees of $9.3 million related to the Attorneys-in-Fact that manage the Reciprocal Exchanges.

Excluding non-cash amortization of intangible assets and impairment of goodwill, the combined ratio was 94.2% with a loss ratio of 69.3% and an expense ratio of 24.9%, versus a prior year combined ratio of 94.2% with a loss ratio of 68.2% and an expense ratio of 26.1%. Both the P&C and A&H segments reported an improvement in their respective combined ratios.

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

  • Property & Casualty - Gross written premium grew by 31.6% to $579.7 million, net written premium grew by 37.7% to $529.0 million, and net earned premium grew by 45.3% to $543.5 million. P&C premium growth was driven by underlying organic growth of approximately 5.0% and the addition of $125.7 million of net written premium from the National General Lender Services acquisition, which closed on October 1, 2015. Ceding commission income was a loss of $1.5 million compared to $48 thousand of income in the prior year's quarter, reflecting a sliding scale adjustment related to our terminated third-party quota share. Service and fee income grew 27.0% to $55.2 million, driven by increased premium volume in the quarter, the addition of service and fee income from acquisitions completed during the past year (including ARS and National General Lender Services), and $9.3 million of fees earned by the Attorneys-in-Fact that manage the Reciprocal Exchanges, compared to $8.4 million in the prior year’s quarter. Excluding non-cash amortization of intangible assets and impairment of goodwill, the combined ratio was 92.4% with a loss ratio of 65.0% and an expense ratio of 27.3%, versus a prior year combined ratio of 92.8% with a loss ratio of 66.5% and an expense ratio of 26.3%. The improved loss ratio was driven primarily by business mix changes, most notably the addition of National General Lender Services which typically runs at lower loss ratios than our legacy business, partially offset by losses of approximately $4.0 million related to the string of tornadoes that hit the Dallas, Texas area in late December 2015. The slight increase in the expense ratio is the result of business mix changes.
  • Accident & Health - Gross written premium grew to $98.5 million, net written premium grew to $89.2 million, and net earned premium grew to $98.8 million, from $22.5 million, $22.4 million, and $30.5 million, respectively, in the prior year's quarter. A&H premium growth was driven by the addition of $53.1 million of net written premium from the Assurant Health acquisition, which closed on October 1, 2015, as well as continued growth from both our domestic and international businesses, with $22.2 million in net written premium at our U.S. underwriting subsidiaries compared to $9.8 million in the prior year’s quarter, and $13.9 million of premium from EuroAccident (our Swedish group life and health MGA) compared to $12.6 million in the prior year’s quarter. Service and fee income grew to $44.1 million from $13.8 million in the prior year’s quarter, driven by the addition of service and fee income from acquisitions completed over the past year (including HST and Assurant Health), and strong growth at VelaPoint (our call center general agency) and TABS (our domestic stop loss business). Excluding non-cash amortization of intangible assets and impairment of goodwill, the combined ratio was 104.2% with a loss ratio of 92.7% and an expense ratio of 11.5%, versus a prior year combined ratio of 112.1% with a loss ratio of 88.8% and an expense ratio of 23.3%. Fourth quarter 2015 A&H results include the net negative impact of $7.5 million within our EuroAccident subsidiary. This included an increase to IBNR reserves to reflect a conversion to National General’s reserving philosophy from the prior carriers' reserving philosophy for business that was assumed in 2014 and is now written on National General paper, partially offset by the benefit from a corresponding adjustment made to reduce the deferred purchase price from the initial acquisition of EuroAccident.
  • Reciprocal Exchanges - Results for the Reciprocal Exchanges are not included in net income available to NGHC common stockholders. Gross written premium was $65.8 million, net written premium was $33.0 million, and net earned premium was $36.3 million. Excluding non-cash amortization of intangible assets, the combined ratio was 102.1% with a loss ratio of 112.3% and an expense ratio of (10.2)%.

Investment income grew 25.4% to $20.0 million, reflecting an increase in the size of our investment portfolio as compared to the prior year’s quarter. Fourth quarter 2015 results included $0.6 million of net realized investment losses compared with a loss of $0.1 million in the fourth quarter of 2014, as well as an other than temporary impairment loss of $6.8 million compared to a loss of $2.2 million in the fourth quarter of 2014. Total investments and cash equivalents were $2.7 billion as of December 31, 2015. Accumulated other comprehensive income (AOCI) declined to $(19.4) million at December 31, 2015 from $2.4 million at September 30, 2015.

Other revenue was a loss of $0.5 million in the fourth quarter of 2015 compared to a loss of $1.2 million in the prior year’s quarter, as both quarters included a foreign exchange loss from currency fluctuations within our European subsidiaries ($1.4 million in 4Q15 and $1.1 million in 4Q14), but the current year’s quarter was partially offset by a $0.8 million gain related to a grant received by Imperial.

Interest expense was $8.2 million, up from $4.5 million in the prior year’s quarter due to an increased amount of debt on our balance sheet. Debt was $446.1 million as of December 31, 2015, up from $250.7 million at December 31, 2014 as a result of August 2015 issuance of $100 million of subordinated notes and our October 2015 issuance of $100 million of senior unsecured notes.

Equity in earnings of unconsolidated subsidiaries (predominantly our investment in Life Settlement Entities and our Real Estate investments) was a $1.7 million gain in the fourth quarter of 2015 versus a $4.3 million gain in the prior year's quarter, reflecting fair value adjustments on life settlement contracts and income from real estate investments that were made during 2015.

The fourth quarter 2015 provision for income taxes was $(0.5) million and the effective tax rate for the quarter was (3.0)%. Included in the fourth quarter 2015 provision for income taxes was an $18.2 million benefit attributable to a reduction of the deferred tax liability associated with the equalization reserves of our Luxembourg Reinsurance Company (LRC) subsidiaries. Excluding this item and the non-cash impairment of goodwill, which is not tax deductible, the adjusted 2015 fourth quarter effective tax rate was 53.5%. Excluding LRC tax benefits and the non-cash impairment of goodwill, the adjusted effective tax rate was 29.6% for the twelve months ended December 31, 2015.

National General Holding Corp.'s shareholders' equity was $1,514.0 million at December 31, 2015, growth of 42.9% from $1,059.8 million at December 31, 2014. Fully diluted book value per share was $11.96 at December 31, 2015, growth of 14.2% from $10.47 at December 31, 2014. Annualized operating return on average equity (ROE) was 13.0% for the fourth quarter 2015 and 14.6% for the year ended December 31, 2015.

Luxembourg Reinsurance Companies (LRC)

  • Included in the fourth quarter 2015 provision for income taxes was an $18.2 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 2015, the provision for income taxes included a benefit of $26.7 million attributable to a reduction of the DTL associated with the equalization reserves of our LRC subsidiaries. As of December 31, 2015, the DTL associated with our LRC subsidiaries was $13.8 million.
  • Fourth quarter 2015 results include a $17.5 million expense related to a non-cash impairment of goodwill ($11.2 million attributed to the P&C segment and $6.2 million attributed to the A&H segment), compared to an expense of $15.8 million in the fourth quarter of 2014 ($9.4 million attributed to the P&C segment and $6.4 million attributed to the A&H segment). Both the 2015 and 2014 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 $8.4 million as of December 31, 2015.
  • The full year 2015 net benefit related to our LRC subsidiaries was $9.2 million, including the benefit attributable to a reduction in DTL and the expense related to non-cash impairment of goodwill.

Additional Items

  • 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 included 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 were approximately $98.85 million.
  • Century-National Insurance Company Acquisition - On January 25, 2016 we announced an agreement to acquire Century-National Insurance Company (CNIC), a California based property and casualty underwriter. The purchase price for the transaction is currently expected to be approximately $315 million, based on September 30, 2015 results, with the actual purchase price calculated based upon financial position at closing. The estimated purchase price equates to a $50 million premium to tangible book value, and includes an upfront cash payment of approximately $140 million with the remaining balance deferred over two years. The transaction is expected to close in the second quarter of 2016, subject to customary closing conditions and regulatory approvals.
  • New Credit Agreement - On January 25, 2016, we entered into a $225 million revolving credit facility with a letter of credit sub-limit of $25 million and an expansion feature not to exceed $50 million. The New Credit Agreement has a maturity date of January 25, 2020, and replaces our previous $135 million credit agreement.
  • Standard Mutual Insurance Company Acquisition - On January 27, 2016 we announced that we had entered into a definitive agreement, pending regulatory and policyholder approval, to acquire Standard Mutual Insurance Company (SMIC), an Illinois based property and casualty underwriter, following the completion of the conversion of SMIC to a stock company from a mutual company. The transaction is expected to close in the second quarter of 2016, subject to customary closing conditions and regulatory approvals.

Conference Call
On Wednesday, February 10, 2016 at 11:00 AM ET, Chairman and Chief Executive Officer Michael Karfunkel and Chief Financial Officer Mike Weiner will review results and discuss business conditions via a conference call that may be accessed as follows:

Toll-Free U.S. Dial-in:888-267-2860
International Dial-in: 973-413-6102
Conference Entry Code:956584
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 10, 2016 to 11:59 PM ET on Wednesday, February 24, 2016 by dialing either 800-332-6854 (toll-free) within the U.S. or 973-528-0005 outside the U.S. and entering passcode 956584. 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, 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,
2015 2014
NGHC Reciprocal Exchanges Consolidated NGHC Reciprocal Exchanges Consolidated
Revenues:
Gross written premium $678,175 $65,752 $743,927 $462,848 $60,049 $522,897
Ceded premiums (related parties - $397, $0, and $397 in 2015 and $318, $687, and $1,005 in 2014) (60,041) (32,714) (92,755) (56,306) (14,178) (70,484)
Net written premium 618,134 33,038 651,172 406,542 45,871 452,413
Net earned premium 642,299 36,269 678,568 404,566 40,930 445,496
Ceding commission income/(loss) (1,261) 17,851 16,590 48 4,750 4,798
Service and fee income 99,265 10,236 100,213 (A) 57,269 117 48,979 (F)
Net investment income 20,026 2,359 22,385 15,969 1,799 17,768
Net realized gain/(loss) on investments (609) 75 (534) (91) (91)
Other than temporary impairment loss (6,755) (6,755) (2,244) (2,244)
Other revenue (461) (461) (1,153) (1,153)
Total revenues $752,504 $66,790 $810,006 (B) $474,364 $47,596 $513,553 (G)
Expenses:
Loss and loss adjustment expense $445,130 $40,737 $485,867 $275,727 $21,368 $297,095
Acquisition costs and other underwriting expenses 103,839 7,005 110,799 (C) 76,389 5,994 82,383
General and administrative 179,636 16,528 186,921 (D) 105,122 10,156 106,871 (H)
Interest expense 8,198 (6,422) 1,776 4,463 5,452 9,915
Total expenses $736,803 $57,848 $785,363 (E) $461,701 $42,970 $496,264 (I)
Income before provision for income taxes and equity in earnings (losses) of unconsolidated subsidiaries $15,701 $8,942 $24,643 $12,663 $4,626 $17,289
Provision/(benefit) for income taxes (464) (5,472) (5,936) 4,715 1,375 6,090
Income before equity in earnings (losses) of unconsolidated subsidiaries 16,165 14,414 30,579 7,948 3,521 11,199
Equity in earnings (losses) of unconsolidated subsidiaries 1,743 1,743 4,278 4,278
Net income before non-controlling interest and dividends on preferred shares 17,908 14,414 32,322 12,226 3,251 15,477
Less: net income attributable to non-controlling interest 64 14,414 14,478 29 3,251 3,280
Net income before dividends on preferred shares 17,844 17,844 12,197 12,197
Less: dividends on preferred shares 4,125 4,125 1,031 1,031
Net income available to common stockholders $13,719 $ $13,719 $11,166 $ $11,166

NOTE: Consolidated column includes eliminations as follows: (A) $(9,288), (B) $(9,288), (C) $(45), (D) $(9,243), (E) $(9,288), (F) $(8,407) , (G) $(8,407), (H) $(8,407), and (I) $(8,407).

Income Statement - Year to Date
$ in thousands
(Unaudited)
Twelve Months Ended December 31,
2015 2014
NGHC Reciprocal Exchanges Consolidated NGHC Reciprocal Exchanges Consolidated
Revenues:
Gross written premium $2,309,756 $283,582 $2,589,748 (A) $2,065,065 $70,042 $2,135,107
Ceded premiums (related parties - $1,504, $74, and $1,578 in 2015 and $44,249, $216, and $44,465 in 2014) (249,601) (157,491) (403,502)(B) (248,117) (16,966) (265,083)
Net written premium 2,060,155 126,091 2,186,246 1,816,948 53,076 1,870,024
Net earned premium 1,995,101 134,709 2,129,810 1,585,598 47,622 1,633,220
Ceding commission income/(loss) (2,510) 46,300 43,790 7,643 4,787 12,430
Service and fee income 300,114 13,226 273,548 (C) 178,333 139 168,571 (H)
Net investment income 66,429 8,911 75,340 50,627 1,799 52,426
Net realized gain/(loss) on investments 4,594 346 4,940 (648) (648)
Other than temporary impairment loss (15,247) (15,247) (2,244) (2,244)
Other revenue (788) (788) (1,660) (1,660)
Total revenues $2,347,693 $203,492 $2,511,393 (D) $1,817,649 $54,347 $1,862,095 (I)
Expenses:
Loss and loss adjustment expense $1,284,080 $97,561 $1,381,641 $1,026,346 $26,719 $1,053,065
Acquisition costs and other underwriting expenses 378,066 27,972 405,930 (E) 308,822 6,267 315,089
General and administrative 504,672 65,359 530,347 (F) 346,696 11,967 348,762 (J)
Interest expense 24,229 4,656 28,885 12,012 5,724 17,736
Total expenses $2,191,047 $195,548 $2,346,803 (G) $1,693,876 $50,677 $1,734,652 (K)
Income before provision for income taxes and equity in earnings (losses) of unconsolidated subsidiaries $156,646 $7,944 $164,590 $123,773 $3,670 $127,443
Provision/(benefit) for income taxes 24,905 (5,949) 18,956 22,712 1,164 23,876
Income before equity in earnings (losses) of unconsolidated subsidiaries 131,741 13,893 145,634 101,061 2,506 103,567
Equity in earnings (losses) of unconsolidated subsidiaries 10,643 10,643 1,180 1,180
Net income before non-controlling interest and dividends on preferred shares 142,384 13,893 156,277 102,241 2,506 104,747
Less: net income attributable to non-controlling interest 132 13,893 14,025 (2) 2,506 2,504
Net income before dividends on preferred shares 142,252 142,252 102,243 102,243
Less: dividends on preferred shares 14,025 14,025 2,291 2,291
Net income available to common stockholders $128,227 $ $128,227 $99,952 $ $99,952

NOTE: Consolidated column includes eliminations as follows: (A) $(3,590), (B) $(3,590), (C) $(39,792), (D) $(39,792), (E) $(108), (F) $(39,684), (G) $(39,792), (H) $(9,901), (I) $(9,901), (J) $(9,901), and (K) $(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,
2015 2014 2015 2014
Net income available to common stockholders$13,719 $11,166 $128,227 $99,952
Basic net income per common share$0.13 $0.12 $1.31 $1.09
Diluted net income per common share$0.13 $0.12 $1.27 $1.07
Operating earnings attributable to NGHC(1)$42,257 $31,181 $165,457 $126,507
Basic operating earnings per common share(1)$0.40 $0.33 $1.68 $1.38
Diluted operating earnings per common share(1)$0.39 $0.33 $1.64 $1.35
Dividends declared per common share$0.03 $0.02 $0.09 $0.05
Weighted average number of basic shares outstanding105,503,021 93,411,409 98,241,904 91,499,122
Weighted average number of diluted shares outstanding108,161,786 95,916,749 100,723,936 93,515,417
Shares outstanding, end of period105,554,331 93,427,382 105,554,331 93,427,382
Fully diluted shares outstanding, end of period108,213,095 95,932,723 108,036,363 95,624,982
Book value per share$12.26 $10.75 $12.26 $10.75
Fully diluted book value per share$11.96 $10.47 $11.98 $10.51


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,
2015 2014 2015 2014
Net income available to common stockholders $13,719 $11,166 $128,227 $99,952
Add (subtract) net of tax:
Net realized (gain)/loss on investments 396 59 (2,986) 421
Other than temporary impairment losses 4,391 1,459 9,911 1,459
Foreign exchange (gain)/loss 902 723 1,837 1,088
Equity in (earnings)/losses of unconsolidated subsidiaries (other than LSC Entities and Real Estate investments) 67 103 216 434
Non-cash amortization of intangible assets 5,315 1,879 10,785 7,361
Non-cash impairment of goodwill 17,467 15,792 17,467 15,792
Operating earnings attributable to NGHC $42,257 $31,181 $165,457 $126,507
Operating earnings per common share:
Basic operating earnings per common share $0.40 $0.33 $1.68 $1.38
Diluted operating earnings per common share $0.39 $0.33 $1.64 $1.35


Balance Sheet Highlights
$ in thousands
(Unaudited)
December 31, 2015 December 31, 2014
(unaudited) (audited)
NGHC Reciprocal
Exchanges
Consolidated NGHC Reciprocal
Exchanges
Consolidated
ASSETS
Total Investments $2,425,168 $242,542 $2,667,710 $1,630,059 $236,046 $1,866,105
Cash and cash equivalents 273,884 8,393 282,277 123,178 9,437 132,615
Premiums and other receivables, net (2) 702,439 56,194 758,633 589,205 58,238 647,443
Reinsurance recoverable on unpaid losses (3) 794,091 39,085 833,176 888,215 23,583 911,798
Intangible assets, net 344,073 3,040 347,113 237,404 7,420 244,824
Goodwill 112,414 112,414 70,764 70,764
Other 459,619 100,665 560,284 413,776 33,378 447,154
Total assets $5,111,688 $449,919 $5,561,607 $3,952,601 $368,102 $4,320,703
LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities:
Unpaid loss and loss adjustment expense reserves $1,623,232 $132,392 $1,755,624 $1,450,305 $111,848 $1,562,153
Unearned premiums 1,046,313 146,186 1,192,499 744,438 119,998 864,436
Accounts payable and accrued expenses (4) 265,057 18,060 283,117 189,430 13,678 203,108
Notes payable (5) 446,061 45,476 491,537 250,708 48,374 299,082
Other 217,004 85,186 302,190 257,940 60,534 318,474
Total liabilities $3,597,667 $427,300 $4,024,967 $2,892,821 $354,432 $3,247,253
Stockholders’ equity:
Common stock (6) $1,056 $ $1,056 $934 $ $934
Preferred stock (7) 220,000 220,000 55,000 55,000
Additional paid-in capital 900,114 900,114 690,736 690,736
Accumulated other comprehensive income/(loss) (19,414) (19,414) 20,192 20,192
Retained earnings 412,044 412,044 292,832 292,832
Total National General Holdings Corp. stockholders' equity 1,513,800 1,513,800 1,059,694 1,059,694
Non-controlling interest 221 22,619 22,840 86 13,670 13,756
Total stockholders’ equity $1,514,021 $22,619 $1,536,640 $1,059,780 $13,670 $1,073,450
Total liabilities and stockholders’ equity $5,111,688 $449,919 $5,561,607 $3,952,601 $368,102 $4,320,703


Segment Information - Fourth Quarter
$ in thousands
(Unaudited)
Three Months Ended December 31,
2015 2014
P&C A&H NGHC Reciprocal
Exchanges
P&C A&H NGHC Reciprocal
Exchanges
Gross written premium $579,662 $98,513 $678,175 $65,752 $440,332 $22,526 $462,858 $60,049
Net written premium 528,964 89,170 618,134 33,038 384,153 22,389 406,542 45,871
Net earned premium 543,547 98,752 642,299 36,269 374,034 30,532 404,566 40,930
Ceding commission income/(loss) (1,532) 271 (1,261) 17,851 48 48 4,750
Service and fee income 55,206 44,059 99,265 10,236 43,458 13,811 57,269 117
Total underwriting revenue 597,221 143,082 740,303 64,356 417,540 44,343 461,883 45,797
Loss and loss adjustment expense 353,560 91,570 445,130 40,737 248,606 27,121 275,727 21,368
Acquisition costs and other 78,116 25,723 103,839 7,005 68,771 7,618 76,389 5,994
General and administrative 139,764 39,872 179,636 16,528 84,577 20,545 105,122 10,156
Total underwriting expenses 571,440 157,165 728,605 64,270 401,954 55,284 457,238 37,518
Underwriting income (loss) 25,781 (14,083) 11,698 86 15,586 (10,941) 4,645 8,279
Non-cash impairment of goodwill 11,222 6,245 $17,467 9,419 6,373 15,792
Non-cash amortization of intangible assets 4,516 3,661 $8,177 (841) 2,026 864 2,890 2,115
Underwriting income (loss) before amortization and impairment $41,519 $(4,177) $37,342 $(755) $27,031 $(3,704) $23,327 $10,394
Underwriting ratios
Loss and loss adjustment expense ratio (8) 65.0% 92.7% 69.3% 112.3% 66.5% 88.8% 68.2% 52.2%
Operating expense ratio (Non-GAAP) (9,10) 30.2% 21.5% 28.9% (12.6)% 29.4% 47.0% 30.7% 27.6%
Combined ratio (Non-GAAP) (9,11) 95.3% 114.3% 98.2% 99.8% 95.8% 135.8% 98.9% 79.8%
Underwriting ratios (before amortization and impairment)
Loss and loss adjustment expense ratio (8) 65.0% 92.7% 69.3% 112.3% 66.5% 88.8% 68.2% 52.2%
Operating expense ratio (Non-GAAP) (9,12) 27.3% 11.5% 24.9% (10.2)% 26.3% 23.3% 26.1% 22.4%
Combined ratio (Non-GAAP) (9,11) 92.4% 104.2% 94.2% 102.1% 92.8% 112.1% 94.2% 74.6%

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,
2015 2014
P&C A&H NGHC Reciprocal
Exchanges
P&C A&H NGHC Reciprocal
Exchanges
Gross written premium $2,057,834 $251,922 $2,309,756 $283,582 $1,924,666 $140,399 $2,065,065 $70,042
Net written premium 1,844,202 215,953 2,060,155 126,091 1,676,946 140,002 1,816,948 53,076
Net earned premium 1,783,800 211,301 1,995,101 134,709 1,465,122 120,476 1,585,598 47,622
Ceding commission income/(loss) (3,601) 1,091 (2,510) 46,300 7,643 7,643 4,787
Service and fee income 201,304 98,810 300,114 13,226 119,876 58,457 178,333 139
Total underwriting revenue 1,981,503 311,202 2,292,705 194,235 1,592,641 178,933 1,771,574 52,548
Loss and loss adjustment expense 1,112,758 171,322 1,284,080 97,561 940,457 85,889 1,026,346 26,719
Acquisition costs and other 312,067 65,999 378,066 27,972 254,130 54,692 308,822 6,267
General and administrative 422,561 82,111 504,672 65,359 290,079 56,617 346,696 11,967
Total underwriting expenses 1,847,386 319,432 2,166,818 190,892 1,484,666 197,198 1,681,864 44,953
Underwriting income (loss) 134,117 (8,230) 125,887 3,343 107,975 (18,265) 89,710 7,595
Non-cash impairment of goodwill 11,222 6,245 17,467 9,419 6,373 15,792
Non-cash amortization of intangible assets 9,995 6,597 16,592 4,380 5,208 6,117 11,325 2,468
Underwriting income (loss) before amortization and impairment $155,334 $4,612 $159,946 $7,723 $122,602 $(5,775) $116,827 $10,063
Underwriting ratios
Loss and loss adjustment expense ratio (8) 62.4% 81.1% 64.4% 72.4% 64.2% 71.3% 64.7% 56.1%
Operating expense ratio (Non-GAAP) (9,10) 30.1% 22.8% 29.3% 25.1% 28.4% 43.9% 29.6% 27.9%
Combined ratio (Non-GAAP) (9,11) 92.5% 103.9% 93.7% 97.5% 92.6% 115.2% 94.3% 84.1%
Underwriting ratios (before amortization and impairment)
Loss and loss adjustment expense ratio (8) 62.4% 81.1% 64.4% 72.4% 64.2% 71.3% 64.7% 56.1%
Operating expense ratio (Non-GAAP) (9,12) 28.9% 16.7% 27.6% 21.8% 27.4% 33.5% 27.9% 22.8%
Combined ratio (Non-GAAP) (9,11) 91.3% 97.8% 92.0% 94.3% 91.6% 104.8% 92.6% 78.9%

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 December 31,
2015 2014
P&C A&H NGHC Reciprocal Exchanges P&C A&H NGHC Reciprocal Exchanges
Total underwriting expenses $571,440 $157,165 $728,605 $64,270 $401,954 $55,284 $457,238 $37,518
Less: Loss and loss adjustment expense 353,560 91,570 445,130 40,737 248,606 27,121 275,727 21,368
Less: Ceding commission income/(loss) (1,532) 271 (1,261) 17,851 48 48 4,750
Less: Service and fee income 55,206 44,059 99,265 10,236 43,458 13,811 57,269 117
Operating expense 164,206 21,265 185,471 (4,554) 109,842 14,352 124,194 11,283
Net earned premium $543,547 $98,752 $642,299 $36,269 $374,034 $30,532 $404,566 $40,930
Operating expense ratio (Non-GAAP) 30.2% 21.5% 28.9% (12.6)% 29.4% 47.0% 30.7% 27.6%
Total underwriting expenses $571,440 $157,165 $728,605 $64,270 $401,954 $55,284 $457,238 $37,518
Less: Loss and loss adjustment expense 353,560 91,570 445,130 40,737 248,606 27,121 275,727 21,368
Less: Ceding commission income/(loss) (1,532) 271 (1,261) 17,851 48 48 4,750
Less: Service and fee income 55,206 44,059 99,265 10,236 43,458 13,811 57,269 117
Less: Non-cash impairment of goodwill 11,222 6,245 17,467 9,419 6,373 15,792
Less: Non-cash amortization of intangible assets 4,516 3,661 8,177 (841) 2,026 864 2,890 2,115
Operating expense before amortization and impairment 148,468 11,359 159,827 (3,713) 98,397 7,115 105,512 9,168
Net earned premium $543,547 $98,752 642,299 36,269 $374,034 $30,532 $404,566 $40,930
Operating expense ratio before amortization and impairment (Non-GAAP) 27.3% 11.5% 24.9% (10.2)% 26.3% 23.3% 26.1% 22.4%


Twelve Months Ended December 31,
2015 2014
P&C A&H NGHC Reciprocal Exchanges P&C A&H NGHC Reciprocal Exchanges
Total underwriting expenses $1,847,386 $319,432 $2,166,818 $190,892 $1,484,666 $197,198 $1,681,864 $44,953
Less: Loss and loss adjustment expense 1,112,758 171,322 1,284,080 97,561 940,457 85,889 1,026,346 26,719
Less: Ceding commission income/(loss) (3,601) 1,091 (2,510) 46,300 7,643 7,643 4,787
Less: Service and fee income 201,304 98,810 300,114 13,226 119,876 58,457 178,333 139
Operating expense 536,925 48,209 585,134 33,805 416,690 52,852 469,542 13,308
Net earned premium $1,783,800 $211,301 $1,995,101 $134,709 $1,465,122 $120,476 $1,585,598 $47,622
Operating expense ratio (Non-GAAP) 30.1% 22.8% 29.3% 25.1% 28.4% 43.9% 29.6% 27.9%
Total underwriting expenses $1,847,386 $319,432 $2,166,818 $190,892 $1,484,666 $197,198 $1,681,864 $44,953
Less: Loss and loss adjustment expense 1,112,758 171,322 1,284,080 97,561 940,457 85,889 1,026,346 26,719
Less: Ceding commission income/(loss) (3,601) 1,091 (2,510) 46,300 7,643 7,643 4,787
Less: Service and fee income 201,304 98,810 300,114 13,226 119,876 58,457 178,333 139
Less: Non-cash impairment of goodwill 11,222 6,245 17,467 9,419 6,373 15,792
Less: Non-cash amortization of intangible assets 9,995 6,597 16,592 4,380 5,208 6,117 11,325 2,468
Operating expense before amortization and impairment 515,708 35,367 551,075 29,425 402,063 40,362 442,425 10,840
Net earned premium $1,783,800 $211,301 $1,995,101 $134,709 $1,465,122 $120,476 $1,585,598 $47,622
Operating expense ratio before amortization and impairment (Non-GAAP) 28.9% 16.7% 27.6% 21.8% 27.4% 33.5% 27.9% 22.8%


Premiums by Business Line
$ in thousands
(Unaudited)
Three Months Ended December 31,
Gross Written Premium Net Written Premium Net Earned Premium
2015 2014 Change 2015 2014 Change 2015 2014 Change
Property & Casualty
Personal Auto $304,885 $288,565 5.7% $265,771 $252,284 5.3% $268,132 $259,599 3.3%
Homeowners 63,755 76,330 (16.5)% 58,901 60,396 (2.5)% 67,287 38,778 73.5%
RV/Packaged 33,836 33,370 1.4% 33,720 33,193 1.6% 38,249 37,841 1.1%
Commercial Auto 47,806 38,951 22.7% 42,967 35,993 19.4% 43,074 33,918 27.0%
Lender-Placed Insurance 126,570 NA 125,693 NA 123,274 NA
Other 2,810 3,106 (9.5)% 1,912 2,287 (16.4)% 3,531 3,898 (9.4)%
Property & Casualty Total 579,662 440,322 31.6% 528,964 384,153 37.7% 543,547 374,034 45.3%
Accident & Health 98,513 22,526 337.3% 89,170 22,389 298.3% 98,752 30,532 223.4%
Total National General 678,175 462,848 46.5% 618,134 406,542 52.0% 642,299 404,566 58.8%
Reciprocal Exchanges
Personal Auto 20,853 28,106 (25.8)% 12,067 28,012 (56.9)% 13,512 24,362 (44.5)%
Homeowners 39,064 28,015 39.4% 17,933 14,491 23.8% 18,363 13,558 35.4%
Other 5,835 3,928 48.5% 3,038 3,368 (9.8)% 4,394 3,010 46.0%
Reciprocal Exchanges Total 65,752 60,049 9.5% 33,038 45,871 (28.0)% 36,269 40,930 (11.4)%
Consolidated Total $743,927 $522,897 42.3% $651,172 $452,413 43.9% $678,568 $445,496 52.3%
Twelve Months Ended December 31,
Gross Written Premium Net Written Premium Net Earned Premium
2015 2014 Change 2015 2014 Change 2015 2014 Change
Property & Casualty
Personal Auto $1,241,282 $1,241,575 % $1,070,852 $1,047,795 2.2% $1,054,529 $979,082 7.7%
Homeowners 329,440 366,997 (10.2)% 309,775 333,586 (7.1)% 286,920 204,285 40.5%
RV/Packaged 154,929 153,553 0.9% 153,501 148,456 3.4% 150,290 147,587 1.8%
Commercial Auto 187,686 146,124 28.4% 170,720 132,002 29.3% 154,565 118,759 30.2%
Lender-Placed Insurance 126,570 NA 125,693 NA 123,274 NA
Other 17,927 16,417 9.2% 13,661 15,107 (9.6)% 14,222 15,409 (7.7)%
Property & Casualty Total 2,057,834 1,924,666 6.9% 1,844,202 1,676,946 10.0% 1,783,800 1,465,122 21.8%
Accident & Health 251,922 140,399 79.4% 215,953 140,002 54.2% 211,301 120,476 75.4%
Total National General 2,309,756 2,065,065 11.8% 2,060,155 1,816,948 13.4% 1,995,101 1,585,598 25.8%
Reciprocal Exchanges
Personal Auto 88,494 32,436 NA 50,686 32,075 NA 74,477 28,405 NA
Homeowners 168,015 33,028 NA 58,012 17,127 NA 45,354 15,779 NA
Other 27,073 4,578 NA 17,393 3,874 NA 14,878 3,438 NA
Reciprocal Exchanges Total 283,582 70,042 NA 126,091 53,076 NA 134,709 47,622 NA
Consolidated Total $2,589,748 $2,135,107 21.3% $2,186,246 $1,870,024 16.9% $2,129,810 $1,633,220 30.4%

NOTE: Consolidated Total includes elimination of $(3,590) within Gross Written Premium for Twelve Months Ended December 31, 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 and Real Estate investment gains or losses), 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) Premiums and other receivables, net (NGHC) includes $62,306 and $168,134 from related parties at December 31, 2015 and December 31, 2014, respectively.

(3) Reinsurance recoverable on unpaid losses (NGHC) includes $42,774 and $88,970 from related parties at December 31, 2015 and December 31, 2014, respectively.

(4) Accounts payable and accrued expenses (NGHC) includes $51,755 and $68,096 to related parties at December 31, 2015 and December 31, 2014, respectively.

(5) Notes payable (Reciprocal Exchanges) includes $56,443 and $48,374 owed to related party at December 31, 2015 and December 31, 2014, respectively.

(6) Common stock: $0.01 par value - authorized 150,000,000 shares, issued and outstanding 105,554,331 shares - December 31, 2015; authorized 150,000,000 shares, issued and outstanding 93,427,382 shares - December 31, 2014.

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

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

(9) 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.

(10) 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.

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

(12) 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.