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National General Holdings Corp. Reports Second Quarter 2016 Results

NEW YORK, Aug. 01, 2016 (GLOBE NEWSWIRE) -- National General Holdings Corp. (NASDAQ:NGHC) today reported second quarter 2016 net income of $44.3 million or $0.41 per diluted share, compared to $33.8 million or $0.35 per diluted share in the second quarter of 2015. Second quarter 2016 operating earnings(1) was $46.4 million or $0.43 per diluted share, compared to $36.1 million or $0.38 per diluted share in the second quarter of 2015.

Second Quarter 2016 Highlights Versus Second Quarter 2015*

  • Net written premium grew $249.7 million or 55.7% to $698.3 million, driven by added premiums from the acquisition of Century-National which closed on June 1, 2016, the National General Lender Services (formerly QBE Lender-Placed Insurance) and Assurant Health transactions which both closed on October 1, 2015, the addition of Assigned Risk Solutions (ARS) premium volume which is now written on National General paper, underlying organic growth within our P&C business, and continued expansion of our A&H segment.
  • The overall combined ratio(10, 14) was 94.0% compared to 91.5% in the prior year's quarter, excluding non-cash amortization of intangible assets. The P&C segment reported an increase in combined ratio to 94.2% from 91.6% in the prior year’s quarter, while the A&H segment reported a combined ratio of 92.9% compared to 89.9% in the prior year’s quarter.
  • Total revenues grew by $274.9 million or 51.9% to $804.6 million, driven by the aforementioned premium growth, service and fee income growth of $32.3 million or 47.9%, and net investment income growth of $11.2 million or 69.4%, partially offset by a $3.3 million decline in ceding commission income.
  • Shareholders' equity was $1.68 billion and fully diluted book value per share was $13.45 at June 30, 2016, growth of 30.0% and 21.1%, respectively, from June 30, 2015. Annualized operating return on average equity (ROE)(15) was 13.2% and 14.6% for the second quarter of 2016 and the six months ended June 30, 2016, respectively.
  • Second quarter 2016 operating earnings exclude the following items, net of tax: $2.8 million or $0.03 per share of realized investment gains, $0.3 million or less than $0.01 per share of foreign exchange loss, $0.1 million or less than $0.01 per share of equity in earnings of unconsolidated subsidiaries (other than LSC Entities and Real Estate investments), and $4.7 million or $0.04 per share of non-cash amortization of intangible assets.
  • Second quarter 2016 operating earnings include approximately $18.4 million or $0.11 per share of losses related to hail storms that occurred in San Antonio and Dallas, Texas in April 2016.

Barry Karfunkel, National General's President and CEO, stated: "Our second quarter results reflect the strength of our business model and the progress we have made developing National General’s diversified capabilities. We continued to produce significant top line growth and strong underwriting profitability. From a development standpoint a number of exciting events happened in the quarter. We closed on the Century-National acquisition which expands our preferred home and auto premium on the west coast and announced the acquisition of Direct General Insurance which, upon closing, will add a direct marketing distribution channel to our core non-standard auto business."

*NOTE: Unless specified otherwise, discussion of our second quarter 2016 and 2015 results do not include financial results from the Reciprocal Exchanges, which are presented within our consolidated financial results within this release but are not included in net income available to NGHC common stockholders. Attorney-in-Fact management fees referenced within this release are eliminated in consolidated financial results.

Overview of Second Quarter 2016 as Compared to Second Quarter 2015

Gross written premium grew 55.1% to $774.0 million, net written premium grew 55.7% to $698.3 million, and net earned premium grew 51.6% to $676.9 million. Premium growth was driven by several key factors: underlying organic growth within our P&C business, continued expansion of our A&H segment, additional premiums from the acquisition of Century-National which closed on June 1, 2016, the National General Lender Services (formerly QBE Lender-Placed Insurance) and Assurant Health transactions which both closed on October 1, 2015, and added premium volume from Assigned Risk Solutions (ARS), which we began writing on National General paper in the first quarter of 2016.

Ceding commission income was a loss of $3.2 million reflecting a sliding scale adjustment related to third-party quota share which was terminated in 2013. Service and fee income grew 47.9% to $99.6 million, driven by added service and fee income from our recently completed transactions, primarily National General Lender Services and Assurant Health, and underlying growth within our A&H segment.

Excluding non-cash amortization of intangible assets, the combined ratio was 94.0% with a loss ratio of 67.2% and an expense ratio(10, 13) of 26.8%, compared to a prior year combined ratio of 91.5% with a loss ratio of 60.8% and an expense ratio of 30.7%.

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

  • Property & Casualty - Gross written premium grew by 44.5% to $671.2 million, net written premium grew by 43.8% to $607.9 million, and net earned premium grew by 40.1% to $575.0 million. P&C premium growth was driven by several key factors: underlying organic growth of approximately 8.6%, the addition of $17.8 million of net written premium from the Century-National acquisition, the addition of $105.4 million of net written premium from the National General Lender Services transaction, and the addition of $25.7 million of net written premium from ARS, which we began writing on National General paper during the first quarter. Ceding commission income was a loss of $3.6 million compared to $0.2 million of loss in the prior year's quarter, with the current quarter reflecting a sliding scale adjustment related to our terminated third-party quota share. Service and fee income grew 22.4% to $60.8 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 $10.8 million of fees earned by the Attorneys-in-Fact that manage the Reciprocal Exchanges, compared to $10.7 million in the prior year’s quarter. Excluding non-cash amortization of intangible assets, the combined ratio was 94.2% with a loss ratio of 65.4% and an expense ratio of 28.8%, versus a prior year combined ratio of 91.6% with a loss ratio of 59.8% and an expense ratio of 31.8%. The loss ratio was impacted by losses of approximately $18.4 million related to hail storms that occurred in San Antonio and Dallas, Texas in April 2016.
  • Accident & Health - Gross written premium grew to $102.9 million, net written premium grew to $90.4 million, and net earned premium grew to $101.9 million, from $34.5 million, $25.8 million, and $36.3 million, respectively, in the prior year's quarter. A&H premium growth was driven by the addition of $47.3 million of net written premium from the Assurant Health transaction, as well as continued growth from both our domestic and international businesses, with $30.0 million in net written premium at our U.S. underwriting subsidiaries compared to $15.9 million in the prior year’s quarter, and $13.0 million of premium from EuroAccident (our Swedish group life and health MGA) compared to $10.0 million in the prior year’s quarter. Service and fee income grew to $38.9 million from $17.7 million in the prior year’s quarter, driven by the addition of service and fee income from the Assurant Health transaction and strong growth at VelaPoint. Excluding non-cash amortization of intangible assets, the combined ratio was 92.9% with a loss ratio of 77.3% and an expense ratio of 15.6%, versus a prior year combined ratio of 89.9% with a loss ratio of 72.0% and an expense ratio of 17.9%. The increased loss ratio reflects a higher level of losses within our legacy small group self-funded product, as well as a higher proportion of this product following the closing of the Assurant Health transaction, while the reduced expense ratio reflects the continued maturation of the A&H business coupled with 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 $77.2 million, net written premium was $39.1 million, and net earned premium was $36.0 million. Reciprocal Exchanges combined ratio(10, 12) was 76.0% with a loss ratio of 49.2% and an expense ratio(10, 11) of 26.8%.

Investment income grew 69.4% to $27.4 million, reflecting an increase in the size of our investment portfolio as compared to the prior year’s quarter. Second quarter 2016 results included $4.2 million of net realized investment gains compared with a gain of $2.4 million in the second quarter of 2015. The second quarter of 2016 included no other than temporary impairment losses versus other than temporary impairment losses of $1.5 million in the prior year’s quarter. Total investments and cash equivalents were $3.3 billion as of June 30, 2016. Accumulated other comprehensive income (loss) increased to $44.7 million at June 30, 2016 from $(19.4) million at December 31, 2015.

Other revenue was a loss of $0.4 million in the second quarter of 2016 compared to a loss of $1.4 million in the prior year’s quarter, with the current quarter driven by foreign exchange loss from currency fluctuations within our European subsidiaries.

Interest expense was $8.9 million, up from $4.8 million in the prior year’s quarter due to an increased amount of debt on our balance sheet. Debt was $678.7 million at June 30, 2016, up from $250.3 million at June 30, 2015 as a result of our August 2015 issuance of $100.0 million of subordinated notes, our October 2015 issuance of $100.0 million of senior unsecured notes, our May 2016 borrowing of $50.0 million under our credit facility, and our June 2016 promissory note of $176.4 million for the acquisition of Century-National.

Equity in earnings of unconsolidated subsidiaries (predominantly our investment in Life Settlement Entities and Real Estate investments) was a $7.4 million gain in the second quarter of 2016 versus a $1.7 million gain in the prior year's quarter, reflecting fair value adjustments on life settlement contracts and income from our real estate investments.

The second quarter of 2016 provision for income taxes was $14.8 million and the effective tax rate for the quarter was 26.5%. Included in the second quarter of 2016 provision for income taxes was a $7.5 million benefit attributable to a reduction of the deferred tax liability associated with the equalization reserves of our Luxembourg Reinsurance Company (LRC) subsidiaries. As of June 30, 2016, the remaining DTL associated with our LRC subsidiaries was $4.5 million.

National General Holding Corp.'s shareholders' equity was $1,677.0 million at June 30, 2016, growth of 30.0% from $1,289.7 million at June 30, 2015. Fully diluted book value per share was $13.45 at June 30, 2016, growth of 21.1% from $11.11 at June 30, 2015. Annualized operating return on average equity (ROE) was 13.2% and 14.6% for the second quarter of 2016 and the six months ended June 30, 2016, respectively.

Additional Items

  • Issuance of Preferred Stock - On July 7, 2016, we closed an underwritten public offering of 8 million depositary shares (including the underwriters' over-allotment option), each representing a 1/40th interest in a share of 7.50% Non-Cumulative Preferred Stock, Series C at a public offering price of $25 per depositary share, for gross proceeds of $200.0 million. Total net proceeds of the offering were $193.5 million, after deducting the underwriting discount and offering expenses.
  • Direct General Acquisition - On June 24, 2016, we agreed to acquire Elara Holdings, Inc., the parent company of Direct General Corporation, a Tennessee based P&C insurance company that predominantly writes non-standard auto business in the Southeastern United States. The estimated purchase price for the transaction is approximately $165.0 million, subject to customary post-closing adjustments. The transaction is expected to close in the fourth quarter of 2016, subject to customary closing conditions and regulatory approvals.
  • Century-National Insurance Company Acquisition - On June 1, 2016, we closed the acquisition of Century-National Insurance Company, a California based property and casualty underwriter and Western General Agency, Inc. The purchase price for the transaction was approximately $318.0 million, subject to an adjustment based on the final closing balance sheet. The purchase price equates to a $50.0 million premium to tangible book value, and includes an upfront cash payment of approximately $141.6 million with the remaining balance of $176.4 million payable over a period of two years pursuant to a promissory note.

Conference Call

On Tuesday, August 2, 2016 at 11:00 AM ET, President and Chief Executive Officer Barry Karfunkel and Chief Financial Officer Mike Weiner will review results and discuss business conditions via a conference call that may be accessed as follows:

Toll-Free U.S. Dial-in:888-267-2860
International Dial-in:973-413-6102
Conference Entry Code:337409
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 2, 2016 to 11:59 PM ET on Tuesday, August 16, 2016 by dialing either 800-332-6854 (toll-free) within the U.S. or 973-528-0005 outside the U.S. and entering passcode 337409. In addition, a replay of the webcast can also be retrieved at http://ir.nationalgeneral.com/events.cfm.

About National General Holdings Corp.

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

Forward Looking Statements

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

Income Statement - Second Quarter
$ in thousands
(Unaudited)

Three Months Ended June 30,
2016 2015
NGHC Reciprocal Exchanges Consolidated NGHC Reciprocal Exchanges Consolidated
Revenues:
Gross written premium $774,048 $77,170 $850,507 (A) $498,952 $76,729 $575,681
Ceded premiums (75,729) (38,040) (113,058)(B) (50,308) (45,963) (96,271)
Net written premium 698,319 39,130 737,449 448,644 30,766 479,410
Net earned premium 676,912 36,028 712,940 446,568 22,248 468,816
Ceding commission income/(loss) (3,205) 14,909 11,704 46 9,924 9,970
Service and fee income 99,629 1,195 90,017 (C) 67,343 947 57,558 (J)
Net investment income 27,361 2,248 27,528 (D) 16,154 2,181 18,335
Net realized gain/(loss) on investments 4,241 141 4,382 2,402 (546) 1,856
Other than temporary impairment loss (1,467) (1,467)
Other revenue (387) (387) (1,415) (1,415)
Total revenues $804,551 $54,521 $846,184 (E) $529,631 $34,754 $553,653 (K)
Expenses:
Loss and loss adjustment expense $454,622 $17,736 $472,358 $271,584 $15,245 $286,829
Acquisition costs and other underwriting expenses 108,387 493 108,874 (F) 88,912 7,611 96,502 (L)
General and administrative expenses 176,660 25,261 191,120 (G) 118,328 11,541 119,158 (M)
Interest expense 8,939 2,081 8,939 (H) 4,804 3,797 8,601
Total expenses $748,608 $45,571 $781,291 (I) $483,628 $38,194 $511,090 (N)
Income (loss) before provision/(benefit) for income taxes and equity in earnings of unconsolidated subsidiaries $55,943 $8,950 $64,893 $46,003 $(3,440) $42,563
Provision/(benefit) for income taxes 14,825 (274) 14,551 9,110 (1,219) 7,891
Income (loss) before equity in earnings of unconsolidated subsidiaries 41,118 9,224 50,342 36,893 (2,221) 34,672
Equity in earnings of unconsolidated subsidiaries 7,356 7,356 1,654 1,654
Net income (loss) before non-controlling interest and dividends on preferred shares 48,474 9,224 57,698 38,547 (2,221) 36,326
Less: net income (loss) attributable to non-controlling interest 4 9,224 9,228 20 (2,221) (2,201)
Net income before dividends on preferred shares 48,470 48,470 38,527 38,527
Less: dividends on preferred shares 4,125 4,125 4,744 4,744
Net income available to common stockholders $44,345 $ $44,345 $33,783 $ $33,783

NOTE: Consolidated column includes eliminations as follows: (A) $(711), (B) $711, (C) $(10,807), (D) $(2,081), (E) $(12,888), (F) $(6), (G) $(10,801), (H) $(2,081), (I) $(12,888), (J) $(10,732), (K) $(10,732), (L) $(21), (M) $(10,711), and (N) $(10,732).

Income Statement - Year to Date
$ in thousands
(Unaudited)

Six Months Ended June 30,
2016 2015
NGHC Reciprocal Exchanges Consolidated (1) NGHC Reciprocal Exchanges Consolidated
Revenues:
Gross written premium $1,590,242 $77,170 $1,666,701 (A) $1,084,760 $137,966 $1,219,136 (J)
Ceded premiums (147,336) (38,040) (184,665)(B) (124,728) (88,563) (209,701)(K)
Net written premium 1,442,906 39,130 1,482,036 960,032 49,403 1,009,435
Net earned premium 1,331,832 36,028 1,367,860 883,837 64,144 947,981
Ceding commission income/(loss) (5,100) 14,909 9,809 1,099 13,951 15,050
Service and fee income 196,573 1,195 186,961 (C) 129,996 1,742 112,428 (L)
Net investment income 49,031 2,248 49,198 (D) 30,263 4,220 34,483
Net realized gain on investments 7,858 141 7,999 3,912 147 4,059
Other than temporary impairment loss (2,483) (2,483)
Other revenue 314 314 (170) (170)
Total revenues $1,580,508 $54,521 $1,622,141 (E) $1,046,454 $84,204 $1,111,348 (M)
Expenses:
Loss and loss adjustment expense $863,672 $17,736 $881,408 $550,266 $43,249 $593,515
Acquisition costs and other underwriting expenses 221,286 493 221,773 (F) 175,541 10,872 186,387 (N)
General and administrative expenses 353,287 25,261 367,747 (G) 218,204 25,925 224,845 (O)
Interest expense 18,080 2,081 18,080 (H) 10,187 7,494 17,681
Total expenses $1,456,325 $45,571 $1,489,008 (I) $954,198 $87,540 $1,022,428 (P)
Income (loss) before provision/(benefit) for income taxes and equity in earnings of unconsolidated subsidiaries $124,183 $8,950 $133,133 $92,256 $(3,336) $88,920
Provision/(benefit) for income taxes 32,908 (274) 32,634 17,529 (1,251) 16,278
Income (loss) before equity in earnings of unconsolidated subsidiaries 91,275 9,224 100,499 74,727 (2,085) 72,642
Equity in earnings of unconsolidated subsidiaries 14,038 14,038 6,612 6,612
Net income (loss) before non-controlling interest and dividends on preferred shares 105,313 9,224 114,537 81,339 (2,085) 79,254
Less: net income (loss) attributable to non-controlling interest 16 9,224 9,240 44 (2,085) (2,041)
Net income before dividends on preferred shares 105,297 105,297 81,295 81,295
Less: dividends on preferred shares 8,250 8,250 5,775 5,775
Net income available to common stockholders $97,047 $ $97,047 $75,520 $ $75,520

NOTES: Consolidated column includes eliminations as follows: (A) $(711), (B) $711, (C) $(10,807), (D) $(2,081), (E) $(12,888), (F) $(6), (G) $(10,801), (H) $(2,081), (I) $(12,888), (J) $(3,590), (K) $3,590, (L) $(19,310), (M) $(19,310), (N) $(26), (O) $(19,284), and (P) $(19,310).

(1) Consolidated column for the six months ended June 30, 2016 excludes Reciprocal Exchanges' operating results from January 1, 2016 to March 31, 2016.

Earnings and Per Share Data
$ in thousands, except shares and per share data
(Unaudited)

Three Months Ended June 30, Six Months Ended June 30,
2016 2015 2016 2015
Net income available to common stockholders$44,345 $33,783 $97,047 $75,520
Basic net income per common share$0.42 $0.36 $0.92 $0.81
Diluted net income per common share$0.41 $0.35 $0.90 $0.79
Operating earnings attributable to NGHC(1)$46,416 $36,134 $100,150 $79,148
Basic operating earnings per common share(1)$0.44 $0.39 $0.95 $0.85
Diluted operating earnings per common share(1)$0.43 $0.38 $0.93 $0.82
Dividends declared per common share$0.03 $0.02 $0.06 $0.04
Weighted average number of basic shares outstanding105,803,802 93,597,448 105,700,682 93,527,977
Weighted average number of diluted shares outstanding108,197,897 96,181,037 107,987,406 96,005,397
Shares outstanding, end of period105,932,281 93,713,986 105,932,281 93,713,986
Fully diluted shares outstanding, end of period108,326,376 96,297,575 108,219,006 96,191,405
Book value per share$13.75 $11.41 $13.75 $11.41
Fully diluted book value per share$13.45 $11.11 $13.46 $11.12

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,
2016 2015 2016 2015
Net income available to common stockholders$44,345 $33,783 $97,047 $75,520
Add (subtract) net of tax:
Net realized gain on investments(2,757) (1,561) (5,108) (2,543)
Other than temporary impairment losses 954 1,614
Foreign exchange (gain)/loss252 1,062 (151) 783
Equity in (earnings)/losses of unconsolidated subsidiaries (other than LSC Entities and Real Estate investments)(96) (24) 8 80
Non-cash amortization of intangible assets4,672 1,920 8,354 3,694
Non-cash impairment of goodwill
Operating earnings attributable to NGHC (1)$46,416 $36,134 $100,150 $79,148
Operating earnings per common share:
Basic operating earnings per common share$0.44 $0.39 $0.95 $0.85
Diluted operating earnings per common share$0.43 $0.38 $0.93 $0.82

Balance Sheets
$ in thousands

June 30, 2016 (unaudited) December 31, 2015 (audited)
ASSETS NGHC Reciprocal Exchanges Consolidated NGHC Reciprocal Exchanges Consolidated
Total investments $3,080,116 $290,569 $3,281,749 (A) $2,425,168 $242,542 $2,667,710
Cash and cash equivalents 258,704 12,990 271,694 273,884 8,393 282,277
Premiums and other receivables, net (2) 835,683 58,402 893,373 (B) 702,439 56,194 758,633
Reinsurance recoverable on unpaid losses (3) 813,942 39,617 853,559 794,091 39,085 833,176
Intangible assets, net 358,267 25,433 383,700 344,073 4,825 348,898
Goodwill 208,971 208,971 112,414 112,414
Other 545,453 82,118 619,895 (C) 459,619 100,665 560,284
Total assets $6,101,136 $509,129 $6,512,941 (D) $5,111,688 $451,704 $5,563,392
LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities:
Unpaid loss and loss adjustment expense reserves $1,833,221 $133,531 $1,966,752 $1,623,232 $132,392 $1,755,624
Unearned premiums 1,276,637 148,502 1,425,139 1,046,313 146,186 1,192,499
Reinsurance payable (4) 70,033 22,640 91,961 (E) 54,815 14,357 69,172
Accounts payable and accrued expenses (5) 274,784 6,541 279,281 (F) 265,057 19,845 284,902
Debt (6) 678,715 88,936 678,715 (G) 446,061 45,476 491,537
Other 290,768 78,391 363,527 (H) 162,189 70,829 233,018
Total liabilities $4,424,158 $478,541 $4,805,375 (I) $3,597,667 $429,085 4,026,752
Stockholders’ equity:
Common stock (7) $1,059 $ $1,059 $1,056 $ $1,056
Preferred stock (8) 220,000 220,000 220,000 220,000
Additional paid-in capital 908,276 908,276 900,114 900,114
Accumulated other comprehensive income (loss) 44,724 44,724 (19,414) (19,414)
Retained earnings 502,741 502,741 412,044 412,044
Total National General Holdings Corp. stockholders' equity 1,676,800 1,676,800 1,513,800 1,513,800
Non-controlling interest 178 30,588 30,766 221 22,619 22,840
Total stockholders’ equity $1,676,978 $30,588 $1,707,566 $1,514,021 $22,619 $1,536,640
Total liabilities and stockholders’ equity $6,101,136 $509,129 $6,512,941 (J) $5,111,688 $451,704 $5,563,392

NOTE: Consolidated column includes eliminations as follows: (A) $(88,936), (B) $(712), (C) $(7,676), (D) $(97,324), (E) $(712), (F) $(2,044), (G) $(88,936), (H) $(5,632), (I) $(97,324), and (J) $(97,324).

Segment Information - Second Quarter
$ in thousands
(Unaudited)

Three Months Ended June 30,
2016 2015
P&C A&H NGHC Reciprocal Exchanges P&C A&H NGHC Reciprocal Exchanges
Gross written premium $671,157 $102,891 $774,048 $77,170 $464,494 $34,458 $498,952 $76,729
Net written premium 607,942 90,377 698,319 39,130 422,838 25,806 448,644 30,766
Net earned premium 575,002 101,910 676,912 36,028 410,301 36,267 446,568 22,248
Ceding commission income/(loss) (3,564) 359 (3,205) 14,909 (225) 271 46 9,924
Service and fee income 60,773 38,856 99,629 1,195 49,671 17,672 67,343 947
Total underwriting revenue $632,211 $141,125 $773,336 $52,132 $459,747 $54,210 $513,957 $33,119
Loss and loss adjustment expense 375,893 78,729 454,622 17,736 245,454 26,130 271,584 15,245
Acquisition costs and other 81,291 27,096 108,387 493 77,293 11,619 88,912 7,611
General and administrative 147,113 29,547 176,660 25,261 104,297 14,031 118,328 11,541
Total underwriting expenses $604,297 $135,372 $739,669 $43,490 $427,044 $51,780 $478,824 $34,397
Underwriting income/(loss) 27,914 5,753 33,667 8,642 32,703 2,430 35,133 (1,278)
Non-cash impairment of goodwill
Non-cash amortization of intangible assets 5,628 1,560 7,188 6,726 1,733 1,221 2,954 1,615
Underwriting income before amortization and impairment $33,542 $7,313 $40,855 $15,368 $34,436 $3,651 $38,087 $337
Underwriting ratios
Loss and loss adjustment expense ratio (9) 65.4% 77.3% 67.2% 49.2% 59.8% 72.0% 60.8% 68.5%
Operating expense ratio (Non-GAAP) (10,11) 29.8% 17.1% 27.9% 26.8% 32.2% 21.3% 31.3% 37.2%
Combined ratio (Non-GAAP) (10,12) 95.2% 94.4% 95.1% 76.0% 92.0% 93.3% 92.1% 105.7%
Underwriting ratios (before amortization and impairment)
Loss and loss adjustment expense ratio (9) 65.4% 77.3% 67.2% 49.2% 59.8% 72.0% 60.8% 68.5%
Operating expense ratio (Non-GAAP) (10,13) 28.8% 15.6% 26.8% 8.1% 31.8% 17.9% 30.7% 30.0%
Combined ratio before amortization and impairment (Non-GAAP) (10,14) 94.2% 92.9% 94.0% 57.3% 91.6% 89.9% 91.5% 98.5%

Segment Information - Year to Date
$ in thousands
(Unaudited)

Six Months Ended June 30,
2016 2015
P&C A&H NGHC Reciprocal Exchanges (1) P&C A&H NGHC Reciprocal Exchanges
Gross written premium $1,332,494 $257,748 $1,590,242 $77,170 $974,945 $109,815 $1,084,760 $137,966
Net written premium 1,208,716 234,190 1,442,906 39,130 867,098 92,934 960,032 49,403
Net earned premium 1,129,050 202,782 1,331,832 36,028 816,395 67,442 883,837 64,144
Ceding commission income/(loss) (5,828) 728 (5,100) 14,909 546 553 1,099 13,951
Service and fee income 124,261 72,312 196,573 1,195 94,905 35,091 129,996 1,742
Total underwriting revenue $1,247,483 $275,822 $1,523,305 $52,132 $911,846 $103,086 $1,014,932 $79,837
Loss and loss adjustment expense 708,552 155,120 863,672 17,736 504,033 46,233 550,266 43,249
Acquisition costs and other 172,950 48,336 221,286 493 152,630 22,911 175,541 10,872
General and administrative 291,807 61,480 353,287 25,261 190,026 28,178 218,204 25,925
Total underwriting expenses $1,173,309 $264,936 $1,438,245 $43,490 $846,689 $97,322 $944,011 $80,046
Underwriting income/(loss) 74,174 10,886 85,060 8,642 65,157 5,764 70,921 (209)
Non-cash impairment of goodwill
Non-cash amortization of intangible assets 9,475 3,377 12,852 6,726 3,752 1,931 5,683 3,866
Underwriting income before amortization and impairment $83,649 $14,263 $97,912 $15,368 $68,909 $7,695 $76,604 $3,657
Underwriting ratios
Loss and loss adjustment expense ratio (9) 62.8% 76.5% 64.8% 49.2% 61.7% 68.6% 62.3% 67.4%
Operating expense ratio (Non-GAAP) (10,11) 30.7% 18.1% 28.8% 26.8% 30.3% 22.9% 29.7% 32.9%
Combined ratio (Non-GAAP) (10,12) 93.5% 94.6% 93.6% 76.0% 92.0% 91.5% 92.0% 100.3%
Underwriting ratios (before amortization and impairment)
Loss and loss adjustment expense ratio (9) 62.8% 76.5% 64.8% 49.2% 61.7% 68.6% 62.3% 67.4%
Operating expense ratio (Non-GAAP) (10,13) 29.8% 16.5% 27.8% 8.1% 29.8% 20.0% 29.1% 26.9%
Combined ratio before amortization and impairment (Non-GAAP) (10,14) 92.6% 93.0% 92.6% 57.3% 91.5% 88.6% 91.4% 94.3%

NOTE: (1) Reciprocal Exchanges' column for the six months ended June 30, 2016 excludes its operating results from January 1, 2016 to March 31, 2016.

Reconciliation of Operating Expense Ratio (Non-GAAP)
$ in thousands
(Unaudited)

Three Months Ended June 30,
2016 2015
P&C A&H NGHC Reciprocal Exchanges P&C A&H NGHC Reciprocal Exchanges
Total underwriting expenses $604,297 $135,372 $739,669 $43,490 $427,044 $51,780 $478,824 $34,397
Less: Loss and loss adjustment expense 375,893 78,729 454,622 17,736 245,454 26,130 271,584 15,245
Less: Ceding commission income/(loss) (3,564) 359 (3,205) 14,909 (225) 271 46 9,924
Less: Service and fee income 60,773 38,856 99,629 1,195 49,671 17,672 67,343 947
Operating expense 171,195 17,428 188,623 9,650 132,144 7,707 139,851 8,281
Net earned premium $575,002 $101,910 $676,912 $36,028 $410,301 $36,267 $446,568 $22,248
Operating expense ratio (Non-GAAP) 29.8% 17.1% 27.9% 26.8% 32.2% 21.3% 31.3% 37.2%
Total underwriting expenses $604,297 $135,372 $739,669 $43,490 $427,044 $51,780 $478,824 $34,397
Less: Loss and loss adjustment expense 375,893 78,729 454,622 17,736 245,454 26,130 271,584 15,245
Less: Ceding commission income/(loss) (3,564) 359 (3,205) 14,909 (225) 271 46 9,924
Less: Service and fee income 60,773 38,856 99,629 1,195 49,671 17,672 67,343 947
Less: Non-cash impairment of goodwill
Less: Non-cash amortization of intangible assets 5,628 1,560 7,188 6,726 1,733 1,221 2,954 1,615
Operating expense before amortization and impairment 165,567 15,868 181,435 2,924 130,411 6,486 136,897 6,666
Net earned premium $575,002 $101,910 $676,912 $36,028 $410,301 $36,267 446,568 22,248
Operating expense ratio before amortization and impairment (Non-GAAP) 28.8% 15.6% 26.8% 8.1% 31.8% 17.9% 30.7% 30.0%

Reconciliation of Operating Expense Ratio (Non-GAAP)
$ in thousands
(Unaudited)

Six Months Ended June 30,
2016 2015
P&C A&H NGHC Reciprocal Exchanges P&C A&H NGHC Reciprocal Exchanges
Total underwriting expenses $1,173,309 $264,936 $1,438,245 $43,490 $846,689 $97,322 $944,011 $80,046
Less: Loss and loss adjustment expense 708,552 155,120 863,672 17,736 504,033 46,233 550,266 43,249
Less: Ceding commission income/(loss) (5,828) 728 (5,100) 14,909 546 553 1,099 13,951
Less: Service and fee income 124,261 72,312 196,573 1,195 94,905 35,091 129,996 1,742
Operating expense 346,324 36,776 383,100 9,650 247,205 15,445 262,650 21,104
Net earned premium $1,129,050 $202,782 $1,331,832 $36,028 $816,395 $67,442 $883,837 $64,144
Operating expense ratio (Non-GAAP) 30.7% 18.1% 28.8% 26.8% 30.3% 22.9% 29.7% 32.9%
Total underwriting expenses $1,173,309 $264,936 $1,438,245 $43,490 $846,689 $97,322 $944,011 $80,046
Less: Loss and loss adjustment expense 708,552 155,120 863,672 17,736 504,033 46,233 550,266 43,249
Less: Ceding commission income/(loss) (5,828) 728 (5,100) 14,909 546 553 1,099 13,951
Less: Service and fee income 124,261 72,312 196,573 1,195 94,905 35,091 129,996 1,742
Less: Non-cash impairment of goodwill
Less: Non-cash amortization of intangible assets 9,475 3,377 12,852 6,726 3,752 1,931 5,683 3,866
Operating expense before amortization and impairment 336,849 33,399 370,248 2,924 243,453 13,514 256,967 17,238
Net earned premium $1,129,050 $202,782 $1,331,832 $36,028 $816,395 $67,442 $883,837 $64,144
Operating expense ratio before amortization and impairment (Non-GAAP) 29.8% 16.5% 27.8% 8.1% 29.8% 20.0% 29.1% 26.9%

Premiums by Business Line
$ in thousands
(Unaudited)

Three Months Ended June 30,
Gross Written Premium Net Written Premium Net Earned Premium
2016 2015 Change 2016 2015 Change 2016 2015 Change
Property & Casualty
Personal Auto $338,095 $289,264 16.9% $297,281 $252,406 17.8% $290,829 $267,112 8.9%
Homeowners 100,717 74,438 35.3% 90,559 75,456 20.0% 81,556 63,227 29.0%
RV/Packaged 46,693 43,096 8.3% 46,421 42,774 8.5% 39,015 37,576 3.8%
Commercial Auto 68,366 50,482 35.4% 62,948 46,258 36.1% 51,470 37,429 37.5%
Lender-placed insurance 108,190 NA 105,385 NA 108,519 NA
Other 9,096 7,214 26.1% 5,348 5,944 (10.0)% 3,613 4,957 (27.1)%
Property & Casualty 671,157 464,494 44.5% 607,942 422,838 43.8% 575,002 410,301 40.1%
Accident & Health 102,891 34,458 198.6% 90,377 25,806 250.2% 101,910 36,267 181.0%
Total National General 774,048 498,952 55.1% 698,319 448,644 55.7% 676,912 446,568 51.6%
Reciprocal Exchanges
Personal Auto 23,121 25,773 (10.3)% 13,453 25,696 (47.6)% 12,980 23,541 (44.9)%
Homeowners 51,636 48,752 NA 23,535 2,585 NA 19,604 (2,668) NA
Other 2,413 2,204 9.5% 2,142 2,485 (13.8)% 3,444 1,375 150.5%
Reciprocal Exchanges 77,170 76,729 0.6% 39,130 30,766 27.2% 36,028 22,248 61.9%
Consolidated Total 850,507 575,681 47.7% 737,449 479,410 53.8% 712,940 468,816 52.1%

NOTE: Consolidated Total includes eliminations of $(711) and $0 within 2016 and 2015 Gross Written Premium, respectively.

Six Months Ended June 30,
Gross Written Premium Net Written Premium Net Earned Premium
2016 2015 Change 2016 2015 Change 2016 2015 Change
Property & Casualty
Personal Auto $723,293 $628,598 15.1% $632,607 $547,649 15.5% $562,826 $534,643 5.3%
Homeowners 171,018 162,262 5.4% 156,435 145,846 7.3% 155,995 127,350 22.5%
RV/Packaged 86,296 80,646 7.0% 85,877 79,668 7.8% 76,534 73,552 4.1%
Commercial Auto 118,517 91,828 29.1% 107,941 84,251 28.1% 95,314 72,051 32.3%
Lender-placed insurance 220,187 NA 217,382 NA 231,325 NA
Other 13,183 11,611 13.5% 8,474 9,684 (12.5)% 7,056 8,799 (19.8)%
Property & Casualty 1,332,494 974,945 36.7% 1,208,716 867,098 39.4% 1,129,050 816,395 38.3%
Accident & Health 257,748 109,815 134.7% 234,190 92,934 152.0% 202,782 67,442 200.7%
Total National General 1,590,242 1,084,760 46.6% 1,442,906 960,032 50.3% 1,331,832 883,837 50.7%
Reciprocal Exchanges
Personal Auto 23,121 43,464 NA 13,453 42,302 NA 12,980 46,471 NA
Homeowners 51,636 90,365 NA 23,535 2,549 NA 19,604 15,048 NA
Other 2,413 4,137 NA 2,142 4,552 NA 3,444 2,625 NA
Reciprocal Exchanges (1) 77,170 137,966 NA 39,130 49,403 NA 36,028 64,144 NA
Consolidated Total 1,666,701 1,219,136 36.7% 1,482,036 1,009,435 46.8% 1,367,860 947,981 44.3%

NOTES: Consolidated Total includes eliminations of $(711) and $(3,590) within 2016 and 2015 Gross Written Premium, respectively.

(1) Reciprocal Exchanges for the six months ended June 30, 2016 excludes its operating results from January 1, 2016 to March 31, 2016.

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 $32,362 and $62,306 from related parties at June 30, 2016 and December 31, 2015, respectively.

(3) Reinsurance recoverable on unpaid losses (NGHC) includes $33,746 and $42,774 from related parties at June 30, 2016 and December 31, 2015, respectively.

(4) Reinsurance payable (NGHC) includes $31,511 and $31,923 due to related parties at June 30, 2016 and December 31, 2015, respectively.

(5) Accounts payable and accrued expenses (NGHC) includes $27,930 and $51,755 to related parties at June 30, 2016 and December 31, 2015, respectively.

(6) Debt includes $0 and $45,476 owed to related party at June 30, 2016 and December 31, 2015, respectively.

(7) Common stock: $0.01 par value - authorized 150,000,000 shares, issued and outstanding 105,932,281 shares - June 30, 2016; authorized 150,000,000 shares, issued and outstanding 105,554,331 shares - December 31, 2015.

(8) Preferred stock: $0.01 par value - authorized 10,000,000 shares, issued and outstanding 2,365,000 shares - June 30, 2016; authorized 10,000,000 shares, issued and outstanding 2,365,000 shares - December 31, 2015.

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

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

(11) Operating expense ratio is a non-GAAP measure defined by the Company, that is commonly used in the insurance industry. The Company calculates the ratio by dividing operating expense by net earned premium. Operating expense consists of the sum of acquisition and other underwriting costs and general and administrative expense less ceding commission income and service and fee income. The ratio is used as an indicator of the Company's efficiency in acquiring and servicing its business. Other companies may calculate these measures differently, and therefore, their measures may not be comparable to those used by National General. Please see the Non-GAAP Financial Measures table within this release for the reconciliation of these non-GAAP measures to the most directly comparable GAAP measure.

(12) Combined ratio is a non-GAAP measure defined by the Company, that is commonly used in the insurance industry. The Company calculates the ratio by adding the loss and loss adjustment expense ratio and the operating expense ratio (non-GAAP) together. The ratio is used as an indicator of the Company's underwriting discipline, efficiency in acquiring and servicing its business, and overall underwriting profit. A combined ratio under 100% generally indicates an underwriting profit, while over 100% an underwriting loss. Other companies may calculate these measures differently, and therefore, their measures may not be comparable to those used by National General. 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.

(13) Operating expense ratio before amortization and impairment is a non-GAAP measure defined by the Company, that is commonly used in the insurance industry. The Company calculates the ratio by dividing the operating expense before amortization and impairment by net earned premium. Operating expense before amortization and impairment consists of the sum of acquisition and other underwriting costs and general and administrative expense less ceding commission income and service and fee income less non-cash amortization of intangible assets and non-cash impairment of goodwill. The ratio is used as an indicator of the Company's efficiency in acquiring and servicing its business. Other companies may calculate these measures differently, and therefore, their measures may not be comparable to those used by National General. Please see the Non-GAAP Financial Measures table within this release for the reconciliation of these non-GAAP measures to the most directly comparable GAAP measure.

(14) Combined ratio before amortization and impairment is a non-GAAP measure defined by the Company, that is commonly used in the insurance industry. The Company calculates the ratio by adding the loss and loss adjustment expense ratio and the operating expense ratio before amortization and impairment (non-GAAP) together. The ratio is used as an indicator of the Company's underwriting discipline, efficiency in acquiring and servicing its business, and overall underwriting profit. A combined ratio under 100% generally indicates an underwriting profit, while over 100% an underwriting loss. Other companies may calculate these measures differently, and therefore, their measures may not be comparable to those used by National General. Please see the Non-GAAP Financial Measures table within this release for the reconciliation of these non-GAAP measures to the most directly comparable GAAP measure.

(15) Annualized operating return on average equity is the ratio of annualized operating earnings less preferred dividends to average shareholders' equity for the periods presented. Annualized operating earnings is (a) the sum of operating earnings less preferred dividends for the periods presented and (b) for partial years in the period presented, dividing by the number of quarters in that partial year and multiplying by four to annualize the operating earnings. Average shareholders' equity is (a) the sum of the shareholders' equity excluding preferred stock at the beginning and end of each quarter for the period presented divided by (b) the number of quarters in the period presented times two. In the opinion of the Company's management this ratio is an important indicator of how well management creates value for its shareholders through its operating activities and capital management. Other companies may calculate these measures differently, and therefore, their measures may not be comparable to those used by National General. Please see the Non-GAAP Financial Measures table within this release for the reconciliation of these non-GAAP measures to the most directly comparable GAAP measure.

Investor Contact Investor Relations Department Phone: 212-380-9462 Email: Investors@ngic.com

Source:National General Holdings Corp.