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National General Holdings Corp. Reports Fourth Quarter 2016 Results

NEW YORK, Feb. 27, 2017 (GLOBE NEWSWIRE) -- National General Holdings Corp. (NASDAQ:NGHC) today reported fourth quarter 2016 net income of $30.9 million or $0.28 per diluted share, compared to $13.7 million or $0.13 per diluted share in the fourth quarter of 2015. Fourth quarter 2016 operating earnings(1) was $32.6 million or $0.30 per diluted share, compared to $42.3 million or $0.39 per diluted share in the fourth quarter of 2015.

Fourth Quarter 2016 Highlights Versus Fourth Quarter 2015*

  • Net written premium grew $122.4 million or 19.8% to $740.5 million, driven by added premiums from the acquisitions of Direct General which closed on November 1, 2016, Standard Property and Casualty Insurance Company (f/k/a Standard Mutual) which closed on October 7, 2016, Century-National which closed on June 1, 2016, 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 of 16.6%, and continued growth of our A&H segment, partially offset by a decrease in our lender-placed auto premiums.
  • The overall combined ratio(10, 14) was 96.3% compared to 94.2% in the prior year’s quarter, excluding non-cash amortization of intangible assets and impairment of goodwill. The P&C segment reported an increase in combined ratio to 98.0% from 92.3% in the prior year’s quarter, which was elevated by storm losses as described below and an increase in expenses, while the A&H segment reported a combined ratio of 85.2% compared to 104.2% in the prior year’s quarter, driven by strong results across the book.
  • Total revenues grew by $233.0 million or 31.0% to $985.5 million, primarily driven by the aforementioned premium growth, service and fee income growth of $9.3 million or 9.4%, and net investment income growth of $2.0 million or 9.7%.
  • Shareholders’ equity was $1.89 billion and fully diluted book value per share was $13.52 at December 31, 2016, growth of 25.1% and 13.0%, respectively, from December 31, 2015. Our trailing twelve month operating return on average equity (ROE)(15) was 12.0% as of December 31, 2016.
  • Fourth quarter 2016 operating earnings exclude the following items, net of tax: $4.2 million or $0.04 per share of net realized and unrealized investment gains, $1.2 million or $0.01 per share of foreign exchange gain, $15.8 million or $0.14 bargain purchase gain, $0.2 million or less than $0.01 per share of equity in earnings of unconsolidated subsidiaries (other than our Life Settlement Contracts Entities and Real Estate investments), $6.6 million or $0.06 per share of non-cash impairment of goodwill and $16.5 million or $0.15 per share of non-cash amortization of intangible assets.
  • Fourth quarter 2016 operating earnings include approximately $13.7 million or $0.08 per share of losses related to Hurricane Matthew that occurred in the Southeastern United States in early October 2016.

Barry Karfunkel, National General’s President and CEO, stated: “This was a year of growth for National General. We experienced significant top line expansion, driven by both organic opportunities and recent acquisitions, entered into a renewal rights transaction with Nationwide for its non-standard auto business, and recorded a solid ROE of 12% despite an increase in catastrophe losses in our Property and Casualty segment. So far in 2017, we have announced our acquisition of Quotit® Corporation and HealthCompare® from The Word & Brown Companies, which will allow us to provide a single quote and bind platform to our agents for both major medical and supplemental products. We continue to leverage our industry leading technology infrastructure and take advantage of the vast opportunity that we are experiencing in the market today. All of these pieces contribute to building a premier personal lines company from which we expect to generate strong results.”

*NOTE: Unless specified otherwise, discussion of our fourth 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.

Overview of Fourth Quarter 2016 as Compared to Fourth Quarter 2015

Gross written premium grew 20.7% to $818.7 million, net written premium grew 19.8% to $740.5 million, and net earned premium grew 27.2% to $817.2 million. Premium growth was driven by several key factors: underlying organic growth within our P&C segment, continued growth of our A&H segment, additional premiums from the acquisitions of Direct General which closed on November 1, 2016, Standard Property and Casualty Insurance Company (f/k/a Standard Mutual) which closed on October 7, 2016, Century-National which closed on June 1, 2016, and added premium volume from Assigned Risk Solutions (ARS), which we began writing on National General paper in the first quarter of 2016.

Service and fee income grew 9.4% to $108.6 million, driven by added service and fee income from our recently completed transactions, primarily Direct General, partially offset by a decrease in our A&H segment. Other revenue in the fourth quarter 2016 included $24.3 million pre-tax bargain purchase gain related to our acquisitions of Standard Property and Casualty Insurance Company and Direct General.

Excluding non-cash amortization of intangible assets, the combined ratio(10,14) was 96.3% with a loss ratio of 66.8% and an expense ratio(10, 13) of 29.5%, compared to a prior year combined ratio of 94.2% with a loss ratio of 69.3% and an expense ratio of 24.9%.

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

  • Property & Casualty - Gross written premium grew by 22.5% to $710.0 million, net written premium grew by 21.6% to $643.4 million, and net earned premium grew by 30.7% to $710.6 million. P&C net written premium growth was driven by several key factors: underlying organic growth of $66.9 million or a 16.6% increase, the addition of $58.5 million from the Direct General acquisition, the addition of $12.2 million from the Standard Property and Casualty Insurance Company acquisition, the addition of $43.0 million from the Century-National acquisition, and the addition of $12.9 million from ARS, which we began writing on National General paper during the first quarter of 2016, partially offset by a decrease in our lender-placed auto premiums. Service and fee income grew 48.7% to $82.1 million, driven by increased premium volume in the quarter, and the addition of service and fee income from acquisitions completed during the current year, particularly Direct General. Excluding non-cash impairment of goodwill and non-cash amortization of intangible assets, the combined ratio(10,14) was 98.0% with a loss ratio of 67.4% and an expense ratio(10,13) of 30.6%, versus a prior year combined ratio of 92.3% with a loss ratio of 65.0% and an expense ratio of 27.3%. The loss ratio was impacted by pre-tax catastrophe losses of approximately $13.7 million related to Hurricane Matthew that occurred in the Southeastern United States in October 2016.
  • Accident & Health - Gross written premium grew to $108.6 million, net written premium grew to $97.1 million, and net earned premium grew to $106.6 million, from $98.5 million, $89.2 million, and $98.8 million, respectively, in the prior year’s quarter. The A&H net written premium increase was driven by the continued growth across the entire book. Service and fee income was $26.5 million compared to $44.1 million in the prior year’s quarter. The decline in service and fee income primarily relates to a shift in mix of business. Excluding non-cash impairment of goodwill and non-cash amortization of intangible assets, the combined ratio(10,14) was 85.2% with a loss ratio of 63.0% and an expense ratio(10,13) of 22.2%, versus a prior year combined ratio of 104.2% with a loss ratio of 92.7% and an expense ratio of 11.5%. The improvement in our loss ratio reflects the strong performance across our entire book.
  • Reciprocal Exchanges - Results for the Reciprocal Exchanges are not included in net income available to NGHC common stockholders. Gross written premium was $83.4 million, net written premium was $42.4 million, and net earned premium was $38.9 million. Reciprocal Exchanges combined ratio(10, 12) was 104.9% with a loss ratio of 54.8% and an expense ratio(10, 11) of 50.1%.

Investment income grew 9.7% to $22.0 million, reflecting an increase in the size of our investment portfolio as compared to the prior year’s quarter. Fourth quarter 2016 results included $6.5 million of net realized and unrealized investment gain compared with a loss of $0.6 million in the fourth quarter of 2015. The fourth quarter of 2016 included no other-than-temporary impairment losses versus $6.8 million in the prior year’s quarter. Total investments and cash equivalents were $3.5 billion as of December 31, 2016. Accumulated other comprehensive income decreased to $12.7 million at December 31, 2016 from $67.4 million at September 30, 2016.

Interest expense was $11.6 million, up from $8.2 million in the prior year’s quarter due to an increased amount of debt on our balance sheet. Debt was $752.0 million at December 31, 2016, up from $446.1 million at December 31, 2015 as a result of our May 2016 borrowing of $50.0 million under our credit facility, our June 2016 promissory note of $178.9 million for the acquisition of Century-National, and $72.2 million in subordinated debentures from our Direct General acquisition.

Equity in earnings of unconsolidated subsidiaries (predominantly our investment in Life Settlement Entities and Real Estate investments) was a $8.4 million gain in the fourth 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 fourth quarter of 2016 provision for income taxes was $10.4 million and the effective tax rate for the quarter was 25.5%. Included in the fourth quarter of 2016 provision for income taxes was a $5.5 million expense attributable to an increase of the deferred tax liability associated with the equalization reserves of our Luxembourg Reinsurance Companies (LRC). As of December 31, 2016, the remaining deferred tax liability associated with our LRC was $8.3 million.

National General Holding Corp.’s shareholders’ equity was $1,893.8 million at December 31, 2016, growth of 25.1% from $1,514.0 million at December 31, 2015. Fully diluted book value per share was $13.52 at December 31, 2016, growth of 13.0% from $11.96 at December 31, 2015. Our trailing twelve month operating return on average equity (ROE)(15) was 12.0% as of December 31, 2016.

Year-to-Date P&C Segment Notable Large Losses
P&C Notable Large
Losses and ALAE
($ millions)
P&C Loss Ratio
Points*
EPS Impact After
Tax
Q4Development on Louisiana Flood$2.3 0.3% $0.01
Q4Hurricane Matthew in the Southeast$13.7 1.9% $0.08
Q3Development on April Dallas and San
Antonio Hail Storms
$3.7 0.6% $0.02
Q3August Louisiana Flood$15.0 2.4% $0.09
Q2April Dallas and San Antonio Hail Storms$18.4 3.2% $0.11
Q1March Dallas Hail Storm$5.0 0.9% $0.03

*Loss ratio points related to P&C net earned premium in quarter the loss event was recorded


Additional Items

  • Acquisition of certain Accident & Health platforms from The Word & Brown Companies - On January 17, 2017, we acquired Quotit® Corporation and HealthCompare® from The Word & Brown Companies. Quotit® is one of the largest comparative raters that exist in the market today. HealthCompare® enhances the scale of our A&H segment by broadening the scope of customers that we are able to connect with major medical or Medicare related coverage through a direct to consumer platform.
  • Renewal rights transaction with Nationwide for its non-standard auto business - On December 8, 2016, we entered into a renewal rights transaction with Nationwide Mutual Insurance Company for its personal and commercial non-standard vehicle in-force policies. National General will partner with Nationwide’s exclusive and independent agent force to sell its policies to their non-standard auto customers.

Delayed 10-K Filing

National General Holdings Corp. intends to file a Form 12b-25 with the Securities and Exchange Commission on or prior to March 2, 2017 noting that it will be unable to file its Annual Report on Form 10-K for the year ended December 31, 2016 in a timely manner. This filing will give the Company an additional 15 day period in which to submit its Form 10-K and still be deemed a timely filer. The Company is unable to file its Form 10-K for the year ended December 31, 2016 in a timely manner because the Company is still finalizing the Form 10-K and is still preparing analyses and providing documentation requested by its auditors. The Company does not anticipate any changes from the results reported in this Earnings Release. The Company expects that its Form10-K will be filed with the SEC prior to the end of the 15-day period.

Conference Call

On Monday, February 27, 2017 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: 888-267-2845
International Dial-in: 973-413-6102
Conference Entry Code: 561289
Webcast Registration: http://ir.nationalgeneral.com/events.cfm

A replay of the conference call will be accessible from 2:00 PM ET on Monday, February 27, 2017 to 11:59 PM ET on Monday, March 6, 2017 by dialing either 800-332-6854 (toll-free) within the U.S. or 973-528-0005 outside the U.S. and entering passcode 561289. 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, lender-placed, 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 our 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 - Fourth Quarter
$ in thousands
(Unaudited)
Three Months Ended December 31,
2016 2015
NGHC Reciprocal Exchanges Consolidated NGHCReciprocal ExchangesConsolidated
Revenues:
Gross written premium $818,667 $83,392 $901,348 (A) $678,175 $65,752 $743,927
Ceded premiums (78,134) (41,040) (118,463) (B) (60,041) (32,714) (92,755)
Net written premium 740,533 42,352 782,885 618,134 33,038 651,172
Net earned premium 817,211 38,860 856,071 642,299 36,269 678,568
Ceding commission income/(loss) 5,042 16,152 21,194 (1,261) 17,851 16,590
Service and fee income 108,562 1,307 98,194 (C) 99,265 10,236 100,213 (I)
Net investment income 21,977 3,063 22,712 (D) 20,026 2,359 22,385
Net gain/(loss) on investments 6,530 278 6,808 (609) 75 (534)
Other-than-temporary impairment loss (6,755) (6,755)
Bargain purchase gain and other revenue (expense) 26,200 26,200 (461) (461)
Total revenues $985,522 $59,660 $1,031,179 (E) $752,504 $66,790 $810,006 (J)
Expenses:
Loss and loss adjustment expense $546,004 $21,280 $567,284 $445,130 $40,737 $485,867
Acquisition costs and other underwriting expenses 125,673 8,972 134,645 103,839 7,005 110,799 (K)
General and administrative expenses 261,351 27,954 277,630 (F) 179,636 16,528 186,921 (L)
Interest expense 11,645 2,328 11,645 (G) 8,198 (6,422) 1,776
Total expenses $944,673 $60,534 $991,204 (H) $736,803 $57,848 $785,363 (M)
Income (loss) before provision/(benefit) for income taxes and equity in earnings of unconsolidated subsidiaries $40,849 $(874) $39,975 $15,701 $8,942 $24,643
Provision/(benefit) for income taxes 10,409 (9,232) 1,177 (464) (5,472) (5,936)
Income before equity in earnings of unconsolidated subsidiaries 30,440 8,358 38,798 16,165 14,414 30,579
Equity in earnings of unconsolidated subsidiaries 8,410 8,410 1,743 1,743
Net income before non-controlling interest and dividends on preferred shares 38,850 8,358 47,208 17,908 14,414 32,322
Less: net income attributable to non-controlling interest 61 8,358 8,419 64 14,414 14,478
Net income before dividends on preferred shares 38,789 38,789 17,844 17,844
Less: dividends on preferred shares 7,875 7,875 4,125 4,125
Net income available to common stockholders $30,914 $ $30,914 $13,719 $ $13,719

NOTE: Consolidated column includes eliminations as follows: (A) $(711), (B) $711, (C) $(11,675), (D) $(2,328), (E) $(14,003), (F) $(11,675), (G) $(2,328), (H) $(14,003), (I) $(9,288), (J) $(9,288), (K) $(45), (L) $(9,243) and (M) $(9,288).


Income Statement - Year to Date
$ in thousands
(Unaudited)
Twelve Months Ended December 31,
2016
2015
NGHC Reciprocal Exchanges Consolidated (1) NGHC Reciprocal Exchanges Consolidated
Revenues:
Gross written premium $3,260,280 $241,540 $3,499,508 (A) $2,309,756 $283,582 $2,589,748 (J)
Ceded premiums (309,522) (120,992) (428,202)(B) (249,601) (157,491) (403,502)(K)
Net written premium 2,950,758 120,548 3,071,306 2,060,155 126,091 2,186,246
Net earned premium 2,883,386 110,395 2,993,781 1,995,101 134,709 2,129,810
Ceding commission income/(loss) 2,078 43,522 45,600 (2,510) 46,300 43,790
Service and fee income 410,771 3,862 380,817 (C) 300,114 13,226 273,548 (L)
Net investment income 97,376 8,716 99,586 (D) 66,429 8,911 75,340
Net gain on investments 25,441 515 25,956 4,594 346 4,940
Other-than-temporary impairment loss (22,102) (22,102) (15,247) (15,247)
Bargain purchase gain and other revenue (expense) 26,458 26,458 (788) (788)
Total revenues $3,423,408 $167,010 $3,550,096 (E) $2,347,693 $203,492 $2,511,393 (M)
Expenses:
Loss and loss adjustment expense $1,901,624 $56,921 $1,958,545 $1,284,080 $97,561 $1,381,641
Acquisition costs and other underwriting expenses 482,016 15,148 497,158 (F) 378,066 27,972 405,930 (N)
General and administrative expenses 800,253 77,671 844,114 (G) 504,672 65,359 530,347 (O)
Interest expense 40,180 6,506 40,180 (H) 24,229 4,656 28,885
Total expenses $3,224,073 $156,246 $3,339,997 (I) $2,191,047 $195,548 $2,346,803 (P)
Income before provision/(benefit) for income taxes and equity in earnings of unconsolidated subsidiaries $199,335 $10,764 $210,099 $156,646 $7,944 $164,590
Provision/(benefit) for income taxes 52,407 (9,791) 42,616 24,905 (5,949) 18,956
Income before equity in earnings of unconsolidated subsidiaries 146,928 20,555 167,483 131,741 13,893 145,634
Equity in earnings of unconsolidated subsidiaries 25,401 25,401 10,643 10,643
Net income before non-controlling interest and dividends on preferred shares 172,329 20,555 192,884 142,384 13,893 156,277
Less: net income attributable to non-controlling interest 113 20,555 20,668 132 13,893 14,025
Net income before dividends on preferred shares 172,216 172,216 142,252 142,252
Less: dividends on preferred shares 24,333 24,333 14,025 14,025
Net income available to common stockholders $147,883 $ $147,883 $128,227 $ $128,227

NOTES: Consolidated column includes eliminations as follows: (A) $(2,312), (B) $2,312, (C) $(33,816), (D) $(6,506), (E) $(40,322), (F) $(6), (G) $(33,810), (H) $(6,506), (I) $(40,322), (J) $(3,590), (K) $3,590, (L) $(39,792), (M) $(39,792), (N) $(108), (O) $(39,684) and (P) $(39,792).

(1) Consolidated column for the Twelve Months Ended December 31, 2016 excludes Reciprocal Exchanges’ operating results from January 1, 2016 to March 31, 2016, as these entities did not meet the criteria for consolidation under GAAP.

Earnings and Per Share Data
$ in thousands, except shares and per share data
(Unaudited)
Three Months Ended December 31, Twelve Months Ended December 31,
2016 2015 2016 2015
Net income available to common stockholders$30,914 $13,719 $147,883 $128,227
Basic net income per common share$0.29 $0.13 $1.40 $1.31
Diluted net income per common share$0.28 $0.13 $1.37 $1.27
Operating earnings attributable to NGHC(1)$32,557 $42,257 $166,297 $165,457
Basic operating earnings per common share(1)$0.31 $0.40 $1.57 $1.68
Diluted operating earnings per common share(1)$0.30 $0.39 $1.54 $1.64
Dividends declared per common share$0.04 $0.03 $0.14 $0.09
Weighted average number of basic shares outstanding106,395,429 105,503,021 105,951,752 98,241,904
Weighted average number of diluted shares outstanding108,973,892 108,161,786 108,278,318 100,723,936
Shares outstanding, end of period106,428,092 105,554,331 106,428,092 105,554,331
Fully diluted shares outstanding, end of period109,006,555 108,213,095 108,754,658 108,036,363
Book value per share$13.85 $12.26 $13.85 $12.26
Fully diluted book value per share$13.52 $11.96 $13.55 $11.98


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,
2016 2015 2016 2015
Net income available to common stockholders$30,914 $13,719 $147,883 $128,227
Add (subtract) net of tax:
Net realized and unrealized (gain)/loss on investments(4,245) 396 (16,537) (2,986)
Other-than-temporary impairment losses 4,391 14,366 9,911
Foreign exchange (gain)/loss(1,210) 902 (1,325) 1,837
Bargain purchase gain(15,801) (15,801)
Equity in (earnings)/losses of unconsolidated subsidiaries (other than LSC Entities and Real Estate investments)(206) 67 (200) 216
Non-cash impairment of goodwill6,626 17,467 6,626 17,467
Non-cash amortization of intangible assets16,479 5,315 31,285 10,785
Operating earnings attributable to NGHC (1)$32,557 $42,257 $166,297 $165,457
Operating earnings per common share:
Basic operating earnings per common share$0.31 $0.40 $1.57 $1.68
Diluted operating earnings per common share$0.30 $0.39 $1.54 $1.64


Balance Sheets
$ in thousands
December 31, 2016 (unaudited) December 31, 2015 (audited)
ASSETS NGHC Reciprocal Exchanges Consolidated NGHC Reciprocal Exchanges Consolidated
Total investments $3,331,112 $306,345 $3,548,449 (A) $2,425,168 $242,542 $2,667,710
Cash and cash equivalents 212,894 7,405 220,299 217,537 8,393 225,930
Premiums and other receivables, net (2) 1,097,931 60,978 1,158,108 (B) 702,439 56,194 758,633
Reinsurance recoverable on unpaid losses (3) 838,605 42,192 880,797 794,091 39,085 833,176
Intangible assets, net 456,695 11,025 467,720 344,073 4,825 348,898
Goodwill 155,290 155,290 112,414 112,414
Other 746,679 89,764 814,318 (C) 515,966 100,665 616,631
Total assets $6,839,206 $517,709 $7,244,981 (D) $5,111,688 $451,704 $5,563,392
LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities:
Unpaid loss and loss adjustment expense reserves $2,127,997 $137,075 $2,265,072 $1,623,232 $132,392 $1,755,624
Unearned premiums 1,472,299 163,326 1,635,625 1,046,313 146,186 1,192,499
Reinsurance payable (4) 73,985 20,640 93,824 (E) 54,815 14,357 69,172
Accounts payable and accrued expenses (5) 335,174 13,201 341,977 (F) 265,057 19,845 284,902
Debt (6) 752,001 89,008 752,001 (G) 446,061 45,476 491,537
Other 183,921 62,784 230,978 (H) 162,189 70,829 233,018
Total liabilities $4,945,377 $486,034 $5,319,477 (I) $3,597,667 $429,085 $4,026,752
Stockholders’ equity:
Common stock (7) $1,064 $ $1,064 $1,056 $ $1,056
Preferred stock (8) 420,000 420,000 220,000 220,000
Additional paid-in capital 914,706 914,706 900,114 900,114
Accumulated other comprehensive income (loss) 12,710 12,710 (19,414) (19,414)
Retained earnings 545,106 545,106 412,044 412,044
Total National General Holdings Corp. stockholders’ equity 1,893,586 1,893,586 1,513,800 1,513,800
Non-controlling interest 243 31,675 31,918 221 22,619 22,840
Total stockholders’ equity $1,893,829 $31,675 $1,925,504 $1,514,021 $22,619 $1,536,640
Total liabilities and stockholders’ equity $6,839,206 $517,709 $7,244,981 (J) $5,111,688 $451,704 $5,563,392

NOTE: Consolidated column includes eliminations as follows: (A) $(89,008), (B) (801), (C) $(22,125), (D) $(111,934), (E) (801), (F) $(6,398), (G) $(89,008), (H) $(15,727), (I) $(111,934) and (J) $(111,934).

Segment Information - Fourth Quarter
$ in thousands
(Unaudited)
Three Months Ended December 31,
2016 2015
P&C A&H NGHC Reciprocal Exchanges P&C A&H NGHC Reciprocal Exchanges
Gross written premium $710,029 $108,638 $818,667 $83,392 $579,662 $98,513 $678,175 $65,752
Net written premium 643,430 97,103 740,533 42,352 528,964 89,170 618,134 33,038
Net earned premium 710,648 106,563 817,211 38,860 543,547 98,752 642,299 36,269
Ceding commission income/(loss) 4,766 276 5,042 16,152 (1,532) 271 (1,261) 17,851
Service and fee income 82,096 26,466 108,562 1,307 55,206 44,059 99,265 10,236
Total underwriting revenues $797,510 $133,305 $930,815 $56,319 $597,221 $143,082 $740,303 $64,356
Loss and loss adjustment expense 478,904 67,100 546,004 21,280 353,560 91,570 445,130 40,737
Acquisition costs and other 104,115 21,558 125,673 8,972 78,116 25,723 103,839 7,005
General and administrative 223,793 37,558 261,351 27,954 139,764 39,872 179,636 16,528
Total underwriting expenses $806,812 $126,216 $933,028 $58,206 $571,440 $157,165 $728,605 $64,270
Underwriting income (loss) (9,302) 7,089 (2,213) (1,887) 25,781 (14,083) 11,698 86
Non-cash impairment of goodwill 3,552 3,074 6,626 11,222 6,245 17,467
Non-cash amortization of intangible assets 19,694 5,657 25,351 7,069 4,516 3,661 8,177 (841)
Underwriting income (loss) before amortization and impairment $13,944 $15,820 $29,764 $5,182 $41,519 $(4,177) $37,342 $(755)
Underwriting ratios
Loss and loss adjustment expense ratio (9) 67.4% 63.0% 66.8% 54.8% 65.0% 92.7% 69.3% 112.3%
Operating expense ratio (Non-GAAP) (10,11) 33.9% 30.4% 33.5% 50.1% 30.2% 21.5% 28.9% (12.6)%
Combined ratio (Non-GAAP) (10,12) 101.3% 93.4% 100.3% 104.9% 95.2% 114.2% 98.2% 99.7%
Underwriting ratios (before amortization and impairment)
Loss and loss adjustment expense ratio (9) 67.4% 63.0% 66.8% 54.8% 65.0% 92.7% 69.3% 112.3%
Operating expense ratio (Non-GAAP) (10,13) 30.6% 22.2% 29.5% 31.9% 27.3% 11.5% 24.9% (10.2)%
Combined ratio before amortization and impairment (Non-GAAP) (10,14) 98.0% 85.2% 96.3% 86.7% 92.3% 104.2% 94.2% 102.1%


Segment Information - Year to Date
$ in thousands
(Unaudited)
Twelve Months Ended December 31,
2016 2015
P&C A&H NGHC Reciprocal Exchanges (1) P&C A&H NGHC Reciprocal Exchanges
Gross written premium $2,796,270 $464,010 $3,260,280 $241,540 $2,057,834 $251,922 $2,309,756 $283,582
Net written premium 2,532,090 418,668 2,950,758 120,548 1,844,202 215,953 2,060,155 126,091
Net earned premium 2,468,959 414,427 2,883,386 110,395 1,783,800 211,301 1,995,101 134,709
Ceding commission income/(loss) 747 1,331 2,078 43,522 (3,601) 1,091 (2,510) 46,300
Service and fee income 271,835 138,936 410,771 3,862 201,304 98,810 300,114 13,226
Total underwriting revenues $2,741,541 $554,694 $3,296,235 $157,779 $1,981,503 $311,202 $2,292,705 $194,235
Loss and loss adjustment expense 1,602,257 299,367 1,901,624 56,921 1,112,758 171,322 1,284,080 97,561
Acquisition costs and other 379,286 102,730 482,016 15,148 312,067 65,999 378,066 27,972
General and administrative 668,846 131,407 800,253 77,671 422,561 82,111 504,672 65,359
Total underwriting expenses $2,650,389 $533,504 $3,183,893 $149,740 $1,847,386 $319,432 $2,166,818 $190,892
Underwriting income (loss) 91,152 21,190 112,342 8,039 134,117 (8,230) 125,887 3,343
Non-cash impairment of goodwill 3,552 3,074 6,626 11,222 6,245 17,467
Non-cash amortization of intangible assets 37,537 10,593 48,130 20,795 9,995 6,597 16,592 4,380
Underwriting income before amortization and impairment $132,241 $34,857 $167,098 $28,834 $155,334 $4,612 $159,946 $7,723
Underwriting ratios
Loss and loss adjustment expense ratio (9) 64.9% 72.2% 66.0% 51.6% 62.4% 81.1% 64.4% 72.4%
Operating expense ratio (Non-GAAP) (10,11) 31.4% 22.7% 30.2% 41.2% 30.1% 22.8% 29.3% 25.1%
Combined ratio (Non-GAAP) (10,12) 96.3% 94.9% 96.2% 92.8% 92.5% 103.9% 93.7% 97.5%
Underwriting ratios (before amortization and impairment)
Loss and loss adjustment expense ratio (9) 64.9% 72.2% 66.0% 51.6% 62.4% 81.1% 64.4% 72.4%
Operating expense ratio (Non-GAAP) (10,13) 29.7% 19.4% 28.3% 22.3% 28.9% 16.7% 27.6% 21.8%
Combined ratio before amortization and impairment (Non-GAAP) (10,14)

94.6% 91.6% 94.3% 73.9% 91.3% 97.8% 92.0% 94.2%

NOTE: (1) Reciprocal Exchanges’ column for the Twelve Months Ended December 31, 2016 excludes its operating results from January 1, 2016 to March 31, 2016, as these entities did not meet the criteria for consolidation under GAAP.

Reconciliation of Operating Expense Ratio (Non-GAAP)
$ in thousands
(Unaudited)
Three Months Ended December 31,
2016 2015
P&C A&H NGHC Reciprocal Exchanges P&C A&H NGHC Reciprocal Exchanges
Total underwriting expenses $806,812 $126,216 $933,028 $58,206 $571,440 $157,165 $728,605 $64,270
Less: Loss and loss adjustment expense 478,904 67,100 546,004 21,280 353,560 91,570 445,130 40,737
Less: Ceding commission income/(loss) 4,766 276 5,042 16,152 (1,532) 271 (1,261) 17,851
Less: Service and fee income 82,096 26,466 108,562 1,307 55,206 44,059 99,265 10,236
Operating expense 241,046 32,374 273,420 19,467 164,206 21,265 185,471 (4,554)
Net earned premium $710,648 $106,563 $817,211 $38,860 $543,547 $98,752 $642,299 $36,269
Operating expense ratio (Non-GAAP) 33.9% 30.4% 33.5% 50.1% 30.2% 21.5% 28.9% (12.6)%
Total underwriting expenses $806,812 $126,216 $933,028 $58,206 $571,440 $157,165 $728,605 $64,270
Less: Loss and loss adjustment expense 478,904 67,100 546,004 21,280 353,560 91,570 445,130 40,737
Less: Ceding commission income/(loss) 4,766 276 5,042 16,152 (1,532) 271 (1,261) 17,851
Less: Service and fee income 82,096 26,466 108,562 1,307 55,206 44,059 99,265 10,236
Less: Non-cash impairment of goodwill 3,552 3,074 6,626 11,222 6,245 17,467
Less: Non-cash amortization of intangible assets 19,694 5,657 25,351 7,069 4,516 3,661 8,177 (841)
Operating expense before amortization and impairment 217,800 23,643 241,443 12,398 148,468 11,359 159,827 (3,713)
Net earned premium $710,648 $106,563 $817,211 $38,860 $543,547 $98,752 $642,299 $36,269
Operating expense ratio before amortization and impairment (Non-GAAP) 30.6% 22.2% 29.5% 31.9% 27.3% 11.5% 24.9% (10.2)%


Reconciliation of Operating Expense Ratio (Non-GAAP)
$ in thousands
(Unaudited)
Twelve Months Ended December 31,
2016 2015
P&C A&H NGHC Reciprocal Exchanges P&C A&H NGHC Reciprocal Exchanges
Total underwriting expenses $2,650,389 $533,504 $3,183,893 $149,740 $1,847,386 $319,432 $2,166,818 $190,892
Less: Loss and loss adjustment expense 1,602,257 299,367 1,901,624 56,921 1,112,758 171,322 1,284,080 97,561
Less: Ceding commission income/(loss) 747 1,331 2,078 43,522 (3,601) 1,091 (2,510) 46,300
Less: Service and fee income 271,835 138,936 410,771 3,862 201,304 98,810 300,114 13,226
Operating expense 775,550 93,870 869,420 45,435 536,925 48,209 585,134 33,805
Net earned premium $2,468,959 $414,427 $2,883,386 $110,395 $1,783,800 $211,301 $1,995,101 $134,709
Operating expense ratio (Non-GAAP) 31.4% 22.7% 30.2% 41.2% 30.1% 22.8% 29.3% 25.1%
Total underwriting expenses $2,650,389 $533,504 $3,183,893 $149,740 $1,847,386 $319,432 $2,166,818 $190,892
Less: Loss and loss adjustment expense 1,602,257 299,367 1,901,624 56,921 1,112,758 171,322 1,284,080 97,561
Less: Ceding commission income/(loss) 747 1,331 2,078 43,522 (3,601) 1,091 (2,510) 46,300
Less: Service and fee income 271,835 138,936 410,771 3,862 201,304 98,810 300,114 13,226
Less: Non-cash impairment of goodwill 3,552 3,074 6,626 11,222 6,245 17,467
Less: Non-cash amortization of intangible assets 37,537 10,593 48,130 20,795 9,995 6,597 16,592 4,380
Operating expense before amortization and impairment 734,461 80,203 814,664 24,640 515,708 35,367 551,075 29,425
Net earned premium $2,468,959 $414,427 $2,883,386 $110,395 $1,783,800 $211,301 $1,995,101 $134,709
Operating expense ratio before amortization and impairment (Non-GAAP) 29.7% 19.4% 28.3% 22.3% 28.9% 16.7% 27.6% 21.8%


Premiums by Business Line
$ in thousands
(Unaudited)
Three Months Ended December 31,
Gross Written Premium Net Written Premium Net Earned Premium
2016 2015 Change 2016 2015 Change 2016 2015 Change
Property & Casualty
Personal Auto $441,128 $304,885 44.7% $402,913 $265,771 51.6% $417,083 $268,132 55.6%
Homeowners 104,696 63,755 64.2% 93,133 58,901 58.1% 96,358 67,287 43.2%
RV/Packaged 36,659 33,836 8.3% 36,443 33,720 8.1% 40,995 38,249 7.2%
Commercial Auto 65,866 47,806 37.8% 59,370 42,967 38.2% 62,814 43,074 45.8%
Lender-placed insurance 50,622 126,570 (60.0)% 46,690 125,693 (62.9)% 87,569 123,274 (29.0)%
Other 11,058 2,810 293.5% 4,881 1,912 155.3% 5,829 3,531 65.1%
Property & Casualty 710,029 579,662 22.5% 643,430 528,964 21.6% 710,648 543,547 30.7%
Accident & Health 108,638 98,513 10.3% 97,103 89,170 8.9% 106,563 98,752 7.9%
Total National General $818,667 $678,175 20.7% $740,533 $618,134 19.8% $817,211 $642,299 27.2%
Reciprocal Exchanges
Personal Auto $25,214 $20,853 20.9% $16,161 $12,067 33.9% $15,385 $13,512 13.9%
Homeowners 56,340 43,223 30.3% 24,884 19,561 27.2% 21,869 21,113 3.6%
Other 1,838 1,676 9.7% 1,307 1,410 (7.3)% 1,606 1,644 (2.3)%
Reciprocal Exchanges $83,392 $65,752 26.8% $42,352 $33,038 28.2% $38,860 $36,269 7.1%
Consolidated Total $901,348 $743,927 21.2% $782,885 $651,172 20.2% $856,071 $678,568 26.2%

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

Twelve Months Ended December 31,
Gross Written Premium Net Written Premium Net Earned Premium
2016 2015 Change 2016 2015 Change 2016 2015 Change
Property & Casualty
Personal Auto $1,549,091 $1,241,282 24.8% $1,380,125 $1,070,852 28.9% $1,292,563 $1,054,529 22.6%
Homeowners 412,151 329,440 25.1% 369,810 309,775 19.4% 353,228 286,920 23.1%
RV/Packaged 165,919 154,929 7.1% 165,025 153,501 7.5% 158,256 150,290 5.3%
Commercial Auto 257,075 187,686 37.0% 234,101 170,720 37.1% 217,919 154,565 41.0%
Lender-placed insurance 376,058 126,570 NA 363,896 125,693 NA 422,645 123,274 NA
Other 35,976 17,927 100.7% 19,133 13,661 40.1% 24,348 14,222 71.2%
Property & Casualty 2,796,270 2,057,834 35.9% 2,532,090 1,844,202 37.3% 2,468,959 1,783,800 38.4%
Accident & Health 464,010 251,922 84.2% 418,668 215,953 93.9% 414,427 211,301 96.1%
Total National General $3,260,280 $2,309,756 41.2% $2,950,758 $2,060,155 43.2% $2,883,386 $1,995,101 44.5%
Reciprocal Exchanges
Personal Auto $73,680 $88,494 NA $44,661 $50,686 NA $42,225 $74,477 NA
Homeowners 161,510 187,424 NA 71,367 67,796 NA 61,748 54,565 NA
Other 6,350 7,664 NA 4,520 7,609 NA 6,422 5,667 NA
Reciprocal Exchanges (1) $241,540 $283,582 NA $120,548 $126,091 NA $110,395 $134,709 NA
Consolidated Total $3,499,508 $2,589,748 35.1% $3,071,306 $2,186,246 40.5% $2,993,781 $2,129,810 40.6%

NOTES: Consolidated Total includes eliminations of $(2,312) and $(3,590) within 2016 and 2015 Gross Written Premium, respectively.
(1) Reciprocal Exchanges for the Twelve Months Ended December 31, 2016 excludes its operating results from January 1, 2016 to March 31, 2016, as these entities did not meet the criteria for consolidation under GAAP.


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 and unrealized gain or loss on investments, other-than-temporary impairment losses, foreign exchange gain or loss, bargain purchase gain, equity in earnings or losses of unconsolidated subsidiaries (other than LSC Entities and Real Estate investment gains or losses), non-cash impairment of goodwill and non-cash amortization of intangible assets. 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 includes $10,264 and $62,306 from related parties at December 31, 2016 and December 31, 2015, respectively.

(3) Reinsurance recoverable on unpaid losses includes $26,782 and $42,774 from related parties at December 31, 2016 and December 31, 2015, respectively.

(4) Reinsurance payable includes $33,419 and $31,923 due to related parties at December 31, 2016 and December 31, 2015, respectively.

(5) Accounts payable and accrued expenses includes $29,271 and $51,755 to related parties at December 31, 2016 and December 31, 2015, respectively.

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

(7) Common stock: $0.01 par value - authorized 150,000,000 shares, issued and outstanding 106,428,092 shares - December 31, 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 2,565,000 shares - December 31, 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 expense 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 expenses 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 expenses 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.

(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 expenses 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) Trailing twelve month operating return on average equity is the ratio of the previous twelve months operating earnings to average shareholders’ equity for the periods presented. Average shareholders’ equity is the sum of the shareholders’ equity excluding preferred stock at the beginning and end of the period presented divided by 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 net income to operating earnings, which is the Non-GAAP component of the operating return on average equity.


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

Source:National General Holdings Corp.