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

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

Third Quarter 2015 Highlights Versus Third Quarter 2014*

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

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

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

Overview of Third Quarter 2015 as Compared to Third Quarter 2014

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

Ceding commission income was a loss of $2.3 million compared to a gain of $0.7 million in the prior year’s quarter, reflecting a sliding scale adjustment related to our terminated third-party quota share. Service and fee income grew 54.5% to $70.9 million, driven by growth in both the P&C and A&H segments, and including management fees of $11.2 million related to the Attorneys-in-Fact that manage the Reciprocal Exchanges within the P&C segment.

Excluding non-cash amortization of intangible assets, the combined ratio was 90.2% with a loss ratio of 61.6% and an expense ratio of 28.6%, versus a prior year combined ratio of 90.9% with a loss ratio of 62.5% and an expense ratio of 28.5%. The improved loss ratio was driven by a reduction in the P&C loss ratio, partially offset by an increased A&H loss ratio, while the overall expense ratio was flat with the prior year as a higher P&C expense ratio was offset by a lower A&H expense ratio. 

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

  • Property & Casualty – Gross written premium grew 7.1% to $503.2 million, net written premium grew 10.2% to $448.1 million, and net earned premium grew 5.4% to $423.9 million. P&C net written premium growth was driven by organic growth of approximately 10%, which was driven by mid-to-high single digit growth within our legacy book and low-double-digit growth from our recent acquisitions, most notably the Tower Personal Lines and Imperial books. Ceding commission income was a loss of $2.6 million compared to a gain of $0.7 million in the prior year’s quarter, reflecting a sliding scale adjustment related to our terminated third-party quota share.  Service and fee income grew 63.3% to $51.2 million, driven by increased premium volume in the quarter, the addition of service and fee income from recent acquisitions (including the acquisition of Assigned Risk Solutions which closed on April 1, 2015), and the addition of $11.2 million of fees earned by the Attorneys-in-Fact that manage the Reciprocal Exchanges. Excluding non-cash amortization of intangible assets, the combined ratio was 89.4% with a loss ratio of 60.2% and an expense ratio of 29.2%, versus a prior year combined ratio of 90.3% with a loss ratio of 62.5% and an expense ratio of 27.8%. The improved loss ratio versus the prior year’s quarter is the result of business mix changes, most notably a growing proportion of homeowners business within our product portfolio.  The expense ratio reflects a more normalized run rate in the third quarter of 2015, compared to an artificially lower expense ratio in the prior year’s quarter as business written under the cut-through reinsurance agreement for the Tower Personal Lines transaction was recorded with a lower expense level prior to closing of the transaction on September 15, 2014. 
  • Accident & Health – Gross written premium grew 145.9% to $43.6 million, net written premium grew 91.6% to $33.8 million, and net earned premium grew 53.1% to $45.1 million. Premium growth was driven by substantial growth within both our domestic operations and at EuroAccident (our Swedish group life and health MGA).  Our domestic operations continue to deliver strong growth, with a total of $23.6 million in net written premium at our U.S. underwriting subsidiaries, compared to $11.1 million in the prior year’s quarter, while EuroAccident net written premium grew to $10.2 million from $6.6 million in the prior year’s quarter.  Service and fee income grew 35.4% to $19.7 million, with strong growth at VelaPoint (our call center general agency) and TABS (our domestic stop loss business), and added service and fee income from HST (which was acquired in the first quarter of 2015), partially offset by a decline at EuroAccident, where fee income is eliminated in consolidation as business is now written on National General paper. Excluding non-cash amortization of intangible assets, the combined ratio was 97.6% with a loss ratio of 74.3% and an expense ratio of 23.3%, versus a prior year combined ratio of 99.6% with a loss ratio of 61.9% and an expense ratio of 37.7%. The higher loss ratio was the result of increased loss activity in the current year’s quarter within TABS, while the reduced expense ratio was a reflection of the continued maturation of the A&H business and increased service and fee income. 
  • Reciprocal Exchanges – Results for the Reciprocal Exchanges are not included in net income available to NGHC common stockholders. Gross written premium was $79.9 million, net written premium was $43.7 million, and net earned premium was $34.3 million. Excluding non-cash amortization of intangible assets, the combined ratio was 85.9% with a loss ratio of 39.6% and an expense ratio of 46.4%. Third quarter 2014 results include only 15 days of results of the Reciprocal Exchanges as the Attorneys-in-Fact were acquired with the closing of the Tower Personal Lines transaction on September 15, 2014. 

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

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

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

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

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

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

Additional Items          

  • Common Stock Offering – On August 18, 2015, we completed the sale of 11,500,000 shares of common stock, including 1,500,000 shares purchased by the underwriters pursuant to an over-allotment option. The common stock offering was priced at $19.00 per share, and generated approximately $210.9 million of net proceeds.
     
  • Subordinated Notes Issuance – On August 18, 2015, we completed the sale of $100 million aggregate principal amount of 7.625% Subordinated Notes due 2055, generating approximately $96.85 million of net proceeds.  Interest will be payable quarterly in arrears on March 15, June 15, September 15 and December 15 of each year, commencing December 15, 2015. The Notes have a maturity date of September 15, 2055, and can be redeemed on or after September 15, 2020.
     
  • Real Estate Investments – In August 2015, we invested $53.7 million in Illinois Center, a limited partnership that owns an office building in Chicago, Illinois. AmTrust and ACP Re are also limited partners in Illinois Center and the general partner is NA Advisors (an entity controlled by Michael Karfunkel and managed by an unrelated third party). National General received a 37.5% limited partnership interest in Illinois Center for our investment.  In addition, in August 2015, we invested $10.5 million in 4455 LBJ Freeway, LLC for the purposes of acquiring an office building in Dallas, Texas. National General and AmTrust each have a 50% ownership interest in 4455 LBJ Freeway, LLC.
     
  • National General Lender Services Acquisition – On October 1, 2015, we closed on the acquisition of the Lender-Placed Insurance business of QBE North America, a division of QBE Insurance Group Limited (ASX:QBE.AX). The transaction includes the acquisition of certain assets, including loan-tracking systems and technology, client servicing accounts, intellectual property, and vendor relationships, as well as the assumption of the related insurance liabilities in a reinsurance transaction through which National General received loss reserves, unearned premium reserves, and invested assets. The purchase price was an aggregate cash payment of $90 million (including ceding commission) subject to certain adjustments. The business has been branded National General Lender Services.
     
  • Assurant Health Acquisition – On October 1, 2015, we closed on the acquisition of certain business lines and assets from Assurant Health, a business segment of Assurant, Inc. (NYSE:AIZ). Included in the transaction were the small group self-funded and supplemental product lines, as well as the acquisition of North Star Marketing, a proprietary small group sales channel. The purchase price was an aggregate cash payment of $14 million.
     
  • Senior Unsecured Debt Issuance – On October 8, 2015, we closed on a private issuance of $100.0 million aggregate principal amount of 6.75% notes due 2024.  The Notes bear interest at 6.75% per year, payable semiannually in arrears on May 15th and November 15th of each year, beginning on November 15, 2015. The Notes will mature on May 15, 2024, unless earlier redeemed or purchased by National General.  Net proceeds of the issuance are approximately $98.85 million.  The Company intends to use the net proceeds for general corporate purposes, including strategic acquisitions and to support its current and future policy writings.
     
  • Quarterly Common Stock Dividend Increase National General’s Board of Directors has approved an increase in the company’s quarterly cash dividend on its common stock to $0.03 per share from $0.02 per share, effective with the fourth quarter dividend payment. The 50% dividend increase equates to an annualized dividend of $0.12 per share, or a dividend yield of 0.6% at current share price levels. The fourth quarter dividend will be payable on January 15, 2016 to shareholders of record as of January 4, 2016. 
  • Preferred Stock Dividends National General’s Board of Directors has also approved quarterly cash dividends on Series A Preferred Stock in the amount of $0.46875 per share and Series B Preferred Stock in the amount of $18.75 per share (equivalent to $0.46875 per Depositary Share). Both dividends will be payable on January 15, 2016 to shareholders of record as of January 4, 2016.

Conference Call

On Tuesday, November 3, 2015 at 11:00 AM ET, Chairman and Chief Executive Officer Michael Karfunkel and Chief Financial Officer Mike Weiner will review these results via a conference call that may be accessed as follows:

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

A replay of the conference call will be accessible from 2:00 PM ET on Tuesday, November 3, 2015 to 11:59 PM ET on Tuesday, November 17, 2015 by dialing either 800-332-6854 (toll-free) within the U.S. or 973-528-0005 outside the U.S. and entering passcode 842046. In addition, a replay of the webcast can also be retrieved at http://ir.nationalgeneral.com/events.cfm.

About National General Holdings Corp.

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

Forward Looking Statements

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

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

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

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

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

 
Earnings and Per Share Data
$ in thousands, except shares and per share data
(Unaudited)
 
  Three Months Ended September 30,     Nine Months Ended September 30,
  2015   2014     2015   2014
Net income available to common stockholders $ 38,988     $ 32,059       $ 114,508     $ 88,785  
Basic net income per common share $ 0.39     $ 0.34       $ 1.19     $ 0.98  
Diluted net income per common share $ 0.38     $ 0.34       $ 1.16     $ 0.96  
                 
Operating earnings attributable to NGHC(1) $ 43,845     $ 34,499       $ 122,847     $ 95,324  
Basic operating earnings per common share(1) $ 0.44     $ 0.37       $ 1.28     $ 1.05  
Diluted operating earnings per common share(1) $ 0.43     $ 0.36       $ 1.25     $ 1.03  
                 
                 
Dividends declared per common share $ 0.02     $ 0.01       $ 0.06     $ 0.03  
                 
Weighted average number of basic shares outstanding 100,360,687     93,359,265       95,877,178     90,853,536  
Weighted average number of diluted shares outstanding 102,940,728     95,663,429       98,314,808     92,615,198  
Shares outstanding, end of period 105,433,893     93,408,212       105,433,893     93,408,212  
Fully diluted shares outstanding, end of period 107,983,933     95,765,403       107,841,523     92,857,313  
                 
Book value per share $ 12.35     $ 10.67       $ 12.35     $ 10.67  
Fully diluted book value per share $ 12.06     $ 10.40       $ 12.07     $ 10.73  

 
Reconciliation of Net Income to Operating Earnings (Non-GAAP)
$ in thousands, except per share data
(Unaudited)
 
  Three Months Ended September 30,     Nine Months Ended September 30,
  2015   2014     2015   2014
                 
Net income available to common stockholders $ 38,988     $ 32,059       $ 114,508     $ 88,785  
Add (subtract) net of tax:                
Net realized (gain)/loss on investments (839 )   362       (3,382 )   362  
Other than temporary impairment losses 3,906           5,520      
Foreign exchange (gain)/loss 152     365       935     365  
Equity in (earnings)/losses of unconsolidated subsidiaries (other than LSC Entities) (137 )   101       (203 )   330  
Non-cash amortization of intangible assets 1,775     1,612       5,469     5,482  
Non-cash impairment of goodwill                
Operating earnings attributable to NGHC (1) $ 43,845     $ 34,499       $ 122,847     $ 95,324  
                 
Operating earnings per common share:                
Basic operating earnings per common share $ 0.44     $ 0.37       $ 1.28     $ 1.05  
Diluted operating earnings per common share $ 0.43     $ 0.36       $ 1.25     $ 1.03  
                                 

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

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

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

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

NOTE: Loss and loss adjustment expense ratio and operating expense ratio may not sum to combined ratio due to rounding.

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

NOTE: Loss and loss adjustment expense ratio and operating expense ratio may not sum to combined ratio due to rounding.

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

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

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

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

NOTE: Consolidated Total includes elimination of $(3,590) within Gross Written Premium for Nine Months Ended September 30, 2015.

Additional Disclosures

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

(2) Fixed maturities, available-for-sale, at fair value (amortized cost $1,621,363, $276,302, $1,897,665 at September 30, 2015 and $1,330,760, $222,121, $1,522,881 at December 31, 2014).

(3) Equity securities, available-for-sale, at fair value (cost $67,113, $1,501, $68,614 at September 30, 2015 and $52,272, $2,752, $55,024 at December 31, 2014).

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

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

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

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

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

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

(10) Common stock: $0.01 par value – authorized 150,000,000 shares, issued and outstanding 105,433,893 shares – September 30, 2015; authorized 150,000,000 shares, issued and outstanding 93,427,382 – December 31, 2014.

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

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

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

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

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

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

 

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

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