National General Holdings Corp. - FORM 8-K - EX-99.1 - EXHIBIT

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8-K - 8-K - National General Holdings Corp.	a8-k11414pressrelease.htm

National General Holdings Corp. Reports Third Quarter 2014 Results;

Increases Quarterly Dividend to $0.02 Per Share

NEW YORK, November 4, 2014 (GLOBE NEWSWIRE) -- National General Holdings Corp. (NASDAQ:NGHC) today reported third quarter 2014 net income of $32.1 million or $0.34 per diluted share, compared to $12.8 million or $0.16 per diluted share in the third quarter of 2013. Operating earnings⁽¹⁾ were $35.4 million or $0.37 per diluted share in the third quarter of 2014, compared to $13.9 million or $0.17 per diluted share in the third quarter of 2013. Third quarter 2014 operating earnings exclude $1.1 million or $0.01 per share of realized investment losses, $1.6 million or $0.01 per share of equity in losses of unconsolidated subsidiaries, and $2.5 million or $0.02 per share of non-cash amortization of intangible assets. In addition, National General's Board of Directors has approved a 100% increase in the quarterly dividend to $0.02 per share from $0.01 per share, effective with the fourth quarter dividend.

Third Quarter 2014 Highlights Versus Third Quarter 2013*


•	Net written premium grew by $266.2 million or 168.4% to $424.4 million, driven by the run-off of our third-party quota share treaty, assumed premiums from Tower Personal Lines reinsurance, additional premiums from acquisitions completed during the past year, underlying organic growth within our P&C business, and continued expansion of our A&H segment.

•

The combined ratio was 91.5% compared to 94.4% in the prior year's quarter. The 2.9 point combined ratio improvement was driven by a reduction in both the loss and expense ratios within our P&C segment, partially offset by increased loss and expense ratios in our growing A&H segment - although excluding non-cash amortization of intangible assets, our A&H segment reported a modest underwriting profit during the quarter.

•

Total revenues grew $258.2 million or 110.8% to $491.2 million, driven by the aforementioned premium growth, service and fee income growth of $11.5 million or 33.4% (including Attorney-in-Fact management of $1.5 million), and net investment income growth of $5.3 million or 62.3%, partially offset by a $22.9 million or 97.2% decline in ceding commission income reflecting the run-off of our third-party quota share.


•	Shareholders' equity was $1.05 billion and fully diluted book value per share was $10.40 at September 30, 2014, growth of 10.2% and 9.7%, respectively, from June 30, 2014. Annualized operating return on average equity (ROE) was 14.9% for the third quarter and 15.1% for the nine months ended September 30, 2014.

Michael Karfunkel, National General's Chairman and CEO, stated: "We are delighted with our third quarter results, which equate to a solid 14.9% annualized ROE and again showed impressive top line growth, both organically and from recent transactions, as well as strong underwriting profitability with a 91.5% combined ratio. Perhaps more importantly, we closed the Tower Personal Lines transaction on September 15, 2014, which has given us a broader product mix including homeowners and umbrella coverages, an enhanced geographic footprint, and additional competitive strength with the ability to bundle several personal lines product offerings to our agents and customers. We continue to focus our efforts on profitably growing our business both organically and through additional accretive M&A opportunities, maintaining an intense emphasis on disciplined expense management, and delivering strong returns to our shareholders. We are proud that for the first nine months of 2014, we produced $88.8 million of net income, nearly three times the $32.2 million we reported for the same period in 2013.”

*NOTE: Unless specified otherwise, discussion of our third quarter 2014 results does not include financial results from the Reciprocal Exchanges, which are presented within our consolidated financial results within this release but are not included in income attributable to NGHC common shareholders. Third quarter 2014 results include 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).

Overview of Third Quarter 2014 as Compared to Third Quarter 2013

Gross written premium grew 46.6% to $487.6 million, net written premium grew 168.4% to $424.4 million, and net earned premium grew 159.9% to $431.7 million. Our premium growth was driven by several key factors: (1) a continued increase in net retention due to the run-off of our third party quota share, which is now 100% complete as of July 31, 2014, (2) new and renewal business from reinsurance of the Tower Personal Lines book, (3) additional premiums from acquisitions completed during the past year, (4) underlying organic growth within our P&C segment, and (5) continued expansion of our A&H segment.

Ceding commission income decreased 97.2% to $0.7 million, reflecting the run-off of our third party quota share. Service, fee, and other income grew 33.4% to $45.9 million, driven by double-digit growth in both the P&C and A&H segments, and we note that the P&C segment now includes management fees of $1.5 million related to the Attorneys-in-Fact that manage the Reciprocal Exchanges.

The combined ratio was 91.5% with a loss ratio of 62.5% and an expense ratio of 29.1%, versus a prior year combined ratio of 94.4% with a loss ratio of 65.2% and an expense ratio of 29.2%. The improved loss ratio was driven primarily by a reduction in the P&C loss ratio, partially offset by a higher A&H loss ratio. The expense ratio decreased modestly as a result of an improved P&C expense ratio, partially offset by an elevated A&H expense ratio due to our continued investment in the expansion of this segment. The third quarter expense ratio included 0.6 points of expense from non-cash amortization of intangible assets, versus 1.3 points in the prior year's quarter.

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

•

Property & Casualty - Gross written premium grew 44.9% to $469.9 million, net written premium grew 171.5% to $406.7 million, and net earned premium grew 154.9% to $402.2 million. P&C premium growth was driven by four key factors: (1) a continued increase in net retention due to the run-off of our third party quota share, which is now 100% complete as of July 31, 2014; (2) the addition of new and renewal business from reinsurance of the Tower Personal Lines, which produced $74.8 million in net written premiums during the quarter; (3) additional premiums from acquisitions completed during the past year, which contributed $33.9 million in net written premium during the quarter ($28.4 million from Imperial and $5.5 million from Personal Express Insurance Company); and (4) underlying organic growth of 6.1%. Ceding commission income decreased 97.2% to $0.7 million, reflecting the run-off of our third party quota share. Service, fee, and other income grew 45.3% to $31.4 million, driven by the increased premium volume in the quarter and the addition of $1.5 million of fees earned by the Attorneys-in-Fact that manage the Reciprocal Exchanges. The combined ratio was 90.7% with a loss ratio of 62.5% and an expense ratio of 28.2%, versus a prior year combined ratio of 96.0% with a loss ratio of 66.1% and an expense ratio of 29.9%. The quarter's improved loss ratio was driven primarily by business mix changes, most notably the addition of the homeowners line of business. The quarter's improved expense ratio was primarily the result of the impact of the ceding commission paid on business written via the Cut-Through Reinsurance Agreement, as well as a reduction in our underlying expense ratio resulting from expense initiatives and technology enhancements enacted in recent years. The P&C expense ratio included 0.4 points of expenses for non-cash amortization of intangible assets, versus 1.1 points in the prior year's quarter.

•

Accident & Health - Gross written premium grew to $17.7 million, net written premium grew to $17.7 million, and net earned premium grew to $29.5 million, from $8.4 million, $8.3 million, and $8.3 million, respectively, in the prior year's quarter. A&H premium growth was driven by continued progress in the expansion of our domestic business, as well as the addition of $6.6 million of premium from EuroAccident, which is now written on National General paper. Service, fee, and other income grew 13.4% to $14.5 million, primarily reflecting growth at VelaPoint (our call center general agency) and TABS (our domestic stop loss business), with consistent fee income at EuroAccident year-over-year. The combined ratio was 102.8% with a loss ratio of 61.9% and an expense ratio of 40.8%, versus a prior year combined ratio of 64.7% with a loss ratio of 48.4% and an expense ratio of 16.3%. The increase in the third quarter loss ratio reflects the continued maturation of the business, as prior year results were characterized by a less meaningful premium volume. The third quarter 2014 expense ratio included increased expenses related to our continued investment in the expansion of our A&H business, as well as 3.1 points of expenses for non-cash amortization of intangible assets, versus 5.9 points of expenses in the prior year's quarter. We highlight that excluding non-cash amortization of intangible assets, the A&H segment reported modest underwriting income of $0.1 million in the third quarter of 2014.

•

Reciprocal Exchanges - Results for the Reciprocal Exchanges are not included in income attributable to NGHC common shareholders, and the quarter includes 15 days of results for the Reciprocal Exchanges (as the Attorneys-in-Fact were acquired with the closing of the Tower Personal Lines transaction on September 15, 2014). Gross written premium was $10.0 million, net written premium was $7.2 million, and net earned premium was $6.7 million. The combined ratio was 110.2% with a loss ratio of 80.0% and an expense ratio of 30.3%, and the quarter included 5.3 points attributable to non-cash amortization of intangible assets and $1.5 million of expenses related to Attorney-in-Fact management fees.

Investment income, excluding net realized gains and losses, grew 62.3% to $13.7 million, reflecting an increase in the size of our investment portfolio mainly as a result of our capital raising actions in the first half of 2014. Third quarter 2014 results included $1.1 million of net realized investment losses compared with a gain of $0.5 million in the third quarter of 2013. Total cash, cash equivalents and investments was $1.75 billion as of September 30, 2014. Accumulated other comprehensive income (AOCI) declined to $20.9 million at September 30, 2014 from $31.9 million at June 30, 2014.

Interest expense of $4.4 million increased from $0.5 million in the prior year’s quarter due to an increased amount of debt on our balance sheet. Debt was $255.6 million as of September 30, 2014, down slightly from $259.1 million as of June 30, 2014, but up from $81.1 million at December 31, 2013, primarily as a result of our $250 million May 2014 senior note issuance.

Equity in earnings of unconsolidated subsidiaries (predominantly our investment in Life Settlement Entities) was a loss of $1.6 million in the third quarter versus a loss of $0.1 million in the prior year's quarter, reflecting fair value adjustments on life settlement contracts.

The third quarter 2014 provision for income taxes was $10.2 million and the effective tax rate for the quarter was 22.7%. Included in the third quarter 2014 provision for income taxes was a $3.8 million benefit attributable to a reduction of the deferred tax liability associated with the equalization reserves of our Luxembourg Reinsurance Company subsidiaries. Excluding this benefit, the tax rate for the quarter would have been 31.1%.

National General Holding Corp.'s shareholders' equity was $1,051.3 million, growth of 10.2% from $954.1 million at June 30, 2014 driven by the quarter’s retained earnings and a $75.3 million increase to additional paid-in capital based on the valuation of the Attorneys-in-Fact, partially offset by an $11.0 million decline in AOCI. Excluding the AIF valuation increase and AOCI decline, shareholders' equity grew 3.7% from the end of the second quarter. Fully diluted book value per share was $10.40 at September 30, 2014, growth of 9.7% from $9.48 at June 30, 2014. Annualized operating return on average equity (ROE) was 14.9% for the third quarter and 15.1% for the nine months ended September 30, 2014.

National General's Board of Directors has approved an increase in the company's quarterly cash dividend on its common stock to $0.02 per share from $0.01 per share, effective with the fourth quarter dividend payment. The 100% dividend increase equates to an annualized dividend of $0.08 per share, or a dividend yield of 0.4% at current share price levels. The first quarter dividend on common stock will be payable on January 15, 2015 to shareholders of record as of January 1, 2015. The Board of Directors also approved a cash dividend on its 7.50% Non-Cumulative Preferred Stock, Series A, in the amount of $0.46875 per share. The fourth quarter preferred dividend will be payable on January 15, 2015 to shareholders of record as of January 1, 2015.

Conference Call

On Tuesday, November 4, 2014 at 11:00 AM ET, Chairman and CEO Michael Karfunkel and CFO Mike Weiner will review these results via a conference call that may be accessed as follows:

Toll-Free Dial-in: 888-267-2860

Toll Dial-in (outside the U.S.): 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 4, 2014 to 11:59 PM ET on Tuesday, November 11, 2014 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, recreational vehicle, motorcycle, homeowners, supplemental health, and other niche insurance products.

Forward Looking Statements

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

Income Statement - Third Quarter

$ in thousands

(Unaudited)



	Three Months Ended September 30,
	2014							2013
	NGHC			Reciprocal Exchanges		Consolidated		NGHC
Revenues:
Gross written premium	$	487,602		9,993		497,595		$	332,714
Ceded premiums (related parties - $12,690 and $147,401 in 2014 and 2013, respectively)	(63,237		)	(2,788	)	(66,025	)	(174,591		)
Net written premium	424,365			7,205		431,570		158,123
Net earned premium	431,714			6,692		438,406		166,125

Ceding commission income (primarily related parties)	668			37		705		23,518
Service and fee income	45,872			22		45,894		34,385
Net investment income	13,697			—		13,697		8,439
Net realized gain/(loss) on investments	(1,118		)	—		(1,118	)	516
Other than temporary impairment loss	—			—		—		—
Other revenue	373			—		373		—
Total revenues	$	491,206		6,751		497,957		$	232,983

Expenses:
Loss and loss adjustment expense	$	269,668		5,351		275,019		$	108,260
Acquisition costs and other underwriting expenses	83,642			273		83,915		32,231
General and administrative	88,317			1,811		90,128		74,232
Interest expense	4,437			272		4,709		540
Total expenses	$	446,064		7,707		453,771		$	215,263

Income before provision for income taxes and equity in earnings (losses) of unconsolidated subsidiaries	45,142			(956	)	44,186		17,720
Provision for income taxes	10,237			(211	)	10,026		4,839
Income before equity in earnings (losses) of unconsolidated subsidiaries	34,905			(745	)	34,160		12,881
Equity in earnings (losses) of unconsolidated subsidiaries	(1,611		)	—		(1,611	)	(128		)
Net income before non-controlling interest and cumulative dividends on preferred shares	$	33,294		(745	)	32,549		$	12,753
Less: net income attributable to non-controlling interest	(25		)	(745	)	(770	)	—
Net income before cumulative dividends on preferred shares	$	33,319		—		33,319		$	12,753
Less: cumulative dividends on preferred shares	1,260			—		1,260		—
Net income available to common stockholders	$	32,059		—		32,059		$	12,753

Income Statement - Year to Date

$ in thousands

(Unaudited)



	Nine Months Ended September 30,
	2014							2013
	NGHC			Reciprocal Exchanges		Consolidated		NGHC
Revenues:
Gross written premium	$	1,602,217		9,993		1,612,210		$	1,021,016
Ceded premiums (related parties - $42,967 and $291,501 in 2014 and 2013, respectively)	(191,811		)	(2,788	)	(194,599	)	(543,373		)
Net written premium	1,410,406			7,205		1,417,611		477,643
Net earned premium	1,181,032			6,692		1,187,724		472,832

Ceding commission income (primarily related parties)	7,595			37		7,632		73,509
Service and fee income	121,064			22		121,086		93,053
Net investment income	34,232			—		34,232		22,093
Net realized gain/(loss) on investments	(1,118		)	—		(1,118	)	1,463
Other than temporary impairment loss	—			—		—		—
Other revenue	480			—		480		16
Total revenues	$	1,343,285		6,751		1,350,036		$	662,966

Expenses:
Loss and loss adjustment expense	$	750,619		5,351		755,970		$	310,133
Acquisition costs and other underwriting expenses	232,433			273		232,706		94,664
General and administrative	241,575			1,811		243,386		209,455
Interest expense	7,549			272		7,821		1,456
Total expenses	$	1,232,176		7,707		1,239,883		$	615,708

Income before provision for income taxes and equity in earnings (losses) of unconsolidated subsidiaries	111,109			(956	)	110,153		47,258
Provision for income taxes	17,997			(211	)	17,786		12,393
Income before equity in earnings (losses) of unconsolidated subsidiaries	93,112			(745	)	92,367		34,865
Equity in earnings (losses) of unconsolidated subsidiaries	(3,098		)	—		(3,098	)	(452		)
Net income before non-controlling interest and cumulative dividends on preferred shares	$	90,014		(745	)	89,269		$	34,413
Less: net income attributable to non-controlling interest	(31		)	(745	)	(776	)	44
Net income before cumulative dividends on preferred shares	$	90,045		—		90,045		$	34,369
Less: cumulative dividends on preferred shares	1,260			—		1,260		2,158
Net income available to common stockholders	$	88,785		—		88,785		$	32,211

Earnings and Per Share Data

$ in thousands, except shares and per share data

(Unaudited)



	Three Months Ended September 30,				Nine Months Ended September 30,
	2014		2013		2014		2013
Net income available to common stockholders	$	32,059	$	12,753	$	88,785	$	32,211
Basic net income per common share	$	0.34	$	0.16	$	0.98	$	0.54
Diluted net income per common share*	$	0.34	$	0.16	$	0.96	$	0.50

Operating earnings attributable to NGHC⁽¹⁾	$	35,446	$	13,928	$	97,008	$	34,569
Basic operating earnings per common share⁽¹⁾	$	0.38	$	0.17	$	1.07	$	0.58
Diluted operating earnings per common share^(1)*	$	0.37	$	0.17	$	1.05	$	0.53

Dividends declared per common share	$	0.01	$	0.01	$	0.03	$	0.01

Weighted average number of basic shares outstanding	93,359,265		79,700,000		90,853,536		60,063,250
Weighted average number of diluted shares outstanding	95,663,429		80,624,303		92,615,198		68,690,957
Shares outstanding, end of period	93,408,212		79,700,000		93,408,212		79,700,000
Fully diluted shares outstanding, end of period	95,765,403		80,447,486		92,857,313		80,447,486

Book value per share	$	10.67	$	7.88	$	10.67	$	7.88
Fully diluted book value per share	$	10.40	$	7.80	$	10.73	$	7.80

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,
	2014		2013				2014			2013

Net income available to common stockholders	$	32,059	$	12,753			$	88,785		$	32,211
Add (subtract) net of tax:
Net realized (gain)/loss on investments	727		(335		)		727			(951		)
Other than temporary impairment losses	—		—				—			—
Equity in (earnings)/losses of unconsolidated subsidiaries	1,047		83				2,014			294
Non cash amortization of intangible assets	1,613		1,427				5,482			3,015
Operating earnings attributable to NGHC	$	35,446	$	13,928		1,000	$	97,008	1,000	$	34,569

Operating earnings per common share:
Basic operating earnings per common share	$	0.38	$	0.17			$	1.07		$	0.58
Diluted operating earnings per common share*	$	0.37	$	0.17			$	1.05		$	0.53

* NOTE: Diluted net income per common share and diluted operating earnings per common share for Three Months and Nine Months Ended September 30, 2013 are adjusted for preferred dividends of $0 and $2,158, respectively, from the 8% cumulative convertible Series A Preferred stock converted on June 5, 2013.

Balance Sheet

$ in thousands

(Unaudited)



	September 30, 2014						December 31, 2013
	(unaudited)						(audited)
ASSETS	NGHC		Reciprocal Exchanges		Consolidated		NGHC
Investments:
Fixed maturities, available-for-sale, at fair value (amortized cost $1,288,829, $229,585, $1,518,414 and $757,188, respectively)	$	1,324,641	$	229,585	$	1,554,226	$	766,589
Equity securities, available-for-sale, at fair value (cost $53,794, $2,752, $56,546 and $6,939, respectively)	53,403		2,752		56,155		6,287
Short-term investments	—		2,901		2,901		—
Equity investment in unconsolidated subsidiaries	146,650		—		146,650		133,193
Other investments	4,095		—		4,095		2,893
Securities pledged (amortized cost $100,932, $0, $100,932 and $133,013, respectively)	100,932		—		100,932		133,922
Total investments	1,629,721		235,238		1,864,959		1,042,884
Cash and cash equivalents	117,695		446		118,141		73,823
Accrued investment income	11,813		1,975		13,788		9,263
Premiums and other receivables, net	685,114		72,263		757,377		449,252
Deferred acquisition costs	111,791		—		111,791		60,112
Reinsurance recoverable on unpaid losses ⁽²⁾	891,909		19,137		911,046		950,828
Prepaid reinsurance premiums	72,288		28,012		100,300		50,878
Notes receivable from related party	125,364		—		125,364		—
Due from affiliate	7,008		—		7,008		4,785
Income tax receivable	—		1,030		1,030		—
Premises and equipment, net	29,346		—		29,346		29,535
Intangible assets, net	230,460		13,508		243,968		86,564
Goodwill	97,711		—		97,711		70,351
Prepaid and other assets	14,539		123		14,662		9,240
Total assets	$	4,024,759	$	371,732	$	4,396,491	$	2,837,515
LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities:
Unpaid loss and loss adjustment expense reserves	$	1,413,726	100,282		1,514,008		$	1,259,241
Unearned premiums	744,843		116,145		860,988		476,232
Unearned service contract and other revenue	8,949		—		8,949		7,319
Reinsurance payable ⁽³⁾	95,425		7,940		103,365		93,534
Accounts payable and accrued expenses	243,976		19,822		263,798		91,143
Due to affiliate	—		17,808		17,808		—
Securities sold under agreements to repurchase, at contract value	95,362		—		95,362		109,629
Deferred tax liability	48,691		24,046		72,737		24,476
Income tax payable	19,604		—		19,604		1,987
Notes payable	255,622		44,600		300,222		81,142
Other liabilities	47,236		4,506		51,742		49,945
Total liabilities	$	2,973,434	$	335,149	$	3,308,583	$	2,194,648
Stockholders’ equity:
Common stock ⁽⁴⁾	$	934	$	—	$	934	$	797
Preferred stock ⁽⁵⁾	55,000		—		55,000		—
Additional paid-in capital	690,908		—		690,908		437,006
Retained earnings	283,541		—		283,541		197,552
Accumulated other comprehensive income	20,873		—		20,873		7,425
Total National General Holdings Corp. stockholders' equity	1,051,256		—		1,051,256		642,780
Non-controlling interest	69		36,583		36,652		87
Total stockholders’ equity	1,051,325		36,583		1,087,908		642,867
Total liabilities and stockholders’ equity	$	4,024,759	$	371,732	$	4,396,491	$	2,837,515

Segment Information - Third Quarter

$ in thousands

(Unaudited)



	Three Months Ended September 30,
	2014												2013
	P&C			A&H			NGHC			Reciprocal Exchanges			P&C			A&H			NGHC
Gross written premium	$	469,873		$	17,729		$	487,602		$	9,993		$	324,298		$	8,416		$	332,714
Net written premium	406,699			17,666			424,365			7,205			149,787			8,336			158,123
Net earned premium	402,246			29,468			431,714			6,692			157,784			8,341			166,125

Ceding commission income (primarily related parties)	668			—			668			37			23,518			—			23,518
Service, fee, and other income	31,356			14,516			45,872			22			21,583			12,802			34,385
Total underwriting revenue	$	434,270		$	43,984		$	478,254		$	6,751		$	202,885		$	21,143		$	224,028

Loss and loss adjustment expense	$	251,418		$	18,250		$	269,668		$	5,351		$	104,222		$	4,038		$	108,260
Acquisition costs and other	68,146			15,496			83,642			273			26,063			6,168			32,231
General and administrative	77,267			11,050			88,317			1,811			66,236			7,996			74,232
Total underwriting expenses	396,831			44,796			441,627			7,435			196,521			18,202			214,723

Underwriting income (loss)	37,439			(812		)	36,627			(684		)	6,364			2,941			9,305
Non cash amortization of intangible assets	1,565			916			2,481			353			1,703			492			2,195
Underwriting income (loss) before non cash amortization of intangible assets	$	39,004		$	104		$	39,108		$	(331	)	$	8,067		$	3,433		$	11,500

Underwriting ratios
Loss and loss adjustment expense ratio ⁽⁶⁾	62.5		%	61.9		%	62.5		%	80.0		%	66.1		%	48.4		%	65.2		%
Operating expense ratio (Non-GAAP) ^(7,8)	28.2		%	40.8		%	29.1		%	30.3		%	29.9		%	16.3		%	29.2		%
Combined ratio (Non-GAAP) ^(7,9)	90.7		%	102.8		%	91.5		%	110.2		%	96.0		%	64.7		%	94.4		%

Underwriting ratios (before amortization)
Loss and loss adjustment expense ratio ⁽⁶⁾	62.5		%	61.9		%	62.5		%	80.0		%	66.1		%	48.4		%	65.2		%
Operating expense ratio(Non-GAAP) ^(7,10)	27.8		%	37.7		%	28.5		%	25.0		%	28.8		%	10.4		%	27.9		%
Combined ratio (Non-GAAP) ^(7,9)	90.3		%	99.6		%	90.9		%	104.9		%	94.9		%	58.8		%	93.1		%

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,
	2014												2013
	P&C			A&H			NGHC			Reciprocal Exchanges			P&C			A&H			NGHC
Gross written premium	$	1,484,344		$	117,873		$	1,602,217		$	9,993		$	996,034		$	24,982		$	1,021,016
Net written premium	1,292,793			117,613			1,410,406			7,205			452,816			24,827			477,643
Net earned premium	1,091,088			89,944			1,181,032			6,692			448,000			24,832			472,832

Ceding commission income (primarily related parties)	7,595			—			7,595			37			73,509			—			73,509
Service, fee, and other income	76,418			44,646			121,064			22			62,996			30,057			93,053
Total underwriting revenue	$	1,175,101		$	134,590		$	1,309,691		$	6,751		$	584,505		$	54,889		$	639,394

Loss and loss adjustment expense	$	691,856		$	58,763		$	750,619		$	5,351		$	293,401		$	16,732		$	310,133
Acquisition costs and other	185,359			47,074			232,433			273			77,249			17,415			94,664
General and administrative	205,503			36,072			241,575			1,811			191,681			17,774			209,455
Total underwriting expenses	1,082,718			141,909			1,224,627			7,435			562,331			51,921			614,252

Underwriting income (loss)	92,383			(7,319		)	85,064			(684		)	22,174			2,968			25,142
Non cash amortization of intangible assets	3,181			5,253			8,434			353			3,713			926			4,639
Underwriting income (loss) before non cash amortization of intangible assets	$	95,564		$	(2,066	)	$	93,498		$	(331	)	$	25,887		$	3,894		$	29,781

Underwriting ratios
Loss and loss adjustment expense ratio ⁽⁶⁾	63.4		%	65.3		%	63.6		%	80.0		%	65.5		%	67.4		%	65.6		%
Operating expense ratio (Non-GAAP) ^(7,8)	28.1		%	42.8		%	29.2		%	30.3		%	29.6		%	20.7		%	29.1		%
Combined ratio (Non-GAAP) ^(7,9)	91.5		%	108.1		%	92.8		%	110.2		%	95.1		%	88.0		%	94.7		%

Underwriting ratios (before amortization)
Loss and loss adjustment expense ratio ⁽⁶⁾	63.4		%	65.3		%	63.6		%	80.0		%	65.5		%	67.4		%	65.6		%
Operating expense ratio(Non-GAAP) ^(7,10)	27.8		%	37.0		%	28.5		%	25.0		%	28.7		%	16.9		%	28.1		%
Combined ratio (Non-GAAP) ^(7,9)	91.2		%	102.3		%	92.1		%	104.9		%	94.2		%	84.3		%	93.7		%

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 and Operating Expense Ratio Before Amortization (Non-GAAP)

$ in thousands

(Unaudited)



	Three Months Ended September 30,
	2014												2013
	P&C			A&H			NGHC			Reciprocal Exchanges			P&C			A&H			Total
Total underwriting expenses	$	396,831		$	44,796		$	441,627		7,435			$	196,521		$	18,202		$	214,723
Less: Loss and loss adjustment expense	251,418			18,250			269,668			5,351			104,222			4,038			108,260
Less: Ceding commission income	668			—			668			37			23,518			—			23,518
Less: Service, fee and other income	31,356			14,516			45,872			22			21,583			12,802			34,385
Operating expense	113,389			12,030			125,419			2,025			47,198			1,362			48,560
Net earned premium	$	402,246		$	29,468		$	431,714		$	6,692		$	157,784		$	8,341		$	166,125
Operating expense ratio (Non-GAAP)	28.2		%	40.8		%	29.1		%	30.3		%	29.9		%	16.3		%	29.2		%

Total underwriting expenses	$	396,831		$	44,796		$	441,627		$	7,435		$	196,521		$	18,202		$	214,723
Less: Loss and loss adjustment expense	251,418			18,250			269,668			5,351			104,222			4,038			108,260
Less: Ceding commission income	668			—			668			37			23,518			—			23,518
Less: Service, fee and other income	31,356			14,516			45,872			22			21,583			12,802			34,385
Less: Non cash amortization of intangible assets	1,565			916			2,481			353			1,703			492			2,195
Operating expense before amortization	111,824			11,114			122,938			1,672			45,495			870			46,365
Net earned premium	$	402,246		$	29,468		431,714			6,692			$	157,784		$	8,341		$	166,125
Operating expense ratio before amortization (Non-GAAP)	27.8		%	37.7		%	28.5		%	25.0		%	28.8		%	10.4		%	27.9		%



	Nine Months Ended September 30,
	2014												2013
	P&C			A&H			NGHC			Reciprocal Exchanges			P&C			A&H			NGHC
Total underwriting expenses	$	1,082,718		$	141,909		$	1,224,627		$	7,435		$	562,331		$	51,921		$	614,252
Less: Loss and loss adjustment expense	691,856			58,763			750,619			5,351			293,401			16,732			310,133
Less: Ceding commission income	7,595			—			7,595			37			73,509			—			73,509
Less: Service, fee and other income	76,418			44,646			121,064			22			62,996			30,057			93,053
Operating expense	306,849			38,500			345,349			2,025			132,425			5,132			137,557
Net earned premium	$	1,091,088		$	89,944		$	1,181,032		$	6,692		$	448,000		$	24,832		$	472,832
Operating expense ratio (Non-GAAP)	28.1		%	42.8		%	29.2		%	30.3		%	29.6		%	20.7		%	29.1		%

Total underwriting expenses	$	1,082,718		$	141,909		$	1,224,627		$	7,435		$	562,331		$	51,921		$	614,252
Less: Loss and loss adjustment expense	691,856			58,763			750,619			5,351			293,401			16,732			310,133
Less: Ceding commission income	7,595			—			7,595			37			73,509			—			73,509
Less: Service, fee and other income	76,418			44,646			121,064			22			62,996			30,057			93,053
Less: Non cash amortization of intangible assets	3,181			5,253			8,434			353			3,713			926			4,639
Operating expense before amortization	303,668			33,247			336,915			1,672			128,712			4,206			132,918
Net earned premium	$	1,091,088		$	89,944		$	1,181,032		$	6,692		$	448,000		$	24,832		$	472,832
Operating expense ratio before amortization (Non-GAAP)	27.8		%	37.0		%	28.5		%	25.0		%	28.7		%	16.9		%	28.1		%

Gross Written Premium by Business Line

$ in thousands

(Unaudited)



	Three Months Ended September 30,					Nine Months Ended September 30,
				% of Total					% of Total
	2014	2013	% Change	2014	2013	2014	2013	% Change	2014	2013
Property & Casualty
Personal Auto	$315,672	$252,794	24.9%	64.7%	76.0%	$953,010	$775,838	22.8%	59.5%	76.0%
Homeowners	74,583	288	NA	15.3%	0.1%	290,667	397	NA	18.1%	—%
RV/Packaged	39,490	40,128	(1.6)%	8.1%	12.1%	120,183	122,652	(2.0)%	7.5%	12.0%
Commercial Auto	35,619	27,604	29.0%	7.3%	8.3%	107,173	86,933	23.3%	6.7%	8.5%
Other	4,509	3,483	29.5%	0.9%	1.0%	13,311	10,214	30.3%	0.8%	1.0%
P&C Total	$469,873	$324,298	44.9%	96.4%	97.5%	$1,484,344	$996,034	49.0%	92.6%	97.6%

Accident & Health	17,729	8,416	110.7%	3.6%	2.5%	117,873	24,982	371.8%	7.4%	2.4%

Total NGHC	$487,602	$332,714	46.6%	100.0%	100.0%	$1,602,217	$1,021,016	56.9%	100.0%	100.0%

Reciprocal Exchanges
Personal Auto	$4,330	—	NA	43.3%	NA	$4,330	—	NA	43.3%	NA
Homeowners	5,013	—	NA	50.2%	NA	5,013	—	NA	50.2%	NA
Other	650	—	NA	6.5%	NA	650	—	NA	6.5%	NA
Reciprocal Exchanges Total	$9,993	—	NA	100.0%	NA	$9,993	—	NA	100.0%	NA

Consolidated Total	$497,595	$332,714	49.6%			$1,612,210	$1,021,016	57.9%

NOTE: Percentage totals may not sum due to rounding.

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, equity in earnings (losses) of unconsolidated subsidiaries, and non-cash amortization of intangible assets. Please see the Non-GAAP Financial Measures table within this release for important information about the use of these Non-GAAP measures and their reconciliation to GAAP.

⁽²⁾Reinsurance recoverable on unpaid losses includes $101,744 and $176,241 from related parties at September 30, 2014 and December 31, 2013, respectively; includes $19,137 relating to Reciprocal Exchanges at September 30, 2014.

⁽³⁾Reinsurance payable includes $34,722 and $76,360 to related parties at September 30, 2014 and December 31, 2013, respectively; includes $7,940 relating to Reciprocal Exchanges at September 30, 2014.

⁽⁴⁾ Common stock: $0.01 par value - authorized 150,000,000 shares, issued and outstanding 93,408,212 shares - September 30, 2014; authorized 150,000,000 shares, issued and outstanding 79,731,800 shares - December 31, 2013.

⁽⁵⁾Preferred stock: $0.01 par value - authorized 10,000,000 shares, issued and outstanding 2,200,000 shares and 0 shares - September 30, 2014 and December 31, 2013.

⁽⁶⁾ Loss and loss adjustment expense ratio is calculated by dividing loss and loss adjustment expenses by net earned premium.

⁽⁷⁾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. 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 important information about the use of these Non-GAAP measures and their reconciliation to GAAP.

⁽⁸⁾ 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.

⁽⁹⁾ Combined ratio (non-GAAP) is calculated by adding the loss and loss adjustment expense ratio and the operating expense ratio (non-GAAP) together.

⁽¹⁰⁾ Operating expense ratio (non-GAAP) before amortization is calculated by dividing the operating expense before amortization by net earned premium. Operating expense before amortization 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.

Investor Contact

Dean Evans

Director of Investor Relations

Phone: 212-380-9462

Email: Dean.Evans@NGIC.com

National General Holdings Corp. - FORM 8-K - EX-99.1 - EXHIBIT - November 4, 2014

Attached files

National General Holdings Corp. Reports