National General Holdings Corp. Reports Third Quarter 2015 Results;
Increases Quarterly Dividend to $0.03 Per Share
NEW YORK, November 2, 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:
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| • | 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. |
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| • | 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. |
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| • | 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
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| • | 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. |
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| • | 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. |
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| • | 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. |
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| • | 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. |
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| • | 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. |
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| • | 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. |
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| • | 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. |
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| • | 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.
Investor Contact
Dean Evans
Director of Investor Relations
Phone: 212-380-9462
Email: Dean.Evans@NGIC.com
