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National General Holdings Corp. Reports Fourth Quarter 2017 Results
NEW YORK, February 26, 2018 (GLOBE NEWSWIRE) - National General Holdings Corp. (Nasdaq:NGHC) today reported a fourth quarter 2017 net loss of $9.9 million or $0.09 per diluted share, compared to net income of $39.2 million or $0.36 per diluted share in the fourth quarter of 2016. Fourth quarter 2017 operating earnings(1) was $30.0 million or $0.28 per diluted share, compared to $32.8 million or $0.30 per diluted share in the fourth quarter of 2016. Fourth quarter net income included a one-time non-cash tax charge of $25.8 million from the revaluation of the Company’s deferred tax asset related to the recently implemented reduction to the U.S. corporate tax rate.
Fourth Quarter 2017 Highlights Versus Fourth Quarter 2016*
| • | Gross written premium grew $246.9 million or 30.1% to $1,067.2 million, driven by added premiums from organic growth and the acquisition of Direct General and within our P&C business of 30.9% and continued growth of our A&H segment of 26.3%. |
| • | The overall combined ratio(10,14) was 96.9% compared to 96.4% in the prior year’s quarter, excluding non-cash amortization of intangible assets and impairment of goodwill. The P&C segment reported an increase in combined ratio to 98.2% from 97.9% in the prior year’s quarter, due to $52.9 million of losses, or 7.5 P&C loss ratio points, from California fires in the fourth quarter 2017. Excluding the aforementioned fire-related losses, the P&C segment combined ratio(16) was 90.7% and NGHC overall combined ratio(16) was 90.6%. The A&H segment reported a combined ratio of 89.9% compared to 86.7% in the prior year’s quarter. |
| • | Total revenue grew by $50.2 million or 5.1% to $1.0 billion, primarily driven by the aforementioned premium growth, service and fee income growth of $37.5 million or 34.6%, and an increase in ceding commission income of $14.2 million, primarily related to the new quota share agreements announced in the third quarter. |
| • | Shareholders’ equity was $1.93 billion and fully diluted book value per share was $13.86 at December 31, 2017, growth of 2.3% and 3.0%, respectively, from December 31, 2016. Our trailing twelve month operating return on average equity (ROE)(15) was 7.9% as of December 31, 2017. |
| • | Fourth quarter 2017 operating earnings exclude the following material items, net of tax: $1.8 million or $0.02 per share of net gain on investments, $6.1 million or $0.06 per share of non-cash amortization of intangible assets, $4.9 million or $0.05 per share of impairment of goodwill related to our Luxembourg subsidiary, and losses of $4.9 million or $0.05 per share from earnings of equity method investments. Operating earnings also excluded a charge of $25.8 million or $0.24 per share from the deferred tax asset impairment. |
| • | Prior period results referred to in this release are reported on an “as adjusted” basis. For details on the adjustments, please refer to page 3 of this release and Note 3 to our Annual Report on Form 10-K for the year ended December 31, 2017. |
Barry Karfunkel, National General’s President and CEO, stated: “This quarter concluded one of the most active domestic catastrophe years in recent memory. While National General’s results did not escape their impact, we continue to report profitable underwriting results and our losses were less than our market share in the impacted areas, demonstrating the disciplined underwriting standards that we operate with. In addition, I’m proud of how our claims team responded and it’s in times like this that we feel fortunate to be able to stand behind our promise and commitment to customers that we’ll take care of them in their greatest time of need. Alternative asset classes continued to be deemphasized in our investment portfolio through the sale of a portion of our life settlement holdings in the quarter.
I am excited about what’s in store for 2018 and beyond. We have built one of the most sophisticated and dynamic personal lines platforms in the industry, which we believe will drive National General’s success for years to come.”
*NOTE: Unless specified otherwise, discussion of our fourth quarter 2017 and 2016 results do not include financial results from the Reciprocal Exchanges, which are presented within our consolidated financial results within this release but are not included in net income available to NGHC common stockholders.
1
Overview of Fourth Quarter 2017 as Compared to Fourth Quarter 2016
Gross written premium grew 30.1% to $1,067.2 million, net written premium increased by 7.8% to $799.8 million and net earned premium grew 3.0% to $843.0 million. Premium growth was driven by several key factors: underlying organic growth within our P&C segment, continued growth of our A&H segment, and additional premiums from the acquisition of Direct General.
Service and fee income grew 34.6% to $146.1 million, driven by organic growth and added service and fee income from our recent completed transactions.
Excluding non-cash amortization of intangible assets and impairment of goodwill, the combined ratio(10,14,15) was 96.9% with a loss ratio of 74.2% and an expense ratio(10,13,15) of 22.7%, compared to a prior year combined ratio of 96.4% with a loss ratio of 71.7% and an expense ratio of 24.7%. The expense ratio benefited from the ceding commission related to the new quota shares.
Underwriting results detailed by each of our business segments are as follows:
| • | Property & Casualty - Gross written premium grew by 30.7% to $930.0 million, net written premium increased by 4.5% to $674.1 million and net earned premium decreased by 0.4% to $709.3 million. P&C gross written premium growth was driven by several key factors: organic growth of 30.9%, and $37.3 million from the Direct General acquisition. Service and fee income grew 20.9% to $99.3 million, driven by increased premium volume in the quarter and the addition of service and fee income from Direct General. Excluding non-cash amortization of intangible assets, the combined ratio(10,14) was 98.2% with a loss ratio of 76.9% and an expense ratio(10,13) of 21.3%, versus a prior year combined ratio of 97.9% with a loss ratio of 72.8% and an expense ratio of 25.1%. The loss ratio was impacted by pre-tax catastrophe losses of approximately $52.9 million related to California fires in the fourth quarter 2017. Excluding the aforementioned losses, the P&C segment combined ratio(16) was 90.7% in the quarter. The expense ratio also benefited from the ceding commission related to the new quota shares. |
| • | Accident & Health - Gross written premium grew to $137.2 million, net written premium grew to $125.7 million, and net earned premium grew to $133.8 million, from $108.6 million, $97.1 million, and $106.6 million, respectively, in the prior year’s quarter. The A&H gross written premium increase was driven by the continued growth across the entire book. Service and fee income was $46.8 million compared to $26.5 million in the prior year’s quarter. The increase in service and fee income primarily relates to the mix of business sold in the quarter compared with the year-ago quarter. Excluding non-cash amortization of intangible assets, the combined ratio(10,14) was 89.9% with a loss ratio of 59.9% and an expense ratio(10,13,15) of 30.0%, versus a prior year combined ratio of 86.7% with a loss ratio of 64.5% and an expense ratio of 22.2%. |
| • | Reciprocal Exchanges - Results for the Reciprocal Exchanges are not included in net income available to NGHC common stockholders. Gross written premium was $98.0 million, net written premium was $39.2 million, and net earned premium was $46.6 million. Reciprocal Exchanges combined ratio(10,14,15) excluding non-cash amortization of intangible assets was 105.6% with a loss ratio of 66.7% and an expense ratio(10,13) of 38.9%. |
2
Investment income grew 28.1% to $28.2 million, reflecting an increase in the size of our investment portfolio as compared to the prior year’s quarter. Fourth quarter 2017 results included $2.8 million of net investment gains compared to a gain of $10.3 million in the fourth quarter of 2016. Total investments and cash and cash equivalents were $3.7 billion as of December 31, 2017. Accumulated other comprehensive income decreased to a $8.1 million loss at December 31, 2017 from $11.5 million income at December 31, 2016.
Interest expense was $12.5 million, up from $11.6 million in the prior year’s quarter. Debt was $713.7 million at December 31, 2017, down from $752.0 million at December 31, 2016.
Earnings of equity investments (predominantly our investment in Life Settlement Entities and alternative investments) was a $7.5 million loss in the fourth quarter of 2017 versus a $6.0 million gain in the prior year’s quarter. In the quarter, substantially all of the remaining life settlement contracts held by entities in which we held a 50% interest were sold to a vehicle owned and managed by an independent third party, in which we will now hold a 15% ownership interest.
The fourth quarter of 2017 provision for income taxes was $24.8 million and the effective tax rate for the quarter was 81.9% compared with income taxes of $4.4 million and an effective tax rate of 9.6% in the fourth quarter of 2016. The revaluation of our deferred tax asset increased income taxes by $25.8 million in the quarter.
Shareholders’ equity was $1,928.6 million at December 31, 2017, growth of 2.3% from $1,885.7 million at December 31, 2016. Fully diluted book value per share was $13.86 at December 31, 2017, growth of 3.0% from $13.45 at December 31, 2016. Our trailing twelve month operating return on average equity (ROE)(15) was 7.9% as of December 31, 2017.
As further explained in Note 3 to our Annual Report on Form 10-K for the year ended December 31, 2017, management identified certain errors in the previously issued consolidated financial statements for fiscal years 2016 and 2015, as well as the first three quarters of fiscal year 2017. The primary driver of the correction relates to the retrospective reclassification of costs associated with claims handling from General and Administrative Expense to Loss Adjustment Expense and the timing of recording losses relating to the company’s limited partnership interests in certain real estate joint ventures which was initially recorded in the second quarter of 2017. National General has concluded that the errors were not material to the consolidated financial position, results of operations or cash flows as presented in the Company’s previously filed quarterly and annual financial statements. As a result, amendment of such reports is not required. Please refer to Note 3 in our 10-K for the year ended December 31, 2017 for further detail on the adjustments.
| Year-to-Date P&C Segment Notable Large Losses | |||||||
| 2017 Quarter | P&C Notable Large Losses and LAE ($ millions) | P&C Loss Ratio Points* | EPS Impact After Tax | ||||
| Q4 | California Fires - December | $10.4 | 1.5% | $0.06 | |||
| Q4 | California Fires - October | $42.5 | 6.0% | $0.25 | |||
| Q3 | Hurricane Maria | $5.0 | 0.7% | $0.03 | |||
| Q3 | Hurricane Irma | $25.1 | 3.7% | $0.15 | |||
| Q3 | Hurricane Harvey | $22.3 | 3.2% | $0.13 | |||
| Q2 | Hail event | $7.0 | 0.9% | $0.04 | |||
| Q2 | Increased Loss Estimate from Q1 West Coast Storms | $9.1 | 1.1% | $0.05 | |||
| Q1 | West Coast Storms | $8.9 | 1.2% | $0.05 | |||
* Loss ratio points related to P&C net earned premium in quarter the loss event was recorded.
3
Conference Call
On Tuesday, February 27, 2018 at 9:00 AM ET, President and Chief Executive Officer Barry Karfunkel and Chief Financial Officer Mike Weiner will review results and discuss business conditions via a conference call that may be accessed as follows:
Toll-Free U.S. Dial-in: 800-346-7359
International Dial-in: 973-528-0008
Conference Entry Code: 234458
Webcast Registration: http://ir.nationalgeneral.com/events-and-presentations
A replay of the conference call will be accessible from 2:00 PM ET on Tuesday, February 27, 2018 to 11:59 PM ET on Tuesday, March 13, 2018 by dialing either 800-332-6854 (toll-free) within the U.S. or 973-528-0005 outside the U.S. and entering passcode 234458. In addition, a replay of the webcast can also be retrieved at
http://ir.nationalgeneral.com/events-and-presentations.
About National General Holdings Corp.
National General Holdings Corp., headquartered in New York City, is a specialty personal lines insurance holding company. National General traces its roots to 1939, has a financial strength rating of A- (excellent) from A.M. Best, and provides personal and commercial automobile, homeowners, umbrella, recreational vehicle, motorcycle, lender-placed, supplemental health and other niche insurance products.
4
Forward Looking Statements
This news release contains “forward-looking statements” that are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. The forward-looking statements are based on the Company’s current expectations and beliefs concerning future developments and their potential effects on the Company. Forward-looking statements can generally be identified by the use of forward-looking terminology, such as “may,” “will,” “plan,” “expect,” “project,” “intend,” “estimate,” “anticipate” and “believe” or their variations or similar terminology. There can be no assurance that actual developments will be those anticipated by the Company. Actual results may differ materially from those expressed or implied in these statements as a result of significant risks and uncertainties, including, but not limited to, non-receipt of expected payments from insureds or reinsurers, changes in interest rates, a downgrade in the financial strength ratings of our insurance subsidiaries, the effect of the performance of financial markets on our investment portfolio, our ability to accurately underwrite and price our products and to maintain and establish accurate loss reserves, estimates of the fair value of investments, development of claims and the effect on loss reserves, large loss activity including hurricanes and wildfires, 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, the effects of tax reform, 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 Holdings, LLC, or third party agencies, breaches in data security or other disruptions involving our technology, heightened competition, changes in pricing environments, and changes in asset valuations. The forward-looking statements contained in this news release are made only as of the date of this release. The Company undertakes no obligation to publicly update any forward-looking statement except as may be required by law. Additional information about these risks and uncertainties, as well as others that may cause actual results to differ materially from those projected is contained in the Company’s filings with the Securities and Exchange Commission.
5
Income Statement - Fourth Quarter
$ in thousands
(Unaudited)
| Three Months Ended December 31, | ||||||||||||||||||||||||||
| 2017 | 2016 | |||||||||||||||||||||||||
| NGHC | Reciprocal Exchanges | Consolidated | NGHC | Reciprocal Exchanges | Consolidated | |||||||||||||||||||||
| Revenues: | (As adjusted) | (As adjusted) | (As adjusted) | |||||||||||||||||||||||
| Gross written premium | $ | 1,067,188 | $ | 97,994 | $ | 1,164,382 | (A) | $ | 820,279 | $ | 83,392 | $ | 902,960 | (H) | ||||||||||||
| Net written premium | 799,816 | 39,172 | 838,988 | 742,145 | 42,352 | 784,497 | ||||||||||||||||||||
| Net earned premium | 843,034 | 46,605 | 889,639 | 818,823 | 38,860 | 857,683 | ||||||||||||||||||||
| Ceding commission income | 19,229 | 5,623 | 24,852 | 5,042 | 16,152 | 21,194 | ||||||||||||||||||||
| Service and fee income | 146,098 | (1,864 | ) | 129,283 | (B) | 108,562 | 1,307 | 98,194 | (I) | |||||||||||||||||
| Net investment income | 28,152 | 2,105 | 27,762 | (C) | 21,977 | 3,063 | 22,712 | (J) | ||||||||||||||||||
| Net gain (loss) on investments | 2,755 | (10 | ) | 2,745 | 10,322 | 278 | 10,600 | |||||||||||||||||||
| Other income | — | — | — | 24,308 | — | 24,308 | ||||||||||||||||||||
| Total revenues | $ | 1,039,268 | $ | 52,459 | $ | 1,074,281 | (D) | $ | 989,034 | $ | 59,660 | $ | 1,034,691 | (K) | ||||||||||||
| Expenses: | ||||||||||||||||||||||||||
| Loss and loss adjustment expense | $ | 625,862 | $ | 31,064 | $ | 656,926 | $ | 587,020 | $ | 25,655 | $ | 612,675 | ||||||||||||||
| Acquisition costs and other underwriting expenses | 142,005 | 3,324 | 145,329 | 126,071 | 8,972 | 135,043 | ||||||||||||||||||||
| General and administrative expenses | 228,601 | 18,540 | 232,190 | (E) | 218,867 | 23,579 | 230,771 | (L) | ||||||||||||||||||
| Interest expense | 12,496 | 2,495 | 12,496 | (F) | 11,645 | 2,328 | 11,645 | (M) | ||||||||||||||||||
| Total expenses | $ | 1,008,964 | $ | 55,423 | $ | 1,046,941 | (G) | $ | 943,603 | $ | 60,534 | $ | 990,134 | (N) | ||||||||||||
| Income (loss) before provision (benefit) for income taxes and earnings (losses) of equity method investments | $ | 30,304 | $ | (2,964 | ) | $ | 27,340 | $ | 45,431 | $ | (874 | ) | $ | 44,557 | ||||||||||||
| Provision (benefit) for income taxes | 24,822 | (4,300 | ) | 20,522 | 4,351 | (9,232 | ) | (4,881 | ) | |||||||||||||||||
| Income before earnings (losses) of equity method investments | 5,482 | 1,336 | 6,818 | 41,080 | 8,358 | 49,438 | ||||||||||||||||||||
| Earnings (losses) of equity method investments (related parties) | (7,537 | ) | — | (7,537 | ) | 6,010 | — | 6,010 | ||||||||||||||||||
| Net income (loss) before non-controlling interest and dividends on preferred shares | (2,055 | ) | 1,336 | (719 | ) | 47,090 | 8,358 | 55,448 | ||||||||||||||||||
| Less: net income attributable to non-controlling interest | — | 1,336 | 1,336 | 61 | 8,358 | 8,419 | ||||||||||||||||||||
| Net income (loss) before dividends on preferred shares | (2,055 | ) | — | (2,055 | ) | 47,029 | — | 47,029 | ||||||||||||||||||
| Less: dividends on preferred shares | 7,875 | — | 7,875 | 7,875 | — | 7,875 | ||||||||||||||||||||
| Net income (loss) available to common stockholders | $ | (9,930 | ) | $ | — | $ | (9,930 | ) | $ | 39,154 | $ | — | $ | 39,154 | ||||||||||||
NOTES: Consolidated column includes eliminations as follows: (A) $(800), (B) $(14,951), (C) $(2,495), (D) $(17,446), (E) $(14,951), (F) $(2,495), (G) $(17,446), (H) $(711), (I) $(11,675), (J) $(2,328), (K) $(14,003), (L) $(11,675), (M) $(2,328) and (N) $(14,003).
6
Income Statement - Year to Date
$ in thousands
(Audited)
| Twelve Months Ended December 31, | ||||||||||||||||||||||||||
| 2017 | 2016 (1) | |||||||||||||||||||||||||
| NGHC | Reciprocal Exchanges | Consolidated | NGHC | Reciprocal Exchanges | Consolidated | |||||||||||||||||||||
| Revenues: | (As adjusted) | (As adjusted) | (As adjusted) | |||||||||||||||||||||||
| Gross written premium | $ | 4,375,414 | $ | 383,773 | $ | 4,755,985 | (A) | $ | 3,261,670 | $ | 241,540 | $ | 3,500,898 | (H) | ||||||||||||
| Net written premium | 3,401,946 | 175,649 | 3,577,595 | 2,952,148 | 120,548 | 3,072,696 | ||||||||||||||||||||
| Net earned premium | 3,484,305 | 169,871 | 3,654,176 | 2,884,776 | 110,395 | 2,995,171 | ||||||||||||||||||||
| Ceding commission income | 56,276 | 60,180 | 116,456 | 2,078 | 43,522 | 45,600 | ||||||||||||||||||||
| Service and fee income | 552,580 | 5,794 | 502,927 | (B) | 410,771 | 3,862 | 380,817 | (I) | ||||||||||||||||||
| Net investment income | 111,024 | 9,325 | 110,745 | (C) | 97,376 | 8,716 | 99,586 | (J) | ||||||||||||||||||
| Net gain on investments | 40,665 | 6,123 | 46,788 | 29,491 | 515 | 30,006 | ||||||||||||||||||||
| Other-than-temporary impairment loss | (25 | ) | — | (25 | ) | (22,102 | ) | — | (22,102 | ) | ||||||||||||||||
| Other income (expense) | (198 | ) | — | (198 | ) | 24,308 | — | 24,308 | ||||||||||||||||||
| Total revenues | $ | 4,244,627 | $ | 251,293 | $ | 4,430,869 | (D) | $ | 3,426,698 | $ | 167,010 | $ | 3,553,386 | (K) | ||||||||||||
| Expenses: | ||||||||||||||||||||||||||
| Loss and loss adjustment expense | $ | 2,506,242 | $ | 119,840 | $ | 2,626,082 | $ | 2,023,064 | $ | 69,216 | $ | 2,092,280 | ||||||||||||||
| Acquisition costs and other underwriting expenses | 622,269 | 50,160 | 672,429 | 481,865 | 15,148 | 497,007 | (L) | |||||||||||||||||||
| General and administrative expenses | 887,472 | 80,971 | 912,996 | (E) | 677,582 | 65,376 | 709,148 | (M) | ||||||||||||||||||
| Interest expense | 47,086 | 9,604 | 47,086 | (F) | 40,180 | 6,506 | 40,180 | (N) | ||||||||||||||||||
| Total expenses | $ | 4,063,069 | $ | 260,575 | $ | 4,258,593 | (G) | $ | 3,222,691 | $ | 156,246 | $ | 3,338,615 | (O) | ||||||||||||
| Income (loss) before provision (benefit) for income taxes and earnings (losses) of equity method investments | $ | 181,558 | $ | (9,282 | ) | $ | 172,276 | $ | 204,007 | $ | 10,764 | $ | 214,771 | |||||||||||||
| Provision (benefit) for income taxes | 66,918 | (5,645 | ) | 61,273 | 43,789 | (9,791 | ) | 33,998 | ||||||||||||||||||
| Income (loss) before earnings (losses) of equity method investments | 114,640 | (3,637 | ) | 111,003 | 160,218 | 20,555 | 180,773 | |||||||||||||||||||
| Earnings (losses) of equity method investments (related parties) | (8,795 | ) | — | (8,795 | ) | 15,601 | — | 15,601 | ||||||||||||||||||
| Net income (loss) before non-controlling interest and dividends on preferred shares | 105,845 | (3,637 | ) | 102,208 | 175,819 | 20,555 | 196,374 | |||||||||||||||||||
| Less: net income (loss) attributable to non-controlling interest | — | (3,637 | ) | (3,637 | ) | 113 | 20,555 | 20,668 | ||||||||||||||||||
| Net income before dividends on preferred shares | 105,845 | — | 105,845 | 175,706 | — | 175,706 | ||||||||||||||||||||
| Less: dividends on preferred shares | 31,500 | — | 31,500 | 24,333 | — | 24,333 | ||||||||||||||||||||
| Net income available to common stockholders | $ | 74,345 | $ | — | $ | 74,345 | $ | 151,373 | $ | — | $ | 151,373 | ||||||||||||||
NOTES: Consolidated column includes eliminations as follows: (A) $(3,202), (B) $(55,447), (C) $(9,604), (D) $(65,051), (E) $(55,447), (F) $(9,604), (G) $(65,051), (H) $(2,312), (I) $(33,816), (J) $(6,506), (K) $(40,322), (L) $(6), (M) $(33,810), (N) $(6,506) and (O) $(40,322).
(1) The Reciprocal Exchanges did not meet the criteria for consolidation under GAAP for the Three Months Ended March 31, 2016.
7
Earnings and Per Share Data
$ in thousands, except shares and per share data
(Unaudited)
| Three Months Ended December 31, | Twelve Months Ended December 31, | |||||||||||||||
| 2017 | 2016 | 2017 | 2016 | |||||||||||||
| (As adjusted) | (As adjusted) | |||||||||||||||
| Net income (loss) available to common stockholders | $ | (9,930 | ) | $ | 39,154 | $ | 74,345 | $ | 151,373 | |||||||
| Basic net income (loss) per common share | $ | (0.09 | ) | $ | 0.37 | $ | 0.70 | $ | 1.43 | |||||||
| Diluted net income (loss) per common share | $ | (0.09 | ) | $ | 0.36 | $ | 0.68 | $ | 1.40 | |||||||
Operating earnings attributable to NGHC(1) | $ | 29,974 | $ | 32,768 | $ | 118,065 | $ | 155,466 | ||||||||
Basic operating earnings per common share(1) | $ | 0.28 | $ | 0.31 | $ | 1.11 | $ | 1.47 | ||||||||
Diluted operating earnings per common share(1) | $ | 0.28 | $ | 0.30 | $ | 1.09 | $ | 1.44 | ||||||||
| Dividends declared per common share | $ | 0.04 | $ | 0.04 | $ | 0.16 | $ | 0.14 | ||||||||
| Weighted average number of basic shares outstanding | 106,682,586 | 106,395,429 | 106,588,402 | 105,951,752 | ||||||||||||
| Weighted average number of diluted shares outstanding | 108,793,184 | 108,973,892 | 108,752,262 | 108,278,318 | ||||||||||||
| Shares outstanding, end of period | 106,697,648 | 106,428,092 | ||||||||||||||
| Fully diluted shares outstanding, end of period | 108,808,246 | 109,006,555 | ||||||||||||||
| Book value per share | $ | 14.14 | $ | 13.77 | ||||||||||||
| Fully diluted book value per share | $ | 13.86 | $ | 13.45 | ||||||||||||
Reconciliation of Net Income to Operating Earnings (Non-GAAP)
$ in thousands, except per share data
(Unaudited)
| Three Months Ended December 31, | Twelve Months Ended December 31, | |||||||||||||||
| 2017 | 2016 | 2017 | 2016 | |||||||||||||
| (As adjusted) | (As adjusted) | |||||||||||||||
| Net income (loss) available to common stockholders | $ | (9,930 | ) | $ | 39,154 | $ | 74,345 | $ | 151,373 | |||||||
| Add (subtract): | ||||||||||||||||
| Net (gain) on investments | (2,755 | ) | (10,322 | ) | (40,665 | ) | (29,491 | ) | ||||||||
| Other-than-temporary impairment losses | — | — | 25 | 22,102 | ||||||||||||
| Other (income) expense | — | (24,308 | ) | 198 | (24,308 | ) | ||||||||||
| Equity in (earnings) losses of equity method investments | 7,537 | (6,010 | ) | 8,795 | (15,601 | ) | ||||||||||
| Non-cash impairment of goodwill (non-deductible) | 4,884 | 3,552 | 4,884 | 3,552 | ||||||||||||
| Non-cash amortization of intangible assets | 9,428 | 25,351 | 51,729 | 48,130 | ||||||||||||
| Income tax at 35% | (4,973 | ) | 5,351 | (7,029 | ) | (291 | ) | |||||||||
| Deferred asset tax impairment | 25,783 | — | 25,783 | — | ||||||||||||
Operating earnings attributable to NGHC (1) | $ | 29,974 | $ | 32,768 | $ | 118,065 | $ | 155,466 | ||||||||
| Operating earnings per common share: | ||||||||||||||||
| Basic operating earnings per common share | $ | 0.28 | $ | 0.31 | $ | 1.11 | $ | 1.47 | ||||||||
| Diluted operating earnings per common share | $ | 0.28 | $ | 0.30 | $ | 1.09 | $ | 1.44 | ||||||||
8
Balance Sheet
$ in thousands
(Audited)
| December 31, 2017 | December 31, 2016 | |||||||||||||||||||||||||
| ASSETS | NGHC | Reciprocal Exchanges | Consolidated | NGHC | Reciprocal Exchanges | Consolidated | ||||||||||||||||||||
| (As adjusted) | (As adjusted) | (As adjusted) | ||||||||||||||||||||||||
Total investments (2) | $ | 3,411,730 | $ | 327,213 | $ | 3,649,788 | (A) | $ | 3,413,727 | $ | 306,345 | $ | 3,631,064 | (J) | ||||||||||||
| Cash and cash equivalents | 286,840 | 5,442 | 292,282 | 212,894 | 7,405 | 220,299 | ||||||||||||||||||||
| Premiums and other receivables, net | 1,268,330 | 56,792 | 1,324,321 | (B) | 1,045,377 | 47,198 | 1,091,774 | (K) | ||||||||||||||||||
Reinsurance recoverable (3) | 1,199,961 | 94,204 | 1,294,165 | 892,264 | 55,972 | 948,236 | ||||||||||||||||||||
| Intangible assets, net | 400,385 | 3,685 | 404,070 | 456,695 | 11,025 | 467,720 | ||||||||||||||||||||
| Goodwill | 174,153 | — | 174,153 | 158,364 | — | 158,364 | ||||||||||||||||||||
Other (4) | 1,186,056 | 130,763 | 1,300,964 | (C) | 652,932 | 89,764 | 720,571 | (L) | ||||||||||||||||||
| Total assets | $ | 7,927,455 | $ | 618,099 | $ | 8,439,743 | (D) | $ | 6,832,253 | $ | 517,709 | $ | 7,238,028 | (M) | ||||||||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||||||||||||||||||||
| Liabilities: | ||||||||||||||||||||||||||
| Unpaid loss and loss adjustment expense reserves | $ | 2,520,204 | $ | 143,353 | $ | 2,663,557 | $ | 2,136,791 | $ | 137,075 | $ | 2,273,866 | ||||||||||||||
| Unearned premiums and other revenue | 1,807,210 | 225,395 | 2,032,605 | 1,502,562 | 198,724 | 1,701,286 | ||||||||||||||||||||
Reinsurance payable (5) | 329,772 | 69,076 | 398,047 | (E) | 78,949 | 20,662 | 98,810 | (N) | ||||||||||||||||||
Accounts payable and accrued expenses (6) | 423,054 | 24,682 | 431,881 | (F) | 331,129 | 13,179 | 337,910 | (O) | ||||||||||||||||||
| Debt | 713,710 | 89,155 | 713,710 | (G) | 752,001 | 89,008 | 752,001 | (P) | ||||||||||||||||||
| Other | 204,936 | 41,582 | 246,518 | 145,138 | 27,386 | 156,797 | (Q) | |||||||||||||||||||
| Total liabilities | $ | 5,998,886 | $ | 593,243 | $ | 6,486,318 | (H) | $ | 4,946,570 | $ | 486,034 | $ | 5,320,670 | (R) | ||||||||||||
| Stockholders’ equity: | ||||||||||||||||||||||||||
Common stock (7) | $ | 1,067 | $ | — | $ | 1,067 | $ | 1,064 | $ | — | $ | 1,064 | ||||||||||||||
Preferred stock (8) | 420,000 | — | 420,000 | 420,000 | — | 420,000 | ||||||||||||||||||||
| Additional paid-in capital | 917,751 | — | 917,751 | 913,787 | — | 913,787 | ||||||||||||||||||||
| Accumulated other comprehensive income (loss) | (8,112 | ) | — | (8,112 | ) | 11,475 | — | 11,475 | ||||||||||||||||||
| Retained earnings | 597,863 | — | 597,863 | 539,114 | — | 539,114 | ||||||||||||||||||||
| Total National General Holdings Corp. stockholders’ equity | 1,928,569 | — | 1,928,569 | 1,885,440 | — | 1,885,440 | ||||||||||||||||||||
| Non-controlling interest | — | 24,856 | 24,856 | 243 | 31,675 | 31,918 | ||||||||||||||||||||
| Total stockholders’ equity | $ | 1,928,569 | $ | 24,856 | $ | 1,953,425 | $ | 1,885,683 | $ | 31,675 | $ | 1,917,358 | ||||||||||||||
| Total liabilities and stockholders’ equity | $ | 7,927,455 | $ | 618,099 | $ | 8,439,743 | (I) | $ | 6,832,253 | $ | 517,709 | $ | 7,238,028 | (S) | ||||||||||||
NOTES: Consolidated column includes eliminations as follows: (A) $(89,155), (B) $(801), (C) $(15,855), (D) $(105,811), (E) $(801), (F) $(15,855), (G) $(89,155), (H) $(105,811), (I) $(105,811), (J) $(89,008), (K) $(801), (L) $(22,125), (M) $(111,934), (N) $(801), (O) $(6,398), (P) $(89,008), (Q) $(15,727), (R) $(111,934) and (S) $(111,934).
9
Segment Information - Fourth Quarter
$ in thousands
(Unaudited)
| Three Months Ended December 31, | |||||||||||||||||||||||||||||||||||
| 2017 | 2016 | ||||||||||||||||||||||||||||||||||
| P&C | A&H | NGHC | Reciprocal Exchanges | P&C | A&H | NGHC | Reciprocal Exchanges | ||||||||||||||||||||||||||||
| (As adjusted) | (As adjusted) | (As adjusted) | (As adjusted) | ||||||||||||||||||||||||||||||||
| Gross written premium | $ | 929,981 | $ | 137,207 | $ | 1,067,188 | $ | 97,994 | $ | 711,641 | $ | 108,638 | $ | 820,279 | $ | 83,392 | |||||||||||||||||||
| Net written premium | 674,080 | 125,736 | 799,816 | 39,172 | 645,042 | 97,103 | 742,145 | 42,352 | |||||||||||||||||||||||||||
| Net earned premium | 709,256 | 133,778 | 843,034 | 46,605 | 712,260 | 106,563 | 818,823 | 38,860 | |||||||||||||||||||||||||||
| Ceding commission income | 19,000 | 229 | 19,229 | 5,623 | 4,766 | 276 | 5,042 | 16,152 | |||||||||||||||||||||||||||
| Service and fee income | 99,292 | 46,806 | 146,098 | (1,864 | ) | 82,096 | 26,466 | 108,562 | 1,307 | ||||||||||||||||||||||||||
| Total underwriting revenues | $ | 827,548 | $ | 180,813 | $ | 1,008,361 | $ | 50,364 | $ | 799,122 | $ | 133,305 | $ | 932,427 | $ | 56,319 | |||||||||||||||||||
| Loss and loss adjustment expense | 545,726 | 80,136 | 625,862 | 31,064 | 518,314 | 68,706 | 587,020 | 25,655 | |||||||||||||||||||||||||||
| Acquisition costs and other | 99,201 | 42,804 | 142,005 | 3,324 | 104,513 | 21,558 | 126,071 | 8,972 | |||||||||||||||||||||||||||
| General and administrative | 179,622 | 48,979 | 228,601 | 18,540 | 184,383 | 34,484 | 218,867 | 23,579 | |||||||||||||||||||||||||||
| Total underwriting expenses | $ | 824,549 | $ | 171,919 | $ | 996,468 | $ | 52,928 | $ | 807,210 | $ | 124,748 | $ | 931,958 | $ | 58,206 | |||||||||||||||||||
| Underwriting income (loss) | 2,999 | 8,894 | 11,893 | (2,564 | ) | (8,088 | ) | 8,557 | 469 | (1,887 | ) | ||||||||||||||||||||||||
| Non-cash impairment of goodwill | 4,884 | — | 4,884 | — | 3,552 | — | 3,552 | — | |||||||||||||||||||||||||||
| Non-cash amortization of intangible assets | 4,852 | 4,576 | 9,428 | (27 | ) | 19,694 | 5,657 | 25,351 | 7,069 | ||||||||||||||||||||||||||
| Underwriting income (loss) before amortization and impairment | $ | 12,735 | $ | 13,470 | $ | 26,205 | $ | (2,591 | ) | $ | 15,158 | $ | 14,214 | $ | 29,372 | $ | 5,182 | ||||||||||||||||||
| Underwriting ratios | |||||||||||||||||||||||||||||||||||
Loss and loss adjustment expense ratio (9) | 76.9 | % | 59.9 | % | 74.2 | % | 66.7 | % | 72.8 | % | 64.5 | % | 71.7 | % | 66.0 | % | |||||||||||||||||||
Operating expense ratio (Non-GAAP) (10,11) | 22.6 | % | 33.4 | % | 24.4 | % | 38.8 | % | 28.4 | % | 27.5 | % | 28.3 | % | 38.8 | % | |||||||||||||||||||
Combined ratio (Non-GAAP) (10,12) | 99.5 | % | 93.3 | % | 98.6 | % | 105.5 | % | 101.2 | % | 92.0 | % | 100.0 | % | 104.8 | % | |||||||||||||||||||
| Underwriting ratios (before amortization and impairment) | |||||||||||||||||||||||||||||||||||
Loss and loss adjustment expense ratio (9) | 76.9 | % | 59.9 | % | 74.2 | % | 66.7 | % | 72.8 | % | 64.5 | % | 71.7 | % | 66.0 | % | |||||||||||||||||||
Operating expense ratio (Non-GAAP) (10,13) | 21.3 | % | 30.0 | % | 22.7 | % | 38.9 | % | 25.1 | % | 22.2 | % | 24.7 | % | 20.6 | % | |||||||||||||||||||
Combined ratio before amortization and impairment (Non-GAAP) (10,14) | 98.2 | % | 89.9 | % | 96.9 | % | 105.6 | % | 97.9 | % | 86.7 | % | 96.4 | % | 86.6 | % | |||||||||||||||||||
NOTE: Loss and loss adjustment expenses for the three months ended December 31, 2017 included $8,096 of unfavorable development on prior accident year loss and loss adjustment expense reserves in the P&C segment, and $1,280 of unfavorable development in the A&H segment, versus $11,754 of unfavorable development in the P&C segment, and $6,176 of unfavorable development in the A&H segment for the three months ended December 31, 2016.
10
Segment Information - Year to Date
$ in thousands
(Unaudited)
| Twelve Months Ended December 31, | |||||||||||||||||||||||||||||||||||
| 2017 | 2016 (1) | ||||||||||||||||||||||||||||||||||
| P&C | A&H | NGHC | Reciprocal Exchanges | P&C | A&H | NGHC | Reciprocal Exchanges (1) | ||||||||||||||||||||||||||||
| (As adjusted) | (As adjusted) | (As adjusted) | (As adjusted) | ||||||||||||||||||||||||||||||||
| Gross written premium | $ | 3,794,012 | $ | 581,402 | $ | 4,375,414 | $ | 383,773 | $ | 2,797,660 | $ | 464,010 | $ | 3,261,670 | $ | 241,540 | |||||||||||||||||||
| Net written premium | 2,866,650 | 535,296 | 3,401,946 | 175,649 | 2,533,480 | 418,668 | 2,952,148 | 120,548 | |||||||||||||||||||||||||||
| Net earned premium | 2,951,022 | 533,283 | 3,484,305 | 169,871 | 2,470,349 | 414,427 | 2,884,776 | 110,395 | |||||||||||||||||||||||||||
| Ceding commission income | 55,263 | 1,013 | 56,276 | 60,180 | 747 | 1,331 | 2,078 | 43,522 | |||||||||||||||||||||||||||
| Service and fee income | 397,966 | 154,614 | 552,580 | 5,794 | 271,835 | 138,936 | 410,771 | 3,862 | |||||||||||||||||||||||||||
| Total underwriting revenues | $ | 3,404,251 | $ | 688,910 | $ | 4,093,161 | $ | 235,845 | $ | 2,742,931 | $ | 554,694 | $ | 3,297,625 | $ | 157,779 | |||||||||||||||||||
| Loss and loss adjustment expense | 2,187,779 | 318,463 | 2,506,242 | 119,840 | 1,721,854 | 301,210 | 2,023,064 | 69,216 | |||||||||||||||||||||||||||
| Acquisition costs and other | 467,390 | 154,879 | 622,269 | 50,160 | 379,135 | 102,730 | 481,865 | 15,148 | |||||||||||||||||||||||||||
| General and administrative | 715,975 | 171,497 | 887,472 | 80,971 | 549,249 | 128,333 | 677,582 | 65,376 | |||||||||||||||||||||||||||
| Total underwriting expenses | $ | 3,371,144 | $ | 644,839 | $ | 4,015,983 | $ | 250,971 | $ | 2,650,238 | $ | 532,273 | $ | 3,182,511 | $ | 149,740 | |||||||||||||||||||
| Underwriting income (loss) | 33,107 | 44,071 | 77,178 | (15,126 | ) | 92,693 | 22,421 | 115,114 | 8,039 | ||||||||||||||||||||||||||
| Non-cash impairment of goodwill | 4,884 | — | 4,884 | — | 3,552 | — | 3,552 | — | |||||||||||||||||||||||||||
| Non-cash amortization of intangible assets | 42,858 | 8,871 | 51,729 | 6,882 | 37,537 | 10,593 | 48,130 | 20,795 | |||||||||||||||||||||||||||
| Underwriting income before amortization and impairment | $ | 80,849 | $ | 52,942 | $ | 133,791 | $ | (8,244 | ) | $ | 133,782 | $ | 33,014 | $ | 166,796 | $ | 28,834 | ||||||||||||||||||
| Underwriting ratios | |||||||||||||||||||||||||||||||||||
Loss and loss adjustment expense ratio (9) | 74.1 | % | 59.7 | % | 71.9 | % | 70.5 | % | 69.7 | % | 72.7 | % | 70.1 | % | 62.7 | % | |||||||||||||||||||
Operating expense ratio (Non-GAAP) (10,11) | 24.7 | % | 32.0 | % | 25.9 | % | 38.4 | % | 26.5 | % | 21.9 | % | 25.9 | % | 30.0 | % | |||||||||||||||||||
Combined ratio (Non-GAAP) (10,12) | 98.8 | % | 91.7 | % | 97.8 | % | 108.9 | % | 96.2 | % | 94.6 | % | 96.0 | % | 92.7 | % | |||||||||||||||||||
| Underwriting ratios (before amortization and impairment) | |||||||||||||||||||||||||||||||||||
Loss and loss adjustment expense ratio (9) | 74.1 | % | 59.7 | % | 71.9 | % | 70.5 | % | 69.7 | % | 72.7 | % | 70.1 | % | 62.7 | % | |||||||||||||||||||
Operating expense ratio (Non-GAAP) (10,13) | 23.1 | % | 30.4 | % | 24.2 | % | 34.3 | % | 24.9 | % | 19.4 | % | 24.1 | % | 11.2 | % | |||||||||||||||||||
Combined ratio before amortization and impairment (Non-GAAP) (10,14) | 97.2 | % | 90.1 | % | 96.1 | % | 104.8 | % | 94.6 | % | 92.1 | % | 94.2 | % | 73.9 | % | |||||||||||||||||||
NOTES: (1) Reciprocal Exchanges' column for the twelve months ended December 31, 2016 excludes its operating results from January 1, 2016 to March 31, 2016.
Loss and loss adjustment expenses for the twelve months ended December 31, 2017 included $15,273 of unfavorable development on prior accident year loss and loss adjustment expense reserves in the P&C segment, and $8,826 of favorable development in the A&H segment, versus $5,125 of unfavorable development in the P&C segment, and $9,310 of unfavorable development in the A&H segment for the twelve months ended December 31, 2016.
11
Reconciliation of Operating Expense Ratio (Non-GAAP)
$ in thousands
(Unaudited)
| Three Months Ended December 31, | |||||||||||||||||||||||||||||||||||
| 2017 | 2016 | ||||||||||||||||||||||||||||||||||
| P&C | A&H | NGHC | Reciprocal Exchanges | P&C | A&H | NGHC | Reciprocal Exchanges | ||||||||||||||||||||||||||||
| (As adjusted) | (As adjusted) | (As adjusted) | (As adjusted) | ||||||||||||||||||||||||||||||||
| Total underwriting expenses | $ | 824,549 | $ | 171,919 | $ | 996,468 | $ | 52,928 | $ | 807,210 | $ | 124,748 | $ | 931,958 | $ | 58,206 | |||||||||||||||||||
| Less: Loss and loss adjustment expense | 545,726 | 80,136 | 625,862 | 31,064 | 518,314 | 68,706 | 587,020 | 25,655 | |||||||||||||||||||||||||||
| Less: Ceding commission income | 19,000 | 229 | 19,229 | 5,623 | 4,766 | 276 | 5,042 | 16,152 | |||||||||||||||||||||||||||
| Less: Service and fee income | 99,292 | 46,806 | 146,098 | (1,864 | ) | 82,096 | 26,466 | 108,562 | 1,307 | ||||||||||||||||||||||||||
| Operating expense | 160,531 | 44,748 | 205,279 | 18,105 | 202,034 | 29,300 | 231,334 | 15,092 | |||||||||||||||||||||||||||
| Net earned premium | $ | 709,256 | $ | 133,778 | $ | 843,034 | $ | 46,605 | $ | 712,260 | $ | 106,563 | $ | 818,823 | $ | 38,860 | |||||||||||||||||||
| Operating expense ratio (Non-GAAP) | 22.6 | % | 33.4 | % | 24.4 | % | 38.8 | % | 28.4 | % | 27.5 | % | 28.3 | % | 38.8 | % | |||||||||||||||||||
| Total underwriting expenses | $ | 824,549 | $ | 171,919 | $ | 996,468 | $ | 52,928 | $ | 807,210 | $ | 124,748 | $ | 931,958 | $ | 58,206 | |||||||||||||||||||
| Less: Loss and loss adjustment expense | 545,726 | 80,136 | 625,862 | 31,064 | 518,314 | 68,706 | 587,020 | 25,655 | |||||||||||||||||||||||||||
| Less: Ceding commission income | 19,000 | 229 | 19,229 | 5,623 | 4,766 | 276 | 5,042 | 16,152 | |||||||||||||||||||||||||||
| Less: Service and fee income | 99,292 | 46,806 | 146,098 | (1,864 | ) | 82,096 | 26,466 | 108,562 | 1,307 | ||||||||||||||||||||||||||
| Less: Non-cash impairment of goodwill | 4,884 | — | 4,884 | — | 3,552 | 3,074 | 6,626 | — | |||||||||||||||||||||||||||
| Less: Non-cash amortization of intangible assets | 4,852 | 4,576 | 9,428 | (27 | ) | 19,694 | 5,657 | 25,351 | 7,069 | ||||||||||||||||||||||||||
| Operating expense before amortization and impairment | 150,795 | 40,172 | 190,967 | 18,132 | 178,788 | 20,569 | 199,357 | 8,023 | |||||||||||||||||||||||||||
| Net earned premium | $ | 709,256 | $ | 133,778 | $ | 843,034 | $ | 46,605 | $ | 712,260 | $ | 106,563 | $ | 818,823 | $ | 38,860 | |||||||||||||||||||
| Operating expense ratio before amortization and impairment (Non-GAAP) | 21.3 | % | 30.0 | % | 22.7 | % | 38.9 | % | 25.1 | % | 19.3 | % | 24.3 | % | 20.6 | % | |||||||||||||||||||
12
Reconciliation of Operating Expense Ratio (Non-GAAP)
$ in thousands
(Unaudited)
| Twelve Months Ended December 31, | |||||||||||||||||||||||||||||||||||
| 2017 | 2016 | ||||||||||||||||||||||||||||||||||
| P&C | A&H | NGHC | Reciprocal Exchanges | P&C | A&H | NGHC | Reciprocal Exchanges | ||||||||||||||||||||||||||||
| (As adjusted) | (As adjusted) | (As adjusted) | (As adjusted) | ||||||||||||||||||||||||||||||||
| Total underwriting expenses | $ | 3,371,144 | $ | 644,839 | $ | 4,015,983 | $ | 250,971 | $ | 2,650,238 | $ | 532,273 | $ | 3,182,511 | $ | 149,740 | |||||||||||||||||||
| Less: Loss and loss adjustment expense | 2,187,779 | 318,463 | 2,506,242 | 119,840 | 1,721,854 | 301,210 | 2,023,064 | 69,216 | |||||||||||||||||||||||||||
| Less: Ceding commission income (loss) | 55,263 | 1,013 | 56,276 | 60,180 | 747 | 1,331 | 2,078 | 43,522 | |||||||||||||||||||||||||||
| Less: Service and fee income | 397,966 | 154,614 | 552,580 | 5,794 | 271,835 | 138,936 | 410,771 | 3,862 | |||||||||||||||||||||||||||
| Operating expense | 730,136 | 170,749 | 900,885 | 65,157 | 655,802 | 90,796 | 746,598 | 33,140 | |||||||||||||||||||||||||||
| Net earned premium | $ | 2,951,022 | $ | 533,283 | $ | 3,484,305 | $ | 169,871 | $ | 2,470,349 | $ | 414,427 | $ | 2,884,776 | $ | 110,395 | |||||||||||||||||||
| Operating expense ratio (Non-GAAP) | 24.7 | % | 32.0 | % | 25.9 | % | 38.4 | % | 26.5 | % | 21.9 | % | 25.9 | % | 30.0 | % | |||||||||||||||||||
| Total underwriting expenses | $ | 3,371,144 | $ | 644,839 | $ | 4,015,983 | $ | 250,971 | $ | 2,650,238 | $ | 532,273 | $ | 3,182,511 | $ | 149,740 | |||||||||||||||||||
| Less: Loss and loss adjustment expense | 2,187,779 | 318,463 | 2,506,242 | 119,840 | 1,721,854 | 301,210 | 2,023,064 | 69,216 | |||||||||||||||||||||||||||
| Less: Ceding commission income (loss) | 55,263 | 1,013 | 56,276 | 60,180 | 747 | 1,331 | 2,078 | 43,522 | |||||||||||||||||||||||||||
| Less: Service and fee income | 397,966 | 154,614 | 552,580 | 5,794 | 271,835 | 138,936 | 410,771 | 3,862 | |||||||||||||||||||||||||||
| Less: Non-cash impairment of goodwill | 4,884 | — | 4,884 | — | 3,552 | 3,074 | 6,626 | — | |||||||||||||||||||||||||||
| Less: Non-cash amortization of intangible assets | 42,858 | 8,871 | 51,729 | 6,882 | 37,537 | 10,593 | 48,130 | 20,795 | |||||||||||||||||||||||||||
| Operating expense before amortization and impairment | 682,394 | 161,878 | 844,272 | 58,275 | 614,713 | 77,129 | 691,842 | 12,345 | |||||||||||||||||||||||||||
| Net earned premium | $ | 2,951,022 | $ | 533,283 | $ | 3,484,305 | $ | 169,871 | $ | 2,470,349 | $ | 414,427 | $ | 2,884,776 | $ | 110,395 | |||||||||||||||||||
| Operating expense ratio before amortization and impairment (Non-GAAP) | 23.1 | % | 30.4 | % | 24.2 | % | 34.3 | % | 24.9 | % | 18.6 | % | 24.0 | % | 11.2 | % | |||||||||||||||||||
13
Premiums by Business Line
$ in thousands
(Unaudited)
| Three Months Ended December 31, | ||||||||||||||||||||||||||||||||
| Gross Written Premium | Net Written Premium | Net Earned Premium | ||||||||||||||||||||||||||||||
| 2017 | 2016 | Change | 2017 | 2016 | Change | 2017 | 2016 | Change | ||||||||||||||||||||||||
| Property & Casualty | (As adjusted) | (As adjusted) | (As adjusted) | |||||||||||||||||||||||||||||
| Personal Auto | $ | 574,179 | $ | 441,128 | 30.2% | $ | 437,908 | $ | 402,913 | 8.7% | $ | 450,552 | $ | 417,083 | 8.0% | |||||||||||||||||
| Homeowners | 139,848 | 104,696 | 33.6% | 57,423 | 93,133 | (38.3)% | 66,968 | 96,358 | (30.5)% | |||||||||||||||||||||||
| RV/Packaged | 40,195 | 36,659 | 9.6% | 39,737 | 36,443 | 9.0% | 46,182 | 40,995 | 12.7% | |||||||||||||||||||||||
| Small Business Auto | 70,396 | 65,866 | 6.9% | 50,495 | 59,370 | (14.9)% | 57,998 | 62,814 | (7.7)% | |||||||||||||||||||||||
| Lender-placed insurance | 94,263 | 50,622 | 86.2% | 83,186 | 46,690 | 78.2% | 80,005 | 87,569 | (8.6)% | |||||||||||||||||||||||
| Other | 11,100 | 12,670 | (12.4)% | 5,331 | 6,493 | (17.9)% | 7,551 | 7,441 | 1.5% | |||||||||||||||||||||||
| Property & Casualty | 929,981 | 711,641 | 30.7% | 674,080 | 645,042 | 4.5% | 709,256 | 712,260 | (0.4)% | |||||||||||||||||||||||
| Accident & Health | 137,207 | 108,638 | 26.3% | 125,736 | 97,103 | 29.5% | 133,778 | 106,563 | 25.5% | |||||||||||||||||||||||
| Total National General | $ | 1,067,188 | $ | 820,279 | 30.1% | $ | 799,816 | $ | 742,145 | 7.8% | $ | 843,034 | $ | 818,823 | 3.0% | |||||||||||||||||
| Reciprocal Exchanges | ||||||||||||||||||||||||||||||||
| Personal Auto | $ | 30,424 | $ | 25,214 | 20.7% | $ | 17,052 | $ | 16,161 | 5.5% | $ | 18,042 | $ | 15,385 | 17.3% | |||||||||||||||||
| Homeowners | 66,844 | 56,340 | 18.6% | 21,649 | 24,884 | (13.0)% | 28,115 | 21,869 | 28.6% | |||||||||||||||||||||||
| Other | 726 | 1,838 | (60.5)% | 471 | 1,307 | (64.0)% | 448 | 1,606 | (72.1)% | |||||||||||||||||||||||
| Reciprocal Exchanges | $ | 97,994 | $ | 83,392 | 17.5% | $ | 39,172 | $ | 42,352 | (7.5)% | $ | 46,605 | $ | 38,860 | 19.9% | |||||||||||||||||
Consolidated Total (A) | $ | 1,164,382 | $ | 902,960 | 29.0% | $ | 838,988 | $ | 784,497 | 6.9% | $ | 889,639 | $ | 857,683 | 3.7% | |||||||||||||||||
NOTES: (A) Consolidated Total includes eliminations between National General and the Reciprocal Exchanges of $(254) in Personal Auto and $(546) in Homeowners Gross Written Premium in 2017, respectively, and $(220) in Personal Auto and $(491) in Homeowners Gross Written Premium in 2016, respectively.
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Premiums by Business Line
$ in thousands
(Unaudited)
| Twelve Months Ended December 31, | ||||||||||||||||||||||||||||||||
| Gross Written Premium | Net Written Premium | Net Earned Premium | ||||||||||||||||||||||||||||||
| 2017 | 2016 | Change | 2017 | 2016 | Change | 2017 | 2016 | Change | ||||||||||||||||||||||||
| Property & Casualty | (As adjusted) | (As adjusted) | (As adjusted) | |||||||||||||||||||||||||||||
| Personal Auto | $ | 2,335,958 | $ | 1,549,091 | 50.8% | $ | 1,824,932 | $ | 1,380,125 | 32.2% | $ | 1,828,304 | $ | 1,292,563 | 41.4% | |||||||||||||||||
| Homeowners | 560,909 | 412,151 | 36.1% | 275,013 | 369,810 | (25.6)% | 349,709 | 353,228 | (1.0)% | |||||||||||||||||||||||
| RV/Packaged | 187,475 | 165,919 | 13.0% | 185,993 | 165,025 | 12.7% | 175,888 | 158,256 | 11.1% | |||||||||||||||||||||||
| Small Business Auto | 316,958 | 257,075 | 23.3% | 246,072 | 234,101 | 5.1% | 251,576 | 217,919 | 15.4% | |||||||||||||||||||||||
| Lender-placed insurance | 345,354 | 376,058 | (8.2)% | 313,124 | 363,896 | (14.0)% | 321,995 | 422,645 | (23.8)% | |||||||||||||||||||||||
| Other | 47,358 | 37,366 | 26.7% | 21,516 | 20,523 | 4.8% | 23,550 | 25,738 | (8.5)% | |||||||||||||||||||||||
| Property & Casualty | 3,794,012 | 2,797,660 | 35.6% | 2,866,650 | 2,533,480 | 13.2% | 2,951,022 | 2,470,349 | 19.5% | |||||||||||||||||||||||
| Accident & Health | 581,402 | 464,010 | 25.3% | 535,296 | 418,668 | 27.9% | 533,283 | 414,427 | 28.7% | |||||||||||||||||||||||
| Total National General | $ | 4,375,414 | $ | 3,261,670 | 34.1% | $ | 3,401,946 | $ | 2,952,148 | 15.2% | $ | 3,484,305 | $ | 2,884,776 | 20.8% | |||||||||||||||||
| Reciprocal Exchanges | ||||||||||||||||||||||||||||||||
| Personal Auto | $ | 132,844 | $ | 73,680 | NA | $ | 68,292 | $ | 44,661 | NA | $ | 66,565 | $ | 42,225 | NA | |||||||||||||||||
| Homeowners | 247,460 | 161,510 | NA | 105,536 | 71,367 | NA | 101,648 | 61,748 | NA | |||||||||||||||||||||||
| Other | 3,469 | 6,350 | NA | 1,821 | 4,520 | NA | 1,658 | 6,422 | NA | |||||||||||||||||||||||
Reciprocal Exchanges (A) | $ | 383,773 | $ | 241,540 | NA | $ | 175,649 | $ | 120,548 | NA | $ | 169,871 | $ | 110,395 | NA | |||||||||||||||||
Consolidated Total (B) | $ | 4,755,985 | $ | 3,500,898 | 35.9% | $ | 3,577,595 | $ | 3,072,696 | 16.4% | $ | 3,654,176 | $ | 2,995,171 | 22.0% | |||||||||||||||||
NOTES: (A) The Reciprocal Exchanges did not meet the criteria for consolidation under GAAP for the Three Months Ended March 31, 2016.
(B) Consolidated Total includes eliminations between National General and the Reciprocal Exchanges of $(1,120) in Personal Auto and $(2,082) in Homeowners Gross Written Premium in 2017, respectively, and $(726) in Personal Auto and $(1,586) in Homeowners Gross Written Premium in 2016, respectively.
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Additional Disclosures
(1) References to operating earnings and basic and diluted operating earnings per share (“EPS”) are non-GAAP financial measures defined by the Company as net income/loss and basic and diluted earnings per share excluding after-tax net gain or loss on investments (including foreign exchange gain or loss), other-than-temporary impairment losses, bargain purchase gains, earnings or losses of equity method investments (related parties), deferred tax asset impairment, non-cash impairment of goodwill and non-cash amortization of intangible assets. The Company believes operating earnings and basic and diluted operating EPS are 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) Total investments includes $347,548 and $373,688 in related parties at December 31, 2017 and December 31, 2016, respectively.
(3) Reinsurance recoverable includes $17,240 and $37,046 from related parties at December 31, 2017 and December 31, 2016, respectively.
(4) Other includes $2,334 and $1,298 from related parties at December 31, 2017 and December 31, 2016, respectively.
(5) Reinsurance payable includes $543 and $33,419 due to related parties at December 31, 2017 and December 31, 2016, respectively.
(6) Accounts payable and accrued expenses includes $140,098 and $29,271 to related parties at December 31, 2017 and December 31, 2016, respectively.
(7) Common stock: $0.01 par value - authorized 150,000,000 shares, issued and outstanding 106,697,648 shares - December 31, 2017; authorized 150,000,000 shares, issued and outstanding 106,428,092 shares - December 31, 2016.
(8) Preferred stock: $0.01 par value - authorized 10,000,000 shares, issued and outstanding 2,565,000 shares - December 31, 2017; authorized 10,000,000 shares, issued and outstanding 2,565,000 shares - December 31, 2016.
(9) Loss and loss adjustment expense ratio is calculated by dividing loss and loss adjustment expense by net earned premium.
(10) Operating expense ratio and combined ratio are considered non-GAAP financial measures under applicable SEC rules because a component of those ratios, operating expense, is calculated by offsetting acquisition and other underwriting costs and general and administrative expenses by ceding commission income and service and fee income. Management uses operating expense ratio (non-GAAP) and combined ratio (non-GAAP) to evaluate financial performance against historical results and establish targets on a consolidated basis. The Company believes this presentation enhances the understanding of our results by eliminating what we believe are volatile and unusual events and presenting the ratios with what we believe are the underlying run rates of the business. Other companies may calculate these measures differently, and, therefore, their measures may not be comparable to those used by National General. Please see the Non-GAAP Financial Measures table within this release for the reconciliation of these non-GAAP measures to the most directly comparable GAAP measure.
(11) Operating expense ratio is a non-GAAP measure defined by the Company, that is commonly used in the insurance industry. The Company calculates the ratio by dividing operating expense by net earned premium. Operating expense consists of the sum of acquisition and other underwriting costs and general and administrative expenses less ceding commission income and service and fee income. The ratio is used as an indicator of the Company’s efficiency in acquiring and servicing its business. Other companies may calculate these measures differently, and therefore, their measures may not be comparable to those used by National General. Please see the Non-GAAP Financial Measures table within this release for the reconciliation of these non-GAAP measures to the most directly comparable GAAP measure.
(12) Combined ratio is a non-GAAP measure defined by the Company, that is commonly used in the insurance industry. The Company calculates the ratio by adding the loss and loss adjustment expense ratio and the operating expense ratio (non-GAAP) together. The ratio is used as an indicator of the Company’s underwriting discipline, efficiency in acquiring and servicing its business, and overall underwriting profit. A combined ratio under 100% generally indicates an underwriting profit, while over 100% an underwriting loss. Other companies may calculate these measures differently, and therefore, their measures may not be comparable to those used by National General.
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(13) Operating expense ratio before amortization and impairment is a non-GAAP measure defined by the Company, that is commonly used in the insurance industry. The Company calculates the ratio by dividing the operating expense before amortization and impairment by net earned premium. Operating expense before amortization and impairment consists of the sum of acquisition and other underwriting costs and general and administrative expenses less ceding commission income and service and fee income less non-cash amortization of intangible assets and non-cash impairment of goodwill. The ratio is used as an indicator of the Company’s efficiency in acquiring and servicing its business. Other companies may calculate these measures differently, and therefore, their measures may not be comparable to those used by National General. Please see the Non-GAAP Financial Measures table within this release for the reconciliation of these non-GAAP measures to the most directly comparable GAAP measure.
(14) Combined ratio before amortization and impairment is a non-GAAP measure defined by the Company, that is commonly used in the insurance industry. The Company calculates the ratio by adding the loss and loss adjustment expense ratio and the operating expense ratio before amortization and impairment (non-GAAP) together. The ratio is used as an indicator of the Company’s underwriting discipline, efficiency in acquiring and servicing its business, and overall underwriting profit. A combined ratio under 100% generally indicates an underwriting profit, while over 100% an underwriting loss. Other companies may calculate these measures differently, and therefore, their measures may not be comparable to those used by National General. Please see the Non-GAAP Financial Measures table within this release for the reconciliation of these non-GAAP measures to the most directly comparable GAAP measure.
(15) Trailing twelve month operating return on average equity is the ratio of the previous twelve months operating earnings to average shareholders’ equity for the periods presented. Average shareholders’ equity is the sum of the shareholders’ equity excluding preferred stock at the beginning and end of the period presented divided by two. In the opinion of the Company’s management this ratio is an important indicator of how well management creates value for its shareholders through its operating activities and capital management. Other companies may calculate these measures differently, and therefore, their measures may not be comparable to those used by National General. Please see the Non-GAAP Financial Measures table within this release for the reconciliation of net income to operating earnings, which is the Non-GAAP component of the operating return on average equity.
(16) Combined ratio excluding losses from the California fires, and is calculated by taking the combined ratio as defined in Note 14, and adjusting it to exclude the total net losses of $52.9 million from these events. The company believes this measure enhances investors’ understanding of our results by eliminating what we believe are volatile and unusual events.
| Q4’17 Combined Ratio | Impact of Fire Losses | Q4’17 Combined Ratio Excluding Fire Losses | ||||
| P&C Segment | 98.2% | 7.5% | 90.7% | |||
| Overall NGHC | 96.9% | 6.3% | 90.6% | |||
Investor Contact
Christine Worley
Director of Investor Relations
Phone: 212-380-9462
Email: Christine.Worley@NGIC.com
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