NGHC - Earnings call transcript Q1 2019 | National General Holdings Corp.

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Operator

Good morning, ladies and gentlemen, and welcome to the 1Q 2019 quarterly earnings call. [Operator Instructions] It is now my pleasure to turn the floor over to your host, Christine Worley. Ma’am, the floor is yours.

Christine Worley

Thank you. Good morning, and welcome to the National General Holdings Corp.

Conference Earnings XXXX Quarter Call. First Christine My Director I the and Investor name Relations is of at am Worley, National General. With Chief Executive Financial are Barry Mike morning Chief Officer. me Weiner, Officer; this and Karfunkel,

these from filings these projections results a operations, relating including actual Securities changes consistent potential. Mr. Weiner no Actual activities risks respect statements expectations future and plans our set Such those predict and may statements may developments the of in Commission. their Exchange and with are earnings are are statements. implied current the be assumptions. include or no in accurately, uncertainties, by Before revise business Mr. including the other forward-looking for a presentation, company’s objectives Karfunkel review as to of only factors materially and as new which that results, of beyond historical to the to required with in management please presentation on information, update of forth our or assumptions differ of statements the of remarks. results These and be any than our expressed result significant in assurance impossible may be many will and our management otherwise, can difficult to control. Members statements include following with or result note that team The of as future date may involve we in and based law. facts There or the this statements forward-looking except speak statement, as undertake those obligation or this whether developments future

to principles, website is from most are directly of GAAP measures Investor at now to my and will in the management accepted of Mr. Karfunkel. quarter measures Reconciliation call release comparable pleasure earnings, provided non-GAAP these press Barry www.nationalgeneral.com. accounting available the section GAAP. CEO, to for which financial refer Our is financial in XXXX related not or Relations our is turn our the information the that our derived first statements generally to It over

Barry Karfunkel

Good that pleased operating added the of for of I’d in some QX you our our first performance results call. report strongest to thank morning, like quarter joining to I’m lines our quarterly conference the were earnings color and results our various business. history. around provide

where growth, agent Our primarily Property of of in strong the experienced as segment & Casualty direct-to-consumer refused line business expansion remained chase we top to state line the continued growth Nationwide-exclusive well market as a and results, extremely personal due via with distribution. business, year-over-year continued auto operating disciplined to in our expansion slowing softening by our offset

respond the in losses. Outside California, to Our homeowners growth slowed rate to growing by being past moderately. down, underwriting actions as driven of years as we’ve cat well California experienced two over taken has non-cat water been

have by business was a account a lender-placed aside, business we robust solid an nicely, grown decrease, top cancel of earnings. segment has continues line single year-over-year our Our Health the account a driven to that acquired. XX% flat & pipeline. Accident report and That experienced

plans. Our partially year-over-year ACA anticipated, we lower slower shopping individual at to non-ACA in pace grew line due and a both health than

could – to solid margins years the group business of business, Our stop to foresee that this uniqueness we loss the to grow line this continues being at of nicely well. is Due perform the come. this for

grow a would line going strong represents product XXXX. strong our their Insurance forward. Overall, forward and QX of National General, pricing National closing a the greatly strong for welcoming Farmers family. from down that which our believe our is into Union capabilities sophisticated the We’re results looking on business a benefit I National to to IT employees start General acquisition owners farm there to niche to small and opportunity

between in will to continue invest that to gap product widen the our believe impressive marketing continue competitors we and sophistication with us and We capabilities. capabilities operational efficiencies,

drive quarters. pleasure and to these With for financial bottom results top is capabilities call Mike in my a detailed it future review line that We turn to over to results. of more our expect Weiner the

Mike Weiner

Thank you, Barry.

diluted First $XX.X quarter the $X.XX of million EPS of was to prior to million $X.XX in compared $XX.X quarter. net million the income in $XX.X year XXXX Operating quarter. income net last in were versus $XX.X XXXX. quarter compared earnings year’s million first Operating was

million first that Our results losses losses this of quarter in to from of $XX.X of weather winter XXXX. compares quarter impacted were events million by $XX.X

favorable quarter First in of of favorable first quarter $XX.X million versus development development XXXX. XXXX reserve included $XX.X million reserve

results was sequentially XXXX auto and to a as equity share quota book of quarter to XXXX. XX%, average X% share of of our operating March our January at in Trailing session grew P&C XX, first X.X% XX.X% March X year. Our reflect as end that’s reduction of XX this as from on $XX.XX and return quarter value per fully XX, XXXX, months diluted

two details to I’d about some Now give operating like segments. our additional

XXXX ratio Service accident Casualty Property $X.X this X.X% cat quarter ratio Overall, moderately accident XXXX. XX.X%, to $XXX.X year auto year-over-year RAD segmentation segment. better continued claims XQ favorable, as thereby That implement compares in ago compared events. our in favorable continued That’s of favorable and in million, impacted reflecting this development, XXXX of $X.X as was as fee a and development growth. well years million premium trend driven XXXX – in well The helping organic auto loss income by at our versus frequency industry, to product, book. is as premium this trend, excludes well primarily development mix trend was lower loss homeowners compared from began in shift. First and growth than combined attribute XX.X% by and to roughly book, auto XX.X%. better of of to to XQ lower as property divided by expense frequency in favorable also by Casualty written two driven our development pricing XXXX. XX.X%. ratio are & & as our favorable which The our in XQ personal Property The the reflecting trends $XX.X initiatives. to our P&C which Gross assets. driven to within which both favorable up first XX.X% moderately net quarter ratio as monoline loss auto lower product, We underlying billion, million X.X amortization our in ratio, XX.X% risk XXXX, to we premium attribute mix grew product, by up intangible The shift defined slightly trends year was which we selection are as grew – loss Severity results. X.X% X.X% was book The X.X%.

to The both about ratio from $XX.X well development within strong individual year XQ impact Health call in reflects to was $XX XX.X% income written ratio to ratio quarter basis. which The premium self-funded Now both as XX.X% year million in versus prior I’d in million in the of growth loss group the XQ by & assets. the primarily XXXX. that products amortization given quarter. as agency grew favorable ratio $XXX.X year continued excluding XX.X% as well to Accident was in development questions. expense $X.X and moderator XXXX, benefited the quarter, a and compared of million, happened The quarter. improvement driven open accident of our ratio third-party floor the in Health That’s gross loss distribution combined growth as group small echo turn segment, fee The intangible for in now to benefit non-cash XX% loss to current was million the XX.X% the XX.X% Accident for on XXXX. particular our versus XX.X%. Service across versus administration. domestic excitement the $XX.X group strong in prior favorable was first versus over million the I’d similar Barry’s like & cats like our and year-over-year individual products. was fees

Operator

first the Securities Matt, affiliation coming Instructions] your [Operator Carletti is Matt line your from Please And announce and question question. your is live. LLC]. [JMP pose

Matt Carletti

Carletti Good Matt Thanks. with JMP. right. morning. All

you products you’re you anticipated. than your I some medical comments questions. and the on opening think short-term of going forward? about Just then expand expect seeing? and a in seeing what A&H what a little Barry, a on a shopping kind comment couple Can little of the made you that going less bit bit And

Barry Karfunkel

Yes, sure.

Care open most during that’s market period, government enrollment Affordable enrollment various open probably plans the bit. the for definitely the growing nowadays driving uninsured business, was used lower and a is Act case. shopping That open no that to longer as with the So market

on trend. forward, going as that growth, far assets as the to utilizing marketing – various we that see we how marketing As got that but plan efforts is macro well as drive we’ve

Matt Carletti

shifting comments And then Okay. to the on LPI. Great. you actually made

You mentioned, bit strong going expect a Can a about also color client losing then little pipeline. what small of you and happened? give you forward? what And a there

Barry Karfunkel

another was a that There was Sure. single client servicer. by acquired

And a on business that accounts canceled a in time. was couple point nice So forward, at of on that going this plan later onboarding year. We pipeline. we’ve got

of account, business. little once loading year As clients a of – is in that of out, further onboarded, but roughly a new you be materialize those we’re know, a impact it P&L the the account premium an like takes positioned effect to the loading dynamic to way will for close the we so

Mike Weiner

rights just also servicing rights. along Yes. with I the that kind LPI, the say tag would of

procured the company in So circumstances, was this another particular servicing company. by

that. LPI So rights – went along right with those tag servicing

Matt Carletti

Great. a actually All then right. piece And the of last one, business. bigger

you’re the you how non-standard on from And kind what you? a from the market can of update others impacting standpoint just competitive – in in us Just this auto market? seeing

Barry Karfunkel

Sure.

are soft. So that markets couple a of are extremely there

got example, increases U.S. hardest it’s community. softest of really independent be agency now which the been For markets stemming by the is activity, the in has, year-over-year the probably increases historically, or rate actually of decreases felt – shopping markets. to one Florida Low one And carriers the from most

it, That our soft hard underwriting, it’s year-over-year a challenging said, in seeds are being So by always we market years market. a the of new every come than with more in is, with past. The our been remain planted business call little vigilant to pricing.

– not So by we to are we hold are our going discipline. definitely to going

Matt Carletti

year the of you. and Very to Great. start luck nice forward. going best Thank

Operator

question FBR, affiliation announce is next and the question. Riley live. is coming your Inc.]. Randy pose Binner line from Randy, And your Please your [B.

Randy Binner

B. Good is the Riley morning. firm.

the guess similar questioning, California, and – would of process – the to was where there call. you on mentioned And loss exposure think, maybe you trimming it I the but books so to relates there so if a catastrophes I re-underwriting in in as out the it natural I that heard pick say you’re also, – your attritional fire loss, there I’ve right and up line some of

you dimension significant can So a because of I marginal California line. top of kind process for is kind pretty feel where driver is like that

nice to So understand it’d the there dynamic be better. out

Barry Karfunkel

Sure.

So from from the largest our – second QX months end which is the we started I of the started. the California business. believe of perhaps, non-renewing largest book at I had over believe QX, here, or And is property beginning XX state of last for process business, – time which overall, first

And impact overall, I the at – our that’s in than playing moderate growing guess on we And had quarter. is it’s growth so the in lower yes, much way been out overall but keeping California first it’s are the what business level. of a past it’s the

Mike Weiner

really two add just was is in on quarter also Point that – I it NatGen Can first points specific. not one quick the that. Yes.

lot very think, did quarter, benefit versus of on in cat the kind good. just year-over-year first PCS really seen but regard the large on re-underwriting wet or as that, quarter. It on there. – of credit not of was cats. non-large competitors or us, very of on lot there, a in what cat to the California. raining early of order basis. we’ve taken, terms rain actions we’ve I favorable They’re activity we a drove had some And we out classified feel tower First a with our to got so for And the That’s – a attritional X/X that’s non-renewal we a for lot our we and we’re

Randy Binner

quarter? – second the we set production quarter? to I all California thanks the kind the in comments. Yes, would right level we wish first in I’m the of I the kind saw – this going of keep sense just it of to to of Or how the in think get I’m that trying just for guess what about down level trying a is timing. guess

Barry Karfunkel

Sure.

production business it for year new most as of has good flat probably – rest QX. in our So – stays is in and our most the probably the

block over And areas renewal we’re were believe returns on that non-renewal on. actions that focus going be could by impacted we our to to attractive our get will taken Our capital definitely allocating there. we

Randy Binner

that non-California. And Okay. be would

pocket there’s the competition? in So and price homeowners of where are country on other parts attractive still

Barry Karfunkel

definitely. Yes,

Randy Binner

ability me maybe the to to more And is the – your government what demand of could then products the – does Let these there? on be have nature what’s platform that do you’re supplemental toggle or around given lower marketing easier in going A&H, exchanges? the growth other that in sell, – foot to to – might drive to traffic you of kind

Barry Karfunkel

Sure.

to which marketing leveraging we couple is got agencies that we drive which VelaPoint onboarded generation assets are health growth. – thus acquired assets far products. – do generation which the obviously lead we’ve Direct example, probably market that owning going General, a team We’ve be country health plan our – have most we’ve certain, brokerage a acquired to by future we that in capability very we lead individual integrated individual other marketing of direct-to-consumer with, solutions on company into top our has efforts significant – three insurance that significant for and of a our the is So a when significant we one

a and that justification our medical time what our bit of that’s battle the a to core but other of spending sell health plans supplemental introducing to deductibles et To insurance is As event far as extent, products major what of products the limited product the going – there’s far to we actual with. illnesses, new We’ve upgrading as core help our is those as in bridge go fixed gap medical lesser critical product medical. in benefits the we been and little space the indemnity could individual short-term accidents, and in products, goes our cetera.

Randy Binner

Thank you.

Operator

your question next is Sachs Kinar the line Yaron your is and your [Goldman pose affiliation coming announce Inc.] Please from And Yaron, Group question. live.

Yaron Kinar

Thank Kinar early comment Goldman that just correctly. you or say Did much. of your are I made California homeowners make to re-underwriting Sachs. want peer? Yaron understood earlier business relatively you Mike, trimming very sure to with you stages a I relative you your in

Barry Karfunkel

at of beginning the of QX the end non-renewal It QX. started towards activity – the started or end of

XX in being the non-renewal months guess, I So that, yes. block of that of those are business, actions we beginning take to

Yaron Kinar

process. where I question you much to guess, my where are was specifically so your on you relative to peers, relative not are

Barry Karfunkel

Oh, there. to of on communicated, early from there talking our there, indications our agents out agent sales force our with – some folks I think, task out our relatively and we

doing are in I one earlier think, in quarter. fourth such, we the starting leaders of that the

Yaron Kinar

it. Got

ahead you’re of So actually, peers.

Barry Karfunkel

very, they it, pleased and very agents, doing, but there’s what out, Again, communication for metric to great we our large no talk we communicated were we’re them a and it. go explaining how in we planned just we did with and with

Yaron Kinar

lot about seeing heard – a Can on or health seeing Then universal on next it. your should that? we’ve impact care. you’re have is Got it universal of around how headlines business would a lot question through? we’re it of go And actually maybe you Medicare, talk what my

Barry Karfunkel

no business, our government we obviously, Obviously, a of never have that our lines you I it item believe foresee happening, – assuming expenses core starts $X and Medicare, impact eating major on that supplemental deductibles, universal would products. go medical but – the – core the know. from full we’re on that

directly agency, our from to going significant to want consumers they really we the such to what always own insurance benefit pivot products the of they I have appropriately. we that believe hearing added and need, products what a crafting there’s be being So and

Mike Weiner

system. there. small also and of other can that experiences of business as we We think own these to their a needed sell well products in type nationalized as pivot to Sweden provides many we lean more products a on if We

shown in products space, out have space we within able years health needs So I this NatGen the over regulatory think quickly, services of thing as the framework. and last and care the continues very to consumer if meet change change, there to to one we’ve the couple is

Yaron Kinar

re-queue. about one I’m share talk Swedish Got in maybe it. you that’s agreement adding I the final operations? Can the rationale And quota those, one assuming for before

Barry Karfunkel

capital in The Sure. and Really for volatility business some protection nicely relief. capital grown – grow has there. over

that So way with some Solvency business out a the II of just volatility and Sweden. there, capitalize metrics effective reduce to more in

Yaron Kinar

you Thank it. much. very Got

Operator

next question is announce coming from your Bijan question. your Bijan, Moazami & affiliation the [Compass you. LLC]. Thank line Please And Point and is Research live. your pose Trading,

Bijan Moazami

Point morning. Research. It’s questions. Compass couple good Bijan A Moazami, Hi, of

you guys what there Atlas see? particular of in First, anything if you of business, about that was interest there crop opportunities acquisition sold Your to pipelines, kind a of number their your entities, comment can was company including sister you?

Barry Karfunkel

interest. No. There’s of nothing

Just as we lines generally. individuals reminder, marketplace, to on the And are quiet other we’re the focused is lines now than dialogue but We really enhancing with activity traded And current M&A of company. in things publicly new activities a of maintain usually are independent been. as entry – seeking acquisition business it’s quieter overall business. points really to opposed any are

Mike Weiner

the nice a relatively we property which we with hope Farmers package deepening to of and the was doing National shortly, think close example our Union, what are really space. that penetration I in

Bijan Moazami

A&H? buying Are be guys and distribution you to for agencies still looking

Barry Karfunkel

Direct acquired A&H. time, acquisitions and of Those Yes. the aren’t acquires will from the assets a communication. worthy all bolt-on even – little General agencies We’ve of that marketing we are agencies make all time.

So acquisitions business of just are course those that us. for little normal tuck-in are

Mike Weiner

our our associated in with break quarter, Also some – of release, come. our out you Bijan, that income where in noticed, revenues fee-based press might disclosure those this also we

bifurcated A&H our out in service that see and the income a fee you’ll business. really third-party of So fee component

can of through. You that all where kind see flows

Bijan Moazami

Also in also that the marketplace? have? a you distribution the little seeing line, How And about And of we there? you’re talk comment trends kind auto many a you the frequency bit could if the agency on severity expecting bit using? exclusive that you should those about little you’re of and could what be

Mike Weiner

let frequency the talk – and severity, distribution, can me you The Barry. about about

of we’ve we it’s frequency an look trends on really better looking And that just track at even fast we’re data. seeing, it it’s Again, industry XX new shift trailing either we’re overall businesses So multiple were that a than on out in rolled crave quarter but early to we practices the read products Severity, That’s relates accident terms our industry to rolling we’ve be basis. implement quarters. than ago. selection some months, the two in, mix seeing to some continuously better claim selection severity of – year of doing. of of some continue stuff really of at sequential risk mix moderately these that of And we helped also of the last the results. about year in really years settlement risk us getting better quarter, Again, the trends. the we’re yes, favorable us strong couple continued over better

Barry Karfunkel

was the There you repeat the... regarding can a please question, question

Bijan Moazami

you second, they’re the about exclusive a selling you. bit products little for mentioned Yes, agents,

that I comment particular, particularly little you many don’t those could bit much have? If channel just distribution a of might how in you there. agencies about know

Barry Karfunkel

Okay, sure.

non-standard exclusive business. we XXXX, is the rights I book – agents to of respect December about – with into the we’ve to towards acquire So that of talked Nationwide’s what renewal

felt of Nationwide the that, we we are agencies. many primary non-standard As option exclusive

well General. our leveraging us distribution So as via a, relatively capabilities a direct-to-consumer Direct state it, within expanding own we’ve call point our as sheltered for been footprint

Bijan Moazami

Thank you.

Operator

your Sean the pose Woods, [Keefe, & Please from is and Thank question. announce Inc.]. next affiliation Reitenbach your you. your Sean, And live. line Bruyette, coming is question

Sean Reitenbach

KBW. Reitenbach, Sean

ratios? the expense Looking you at it do acquisition has and cost drove year-over-year like in the acquisition forward? And in year-over-year see ratio increased cost segment A&H. both the them significantly where What P&C looks going ratios, more higher

Mike Weiner

Both things by acquisition expense those mix. those of on few – going ratio really of Yes, is there. both driven

of continuing the A&H in amount businesses mix commission had growth P&C, businesses disproportioned side. notice higher you’ll of like So the as higher some shift well the a our property in as we’ve a in

you’ll So on a – see – percentage a be a that on increase that. they’ll there’s year-over-year where slight basis

Sean Reitenbach

Great. Okay.

Mike Weiner

Mix of the products. shift

Sean Reitenbach

that grew like does is weren’t pricing other there in related a of parts bit And individual environment of that for then, businesses? the And in XXXX, some growth? what to you A&H XQ little also is in other the line expecting? look NGHCs A&H, the Or lines headwinds mostly book

Barry Karfunkel

Sure.

shopping in slowed for we open marketing So federal of government as has I for this individual period. lack what enrollment attribute by open my enrollment mentioned the prepared to the overall products a to due remarks,

robust As they’re & remains way products, far as good margins Health continued priced the our pricing from feel where we our the abilities about confident feel with segment. and with Accident

Mike Weiner

now if bifurcated in a giving it Yes. And look, you actually bit terms the more little we’re detail premium. of actually

if as you of historical periods, look our XX release, at Page have for well at in the there it press growth we So out look can premium. you

business individual about grew X%. approximately group XX%, international grew our our our and products at So about grew business XX%

what not but just rate, growth good pretty strong. very they were So historically,

Sean Reitenbach

Thank you.

Operator

question you. next Adam, Blair Adam from the your announce is your And [William & question. line coming LLC]. pose live. Please and affiliation your Thank Company Klauber is

Adam Klauber

MGAs from then competitive Thanks. or Follow-up Florida more are also you non-standard And non-standard? gotten other companies, states standard competition competitive, coming the the on dedicated carriers? mentioned has more getting is more that non-standard,

Barry Karfunkel

Sure.

a and states coming market the lot Florida So was the see just are that competition well. example. across distribution specifically of that an from is are we non-standard-focused softness from seeing really as many into. board There

Adam Klauber

pretty that then, combined business, ratio a is this combined on on that within we expect should And business? ratio is a Okay. range, – for good the pretty A&H the a is XX%,

Barry Karfunkel

No.

on side. I think it’s probably low the

year you it, throughout out about little. spread this the you a of kind think current that subtract PPD I we if So in the and way quarter had the kind of it

those get about So XX%. it’s you a things, of to predict, kind hard to

it We’ve back be pricing think business had we running But of that us higher to about some should and than So that in going in that more our forward, business. for five continued the results gets of points business. terms targeting is really now. what favorable we’re

Operator

And there no were queue. the questions further from

Christine Worley

quarter. joining speaking Thank We look much earnings you with call. you for this on next very us forward to

Operator

Thank you, This gentlemen. conclude and today’s ladies call. conference does

You your your for at time wonderful lines may Thank this participation. you a and day. disconnect phone have

National General (NTTNP) 11 May 192019 Q1 Earnings call transcript