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 National General Holdings Corp. Reports Second Quarter 2017 Results
   Monday, August 07, 2017 4:15:35 PM ET

National General Holdings Corp. (NGHC ) today reported a second quarter 2017 net loss of $5.1 million or $0.05 per diluted share, compared to net income of $44.3 million or $0.41 per diluted share in the second quarter of 2016. Second quarter 2017 operating earnings was $11.9 million or $0.11 per diluted share, compared to $46.4 million or $0.43 per diluted share in the second quarter of 2016.

Second Quarter 2017 Highlights Versus Second Quarter 2016*

-- Net written premium grew $242.4 million or 34.7% to $940.8 million, driven by added premiums from the acquisitions of Direct General, Century-National and Standard Property and Casualty Insurance Company, and organic growth within our P&C business of 15.8%, or 23.1% excluding the decline in lender-placed premiums and continued growth of our A&H segment.

-- The overall combined ratiowas 96.2% compared to 94.0% in the prior year’s quarter, excluding non-cash amortization of intangible assets. The P&C segment reported an increase in combined ratio to 96.8% from 94.2% in the prior year’s quarter, which was impacted by poor results from National General Lender Services, an increase in estimated losses from first quarter West Coast precipitation and hail events recognized in the second quarter and continued investment in our platform. The A&H segment reported a combined ratio of 93.1% compared to 92.9% in the prior year’s quarter.

-- Total revenues grew by $291.1 million or 36.2% to $1,095.7 million, primarily driven by the aforementioned premium growth, service and fee income growth of $37.9 million or 38.1%, and net investment income growth of $2.3 million or 8.5%.

-- Shareholders’ equity was $1.94 billion and fully diluted book value per share was $13.88 at June 30, 2017, growth of 2.4% and 2.7%, respectively, from December 31, 2016. Our trailing twelve month operating return on average equity (ROE)was 8.0% as of June 30, 2017.

-- Second quarter 2017 operating earnings exclude the following material items, net of tax: $5.4 million or $0.05 per share of net loss on investments and $7.6 million or $0.07 per share of non-cash amortization of intangible assets.

-- Second quarter 2017 operating earnings include approximately $16.1 million or $0.09 per share of losses related to an increase in estimated loss from first quarter West Coast precipitation and hail events that were recognized in the second quarter and $19.3 million or $0.11 per share loss impacting equity method investments related to losses recorded based on our proportionate share of investments in certain real estate joint ventures.

Barry Karfunkel, National General’s President and CEO, stated: "The results this quarter were disappointing due to the poor performance from National General Lender Services and weather losses impacting our home product. Within both our home and auto product lines, we continue to experience tremendous organic growth that is meeting our underwriting return hurdles. We expect the opportunity for profitable growth to continue as we have the scale and underwriting sophistication to compete in a largely fragmented market.

Effective July 1, 2017, we entered into two quota share reinsurance agreements with a group of high quality third-party reinsurance providers, a testament to the value placed on the business that we have built."

*NOTE: Unless specified otherwise, discussion of our second 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.

Overview of Second Quarter 2017 as Compared to Second Quarter 2016

Gross written premium grew 33.8% to $1,035.6 million, net written premium grew 34.7% to $940.8 million, and net earned premium grew 38.8% to $939.5 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 acquisitions of Direct General, Century-National, and Standard Property and Casualty Insurance Company.

Service and fee income grew 38.1% to $137.6 million, driven by added service and fee income from our recent completed transactions, primarily the Direct General acquisition which contributed an additional $24.4 million in the quarter and additional fees in our A&H segment.

Excluding non-cash amortization of intangible assets, the combined ratiowas 96.2% with a loss ratio of 72.0% and an expense ratioof 24.2%, compared to a prior year combined ratio of 94.0% with a loss ratio of 67.2% and an expense ratio of 26.8%. In the current year’s quarter, certain costs associated with claims handling were reclassified from general and administrative expenses to loss adjustment expenses when compared with the previous year’s quarter, resulting in an increase in loss and loss adjustment expense ratio and a decrease in expense ratio in corresponding amounts.

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

-- Property & Casualty - Gross written premium grew by 34.8% to $904.6 million, net written premium grew by 35.3% to $822.5 million, and net earned premium grew by 39.9% to $804.6 million. P&C net written premium growth was driven by several key factors: organic growth of 15.8%, or 23.1% excluding the decline in lender-placed premiums, $77.9 million from the Direct General acquisition, $12.2 million from the Standard Property and Casualty Insurance Company acquisition and $31.1 million from the Century-National acquisition, partially offset by a decrease in our lender-placed premiums. Service and fee income grew 55.5% to $94.5 million, driven by increased premium volume in the quarter and the addition of service and fee income from acquisitions completed during the prior year, particularly Direct General. Excluding non-cash amortization of intangible assets, the combined ratio was 96.8% with a loss ratio of 73.6% and an expense ratio of 23.2%, versus a prior year combined ratio of 94.2% with a loss ratio of 65.4% and an expense ratio of 28.8%. The loss ratio was impacted by pre-tax catastrophe losses of approximately $16.1 million related to an increase in estimated loss from first quarter West Coast precipitation and hail events that were recognized in the second quarter. In the current year’s quarter, the reclassification of certain costs associated with claims handling from general and administrative expenses to loss adjustment expenses impacted both the loss and expense ratios by identical amounts.

-- Accident & Health - Gross written premium grew to $131.0 million, net written premium grew to $118.2 million, and net earned premium grew to $134.9 million, from $102.9 million, $90.4 million, and $101.9 million, respectively, in the prior year’s quarter. The A&H net written premium increase was driven by the continued growth across the entire book. Service and fee income was $43.0 million compared to $38.9 million in the prior year’s quarter. The increase in service and fee income primarily relates to continued growth in our book. Excluding non-cash amortization of intangible assets, the combined ratio was 93.1% with a loss ratio of 62.8% and an expense ratio of 30.3%, versus a prior year combined ratio of 92.9% with a loss ratio of 77.3% and an expense ratio of 15.6%. The improvement in our loss ratio reflects the strong performance across our entire book.

-- Reciprocal Exchanges - Results for the Reciprocal Exchanges are not included in net income available to NGHC common stockholders. Gross written premium was $99.2 million, net written premium was $51.2 million, and net earned premium was $42.3 million. Reciprocal Exchanges combined ratio excluding non-cash amortization of intangible assets was 114.4% with a loss ratio of 80.0% and an expense ratioof 34.4%, which was elevated by weather events recognized in the second quarter. Investment income grew 8.5% to $29.7 million, reflecting an increase in the size of our investment portfolio as compared to the prior year’s quarter. Second quarter 2017 results included $8.4 million of net investment losses compared to a gain of $3.9 million in the second quarter of 2016. Total investments and cash and cash equivalents were $3.8 billion as of June 30, 2017. Accumulated other comprehensive income increased to $32.9 million at June 30, 2017 from $12.7 million at December 31, 2016.

Interest expense was $11.6 million, up from $8.9 million in the prior year’s quarter due to an increased amount of debt on our balance sheet. Debt was $754.7 million at June 30, 2017, up from $678.7 million at June 30, 2016, as a result of debt assumed from our prior acquisitions.

Earnings (losses) of equity investments (predominantly our investment in Life Settlement Entities and alternative investments) was a $18.9 million loss in the second quarter of 2017 versus a $7.4 million gain in the prior year’s quarter.

The second quarter of 2017 provision for income taxes was $5.7 million and the effective tax rate for the quarter was 20.9% compared with incomes taxes of $14.8 million and an effective tax rate of 26.5% in the second quarter of 2016.

National General Holding Corp.’s shareholders’ equity was $1,939.9 million at June 30, 2017, growth of 2.4% from $1,893.8 million at December 31, 2016. Fully diluted book value per share was $13.88 at June 30, 2017, growth of 2.7% from $13.52 at December 31, 2016. Our trailing twelve month operating return on average equity (ROE) was 8.0% as of June 30, 2017.

Year-to-Date P&C Segment Notable Large Losses
2017                                                       P&C Notable       P&C Loss Ratio  EPS Impact After
Quarter                                                    Large Losses and  Points*         Tax
                                                           LAE
                                                           ($ millions)
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

Conference Call

On Tuesday, August 8, 2017 at 11:00 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:  888-267-2845
International Dial-in:   973-413-6102
Conference Entry Code:   583127
Webcast Registration:    http://ir.nationalgeneral.com/events.cfm 

A replay of the conference call will be accessible from 2:00 PM ET on Tuesday, August 8, 2017 to 11:59 PM ET on Tuesday, August 22, 2017 by dialing either 800-332-6854 (toll-free) within the U.S. or 973-528-0005 outside the U.S. and entering passcode 583127. 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, lender-placed, 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, our ability to accurately underwrite and price our products and to maintain and establish accurate loss reserves, estimates of the fair value of our 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 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.

Income Statement - Second Quarter
$ in thousands
(Unaudited)
                                                                                                              Three Months Ended June 30,
                                                                                                              2017                                                   2016
                                                                                                              NGHC             Reciprocal      Consolidated          NGHC           Reciprocal      Consolidated
                                                                                                                               Exchanges                                            Exchanges
Revenues:
Gross written premium                                                                                         $   1,035,552    $   99,157      $    1,133,909        $   774,048    $   77,170      $    850,507
Net written premium                                                                                           940,757          51,243          992,000               698,319        39,130          737,449
Net earned premium                                                                                            939,495          42,256          981,751               676,912        36,028          712,940
Ceding commission income (loss)                                                                               3,399            18,109          21,508                (3,205      )  14,909          11,704
Service and fee income                                                                                        137,562          1,494           125,176               99,629         1,195           90,017
Net investment income                                                                                         29,680           2,147           29,446                27,361         2,248           27,528
Net gain (loss) on investments                                                                                (8,362        )  6,187           (2,175         )      3,854          141             3,995
Other income (expense)                                                                                        (6,098        )  --              (6,098         )      --             --              --
Total revenues                                                                                                $   1,095,676    $   70,193      $    1,149,608        $   804,551    $   54,521      $    846,184
Expenses:
Loss and loss adjustment expense                                                                              $   676,587      $   33,820      $    710,407          $   454,622    $   17,736      $    472,358
Acquisition costs and other underwriting expenses                                                             173,255          15,540          188,795               108,387        493             108,874
General and administrative expenses                                                                           206,865          18,509          211,494               176,660        25,261          191,120
Interest expense                                                                                              11,550           2,381           11,550                8,939          2,081           8,939
Total expenses                                                                                                $   1,068,257    $   70,250      $    1,122,246        $   748,608    $   45,571      $    781,291
Income (loss) before provision (benefit) for income taxes and earnings (losses) of equity method investments  $   27,419       $   (57    )    $    27,362           $   55,943     $   8,950       $    64,893
Provision (benefit) for income taxes                                                                          5,740            72              5,812                 14,825         (274       )    14,551
Income (loss) before earnings (losses) of equity method investments                                           21,679           (129       )    21,550                41,118         9,224           50,342
Earnings (losses) of equity method investments                                                                (18,915       )  --              (18,915        )      7,356          --              7,356
Net income (loss) before non-controlling interest and dividends on preferred shares                           2,764            (129       )    2,635                 48,474         9,224           57,698
Less: net income (loss) attributable to non-controlling interest                                              (30           )  (129       )    (159           )      4              9,224           9,228
Net income before dividends on preferred shares                                                               2,794            --              2,794                 48,470         --              48,470
Less: dividends on preferred shares                                                                           7,875            --              7,875                 4,125          --              4,125
Net income (loss) available to common stockholders                                                            $   (5,081    )  $   --          $    (5,081    )      $   44,345     $   --          $    44,345

NOTES:

Consolidated column includes eliminations as follows: (A) $(800), (B) $(13,880), (C) $(2,381), (D) $(16,261), (E) $(13,880), (F) $(2,381), (G) $(16,261), (H) $(711), (I) $(10,807), (J) $(2,081), (K) $(12,888), (L) $(6), (M) $(10,801), (N) $(2,081) and (O) $(12,888).

Income Statement - Year to Date
$ in thousands
(Unaudited)
                                                                                                              Six Months Ended June 30,
                                                                                                              2017                                                     2016
                                                                                                              NGHC              Reciprocal       Consolidated          NGHC              Reciprocal      Consolidated
                                                                                                                                Exchanges                                                Exchanges
Revenues:
Gross written premium                                                                                         $    2,209,206    $   181,373      $    2,388,978        $    1,590,242    $   77,170      $    1,666,701
Net written premium                                                                                           2,025,795         92,944           2,118,739             1,442,906         39,130          1,482,036
Net earned premium                                                                                            1,820,634         81,288           1,901,922             1,331,832         36,028          1,367,860
Ceding commission income (loss)                                                                               6,146             35,356           41,502                (5,100         )  14,909          9,809
Service and fee income                                                                                        273,425           3,574            251,118               196,573           1,195           186,961
Net investment income                                                                                         55,449            5,031            55,836                49,031            2,248           49,198
Net gain (loss) on investments                                                                                (7,874         )  6,187            (1,687         )      8,172             141             8,313
Other income (expense)                                                                                        3,703             --               3,703                 --                --              --
Total revenues                                                                                                $    2,151,483    $   131,436      $    2,252,394        $    1,580,508    $   54,521      $    1,622,141
Expenses:
Loss and loss adjustment expense                                                                              $    1,264,812    $   61,920       $    1,326,732        $    863,672      $   17,736      $    881,408
Acquisition costs and other underwriting expenses                                                             334,376           29,720           364,096               221,286           493             221,773
General and administrative expenses                                                                           448,948           43,612           466,679               353,287           25,261          367,747
Interest expense                                                                                              23,095            4,644            23,095                18,080            2,081           18,080
Total expenses                                                                                                $    2,071,231    $   139,896      $    2,180,602        $    1,456,325    $   45,571      $    1,489,008
Income (loss) before provision (benefit) for income taxes and earnings (losses) of equity method investments  $    80,252       $   (8,460  )    $    71,792           $    124,183      $   8,950       $    133,133
Provision (benefit) for income taxes                                                                          21,506            (2,176      )    19,330                32,908            (274       )    32,634
Income (loss) before earnings (losses) of equity method investments                                           58,746            (6,284      )    52,462                91,275            9,224           100,499
Earnings (losses) of equity method investments                                                                (13,961        )  --               (13,961        )      14,038            --              14,038
Net income (loss) before non-controlling interest and dividends on preferred shares                           44,785            (6,284      )    38,501                105,313           9,224           114,537
Less: net income (loss) attributable to non-controlling interest                                              --                (6,284      )    (6,284         )      16                9,224           9,240
Net income before dividends on preferred shares                                                               44,785            --               44,785                105,297           --              105,297
Less: dividends on preferred shares                                                                           15,750            --               15,750                8,250             --              8,250
Net income available to common stockholders                                                                   $    29,035       $   --           $    29,035           $    97,047       $   --          $    97,047

NOTES:

(1) The Reciprocal Exchanges did not meet the criteria for consolidation under GAAP for the Three Months Ended March 31, 2016.

Consolidated column includes eliminations as follows: (A) $(1,601), (B) $(25,881), (C) $(4,644), (D) $(30,525), (E) $(25,881), (F) $(4,644), (G) $(30,525), (H) $(711), (I) $(10,807), (J) $(2,081), (K) $(12,888), (L) $(6), (M) $(10,801), (N) $(2,081) and (O) $(12,888).

Earnings and Per Share Data
$ in thousands, except shares and per share data
(Unaudited)
                                                       Three Months Ended June 30,      Six Months Ended June 30,
                                                       2017              2016           2017           2016
Net income (loss) available to common stockholders     $     (5,081 )    $     44,345   $     29,035   $     97,047
Basic net income (loss) per common share               $     (0.05  )    $     0.42     $     0.27     $     0.92
Diluted net income (loss) per common share             $     (0.05  )    $     0.41     $     0.27     $     0.90
Operating earnings attributable to NGHC                $     11,864      $     46,416   $     53,149   $     100,150
Basic operating earnings per common share              $     0.11        $     0.44     $     0.50     $     0.95
Diluted operating earnings per common share            $     0.11        $     0.43     $     0.49     $     0.93
Dividends declared per common share                    $     0.04        $     0.03     $     0.08     $     0.06
Weighted average number of basic shares outstanding    106,560,000       105,803,802    106,514,396    105,700,682
Weighted average number of diluted shares outstanding  109,447,812       108,197,897    109,364,273    107,987,406
Shares outstanding, end of period                      106,607,110       105,932,281    106,607,110    105,932,281
Fully diluted shares outstanding, end of period        109,507,711       108,326,376    109,507,711    108,219,006
Book value per share                                   $     14.26       $     13.75    $     14.26    $     13.75
Fully diluted book value per share                     $     13.88       $     13.45    $     13.88    $     13.46
Reconciliation of Net Income to Operating Earnings (Non-GAAP)
$ in thousands, except per share data
(Unaudited)
                                                                                                                            Three Months Ended June 30,     Six Months Ended June 30,
                                                                                                                            2017            2016            2017            2016
Net income (loss) available to common stockholders                                                                          $   (5,081 )    $   44,345      $   29,035      $   97,047
Add (subtract):
Net (gain) loss on investments                                                                                              8,362           (3,854     )    7,874           (8,172      )
Bargain purchase gain                                                                                                       6,098           --              (3,703     )    --
Equity in (earnings) losses of unconsolidated subsidiaries (other than LSC investment and certain Real Estate investments)  (82        )    (148       )    (100       )    13
Non-cash amortization of intangible assets                                                                                  11,690          7,188           33,027          12,852
Income tax at 35%                                                                                                           (9,123     )    (1,115     )    (12,984    )    (1,590      )
Operating earnings attributable to NGHC                                                                                     $   11,864      $   46,416      $   53,149      $   100,150
Operating earnings per common share:
Basic operating earnings per common share                                                                                   $   0.11        $   0.44        $   0.50        $   0.95
Diluted operating earnings per common share                                                                                 $   0.11        $   0.43        $   0.49        $   0.93
Balance Sheet
$ in thousands
                                                            June 30, 2017 (unaudited)                        December 31, 2016 (audited)
ASSETS                                                      NGHC             Reciprocal    Consolidated      NGHC             Reciprocal    Consolidated
                                                                             Exchanges                                        Exchanges
Total investments                                           $    3,606,723   $   389,017   $    3,906,659    $    3,456,112   $   306,345   $    3,673,449
Cash and cash equivalents                                   237,815          4,023         241,838           212,894          7,405         220,299
Premiums and other receivables, net                         1,284,584        48,911        1,332,694         1,044,272        47,198        1,090,669
Reinsurance recoverable                                     900,456          68,625        969,081           892,264          55,972        948,236
Intangible assets, net                                      406,880          3,775         410,655           456,695          11,025        467,720
Goodwill                                                    189,587          --            189,587           155,290          --            155,290
Other                                                       639,600          107,987       736,618           621,679          89,764        689,318
Total assets                                                $    7,265,645   $   622,338   $    7,787,132    $    6,839,206   $   517,709   $    7,244,981
LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities:
Unpaid loss and loss adjustment expense reserves            $    2,220,251   $   139,905   $    2,360,156    $    2,127,997   $   137,075   $    2,265,072
Unearned premiums                                           1,698,598        182,874       1,881,472         1,472,299        163,326       1,635,625
Reinsurance payable                                         101,510          27,317        128,026           78,949           20,662        98,810
Accounts payable and accrued expenses                       397,164          81,855        468,050           330,210          13,179        336,991
Debt                                                        754,736          89,081        754,736           752,001          89,008        752,001
Other                                                       153,485          78,239        231,724           183,921          62,784        230,978
Total liabilities                                           $    5,325,744   $   599,271   $    5,824,164    $    4,945,377   $   486,034   $    5,319,477
Stockholders’ equity:
Common stock                                                $    1,066       $   --        $    1,066        $    1,064       $   --        $    1,064
Preferred stock                                             420,000          --            420,000           420,000          --            420,000
Additional paid-in capital                                  920,310          --            920,310           914,706          --            914,706
Accumulated other comprehensive income                      32,876           --            32,876            12,710           --            12,710
Retained earnings                                           565,649          --            565,649           545,106          --            545,106
Total National General Holdings Corp. stockholders’ equity  1,939,901        --            1,939,901         1,893,586        --            1,893,586
Non-controlling interest                                    --               23,067        23,067            243              31,675        31,918
Total stockholders’ equity                                  $    1,939,901   $   23,067    $    1,962,968    $    1,893,829   $   31,675    $    1,925,504
Total liabilities and stockholders’ equity                  $    7,265,645   $   622,338   $    7,787,132    $    6,839,206   $   517,709   $    7,244,981

NOTES:

Consolidated column includes eliminations as follows: (A) $(89,081), (B) $(801), (C) $(10,969), (D) $(100,851), (E) $(801), (F) $(10,969), (G) $(89,081), (H) $(100,851), (I) $(100,851), (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).

Segment Information - Second Quarter
$ in thousands
(Unaudited)
                                                               Three Months Ended June 30,
                                                               2017                                                             2016
                                                               P&C            A&H            NGHC              Reciprocal       P&C            A&H            NGHC            Reciprocal
                                                                                                               Exchanges                                                      Exchanges
Gross written premium                                          $   904,578    $   130,974    $   1,035,552     $   99,157       $   671,157    $   102,891    $   774,048     $   77,170
Net written premium                                            822,508        118,249        940,757           51,243           607,942        90,377         698,319         39,130
Net earned premium                                             804,643        134,852        939,495           42,256           575,002        101,910        676,912         36,028
Ceding commission income (loss)                                3,128          271            3,399             18,109           (3,564      )  359            (3,205      )   14,909
Service and fee income                                         94,519         43,043         137,562           1,494            60,773         38,856         99,629          1,195
Total underwriting revenues                                    $   902,290    $   178,166    $   1,080,456     $   61,859       $   632,211    $   141,125    $   773,336     $   52,132
Loss and loss adjustment expense                               591,844        84,743         676,587           33,820           375,893        78,729         454,622         17,736
Acquisition costs and other                                    126,496        46,759         173,255           15,540           81,291         27,096         108,387         493
General and administrative                                     168,023        38,842         206,865           18,509           147,113        29,547         176,660         25,261
Total underwriting expenses                                    $   886,363    $   170,344    $   1,056,707     $   67,869       $   604,297    $   135,372    $   739,669     $   43,490
Underwriting income (loss)                                     15,927         7,822          23,749            (6,010     )     27,914         5,753          33,667          8,642
Non-cash amortization of intangible assets                     10,278         1,412          11,690            (91        )     5,628          1,560          7,188           6,726
Underwriting income (loss) before amortization and impairment  $   26,205     $   9,234      $   35,439        $   (6,101 )     $   33,542     $   7,313      $   40,855      $   15,368
Underwriting ratios
Loss and loss adjustment expense ratio                         73.6        %  62.8        %  72.0          %   80.0       %     65.4        %  77.3        %  67.2        %   49.2       %
Operating expense ratio (Non-GAAP)                             24.5        %  31.4        %  25.5          %   34.2       %     29.8        %  17.1        %  27.9        %   26.8       %
Combined ratio (Non-GAAP)                                      98.1        %  94.2        %  97.5          %   114.2      %     95.2        %  94.4        %  95.1        %   76.0       %
Underwriting ratios (before amortization and impairment)
Loss and loss adjustment expense ratio                         73.6        %  62.8        %  72.0          %   80.0       %     65.4        %  77.3        %  67.2        %   49.2       %
Operating expense ratio (Non-GAAP)                             23.2        %  30.3        %  24.2          %   34.4       %     28.8        %  15.6        %  26.8        %   8.1        %
Combined ratio before amortization and impairment (Non-GAAP)   96.8        %  93.1        %  96.2          %   114.4      %     94.2        %  92.9        %  94.0        %   57.3       %

Note: Loss and loss adjustment expenses for the three months ended June 30, 2017 included $6,570 of unfavorable development on prior accident year loss and loss adjustment expense reserves in the P&C segment, and $4,524 of favorable development in the A&H segment, versus $6,756 of favorable development in the P&C segment, and $4,350 of unfavorable development in the A&H segment for the three months ended June 30, 2016.

Segment Information - Year to Date
$ in thousands
(Unaudited)
                                                               Six Months Ended June 30,
                                                               2017                                                                  2016
                                                               P&C               A&H            NGHC               Reciprocal        P&C               A&H            NGHC               Reciprocal
                                                                                                                   Exchanges                                                             Exchanges
Gross written premium                                          $    1,886,277    $   322,929    $    2,209,206     $   181,373       $    1,332,494    $   257,748    $    1,590,242     $   77,170
Net written premium                                            1,726,432         299,363        2,025,795          92,944            1,208,716         234,190        1,442,906          39,130
Net earned premium                                             1,556,856         263,778        1,820,634          81,288            1,129,050         202,782        1,331,832          36,028
Ceding commission income (loss)                                5,588             558            6,146              35,356            (5,828         )  728            (5,100         )   14,909
Service and fee income                                         198,109           75,316         273,425            3,574             124,261           72,312         196,573            1,195
Total underwriting revenues                                    $    1,760,553    $   339,652    $    2,100,205     $   120,218       $    1,247,483    $   275,822    $    1,523,305     $   52,132
Loss and loss adjustment expense                               1,113,178         151,634        1,264,812          61,920            708,552           155,120        863,672            17,736
Acquisition costs and other                                    256,127           78,249         334,376            29,720            172,950           48,336         221,286            493
General and administrative                                     364,893           84,055         448,948            43,612            291,807           61,480         353,287            25,261
Total underwriting expenses                                    $    1,734,198    $   313,938    $    2,048,136     $   135,252       $    1,173,309    $   264,936    $    1,438,245     $   43,490
Underwriting income (loss)                                     26,355            25,714         52,069             (15,034     )     74,174            10,886         85,060             8,642
Non-cash amortization of intangible assets                     30,012            3,015          33,027             6,978             9,475             3,377          12,852             6,726
Underwriting income (loss) before amortization and impairment  $    56,367       $   28,729     $    85,096        $   (8,056  )     $    83,649       $   14,263     $    97,912        $   15,368
Underwriting ratios
Loss and loss adjustment expense ratio                         71.5           %  57.5        %  69.5           %   76.2        %     62.8           %  76.5        %  64.8           %   49.2       %
Operating expense ratio (Non-GAAP)                             26.8           %  32.8        %  27.7           %   42.3        %     30.7           %  18.1        %  28.8           %   26.8       %
Combined ratio (Non-GAAP)                                      98.3           %  90.3        %  97.2           %   118.5       %     93.5           %  94.6        %  93.6           %   76.0       %
Underwriting ratios (before amortization and impairment)
Loss and loss adjustment expense ratio                         71.5           %  57.5        %  69.5           %   76.2        %     62.8           %  76.5        %  64.8           %   49.2       %
Operating expense ratio (Non-GAAP)                             24.9           %  31.6        %  25.9           %   33.7        %     29.8           %  16.5        %  27.8           %   8.1        %
Combined ratio before amortization and impairment (Non-GAAP)   96.4           %  89.1        %  95.4           %   109.9       %     92.6           %  93.0        %  92.6           %   57.3       %

Note: (1) Reciprocal Exchanges’ column for the six months ended June 30, 2016 excludes its operating results from January 1, 2016 to March 31, 2016.

Loss and loss adjustment expenses for the six months ended June 30, 2017 included $2,216 of unfavorable development on prior accident year loss and loss adjustment expense reserves in the P&C segment, and $12,844 of favorable development in the A&H segment, versus $7,334 of favorable development in the P&C segment, and $3,584 of unfavorable development in the A&H segment for the six months ended June 30, 2016.

Reconciliation of Operating Expense Ratio (Non-GAAP)
$ in thousands
(Unaudited)
                                                                       Three Months Ended June 30,
                                                                       2017                                                             2016
                                                                       P&C            A&H            NGHC              Reciprocal       P&C            A&H            NGHC            Reciprocal
                                                                                                                       Exchanges                                                      Exchanges
Total underwriting expenses                                            $   886,363    $   170,344    $   1,056,707     $   67,869       $   604,297    $   135,372    $   739,669     $   43,490
Less: Loss and loss adjustment expense                                 591,844        84,743         676,587           33,820           375,893        78,729         454,622         17,736
Less: Ceding commission income (loss)                                  3,128          271            3,399             18,109           (3,564      )  359            (3,205      )   14,909
Less: Service and fee income                                           94,519         43,043         137,562           1,494            60,773         38,856         99,629          1,195
Operating expense                                                      196,872        42,287         239,159           14,446           171,195        17,428         188,623         9,650
Net earned premium                                                     $   804,643    $   134,852    $   939,495       $   42,256       $   575,002    $   101,910    $   676,912     $   36,028
Operating expense ratio (Non-GAAP)                                     24.5        %  31.4        %  25.5          %   34.2       %     29.8        %  17.1        %  27.9        %   26.8       %
Total underwriting expenses                                            $   886,363    $   170,344    $   1,056,707     $   67,869       $   604,297    $   135,372    $   739,669     $   43,490
Less: Loss and loss adjustment expense                                 591,844        84,743         676,587           33,820           375,893        78,729         454,622         17,736
Less: Ceding commission income (loss)                                  3,128          271            3,399             18,109           (3,564      )  359            (3,205      )   14,909
Less: Service and fee income                                           94,519         43,043         137,562           1,494            60,773         38,856         99,629          1,195
Less: Non-cash amortization of intangible assets                       10,278         1,412          11,690            (91        )     5,628          1,560          7,188           6,726
Operating expense before amortization and impairment                   186,594        40,875         227,469           14,537           165,567        15,868         181,435         2,924
Net earned premium                                                     $   804,643    $   134,852    $   939,495       $   42,256       $   575,002    $   101,910    $   676,912     $   36,028
Operating expense ratio before amortization and impairment (Non-GAAP)  23.2        %  30.3        %  24.2          %   34.4       %     28.8        %  15.6        %  26.8        %   8.1        %
Reconciliation of Operating Expense Ratio (Non-GAAP)
$ in thousands
(Unaudited)
                                                                       Six Months Ended June 30,
                                                                       2017                                                                  2016
                                                                       P&C               A&H            NGHC               Reciprocal        P&C              A&H            NGHC              Reciprocal
                                                                                                                           Exchanges                                                           Exchanges
Total underwriting expenses                                            $    1,734,198    $   313,938    $    2,048,136     $   135,252       $   1,173,309    $   264,936    $   1,438,245     $   43,490
Less: Loss and loss adjustment expense                                 1,113,178         151,634        1,264,812          61,920            708,552          155,120        863,672           17,736
Less: Ceding commission income (loss)                                  5,588             558            6,146              35,356            (5,828        )  728            (5,100        )   14,909
Less: Service and fee income                                           198,109           75,316         273,425            3,574             124,261          72,312         196,573           1,195
Operating expense                                                      417,323           86,430         503,753            34,402            346,324          36,776         383,100           9,650
Net earned premium                                                     $    1,556,856    $   263,778    $    1,820,634     $   81,288        $   1,129,050    $   202,782    $   1,331,832     $   36,028
Operating expense ratio (Non-GAAP)                                     26.8           %  32.8        %  27.7           %   42.3        %     30.7          %  18.1        %  28.8          %   26.8       %
Total underwriting expenses                                            $    1,734,198    $   313,938    $    2,048,136     $   135,252       $   1,173,309    $   264,936    $   1,438,245     $   43,490
Less: Loss and loss adjustment expense                                 1,113,178         151,634        1,264,812          61,920            708,552          155,120        863,672           17,736
Less: Ceding commission income (loss)                                  5,588             558            6,146              35,356            (5,828        )  728            (5,100        )   14,909
Less: Service and fee income                                           198,109           75,316         273,425            3,574             124,261          72,312         196,573           1,195
Less: Non-cash amortization of intangible assets                       30,012            3,015          33,027             6,978             9,475            3,377          12,852            6,726
Operating expense before amortization and impairment                   387,311           83,415         470,726            27,424            336,849          33,399         370,248           2,924
Net earned premium                                                     $    1,556,856    $   263,778    $    1,820,634     $   81,288        $   1,129,050    $   202,782    $   1,331,832     $   36,028
Operating expense ratio before amortization and impairment (Non-GAAP)  24.9           %  31.6        %  25.9           %   33.7        %     29.8          %  16.5        %  27.8          %   8.1        %
Premiums by Business Line
$ in thousands
(Unaudited)
                         Three Months Ended June 30,
                         Gross Written Premium                     Net Written Premium                     Net Earned Premium
                         2017            2016          Change      2017          2016          Change      2017          2016          Change
Property & Casualty
Personal Auto            $   514,990     $   338,095   52.3  %     $   471,372   $   297,281   58.6  %     $   495,225   $   290,829   70.3  %
Homeowners               151,984         100,717       50.9  %     131,926       90,559        45.7  %     110,570       81,556        35.6  %
RV/Packaged              52,598          46,693        12.6  %     52,190        46,421        12.4  %     43,314        39,015        11.0  %
Small Business Auto      80,890          68,366        18.3  %     72,864        62,948        15.8  %     70,324        51,470        36.6  %
Lender-placed insurance  90,374          108,190       (16.5 )%    86,525        105,385       (17.9 )%    79,201        108,519       (27.0 )%
Other                    13,742          9,096         51.1  %     7,631         5,348         42.7  %     6,009         3,613         66.3  %
Property & Casualty      904,578         671,157       34.8  %     822,508       607,942       35.3  %     804,643       575,002       39.9  %
Accident & Health        130,974         102,891       27.3  %     118,249       90,377        30.8  %     134,852       101,910       32.3  %
Total National General   $   1,035,552   $   774,048   33.8  %     $   940,757   $   698,319   34.7  %     $   939,495   $   676,912   38.8  %
Reciprocal Exchanges
Personal Auto            $   35,221      $   23,121    52.3  %     $   21,601    $   13,453    60.6  %     $   17,239    $   12,980    32.8  %
Homeowners               63,049          51,636        22.1  %     29,174        23,535        24.0  %     24,613        19,604        25.6  %
Other                    887             2,413         (63.2 )%    468           2,142         (78.2 )%    404           3,444         (88.3 )%
Reciprocal Exchanges     $   99,157      $   77,170    28.5  %     $   51,243    $   39,130    31.0  %     $   42,256    $   36,028    17.3  %
Consolidated Total       $   1,133,909   $   850,507   33.3  %     $   992,000   $   737,449   34.5  %     $   981,751   $   712,940   37.7  %

NOTES:

(A) Consolidated Total includes eliminations between National General and the Reciprocal Exchanges of $(287) in Personal Auto and $(513) in Homeowners Gross Written Premium in 2017, respectively, and $(220) in Personal Auto and $(491) in Homeowners Gross Written Premium in 2016, respectively.

Premiums by Business Line
$ in thousands
(Unaudited)
                         Six Months Ended June 30,
                         Gross Written Premium                         Net Written Premium                           Net Earned Premium
                         2017             2016             Change      2017             2016             Change      2017             2016             Change
Property & Casualty
Personal Auto            $    1,162,171   $    723,293     60.7  %     $    1,068,251   $    632,607     68.9  %     $    949,640     $    562,826     68.7  %
Homeowners               266,709          171,018          56.0  %     236,471          156,435          51.2  %     214,699          155,995          37.6  %
RV/Packaged              97,352           86,296           12.8  %     96,709           85,877           12.6  %     83,964           76,534           9.7   %
Small Business Auto      167,266          118,517          41.1  %     152,072          107,941          40.9  %     133,565          95,314           40.1  %
Lender-placed insurance  166,644          220,187          (24.3 )%    159,357          217,382          (26.7 )%    162,942          231,325          (29.6 )%
Other                    26,135           13,183           98.2  %     13,572           8,474            60.2  %     12,046           7,056            70.7  %
Property & Casualty      1,886,277        1,332,494        41.6  %     1,726,432        1,208,716        42.8  %     1,556,856        1,129,050        37.9  %
Accident & Health        322,929          257,748          25.3  %     299,363          234,190          27.8  %     263,778          202,782          30.1  %
Total National General   $    2,209,206   $    1,590,242   38.9  %     $    2,025,795   $    1,442,906   40.4  %     $    1,820,634   $    1,331,832   36.7  %
Reciprocal Exchanges
Personal Auto            $    63,380      $    23,121      NA          $    38,707      $    13,453      NA          $    33,356      $    12,980      NA
Homeowners               116,376          51,636           NA          53,390           23,535           NA          47,151           19,604           NA
Other                    1,617            2,413            NA          847              2,142            NA          781              3,444            NA
Reciprocal Exchanges     $    181,373     $    77,170      NA          $    92,944      $    39,130      NA          $    81,288      $    36,028      NA
Consolidated Total       $    2,388,978   $    1,666,701   43.3  %     $    2,118,739   $    1,482,036   43.0  %     $    1,901,922   $    1,367,860   39.0  %

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 $(564) in Personal Auto and $(1,037) in Homeowners Gross Written Premium in 2017, respectively, and $(220) in Personal Auto and $(491) in Homeowners Gross Written Premium in 2016, respectively.

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 of operating equity method investments (800 Superior, LLC and 4455 LBJ Freeway, LLC), 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 $400,064 and $390,688 in related parties at June 30, 2017 and December 31, 2016, respectively.

(3) Reinsurance recoverable includes $38,750 and $37,046 from related parties at June 30, 2017 and December 31, 2016, respectively.

(4) Other includes $2,320 and $1,298 from related parties at June 30, 2017 and December 31, 2016, respectively.

(5) Reinsurance payable includes $33,476 and $33,419 due to related parties at June 30, 2017 and December 31, 2016, respectively.

(6) Accounts payable and accrued expenses includes $34,857 and $29,271 to related parties at June 30, 2017 and December 31, 2016, respectively.

(7) Common stock: $0.01 par value - authorized 150,000,000 shares, issued and outstanding 106,607,110 shares - June 30, 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 - June 30, 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.

(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) In the current year’s quarter, certain costs associated with claims handling were prospectively reclassified from general and administrative expenses to loss adjustment expenses. In the year-ago quarter, the corresponding change to the Property and Casualty segment would have been $26.1 million, negligible in the Accident and Health segment and $3.9 million in the Reciprocal Exchange.

(16) 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.

Investor Contact

Christine Worley
Director of Investor Relations
Phone: 212-380-9462
Email: Christine.Worley@NGIC.com

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