News Column

NATIONAL GENERAL HOLDINGS CORP. - 10-Q - Management's Discussion and Analysis of Financial Condition and Results of Operations

May 8, 2014

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements and related notes included elsewhere in this Form 10-Q. Note on Forward-Looking Statements This Form 10-Q contains certain forward-looking statements that are intended to be covered by the safe harbors created by The Private Securities Litigation Reform Act of 1995. When we use words such as "anticipate," "intend," "plan," "believe," "estimate," "expect," or similar expressions, we do so to identify forward-looking statements. Examples of forward-looking statements include the plans and objectives of management for future operations, including those relating to future growth of our business activities and availability of funds, and are based on current expectations that involve assumptions that are difficult or impossible to predict accurately and many of which are beyond our control. There can be no assurance that actual developments will be those anticipated by us. 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 of 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 Maiden Holdings, Ltd. ("Maiden"), AmTrust Financial Services, Inc. ("AmTrust"), or third party agencies, breaches in data security or other disruptions with our technology, heightened competition, changes in pricing environments, and changes in asset valuations. 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 our filings with the SEC, including our Annual Report on Form 10-K for the year ended December 31, 2013, and our quarterly reports on Form 10-Q. The projections and statements in this report speak only as of the date of this report and we undertake no obligation to update or revise any forward-looking statement, whether as a result of new information, future developments or otherwise, except as may be required by law.



Overview

We are a specialty personal lines insurance holding company. Through our subsidiaries, we provide personal and commercial automobile insurance, supplemental health insurance products and other niche insurance products. We sell insurance products with a focus on underwriting profitability through a combination of our customized and predictive analytics and our technology driven low cost infrastructure. We manage our business through two segments: Property and Casualty ("P&C ") and Accident and Health ("A&H"). We transact business primarily through our twelve regulated domestic insurance subsidiaries: Integon Casualty Insurance Company, Integon General Insurance Company, Integon Indemnity Corporation, Integon National Insurance Company ("Integon National"), Integon Preferred Insurance Company, New South Insurance Company, MIC General Insurance Corporation, National General Insurance Company, National General Assurance Company, National General Insurance Online, Inc., National Health Insurance Company and Personal Express Insurance Company. Our insurance subsidiaries have been assigned an "A-" (Excellent) group rating by A.M. Best. The operating results of property and casualty insurance companies are subject to quarterly and yearly fluctuations due to the effect of competition on pricing, the frequency and severity of losses, the effect of weather and natural disasters on losses, general economic conditions, the general regulatory environment in states in which an insurer operates, state regulation of premium rates, changes in fair value of investments, and other factors such as changes in tax laws. The property and casualty industry has been highly cyclical with periods of high premium rates and shortages of underwriting capacity followed by periods of severe price competition and excess capacity. While these cycles can have a large impact on a company's ability to grow and retain business, we have sought to focus on niche markets and regions where we are able to maintain premium rates at generally consistent levels and maintain underwriting discipline throughout these cycles. We believe that the nature of our P&C insurance products, including their relatively low limits, the relatively short duration of time between when claims are reported and when they are settled, and the broad geographic distribution of our customers, have allowed us to grow and retain our business throughout these 34 -------------------------------------------------------------------------------- cycles. In addition, we have limited our exposure to catastrophe losses through reinsurance. With regard to seasonality, we tend to experience higher claims and claims expense in our P&C segment during periods of severe or inclement weather. We evaluate our operations by monitoring key measures of growth and profitability, including net loss ratio, net combined ratio (non-GAAP) and operating leverage. We target a net combined ratio (non-GAAP) of 95.0% or lower over the near term, and between 90% and 95% over the long term, while seeking to maintain optimal operating leverage in our insurance subsidiaries commensurate with our A.M. Best rating objectives. To achieve our targeted net combined ratio (non-GAAP) we continually seek ways to reduce our operating costs and lower our expense ratio. For the quarter ended March 31, 2014, our annualized operating leverage (the ratio of net premiums earned to average total stockholders' equity) was 1.91x, which was within our planned target operating leverage of between 1.5x and 2.0x. Investment income is also an important part of our business. Because we often do not settle claims until several months or longer after we receive the original policy premiums, we are able to invest cash from premiums for significant periods of time. We invest our capital and surplus in accordance with state and regulatory guidelines. Our net investment income was $9.2 million and $6.5 million for the three months ended March 31, 2014 and 2013, respectively. We held 7.6% and 6.6% of total invested assets in cash and cash equivalents as of March 31, 2014 and December 31, 2013, respectively. Our most significant balance sheet liability is our reserves for loss and loss adjustment expenses ("LAE"). As of March 31, 2014 and December 31, 2013, our reserves, net of reinsurance recoverables, were $388.0 million and $308.4 million, respectively. We record reserves for estimated losses under insurance policies that we write and for LAE related to the investigation and settlement of policy claims. Our reserves for loss and LAE represent the estimated cost of all reported and unreported loss and LAE incurred and unpaid at any time based on known facts and circumstances. Our reserves, excluding life reserves, for loss and LAE incurred and unpaid are not discounted using present value factors. Our loss reserves are reviewed quarterly by internal actuaries and at least annually by our external actuaries. Reserves are based on estimates of the most likely ultimate cost of individual claims. These estimates are inherently uncertain. Judgment is required to determine the relevance of our historical experience and industry information under current facts and circumstances. The interpretation of this historical and industry data can be impacted by external forces, principally frequency and severity of future claims, the length of time needed to achieve ultimate settlement of claims, inflation of medical costs, insurance policy coverage interpretations, jury determinations and legislative changes. Accordingly, our reserves may prove to be inadequate to cover our actual losses. If we change our estimates, these changes would be reflected in our results of operations during the period in which they are made, with increases in our reserves resulting in decreases in our earnings.



Acquisitions

On April 1, 2014, the Company purchased Personal Express Insurance Company ("Personal Express"), a California domiciled personal auto and home insurer from Sequoia Insurance Company, an affiliate of AmTrust Financial Services, Inc. ("AmTrust"). The purchase price was approximately $22 million, subject to certain adjustments. On January 3, 2014, ACP Re, Ltd. ("ACP Re"), a Bermuda reinsurer that is a subsidiary of The Michael Karfunkel 2005 Grantor Retained Annuity Trust (the "Karfunkel Trust"), entered into a merger agreement (the "Tower Merger Agreement") with Tower Group International, Ltd. ("Tower") pursuant to which ACP Re has agreed to acquire 100% of the outstanding stock of Tower for the price of $3.00 per share (the "Merger"). The transactions contemplated by the Tower Merger Agreement are subject to certain regulatory and shareholder approvals. Simultaneously with the execution of the Tower Merger Agreement, the Company and ACP Re entered into the Personal Lines Stock and Asset Purchase Agreement effective as of January 3, 2014 (the "PL SPA") by which the Company agreed to purchase from ACP Re the renewal rights and certain other assets related to Tower's personal lines insurance operations ("Personal Lines Assets"), including (i) certain of Tower's U.S. domiciled insurance companies, for a purchase price equal to the tangible book value of the companies, which was expected to be approximately $125 million, and (ii) the Attorneys-in-Fact which serve as insurance managers for the reciprocal exchanges managed by Tower for $7.5 million. In connection with its entry into the PL SPA with the Company, ACP Re entered into that certain Commercial Lines Stock and Asset Purchase Agreement dated January 3, 2014 (the "CL SPA") with AmTrust, by which AmTrust agreed to purchase from ACP Re the renewal rights and certain other assets related to Tower's commercial lines insurance operations ("Commercial Lines Assets"), including certain of Tower's U.S. domiciled insurance companies, for a purchase price equal to the tangible book value of the companies, which also was expected to be approximately $125 million. The Merger is subject to shareholder and regulatory approval and the acquisition of Tower's insurance companies by the Company and AmTrust pursuant to the PL SPA and CL SPA also required regulatory approval. Upon announcement of the Merger and the execution of the PL SPA and CL SPA, the Company, AmTrust and ACP Re entered into discussions with Tower's U.S. 35 -------------------------------------------------------------------------------- and Bermuda insurance regulators regarding the overall plan for the administration of the run-off of Tower's business following the closing of the Merger and the Company's and AmTrust's acquisition of the Personal Lines Assets and Commercial Lines Assets going forward. Based on these discussions, the Company, AmTrust and ACP Re determined that the best way to structure the transaction would be for ACP Re to retain ownership of all of Tower's U.S. insurance companies and for the Company and AmTrust, respectively, to (i) acquire the Personal Lines Assets and Commercial Lines Assets, (ii) administer the run-off of Tower's historical personal lines claims and commercial lines claims at cost, (iii) in their discretion, place personal lines business and commercial lines business with the Tower insurance companies, which they will manage and fully reinsure for a net 2% ceding fee payable to the Tower insurance companies, (iv) retain the expirations on all business written by the Tower insurance companies through the Company and AmTrust, as managers, and (v) receive the agreement of the Tower insurance companies and ACP Re not to compete with respect to personal lines business and commercial lines business (the "Revised Plan"). The Company will still acquire the Attorneys-in-Fact which serve as insurance managers for the reciprocal exchanges managed by Tower for $7.5 million. In connection with the Revised Plan, the Company and AmTrust expect to provide ACP Re with financing in an aggregate principal amount of up to $125 million each, subject to terms to be negotiated, but that will have a term of no shorter than seven years and pay a market interest rate. In addition, the Company and AmTrust will issue a $250 million aggregate stop loss reinsurance agreement to Tower by which each, as reinsurers, will provide, severally, $125 million of stop loss coverage. The stop loss coverage will attach in the event that paid losses and paid loss adjustment expenses by the Tower insurance companies exceed Tower's reserves as of the closing of the Merger. Through this stop-loss coverage, our subsidiary will have direct exposure, and we will have indirect exposure, to Tower's historical commercial and personal lines business and reserves. ACP Re will enter into a retrocession agreement with us and AmTrust to reimburse us and AmTrust for any payments that we or AmTrust make to Tower under the stop loss reinsurance agreement. The terms of the financing, the stop-loss coverage and the retrocession agreement are being negotiated and because such transaction is with related parties, such terms will be subject to the review and approval of our independent Audit Committee or special committee comprised of independent directors. The transaction as it relates to the Company and the Personal Lines Assets described herein (the "Tower Transaction") remains subject to regulatory approval and the consummation of the Merger. There is no assurance that modifications to the terms of the Tower Transaction described above will not need to be made in order to obtain regulatory approval. In addition, Integon National, our wholly-owned subsidiary, has entered into a reinsurance agreement (the "Cut-Through Reinsurance Agreement") with several Tower subsidiaries. Under the Cut-Through Reinsurance Agreement, Integon National has reinsured on a 100% quota share basis with a cut-through endorsement all of Tower's new and renewal personal lines business after January 1, 2014 and has assumed 100% of Tower's unearned premium reserves with respect to in-force personal lines policies, in each case, net of reinsurance already in effect. The agreement is effective solely with respect to losses occurring on or after January 1, 2014 and has a duration of one year unless earlier terminated. We will pay a 20% ceding commission with respect to unearned premium assumed and a 22% ceding commission with respect to new and renewal business after January 1, 2014 and up to a 4% claims handling expense reimbursement to Tower on all Tower premium subject to the Cut-Through Reinsurance Agreement. We believe the Tower Transaction will add increased product offerings to our customers, agents and brokers. We expect that this transaction will permit us to introduce homeowners and umbrella coverage into our product offerings, allow us to bundle these coverages with our existing auto business and make our product offerings even more competitive. In addition, we expect this transaction will also add geographic expansion to our auto business. We believe that the additional premium we expect to assume under the Cut-Through Reinsurance Agreement, together with the unearned premium reserves that we assume, will provide us with the opportunity to significantly increase our earned premiums over time. Expectations Regarding Tower Transactions Set forth below are certain of our expectations regarding the Tower Transaction described above. We caution you that these expectations may not materialize and are not indicative of the actual results that we will achieve. Our expectations are based in large part on Tower's historical financial performance as reported in its public SEC and statutory filings. We have assumed the accuracy of this information in setting our expectations. There can be no assurance that the future performance of the Tower personal lines business will be comparable to its historical performance or that our expectations as to the level and profitability of the Tower personal lines business that we may have access to as a result of the Tower Transaction will be realized. Many factors and future developments may cause our actual results to differ materially and significantly from the information set forth below. See Item 1A, "Risk Factors" of our Annual Report on Form 10-K for the year ended December 31, 2013, and Part II, Item IA, "Risk Factors" and "Note on Forward-Looking Statements" of this Quarterly Report on Form 10-Q. As part of the Tower Transaction, we anticipate that we will have access to approximately $650 million of potential annual managed gross premium that we expect will be generated by the Tower personal lines companies. We expect to earn service and fee income only (and not bear underwriting risk) on approximately one-third of these premiums by providing management and administration services to the issuing companies which are structured as reciprocal insurers, and we expect our insurance companies 36 -------------------------------------------------------------------------------- to reinsure approximately two-thirds of these premiums, and utilize quota share and catastrophe reinsurance to reduce our exposure as necessary. Excluding the impact of catastrophic losses, we expect to target a loss ratio on these premiums within an approximate range of between 50% and 60%. Of course, there can be no assurance that we will complete the Tower Transaction in the manner currently planned or at all, or that the results of the Tower Transaction will match our expectations as to premium volume, profitability or otherwise. Principal Revenue and Expense Items Gross premium written. Gross premium written represents premium from each insurance policy that we write, including as a servicing carrier for assigned risk plans, during a reporting period based on the effective date of the individual policy, prior to ceding reinsurance to third parties. Net premium written. Net premium written is gross premium written less that portion of premium that we cede to third-party reinsurers under reinsurance agreements. The amount ceded under these reinsurance agreements is based on a contractual formula contained in the individual reinsurance agreement. Change in unearned premium. Change in unearned premium is the change in the balance of the portion of premium that we have written but have yet to earn during the relevant period because the policy is unexpired. Net earned premium. Net earned premium is the earned portion of our net premium written. We generally earn insurance premium on a pro rata basis over the term of the policy. At the end of each reporting period, premium written that is not earned is classified as unearned premium, which is earned in subsequent periods over the remaining term of the policy. Our policies typically have a term of six months or one year. For a six-month policy written on October 1, 2013, we would earn half of the premium in the fourth quarter of 2013 and the other half in the first quarter of 2014. Ceding commission income. Ceding commission income is a commission we receive based on the earned premium ceded to third-party reinsurers to reimburse us for our acquisition, underwriting and other operating expenses. We earn commissions on reinsurance premium ceded in a manner consistent with the recognition of the earned premium on the underlying insurance policies, generally on a pro-rata basis over the terms of the policies reinsured. The portion of ceding commission income which represents reimbursement of successful acquisition costs related to the underlying policies is recorded as an offset to acquisition and other underwriting expenses. The ceding commission ratio is equal to ceding commission income divided by net earned premium. Service and fee income. We currently generate policy service and fee income from installment fees, late payment fees, and other finance and processing fees related to policy cancellation, policy reinstatement, and non-sufficient fund check returns. These fees are generally designed to offset expenses incurred in the administration of our insurance business, and are generated as follows. Installment fees are charged to permit a policyholder to pay premiums in installments rather than in a lump sum. Late payment fees are charged when premiums are remitted after the due date and any applicable grace periods. Policy cancellation fees are charged to policyholders when a policy is terminated by the policyholder prior to the expiration of the policy's term or renewal term, as applicable. Reinstatement fees are charged to reinstate a policy that has lapsed, generally as a result of non-payment of premiums. Non-sufficient fund fees are charged when the customer's payment is returned by the financial institution. All fee income is recognized as follows. An installment fee is recognized at the time each policy installment bill is due. A late payment fee is recognized when the customer's payment is not received after the listed due date and any applicable grace period. A policy cancellation fee is recognized at the time the customer's policy is cancelled. A policy reinstatement fee is recognized when the customer's policy is reinstated. A non-sufficient fund fee is recognized when the customer's payment is returned by the financial institution. The amounts charged are primarily intended to compensate us for the administrative costs associated with processing and administering policies that generate insurance premium; however, the amounts of fees charged are not dependent on the amount or period of insurance coverage provided and do not entail any obligation to return any portion of those funds. The direct and indirect costs associated with generating fee income are not separately tracked. We also collect service fees in the form of commissions and general agent fees by selling policies issued by third-party insurance companies. We do not bear insurance underwriting risk with respect to these policies. Commission income and general agent fees are recognized, net of an allowance for estimated policy cancellations, at the date the customer is initially billed or as of the effective date of the insurance policy, whichever is later. The allowance for estimated third-party cancellations is periodically evaluated and adjusted as necessary. Net investment income and realized gains and (losses). We invest our statutory surplus funds and the funds supporting our insurance liabilities primarily in cash and cash equivalents, fixed-maturity and equity securities. Our net investment income includes interest and dividends earned on our invested assets. We report net realized gains and losses on our investments separately from our net investment income. Net realized gains occur when we sell our investment securities for more than their costs or amortized costs, as applicable. Net realized losses occur when we sell our investment securities for less than their costs or amortized costs, 37

-------------------------------------------------------------------------------- as applicable, or we write down the investment securities as a result of other-than-temporary impairment. We classify equity securities and our fixed-maturity securities as available-for-sale. We report net unrealized gains (losses) on those securities classified as available-for-sale separately within other comprehensive income. Loss and loss adjustment expenses. Loss and LAE represent our largest expense item and, for any given reporting period, include estimates of future claim payments, changes in those estimates from prior reporting periods and costs associated with investigating, defending and servicing claims. These expenses fluctuate based on the amount and types of risks we insure. We record loss and LAE related to estimates of future claim payments based on case-by-case valuations and statistical analyses. We seek to establish all reserves at the most likely ultimate exposure based on our historical claims experience. It is typical for our more serious bodily injury claims to take several years to settle, and we revise our estimates as we receive additional information about the condition of claimants and the costs of their medical treatment. Our ability to estimate loss and LAE accurately at the time of pricing our insurance policies is a critical factor in our profitability. Acquisition and other underwriting costs. Acquisition and other underwriting costs consist of policy acquisition and marketing expenses, salaries and benefits expenses. Policy acquisition expenses comprise commissions directly attributable to those agents, wholesalers or brokers that produce premiums written on our behalf and promotional fees directly attributable to our affinity relationships. Acquisition costs also include costs that are related to the successful acquisition of new or renewal insurance contracts including comprehensive loss underwriting exchange reports, motor vehicle reports, credit score checks, and policy issuance costs. General and administrative expense. General and administrative expense is composed of all other operating expenses, including various departmental salaries and benefits expenses for employees that are directly involved in the maintenance of policies, information systems, and accounting for insurance transactions, and other insurance expenses such as federal excise tax, postage, telephones and internet access charges, as well as legal and auditing fees and board and bureau charges. In addition, general and administrative expense includes those charges that are related to the amortization of tangible and intangible assets and non-insurance activities in which we engage. Interest expense. Interest expense represents amounts we incur on our outstanding indebtedness at the then-applicable interest rates. Income tax expense. We incur federal, state and local income tax expenses as well as income tax expenses in certain foreign jurisdictions in which we operate. Net operating expense. These expenses consist of the sum of general and administrative expense and acquisition and other underwriting costs less ceding commission income and service and fee income. Underwriting income. Underwriting income is a measure of an insurance company's overall operating profitability before items such as investment income, interest expense and income taxes. Underwriting income is calculated as net earned premium plus ceding commission income and service and fee income less loss and LAE, acquisition and other underwriting costs, and general and administrative expense. Equity in earnings (losses) from unconsolidated subsidiaries. This represents primarily our share in earnings or losses of our investment in four companies that own life settlement contracts, which includes the gain realized upon a mortality event and the change in fair value of the investments in life settlements as evaluated at the end of each reporting period. These unconsolidated subsidiaries determine the fair value of life settlement contracts based upon an estimate of the discounted cash flow of the anticipated death benefits incorporating a number of factors, such as current life expectancy assumptions, expected premium payment obligations and increased cost assumptions, credit exposure to the insurance companies that issued the life insurance policies and the rate of return that a buyer would require on the policies. The gain realized upon a mortality event is the difference between the death benefit received and the recorded fair value of that particular policy. Insurance Ratios Net loss ratio. The net loss ratio is a measure of the underwriting profitability of an insurance company's business. Expressed as a percentage, this is the ratio of loss and LAE incurred to net earned premiums. Net operating expense ratio (non-GAAP). The net operating expense ratio (non-GAAP) is one component of an insurance company's operational efficiency in administering its business. Expressed as a percentage, this is the ratio of net operating expense to net earned premium. Net combined ratio (non-GAAP). The net combined ratio (non-GAAP) is a measure of an insurance company's overall underwriting profit. This is the sum of the net loss and net operating expense ratio (non-GAAP). If the net combined ratio (non- 38 -------------------------------------------------------------------------------- GAAP) is at or above 100 percent, an insurance company cannot be profitable without investment income, and may not be profitable if investment income is insufficient. Net operating expense ratio and net combined ratio are considered non-GAAP financial measures under applicable SEC rules because a component of those ratios, net operating expense, is calculated by offsetting acquisition and other underwriting costs and general and administrative expense by ceding commission income and service and fee income, and is therefore a non-GAAP measure. Management uses net operating expense ratio (non-GAAP) and net combined ratio (non-GAAP) to evaluate financial performance against historical results and establish targets on a consolidated basis. Other companies may calculate these measures differently, and, therefore, their measures may not be comparable to those used by the Company's management. For a reconciliation showing the total amounts by which acquisition and other underwriting costs and general and administrative expense were offset by ceding commission income and service and fee income in the calculation of net operating expense, see "Results of Operations - Consolidated Results of Operations for the three months ended March 31, 2014 and 2013 (Unaudited)" below. Personal Lines Quota Share Effective March 1, 2010, Integon National entered into a 50% quota share reinsurance treaty (the "Personal Lines Quota Share"), pursuant to which Integon National ceded 50% of the gross premium written of its P&C business (excluding premium ceded to state-run reinsurance facilities) to a group of affiliated reinsurers consisting of a subsidiary of AmTrust, ACP Re and Maiden Insurance. Quota share reinsurance refers to reinsurance under which the insurer (the "ceding company," which under the Personal Lines Quota Share is Integon National) transfers, or cedes, a fixed percentage of liabilities, premium and related losses for each policy covered on a pro rata basis in accordance with the terms and conditions of the relevant agreement. The reinsurer pays the ceding company a ceding commission on the premiums ceded to compensate the ceding company for various expenses, such as underwriting and policy acquisition expenses, that the ceding company incurs in connection with the ceded business. The Personal Lines Quota Share provided that the reinsurers, severally, in accordance with their participation percentages, received 50% of our P&C gross premium written (excluding premium ceded to state-run reinsurance facilities) and assumed 50% of the related losses and allocated LAE. The participation percentages were: Maiden Insurance, 25%; ACP Re, 15%; and AmTrust, 10%. The Personal Lines Quota Share had an initial term of three years and was renewed through March 1, 2016. The Personal Lines Quota Share provided that the reinsurers pay a provisional ceding commission equal to 32.0% of ceded earned premium, net of premiums ceded by Integon National for inuring third-party reinsurance, subject to adjustment to a maximum of 34.5% if the loss ratio for the reinsured business is 60.0% or less and a minimum of 30.0% if the loss ratio is 64.5% or higher. The Personal Lines Quota Share provides for the net settlement of claims and the provisional ceding commission on a quarterly basis during the month following the end of each quarter. The net payments are based on earned premiums less paid losses and LAE less the provisional ceding commission for the quarter. The adjustment to the provisional ceding commission is calculated at the end of, and with respect to, each calendar year during the term of the Quota Share (an "adjustment period"), with the final adjustment period following termination of the Quota Share ending at the end of the run-off period. The adjusted commission rate, which is calculated and reported by the reinsurers to the Company within 30 days after the end of each adjustment period, is calculated by first determining the "actual loss ratio" for the adjustment period, which loss ratio is calculated in the same manner as the net loss ratio as disclosed in this prospectus. The adjusted commission rate is set based on the actual loss ratio within a range between 30.0% and 34.5%, and varies inversely with a range of actual loss ratios between 60.0% and 64.5%, such that the adjusted commission rate will be higher than 32.0% if the actual loss ratio is lower than 62.5%, and lower than 32.0% if the actual loss ratio is higher than 62.5%, subject to the caps described above. The Company accrues any adjustments to the provisional ceding commission based on the loss experience of the ceded business on a quarterly basis. Remittance of any positive difference between the adjusted commission rate over the provisional ceding commission is paid by the reinsurer to the Company, and any negative difference is paid by the Company to the reinsurer within 12 months after the end of the final adjustment period (other than with respect to the initial year of the agreement with respect to which initial remittance was made 24 months after the end of the first adjustment period). Effective August 1, 2013, as permitted by the Personal Lines Quota Share, we terminated our cession of P&C premium to our quota share reinsurers and now retain 100% of such P&C gross premium written and related losses with respect to all new and renewal P&C policies bound after August 1, 2013. We will continue to cede 50% of P&C gross premium written and related losses with respect to policies in effect as of July 31, 2013 to the quota share reinsurers until the expiration of such policies. This retention of our P&C premium will provide us the opportunity to substantially increase our underwriting and investment income, while also increasing our exposure to losses. See Item 1A, "Risk Factors-Risks Relating to Our Insurance Operations-We have reduced our dependence on reinsurance and will retain a greater percentage of our premium writings, which increases our exposure to the underlying policy risks" of our Annual Report on Form 10-K for the year ended December 31, 2013. 39 -------------------------------------------------------------------------------- Critical Accounting Policies Our discussion and analysis of our results of operations, financial condition and liquidity are based upon our condensed consolidated financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles. The preparation of these financial statements requires us to make estimates and judgments that affect the amounts of assets and liabilities, revenues and expenses and disclosure of contingent assets and liabilities as of the date of the financial statements. As more information becomes known, these estimates and assumptions could change, which would have an impact on actual results that may differ materially from these estimates and judgments under different assumptions. We have not made any changes in estimates or judgments that have had a significant effect on the reported amounts as previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2013. 40 --------------------------------------------------------------------------------



Results of Operations

Consolidated Results of Operations for the Three Months Ended March 31, 2014 and 2013 (Unaudited) Three Months Ended March 31, 2014 2013 (Amounts in Thousands) Gross premiums written $ 646,142



$ 357,613 Ceded premiums (includes $30,277 and $144,100 to related parties in 2014 and 2013, respectively)

(78,657 ) (185,097 ) Net written premium $ 567,485$ 172,516 Change in unearned premiums (209,633 ) (20,360 ) Net earned premium $ 357,852$ 152,156 Ceding commission income (primarily related parties) 5,370



25,257

Service, fees and other Income 36,706



27,262

Underwriting expenses:

Loss and LAE 225,347 103,202 Acquisition costs and other 74,373 30,210 General and administrative 76,199 66,809 Total underwriting expenses $ 375,919$ 200,221 Underwriting income $ 24,009$ 4,454 Net investment income 9,214 6,473 Net realized gains (losses) on investments - 1,698 Bargain purchase gain and other revenue 7 16 Equity in earnings (losses) of unconsolidated subsidiaries 1,123 (811 ) Interest expense (593 ) (343 ) Income before provision for income taxes $ 33,760$ 11,487 Provision for income taxes 7,336 3,771 Net income $ 26,424$ 7,716 Net income attributable to NCI (32 ) (44 ) Net income attributable NGHC $ 26,392$ 7,672 Net loss ratio 63.0 % 67.8 % Net operating expense ratio (non-GAAP) 30.3 % 29.2 % Net combined ratio (non-GAAP) 93.3 % 97.0 % 41

-------------------------------------------------------------------------------- Three Months Ended March 31, Reconciliation of net operating expense ratio (non-GAAP): 2014 2013 (Amounts in Thousands) Total expenses $ 376,512$ 200,564 Less: Loss and loss adjustment expense 225,347



103,202

Less: Interest expense 593 343 Less: Ceding commission income 5,370 25,257 Less: Service, fees and other income 36,706 27,262 Net operating expense $ 108,496$ 44,500 Net earned premium $ 357,852$ 152,156 Net operating expense ratio (non-GAAP) 30.3 % 29.2 % During 2013, we terminated the Personal Lines Quota Share on a run-off basis (the "Quota Share Runoff") pursuant to which we historically ceded 50% of our P&C gross premium written and related losses (excluding premium ceded to state-run reinsurance facilities) to our quota share reinsurers. Effective January 1, 2014, we entered into the Tower Cut-Through Reinsurance Agreement described above, under which during the first quarter of 2014 we assumed unearned premium relating to in-force personal lines business of approximately $159.0 million and under which we reinsured approximately an additional $77.0 million of new and renewal personal lines policies written after January 1, 2014. During 2013, we also continued our expansion into the A&H segment ("A&H Expansion") with new acquisitions, licenses and products. In April 2013, we acquired Euro Accident Health and Care Insurance Aktiebolag ("EHC"), a Swedish group life and health insurance provider focused on health. EHC operates as a Managing General Agent, which means that it is a registered insurance intermediary and as such operates as a non-risk bearing insurer. Commencing January 1, 2014, our European insurance subsidiary began reinsuring all business placed by EHC (the "EHC Business"). Commencing April 1, 2014, all new and renewal policies placed by EHC will be underwritten by our European insurance subsidiaries. As a result of the Quota Share Runoff, the Tower Cut-Through Reinsurance Agreement, the A&H Expansion and the financial impact of the EHC Business comparisons between our 2014 and 2013 results will be less meaningful. Consolidated Results of Operations for the Three Months Ended March 31, 2014 Compared with the Three Months Ended March 31, 2013 (Unaudited) Gross premium written. Gross premium written increased by $288.5 million from $357.6 million for the three months ended March 31, 2013 to $646.1 million for the three months ended March 31, 2014, due to an increase of $256.3 million in premiums received from the P&C segment primarily as a result of the Tower Cut-Through Reinsurance Agreement and an increase of $32.2 million in premiums received from the A&H segment as a result of reinsuring the EHC Business. Net premium written. Net premium written increased by $395.0 million from $172.5 million for the three months ended March 31, 2013 to $567.5 million for the three months ended March 31, 2014. Net premium written for the P&C segment increased by $362.8 million for the three months ended March 31, 2014 compared to the same period in 2013 primarily due to the Tower Cut-Through Reinsurance Agreement and the Quota Share Runoff. In connection with reinsuring the EHC Business, net premium written for the A&H segment increased by $32.2 million. Net earned premium. Net earned premium increased by $205.7 million, or 135.2%, from $152.2 million for the three months ended March 31, 2013 to $357.9 million for the three months ended March 31, 2014. The increase by segment was: P&C - $182.4 million and A&H - $23.3 million. The increase was primarily attributable to the Tower Cut-Through Reinsurance Agreement, the Quota Share Runoff and reinsuring the EHC Business. Ceding commission income. Ceding commission income decreased from $25.3 million for the three months ended March 31, 2013 to $5.4 million for the three months ended March 31, 2014, reflecting the Quota Share Runoff. Our ceding commission ratio decreased from 16.6% to 1.5%. Service and fee income. Service and fee income increased by $9.4 million, or 34.6%, from $27.3 million for the three months ended March 31, 2013 to $36.7 million for the three months ended March 31, 2014. The increase was primarily attributable to the increase of $8.8 million in service and fee income related to our A&H segment as a result of the A&H Expansion. The components of service and fee income are as follows: 42 --------------------------------------------------------------------------------

Three Months Ended March 31, (amounts in thousands) 2014 2013 Change Installment fees $ 6,883 $ 10,010$ (3,127 ) Commission revenue 14,860 6,289 8,571 General agent fees 7,325 4,452 2,873 Late payment fees 2,498 2,581 (83 ) Finance and processing fees 3,140 1,625 1,515 Other 2,000 2,305 (305 ) Total $ 36,706$ 27,262$ 9,444 Loss and loss adjustment expenses; net loss ratio. Loss and LAE increased by $122.1 million, or 118.4%, from $103.2 million for the three months ended March 31, 2013 to $225.3 million for the three months ended March 31, 2014, primarily reflecting the Quota Share Runoff as well as the Tower Cut-Through Reinsurance Agreement. The changes by segment were: P&C - increased $113.5 million and A&H -increased $8.7 million. Our net loss ratio decreased from 67.8% for the three months ended March 31, 2013 to 63.0% for the three months ended March 31, 2014 primarily due to a lower loss ratio experienced with respect to our Tower Cut-Through Reinsurance Agreement. Acquisition and other underwriting costs. Acquisition and other underwriting costs increased by $44.2 million, or 146.2%, from $30.2 million for the three months ended March 31, 2013 to $74.4 million for the three months ended March 31, 2014 primarily due to the Tower Cut-Through Reinsurance Agreement, Quota Share Runoff and A&H Expansion expenses. General and administrative expense. General and administrative expense increased by $9.4 million, or 14.1%, from $66.8 million for the three months ended March 31, 2013 to $76.2 million for the three months ended March 31, 2014 primarily as a result of A&H Expansion expenses. Net operating expense; net operating expense ratio (non-GAAP). Net operating expense increased by $64.0 million, or 143.8% from $44.5 million for the three months ended March 31, 2013 to $108.5 million for the three months ended March 31, 2014. The net operating expense ratio (non-GAAP) increased to 30.3% in the three months ended March 31, 2014 from 29.2% in the three months ended March 31, 2013 primarily as a result of A&H Expansion expenses. Net investment income. Net investment income increased by $2.7 million, or 42.3%, from $6.5 million for the three months ended March 31, 2013 to $9.2 million for the three months ended March 31, 2014 primarily due to an increase in average invested assets related to our February 2014 equity offering. Net realized gains (losses) on investments. Net realized gains on investments decreased by $1.7 million from a $1.7 million gain for the three months ended March 31, 2013 to $0.0 million for the three months ended March 31, 2014 due to the decision to sell more securities during the three months ended March 31, 2013 than during the same period of the current year. Equity in earnings (losses) of unconsolidated subsidiaries. Equity in earnings (losses) of unconsolidated subsidiaries, which primarily relates to our 50% interest in life settlement entities, increased by $1.9 million, from a $0.8 million loss for the three months ended March 31, 2013 to a $1.1 million gain for the three months ended March 31, 2014, due primarily to an increase in the value of the life settlement contracts. Interest expense. Interest expense for the three months ended March 31, 2014 and 2013 was $0.6 million and $0.3 million, respectively, reflecting the scheduled interest payment on our bank line of credit. Provision for income taxes. Income tax expense increased by $3.6 million, or 94.5%, from $3.8 million for the three months ended March 31, 2013, reflecting an effective tax rate of 30.7%, to $7.3 million for the three months ended March 31, 2014, reflecting an effective tax rate of 22.5%. Income tax expense included a tax benefit of $4.0 million attributable to the reduction of the deferred tax liability associated with the equalization reserves of our Luxembourg reinsurer. 43

-------------------------------------------------------------------------------- P&C Segment - Results of Operations for the Three Months Ended March 31, 2014 and 2013 (Unaudited) Three Months Ended March 31, 2014 2013 (Amounts in Thousands) Gross premiums written $ 606,608$ 350,298 Ceded premiums (78,609 ) (185,092 ) Net written premium $ 527,999$ 165,206 Change in unearned premiums (200,779 ) (20,359 ) Net earned premium $ 327,220$ 144,847 Ceding Commission Income (primarily related parties) 5,370 25,257 Service and fee income 21,673 21,050 Underwriting expenses: Loss and LAE 209,430 95,973 Acquisition costs and other underwriting costs 55,773 25,681 General and administrative 63,521 63,825 Total underwriting expenses $ 328,724$ 185,479 Underwriting income $ 25,539$ 5,675 Net loss ratio 64.0 % 66.3 % Net operating expense ratio (non-GAAP) 28.2 % 29.8 % Net combined ratio (non-GAAP) 92.2 % 96.1 % Three Months Ended March 31, Reconciliation of net operating expense ratio (non-GAAP): 2014 2013 (Amounts in Thousands) Total underwriting expenses $ 328,724$ 185,479 Less: Loss and loss adjustment expense 209,430 95,973 Less: Ceding Commission Income 5,370 25,257 Less: Service, Fees and Other Income 21,673 21,050 Net operating expense $ 92,251$ 43,199 Net earned premium $ 327,220$ 144,847 Net operating expense ratio (non-GAAP) 28.2 % 29.8 % P&C Segment Results of Operations for the Three Months Ended March 31, 2014 Compared with the Three Months Ended March 31, 2013 (Unaudited) Gross premium written. Gross premium written increased by $256.3 million, or 73.2%, from $350.3 million for the three months ended March 31, 2013 to $606.6 million for the three months ended March 31, 2014 primarily as a result of the Tower Cut-Through Reinsurance Agreement. Net premium written. Net premium written increased by $362.8 million from $165.2 million for the three months ended March 31, 2013 to $528.0 million for the three months ended March 31, 2014 primarily due to the Tower Cut-Through Reinsurance Agreement and the Quota Share Runoff. Net earned premium. Net earned premium increased by $182.4 million, or 125.9%, from $144.8 million for the three months ended March 31, 2013 to $327.2 million for the three months ended March 31, 2014 primarily as a result of the Tower Cut-Through Reinsurance Agreement and the Quota Share Runoff. 44 -------------------------------------------------------------------------------- Ceding commission income. Our ceding commission income decreased by $19.9 million, or 78.7%, from $25.3 million for the three months ended March 31, 2013 to $5.4 million for the three months ended March 31, 2014 reflecting the Quota Share Runoff. Our ceding commission ratio decreased from 17.4% for the three months ended March 31, 2013 to 1.6% for the three months ended March 31, 2014. Service and fee income. Service and fee income increased by $0.6 million, or 3.0%, from $21.1 million for the three months ended March 31, 2013 to $21.7 million for the three months ended March 31, 2014. Loss and loss adjustment expenses; net loss ratio. Loss and LAE increased by $113.5 million, or 118.2%, from $96.0 million for the three months ended March 31, 2013 to $209.4 million for the three months ended March 31, 2014 primarily reflecting the Quota Share Runoff as well as the Tower Cut-Through Reinsurance Agreement. Our net loss ratio decreased from 66.3% for the three months ended March 31, 2013 to 64.0% for the three months ended March 31, 2014 primarily due to a lower loss ratio experienced on our Tower Cut-Through Reinsurance Agreement. Acquisition and other underwriting costs. Acquisition and other underwriting costs increased by $30.1 million from $25.7 million for the three months ended March 31, 2013 to $55.8 million for the three months ended March 31, 2014. The increase was primarily due to the Tower Cut-Through Reinsurance Agreement and Quota Share Runoff. General and administrative expense. General and administrative expense decreased by $0.3 million, or 0.5%, from $63.8 million for the three months ended March 31, 2013 to $63.5 million for the three months ended March 31, 2014. Net operating expense; net operating expense ratio (non-GAAP). Net operating expense increased by $49.1 million, or 113.5%, from $43.2 million for the three months ended March 31, 2013 to $92.3 million for the three months ended March 31, 2014. The net operating expense ratio (non-GAAP) decreased from 29.8% for the three months ended March 31, 2013 to 28.2% for the three months ended March 31, 2014 primarily due to the lower expense ratio on the Tower Cut-Through Reinsurance Agreement. Underwriting income. Underwriting income increased from $5.7 million for the three months ended March 31, 2013 to $25.5 million for the three months ended March 31, 2014 primarily as a result of the Tower Cut-Through Reinsurance Agreement and the Quota Share Runoff. The combined ratio for the three months ended March 31, 2014 decreased to 92.2% compared to 96.1% for the same period in 2013 primarily as the result of our lower net loss ratio and net operating expense ratio experienced on policies reinsured under the Tower Cut-Through Reinsurance Agreement. 45

-------------------------------------------------------------------------------- A&H Segment - Results of Operations for the Three Months Ended March 31, 2014 and 2013 (Unaudited) Three Months Ended March 31, 2014 2013 (Amounts in Thousands) Gross premiums written $ 39,534$ 7,315 Ceded premiums (48 ) (5 ) Net written premium $ 39,486$ 7,310 Change in unearned premiums (8,854 ) (1 ) Net earned premium $ 30,632$ 7,309 Service and fee income 15,033 6,212 Underwriting expenses: Loss and LAE 15,917 7,229 Acquisition costs and other underwriting costs 18,600



4,529

General and administrative 12,678



2,984

Total underwriting expenses $ 47,195 $



14,742

Underwriting income (loss) $ (1,530 )$ (1,221 ) Net loss ratio 52.0 % 98.9 % Net operating expense ratio (non-GAAP) 53.0 % 17.8 % Net combined ratio (non-GAAP) 105.0 % 116.7 % Three Months Ended March 31, Reconciliation of net operating expense ratio (non-GAAP): 2014 2013 (Amounts in Thousands) Total underwriting expenses $ 47,195$ 14,742 Less: Loss and loss adjustment expense 15,917



7,229

Less: Service, Fees and Other Income 15,033 6,212 Net operating expense $ 16,245$ 1,301 Net earned premium $ 30,632$ 7,309 Net operating expense ratio (non-GAAP) 53.0 % 17.8 %



A&H Segment Results of Operations for the Three Months Ended March 31, 2014 Compared with the Three Months Ended March 31, 2013 (Unaudited)

Gross premium written. Gross premium written increased by $32.2 million, from $7.3 million for the three months ended March 31, 2013 to $39.5 million for the three months ended March 31, 2014 as a result of the A&H Expansion and reinsuring the EHC Business. Net premium written. Net premium written increased by $32.2 million, from $7.3 million for the three months ended March 31, 2014 to $39.5 million for the three months ended March 31, 2014 as a result of the A&H Expansion and reinsuring the EHC Business. Net earned premium. Net earned premium increased by $23.3 million, from $7.3 million for the three months ended March 31, 2013 to $30.6 million for the three months ended March 31, 2014 as a result of the A&H Expansion and reinsuring the EHC Business. Service and fee income. Service and fee income increased by $8.8 million, or 142.0%, from $6.2 million for the three months ended March 31, 2013 to $15.0 million for the three months ended March 31, 2014 as a result of the A&H Expansion and the EHC Business. 46 -------------------------------------------------------------------------------- Loss and loss adjustment expenses; net loss ratio. Loss and LAE increased by $8.7 million, or 120.2%, from $7.2 million for the three months ended March 31, 2013 to $15.9 million for the three months ended March 31, 2014. Our net loss ratio decreased from 98.9% for the three months ended March 31, 2013 to 52.0% for the three months ended March 31, 2014. The loss ratio in the three months ended March 31, 2014 was positively affected by the reinsuring of EHC's business in 2014. Acquisition and other underwriting costs. Acquisition and other underwriting costs increased by $14.1 million from $4.5 million for the three months ended March 31, 2013 to $18.6 million for the three months ended March 31, 2014 primarily as a result of A&H Expansion expenses. General and administrative expense. General and administrative expense increased by $9.7 million from $3.0 million for the three months ended March 31, 2013 to $12.7 million for the three months ended March 31, 2014 primarily as a result of A&H Expansion expenses. Net operating expense; net operating expense ratio (non-GAAP). Net operating expense increased by $14.9 million from $1.3 million for the three months ended March 31, 2013 to $16.2 million for the three months ended March 31, 2014. The net operating expense ratio (non-GAAP) increased from 17.8% for the three months ended March 31, 2013 to 53.0% for the three months ended March 31, 2014 primarily as a result of the A&H Expansion expenses. Underwriting income. Underwriting income decreased from a loss of $1.2 million for the three months ended March 31, 2013 to a loss of $1.5 million for the three months ended March 31, 2014. The combined ratio for the three months ended March 31, 2013 decreased to 105.0% compared to 116.7% for the same period in 2013. The combined ratio was positively affected by the reinsuring of EHC's business in 2014. Investment Portfolio Our investment strategy emphasizes, first, the preservation of capital and, second, maximization of an appropriate risk-adjusted return. We seek to maximize investment returns using investment guidelines that stress prudent allocation among cash and cash equivalents, fixed-maturity securities and, to a lesser extent, equity securities. Cash and cash equivalents include cash on deposit, commercial paper, pooled short-term money market funds and certificates of deposit with an original maturity of 90 days or less. Our fixed-maturity securities include obligations of the U.S. Treasury or U.S. government agencies, obligations of U.S. and Canadian corporations, mortgages guaranteed by the Federal National Mortgage Association, the Government National Mortgage Association, the Federal Home Loan Mortgage Corporation, Federal Farm Credit entities, and asset-backed securities and commercial mortgage obligations. Our equity securities include preferred stock of U.S. and Canadian corporations. The annualized average yield on our investment portfolio was 3.57% and 3.63% and the average duration of the portfolio was 6.09 and 4.27 years for the three months ended at March 31, 2014 and 2013, respectively. The cost or amortized cost, fair value, and gross unrealized gains and losses on available-for-sale securities were as follows:



Gross

Cost or Gross Unrealized Unrealized March 31, 2014 (amounts in thousands) Amortized Cost Gains Losses Fair Value Equity securities: Common stock $ 1,939 $ - $ (390 )$ 1,549 Preferred stock 5,000 - (308 ) 4,692 Fixed maturities: U.S. Treasury and Federal agencies 28,022 1,053 (34 ) 29,041 States and political subdivisions bonds 104,300



2,269 (2,175 ) 104,394

Residential mortgage-backed securities 379,763



4,575 (5,152 ) 379,186

Corporate bonds 617,880



27,478 (3,526 ) 641,832

Commercial mortgage-backed securities 21,566 125 - 21,691 Subtotal $ 1,158,470$ 35,500$ (11,585 )$ 1,182,385 Less: Securities pledged 71,067 492 (819 ) 70,740 Total $ 1,087,403$ 35,008$ (10,766 )$ 1,111,645 47

--------------------------------------------------------------------------------

Gross Cost or Gross Unrealized Unrealized December 31, 2013 (amounts in thousands) Amortized Cost Gains Losses Fair Value Equity securities: Common stock $ 1,939 $ - $ - $ 1,939 Preferred stock 5,000 - (652 ) 4,348 Fixed maturities: U.S. Treasury and Federal agencies 30,655 920 - 31,575 States and political subdivisions bonds 101,105



1,681 (3,202 ) 99,584

Residential mortgage-backed securities 272,820



4,136 (7,527 ) 269,429

Corporate bonds 477,442



21,397 (7,044 ) 491,795

Commercial mortgage-backed securities 8,179 - (51 ) 8,128 Subtotal $ 897,140$ 28,134$ (18,476 )$ 906,798 Less: Securities pledged 133,013 3,884 (2,975 ) 133,922 Total $ 764,127$ 24,250$ (15,501 )$ 772,876 The decrease in gross unrealized losses from $15.5 million at December 31, 2013 to $10.8 million at March 31, 2014 resulted from fluctuations in market interest rates. The tables below summarize the credit quality of our fixed-maturity and preferred securities as of March 31, 2014 and December 31, 2013, as rated by Standard and Poor's. Percentage of Fixed-Maturity Cost or Amortized and Preferred March 31, 2014 (amounts in thousands) Cost Fair Value Securities U.S. Treasury $ 28,022 $ 29,041 2.5 % AAA 76,547 76,379 6.5 % AA, AA+, AA- 507,384 509,155 43.1 % A, A+, A- 224,175 237,749 20.0 % BBB, BBB+, BBB- 282,440 290,085 24.6 % BB+ and lower 37,963 38,427 3.3 % Total $ 1,156,531$ 1,180,836 100.0 % Percentage of Fixed-Maturity Cost or Amortized and Preferred December 31, 2013 (amounts in thousands) Cost Fair Value Securities U.S. Treasury $ 30,656 $ 31,575 3.5 % AAA 69,893 69,616 7.7 % AA, AA+, AA- 377,956 374,479 41.4 % A, A+, A- 170,879 181,621 20.1 % BBB, BBB+, BBB- 207,764 210,336 23.2 % BB+ and lower 38,053 37,232 4.1 % Total $ 895,201$ 904,859 100.0 %



The tables below summarize the investment quality of our corporate bond holdings and industry concentrations as of March 31, 2014 and December 31, 2013.

48 -------------------------------------------------------------------------------- % of March 31, AA+, BBB+, Corporate 2014 (amounts in AA, BBB, BB+ or Fair Bonds thousands) AAA AA- A+,A,A- BBB- Lower Value Portfolio Corporate Bonds: Financial Institutions 1.9 % 9.4 % 27.0 % 11.8 % 0.3 % $ 323,614 50.4 % Industrials - % 3.0 % 6.6 % 31.5 % 3.4 % 285,614 44.5 % Utilities/Other - % - % 1.7 % 1.9 % 1.5 % 32,604 5.1 % 1.9 % 12.4 % 35.3 % 45.2 % 5.2 % $ 641,832 100.0 % % of December 31, AA+, BBB+, Corporate 2013 (amounts in AA, BBB, BB+ or Fair Bonds thousands) AAA AA- A+,A,A- BBB- Lower Value Portfolio Corporate Bonds: Financial Institutions 2.5 % 12.1 % 28.7 % 13.9 % 0.5 % $ 283,766 57.7 % Industrials - % 1.8 % 4.7 % 26.7 % 4.3 % 184,649 37.5 % Utilities/Other - % - % 0.7 % 2.2 % 1.9 % 23,380 4.8 % 2.5 % 13.9 % 34.1 % 42.8 % 6.7 % $ 491,795 100.0 % The cost or amortized cost and fair value of available-for-sale debt securities held as of March 31, 2014, by contractual maturity, are shown in the table below. Actual maturities may differ from contractual maturities because some borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. March 31, 2014 (amounts in thousands) Cost or Amortized Cost Fair Value Due in one year or less $ 4,862 $



4,881

Due after one year through five years 91,046



96,702

Due after five years through ten years 557,661 577,436 Due after ten years 96,633 96,248 Mortgage-backed securities 401,329 400,877 Total $ 1,151,531 $ 1,176,144 Gross Unrealized Losses. The tables below summarize the gross unrealized losses of fixed-maturity and equity securities by the length of time the security had continuously been in an unrealized loss position as of March 31, 2014 and December 31, 2013: Less Than 12 Months 12 Months or More Total March 31, Fair No. of Fair No. of Fair 2014 (amounts in Market Unrealized Positions Market Unrealized Positions Market Unrealized thousands) Value Losses Held Value Losses Held Value Losses Common stock $ 1,549$ (390 ) 1 $ - $ - - $ 1,549$ (390 ) Preferred stock 4,692 (308 ) 1 - - - 4,692 (308 ) U.S. Government 8,253 (34 ) 1 - - - 8,253 (34 ) States and political subdivisions 42,592 (1,108 ) 16 7,208 (1,067 ) 3 49,800 (2,175 ) Residential Mortgage-backed 245,704 (5,152 ) 7 - - - 245,704 (5,152 ) Corporate bonds 81,191 (1,765 ) 25 30,791 (1,761 ) 8 111,982 (3,526 ) Total $ 383,981$ (8,757 ) 51 $ 37,999$ (2,828 ) 11 $ 421,980$ (11,585 ) 49

--------------------------------------------------------------------------------

Less Than 12 Months 12 Months or More Total December 31, Fair No. of Fair No. of Fair



2013 (amounts in Market Unrealized Positions Market

Unrealized Positions Market Unrealized thousands)

Value Losses Held Value



Losses Held Value Losses Preferred stock $ 4,348$ (652 )

1 $ - $ - - $ 4,348$ (652 ) States and political subdivisions 32,770 (2,622 ) 18 2,600 (580 ) 2 35,370 (3,202 )



Residential

Mortgage-backed 176,491 (7,527 ) 6 - - - 176,491 (7,527 )



Commercial

Mortgage-backed 8,128 (51 ) 2 - - - 8,128 (51 )



Corporate bonds 128,362 (4,051 ) 39 41,673

(2,993 ) 9 170,035 (7,044 ) Total $ 350,099$ (14,903 ) 66 $ 44,273



$ (3,573 ) 11 $ 394,372$ (18,476 )

There were 62 and 77 securities at March 31, 2014 and December 31, 2013, respectively, that account for the gross unrealized loss, none of which we deemed to be OTTI. Significant factors influencing our determination that none of the securities were OTTI included the magnitude of unrealized losses in relation to cost, the nature of the investment and management's intent not to sell these securities and our determination that it was more likely than not that we would not be required to sell these investments before anticipated recovery of fair value to our cost basis. Restricted Cash and Investments. In order to conduct business in certain states, we are required to maintain letters of credit or assets on deposit to support state-mandated insurance regulatory requirements and certain third party agreements. We also utilize trust accounts to collateralize business with our reinsurance counterparties. Assets held on deposit or in trust accounts are primarily in the form of cash or certain high-grade securities. The fair values of our restricted assets as of March 31, 2014 and December 31, 2013 are as follows: (amounts in thousands) March 31, 2014 December 31, 2013 Restricted cash $ 8,920 $ 1,155 Restricted investments - fixed maturities at fair value 33,120 42,092 Total restricted cash and investments $ 42,040 $ 43,247 Other. We enter into reverse repurchase and repurchase agreements, which are accounted for as either collateralized lending or borrowing transactions and are recorded at contract amounts which approximate fair value. For the collateralized borrowing transactions (i.e., repurchase agreements), we receive cash or securities that we invest or hold in short-term or fixed-income securities. As of March 31, 2014, we had collateralized borrowing transaction principal outstanding of $67.0 million at interest rates between 0.22% and 0.28%. As of December 31, 2013, we had collateralized borrowing transaction principal outstanding of $109.6 million at interest rates between 0.37% and 0.44%. Interest expense associated with the repurchase borrowing agreements for the three months ended March 31, 2014 and 2013 was $0.1 million and $0.0 million, respectively. We had approximately $70.7 million and $133.9 million of collateral pledged in support for these agreements as of March 31, 2014 and December 31, 2013, respectively. Investment in Entities Holding Life Settlement Contracts A life settlement contract is a contract between the owner of a life insurance policy and a third party who obtains the ownership and beneficiary rights of the underlying life insurance policy. During 2010, we formed Tiger Capital LLC ("Tiger") with a subsidiary of AmTrust for the purpose of acquiring certain life settlement contracts. In 2011, we formed AMT Capital Alpha, LLC ("AMT Alpha") with a subsidiary of AmTrust for the purpose of acquiring additional life settlement contracts. In the first quarter of 2013, we acquired a 50% interest in AMT Capital Holdings, S.A. ("AMTCH"), the other 50% of which is owned by AmTrust. Additionally, in December 2013, we formed AMT Capital Holdings II, S.A. ("AMTCH II") with AmTrust for the purpose of acquiring additional life settlement contracts. We have a 50% ownership interest in each of Tiger, AMT Alpha, AMTCH and AMTCH II (collectively, 50 -------------------------------------------------------------------------------- the "LSC Entities"). The LSC Entities may also acquire premium finance loans made in connection with the borrowers' purchase of life insurance policies that are secured by the policies, which are in default at the time of purchase. The LSC Entities acquire the underlying policies through the borrowers' voluntary surrender of the policy in satisfaction of the loan or foreclosure. A third party serves as the administrator for two of the life settlement contract portfolios, for which it receives an administrative fee. The third-party administrator is eligible to receive a percentage of profits after certain time and performance thresholds have been met. The LSC Entities account for investments in life settlements in accordance with ASC 325-30, Investments in Insurance Contracts, which states that an investor shall elect to account for its investments in life settlement contracts by using either the investment method or the fair value method. The election is made on an instrument by instrument basis and is irrevocable. The LSC Entities have elected to account for these investments using the fair value method. As no comparable market pricing is available, the LSC Entities determine fair value based upon their estimate of the discounted cash flow related to policies (net of the reserves for improvements in mortality, the possibility that the high net worth individuals represented in the portfolio may have access to better health care, the volatility inherent in determining the life expectancy of insureds with significant reported health impairments, the possibility that the issuer of the policy or a third party will contest the payment of the death benefit payable to the LSC Entities, and the future expenses related to the administration of the portfolio), which incorporates current life expectancy assumptions, premium payments, the credit exposure to the insurance company that issued the life settlement contracts and the rate of return that a buyer would require on the contracts. As of March 31, 2014, we have a 50% ownership interest in the LSC Entities that hold certain life settlement contracts, and the fair value of these contracts owned by the LSC Entities is $268.2 million, with our proportionate interest being $134.1 million. Total capital contributions of approximately $3.1 million and $4.4 million were made to the LSC Entities during the three months ended March 31, 2014 and 2013, respectively, for which we contributed approximately $1.6 million and $3.0 million in those same periods. The LSC Entities used the contributed capital to pay premiums and purchase policies. As of March 31, 2014, the face value amounts of the 288 life insurance policies disclosed in the table below was approximately $1.9 billion. During the three months ended March 31, 2014, upon the voluntary surrender of the underlying life insurance policies in satisfaction of the remaining defaulted premium finance loans, the LSC Entities became the owner and beneficiary under the underlying life insurance policies with respect to such loans. As of March 31, 2014, the LSC Entities owned no premium finance loans. The following table describes details of our investment in LSC Entities as of March 31, 2014. This table shows the gross amounts for the portfolio of life insurance policies owned by the LSC Entities, in which we and AmTrust each own a 50% interest.



(amounts in thousands, except number of life Number of settlement contracts)

Life Settlement Expected Maturity Term in Years Contracts Fair Value(1) Face Value As of March 31, 2014 0 - 1 - $ - $ - 1 - 2 3 17,236 25,000 2 - 3 8 43,069 73,000 3 - 4 7 15,824 38,000 4 - 5 3 7,886 20,000 Thereafter 267 184,184 1,718,409 Total 288 $ 268,199$ 1,874,409 (1) The LSC Entities determined the fair value as of March 31, 2014 based on



210 policies out of 288 policies, as the LSC Entities assigned no value to

78 of the policies as of March 31, 2014. The LSC Entities estimate the fair

value of a life insurance policy using a cash flow model with an

appropriate discount rate. In some cases, the cash flow model calculates

the value of an individual policy to be negative, and therefore the fair

value of the policy is zero as no liability exists when a negative value is

calculated. The LSC Entities are not contractually bound to pay the premium

on its life settlement contracts and, therefore, would not pay a willing

buyer to assume title of these contracts. Additionally, certain of the LSC

Entities' acquired policies were structured to have low premium payments at

inception of the policy term, which later escalate greatly towards the tail

end of the policy term. At the current time, the LSC Entities expense all

premiums paid, even on policies with zero fair value. Once the premium

payments escalate, the LSC Entities may allow the policies to 51

-------------------------------------------------------------------------------- lapse. In the event that death benefits are realized in the time frame between initial acquisition and premium escalation, it is a benefit to cash flow of the LSC Entities. For the contracts where the LSC Entities determined the fair value to be negative and therefore assigned a fair value of zero, the table below details the amount of premiums paid and the death benefits received for the three months ended March 31, 2014. March



31, 2014 Number of policies with a negative value from discounted cash flow model as of period end

78

Premiums paid for the preceding twelve month period for period ended $ 9,114 Death benefit received $ 3,012



Premiums to be paid by the LSC Entities, in which we have 50% ownership interests, for each of the five succeeding fiscal years to keep the life insurance policies in force as of March 31, 2014, are as follows:

Premiums (amounts in thousands) Due on Life Settlement Contracts 2014 $ 39,790 2015 42,339 2016 62,240 2017 40,309 2018 38,319 Thereafter 583,031 $ 806,028 For additional information about the fair value of the life settlement contracts, see Note 5, "Equity Investments in Unconsolidated Subsidiaries". For additional information about the risks inherent in determining the fair value of the portfolio of life insurance policies, see Item 1A, "Risk Factors-Risks Relating to Our Business Generally-A portion of our financial assets consists of life settlement contracts that are subject to certain risks" of our Annual Report on Form 10-K for the year ended December 31, 2013. Liquidity and Capital Resources We are organized as a holding company with twelve domestic insurance company subsidiaries, various foreign insurance and reinsurance subsidiaries, as well as various other non-insurance subsidiaries. Our principal sources of operating funds are premiums, service and fee income, investment income and proceeds from sales and maturities of investments. Our primary uses of operating funds include payments of claims and operating expenses. Currently, we pay claims using cash flow from operations and invest our excess cash primarily in fixed-maturity and, to a lesser extent, equity securities. Except as set forth below, we expect that projected cash flows from operations, as well as the net proceeds from the private placements, will provide us with sufficient liquidity to fund our anticipated growth by providing capital to increase the surplus of our insurance subsidiaries, as well as to pay claims and operating expenses, and to pay interest and principal on debt facilities and other holding company expenses for the foreseeable future. However, if our growth attributable to potential acquisitions, internally generated growth, or a combination of these factors, exceeds our expectations, we may have to raise additional capital. If we cannot obtain adequate capital on favorable terms or at all, we may be unable to support future growth or operating requirements and, as a result, our business, financial condition and results of operations could be adversely affected. To support our current and future policy writings, especially in light of the termination of the Personal Lines Quota Share Agreement, the Cut-Through Reinsurance Agreement and the Tower Transactions, we intend to raise substantial additional capital in the near term using a combination of debt and equity. We may generate liquidity through the issuance of debt or equity securities or financing through borrowings under credit facilities, or a combination thereof. During the first quarter of 2013, we entered into a three-year, $90.0 million credit agreement under which we had borrowed $59.2 million as of March 31, 2014. A portion of this borrowing, approximately $18 million, was 52 -------------------------------------------------------------------------------- used to pay off our previous line of credit agreement. See "Revolving Credit Agreement." In addition, we have $18.7 million of loans payable to ACP Re, an affiliated company. Our insurance subsidiaries are subject to statutory and regulatory restrictions imposed on insurance companies by their states of domicile which limit the amount of cash dividends or distributions that they may pay to us unless special permission is received from the insurance regulator of the relevant domiciliary state. The aggregate limit imposed by the various domiciliary states of our insurance subsidiaries was approximately $57.1 million and $61.1 million as of March 31, 2014 and December 31, 2013, respectively, taking into account dividends paid in the prior twelve month periods. During the three months ended March 31, 2014 and 2013, there were $0.0 million and $0.0 million of dividends and return of capital paid by the insurance subsidiaries to National General Management Corp. ("Management Corp.") or the Company. We forecast claim payments based on our historical experience. We seek to manage the funding of claim payments by actively managing available cash and forecasting cash flows on both a short-term and long-term basis. Cash payments for claims were $145.9 million and $101.6 million in the three months ended March 31, 2014 and 2013, respectively. Historically, we have funded claim payments from cash flow from operations (principally premiums), net of amounts ceded to our third party reinsurers. We presently expect to maintain sufficient cash flow from operations to meet our anticipated claim obligations and operating and capital expenditure needs. Our cash and investment portfolio has increased from $1,116.7 million at December 31, 2013 to $1,429.8 million at March 31, 2014. We do not anticipate selling securities in our investment portfolio to pay claims or to fund operating expenses. Should circumstances arise that would require us to do so, we may incur losses on such sales, which would adversely affect our results of operations and financial condition and could reduce investment income in future periods. Pursuant to an amended and restated management services agreement dated as of January 1, 2012 between Management Corp., on one hand, and certain of our other direct and indirect subsidiaries, on the other hand, such subsidiaries have delegated to Management Corp. underwriting duties, claims services, actuarial services, policyholder services, accounting, information technology and certain other administrative functions. The subsidiaries that are party to this agreement pay to Management Corp. a quarterly fee calculated as a percentage of the premium written by each such subsidiary, plus reimbursement for certain expenses. During the three months ended March 31, 2014, Management Corp. was paid approximately $6.2 million in management fees. Pursuant to a tax allocation agreement by and among us and certain of our direct and indirect subsidiaries, we compute and pay federal income taxes on a consolidated basis. Each subsidiary party to this agreement computes and pays to us its respective share of the federal income tax liability primarily based on separate return calculations. The LSC Entities in which we own a 50% interest also purchase life settlement contracts that require the LSC Entities to make premium payments on individual life insurance policies in order to keep the policies in force. We seek to manage the funding of premium payments required. We presently expect to maintain sufficient cash flow to make future capital contributions to the LSC Entities to permit them to make future premium payments. The following table is a summary of our statement of cash flows: (amounts in thousands) Three Months



Ended March 31,

2014



2013

Cash and Cash equivalents provided by (used in): Operating activities $ 161,853$ (2,059 ) Investing activities (261,126 ) 24,020 Financing activities 133,802 (32,109 ) Net Increase (Decrease) in Cash and Cash Equivalents $ 34,529$ (10,148 ) Comparison of the Three Months Ended March 31, 2014 and 2013 Net cash provided by operating activities was approximately $161.9 million for the three months ended March 31, 2014, compared with $2.1 million used by operating activities for the same period in 2013. For the three months ended March 31, 2014, net cash provided by operating activities increased $163.9 million versus the comparable period in 2013, primarily as a result of the Tower Cut-Through Reinsurance Agreement and the Quota Share Runoff. Net cash used in investing activities was $261.1 million for the three months ended March 31, 2014, compared with net cash provided by investing activities of $24.0 million for the three months ended March 31, 2013. For the three months ended March 31, 2014, net cash used in investing activities increased primarily due to an increase of $239.1 million in the purchases of fixed maturity investments, an increase of $55.7 million in the purchases of short term investments and a decrease of $47.2 million 53 -------------------------------------------------------------------------------- in the proceeds from the sale of fixed maturity investments, partially offset by a $51.1 million increase in the proceeds from the sale of short-term investments. Net cash provided by financing activities was $133.8 million for the three months ended March 31, 2014, compared with net cash used in financing activities of $(32.1) million for the three months ended March 31, 2013. For the three months ended March 31, 2014, cash provided by financing activities increased versus the comparable period in 2013 primarily due to the issuance of common stock in the February 2014 private placement.



Other Material Changes in Financial Position

March 31, December 31, (amounts in thousands) 2014 2013 Selected Assets: Premiums receivable, net $ 684,064$ 449,252 Goodwill and Intangible assets 165,748



156,915

Selected Liabilities: Loss and loss expense reserves $ 1,315,479 $



1,259,241

Unearned premium $ 692,557 $



476,232

Ceded reinsurance premium payable $ 117,733 $



93,534

Accounts Payable and accrued expenses $ 183,407 $



91,143

Deferred income taxes and income taxes payable 55,985



26,463

During the three months ended March 31, 2014, premiums receivable, net increased $234.8 million from December 31, 2013 primarily due to the Tower Cut-Through Reinsurance Agreement, the EHC Reinsurance Agreement and the Quota Share Runoff. Goodwill and intangible assets increased $8.8 million compared to December 31, 2013 due to the acquisition of Anticimex Reinsurance S.A. Unearned premium increased $216.3 million compared to December 31, 2013, primarily due to the Tower Cut-Through Reinsurance Agreement and Quota Share Runoff. Accounts payable and accrued expenses increased $92.3 million compared to December 31, 2013, primarily due to the Tower Cut-Through Reinsurance Agreement and the EHC Reinsurance Agreement. Deferred income taxes and income taxes payable increased $29.5 million primarily due to the acquisition of Anticimex Reinsurance SA and the corresponding deferred tax liability associated with the acquired equalization reserves as well as the increase in taxable income year over year. Ceded reinsurance premium payable increased $24.2 million primarily due to the Tower Cut-Through Reinsurance Agreement and the EHC Reinsurance Agreement. All other balances remained within the expected range. Reinsurance Our insurance subsidiaries utilize reinsurance agreements to transfer portions of the underlying risk of the business we write to various affiliated and third-party reinsurance companies. Reinsurance does not discharge or diminish our obligation to pay claims covered by the insurance policies we issue; however, it does permit us to recover certain incurred losses from our reinsurers and our reinsurance recoveries reduce the maximum loss that we may incur as a result of a covered loss event. We believe it is important to ensure that our reinsurance partners are financially strong and they generally carry at least an A.M. Best rating of ''A-'' (Excellent) at the time we enter into our reinsurance agreements. We also enter reinsurance relationships with third-party captives formed by agents as a mechanism for sharing risk and profit. The total amount, cost and limits relating to the reinsurance coverage we purchase may vary from year to year based upon a variety of factors, including the availability of quality reinsurance at an acceptable price and the level of risk that we choose to retain for our own account. For a more detailed description of our reinsurance arrangements, see ''Reinsurance'' in ''Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations'' in our Annual Report on Form 10-K for the year ended December 31, 2013. Revolving Credit Agreement On February 20, 2013, we entered into a three-year, $90.0 million secured credit agreement (the "Credit Agreement"), with JPMorgan Chase Bank, N.A., as Administrative Agent, KeyBank National Association as Syndication Agent, First Niagara Bank, N.A, as Documentation Agent, and Associated Bank, National Association. The Credit Agreement makes available a revolving credit facility with a letter of credit limit of $10 million. In connection with our entry into the Credit Agreement, we repaid and 54 -------------------------------------------------------------------------------- terminated our existing $25 million credit agreement dated as of August 18, 2011 with JPMorgan Chase Bank, N.A. The maturity date of the new agreement is February 20, 2016. The Credit Agreement contains certain restrictive covenants customary for facilities of this type (subject to negotiated exceptions and baskets), including restrictions on indebtedness, liens, acquisitions and investments, dispositions and restricted payments, which include a restriction on the payment of cash dividends to our stockholders if an event of default has occurred and is continuing or if we are out of compliance with our financial covenants. Events of default include, among other things, a failure to make payments of interest, principal or fees required under the Credit Agreement, failure to make payments in respect of other material indebtedness of the Company or its subsidiaries, and the occurrence of a change of control, as defined therein. We have pledged all of the stock of ten of our insurance subsidiaries, Management Corp. and certain of our other subsidiaries for the benefit of the lenders to secure our obligations under the Credit Agreement. There are also financial covenants that require us to maintain a minimum consolidated net worth, a maximum consolidated leverage ratio, a minimum fixed charge coverage ratio, a minimum risk-based capital and a minimum statutory surplus. We were in compliance with all covenants as of March 31, 2014. As of March 31, 2014, we had $59.2 million in outstanding borrowings under this Credit Agreement. Borrowings under the Credit Agreement bear interest at (1) the greatest of (a) the Administrative Agent's prime rate, (b) the federal funds effective rate plus 0.5% or (c) the adjusted LIBOR for a one-month interest period on such day plus 1%, plus (2) a margin that is adjusted on the basis of our consolidated leverage ratio. Eurodollar borrowings under the Credit Agreement will bear interest at the adjusted LIBOR for the interest period in effect plus a margin that is adjusted on the basis of our consolidated leverage ratio. We recorded total interest expense of approximately $0.4 million and $0.2 million for the three months ended March 31, 2014 and 2013, respectively, under our current and former Credit Agreements. Fees payable by us under the Credit Agreement include a letter of credit participation fee (which is the margin applicable to Eurodollar borrowings and is adjusted on the basis of our consolidated leverage ratio (ranging between 2.0% and 2.5%)), a letter of credit fronting fee with respect to each letter of credit equal to 0.125% and a commitment fee on the available commitments of the lenders (ranging between 0.25% and 0.35% based on our consolidated leverage ratio, and which rate was 0.30% at March 31, 2014). The consummation of the transactions contemplated by the Personal Lines Purchase Agreement will, absent a waiver or amendment, result in our being in violation of certain covenants in the credit agreement. We intend to seek appropriate amendments to the Credit Agreement so that the consummation of the transactions contemplated by the Personal Lines Purchase Agreement does not result in a violation thereunder, or we may seek to refinance the Credit Agreement. There can be no assurance that we will obtain amendments or a refinancing. See Item 1A, "Risk Factors-The covenants in our credit agreement limit our financial and operational flexibility, which could have an adverse effect on our financial condition" of our Annual Report on Form 10-K for the year ended December 31, 2013. In addition, we have incurred $18.7 million principal amount of loans outstanding from ACP Re, an affiliated company, which were used for general corporate purposes, as well as in connection with the 800 Superior financing and capital contributions to the owner of the LSC Entities. See Note 14, "Related Party Transactions." Securities Sold (Purchased) Under Agreements to Repurchase (Sell), at Contract Value We enter into reverse repurch ase and repurchase agreements, which are accounted for as either collateralized lending or borrowing transactions and are recorded at contract amounts which approximate fair value. For the collateralized borrowing transactions (i.e., repurchase agreements), we receive cash or securities that we invest or hold in short-term or fixed-income securities. As of March 31, 2014, we had collateralized borrowing transaction principal outstanding of $67.0 million at interest rates of 0.22% and 0.28%. As of December 31, 2013, we had collateralized borrowing transaction principal outstanding of $109.6 million at interest rates between 0.37% and 0.44%. Interest expense associated with the repurchase borrowing agreements for the three months ended March 31, 2014 and 2013 was $0.1 million and $0.0 million, respectively. We had approximately $70.7 million and $133.9 million of collateral pledged in support for these agreements as of March 31, 2014 and December 31, 2013, respectively. Deferred Purchase Obligations In the first quarter of 2013, we paid the third and final deferred payment related to the March 1, 2010 acquisition of our P&C insurance business. At the original closing, we paid an amount equal to the estimated net tangible book value less (i) the purchase price discount amount and (ii) $90.0 million. The balance of the purchase price was payable in three equal annual installments of $30.0 million plus interest at a rate of 2.28% to be made on the first, second and third anniversaries of the closing date. 55



--------------------------------------------------------------------------------

On April 15, 2013, we acquired Euro Accident Health & Care Insurance Aktiebolag ("EHC") for an initial purchase price of approximately $23.6 million. The transaction also includes a deferred purchase price arrangement whereby, once EBITDA (including EBITDA of a Company affiliate which will underwrite products sold by EHC) when combined with EHC's equity at closing exceeds the initial purchase price, the seller will be entitled to receive an amount corresponding to 50% of the EHC's EBITDA (including EBITDA of a Company affiliate which will underwrite products sold by EHC) for each of the fiscal years 2015, 2016, 2017 and 2018. We estimate the total purchase price including the deferred arrangement will be approximately $42.8 million. EHC is a limited liability company incorporated and registered under the laws of Sweden and primarily administers accident and health business in that region.


For more stories on investments and markets, please see HispanicBusiness' Finance Channel



Source: Edgar Glimpses


Story Tools






HispanicBusiness.com Facebook Linkedin Twitter RSS Feed Email Alerts & Newsletters