News Column

National General Holdings Corp. Reports Second Quarter 2014 Results

August 7, 2014

NEW YORK, Aug. 7, 2014 (GLOBE NEWSWIRE) -- National General Holdings Corp. (Nasdaq:NGHC) today reported second quarter 2014 net income of $30.3 million or $0.32 per diluted share, compared to $13.1 million or $0.22 per diluted share in the second quarter of 2013. Operating earnings (1) were $33.8 million or $0.36 per diluted share in the second quarter of 2014, compared to $13.0 million or $0.22 per diluted share in the second quarter of 2013.

Second Quarter 2014 Highlights Versus Second Quarter 2013

• Net written premium grew by $271.6 million or 184.7% to $418.6 million, driven by the run-off of our third-party quota share treaty, assumed premiums from the Tower Personal Lines Cut-Through Reinsurance Agreement, underlying growth within our P&C business, additional premiums from acquisitions completed during the past year, and continued A&H expansion.

 • The combined ratio was 93.8% (with a loss ratio of 65.3% and an expense ratio of 28.5%), compared to a combined ratio of 92.6% (with a loss ratio of 63.8% and an expense ratio of 28.8%) in the prior year's quarter. The 1.2 point combined ratio increase was driven by higher loss and expense ratios in our expanding A&H segment, partially offset by improved loss and expense ratios in our P&C segment. 

 • Total revenues grew by $225.8 million or 104.0% to $442.9 million, driven by the aforementioned premium growth, service and fee income growth of $7.1 million or 22.5%, and net investment income growth of $4.1 million or 57.7%, partially offset by a $23.2 million or 93.7% decline in ceding commission income reflecting the run-off of our third-party quota share. 

 • Shareholders' equity was $954.1 million at quarter's end, growth of 11.5% from March 31, 2014, reflecting our $55 millionJune 2014 preferred share offering as well as the quarter's retained earnings; excluding preferred stock, shareholders' equity grew 5.1% from the end of the first quarter. Fully diluted book value per share was $9.48, up 4.7% from March 31, 2014. Annualized operating return on average equity (ROE) was 15.4% for the second quarter.

 • The second quarter also included numerous developments across many areas of our business: • We took several actions to strengthen our capital position, including a $250 million senior debt issuance, a $55 million preferred stock offering, and a new $135 million credit facility.•A.M. Best affirmed our "A-" (Excellent) financial strength rating and "a-" issuer credit rating.• We completed a sizable reinsurance placement which went into effect as of 7/1 that will substantially protect our capital position in the case of a catastrophic event. • We relocated our operational facility in Winston-Salem, North Carolina, to a lower cost, state of the art building which we expect will lead to considerable cost savings. • On June 27, we acquired certain assets of Imperial Management Corporation, including two underwriting subsidiaries, a retail agency subsidiary, and an MGA subsidiary. 

Michael Karfunkel, National General's Chairman and Chief Executive Officer stated: "We are extremely happy with our second quarter results, which equate to an excellent 15.4% annualized ROE and build upon the strong start we had in the first quarter. Results again included impressive top line growth, both organically and from recent transactions, as well as solid underwriting profitability as evidenced by our 93.8% combined ratio. We showed progress on a number of other fronts in the quarter, taking several steps to strengthen our capital position, having our ratings reaffirmed by A.M. Best, completing our 2014 reinsurance placement, and relocating our Winston-Salem office. Lastly, during the quarter we announced the acquisition of Imperial, a transaction we believe is a natural fit with our recent homeowners expansion efforts, will add diversification and an enhanced geographic footprint to our insurance portfolio, and will be immediately accretive to earnings. By almost any measure, our first full quarter as a public company was a resounding success."

Overview of Second Quarter 2014 as Compared to Second Quarter 2013

Gross written premium grew 41.7% to $468.5 million, net written premium grew 184.7% to $418.6 million, and net earned premium grew 153.3% to $391.5 million. Our premium growth was driven by several key factors: (1) a continued increase in net retention due to the run-off of our third party quota share, (2) new and renewal business from the Cut-Through Reinsurance Agreement of Tower Group Personal Lines Insurance Operations, (3) additional premiums from acquisitions completed during the past year, (4) underlying growth within our P&C segment, and (5) continued expansion of our A&H segment. 

Ceding commission income decreased 93.7% to $1.6 million, reflecting the run-off of our third party quota share. Service, fees, and other income grew 22.5% to $38.5 million, driven by double-digit growth in both the P&C and A&H segments. 

The combined ratio was 93.8% with a loss ratio of 65.3% and an expense ratio of 28.5%, versus a prior year combined ratio of 92.6% with a loss ratio of 63.8% and an expense ratio of 28.8%. The quarter's increased loss ratio was primarily driven by an elevated loss ratio within the A&H segment resulting from large loss activity in the quarter. The second quarter expense ratio decreased modestly as a result of an improved P&C expense ratio, partially offset by our continued investment in the expansion of our A&H business. Notably, the quarter's expense ratio included 0.7 points of expense from non cash amortization of intangible assets, versus a benefit of 0.2 points in the prior year's quarter. 

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

Property & Casualty - Gross written premium grew 26.9% to $407.9 million, net written premium grew 159.8% to $358.1 million, and net earned premium grew 148.8% to $361.6 million. P&C premium growth was driven by a continued increase in net retention due to the run-off of our third party quota share, the addition of new and renewal business from the Cut-Through Reinsurance Agreement related to Tower Group Personal Lines Insurance, additional premiums from acquisitions completed during the past year, and modest underlying organic growth. Ceding commission income decreased 93.7% to $1.6 million, reflecting the run-off of our third party quota share. Service, fees, and other income grew 14.9% to $23.4 million, driven by the increased premium volume in the quarter. The combined ratio was 91.9% with a loss ratio of 63.9% and an expense ratio of 28.0%, versus a prior year combined ratio of 93.0% with a loss ratio of 64.1% and an expense ratio of 28.9%. The quarter's improved loss ratio was driven primarily by business mix changes, most notably the addition of the homeowners line of business. The quarter's improved expense ratio was primarily the result of the impact of the ceding commission paid on business written via the Cut-Through Reinsurance Agreement. The P&C expense ratio included 0.2 points of expenses for non cash amortization of intangible assets, versus a 0.3 point benefit in the prior year's quarter.  

 •Accident & Health - Gross written premium grew to $60.6 million, net written premium grew to $60.5 million, and net earned premium grew to $29.8 million, from $9.3 million, $9.2 million, and $9.2 million, respectively, in the prior year's quarter. The substantial A&H premium growth was primarily driven by a sizable amount of premiums from EuroAccident, as well as modest growth from other A&H businesses. Service, fees, and other income grew 36.7% to $15.1 million, primarily reflecting growth at EuroAccident and VelaPoint (our call center general agency). The combined ratio was 116.7% with a loss ratio of 82.4% and an expense ratio of 34.3%, versus a prior year combined ratio of 86.4% with a loss ratio of 59.5% and an expense ratio of 26.9%. The quarter's increased loss ratio included approximately $2.0 million or 6.7 points related to several large losses that principally occurred in legacy blocks of business which are in runoff. The second quarter 2014 expense ratio included increased expenses related to our continued investment in the expansion of our A&H business, as well as 6.6 points of expenses for non cash amortization of intangible assets, versus 1.2 points of expenses in the prior year's quarter.

Investment income, excluding net realized gains and losses, grew 57.7% to $11.3 million, reflecting an increase in the size of our investment portfolio mainly as a result of our capital raising actions in the first half of 2014. Second quarter 2014 results included no net realized investment gains or losses compared with a loss of $0.8 million in the second quarter 2013. Total cash, cash equivalents and investments of $1.79 billion increased 24.9% from $1.43 billion at March 31, 2014, largely due to the addition of proceeds from our $250 million debt issuance and our $55 million preferred stock offering. 

Interest expense of $2.5 million increased from $0.6 million in the second quarter 2013 due to an increased amount of debt on our balance sheet. Debt was $259.1 million as of June 30, 2014, up from $79.9 million at March 31, 2014, primarily as a result of our $250 millionMay 2014 debt issuance.

Equity in earnings of unconsolidated subsidiaries (predominantly our investment in Life Settlement Entities) was a loss of $2.6 million in the quarter versus earnings of $0.5 million in the prior year's quarter, reflecting fair value adjustments on our life settlement contracts.  

The second quarter 2014 provision for income taxes was $0.4 million and the effective tax rate for the quarter was 1.3%. Included in the second quarter 2014 provision for income taxes was an $8.9 million benefit attributable to a reduction of the deferred tax liability associated with the equalization reserves of our Luxembourg Reinsurance Company subsidiaries. Excluding this benefit, the tax rate for the quarter would have been 27.9%.

Shareholders' equity was $954.1 million, up 11.5% from $855.6 million at March 31, 2014, driven by the addition of proceeds from our $55 millionJune 2014 preferred stock offering and the quarter's retained earnings. Fully diluted book value per share was $9.48, growth of 4.7% from $9.06 at March 31, 2014. Annualized operating ROE was 15.4% for the second quarter and 15.5% for the six months ended June 30, 2014.

Additional Items

• During the quarter, we took several steps to substantially strengthen our capital position: • On May 23, 2014, we announced the closing of a private issuance of $250 million aggregate principal amount of 6.75% senior notes due May 15, 2024. • On May 30, 2014, we entered into a $135 million credit agreement, replacing our existing $90 million agreement which was paid down during the quarter. • On June 25, 2014, we closed an offering of $55 million of 7.50% Non-Cumulative Series A Preferred Stock redeemable on or after July 15, 2019. 

 • On May 30, 2014A.M. Best affirmed our "A-" (Excellent) financial strength rating and "a-" issuer credit rating, and during the quarter A.M. Best also assigned ratings of "bbb-" to our senior debt and "bb" to our preferred stock. Additionally, following our acquisition of Imperial, A.M. Best upgraded the financial strength rating to A- (Excellent) and the issuer credit rating to "a-" of Imperial Fire and Casualty Company, and assigned the same ratings to National Automotive Insurance Company

 • We completed a sizable reinsurance placement which went into effect as of July 1, 2014 that will conservatively protect our capital position in the case of a catastrophic event.   Our property catastrophe program provides $550 million of coverage in excess of a $50 million per event retention, with one reinstatement. We believe that our property catastrophe reinsurance program provides coverage for greater than a 1-in-150 year event. Our casualty catastrophe program provides $45 million of coverage in excess of a $5 million retention.  

 • On June 27, 2014 we announced the acquisition of certain assets of Imperial Management Corporation, including its underwriting subsidiaries Imperial Fire & Casualty Insurance Company and National Automotive Insurance Company, its retail agency subsidiary ABC Insurance Agencies, and its managing general agency subsidiary RAC Insurance Partners. The total purchase price for the transaction approximated GAAP book value of the combined operations, and we expect the transaction to be immediately accretive to earnings. Headquartered in Opelousas, Louisiana, Imperial provides personal auto, commercial auto, homeowners, and Federal Flood policies through its four operating subsidiaries. In 2013, Imperial produced approximately $150 million of gross written premium through underwriting subsidiaries and approximately $45 million of managed premium was written by ABC insurance agencies.

 • On June 30, 2014 we completed the process of relocating our Winston-Salem, NC operational facility, moving 700 employees to a lower cost, state of the art building with 116,000 square feet of office space. We expect the move to lead to considerable cost savings. 

Conference Call

On Thursday, August 7, 2014 at 11:00 AM ET, Chairman and CEO Michael Karfunkel and CFO Mike Weiner will review these results via a conference call that may be accessed as follows:

Toll-Free Dial-in:  888-267-2860
Toll Dial-in (outside the U.S.):  973-413-6102
Conference Entry Code: 842046
Webcast Registration: http://ir.nationalgeneral.com/events.cfm


A replay of the conference call will be accessible from 2:00 PM ET on Thursday, August 7, 2014 to 11:59 PM ET on Thursday, August 14, 2014 by dialing either 800-332-6854 (toll-free) within the U.S. or 973-528-0005 outside the U.S. and entering passcode 842046. In addition, a replay of the webcast can also be retrieved at http://ir.nationalgeneral.com/events.cfm.

About National General Holdings Corp.

National General Holdings Corp., headquartered in New York City, is a specialty personal lines insurance holding company. Through its subsidiaries, which trace their roots to 1939 and have a financial strength rating of A- (excellent) from A.M. Best, the Company provides personal and commercial automobile, recreational vehicle, motorcycle, homeowners, 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. There can be no assurance that actual developments will be those anticipated by the Company. Actual results may differ materially from those expressed or implied in these statements as a result of significant risks and uncertainties, including, but not limited to, non-receipt of expected payments from insureds or reinsurers, changes in interest rates, a downgrade in the financial strength ratings of our insurance subsidiaries, the effect of the performance of financial markets on our investment portfolio, estimates of the fair value of life settlement contracts, development of claims and the effect on loss reserves, accuracy in projecting loss reserves, the cost and availability of reinsurance coverage, the effects of emerging claim and coverage issues, changes in the demand for our products, our degree of success in integrating acquired businesses, the effect of general economic conditions, state and federal legislation, regulations and regulatory investigations into industry practices, risks associated with conducting business outside the United States, developments relating to existing agreements, disruptions to our business relationships, 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 statements 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
$ in thousands
(Unaudited)
 
 Three Months Ended June 30,Six Months Ended June 30,
 2014201320142013
Revenues:        
Gross written premium$468,473$330,689$1,114,615$688,302
Ceded premiums (related parties - three months $12,690; $147,401 and six months $42,967; $291,501) (49,917) (183,685) (128,574) (368,782)
Net written premium 418,556 147,004 986,041 319,520
Net earned premium 391,466 154,550 749,318 306,706
         
Ceding commission income (primarily related parties) 1,557 24,735 6,927 49,992
Service and fee income 38,486 31,406 75,192 58,668
Net investment income 11,321 7,181 20,535 13,654
Net realized gain/(loss) on investments (751) 947
Other than temporary impairment loss
Other revenue 100 107 16
Total revenues$442,930$217,121$852,079$429,983
         
Expenses:        
Loss and loss adjustment expense$255,604$98,669$480,951$201,871
Acquisition costs and other underwriting expenses 74,418 32,222 148,791 62,432
General and administrative 77,059 68,412 153,258 135,221
Interest expense 2,519 573 3,112 916
Total expenses$409,600$199,876$786,112$400,440
         
Income before provision for income taxes and equity in earnings (losses) of unconsolidated subsidiaries 33,330 17,245 65,967 29,543
Provision for income taxes 424 3,782 7,760 7,553
Income before equity in earnings (losses) of unconsolidated subsidiaries 32,906 13,463 58,207 21,990
Equity in earnings (losses) of unconsolidated subsidiaries (2,610) 487 (1,487) (324)
Net income before non-controlling interest and cumulative dividends on preferred shares$30,296$13,950$56,720$21,666
Less: net income attributable to non-controlling interest (38) (6) 44
Net income before cumulative dividends on preferred shares$30,334$13,950$56,726$21,622
Less: cumulative dividends on preferred shares 896 2,158
Net income available to common stockholders$30,334$13,054$56,726$19,464
 
 
Earnings and Per Share Data
$ in thousands, except shares and per share data
(Unaudited)
 
 Three Months Ended June 30,Six Months Ended June 30,
 2014201320142013
Net income available to common stockholders$30,334$13,054$56,726$19,464
Basic net income per common share$0.32$0.24$0.63$0.39
Diluted net income per common share*$0.32$0.22$0.62$0.35
         
Operating earnings attributable to NGHC(1)$33,811$13,023$61,561$19,768
Basic operating earnings per common share(1)$0.36$0.24$0.69$0.39
Diluted operating earnings per common share(1)*$0.36$0.22$0.68$0.36
         
Dividends declared per common share$0.01 $—$0.02 $—
         
Weighted average number of basic shares outstanding 93,344,400 54,935,182 89,526,029 50,270,789
Weighted average number of diluted shares outstanding 94,819,307 64,600,233 90,898,518 61,603,366
Shares outstanding, end of period 93,344,400 57,850,000 93,344,400 57,850,000
Fully diluted shares outstanding, end of period 94,819,307 58,597,486 94,819,307 58,597,486
         
Book value per share$9.63$10.85$9.63$10.85
Fully diluted book value per share$9.48$10.72$9.48$10.72

 

 
Reconciliation of Net Income to Operating Earnings (Non-GAAP)
$ in thousands, except per share data
(Unaudited)
 
 Three Months Ended June 30,Six Months Ended March 31, 
 2014201320142013
         
Net income available to common stockholders$30,334$13,054$56,726$19,464
Add (subtract) net of tax:        
Net realized (gain)/loss on investments 488 (616)
Other than temporary impairment losses
Equity in (earnings)/losses of unconsolidated subsidiaries 1,697 (317) 967 211
Non cash amortization of intangible assets 1,780 (202) 3,868 709
Operating earnings attributable to NGHC$33,811$13,023$61,561$19,768
Operating earnings per common share:        
Basic operating earnings per common share$0.36$0.24$0.69$0.39
Diluted operating earnings per common share*$0.36$0.22$0.68$0.36
 
* NOTE: Diluted net income per common share and diluted operating earnings per common share for Three Months and Six Months Ended June 30, 2013 are adjusted for preferred dividends of $896 and $2,258, respectively, from the 8% cumulative convertible Series A Preferred stock converted on June 5, 2013.

 
 
Balance Sheet
$ in thousands
(Unaudited)
 
ASSETS    
 June 30, 2014December 31, 2013
 (unaudited)(audited)
Investments:   
Fixed maturities, available-for-sale, at fair value (amortized cost $1,395,232 and $757,188)$1,443,769$766,589
Equity securities, available-for-sale, at fair value (cost $20,587 and $6,939) 20,136 6,287
Short-term investments 830
Equity investment in unconsolidated subsidiaries 142,473 133,193
Other investments 3,455 2,893
Securities pledged (amortized cost $62,637 and $133,013) 63,153 133,922
Total investments 1,673,816 1,042,884
Cash and cash equivalents 111,949 73,823
Accrued investment income 12,232 9,263
Premiums and other receivables, net 658,961 449,252
Deferred acquisition costs 114,735 60,112
Reinsurance recoverable on unpaid losses (2) 904,403 950,828
Prepaid reinsurance premiums 69,070 50,878
Due from affiliate 5,830 4,785
Premises and equipment, net 34,045 29,535
Intangible assets, net 84,577 86,564
Goodwill 96,631 70,351
Prepaid and other assets 12,182 9,240
Total assets$3,778,431$2,837,515
LIABILITIES AND STOCKHOLDERS' EQUITY    
Liabilities:    
Unpaid loss and loss adjustment expense reserves$1,386,111$1,259,241
Unearned premiums 751,322 476,232
Unearned service contract and other revenue 8,988 7,319
Reinsurance payable (3) 43,601 93,534
Accounts payable and accrued expenses 239,391 91,143
Securities sold under agreements to repurchase, at contract value 60,097 109,629
Securities sold but not yet purchased, at market value
Deferred tax liability 27,509 24,476
Income tax payable 19,057 1,987
Notes payable 259,113 81,142
Other liabilities 29,114 49,945
Total liabilities$2,824,303$2,194,648
Stockholders' equity:    
Common stock (4)$933$797
Preferred stock (5) 55,000
Additional paid-in capital 613,839 437,006
Retained earnings 252,413 197,552
Accumulated other comprehensive income 31,862 7,425
Total National General Holdings Corp. stockholders' equity 954,047 642,780
Non-controlling interest 81 87
Total stockholders' equity954,128642,867
Total liabilities and stockholders' equity$3,778,431$2,837,515

 

 
Segment Information - Second Quarter
$ in thousands
(Unaudited)
 
 Three Months Ended June 30,
 20142013
  P&C A&H Total P&C A&H Total
Gross written premium$407,863$60,610$468,473$321,438$9,251$330,689
Net written premium 358,096 60,460 418,556 137,823 9,181 147,004
Net earned premium 361,623 29,843 391,466 145,369 9,181 154,550
             
Ceding commission income (primarily related parties) 1,557 1,557 24,735 24,735
Service, fees, and other income 23,389 15,097 38,486 20,363 11,043 31,406
Total underwriting revenue$386,569$44,940$431,509$190,467$20,224$210,691
             
Loss and loss adjustment expense$231,008$24,596$255,604$93,205$5,464$98,669
Acquisition costs and other 61,440 12,978 74,418 25,505 6,717 32,222
General and administrative 64,715 12,344 77,059 61,620 6,792 68,412
Total underwriting expenses 357,163 49,918 407,081 180,330 18,973 199,303
             
Underwriting income (loss)29,406(4,978)24,42810,1371,25111,388
Non cash amortization of intangible assets 773 1,966 2,739 (419) 107 (312)
Underwriting income (loss) before non cash amortization of intangible assets$30,179$(3,012)$27,167$9,718$1,358$11,076
             
Underwriting ratios            
Loss and loss adjustment expense ratio (6) 63.9% 82.4% 65.3% 64.1% 59.5% 63.8%
Operating expense ratio (Non-GAAP) (7,8) 28.0% 34.3% 28.5% 28.9% 26.9% 28.8%
Combined ratio (Non-GAAP) (7,9)91.9%116.7%93.8%93.0%86.4%92.6%
             
Underwriting ratios (before amortization)            
Loss and loss adjustment expense ratio (6) 63.9% 82.4% 65.3% 64.1% 59.5% 63.8%
Operating expense ratio (Non-GAAP) (7,10) 27.8% 27.7% 27.8% 29.2% 25.7% 29.0%
Combined ratio (Non-GAAP) (7,9)91.7%110.1%93.1%93.3%85.2%92.8%
 
NOTE: Loss and loss adjustment expense ratio and operating expense ratio may not sum to combined ratio due to rounding.

 

 

Segment Information - Year to Date
$ in thousands
(Unaudited)
 
 Six months ended June 30,
 20142013
  P&C A&H Total P&C A&H Total
Gross written premium$1,014,471$100,144$1,114,615$671,736$16,566$688,302
Net written premium 886,094 99,947 986,041 303,029 16,491 319,520
Net earned premium 688,842 60,476 749,318 290,216 16,490 306,706
             
Ceding commission income (primarily related parties) 6,927 6,927 49,992 49,992
Service, fees, and other income 45,062 30,130 75,192 41,413 17,255 58,668
Total underwriting revenue$740,831$90,606$831,437$381,621$33,745$415,366
             
Loss and loss adjustment expense$440,438$40,513$480,951$189,178$12,693$201,871
Acquisition costs and other 117,213 31,578 148,791 51,186 11,246 62,432
General and administrative 128,236 25,022 153,258 125,445 9,776 135,221
Total underwriting expenses 685,887 97,113 783,000 365,809 33,715 399,524
             
Underwriting income (loss)54,944(6,507)48,43715,8123015,842
Non cash amortization of intangible assets 1,616 4,336 5,952 656 435 1,091
Underwriting income (loss) before non cash amortization of intangible assets$56,560$(2,171)$54,389$16,468$465$16,933
           
Underwriting ratios            
Loss and loss adjustment expense ratio (6) 63.9% 67.0% 64.2% 65.2% 77.0% 65.8%
Operating expense ratio (Non-GAAP) (7,8) 28.1% 43.8% 29.4% 29.4% 22.8% 29.0%
Combined ratio (Non-GAAP) (7,9)92.0%110.8%93.5%94.6%99.894.8%
             
Underwriting ratios (before amortization)            
Loss and loss adjustment expense ratio (6) 63.9% 67.0% 64.2% 65.2% 77.0% 65.8%
Operating expense ratio (Non-GAAP) (7,10) 27.9% 36.6% 28.6% 29.1% 20.2% 28.7%
Combined ratio (Non-GAAP) (7,9)91.8%103.6%92.8%94.3%97.2%94.5%
 
NOTE: Loss and loss adjustment expense ratio and operating expense ratio may not sum to combined ratio due to rounding.

 

 

Reconciliation of Operating Expense Ratio and Operating Expense Ratio Before Amortization (Non-GAAP)
$ in thousands
(Unaudited)
 
 Three Months Ended June 30,
 20142013
 P&CA&HTotalP&CA&HTotal
Total underwriting expenses$357,163$49,918$407,081$180,330$18,973$199,303
Less: Loss and loss adjustment expense 231,008 24,596 255,604 93,205 5,464 98,669
Less: Ceding commission income 1,557 1,557 24,735 24,735
Less: Service, fees and other income 23,389 15,097 38,486 20,363 11,043 31,406
Operating expense 101,209 10,225 111,434 42,027 2,466 44,493
Net earned premium$361,623$29,843$391,466$145,369$9,181$154,550
Operating expense ratio (Non-GAAP)28.0%34.3%28.5%28.9%26.9%28.8%
             
Total underwriting expenses$357,163$49,918$407,081$180,330$18,973$199,303
Less: Loss and loss adjustment expense 231,008 24,596 255,604 93,205 5,464 98,669
Less: Ceding commission income 1,557 1,557 24,735 24,735
Less: Service, fees and other income 23,389 15,097 38,486 20,363 11,043 31,406
Less: Non cash amortization of intangible assets 773 1,966 2,739 (419) 107 (312)
Operating expense before amortization 100,436 8,259 108,695 42,446 2,359 44,805
Net earned premium$361,623$29,843 391,466$145,369$9,181$154,550
Operating expense ratio before amortization (Non-GAAP)27.8%27.7%27.8%29.2%25.7%29.0%

 

 Six Months Ended June 30,
 20142013
 P&CA&HTotalP&CA&HTotal
Total underwriting expenses$685,887$97,113$783,000$365,809$33,715$399,524
Less: Loss and loss adjustment expense 440,438 40,513 480,951 189,178 12,693 201,871
Less: Ceding commission income 6,927 6,927 49,992 49,992
Less: Service, fees and other income 45,062 30,130 75,192 41,413 17,255 58,668
Operating expense 193,460 26,470 219,930 85,226 3,767 88,993
Net earned premium$688,842$60,476$749,318$290,216$16,490$306,706
Operating expense ratio (Non-GAAP)28.1%43.8%29.4%29.4%22.8%29.0%
                           
Total underwriting expenses$685,887$97,113$783,000$365,809$33,715$399,524
Less: Loss and loss adjustment expense 440,438 40,513 480,951 189,178 12,693 201,871
Less: Ceding commission income 6,927 6,927 49,992 49,992
Less: Service, fees and other income 45,062 30,130 75,192 41,413 17,255 58,668
Less: Non cash amortization of intangible assets 1,616 4,336 5,952 656 435 1,091
Operating expense before amortization 191,844 22,134 213,978 84,570 3,332 87,902
Net earned premium$688,842$60,476$749,318$290,216$16,490$306,706
Operating expense ratio before amortization (Non-GAAP)27.9%36.6%28.6%29.1%20.2%28.7%

 

 

Gross Written Premium by Business Line
$ in thousands
(Unaudited)
 
 Three Months Ended June 30, Six Months Ended June 30,
    % of Total   % of Total
 20142013% Change2014201320142013% Change20142013
Property & Casualty                    
Personal Auto$288,654$241,243 19.7% 61.6% 73.0%$637,337$523,044 21.9% 57.2% 76.0%
Homeowners 34,018 109 NA 7.3% —% 216,085 109 NA 19.4% —%
RV/Packaged 42,148 43,577 (3.3)% 9.0% 13.2% 80,693 82,523 (2.2)% 7.2% 12.0%
Commercial Auto 37,269 31,338 18.9% 8.0% 9.5% 71,554 59,329 20.6% 6.4% 8.6%
Other 5,774 5,171 11.7% 1.2% 1.6% 8,802 6,731 30.8% 0.8% 1.0%
P&C Total 407,863 321,438 26.9% 87.1% 97.2% 1,014,471 671,736 51.0% 91.0% 97.6%
                     
Accident & Health 60,610 9,251 555.2% 12.9% 2.8% 100,144 16,566 504.5% 9.0% 2.4%
                     
Total National General$468,473$330,689 41.7% 100.0% 100.0%$1,114,615$688,302 61.9% 100.0% 100.0%
 
NOTE: Percentage totals may not sum due to rounding.

 


Additional Disclosures

(1) References to operating earnings and basic and diluted operating EPS are Non-GAAP financial measures defined by the Company as net income and basic earnings per share excluding after-tax net realized investment gain or loss on securities, equity in earnings (losses) of unconsolidated subsidiaries, and non-cash amortization of intangible assets. Please see the Non-GAAP Financial Measures table within this release for important information about the use of these Non-GAAP measures and their reconciliation to GAAP.

(2) Reinsurance recoverable on paid losses includes $119,209 and $176,241 from related parties at June 30, 2014 and December 31, 2013, respectively.

(3) Reinsurance payable includes $33,654 and $76,360 to related parties at June 30, 2014 and December 31, 2013, respectively.

(4) Common stock: $0.01 par value - authorized 150,000,000 shares, issued and outstanding 93,344,400 shares - June 30, 2014; authorized 150,000,000 shares, issued and outstanding 79,731,800 shares - December 31, 2013.

(5) Preferred stock: $0.01 par value - authorized 10,000,000 shares, issued and outstanding 2,200,000 shares and 0 shares - June 30, 2014 and December 31, 2013.

(6) Loss and loss adjustment expense ratio is calculated by dividing loss and loss adjustment expenses by net earned premium.

(7) Operating expense ratio and combined ratio are considered non-GAAP financial measures under applicable SEC rules because a component of those ratios, operating expense, is calculated by offsetting acquisition and other underwriting costs and general and administrative expense by ceding commission income and service 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. 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 important information about the use of these Non-GAAP measures and their reconciliation to GAAP.

(8) Operating expense ratio (non-GAAP) is calculated by dividing operating expense by net earned premium. Operating expense consists of the sum of acquisition and other underwriting costs and general and administrative expense less ceding commission income and service and fee income.

(9) Combined ratio (non-GAAP) is calculated by adding the loss and loss adjustment expense ratio and the operating expense ratio (non-GAAP) together.

(10) Operating expense ratio (non-GAAP) before amortization is calculated by dividing the operating expense before amortization by net earned premium. Operating expense before amortization consists of the sum of acquisition and other underwriting costs and general and administrative expense less ceding commission income and service and fee income less non cash amortization of intangible assets.

CONTACT: Investor Contact Dean Evans Director of Investor Relations Phone: 212-380-9462 Email: Dean.Evans@NGIC.com



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Source: National General Holdings Corp.


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