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National General Holdings Corp. Reports Fourth Quarter 2015 Results
Globe Newswire

NEW YORK, Feb. 09, 2016 (GLOBE NEWSWIRE) -- National General Holdings Corp. (NASDAQ:NGHC) today reported fourth quarter 2015 operating earnings(1) of $42.3 million or $0.39 per diluted share, compared to $31.2 million or $0.33 per diluted share in the fourth quarter of 2014. Net income was $13.7 million or $0.13 per diluted share, compared to $11.2 million or $0.12 per diluted share in the fourth quarter of 2014. 

Full year 2015 operating earnings(1) were $165.5 million or $1.64 per diluted share, compared to $126.5 million or $1.35 per diluted share in 2014. Full year 2015 net income was $128.2 million or $1.27 per diluted share, compared to $100.0 million or $1.07 per diluted share in 2014.

Fourth Quarter 2015 Highlights Versus Fourth Quarter 2014*

  • Net written premium grew $211.6 million or 52.0% to $618.1 million, driven by added premiums from the National General Lender Services (formerly QBE Lender-Placed Insurance) and Assurant Health transactions which closed on October 1, 2015, underlying organic growth within our P&C business, and continued expansion of our A&H segment.
  • The combined ratio was 94.2%, in-line with 94.2% in the prior year's quarter, excluding non-cash amortization of intangible assets and impairment of goodwill, with both the P&C and A&H segments reporting an improvement in their respective combined ratios. 
  • Total revenues grew by $278.1 million or 58.6% to $752.5 million, driven by the aforementioned premium growth, service and fee income growth of $42.0 million or 73.3% (including Attorney-in-Fact management fees of $9.3 million), and net investment income growth of $4.1 million or 25.4%, partially offset by a $1.3 million decline in ceding commission income.
  • Shareholders' equity was $1.51 billion and fully diluted book value per share was $11.96 at December 31, 2015, growth of 42.9% and 14.2%, respectively, from December 31, 2014.  Annualized operating return on average equity (ROE) was 13.0% for the fourth quarter and 14.6% for the full year ended December 31, 2015.
  • Fourth quarter 2015 operating earnings exclude the following items, net of tax: $17.5 million or $0.16 per share of non-cash impairment of goodwill, $5.3 million or $0.05 per share of non-cash amortization of intangible assets, $4.4 million or $0.04 per share of other than temporary impairment losses, $0.9 million or $0.01 per share of foreign exchange losses, and $0.4 million or less than $0.01 per share of realized investment losses, and $0.1 million or less than $0.01 per share of equity in losses of unconsolidated subsidiaries (other than LSC Entities and Real Estate investments). 
  • Fourth quarter 2015 operating earnings include approximately $4.0 million or approximately $0.02 per share of losses related to the string of tornadoes that hit the Dallas, Texas area in late December 2015, and a net negative impact of $7.5 million or approximately $0.05 per share within our EuroAccident subsidiary as reserve strengthening was partially offset by a deferred purchase price adjustment. 

Michael Karfunkel, National General's Chairman and CEO, stated: "Our fourth quarter results were a solid finish to an excellent year at National General.  We continue to produce significant top line growth and strong underwriting profitability, and we enjoyed another busy year on the M&A front, completing two significant deals during the fourth quarter when we closed the National General Lender Services and Assurant Health transactions.  We expect that both of these transactions will be accretive to our personal lines franchise and our earnings power going forward.  We continue to focus on profitably growing our business both organically and through additional accretive M&A opportunities, maintaining an intense emphasis on disciplined expense management, integrating acquisitions, and delivering strong returns to our shareholders.”

*NOTE: Unless specified otherwise, discussion of our fourth quarter 2015 and 2014 results do not include financial results from the Reciprocal Exchanges, which are presented within our consolidated financial results within this release but are not included in net income available to NGHC common stockholders. Attorney-in-Fact management fees referenced within this release are eliminated in consolidated financial results.

Overview of Fourth Quarter 2015 as Compared to Fourth Quarter 2014

Gross written premium grew 46.5% to $678.2 million, net written premium grew 52.0% to $618.1 million, and net earned premium grew 58.8% to $642.3 million. Premium growth was driven by several key factors: underlying organic growth within our P&C business, continued expansion of our A&H segment, and additional premiums from the National General Lender Services (formerly QBE Lender-Placed Insurance) and Assurant Health acquisitions which closed on October 1, 2015.

Ceding commission income was a loss of $1.3 million reflecting a sliding scale adjustment related to our terminated third-party quota share. Service and fee income grew 73.3% to $99.3 million, driven by added service and fee income from recently completed acquisitions and underlying growth within both our A&H and P&C operations, with the latter including management fees of $9.3 million related to the Attorneys-in-Fact that manage the Reciprocal Exchanges.

Excluding non-cash amortization of intangible assets and impairment of goodwill, the combined ratio was 94.2% with a loss ratio of 69.3% and an expense ratio of 24.9%, versus a prior year combined ratio of 94.2% with a loss ratio of 68.2% and an expense ratio of 26.1%. Both the P&C and A&H segments reported an improvement in their respective combined ratios. 

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

  • Property & Casualty - Gross written premium grew by 31.6% to $579.7 million, net written premium grew by 37.7% to $529.0 million, and net earned premium grew by 45.3% to $543.5 million. P&C premium growth was driven by underlying organic growth of approximately 5.0% and the addition of $125.7 million of net written premium from the National General Lender Services acquisition, which closed on October 1, 2015. Ceding commission income was a loss of $1.5 million compared to $48 thousand of income in the prior year's quarter, reflecting a sliding scale adjustment related to our terminated third-party quota share.  Service and fee income grew 27.0% to $55.2 million, driven by increased premium volume in the quarter, the addition of service and fee income from acquisitions completed during the past year (including ARS and National General Lender Services), and $9.3 million of fees earned by the Attorneys-in-Fact that manage the Reciprocal Exchanges, compared to $8.4 million in the prior year’s quarter.  Excluding non-cash amortization of intangible assets and impairment of goodwill, the combined ratio was 92.4% with a loss ratio of 65.0% and an expense ratio of 27.3%, versus a prior year combined ratio of 92.8% with a loss ratio of 66.5% and an expense ratio of 26.3%. The improved loss ratio was driven primarily by business mix changes, most notably the addition of National General Lender Services which typically runs at lower loss ratios than our legacy business, partially offset by losses of approximately $4.0 million related to the string of tornadoes that hit the Dallas, Texas area in late December 2015.  The slight increase in the expense ratio is the result of business mix changes. 
  • Accident & Health - Gross written premium grew to $98.5 million, net written premium grew to $89.2 million, and net earned premium grew to $98.8 million, from $22.5 million, $22.4 million, and $30.5 million, respectively, in the prior year's quarter. A&H premium growth was driven by the addition of $53.1 million of net written premium from the Assurant Health acquisition, which closed on October 1, 2015, as well as continued growth from both our domestic and international businesses, with $22.2 million in net written premium at our U.S. underwriting subsidiaries compared to $9.8 million in the prior year’s quarter, and $13.9 million of premium from EuroAccident (our Swedish group life and health MGA) compared  to $12.6 million in the prior year’s quarter.  Service and fee income grew to $44.1 million from $13.8 million in the prior year’s quarter, driven by the addition of service and fee income from acquisitions completed over the past year (including HST and Assurant Health), and strong growth at VelaPoint (our call center general agency) and TABS (our domestic stop loss business).  Excluding non-cash amortization of intangible assets and impairment of goodwill, the combined ratio was 104.2% with a loss ratio of 92.7% and an expense ratio of 11.5%, versus a prior year combined ratio of 112.1% with a loss ratio of 88.8% and an expense ratio of 23.3%. Fourth quarter 2015 A&H results include the net negative impact of $7.5 million within our EuroAccident subsidiary. This included an increase to IBNR reserves to reflect a conversion to National General’s reserving philosophy from the prior carriers' reserving philosophy for business that was assumed in 2014 and is now written on National General paper, partially offset by the benefit from a corresponding adjustment made to reduce the deferred purchase price from the initial acquisition of EuroAccident.  
  • Reciprocal Exchanges - Results for the Reciprocal Exchanges are not included in net income available to NGHC common stockholders.  Gross written premium was $65.8 million, net written premium was $33.0 million, and net earned premium was $36.3 million.  Excluding non-cash amortization of intangible assets, the combined ratio was 102.1% with a loss ratio of 112.3% and an expense ratio of (10.2)%.   

Investment income grew 25.4% to $20.0 million, reflecting an increase in the size of our investment portfolio as compared to the prior year’s quarter. Fourth quarter 2015 results included $0.6 million of net realized investment losses compared with a loss of $0.1 million in the fourth quarter of 2014, as well as an other than temporary impairment loss of $6.8 million compared to a loss of $2.2 million in the fourth quarter of 2014. Total investments and cash equivalents were $2.7 billion as of December 31, 2015.  Accumulated other comprehensive income (AOCI) declined to $(19.4) million at December 31, 2015 from $2.4 million at September 30, 2015. 

Other revenue was a loss of $0.5 million in the fourth quarter of 2015 compared to a loss of $1.2 million in the prior year’s quarter, as both quarters included a foreign exchange loss from currency fluctuations within our European subsidiaries ($1.4 million in 4Q15 and $1.1 million in 4Q14), but the current year’s quarter was partially offset by a $0.8 million gain related to a grant received by Imperial. 

Interest expense was $8.2 million, up from $4.5 million in the prior year’s quarter due to an increased amount of debt on our balance sheet. Debt was $446.1 million as of December 31, 2015, up from $250.7 million at December 31, 2014 as a result of August 2015 issuance of $100 million of subordinated notes and our October 2015 issuance of $100 million of senior unsecured notes. 

Equity in earnings of unconsolidated subsidiaries (predominantly our investment in Life Settlement Entities and our Real Estate investments) was a $1.7 million gain in the fourth quarter of 2015 versus a $4.3 million gain in the prior year's quarter, reflecting fair value adjustments on life settlement contracts and income from real estate investments that were made during 2015. 

The fourth quarter 2015 provision for income taxes was $(0.5) million and the effective tax rate for the quarter was (3.0)%. Included in the fourth quarter 2015 provision for income taxes was an $18.2 million benefit attributable to a reduction of the deferred tax liability associated with the equalization reserves of our Luxembourg Reinsurance Company (LRC) subsidiaries.  Excluding this item and the non-cash impairment of goodwill, which is not tax deductible, the adjusted 2015 fourth quarter effective tax rate was 53.5%.  Excluding LRC tax benefits and the non-cash impairment of goodwill, the adjusted effective tax rate was 29.6% for the twelve months ended December 31, 2015.

National General Holding Corp.'s shareholders' equity was $1,514.0 million at December 31, 2015, growth of 42.9% from $1,059.8 million at December 31, 2014.  Fully diluted book value per share was $11.96 at December 31, 2015, growth of 14.2% from $10.47 at December 31, 2014.  Annualized operating return on average equity (ROE) was 13.0% for the fourth quarter 2015 and 14.6% for the year ended December 31, 2015.

Luxembourg Reinsurance Companies (LRC)

  • Included in the fourth quarter 2015 provision for income taxes was an $18.2 million benefit attributable to a reduction of the deferred tax liability (DTL) associated with the equalization reserves of our LRC subsidiaries.  For the full year 2015, the provision for income taxes included a benefit of $26.7 million attributable to a reduction of the DTL associated with the equalization reserves of our LRC subsidiaries.  As of December 31, 2015, the DTL associated with our LRC subsidiaries was $13.8 million.
  • Fourth quarter 2015 results include a $17.5 million expense related to a non-cash impairment of goodwill ($11.2 million attributed to the P&C segment and $6.2 million attributed to the A&H segment), compared to an expense of $15.8 million in the fourth quarter of 2014 ($9.4 million attributed to the P&C segment and $6.4 million attributed to the A&H segment). Both the 2015 and 2014 non-cash impairment of goodwill expenses relate to goodwill balances associated with our LRC subsidiaries.  The remaining goodwill balance associated with LRC subsidiaries stood at $8.4 million as of December 31, 2015.  
  • The full year 2015 net benefit related to our LRC subsidiaries was $9.2 million, including the benefit attributable to a reduction in DTL and the expense related to non-cash impairment of goodwill.

Additional Items

  • National General Lender Services Acquisition - On October 1, 2015, we closed on the acquisition of the Lender-Placed Insurance business of QBE North America, a division of QBE Insurance Group Limited (ASX:QBE.AX). The transaction included the acquisition of certain assets, including loan-tracking systems and technology, client servicing accounts, intellectual property, and vendor relationships, as well as the assumption of the related insurance liabilities in a reinsurance transaction through which National General received loss reserves, unearned premium reserves, and invested assets. The purchase price was an aggregate cash payment of $90 million (including ceding commission) subject to certain adjustments. The business has been branded National General Lender Services.
  • Assurant Health Acquisition - On October 1, 2015, we closed on the acquisition of certain business lines and assets from Assurant Health, a business segment of Assurant, Inc. (NYSE:AIZ). Included in the transaction were the small group self-funded and supplemental product lines, as well as the acquisition of North Star Marketing, a proprietary small group sales channel. The purchase price was an aggregate cash payment of $14 million.
  • Senior Unsecured Debt Issuance - On October 8, 2015, we closed on a private issuance of $100.0 million aggregate principal amount of 6.75% notes due 2024.  The Notes bear interest at 6.75% per year, payable semiannually in arrears on May 15th and November 15th of each year, beginning on November 15, 2015. The Notes will mature on May 15, 2024, unless earlier redeemed or purchased by National General.  Net proceeds of the issuance were approximately $98.85 million.
  • Century-National Insurance Company Acquisition - On January 25, 2016 we announced an agreement to acquire Century-National Insurance Company (CNIC), a California based property and casualty underwriter.  The purchase price for the transaction is currently expected to be approximately $315 million, based on September 30, 2015 results, with the actual purchase price calculated based upon financial position at closing. The estimated purchase price equates to a $50 million premium to tangible book value, and includes an upfront cash payment of approximately $140 million with the remaining balance deferred over two years.  The transaction is expected to close in the second quarter of 2016, subject to customary closing conditions and regulatory approvals.
  • New Credit Agreement - On January 25, 2016, we entered into a $225 million revolving credit facility with a letter of credit sub-limit of $25 million and an expansion feature not to exceed $50 million. The New Credit Agreement has a maturity date of January 25, 2020, and replaces our previous $135 million credit agreement.
  • Standard Mutual Insurance Company Acquisition - On January 27, 2016 we announced that we had entered into a definitive agreement, pending regulatory and policyholder approval, to acquire Standard Mutual Insurance Company (SMIC), an Illinois based property and casualty underwriter, following the completion of the conversion of SMIC to a stock company from a mutual company. The transaction is expected to close in the second quarter of 2016, subject to customary closing conditions and regulatory approvals.

Conference Call
On Wednesday, February 10, 2016 at 11:00 AM ET, Chairman and Chief Executive Officer Michael Karfunkel and Chief Financial Officer Mike Weiner will review results and discuss business conditions via a conference call that may be accessed as follows:

Toll-Free U.S. Dial-in:888-267-2860
International Dial-in:   973-413-6102
Conference Entry Code:956584
Webcast Registration:  http://ir.nationalgeneral.com/events.cfm
  

A replay of the conference call will be accessible from 2:00 PM ET on Wednesday, February 10, 2016 to 11:59 PM ET on Wednesday, February 24, 2016 by dialing either 800-332-6854 (toll-free) within the U.S. or 973-528-0005 outside the U.S. and entering passcode 956584. In addition, a replay of the webcast can also be retrieved at http://ir.nationalgeneral.com/events.cfm

About National General Holdings Corp.
National General Holdings Corp., headquartered in New York City, is a specialty personal lines insurance holding company. National General traces its roots to 1939, has a financial strength rating of A- (excellent) from A.M. Best, and provides personal and commercial automobile, homeowners, umbrella, recreational vehicle, motorcycle, supplemental health, and other niche insurance products.

Forward Looking Statements
This news release contains "forward-looking statements" that are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. The forward-looking statements are based on the Company's current expectations and beliefs concerning future developments and their potential effects on the Company. Forward-looking statements can generally be identified by the use of forward-looking terminology, such as "may," "will," "plan," "expect," "project," "intend," "estimate," "anticipate" and "believe" or their variations or similar terminology. There can be no assurance that actual developments will be those anticipated by the Company. Actual results may differ materially from those expressed or implied in these statements as a result of significant risks and uncertainties, including, but not limited to, non-receipt of expected payments from insureds or reinsurers, changes in interest rates, a downgrade in the financial strength ratings of our insurance subsidiaries, the effect of the performance of financial markets on our investment portfolio, 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 statement except as may be required by law. Additional information about these risks and uncertainties, as well as others that may cause actual results to differ materially from those projected, is contained in the Company's filings with the Securities and Exchange Commission.

Income Statement - Fourth Quarter
$ in thousands
(Unaudited)
 
  Three Months Ended December 31, 
  2015  2014 
  NGHC Reciprocal Exchanges Consolidated  NGHC Reciprocal Exchanges Consolidated 
Revenues:              
Gross written premium $678,175  $65,752  $743,927   $462,848  $60,049  $522,897  
Ceded premiums (related parties - $397, $0, and $397 in 2015 and $318, $687, and $1,005 in 2014) (60,041) (32,714) (92,755)  (56,306) (14,178) (70,484) 
Net written premium 618,134  33,038  651,172   406,542  45,871  452,413  
Net earned premium 642,299  36,269  678,568   404,566  40,930  445,496  
               
Ceding commission income/(loss) (1,261) 17,851  16,590   48  4,750  4,798  
Service and fee income 99,265  10,236  100,213 (A) 57,269  117  48,979 (F)
Net investment income 20,026  2,359  22,385   15,969  1,799  17,768  
Net realized gain/(loss) on investments (609) 75  (534)  (91)   (91) 
Other than temporary impairment loss (6,755)   (6,755)  (2,244)   (2,244) 
Other revenue (461)   (461)  (1,153)   (1,153) 
Total revenues $752,504  $66,790  $810,006 (B) $474,364  $47,596  $513,553 (G)
               
Expenses:              
Loss and loss adjustment expense $445,130  $40,737  $485,867   $275,727  $21,368  $297,095  
Acquisition costs and other underwriting expenses 103,839  7,005  110,799 (C) 76,389  5,994  82,383  
General and administrative 179,636  16,528  186,921 (D) 105,122  10,156  106,871 (H)
Interest expense 8,198  (6,422) 1,776   4,463  5,452  9,915  
Total expenses $736,803  $57,848  $785,363 (E) $461,701  $42,970  $496,264 (I)
               
Income before provision for income taxes and equity in earnings (losses) of unconsolidated subsidiaries $15,701  $8,942  $24,643   $12,663  $4,626  $17,289  
Provision/(benefit) for income taxes (464) (5,472) (5,936)  4,715  1,375  6,090  
Income before equity in earnings (losses) of unconsolidated subsidiaries 16,165  14,414  30,579   7,948  3,521  11,199  
Equity in earnings (losses) of unconsolidated subsidiaries 1,743    1,743   4,278    4,278  
Net income before non-controlling interest and dividends on preferred shares 17,908  14,414  32,322   12,226  3,251  15,477  
Less: net income attributable to non-controlling interest 64  14,414  14,478   29  3,251  3,280  
Net income before dividends on preferred shares 17,844    17,844   12,197    12,197  
Less: dividends on preferred shares 4,125    4,125   1,031    1,031  
Net income available to common stockholders $13,719  $  $13,719   $11,166  $  $11,166  

NOTE: Consolidated column includes eliminations as follows: (A) $(9,288), (B) $(9,288), (C) $(45), (D) $(9,243), (E) $(9,288), (F) $(8,407) , (G) $(8,407), (H) $(8,407), and (I) $(8,407).

Income Statement - Year to Date
$ in thousands
(Unaudited)
 
  Twelve Months Ended December 31, 
  2015  2014 
  NGHC Reciprocal Exchanges Consolidated  NGHC Reciprocal Exchanges Consolidated 
Revenues:              
Gross written premium $2,309,756  $283,582  $2,589,748 (A) $2,065,065  $70,042  $2,135,107  
Ceded premiums (related parties - $1,504, $74, and $1,578 in 2015 and $44,249, $216, and $44,465 in 2014) (249,601) (157,491) (403,502)(B) (248,117) (16,966) (265,083) 
Net written premium 2,060,155  126,091  2,186,246   1,816,948  53,076  1,870,024  
Net earned premium 1,995,101  134,709  2,129,810   1,585,598  47,622  1,633,220  
               
Ceding commission income/(loss) (2,510) 46,300  43,790   7,643  4,787  12,430  
Service and fee income 300,114  13,226  273,548 (C) 178,333  139  168,571 (H)
Net investment income 66,429  8,911  75,340   50,627  1,799  52,426  
Net realized gain/(loss) on investments 4,594  346  4,940   (648)   (648) 
Other than temporary impairment loss (15,247)   (15,247)  (2,244)   (2,244) 
Other revenue (788)   (788)  (1,660)   (1,660) 
Total revenues $2,347,693  $203,492  $2,511,393 (D) $1,817,649  $54,347  $1,862,095 (I)
               
Expenses:              
Loss and loss adjustment expense $1,284,080  $97,561  $1,381,641   $1,026,346  $26,719  $1,053,065  
Acquisition costs and other underwriting expenses 378,066  27,972  405,930 (E) 308,822  6,267  315,089  
General and administrative 504,672  65,359  530,347 (F) 346,696  11,967  348,762 (J)
Interest expense 24,229  4,656  28,885   12,012  5,724  17,736  
Total expenses $2,191,047  $195,548  $2,346,803 (G) $1,693,876  $50,677  $1,734,652 (K)
               
Income before provision for income taxes and equity in earnings (losses) of unconsolidated subsidiaries $156,646  $7,944  $164,590   $123,773  $3,670  $127,443  
Provision/(benefit) for income taxes 24,905  (5,949) 18,956   22,712  1,164  23,876  
Income before equity in earnings (losses) of unconsolidated subsidiaries 131,741  13,893  145,634   101,061  2,506  103,567  
Equity in earnings (losses) of unconsolidated subsidiaries 10,643    10,643   1,180    1,180  
Net income before non-controlling interest and dividends on preferred shares 142,384  13,893  156,277   102,241  2,506  104,747  
Less: net income attributable to non-controlling interest 132  13,893  14,025   (2) 2,506  2,504  
Net income before dividends on preferred shares 142,252    142,252   102,243    102,243  
Less: dividends on preferred shares 14,025    14,025   2,291    2,291  
Net income available to common stockholders $128,227  $  $128,227   $99,952  $  $99,952  

NOTE: Consolidated column includes eliminations as follows: (A) $(3,590), (B) $(3,590), (C) $(39,792), (D) $(39,792), (E) $(108), (F) $(39,684), (G) $(39,792), (H) $(9,901), (I) $(9,901), (J) $(9,901), and (K) $(9,901).

Earnings and Per Share Data
$ in thousands, except shares and per share data
(Unaudited)
 
 Three Months Ended
December 31,
  Twelve Months Ended
December 31,
 2015 2014  2015 2014
Net income available to common stockholders$13,719  $11,166   $128,227  $99,952 
Basic net income per common share$0.13  $0.12   $1.31  $1.09 
Diluted net income per common share$0.13  $0.12   $1.27  $1.07 
         
Operating earnings attributable to NGHC(1)$42,257  $31,181   $165,457  $126,507 
Basic operating earnings per common share(1)$0.40  $0.33   $1.68  $1.38 
Diluted operating earnings per common share(1)$0.39  $0.33   $1.64  $1.35 
         
Dividends declared per common share$0.03  $0.02   $0.09  $0.05 
         
Weighted average number of basic shares outstanding105,503,021  93,411,409   98,241,904  91,499,122 
Weighted average number of diluted shares outstanding108,161,786  95,916,749   100,723,936  93,515,417 
Shares outstanding, end of period105,554,331  93,427,382   105,554,331  93,427,382 
Fully diluted shares outstanding, end of period108,213,095  95,932,723   108,036,363  95,624,982 
         
Book value per share$12.26  $10.75   $12.26  $10.75 
Fully diluted book value per share$11.96  $10.47   $11.98  $10.51 


Reconciliation of Net Income to Operating Earnings (Non-GAAP)
$ in thousands, except per share data
(Unaudited)
 
  Three Months Ended
December 31,
  Twelve Months Ended
December 31,
  2015 2014  2015 2014
          
Net income available to common stockholders $13,719  $11,166   $128,227  $99,952 
Add (subtract) net of tax:         
Net realized (gain)/loss on investments 396  59   (2,986) 421 
Other than temporary impairment losses 4,391  1,459   9,911  1,459 
Foreign exchange (gain)/loss 902  723   1,837  1,088 
Equity in (earnings)/losses of unconsolidated subsidiaries (other than LSC Entities and Real Estate investments) 67  103   216  434 
Non-cash amortization of intangible assets 5,315  1,879   10,785  7,361 
Non-cash impairment of goodwill 17,467  15,792   17,467  15,792 
Operating earnings attributable to NGHC $42,257  $31,181   $165,457  $126,507 
          
Operating earnings per common share:         
Basic operating earnings per common share $0.40  $0.33   $1.68  $1.38 
Diluted operating earnings per common share $0.39  $0.33   $1.64  $1.35 


Balance Sheet Highlights
$ in thousands
(Unaudited)
 
  December 31, 2015  December 31, 2014
  (unaudited)  (audited)
  NGHC Reciprocal
Exchanges
 Consolidated  NGHC Reciprocal
Exchanges
 Consolidated
ASSETS             
Total Investments $2,425,168  $242,542  $2,667,710   $1,630,059  $236,046  $1,866,105 
Cash and cash equivalents 273,884  8,393  282,277   123,178  9,437  132,615 
Premiums and other receivables, net (2) 702,439  56,194  758,633   589,205  58,238  647,443 
Reinsurance recoverable on unpaid losses (3) 794,091  39,085  833,176   888,215  23,583  911,798 
Intangible assets, net 344,073  3,040  347,113   237,404  7,420  244,824 
Goodwill 112,414    112,414   70,764    70,764 
Other 459,619  100,665  560,284   413,776  33,378  447,154 
Total assets $5,111,688  $449,919  $5,561,607   $3,952,601  $368,102  $4,320,703 
LIABILITIES AND STOCKHOLDERS’ EQUITY             
Liabilities:             
Unpaid loss and loss adjustment expense reserves $1,623,232  $132,392  $1,755,624   $1,450,305  $111,848  $1,562,153 
Unearned premiums 1,046,313  146,186  1,192,499   744,438  119,998  864,436 
Accounts payable and accrued expenses (4) 265,057  18,060  283,117   189,430  13,678  203,108 
Notes payable (5) 446,061  45,476  491,537   250,708  48,374  299,082 
Other 217,004  85,186  302,190   257,940  60,534  318,474 
Total liabilities $3,597,667  $427,300  $4,024,967   $2,892,821  $354,432  $3,247,253 
Stockholders’ equity:             
Common stock (6) $1,056  $  $1,056   $934  $  $934 
Preferred stock (7) 220,000    220,000   55,000    55,000 
Additional paid-in capital 900,114    900,114   690,736    690,736 
Accumulated other comprehensive income/(loss) (19,414)   (19,414)  20,192    20,192 
Retained earnings 412,044    412,044   292,832    292,832 
Total National General Holdings Corp. stockholders' equity 1,513,800    1,513,800   1,059,694    1,059,694 
Non-controlling interest 221  22,619  22,840   86  13,670  13,756 
Total stockholders’ equity $1,514,021  $22,619  $1,536,640   $1,059,780  $13,670  $1,073,450 
Total liabilities and stockholders’ equity $5,111,688  $449,919  $5,561,607   $3,952,601  $368,102  $4,320,703 


Segment Information - Fourth Quarter
$ in thousands
(Unaudited)
 
  Three Months Ended December 31,   
  2015     2014
  P&C A&H NGHC  Reciprocal
Exchanges
  P&C A&H NGHC  Reciprocal
Exchanges
Gross written premium $579,662  $98,513  $678,175   $65,752   $440,332  $22,526  $462,858   $60,049 
Net written premium 528,964  89,170  618,134   33,038   384,153  22,389  406,542   45,871 
Net earned premium 543,547  98,752  642,299   36,269   374,034  30,532  404,566   40,930 
                    
Ceding commission income/(loss) (1,532) 271  (1,261)  17,851   48    48   4,750 
Service and fee income 55,206  44,059  99,265   10,236   43,458  13,811  57,269   117 
Total underwriting revenue 597,221  143,082  740,303   64,356   417,540  44,343  461,883   45,797 
                    
Loss and loss adjustment expense 353,560  91,570  445,130   40,737   248,606  27,121  275,727   21,368 
Acquisition costs and other 78,116  25,723  103,839   7,005   68,771  7,618  76,389   5,994 
General and administrative 139,764  39,872  179,636   16,528   84,577  20,545  105,122   10,156 
Total underwriting expenses 571,440  157,165  728,605   64,270   401,954  55,284  457,238   37,518 
                    
Underwriting income (loss) 25,781  (14,083) 11,698   86   15,586  (10,941) 4,645   8,279 
Non-cash impairment of goodwill 11,222  6,245  $17,467      9,419  6,373  15,792    
Non-cash amortization of intangible assets 4,516  3,661  $8,177   (841)  2,026  864  2,890   2,115 
Underwriting income (loss) before amortization and impairment $41,519  $(4,177) $37,342   $(755)  $27,031  $(3,704) $23,327   $10,394 
                    
Underwriting ratios                   
Loss and loss adjustment expense ratio (8) 65.0% 92.7% 69.3%  112.3%  66.5% 88.8% 68.2%  52.2%
Operating expense ratio (Non-GAAP) (9,10) 30.2% 21.5% 28.9%  (12.6)%  29.4% 47.0% 30.7%  27.6%
Combined ratio (Non-GAAP) (9,11) 95.3% 114.3% 98.2%  99.8%  95.8% 135.8% 98.9%  79.8%
                    
Underwriting ratios (before amortization and impairment)             
Loss and loss adjustment expense ratio (8) 65.0% 92.7% 69.3%  112.3%  66.5% 88.8% 68.2%  52.2%
Operating expense ratio (Non-GAAP) (9,12) 27.3% 11.5% 24.9%  (10.2)%  26.3% 23.3% 26.1%  22.4%
Combined ratio (Non-GAAP) (9,11) 92.4% 104.2% 94.2%  102.1%  92.8% 112.1% 94.2%  74.6%

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)
 
  Twelve Months Ended December 31,   
  2015  2014
  P&C A&H NGHC  Reciprocal
Exchanges
  P&C A&H NGHC  Reciprocal
Exchanges
Gross written premium $2,057,834  $251,922  $2,309,756   $283,582   $1,924,666  $140,399  $2,065,065   $70,042 
Net written premium 1,844,202  215,953  2,060,155   126,091   1,676,946  140,002  1,816,948   53,076 
Net earned premium 1,783,800  211,301  1,995,101   134,709   1,465,122  120,476  1,585,598   47,622 
                    
Ceding commission income/(loss) (3,601) 1,091  (2,510)  46,300   7,643    7,643   4,787 
Service and fee income 201,304  98,810  300,114   13,226   119,876  58,457  178,333   139 
Total underwriting revenue 1,981,503  311,202  2,292,705   194,235   1,592,641  178,933  1,771,574   52,548 
                    
Loss and loss adjustment expense 1,112,758  171,322  1,284,080   97,561   940,457  85,889  1,026,346   26,719 
Acquisition costs and other 312,067  65,999  378,066   27,972   254,130  54,692  308,822   6,267 
General and administrative 422,561  82,111  504,672   65,359   290,079  56,617  346,696   11,967 
Total underwriting expenses 1,847,386  319,432  2,166,818   190,892   1,484,666  197,198  1,681,864   44,953 
                    
Underwriting income (loss) 134,117  (8,230) 125,887   3,343   107,975  (18,265) 89,710   7,595 
Non-cash impairment of goodwill 11,222  6,245  17,467      9,419  6,373  15,792    
Non-cash amortization of intangible assets 9,995  6,597  16,592   4,380   5,208  6,117  11,325   2,468 
Underwriting income (loss) before amortization and impairment $155,334  $4,612  $159,946   $7,723   $122,602  $(5,775) $116,827   $10,063 
                    
Underwriting ratios                   
Loss and loss adjustment expense ratio (8) 62.4% 81.1% 64.4%  72.4%  64.2% 71.3% 64.7%  56.1%
Operating expense ratio (Non-GAAP) (9,10) 30.1% 22.8% 29.3%  25.1%  28.4% 43.9% 29.6%  27.9%
Combined ratio (Non-GAAP) (9,11) 92.5% 103.9% 93.7%  97.5%  92.6% 115.2% 94.3%  84.1%
                    
Underwriting ratios (before amortization and impairment)             
Loss and loss adjustment expense ratio (8) 62.4% 81.1% 64.4%  72.4%  64.2% 71.3% 64.7%  56.1%
Operating expense ratio (Non-GAAP) (9,12) 28.9% 16.7% 27.6%  21.8%  27.4% 33.5% 27.9%  22.8%
Combined ratio (Non-GAAP) (9,11) 91.3% 97.8% 92.0%  94.3%  91.6% 104.8% 92.6%  78.9%

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 (Non-GAAP)
$ in thousands
(Unaudited)
 
  Three Months Ended December 31,
  2015  2014
  P&C A&H NGHC  Reciprocal Exchanges  P&C A&H NGHC  Reciprocal Exchanges
Total underwriting expenses $571,440  $157,165  $728,605   $64,270   $401,954  $55,284  $457,238   $37,518 
Less: Loss and loss adjustment expense 353,560  91,570  445,130   40,737   248,606  27,121  275,727   21,368 
Less: Ceding commission income/(loss) (1,532) 271  (1,261)  17,851   48    48   4,750 
Less: Service and fee income 55,206  44,059  99,265   10,236   43,458  13,811  57,269   117 
Operating expense 164,206  21,265  185,471   (4,554)  109,842  14,352  124,194   11,283 
Net earned premium $543,547  $98,752  $642,299   $36,269   $374,034  $30,532  $404,566   $40,930 
Operating expense ratio (Non-GAAP) 30.2% 21.5% 28.9%  (12.6)%  29.4% 47.0% 30.7%  27.6%
                    
Total underwriting expenses $571,440  $157,165  $728,605   $64,270   $401,954  $55,284  $457,238   $37,518 
Less: Loss and loss adjustment expense 353,560  91,570  445,130   40,737   248,606  27,121  275,727   21,368 
Less: Ceding commission income/(loss) (1,532) 271  (1,261)  17,851   48    48   4,750 
Less: Service and fee income 55,206  44,059  99,265   10,236   43,458  13,811  57,269   117 
Less: Non-cash impairment of goodwill 11,222  6,245  17,467      9,419  6,373  15,792    
Less: Non-cash amortization of intangible assets 4,516  3,661  8,177   (841)  2,026  864  2,890   2,115 
Operating expense before amortization and impairment 148,468  11,359  159,827   (3,713)  98,397  7,115  105,512   9,168 
Net earned premium $543,547  $98,752  642,299   36,269   $374,034  $30,532  $404,566   $40,930 
Operating expense ratio before amortization and impairment (Non-GAAP) 27.3% 11.5% 24.9%  (10.2)%  26.3% 23.3% 26.1%  22.4%


  Twelve Months Ended December 31,
  2015  2014
  P&C A&H NGHC  Reciprocal Exchanges  P&C A&H NGHC  Reciprocal Exchanges
Total underwriting expenses $1,847,386  $319,432  $2,166,818   $190,892   $1,484,666  $197,198  $1,681,864   $44,953 
Less: Loss and loss adjustment expense 1,112,758  171,322  1,284,080   97,561   940,457  85,889  1,026,346   26,719 
Less: Ceding commission income/(loss) (3,601) 1,091  (2,510)  46,300   7,643    7,643   4,787 
Less: Service and fee income 201,304  98,810  300,114   13,226   119,876  58,457  178,333   139 
Operating expense 536,925  48,209  585,134   33,805   416,690  52,852  469,542   13,308 
Net earned premium $1,783,800  $211,301  $1,995,101   $134,709   $1,465,122  $120,476  $1,585,598   $47,622 
Operating expense ratio (Non-GAAP) 30.1% 22.8% 29.3%  25.1%  28.4% 43.9% 29.6%  27.9%
                    
Total underwriting expenses $1,847,386  $319,432  $2,166,818   $190,892   $1,484,666  $197,198  $1,681,864   $44,953 
Less: Loss and loss adjustment expense 1,112,758  171,322  1,284,080   97,561   940,457  85,889  1,026,346   26,719 
Less: Ceding commission income/(loss) (3,601) 1,091  (2,510)  46,300   7,643    7,643   4,787 
Less: Service and fee income 201,304  98,810  300,114   13,226   119,876  58,457  178,333   139 
Less: Non-cash impairment of goodwill 11,222  6,245  17,467      9,419  6,373  15,792    
Less: Non-cash amortization of intangible assets 9,995  6,597  16,592   4,380   5,208  6,117  11,325   2,468 
Operating expense before amortization and impairment 515,708  35,367  551,075   29,425   402,063  40,362  442,425   10,840 
Net earned premium $1,783,800  $211,301  $1,995,101   $134,709   $1,465,122  $120,476  $1,585,598   $47,622 
Operating expense ratio before amortization and impairment (Non-GAAP) 28.9% 16.7% 27.6%  21.8%  27.4% 33.5% 27.9%  22.8%


Premiums by Business Line
$ in thousands
(Unaudited)
 
  Three Months Ended December 31,
  Gross Written Premium  Net Written Premium  Net Earned Premium
   2015   2014  Change   2015   2014  Change   2015   2014  Change
Property & Casualty                    
Personal Auto $304,885  $288,565   5.7%  $265,771  $252,284   5.3%  $268,132  $259,599   3.3%
Homeowners 63,755  76,330   (16.5)%  58,901  60,396   (2.5)%  67,287  38,778   73.5%
RV/Packaged 33,836  33,370   1.4%  33,720  33,193   1.6%  38,249  37,841   1.1%
Commercial Auto 47,806  38,951   22.7%  42,967  35,993   19.4%  43,074  33,918   27.0%
Lender-Placed Insurance 126,570     NA   125,693     NA   123,274     NA 
Other 2,810  3,106   (9.5)%  1,912  2,287   (16.4)%  3,531  3,898   (9.4)%
Property & Casualty Total 579,662  440,322   31.6%  528,964  384,153   37.7%  543,547  374,034   45.3%
                     
Accident & Health 98,513  22,526   337.3%  89,170  22,389   298.3%  98,752  30,532   223.4%
                     
Total National General 678,175  462,848   46.5%  618,134  406,542   52.0%  642,299  404,566   58.8%
                     
Reciprocal Exchanges                    
Personal Auto 20,853   28,106   (25.8)%  12,067  28,012   (56.9)%  13,512  24,362   (44.5)%
Homeowners 39,064   28,015   39.4%  17,933  14,491   23.8%  18,363  13,558   35.4%
Other 5,835   3,928   48.5%  3,038  3,368   (9.8)%  4,394  3,010   46.0%
Reciprocal Exchanges Total 65,752   60,049   9.5%  33,038  45,871   (28.0)%  36,269  40,930   (11.4)%
Consolidated Total $743,927  $522,897   42.3%  $651,172  $452,413   43.9%  $678,568  $445,496   52.3%
                     
  Twelve Months Ended December 31,
  Gross Written Premium  Net Written Premium  Net Earned Premium
   2015   2014  Change   2015   2014  Change   2015   2014  Change
Property & Casualty                    
Personal Auto $1,241,282  $1,241,575   %  $1,070,852  $1,047,795   2.2%  $1,054,529  $979,082   7.7%
Homeowners 329,440  366,997   (10.2)%  309,775  333,586   (7.1)%  286,920  204,285   40.5%
RV/Packaged 154,929  153,553   0.9%  153,501  148,456   3.4%  150,290  147,587   1.8%
Commercial Auto 187,686  146,124   28.4%  170,720  132,002   29.3%  154,565  118,759   30.2%
Lender-Placed Insurance 126,570     NA   125,693     NA   123,274     NA 
Other 17,927  16,417   9.2%  13,661  15,107   (9.6)%  14,222  15,409   (7.7)%
Property & Casualty Total 2,057,834  1,924,666   6.9%  1,844,202  1,676,946   10.0%  1,783,800  1,465,122   21.8%
                     
Accident & Health 251,922  140,399   79.4%  215,953  140,002   54.2%  211,301  120,476   75.4%
                     
Total National General 2,309,756  2,065,065   11.8%  2,060,155  1,816,948   13.4%  1,995,101  1,585,598   25.8%
                     
Reciprocal Exchanges                    
Personal Auto 88,494  32,436  NA  50,686  32,075  NA  74,477  28,405  NA
Homeowners 168,015  33,028  NA  58,012  17,127  NA  45,354  15,779  NA
Other 27,073  4,578  NA  17,393  3,874  NA  14,878  3,438  NA
Reciprocal Exchanges Total 283,582  70,042  NA  126,091  53,076  NA  134,709  47,622  NA
Consolidated Total $2,589,748  $2,135,107   21.3%  $2,186,246  $1,870,024   16.9%  $2,129,810  $1,633,220   30.4%

NOTE: Consolidated Total includes elimination of $(3,590) within Gross Written Premium for Twelve Months Ended December 31, 2015.

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, other than temporary impairment losses, foreign exchange gain or loss, equity in earnings or losses of unconsolidated subsidiaries (other than LSC Entities and Real Estate investment gains or losses), non-cash amortization of intangible assets, and non-cash impairment of goodwill. The Company believes operating earnings and basic and diluted operating EPS are more relevant measures of the Company’s profitability because operating earnings and basic and diluted operating EPS contain the components of net income upon which the Company’s management has the most influence and excludes factors outside management’s direct control and non-recurring items.  Other companies may calculate these measures differently, and therefore, their measures may not be comparable to those used by National General. Please see the Non-GAAP Financial Measures table within this release for the reconciliation of these Non-GAAP measures to the most directly comparable GAAP measure.

(2) Premiums and other receivables, net (NGHC) includes $62,306 and $168,134 from related parties at December 31, 2015 and December 31, 2014, respectively.

(3) Reinsurance recoverable on unpaid losses (NGHC) includes $42,774 and $88,970 from related parties at December 31, 2015 and December 31, 2014, respectively.

(4) Accounts payable and accrued expenses (NGHC) includes $51,755 and $68,096 to related parties at December 31, 2015 and December 31, 2014, respectively.

(5) Notes payable (Reciprocal Exchanges) includes $56,443 and $48,374 owed to related party at December 31, 2015 and December 31, 2014, respectively.

(6) Common stock: $0.01 par value - authorized 150,000,000 shares, issued and outstanding 105,554,331 shares - December 31, 2015; authorized 150,000,000 shares, issued and outstanding 93,427,382 shares - December 31, 2014.

(7) Preferred stock: $0.01 par value, authorized 10,000,000 shares, issued and outstanding 2,365,000 shares and 2,200,000 shares at December 31, 2015 and December 31, 2014, respectively.

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

(9) 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 and fee income.  Management uses operating expense ratio (non-GAAP) and combined ratio (non-GAAP) to evaluate financial performance against historical results and establish targets on a consolidated basis.  The Company believes this presentation enhances the understanding of our results by eliminating what we believe are volatile and unusual events and presenting the ratios with what we believe are the underlying run rates of the business. Other companies may calculate these measures differently, and, therefore, their measures may not be comparable to those used by National General.  Please see the Non-GAAP Financial Measures table within this release for the reconciliation of these Non-GAAP measures to the most directly comparable GAAP measure.

(10) 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.

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

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

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

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