NEW YORK, Nov. 02, 2016 (GLOBE NEWSWIRE) -- National General Holdings Corp. (NASDAQ:NGHC) today reported third quarter 2016 net income of $19.9 million or $0.18 per diluted share, compared to $39.0 million or $0.38 per diluted share in the third quarter of 2015. Third quarter 2016 operating earnings⁽¹⁾ was $33.6 million or $0.31 per diluted share, compared to $44.1 million or $0.43 per diluted share in the third quarter of 2015.

Third Quarter 2016 Highlights Versus Third Quarter 2015*

• Net written premium grew $285.3 million or 59.2% to $767.3 million, driven by added premiums from the acquisition of Century-National which closed on June 1, 2016, the National General Lender Services (formerly QBE Lender-Placed Insurance) and Assurant Health transactions which both closed on October 1, 2015, the addition of Assigned Risk Solutions (ARS) premium volume which is now written on National General paper, underlying organic growth within our P&C business, and continued expansion of our A&H segment.
• The overall combined ratio^{(10, 14)} was 94.6% compared to 90.2% in the prior year's quarter, excluding non-cash amortization of intangible assets. The P&C segment reported an increase in combined ratio to 94.5% from 89.4% in the prior year’s quarter, which was elevated by significant storm losses as described below, while the A&H segment reported a combined ratio of 95.4% compared to 97.6% in the prior year’s quarter, driven by increased scale and strong results from our Assurant Health book.
• Total revenues grew by $308.6 million or 56.2% to $857.4 million, primarily driven by the aforementioned premium growth, service and fee income growth of $34.8 million or 49.1%, and net investment income growth of $10.2 million or 63.4%.
• Shareholders' equity was $1.91 billion and fully diluted book value per share was $13.76 at September 30, 2016, growth of 25.7% and 14.1%, respectively, from September 30, 2015. Our trailing twelve month operating return on average equity (ROE)⁽¹⁵⁾ was 12.6% as of September 30, 2016.
• Third quarter 2016 operating earnings exclude the following items, net of tax: $7.2 million or $0.07 per share of realized investment gains, $14.4 million or $0.13 per share of other-than-temporary impairment losses, less than $0.01 per share of foreign exchange loss, less than $0.01 per share of equity in earnings of unconsolidated subsidiaries (other than our Life Settlement Contracts Entities and Real Estate investments), and $6.5 million or $0.06 per share of non-cash amortization of intangible assets.
• Third quarter 2016 operating earnings include approximately $15.0 million or $0.09 per share of losses related to floods that occurred in Louisiana in August 2016.

Barry Karfunkel, National General's President and CEO, stated: "Our third quarter results reflect strong top line momentum, both from organic opportunities that we are seeing in the market and the benefit of recently closed acquisitions.  Since we last reported earnings, we have closed on our acquisitions of both Standard Mutual, which further expands our packaged home and auto offerings in Illinois and Indiana, and Direct General, which adds a direct marketing distribution channel to our core non-standard auto business and expands our presence in this product line in the Southeast.  Our acquisition pipeline remains active, as we are at a point in the cycle where some competitors are having difficulty maintaining profitability and lack the technological capabilities to compete effectively in a challenging market.  This dislocation is also benefiting us organically.  As always, we will remain opportunistic in our deal selection process."

*NOTE: Unless specified otherwise, discussion of our third quarter 2016 and 2015 results do not include financial results from the Reciprocal Exchanges, which are presented within our consolidated financial results within this release but are not included in net income available to NGHC common stockholders.

Overview of Third Quarter 2016 as Compared to Third Quarter 2015

Gross written premium grew 55.7% to $851.4 million, net written premium grew 59.2% to $767.3 million, and net earned premium grew 56.6% to $734.3 million. Premium growth was driven by several key factors: underlying organic growth within our P&C segment, continued expansion of our A&H segment, additional premiums from the acquisition of Century-National which closed on June 1, 2016, the National General Lender Services (formerly QBE Lender-Placed Insurance) and Assurant Health transactions which both closed on October 1, 2015, and added premium volume from Assigned Risk Solutions (ARS), which we began writing on National General paper in the first quarter of 2016.

Service and fee income grew 49.1% to $105.6 million, driven by added service and fee income from our recently completed transactions, primarily National General Lender Services and Assurant Health, and underlying growth within our A&H segment.

Excluding non-cash amortization of intangible assets, the combined ratio^(10,14) was 94.6% with a loss ratio of 67.0% and an expense ratio^{(10, 13)} of 27.6%, compared to a prior year combined ratio of 90.2% with a loss ratio of 61.6% and an expense ratio of 28.6%.

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

• Property & Casualty - Gross written premium grew by 49.8% to $753.7 million, net written premium grew by 51.7% to $679.9 million, and net earned premium grew by 48.5% to $629.3 million. P&C net written premium growth was driven by several key factors: underlying organic growth of $56.6 million or 12.6% increase, the addition of $61.2 million from the Century-National acquisition, the addition of $99.8 million from the National General Lender Services transaction, and the addition of $14.1 million from ARS, which we began writing on National General paper during the first quarter of 2016. Service and fee income grew 27.9% to $65.5 million, driven by increased premium volume in the quarter, the addition of service and fee income from acquisitions completed during the current and prior year (including ARS, National General Lender Services and Century-National). Excluding non-cash amortization of intangible assets, the combined ratio^(10,14) was 94.5% with a loss ratio of 65.9% and an expense ratio^(10,13) of 28.6%, versus a prior year combined ratio of 89.4% with a loss ratio of 60.2% and an expense ratio of 29.2%. The loss ratio was impacted by pre-tax catastrophe losses of approximately $15.0 million related to floods that occurred in Louisiana in August 2016, a $3.7 million pre-tax increase in losses related to hail storms that occurred in San Antonio and Dallas, Texas in April 2016, and increased severe loss activity in our Northeast monoline homeowners' product that had a $4.1 million pre-tax impact in the quarter.
   
• Accident & Health - Gross written premium grew to $97.6 million, net written premium grew to $87.4 million, and net earned premium grew to $105.1 million, from $43.6 million, $33.8 million, and $45.1 million, respectively, in the prior year's quarter. A&H net written premium growth was driven by the addition of $46.4 million from the Assurant Health transaction, as well as continued growth from our domestic business, with $33.5 million in premium at our U.S. underwriting subsidiaries compared to $23.6 million in the prior year’s quarter. Service and fee income grew to $40.2 million from $19.7 million in the prior year’s quarter, driven by the addition of service and fee income from the Assurant Health transaction and strong growth at our agencies. Excluding non-cash amortization of intangible assets, the combined ratio^(10,14) was 95.4% with a loss ratio of 73.4% and an expense ratio^(10,13) of 22.0%, versus a prior year combined ratio of 97.6% with a loss ratio of 74.3% and an expense ratio of 23.3%. The loss ratio was impacted by a higher level of losses within our legacy small group self-funded product, which was more than offset by strong results from our Assurant book.
   
• Reciprocal Exchanges - Results for the Reciprocal Exchanges are not included in net income available to NGHC common stockholders. Gross written premium was $81.0 million, net written premium was $39.1 million, and net earned premium was $35.5 million. Reciprocal Exchanges combined ratio^{(10, 12)} was 96.4% with a loss ratio of 50.4% and an expense ratio^{(10, 11)} of 46.0%.

Investment income grew 63.4% to $26.4 million, reflecting an increase in the size of our investment portfolio as compared to the prior year’s quarter. Third quarter 2016 results included $11.1 million of net realized and unrealized investment gain compared with a gain of $1.3 million in the third quarter of 2015. The third quarter of 2016 included $22.1 million of other-than-temporary impairment losses versus $6.0 million in the prior year’s quarter. Total investments and cash equivalents were $3.6 billion as of September 30, 2016. Accumulated other comprehensive income increased to $67.4 million at September 30, 2016 from $44.7 million at June 30, 2016.

Interest expense was $10.5 million, up from $5.8 million in the prior year’s quarter due to an increased amount of debt on our balance sheet. Debt was $675.5 million at September 30, 2016, up from $347.0 million at September 30, 2015 as a result of our October 2015 issuance of $100.0 million of senior unsecured notes, our May 2016 borrowing of $50.0 million under our credit facility, and our June 2016 promissory note of $178.9 million for the acquisition of Century-National.

Equity in earnings of unconsolidated subsidiaries (predominantly our investment in Life Settlement Entities and Real Estate investments) was a $3.0 million gain in the third quarter of 2016 versus a $2.3 million gain in the prior year's quarter, reflecting fair value adjustments on life settlement contracts and income from our real estate investments.

The third quarter of 2016 provision for income taxes was $9.1 million and the effective tax rate for the quarter was 26.5%. Included in the third quarter of 2016 provision for income taxes was a $1.6 million benefit attributable to a reduction of the deferred tax liability associated with the equalization reserves of our Luxembourg Reinsurance Companies (LRC). As of September 30, 2016, the remaining deferred tax liability associated with our LRC was $2.9 million.

National General Holding Corp.'s shareholders' equity was $1,912.9 million at September 30, 2016, growth of 25.7% from $1,521.9 million at September 30, 2015. Fully diluted book value per share was $13.76 at September 30, 2016, growth of 14.1% from $12.06 at September 30, 2015. Our trailing twelve month operating return on average equity (ROE)⁽¹⁵⁾ was 12.6% as of September 30, 2016.

Year-to-Date P&C Segment Notable Large Losses ($ million)
			P&C Notable Large Losses and ALAE				P&C Loss Ratio Points*				EPS Impact After Tax
Q3	Development on April Dallas and San Antonio Hail Storms		$	3.7				0.6	%		$	0.02
Q3	August Louisiana Flood		$	15.0				2.4	%		$	0.09
Q2	April Dallas and San Antonio Hail Storms		$	18.4				3.2	%		$	0.11
Q1	March Dallas Hail Storm		$	5.0				0.9	%		$	0.03

*Loss ratio points related to P&C net earned premium in quarter the loss event was recorded

Additional Items

• Standard Property and Casualty Insurance Company - On October 7, 2016, we closed the acquisition of Standard Property and Casualty Insurance Company (f/k/a Standard Mutual Insurance Company), an Illinois based property and casualty insurance underwriter (“SPCIC”).
• Direct General Acquisition - On November 1, 2016, we closed the acquisition of Elara Holdings, Inc., the parent company of Direct General Corporation, a Tennessee based P&C insurance company that predominantly writes non-standard auto business in the Southeastern United States. The estimated purchase price for the transaction was approximately $161.6 million, subject to customary post-closing adjustments.

Conference Call

On Thursday, November 3, 2016 at 11:00 AM ET, President and Chief Executive Officer Barry Karfunkel and Chief Financial Officer Mike Weiner will review results and discuss business conditions via a conference call that may be accessed as follows:

Toll-Free U.S. Dial-in:		888-267-2860
International Dial-in:		973-413-6102
Conference Entry Code:		870411
Webcast Registration:		http://ir.nationalgeneral.com/events.cfm

A replay of the conference call will be accessible from 2:00 PM ET on Thursday, November 3, 2016 to 11:59 PM ET on Thursday, November 10, 2016 by dialing either 800-332-6854 (toll-free) within the U.S. or 973-528-0005 outside the U.S. and entering passcode 870411. 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, our ability to accurately underwrite and price our products and to maintain and establish accurate loss reserves, 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 with AmTrust Financial Services, Inc., ACP Re Ltd., Maiden Holdings, Ltd., or third party agencies, breaches in data security or other disruptions involving our technology, heightened competition, changes in pricing environments, and changes in asset valuations. The forward-looking statements contained in this news release are made only as of the date of this release. The Company undertakes no obligation to publicly update any forward-looking statement except as may be required by law. Additional information about these risks and uncertainties, as well as others that may cause actual results to differ materially from those projected is contained in the Company's filings with the Securities and Exchange Commission.

Income Statement - Third Quarter
$ in thousands
(Unaudited)
		Three Months Ended September 30,
		2016													2015
		NGHC				Reciprocal Exchanges				Consolidated					NGHC				Reciprocal Exchanges				Consolidated
Revenues:
Gross written premium		$	851,371			$	80,978			$	931,459		(A)		$	546,821			$	79,864			$	626,685
Ceded premiums		(84,052		)		(41,912		)		(125,074		)	(B)		(64,832		)		(36,214		)		(101,046		)
Net written premium		767,319				39,066				806,385					481,989				43,650				525,639
Net earned premium		734,343				35,507				769,850					468,965				34,296				503,261
Ceding commission income/(loss)		2,136				12,461				14,597					(2,348		)		14,498				12,150
Service and fee income		105,636				1,360				95,662			(C)		70,853				1,248				60,907			(I)
Net investment income		26,368				3,405				27,676			(D)		16,140				2,332				18,472
Net gain on investments		11,053				96				11,149					1,291				124				1,415
Other-than-temporary impairment loss		(22,102		)		—				(22,102		)			(6,009		)		—				(6,009		)
Other revenue (expense)		(56		)		—				(56		)			(157		)		—				(157		)
Total revenues		$	857,378			$	52,829			$	896,776		(E)		$	548,735			$	52,498			$	590,039		(J)
Expenses:
Loss and loss adjustment expense		$	491,948			$	17,905			$	509,853				$	288,684			$	13,575			$	302,259
Acquisition costs and other underwriting expenses		135,057				5,683				140,740					98,686				10,095				108,744			(K)
General and administrative expenses		185,615				24,456				198,737			(F)		106,832				22,906				118,581			(L)
Interest expense		10,455				2,097				10,455			(G)		5,844				3,584				9,428
Total expenses		$	823,075			$	50,141			$	859,785		(H)		$	500,046			$	50,160			$	539,012		(M)
Income before provision/(benefit) for income taxes and equity in earnings of unconsolidated subsidiaries		$	34,303			$	2,688			$	36,991				$	48,689			$	2,338			$	51,027
Provision/(benefit) for income taxes		9,090				(285		)		8,805					7,840				774				8,614
Income before equity in earnings of unconsolidated subsidiaries		25,213				2,973				28,186					40,849				1,564				42,413
Equity in earnings of unconsolidated subsidiaries		2,953				—				2,953					2,288				—				2,288
Net income before non-controlling interest and dividends on preferred shares		28,166				2,973				31,139					43,137				1,564				44,701
Less: net income attributable to non-controlling interest		36				2,973				3,009					24				1,564				1,588
Net income before dividends on preferred shares		28,130				—				28,130					43,113				—				43,113
Less: dividends on preferred shares		8,208				—				8,208					4,125				—				4,125
Net income available to common stockholders		$	19,922			$	—			$	19,922				$	38,988			$	—			$	38,988

NOTE: Consolidated column includes eliminations as follows: (A) $(890), (B) $890, (C) $(11,334), (D) $(2,097), (E) $(13,431), (F) $(11,334), (G) $(2,097), (H) $(13,431), (I) $(11,194), (J) $(11,194), (K) $(37), (L) $(11,157), and (M) $(11,194).

Income Statement - Year to Date
$ in thousands
(Unaudited)
		Nine Months Ended September 30,
		2016													2015
		NGHC				Reciprocal Exchanges				Consolidated (1)					NGHC				Reciprocal Exchanges				Consolidated
Revenues:
Gross written premium		$	2,441,613			$	158,148			$	2,598,160		(A)		$	1,631,581			$	217,830			$	1,845,821		(J)
Ceded premiums		(231,388		)		(79,952		)		(309,739		)	(B)		(189,560		)		(124,777		)		(310,747		)	(K)
Net written premium		2,210,225				78,196				2,288,421					1,442,021				93,053				1,535,074
Net earned premium		2,066,175				71,535				2,137,710					1,352,802				98,440				1,451,242
Ceding commission income/(loss)		(2,964		)		27,370				24,406					(1,249		)		28,449				27,200
Service and fee income		302,209				2,555				282,623			(C)		200,849				2,990				173,335			(L)
Net investment income		75,399				5,653				76,874			(D)		46,403				6,552				52,955
Net gain on investments		18,911				237				19,148					5,203				271				5,474
Other-than-temporary impairment loss		(22,102		)		—				(22,102		)			(8,492		)		—				(8,492		)
Other revenue (expense)		258				—				258					(327		)		—				(327		)
Total revenues		$	2,437,886			$	107,350			$	2,518,917		(E)		$	1,595,189			$	136,702			$	1,701,387		(M)
Expenses:
Loss and loss adjustment expense		$	1,355,620			$	35,641			$	1,391,261				$	838,950			$	56,824			$	895,774
Acquisition costs and other underwriting expenses		356,343				6,176				362,513			(F)		274,227				20,967				295,131			(N)
General and administrative expenses		538,902				49,717				566,484			(G)		325,036				48,831				343,426			(O)
Interest expense		28,535				4,178				28,535			(H)		16,031				11,078				27,109
Total expenses		$	2,279,400			$	95,712			$	2,348,793		(I)		$	1,454,244			$	137,700			$	1,561,440		(P)
Income (loss) before provision/(benefit) for income taxes and equity in earnings of unconsolidated subsidiaries		$	158,486			$	11,638			$	170,124				$	140,945			$	(998	)		$	139,947
Provision/(benefit) for income taxes		41,998				(559		)		41,439					25,369				(477		)		24,892
Income (loss) before equity in earnings of unconsolidated subsidiaries		116,488				12,197				128,685					115,576				(521		)		115,055
Equity in earnings of unconsolidated subsidiaries		16,991				—				16,991					8,900				—				8,900
Net income (loss) before non-controlling interest and dividends on preferred shares		133,479				12,197				145,676					124,476				(521		)		123,955
Less: net income (loss) attributable to non-controlling interest		52				12,197				12,249					68				(521		)		(453		)
Net income before dividends on preferred shares		133,427				—				133,427					124,408				—				124,408
Less: dividends on preferred shares		16,458				—				16,458					9,900				—				9,900
Net income available to common stockholders		$	116,969			$	—			$	116,969				$	114,508			$	—			$	114,508

NOTES: Consolidated column includes eliminations as follows: (A) $(1,601), (B) $1,601, (C) $(22,141), (D) $(4,178), (E) $(26,319), (F) $(6), (G) $(22,135), (H) $(4,178), (I) $(26,319), (J) $(3,590), (K) $3,590, (L) $(30,504), (M) $(30,504), (N) $(63), (O) $(30,441), and (P) $(30,504).

(1) Consolidated column for the nine months ended September 30, 2016 excludes Reciprocal Exchanges' operating results from January 1, 2016 to March 31, 2016, as these entities did not meet the criteria for consolidation under GAAP.

Earnings and Per Share Data
$ in thousands, except shares and per share data
(Unaudited)
	Three Months Ended September 30,									Nine Months Ended September 30,
	2016				2015					2016				2015
Net income available to common stockholders	$	19,922			$	38,988				$	116,969			$	114,508
Basic net income per common share	$	0.19			$	0.39				$	1.11			$	1.19
Diluted net income per common share	$	0.18			$	0.38				$	1.08			$	1.16
Operating earnings attributable to NGHC(1)	$	33,590			$	44,051				$	133,740			$	123,199
Basic operating earnings per common share(1)	$	0.32			$	0.44				$	1.26			$	1.28
Diluted operating earnings per common share(1)	$	0.31			$	0.43				$	1.24			$	1.25
Dividends declared per common share	$	0.04			$	0.02				$	0.10			$	0.06
Weighted average number of basic shares outstanding	106,002,337				100,360,687					105,801,817				95,877,178
Weighted average number of diluted shares outstanding	108,423,998				102,940,728					108,053,177				98,314,808
Shares outstanding, end of period	106,088,008				105,433,893					106,088,008				105,433,893
Fully diluted shares outstanding, end of period	108,509,669				107,983,933					108,339,368				107,841,523
Book value per share	$	14.07			$	12.35				$	14.07			$	12.35
Fully diluted book value per share	$	13.76			$	12.06				$	13.78			$	12.07

Reconciliation of Net Income to Operating Earnings (Non-GAAP)
$ in thousands, except per share data
(Unaudited)
	Three Months Ended September 30,									Nine Months Ended September 30,
	2016				2015					2016				2015
Net income available to common stockholders	$	19,922			$	38,988				$	116,969			$	114,508
Add (subtract) net of tax:
Net realized and unrealized gain on investments	(7,184		)		(839		)			(12,292		)		(3,382		)
Other-than-temporary impairment losses	14,366				3,906					14,366				5,520
Foreign exchange (gain)/loss	36				152					(115		)		935
Equity in (earnings)/losses of unconsolidated subsidiaries (other than LSC Entities and Real Estate investments)	(2		)		69					6				149
Non-cash amortization of intangible assets	6,452				1,775					14,806				5,469
Operating earnings attributable to NGHC (1)	$	33,590			$	44,051				$	133,740			$	123,199
Operating earnings per common share:
Basic operating earnings per common share	$	0.32			$	0.44				$	1.26			$	1.28
Diluted operating earnings per common share	$	0.31			$	0.43				$	1.24			$	1.25

Balance Sheets
$ in thousands
		September 30, 2016 (unaudited)													December 31, 2015 (audited)
ASSETS		NGHC				Reciprocal Exchanges				Consolidated					NGHC				Reciprocal Exchanges				Consolidated
Total investments		$	3,360,497			$	298,616			$	3,570,141		(A)		$	2,425,168			$	242,542			$	2,667,710
Cash and cash equivalents		194,544				21,830				216,374					273,884				8,393				282,277
Premiums and other receivables, net (2)		867,315				56,443				923,758					702,439				56,194				758,633
Reinsurance recoverable on unpaid losses (3)		872,263				45,445				917,708					794,091				39,085				833,176
Intangible assets, net		347,973				18,229				366,202					344,073				4,825				348,898
Goodwill		211,702				—				211,702					112,414				—				112,414
Other		573,656				96,575				651,543			(B)		459,619				100,665				560,284
Total assets		$	6,427,950			$	537,138			$	6,857,428		(C)		$	5,111,688			$	451,704			$	5,563,392
LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities:
Unpaid loss and loss adjustment expense reserves		$	1,946,113			$	140,821			$	2,086,934				$	1,623,232			$	132,392			$	1,755,624
Unearned premiums		1,313,124				156,042				1,469,166					1,046,313				146,186				1,192,499
Reinsurance payable (4)		80,293				20,415				100,708					54,815				14,357				69,172
Accounts payable and accrued expenses (5)		318,543				9,061				323,499			(D)		265,057				19,845				284,902
Debt (6)		675,507				88,972				675,507			(E)		446,061				45,476				491,537
Other		181,476				86,951				253,844			(F)		162,189				70,829				233,018
Total liabilities		$	4,515,056			$	502,262			$	4,909,658		(G)		$	3,597,667			$	429,085			4,026,752
Stockholders’ equity:
Common stock (7)		$	1,061			$	—			$	1,061				$	1,056			$	—			$	1,056
Preferred stock (8)		420,000				—				420,000					220,000				—				220,000
Additional paid-in capital		905,772				—				905,772					900,114				—				900,114
Accumulated other comprehensive income (loss)		67,430				—				67,430					(19,414		)		—				(19,414		)
Retained earnings		518,418				—				518,418					412,044				—				412,044
Total National General Holdings Corp. stockholders' equity		1,912,681				—				1,912,681					1,513,800				—				1,513,800
Non-controlling interest		213				34,876				35,089					221				22,619				22,840
Total stockholders’ equity		$	1,912,894			$	34,876			$	1,947,770				$	1,514,021			$	22,619			$	1,536,640
Total liabilities and stockholders’ equity		$	6,427,950			$	537,138			$	6,857,428		(H)		$	5,111,688			$	451,704			$	5,563,392

NOTE: Consolidated column includes eliminations as follows: (A) $(88,972), (B) $(18,688), (C) $(107,660), (D) $(4,105), (E) $(88,972), (F) $(14,583), (G) $(107,660), and (H) $(107,660).

Segment Information - Third Quarter
$ in thousands
(Unaudited)
		Three Months Ended September 30,
		2016																		2015
		P&C				A&H				NGHC					Reciprocal Exchanges					P&C				A&H				NGHC					Reciprocal Exchanges
Gross written premium		$	753,747			$	97,624			$	851,371				$	80,978				$	503,227			$	43,594			$	546,821				$	79,864
Net written premium		679,944				87,375				767,319					39,066					448,140				33,849				481,989					43,650
Net earned premium		629,261				105,082				734,343					35,507					423,858				45,107				468,965					34,296
Ceding commission income/(loss)		1,809				327				2,136					12,461					(2,615		)		267				(2,348		)			14,498
Service and fee income		65,478				40,158				105,636					1,360					51,193				19,660				70,853					1,248
Total underwriting revenues		$	696,548			$	145,567			$	842,115				$	49,328				$	472,436			$	65,034			$	537,470				$	50,042
Loss and loss adjustment expense		414,801				77,147				491,948					17,905					255,165				33,519				288,684					13,575
Acquisition costs and other		102,221				32,836				135,057					5,683					81,321				17,365				98,686					10,095
General and administrative		153,246				32,369				185,615					24,456					92,771				14,061				106,832					22,906
Total underwriting expenses		$	670,268			$	142,352			$	812,620				$	48,044				$	429,257			$	64,945			$	494,202				$	46,576
Underwriting income		26,280				3,215				29,495					1,284					43,179				89				43,268					3,466
Non-cash amortization of intangible assets		8,368				1,559				9,927					7,000					1,727				1,005				2,732					1,355
Underwriting income before amortization and impairment		$	34,648			$	4,774			$	39,422				$	8,284				$	44,906			$	1,094			$	46,000				$	4,821
Underwriting ratios
Loss and loss adjustment expense ratio (9)		65.9		%		73.4		%		67.0		%			50.4		%			60.2		%		74.3		%		61.6		%			39.6		%
Operating expense ratio (Non-GAAP) (10,11)		29.9		%		23.5		%		29.0		%			46.0		%			29.6		%		25.5		%		29.2		%			50.3		%
Combined ratio (Non-GAAP) (10,12)		95.8		%		96.9		%		96.0		%			96.4		%			89.8		%		99.8		%		90.8		%			89.9		%
Underwriting ratios (before amortization and impairment)
Loss and loss adjustment expense ratio (9)		65.9		%		73.4		%		67.0		%			50.4		%			60.2		%		74.3		%		61.6		%			39.6		%
Operating expense ratio (Non-GAAP) (10,13)		28.6		%		22.0		%		27.6		%			26.2		%			29.2		%		23.3		%		28.6		%			46.4		%
Combined ratio before amortization and impairment (Non-GAAP) (10,14)		94.5		%		95.4		%		94.6		%			76.6		%			89.4		%		97.6		%		90.2		%			86.0		%

Segment Information - Year to Date
$ in thousands
(Unaudited)
		Nine Months Ended September 30,
		2016																		2015
		P&C				A&H				NGHC					Reciprocal Exchanges (1)					P&C				A&H				NGHC					Reciprocal Exchanges
Gross written premium		$	2,086,241			$	355,372			$	2,441,613				$	158,148				$	1,478,172			$	153,409			$	1,631,581				$	217,830
Net written premium		1,888,660				321,565				2,210,225					78,196					1,315,238				126,783				1,442,021					93,053
Net earned premium		1,758,311				307,864				2,066,175					71,535					1,240,253				112,549				1,352,802					98,440
Ceding commission income/(loss)		(4,019		)		1,055				(2,964		)			27,370					(2,069		)		820				(1,249		)			28,449
Service and fee income		189,739				112,470				302,209					2,555					146,098				54,751				200,849					2,990
Total underwriting revenues		$	1,944,031			$	421,389			$	2,365,420				$	101,460				$	1,384,282			$	168,120			$	1,552,402				$	129,879
Loss and loss adjustment expense		1,123,353				232,267				1,355,620					35,641					759,198				79,752				838,950					56,824
Acquisition costs and other		275,171				81,172				356,343					6,176					233,951				40,276				274,227					20,967
General and administrative		445,053				93,849				538,902					49,717					282,797				42,239				325,036					48,831
Total underwriting expenses		$	1,843,577			$	407,288			$	2,250,865				$	91,534				$	1,275,946			$	162,267			$	1,438,213				$	126,622
Underwriting income		100,454				14,101				114,555					9,926					108,336				5,853				114,189					3,257
Non-cash amortization of intangible assets		17,843				4,936				22,779					13,726					5,479				2,936				8,415					5,221
Underwriting income before amortization and impairment		$	118,297			$	19,037			$	137,334				$	23,652				$	113,815			$	8,789			$	122,604				$	8,478
Underwriting ratios
Loss and loss adjustment expense ratio (9)		63.9		%		75.4		%		65.6		%			49.8		%			61.2		%		70.9		%		62.0		%			57.7		%
Operating expense ratio (Non-GAAP) (10,11)		30.4		%		20.0		%		28.8		%			36.3		%			30.1		%		23.9		%		29.5		%			39.0		%
Combined ratio (Non-GAAP) (10,12)		94.3		%		95.4		%		94.4		%			86.1		%			91.3		%		94.8		%		91.5		%			96.7		%
Underwriting ratios (before amortization and impairment)
Loss and loss adjustment expense ratio (9)		63.9		%		75.4		%		65.6		%			49.8		%			61.2		%		70.9		%		62.0		%			57.7		%
Operating expense ratio (Non-GAAP) (10,13)		29.4		%		18.4		%		27.7		%			17.1		%			29.6		%		21.3		%		28.9		%			33.7		%
Combined ratio before amortization and impairment (Non-GAAP) (10,14)		93.3		%		93.8		%		93.3		%			66.9		%			90.8		%		92.2		%		90.9		%			91.4		%

NOTE: (1) Reciprocal Exchanges' column for the nine months ended September 30, 2016 excludes its operating results from January 1, 2016 to March 31, 2016, as these entities did not meet the criteria for consolidation under GAAP.

Reconciliation of Operating Expense Ratio (Non-GAAP)
$ in thousands
(Unaudited)
		Three Months Ended September 30,
		2016																		2015
		P&C				A&H				NGHC					Reciprocal Exchanges					P&C				A&H				NGHC					Reciprocal Exchanges
Total underwriting expenses		$	670,268			$	142,352			$	812,620				$	48,044				$	429,257			$	64,945			$	494,202				$	46,576
Less: Loss and loss adjustment expense		414,801				77,147				491,948					17,905					255,165				33,519				288,684					13,575
Less: Ceding commission income/(loss)		1,809				327				2,136					12,461					(2,615		)		267				(2,348		)			14,498
Less: Service and fee income		65,478				40,158				105,636					1,360					51,193				19,660				70,853					1,248
Operating expense		188,180				24,720				212,900					16,318					125,514				11,499				137,013					17,255
Net earned premium		$	629,261			$	105,082			$	734,343				$	35,507				$	423,858			$	45,107			$	468,965				$	34,296
Operating expense ratio (Non-GAAP)		29.9		%		23.5		%		29.0		%			46.0		%			29.6		%		25.5		%		29.2		%			50.3		%
Total underwriting expenses		$	670,268			$	142,352			$	812,620				$	48,044				$	429,257			$	64,945			$	494,202				$	46,576
Less: Loss and loss adjustment expense		414,801				77,147				491,948					17,905					255,165				33,519				288,684					13,575
Less: Ceding commission income/(loss)		1,809				327				2,136					12,461					(2,615		)		267				(2,348		)			14,498
Less: Service and fee income		65,478				40,158				105,636					1,360					51,193				19,660				70,853					1,248
Less: Non-cash amortization of intangible assets		8,368				1,559				9,927					7,000					1,727				1,005				2,732					1,355
Operating expense before amortization and impairment		179,812				23,161				202,973					9,318					123,787				10,494				134,281					15,900
Net earned premium		$	629,261			$	105,082			$	734,343				$	35,507				$	423,858			$	45,107			468,965					34,296
Operating expense ratio before amortization and impairment (Non-GAAP)		28.6		%		22.0		%		27.6		%			26.2		%			29.2		%		23.3		%		28.6		%			46.4		%

Reconciliation of Operating Expense Ratio (Non-GAAP)
$ in thousands
(Unaudited)
		Nine Months Ended September 30,
		2016																		2015
		P&C				A&H				NGHC					Reciprocal Exchanges					P&C				A&H				NGHC					Reciprocal Exchanges
Total underwriting expenses		$	1,843,577			$	407,288			$	2,250,865				$	91,534				$	1,275,946			$	162,267			$	1,438,213				$	126,622
Less: Loss and loss adjustment expense		1,123,353				232,267				1,355,620					35,641					759,198				79,752				838,950					56,824
Less: Ceding commission income/(loss)		(4,019		)		1,055				(2,964		)			27,370					(2,069		)		820				(1,249		)			28,449
Less: Service and fee income		189,739				112,470				302,209					2,555					146,098				54,751				200,849					2,990
Operating expense		534,504				61,496				596,000					25,968					372,719				26,944				399,663					38,359
Net earned premium		$	1,758,311			$	307,864			$	2,066,175				$	71,535				$	1,240,253			$	112,549			$	1,352,802				$	98,440
Operating expense ratio (Non-GAAP)		30.4		%		20.0		%		28.8		%			36.3		%			30.1		%		23.9		%		29.5		%			39.0		%
Total underwriting expenses		$	1,843,577			$	407,288			$	2,250,865				$	91,534				$	1,275,946			$	162,267			$	1,438,213				$	126,622
Less: Loss and loss adjustment expense		1,123,353				232,267				1,355,620					35,641					759,198				79,752				838,950					56,824
Less: Ceding commission income/(loss)		(4,019		)		1,055				(2,964		)			27,370					(2,069		)		820				(1,249		)			28,449
Less: Service and fee income		189,739				112,470				302,209					2,555					146,098				54,751				200,849					2,990
Less: Non-cash amortization of intangible assets		17,843				4,936				22,779					13,726					5,479				2,936				8,415					5,221
Operating expense before amortization and impairment		516,661				56,560				573,221					12,242					367,240				24,008				391,248					33,138
Net earned premium		$	1,758,311			$	307,864			$	2,066,175				$	71,535				$	1,240,253			$	112,549			$	1,352,802				$	98,440
Operating expense ratio before amortization and impairment (Non-GAAP)		29.4		%		18.4		%		27.7		%			17.1		%			29.6		%		21.3		%		28.9		%			33.7		%

Premiums by Business Line
$ in thousands
(Unaudited)
		Three Months Ended September 30,
		Gross Written Premium													Net Written Premium													Net Earned Premium
		2016				2015				Change					2016				2015				Change					2016				2015				Change
Property & Casualty
Personal Auto		$	384,670			$	307,799				25.0	%			$	344,605			$	257,432				33.9	%			$	312,654			$	251,754				24.2	%
Homeowners		136,437				103,423					31.9	%			120,242				105,028					14.5	%			100,875				92,283					9.3	%
RV/Packaged		42,964				40,447					6.2	%			42,705				40,113					6.5	%			40,727				38,489					5.8	%
Commercial Auto		72,692				48,052					51.3	%			66,790				43,502					53.5	%			59,791				39,440					51.6	%
Lender-placed insurance		105,249				—					NA				99,824				—					NA				103,751				—					NA
Other		11,735				3,506					234.7	%			5,778				2,065					179.8	%			11,463				1,892					505.9	%
Property & Casualty		753,747				503,227					49.8	%			679,944				448,140					51.7	%			629,261				423,858					48.5	%
Accident & Health		97,624				43,594					123.9	%			87,375				33,849					158.1	%			105,082				45,107					133.0	%
Total National General		851,371				546,821					55.7	%			767,319				481,989					59.2	%			734,343				468,965					56.6	%
Reciprocal Exchanges
Personal Auto		25,345				24,177					4.8	%			15,047				(3,683		)			(508.6	)%			13,860				14,494					(4.4	)%
Homeowners		53,534				53,836					(0.6	)%			22,948				45,686					(49.8	)%			20,275				18,404					10.2	%
Other		2,099				1,851					13.4	%			1,071				1,647					(35.0	)%			1,372				1,398					(1.9	)%
Reciprocal Exchanges		80,978				79,864					1.4	%			39,066				43,650					(10.5	)%			35,507				34,296					3.5	%
Consolidated Total		931,459				626,685					48.6	%			806,385				525,639					53.4	%			769,850				503,261					53.0	%

NOTE: Consolidated Total includes eliminations of $(890) and $0 within 2016 and 2015 Gross Written Premium, respectively.

		Nine Months Ended September 30,
		Gross Written Premium													Net Written Premium													Net Earned Premium
		2016				2015				Change					2016				2015				Change					2016				2015				Change
Property & Casualty
Personal Auto		$	1,107,963			$	936,397				18.3	%			$	977,212			$	805,081				21.4	%			$	875,480			$	786,397				11.3	%
Homeowners		307,455				265,685					15.7	%			276,677				250,874					10.3	%			256,870				219,633					17.0	%
RV/Packaged		129,260				121,093					6.7	%			128,582				119,781					7.3	%			117,261				112,041					4.7	%
Commercial Auto		191,209				139,880					36.7	%			174,731				127,753					36.8	%			155,105				111,491					39.1	%
Lender-placed insurance		325,436				—					NA				317,206				—					NA				335,076				—					NA
Other		24,918				15,117					64.8	%			14,252				11,749					21.3	%			18,519				10,691					73.2	%
Property & Casualty		2,086,241				1,478,172					41.1	%			1,888,660				1,315,238					43.6	%			1,758,311				1,240,253					41.8	%
Accident & Health		355,372				153,409					131.7	%			321,565				126,783					153.6	%			307,864				112,549					173.5	%
Total National General		2,441,613				1,631,581					49.6	%			2,210,225				1,442,021					53.3	%			2,066,175				1,352,802					52.7	%
Reciprocal Exchanges
Personal Auto		48,466				67,641					NA				28,500				38,619					NA				26,840				60,965					NA
Homeowners		105,170				144,201					NA				46,483				48,235					NA				39,879				33,452					NA
Other		4,512				5,988					NA				3,213				6,199					NA				4,816				4,023					NA
Reciprocal Exchanges (1)		158,148				217,830					NA				78,196				93,053					NA				71,535				98,440					NA
Consolidated Total		2,598,160				1,845,821					40.8	%			2,288,421				1,535,074					49.1	%			2,137,710				1,451,242					47.3	%

NOTES: Consolidated Total includes eliminations of $(1,601) and $(3,590) within 2016 and 2015 Gross Written Premium, respectively.

(1) Reciprocal Exchanges for the nine months ended September 30, 2016 excludes its operating results from January 1, 2016 to March 31, 2016, as these entities did not meet the criteria for consolidation under GAAP.

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 and unrealized 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), and non-cash amortization of intangible assets. 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 includes $19,481 and $62,306 from related parties at September 30, 2016 and December 31, 2015, respectively.

(3) Reinsurance recoverable on unpaid losses includes $33,173 and $42,774 from related parties at September 30, 2016 and December 31, 2015, respectively.

(4) Reinsurance payable includes $38,096 and $31,923 due to related parties at September 30, 2016 and December 31, 2015, respectively.

(5) Accounts payable and accrued expenses includes $27,285 and $51,755 to related parties at September 30, 2016 and December 31, 2015, respectively.

(6) Debt (Exchanges owed to related party) includes $0 and $45,476 at September 30, 2016 and December 31, 2015, respectively.

(7) Common stock: $0.01 par value - authorized 150,000,000 shares, issued and outstanding 106,088,008 shares - September 30, 2016; authorized 150,000,000 shares, issued and outstanding 105,554,331 shares - December 31, 2015.

(8) Preferred stock: $0.01 par value - authorized 10,000,000 shares, issued and outstanding 2,565,000 shares - September 30, 2016; authorized 10,000,000 shares, issued and outstanding 2,365,000 shares - December 31, 2015.

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

(10) Operating expense ratio and combined ratio are considered non-GAAP financial measures under applicable SEC rules because a component of those ratios, operating expense, is calculated by offsetting acquisition and other underwriting costs and general and administrative 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.

(11) Operating expense ratio is a non-GAAP measure defined by the Company, that is commonly used in the insurance industry. The Company calculates the ratio by dividing operating expense by net earned premium. Operating expense consists of the sum of acquisition and other underwriting costs and general and administrative expense less ceding commission income and service and fee income. The ratio is used as an indicator of the Company's efficiency in acquiring and servicing its business. Other companies may calculate these measures differently, and therefore, their measures may not be comparable to those used by National General. Please see the Non-GAAP Financial Measures table within this release for the reconciliation of these non-GAAP measures to the most directly comparable GAAP measure.

(12) Combined ratio is a non-GAAP measure defined by the Company, that is commonly used in the insurance industry. The Company calculates the ratio by adding the loss and loss adjustment expense ratio and the operating expense ratio (non-GAAP) together. The ratio is used as an indicator of the Company's underwriting discipline, efficiency in acquiring and servicing its business, and overall underwriting profit. A combined ratio under 100% generally indicates an underwriting profit, while over 100% an underwriting loss. Other companies may calculate these measures differently, and therefore, their measures may not be comparable to those used by National General.

(13) Operating expense ratio before amortization and impairment is a non-GAAP measure defined by the Company, that is commonly used in the insurance industry. The Company calculates the ratio by dividing the operating expense before amortization and impairment by net earned premium. Operating expense before amortization and impairment consists of the sum of acquisition and other underwriting costs and general and administrative expense less ceding commission income and service and fee income less non-cash amortization of intangible assets and non-cash impairment of goodwill. The ratio is used as an indicator of the Company's efficiency in acquiring and servicing its business. Other companies may calculate these measures differently, and therefore, their measures may not be comparable to those used by National General. Please see the Non-GAAP Financial Measures table within this release for the reconciliation of these non-GAAP measures to the most directly comparable GAAP measure.

(14) Combined ratio before amortization and impairment is a non-GAAP measure defined by the Company, that is commonly used in the insurance industry. The Company calculates the ratio by adding the loss and loss adjustment expense ratio and the operating expense ratio before amortization and impairment (non-GAAP) together. The ratio is used as an indicator of the Company's underwriting discipline, efficiency in acquiring and servicing its business, and overall underwriting profit. A combined ratio under 100% generally indicates an underwriting profit, while over 100% an underwriting loss. Other companies may calculate these measures differently, and therefore, their measures may not be comparable to those used by National General. Please see the Non-GAAP Financial Measures table within this release for the reconciliation of these non-GAAP measures to the most directly comparable GAAP measure.

(15) Trailing twelve month operating return on average equity is the ratio of the previous twelve months operating earnings to average shareholders' equity for the periods presented. Average shareholders' equity is the sum of the shareholders' equity excluding preferred stock at the beginning and end of the period presented divided by two. In the opinion of the Company's management this ratio is an important indicator of how well management creates value for its shareholders through its operating activities and capital management. Other companies may calculate these measures differently, and therefore, their measures may not be comparable to those used by National General. Please see the Non-GAAP Financial Measures table within this release for the reconciliation of net income to operating earnings, which is the Non-GAAP component of the operating return on average equity.

 

Investor Contact

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

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