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National General Holdings Corp. Reports First Quarter 2019 Results

/EIN News/ -- NEW YORK, May 06, 2019 (GLOBE NEWSWIRE) -- National General Holdings Corp. (Nasdaq:NGHC) reported record first quarter 2019 net income of $83.9 million or $0.72 per diluted share, compared to net income of $60.3 million or $0.55 per diluted share in the first quarter of 2018. First quarter 2019 operating earnings (non-GAAP)(1) was $89.7 million or $0.77 per diluted share compared to $67.6 million or $0.62 per diluted share in the first quarter of 2018.

First Quarter 2019 Highlights Versus First Quarter 2018*

  • Gross written premium grew $67.2 million or 5.0% to $1,404.2 million, driven by continued organic growth in our P&C segment of 3.8% and in our A&H segment of 10.6%.
  • In the first quarter, our homeowners’ product experienced organic growth of 7.6%. Our personal auto product experienced organic growth of 5.7%, driven by a mixture of PIF increase and an increase in our overall average premium due to rate increase and business mix changes.
  • The overall combined ratio(9,13) was 89.0% compared to 90.7% in the prior year’s quarter, excluding non-cash amortization of intangible assets. The P&C segment reported a decrease in combined ratio to 90.1% from 90.9% in the prior year’s quarter, primarily driven by lower current accident year losses, lower weather-related losses, partially offset by lower favorable loss development. The A&H segment reported a combined ratio of 84.2% compared to 90.0% in the prior year’s quarter with the decrease driven by strong operating results in our small group self-funded and individual products and higher favorable loss development.
  • Service and fee income grew 16.6% to $180.4 million, driven by organic growth in both our Accident & Health and Property & Casualty segments.
  • Shareholders’ equity was $2.35 billion and fully diluted book value per share was $16.38 at March 31, 2019, growth of 6.0% and 7.4%, respectively, from December 31, 2018. Our trailing twelve month operating return on average equity (ROE)(14) was 14.7% as of March 31, 2019.
  • First quarter 2019 operating earnings (non-GAAP)(1) exclude primarily $5.7 million or $0.05 per share of non-cash amortization of intangible assets, net of tax.

Barry Karfunkel, National General’s CEO, stated: “I’m pleased to report that our first quarter 2019 results were a record for the company and continue to highlight the earnings capabilities of the platform that we have built. Our diversified approach to niche areas in personal lines insurance continues to pay dividends, with strength in both our Property and Casualty and Accident and Health segments.”

*NOTE: Unless specified otherwise, discussion of our first quarter 2019 and 2018 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 First Quarter 2019 as Compared to First Quarter 2018 by Segment

  • Property & Casualty - Gross written premium grew by 3.8% to $1,145.7 million, net written premium increased by 9.9% to $915.5 million, and net earned premium increased by 7.3% to $756.9 million. P&C gross written premium growth was primarily driven by organic growth of 7.6% from our homeowners’ product and 5.7% from our personal auto product. Service and fee income grew 8.9% to $119.4 million. Excluding non-cash amortization of intangible assets, the combined ratio(9,13) was 90.1% with a loss ratio of 69.4% and an expense ratio(9,12) of 20.7%, versus a prior year combined ratio of 90.9% with a loss ratio of 70.6% and an expense ratio of 20.3%. The combined ratio decrease was primarily driven by lower current accident year losses, lower weather-related losses, partially offset by lower favorable loss development. The loss ratio was impacted by pre-tax catastrophe losses of approximately $12.1 million primarily related to winter weather in the first quarter 2019, compared to $14.2 million of losses in the first quarter 2018. Favorable loss development was $5.5 million in the first quarter 2019, compared to $15.2 million in the first quarter 2018.
     
  • Accident & Health - Gross written premium grew by 10.6% to $258.5 million, net written premium decreased by 10.4% to $200.2 million, and net earned premium grew by 5.0% to $161.6 million. The A&H gross written premium increase was driven by the continued growth across the entire book and the decrease in net written premium reflects a quota share agreement in our European book. Service and fee income was $61.0 million compared to $45.2 million in the prior year’s quarter, primarily driven by group benefit administration fees and third party distribution fees. Excluding non-cash amortization of intangible assets, the combined ratio(9,13) was 84.2% with a loss ratio of 52.5% and an expense ratio(9,12) of 31.7%, versus a prior year combined ratio of 90.0% with a loss ratio of 59.3% and an expense ratio of 30.7%. The loss ratio reflects continued strong performance in both small group self-funded and individual products and higher favorable loss development. Favorable loss development was $10.9 million in the first quarter 2019, compared to $3.4 million in the first quarter 2018.
     
  • Reciprocal Exchanges - Results for the Reciprocal Exchanges are not included in net income available to NGHC common stockholders. Gross written premium was $105.6 million, net written premium was $49.0 million, and net earned premium was $45.7 million. Reciprocal Exchanges combined ratio(9,13) excluding non-cash amortization of intangible assets was 114.3% with a loss ratio of 92.0% and an expense ratio(9,12) of 22.3%.

First quarter 2019 investment income grew to $34.3 million, compared to $25.0 million in the first quarter of 2018, with the growth primarily driven by an increase in our investment portfolio and improvement in the book yield. Total investments and cash and cash equivalents (including restricted cash) were $4.4 billion as of March 31, 2019. Accumulated other comprehensive income (loss) increased to a $0.6 million gain at March 31, 2019 from a $52.1 million loss at December 31, 2018, primarily due to the impact of lower interest rates which positively impacted bond valuations.

Interest expense was $13.0 million, up from $11.2 million in the prior year’s quarter. Debt was $710.2 million at March 31, 2019, up from $705.8 million at December 31, 2018.

The first quarter of 2019 provision for income taxes was $24.2 million and the effective tax rate for the quarter was 20.9% compared with income taxes of $18.6 million and an effective rate of 21.4% in the first quarter of 2018.

Shareholders’ equity was $2,353.2 million at March 31, 2019, growth of 6.0% from $2,220.8 million at December 31, 2018. Fully diluted book value per share was $16.38 at March 31, 2019, growth of 7.4% from $15.25 at December 31, 2018. Our trailing twelve month operating return on average equity (ROE)(14) was 14.7% as of March 31, 2019.

Year-to-Date P&C Segment Notable Large Losses
Year   Quarter Event   P&C Notable Large Losses and LAE
($ millions)
  P&C Loss Ratio Points*   EPS Impact After Tax
2019   Q1 Winter Weather   $12.1   1.6%   $0.08
                   
2018   Q1 Winter Weather   $14.2   2.0%   $0.10

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


Conference Call

On Tuesday, May 7, 2019 at 9:00 AM ET, 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: 
International Dial-in:
Conference Entry Code: 
Webcast Registration: 
800-346-7359
973-528-0008
180811
http://ir.nationalgeneral.com/events-and-presentations
   

A replay of the conference call will be accessible from 2:00 PM ET on Tuesday, May 7, 2019 to 11:59 PM ET on Tuesday, May 21, 2019 by dialing either 800-332-6854 (toll-free) within the U.S. or 973-528-0005 outside the U.S. and entering passcode 180811. In addition, a replay of the webcast can also be retrieved at http://ir.nationalgeneral.com/events-and-presentations.


About National General Holdings Corp.

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


Forward Looking Statements

This news release contains “forward-looking statements” that are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. The forward-looking statements are based on the Company’s current expectations and beliefs concerning future developments and their potential effects on the Company. Forward-looking statements can generally be identified by the use of forward-looking terminology, such as “may,” “will,” “plan,” “expect,” “project,” “intend,” “estimate,” “anticipate” and “believe” or their variations or similar terminology. There can be no assurance that actual developments will be those anticipated by the Company. Actual results may differ materially from those expressed or implied in these statements as a result of significant risks and uncertainties, including, but not limited to, non-receipt of expected payments from insureds or reinsurers, changes in interest rates, a downgrade in the financial strength ratings of our insurance subsidiaries, the effect of the performance of financial markets on our investment portfolio, our ability to accurately underwrite and price our products and to maintain and establish accurate loss reserves, estimates of the fair value of investments, development of claims and the effect on loss reserves, large loss activity including hurricanes and wildfires, the cost and availability of reinsurance coverage, the effects of emerging claim and coverage issues, the effect of unpredictable catastrophic losses, 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, the effects of tax reform, 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 third party vendors or 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 - First Quarter
$ in thousands
(Unaudited)

    Three Months Ended March 31,
    2019     2018  
    NGHC   Reciprocal Exchanges   Consolidated     NGHC   Reciprocal Exchanges   Consolidated  
Revenues:                            
Gross written premium   $ 1,404,209     $ 105,569     $ 1,509,778       $ 1,337,042     $ 97,689     $ 1,433,130   (G)
Net written premium   1,115,709     48,955     1,164,664       1,056,065     50,578     1,106,643    
Net earned premium   918,499     45,658     964,157       859,483     46,055     905,538    
                             
Ceding commission income   51,000     18,534     69,534       32,958     11,510     44,468    
Service and fee income   180,388     1,370     165,507   (A)   154,760     2,446     142,122   (H)
Net investment income   34,283     2,170     33,445   (B)   25,019     2,144     25,011   (I)
Net gain (loss) on investments   766     (744 )   22       249     (131 )   118    
Total revenues   $ 1,184,936     $ 66,988     $ 1,232,665   (C)   $ 1,072,469     $ 62,024     $ 1,117,257   (J)
                             
Expenses:                            
Loss and loss adjustment expense   $ 609,784     $ 42,025     $ 651,809       $ 589,635     $ 44,531     $ 634,166    
Acquisition costs and other underwriting expenses   203,333     8,585     211,918       157,608     11,102     168,710    
General and administrative expenses   242,833     21,512     248,094   (D)   227,293     18,796     231,005   (K)
Interest expense   12,999     3,008     12,999   (E)   11,154     2,152     11,154   (L)
Total expenses   $ 1,068,949     $ 75,130     $ 1,124,820   (F)   $ 985,690     $ 76,581     $ 1,045,035   (M)
                             
Income (loss) before provision (benefit) for income taxes   $ 115,987     $ (8,142 )   $ 107,845       $ 86,779     $ (14,557 )   $ 72,222    
Provision (benefit) for income taxes   24,229     (1,723 )   22,506       18,571     (2,369 )   16,202    
Net income (loss) before non-controlling interest and dividends on preferred shares   91,758     (6,419 )   85,339       68,208     (12,188 )   56,020    
Less: net income (loss) attributable to non-controlling interest       (6,419 )   (6,419 )         (12,188 )   (12,188 )  
Net income before dividends on preferred shares   91,758         91,758       68,208         68,208    
Less: dividends on preferred shares   7,875         7,875       7,875         7,875    
Net income available to common stockholders   $ 83,883     $     $ 83,883       $ 60,333     $     $ 60,333    

NOTES: Consolidated column includes eliminations as follows: (A) $(16,251), (B) $(3,008), (C) $(19,259), (D) $(16,251), (E) $(3,008), (F) $(19,259), || (G) $(1,601), (H) $(15,084), (I) $(2,152), (J) $(17,236), (K) $(15,084), (L) $(2,152) and (M) $(17,236).


Earnings and Per Share Data
$ in thousands, except shares and per share data
(Unaudited)

    Three Months Ended March 31,
    2019   2018
Net income available to common stockholders   $ 83,883     $ 60,333  
Basic net income per common share   $ 0.74     $ 0.57  
Diluted net income per common share   $ 0.72     $ 0.55  
         
Operating earnings attributable to NGHC (non-GAAP)(1)   $ 89,716     $ 67,623  
Basic operating earnings per common share (non-GAAP)(1)   $ 0.79     $ 0.63  
Diluted operating earnings per common share (non-GAAP)(1)   $ 0.77     $ 0.62  
         
Dividends declared per common share   $ 0.04     $ 0.04  
         
Weighted average number of basic shares outstanding   113,014,711     106,758,641  
Weighted average number of diluted shares outstanding   116,075,226     108,950,984  
Shares outstanding, end of period   113,137,346     106,887,566  
Fully diluted shares outstanding, end of period   116,197,861     109,079,909  
Book value per share   $ 16.82     $ 14.38  
Fully diluted book value per share   $ 16.38     $ 14.09  
                 


Reconciliation of Net Income to Operating Earnings (Non-GAAP)
$ in thousands, except per share data
(Unaudited)

    Three Months Ended March 31,
    2019   2018
Net income available to common stockholders   $ 83,883     $ 60,333  
Add (subtract):        
Net (gain) on investments   (766 )   (249 )
Equity in (earnings) losses of equity method investments   934     1,469  
Non-cash amortization of intangible assets   7,216     6,920  
Income tax expense (benefit)   (1,551 )   (850 )
Operating earnings attributable to NGHC (non-GAAP)(1)   $ 89,716     $ 67,623  
         
Operating earnings per common share (non-GAAP):        
Basic operating earnings per common share (non-GAAP)   $ 0.79     $ 0.63  
Diluted operating earnings per common share (non-GAAP)   $ 0.77     $ 0.62  
                 


Balance Sheet
$ in thousands
(Unaudited)

    March 31, 2019     December 31, 2018  
ASSETS   NGHC   Reciprocal Exchanges   Consolidated     NGHC   Reciprocal Exchanges   Consolidated  
Total investments (2)   $ 4,130,083     $ 318,914     $ 4,341,655   (A)   $ 4,013,699     $ 314,411     $ 4,226,806   (H)
Cash and cash equivalents, including restricted cash   219,979     293     220,272       233,383     200     233,583    
Premiums and other receivables, net   1,547,958     60,293     1,608,251   (B)   1,338,485     61,327     1,399,812    
Reinsurance balances (3)   1,873,657     252,932     2,126,589       2,023,911     253,501     2,277,412    
Intangible assets, net   369,452     3,360     372,812       376,532     3,405     379,937    
Goodwill   180,183         180,183       180,183         180,183    
Other (4)   780,960     29,215     781,805   (B)   739,068     27,879     741,547   (I)
Total assets   $ 9,102,272     $ 665,007     $ 9,631,567   (C)   $ 8,905,261     $ 660,723     $ 9,439,280   (J)
LIABILITIES AND STOCKHOLDERS’ EQUITY                            
Liabilities:                            
Unpaid loss and loss adjustment expense reserves   $ 2,674,301     $ 196,022     $ 2,870,323       $ 2,778,689     $ 178,470     $ 2,957,159    
Unearned premiums and other revenue   2,181,579     258,701     2,440,280       2,014,965     265,763     2,280,728    
Reinsurance payable   493,280     31,579     524,859       615,872     40,393     656,265    
Accounts payable and accrued expenses (5)   356,107     34,530     362,267   (D)   390,338     33,120     398,058   (K)
Debt   710,196     107,342     710,196   (E)   705,795     101,304     705,795   (L)
Other   333,621     58,539     392,160       178,764     61,640     240,404    
Total liabilities   $ 6,749,084     $ 686,713     $ 7,300,085   (F)   $ 6,684,423     $ 680,690     $ 7,238,409   (M)
Stockholders’ equity:                            
Common stock (6)   $ 1,131     $     $ 1,131       $ 1,129     $     $ 1,129    
Preferred stock (7)   450,000         450,000       450,000         450,000    
Additional paid-in capital   1,058,061         1,058,061       1,057,783         1,057,783    
Accumulated other comprehensive income (loss)   581         581       (52,130 )       (52,130 )  
Retained earnings   843,415         843,415       764,056         764,056    
Total National General Holdings Corp. stockholders’ equity   2,353,188         2,353,188       2,220,838         2,220,838    
Non-controlling interest       (21,706 )   (21,706 )         (19,967 )   (19,967 )  
Total stockholders’ equity   $ 2,353,188     $ (21,706 )   $ 2,331,482       $ 2,220,838     $ (19,967 )   $ 2,200,871    
Total liabilities and stockholders’ equity   $ 9,102,272     $ 665,007     $ 9,631,567   (G)   $ 8,905,261     $ 660,723     $ 9,439,280   (N)

NOTES: Consolidated column includes eliminations as follows: (A) $(107,342), (B) $(28,370), (C) $(135,712), (D) $(28,370), (E) $(107,342), (F) $(135,712), (G) $(135,712), || (H) $(101,304), (I) $(25,400), (J) $(126,704), (K) $(25,400), (L) $(101,304), (M) $(126,704) and (N) $(126,704).


Segment Information - First Quarter
$ in thousands
(Unaudited)

    Three Months Ended March 31,
    2019     2018
    P&C   A&H   NGHC     Reciprocal
Exchanges
    P&C   A&H   NGHC     Reciprocal Exchanges
Gross written premium   $ 1,145,665     $ 258,544     $ 1,404,209       $ 105,569       $ 1,103,266     $ 233,776     $ 1,337,042       $ 97,689  
Net written premium   915,528     200,181     1,115,709       48,955       832,712     223,353     1,056,065       50,578  
Net earned premium   756,919     161,580     918,499       45,658       705,607     153,876     859,483       46,055  
                                       
Ceding commission income   48,409     2,591     51,000       18,534       32,700     258     32,958       11,510  
Service and fee income   119,376     61,012     180,388       1,370       109,573     45,187     154,760       2,446  
Total underwriting revenues   $ 924,704     $ 225,183     $ 1,149,887       $ 65,562       $ 847,880     $ 199,321     $ 1,047,201       $ 60,011  
                                       
Loss and loss adjustment expense   525,035     84,749     609,784       42,025       498,357     91,278     589,635       44,531  
Acquisition costs and other underwriting expenses   145,485     57,848     203,333       8,585       114,000     43,608     157,608       11,102  
General and administrative expenses   184,195     58,638     242,833       21,512       176,685     50,608     227,293       18,796  
Total underwriting expenses   $ 854,715     $ 201,235     $ 1,055,950       $ 72,122       $ 789,042     $ 185,494     $ 974,536       $ 74,429  
                                       
Underwriting income (loss)   69,989     23,948     93,937       (6,560 )     58,838     13,827     72,665       (14,418 )
Non-cash amortization of intangible assets   5,485     1,731     7,216       11       5,400     1,520     6,920       (27 )
Underwriting income (loss) before amortization and impairment   $ 75,474     $ 25,679     $ 101,153       $ (6,549 )     $ 64,238     $ 15,347     $ 79,585       $ (14,445 )
                                       
Underwriting ratios                                      
Loss and loss adjustment expense ratio (8)   69.4 %   52.5 %   66.4 %     92.0 %     70.6 %   59.3 %   68.6 %     96.7 %
Operating expense ratio (Non-GAAP) (9,10)   21.4 %   32.7 %   23.4 %     22.3 %     21.0 %   31.7 %   22.9 %     34.6 %
Combined ratio (Non-GAAP) (9,11)   90.8 %   85.2 %   89.8 %     114.3 %     91.6 %   91.0 %   91.5 %     131.3 %
                                       
Underwriting ratios (before amortization and impairment)                                      
Loss and loss adjustment expense ratio (8)   69.4 %   52.5 %   66.4 %     92.0 %     70.6 %   59.3 %   68.6 %     96.7 %
Operating expense ratio (Non-GAAP) (9,12)   20.7 %   31.7 %   22.6 %     22.3 %     20.3 %   30.7 %   22.1 %     34.7 %
Combined ratio before amortization and impairment (Non-GAAP) (9,13)   90.1 %   84.2 %   89.0 %     114.3 %     90.9 %   90.0 %   90.7 %     131.4 %

NOTE: Loss and loss adjustment expenses for the three months ended March 31, 2019 included $5,514 of favorable development on prior accident year loss and loss adjustment expense reserves in the P&C segment, and $10,852 of favorable development in the A&H segment, versus $15,169 of favorable development in the P&C segment, and $3,383 of favorable development in the A&H segment for the three months ended March 31, 2018.


Reconciliation of Operating Expense Ratio (Non-GAAP)
$ in thousands
(Unaudited)

    Three Months Ended March 31,
    2019     2018
    P&C   A&H   NGHC     Reciprocal Exchanges     P&C   A&H   NGHC     Reciprocal Exchanges
Total underwriting expenses   $ 854,715     $ 201,235     $ 1,055,950       $ 72,122       $ 789,042     $ 185,494     $ 974,536       $ 74,429  
Less: Loss and loss adjustment expense   525,035     84,749     609,784       42,025       498,357     91,278     589,635       44,531  
Less: Ceding commission income   48,409     2,591     51,000       18,534       32,700     258     32,958       11,510  
Less: Service and fee income   119,376     61,012     180,388       1,370       109,573     45,187     154,760       2,446  
Operating expense   161,895     52,883     214,778       10,193       148,412     48,771     197,183       15,942  
Net earned premium   $ 756,919     $ 161,580     $ 918,499       $ 45,658       $ 705,607     $ 153,876     $ 859,483       $ 46,055  
Operating expense ratio (Non-GAAP)   21.4 %   32.7 %   23.4 %     22.3 %     21.0 %   31.7 %   22.9 %     34.6 %
                                       
Total underwriting expenses   $ 854,715     $ 201,235     $ 1,055,950       $ 72,122       $ 789,042     $ 185,494     $ 974,536       $ 74,429  
Less: Loss and loss adjustment expense   525,035     84,749     609,784       42,025       498,357     91,278     589,635       44,531  
Less: Ceding commission income   48,409     2,591     51,000       18,534       32,700     258     32,958       11,510  
Less: Service and fee income   119,376     61,012     180,388       1,370       109,573     45,187     154,760       2,446  
Less: Non-cash amortization of intangible assets   5,485     1,731     7,216       11       5,400     1,520     6,920       (27 )
Operating expense before amortization and impairment   156,410     51,152     207,562       10,182       143,012     47,251     190,263       15,969  
Net earned premium   $ 756,919     $ 161,580     $ 918,499       $ 45,658       $ 705,607     $ 153,876     $ 859,483       $ 46,055  
Operating expense ratio before amortization and impairment (Non-GAAP)   20.7 %   31.7 %   22.6 %     22.3 %     20.3 %   30.7 %   22.1 %     34.7 %
                                                       


Premiums by Product Line
$ in thousands
(Unaudited)

  Three Months Ended March 31,
  Gross Written Premium     Net Written Premium     Net Earned Premium
  2019   2018   Change     2019   2018   Change     2019   2018   Change
Property & Casualty                                      
Personal Auto $ 766,681     $ 725,212     5.7 %     $ 658,920     $ 553,997     18.9 %     $ 510,554     $ 454,216     12.4 %
Homeowners 152,042     141,287     7.6 %     85,245     92,596     (7.9 )%     84,058     82,195     2.3 %
RV/Packaged 51,851     49,464     4.8 %     51,597     49,189     4.9 %     50,305     45,689     10.1 %
Small Business Auto 85,878     86,244     (0.4 )%     74,186     64,727     14.6 %     67,633     58,562     15.5 %
Lender-placed insurance 75,938     84,934     (10.6 )%     42,070     63,214     (33.4 )%     41,718     60,469     (31.0 )%
Other 13,275     16,125     (17.7 )%     3,510     8,989     (61.0 )%     2,651     4,476     (40.8 )%
Total Premium $ 1,145,665     $ 1,103,266     3.8 %     $ 915,528     $ 832,712     9.9 %     $ 756,919     $ 705,607     7.3 %
                                       
Accident & Health                                      
Group 64,938     56,060     15.8 %     53,950     45,637     18.2 %     53,963     45,639     18.2 %
Individual 84,192     75,048     12.2 %     84,123     75,048     12.1 %     82,235     73,866     11.3 %
International 109,414     102,668     6.6 %     62,108     102,668     (39.5 )%     25,382     34,371     (26.2 )%
Total Premium $ 258,544     $ 233,776     10.6 %     $ 200,181     $ 223,353     (10.4 )%     $ 161,580     $ 153,876     5.0 %
                                       
Total National General $ 1,404,209     $ 1,337,042     5.0 %     $ 1,115,709     $ 1,056,065     5.6 %     $ 918,499     $ 859,483     6.9 %
                                       
Reciprocal Exchanges                                      
Personal Auto $ 36,862     $ 34,297     7.5 %     $ 15,645     $ 13,495     15.9 %     $ 15,861     $ 12,997     22.0 %
Homeowners 67,800     62,521     8.4 %     33,016     36,808     (10.3 )%     29,491     32,771     (10.0 )%
Other 907     871     4.1 %     294     275     6.9 %     306     287     6.6 %
Total Premium $ 105,569     $ 97,689     8.1 %     $ 48,955     $ 50,578     (3.2 )%     $ 45,658     $ 46,055     (0.9 )%
                                       
Consolidated Total (A) $ 1,509,778     $ 1,433,130     5.3 %     $ 1,164,664     $ 1,106,643     5.2 %     $ 964,157     $ 905,538     6.5 %

NOTES: (A) Consolidated Total includes eliminations between National General and the Reciprocal Exchanges of $(567) in Personal Auto and $(1,034) in Homeowners Gross Written Premium in 2018, respectively.


Fee Income
$ in thousands
(Unaudited)

  Three Months Ended March 31,
  2019   2018   Change
Property & Casualty          
Service and Fee Income $ 119,376   $ 109,573   8.9 %
Ceding Commission Income 48,409   32,700   48.0 %
Property & Casualty $ 167,785   $ 142,273   17.9 %
           
Accident & Health          
Service and Fee Income          
Group $ 30,374   $ 24,814   22.4 %
Individual 2,136   1,297   64.7 %
Third Party Fee 28,502   19,076   49.4 %
Total Service and Fee Income 61,012   45,187   35.0 %
Ceding Commission Income 2,591   258   904.3 %
Accident and Health $ 63,603   $ 45,445   40.0 %
           
Total National General $ 231,388   $ 187,718   23.3 %
           
Reciprocal Exchanges          
Service and Fee Income $ 1,370   $ 2,446   (44.0 )%
Ceding Commission Income 18,534   11,510   61.0 %
Reciprocal Exchanges $ 19,904   $ 13,956   42.6 %
           
Consolidated Total (A) $ 235,041   $ 186,590   26.0 %

NOTES: (A) Consolidated Total includes eliminations between National General and the Reciprocal Exchanges of $(16,251) and $(15,084) in Service and Fee Income in 2019 and 2018, respectively.


Additional Disclosures

(1) References to operating earnings and basic and diluted operating earnings per share (“EPS”) are non-GAAP financial measures defined by the Company as net income/loss and basic and diluted earnings per share excluding after-tax net gain or loss on investments (including foreign exchange gain or loss), other-than-temporary impairment losses, earnings or losses of equity method investments (related parties), deferred tax asset impairment, non-cash impairment of goodwill and non-cash amortization of intangible assets, and any significant non-recurring or infrequent items that may not be indicative of ongoing operations. The Company believes operating earnings and basic and diluted operating EPS are relevant measures of the Company’s profitability because operating earnings and basic and diluted operating EPS contain the components of net income upon which the Company’s management has the most influence and excludes factors outside management’s direct control and non-recurring items. Other companies may calculate these measures differently, and therefore, their measures may not be comparable to those used by National General. Please see the Non-GAAP Financial Measures table within this release for the reconciliation of these non-GAAP measures to the most directly comparable GAAP measure.

(2) Total investments includes $233,555 and $233,723 in related parties at March 31, 2019 and December 31, 2018, respectively.

(3) Reinsurance balances includes $6,136 and $7,425 from related parties at March 31, 2019 and December 31, 2018, respectively.

(4) Other includes $1,188 and $2,362 from related parties at March 31, 2019 and December 31, 2018, respectively.

(5) Accounts payable and accrued expenses includes $19,196 and $69,874 to related parties at March 31, 2019 and December 31, 2018, respectively.

(6) Common stock: $0.01 par value - authorized 150,000,000 shares, issued and outstanding 113,137,346 shares - March 31, 2019; authorized 150,000,000 shares, issued and outstanding 112,940,595 shares - December 31, 2018.

(7) Preferred stock: $0.01 par value - authorized 10,000,000 shares, issued and outstanding 2,565,120 shares - March 31, 2019; authorized 10,000,000 shares, issued and outstanding 2,565,120 shares - December 31, 2018.

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

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

(11) 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.

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

(13) 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.

(14) Trailing twelve month operating return on average equity is the ratio of the previous twelve months operating earnings (non-GAAP) 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.

(15) Combined ratio excluding losses from various weather-related events, is calculated by taking the combined ratio as defined in Note 13, and adjusting it to exclude the total net losses of $12.1 million and $14.2 million from these events for the three months ended March 31, 2019 and 2018, respectively. The company believes this measure enhances investors’ understanding of our results by eliminating what we believe are volatile and unusual events.

Year       Combined Ratio   Impact of Weather-related Events   Combined Ratio Excluding Weather-related Events
2019   P&C Segment   90.1%   1.6%   88.5%
                 
2019   Overall NGHC   89.0%   1.3%   87.7%
                 
                 
2018   P&C Segment   90.9%   2.0%   88.9%
                 
2018   Overall NGHC   90.7%   1.7%   89.0%

(16) Our products in the P&C segment include personal auto, homeowners, RV/Packaged, small business auto, lender-placed insurance and other products. The personal auto segment includes policies for standard, preferred and nonstandard automobile insurance. The homeowners product includes multiple-peril policies and personal umbrella coverage to the homeowner. The RV/Packaged product offers policies that include RV automatic personal effects coverage, optional replacement cost coverage, RV storage coverage and full-time liability coverage. The small business auto product offers policies that include liability and physical damage coverage for light-to-medium duty commercial vehicles. The lender-placed insurance product offers fire, home and flood products, as well as collateral protection insurance and guaranteed asset protection products for automobiles. Our products in the A&H segment include group, individual and third party fees. The group product includes revenue from our small group self-funded product. The individual product line includes revenue from our supplemental products including short-term medical, accident/AD&D, hospital indemnity, cancer/critical illness, dental and term life insurance. Third party fees include commission and general agent fees for selling policies issued by third-party insurance companies, fees generated through selling our technology products to third parties and fees from our International health insurance offerings.

Investor Contact

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

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