UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
 
FORM 8-K
 
 
CURRENT REPORT
Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Date of Report (date of earliest event reported): August 7, 2014
 
 
NATIONAL GENERAL HOLDINGS CORP.
(Exact name of registrant as specified in its charter)
 


 
 
Delaware
 
001-36311
 
27-1046208
(State or other jurisdiction
of incorporation or organization)
 
(Commission
File Number)
 
(I.R.S. Employer
Identification Number)



59 Maiden Lane, 38th Floor
New York, New York 10038
(Address of principal executive offices) (zip code)
(212) 380-9500
(Registrant’s telephone number, including area code)
 

 
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
 
¨
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
 
¨
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
 
¨
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
 
¨
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))





Item 2.02    
Results of Operations and Financial Condition
On August 7, 2014 National General Holdings Corp. issued a press release announcing its results of operations for the second quarter ended June 30, 2014 and the scheduling of a conference call on August 7, 2014 with respect thereto. A copy of the press release is furnished as Exhibit 99.1 and is incorporated herein by reference.

Item 9.01
Financial Statements And Exhibits.
(d) Exhibits.
 
Exhibit Number
 
Description
99.1

 
 
Press release dated August 7, 2014 related to second quarter earnings.





SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
NATIONAL GENERAL HOLDINGS CORP.
 
 
 
 
Date: August 7, 2014
 
 
 
By:
 
/s/ Jeffrey Weissmann
 
 
 
 
 
 
Jeffrey Weissmann
 
 
 
 
 
 
General Counsel and Secretary



2Q14 press release
            

National General Holdings Corp. Reports Second Quarter 2014 Results

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

•
Net written premium grew by $271.6 million or 184.7% to $418.6 million, driven by the run-off of our third-party quota share treaty, assumed premiums from the Tower Personal Lines Cut-Through Reinsurance Agreement, underlying growth within our P&C business, additional premiums from acquisitions completed during the past year, and continued A&H expansion.
  
•
The combined ratio was 93.8% (with a loss ratio of 65.3% and an expense ratio of 28.5%), compared to a combined ratio of 92.6% (with a loss ratio of 63.8% and an expense ratio of 28.8%) in the prior year’s quarter. The 1.2 point combined ratio increase was driven by higher loss and expense ratios in our expanding A&H segment, partially offset by improved loss and expense ratios in our P&C segment.

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

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

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

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

1


Overview of Second Quarter 2014 as Compared to Second Quarter 2013

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

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

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

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

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

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


2


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

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

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

The second quarter 2014 provision for income taxes was $0.4 million and the effective tax rate for the quarter was 1.3%. Included in the second quarter 2014 provision for income taxes was an $8.9 million benefit attributable to a reduction of the deferred tax liability associated with the equalization reserves of our Luxembourg Reinsurance Company subsidiaries. Excluding this benefit, the tax rate for the quarter would have been 27.9%.
Shareholders' equity was $954.1 million, up 11.5% from $855.6 million at March 31, 2014, driven by the addition of proceeds from our $55 million June 2014 preferred stock offering and the quarter's retained earnings. Fully diluted book value per share was $9.48, growth of 4.7% from $9.06 at March 31, 2014. Annualized operating ROE was 15.4% for the second quarter and 15.5% for the six months ended June 30, 2014.


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

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

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

•
On June 27, 2014 we announced the acquisition of certain assets of Imperial Management Corporation, including its underwriting subsidiaries Imperial Fire & Casualty Insurance Company and

3


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

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



Conference Call
On Thursday, August 7, 2014 at 11:00 AM ET, Chairman and CEO Michael Karfunkel and CFO Mike Weiner will review these results via a conference call that may be accessed as follows:
Toll-Free Dial-in:         888-267-2860
Toll Dial-in (outside the U.S.):     973-413-6102
Conference Entry Code:        842046
Webcast Registration:         http://ir.nationalgeneral.com/events.cfm
A replay of the conference call will be accessible from 2:00 PM ET on Thursday, August 7, 2014 to 11:59 PM ET on Thursday, August 14, 2014 by dialing either 800-332-6854 (toll-free) within the U.S. or 973-528-0005 outside the U.S. and entering passcode 842046. In addition, a replay of the webcast can also be retrieved at http://ir.nationalgeneral.com/events.cfm.



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


Forward Looking Statements
This news release contains "forward-looking statements" that are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. The forward-looking statements are based on the Company's current expectations and beliefs concerning future developments and their potential effects on the Company. There can be no assurance that actual developments will be those anticipated by the Company. Actual results may differ materially from those expressed or implied in these statements as a result of significant risks and uncertainties, including, but not limited to, non-receipt of expected payments from insureds or reinsurers, changes in interest rates, a downgrade in the financial strength ratings of our insurance subsidiaries, the effect of the performance of financial markets on our investment portfolio, estimates of the fair value of life settlement contracts, development of claims and the effect on loss reserves, accuracy in projecting loss reserves, the cost and availability of reinsurance

4


coverage, the effects of emerging claim and coverage issues, changes in the demand for our products, our degree of success in integrating acquired businesses, the effect of general economic conditions, state and federal legislation, regulations and regulatory investigations into industry practices, risks associated with conducting business outside the United States, developments relating to existing agreements, disruptions to our business relationships, breaches in data security or other disruptions involving our technology, heightened competition, changes in pricing environments, and changes in asset valuations. The forward-looking statements contained in this news release are made only as of the date of this release. The Company undertakes no obligation to publicly update any forward-looking statements except as may be required by law. Additional information about these risks and uncertainties, as well as others that may cause actual results to differ materially from those projected, is contained in the Company's filings with the Securities and Exchange Commission.

5




Income Statement
$ in thousands
(Unaudited)
 
 
Three Months Ended June 30,
 
 
Six Months Ended June 30,
 
 
2014
 
2013
 
 
2014
 
2013
Revenues:
 
 
 
 
 
 
 
 
 
Gross written premium
 
$
468,473

 
$
330,689

 
 
$
1,114,615

 
$
688,302

Ceded premiums (related parties - three months $12,690; $147,401 and six months $42,967; $291,501)
 
(49,917
)
 
(183,685
)
 
 
(128,574
)
 
(368,782
)
Net written premium
 
418,556

 
147,004

 
 
986,041

 
319,520

Net earned premium
 
391,466

 
154,550

 
 
749,318

 
306,706

 
 
 
 
 
 
 
 
 
 
Ceding commission income (primarily related parties)
 
1,557

 
24,735

 
 
6,927

 
49,992

Service and fee income
 
38,486

 
31,406

 
 
75,192

 
58,668

Net investment income
 
11,321

 
7,181

 
 
20,535

 
13,654

Net realized gain/(loss) on investments
 
—

 
(751
)
 
 
—

 
947

Other than temporary impairment loss
 
—

 
—

 
 
—

 
—

Other revenue
 
100

 
—

 
 
107

 
16

Total revenues
 
$
442,930

 
$
217,121

 
 
$
852,079

 
$
429,983

 
 
 
 
 
 
 
 
 
 
Expenses:
 
 
 
 
 
 
 
 
 
Loss and loss adjustment expense
 
$
255,604

 
$
98,669

 
 
$
480,951

 
$
201,871

Acquisition costs and other underwriting expenses
 
74,418

 
32,222

 
 
148,791

 
62,432

General and administrative
 
77,059

 
68,412

 
 
153,258

 
135,221

Interest expense
 
2,519

 
573

 
 
3,112

 
916

Total expenses
 
$
409,600

 
$
199,876

 
 
$
786,112

 
$
400,440

 
 
 
 
 
 
 
 
 
 
Income before provision for income taxes and equity in earnings (losses) of unconsolidated subsidiaries
 
33,330

 
17,245

 
 
65,967

 
29,543

Provision for income taxes
 
424

 
3,782

 
 
7,760

 
7,553

Income before equity in earnings (losses) of unconsolidated subsidiaries
 
32,906

 
13,463

 
 
58,207

 
21,990

Equity in earnings (losses) of unconsolidated subsidiaries
 
(2,610
)
 
487

 
 
(1,487
)
 
(324
)
Net income before non-controlling interest and cumulative dividends on preferred shares
 
$
30,296

 
$
13,950

 
 
$
56,720

 
$
21,666

Less: net income attributable to non-controlling interest
 
(38
)
 
—

 
 
(6
)
 
44

Net income before cumulative dividends on preferred shares
 
$
30,334

 
$
13,950

 
 
$
56,726

 
$
21,622

Less: cumulative dividends on preferred shares
 
—

 
896

 
 
—

 
2,158

Net income available to common stockholders
 
$
30,334

 
$
13,054

 
 
$
56,726

 
$
19,464





6




Earnings and Per Share Data
$ in thousands, except shares and per share data
(Unaudited)
 
Three Months Ended June 30,
 
 
Six Months Ended June 30,
 
2014
 
2013
 
 
2014
 
2013
Net income available to common stockholders
$
30,334

 
$
13,054

 
 
$
56,726

 
$
19,464

  Basic net income per common share
$
0.32

 
$
0.24

 
 
$
0.63

 
$
0.39

  Diluted net income per common share*
$
0.32

 
$
0.22

 
 
$
0.62

 
$
0.35

 
 
 
 
 
 
 
 
 
Operating earnings attributable to NGHC(1)
$
33,811

 
$
13,023

 
 
$
61,561

 
$
19,768

  Basic operating earnings per common share(1)
$
0.36

 
$
0.24

 
 
$
0.69

 
$
0.39

  Diluted operating earnings per common share(1)*
$
0.36

 
$
0.22

 
 
$
0.68

 
$
0.36

 
 
 
 
 
 
 
 
 
Dividends declared per common share
$
0.01

 
$
—

 
 
$
0.02

 
$
—

 
 
 
 
 
 
 
 
 
Weighted average number of basic shares outstanding
93,344,400

 
54,935,182

 
 
89,526,029

 
50,270,789

Weighted average number of diluted shares outstanding
94,819,307

 
64,600,233

 
 
90,898,518

 
61,603,366

Shares outstanding, end of period
93,344,400

 
57,850,000

 
 
93,344,400

 
57,850,000

Fully diluted shares outstanding, end of period
94,819,307

 
58,597,486

 
 
94,819,307

 
58,597,486

 
 
 
 
 
 
 
 
 
Book value per share
$
9.63

 
$
10.85

 
 
$
9.63

 
$
10.85

Fully diluted book value per share
$
9.48

 
$
10.72

 
 
$
9.48

 
$
10.72


Reconciliation of Net Income to Operating Earnings (Non-GAAP)
$ in thousands, except per share data
(Unaudited)
 
 
Three Months Ended June 30,
 
 
Six Months Ended March 31,
 
 
2014
 
2013
 
 
2014
 
2013
 
 
 
 
 
 
 
 
 
 
Net income available to common stockholders
 
$
30,334

 
$
13,054

 
 
$
56,726

 
$
19,464

Add (subtract) net of tax:
 
 
 
 
 
 
 
 
 
  Net realized (gain)/loss on investments
 
—

 
488

 
 
—

 
(616
)
  Other than temporary impairment losses
 
—

 
—

 
 
—

 
—

  Equity in (earnings)/losses of unconsolidated subsidiaries
 
1,697

 
(317
)
 
 
967

 
211

  Non cash amortization of intangible assets
 
1,780

 
(202
)
 
 
3,868

 
709

Operating earnings attributable to NGHC
 
$
33,811

 
$
13,023

 
1,000

$
61,561

1,000

$
19,768

 
 
 
 
 
 
 
 
 
 
Operating earnings per common share:
 
 
 
 
 
 
 
 
 
  Basic operating earnings per common share
 
$
0.36

 
$
0.24

 
 
$
0.69

 
$
0.39

  Diluted operating earnings per common share*
 
$
0.36

 
$
0.22

 
 
$
0.68

 
$
0.36


* NOTE: Diluted net income per common share and diluted operating earnings per common share for Three Months and Six Months Ended June 30, 2013 are adjusted for preferred dividends of $896 and $2,258, respectively, from the 8% cumulative convertible Series A Preferred stock converted on June 5, 2013.

7




Balance Sheet
$ in thousands
(Unaudited)
 
 
June 30, 2014
 
December 31, 2013
ASSETS
 
(unaudited)
 
(audited)
Investments:
 
 
 
 
Fixed maturities, available-for-sale, at fair value (amortized cost $1,395,232 and $757,188)
 
$
1,443,769

 
$
766,589

Equity securities, available-for-sale, at fair value (cost $20,587 and $6,939)
 
20,136

 
6,287

Short-term investments
 
830

 
—

Equity investment in unconsolidated subsidiaries
 
142,473

 
133,193

Other investments
 
3,455

 
2,893

Securities pledged (amortized cost $62,637 and $133,013)
 
63,153

 
133,922

Total investments
 
1,673,816

 
1,042,884

Cash and cash equivalents
 
111,949

 
73,823

Accrued investment income
 
12,232

 
9,263

Premiums and other receivables, net
 
658,961

 
449,252

Deferred acquisition costs
 
114,735

 
60,112

Reinsurance recoverable on unpaid losses (2)
 
904,403

 
950,828

Prepaid reinsurance premiums
 
69,070

 
50,878

Due from affiliate
 
5,830

 
4,785

Premises and equipment, net
 
34,045

 
29,535

Intangible assets, net
 
84,577

 
86,564

Goodwill
 
96,631

 
70,351

Prepaid and other assets
 
12,182

 
9,240

Total assets
 
$
3,778,431

 
$
2,837,515

LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
 
Liabilities:
 
 
 
 
Unpaid loss and loss adjustment expense reserves
 
$
1,386,111

 
$
1,259,241

Unearned premiums
 
751,322

 
476,232

Unearned service contract and other revenue
 
8,988

 
7,319

Reinsurance payable (3)
 
43,601

 
93,534

Accounts payable and accrued expenses
 
239,391

 
91,143

Securities sold under agreements to repurchase, at contract value
 
60,097

 
109,629

Securities sold but not yet purchased, at market value
 
—

 
—

Deferred tax liability
 
27,509

 
24,476

Income tax payable
 
19,057

 
1,987

Notes payable
 
259,113

 
81,142

Other liabilities
 
29,114

 
49,945

Total liabilities
 
$
2,824,303

 
$
2,194,648

Stockholders’ equity:
 
 
 
 
Common stock (4)
 
$
933

 
$
797

Preferred stock (5)
 
55,000

 
—

Additional paid-in capital
 
613,839

 
437,006

Retained earnings
 
252,413

 
197,552

Accumulated other comprehensive income
 
31,862

 
7,425

Total National General Holdings Corp. stockholders' equity
 
954,047

 
642,780

Non-controlling interest
 
81

 
87

Total stockholders’ equity
 
954,128

 
642,867

Total liabilities and stockholders’ equity
 
$
3,778,431

 
$
2,837,515







8




Segment Information - Second Quarter
$ in thousands
(Unaudited)
 
 
Three Months Ended June 30,
 
 
2014
 
 
2013
 
 
P&C
 
A&H
 
Total
 
 
P&C
 
A&H
 
Total
Gross written premium
 
$
407,863

 
$
60,610

 
$
468,473

 
 
$
321,438

 
$
9,251

 
$
330,689

Net written premium
 
358,096

 
60,460

 
418,556

 
 
137,823

 
9,181

 
147,004

Net earned premium
 
361,623

 
29,843

 
391,466

 
 
145,369

 
9,181

 
154,550

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 Ceding commission income (primarily related parties)
 
1,557

 
—

 
1,557

 
 
24,735

 
—

 
24,735

 Service, fees, and other income
 
23,389

 
15,097

 
38,486

 
 
20,363

 
11,043

 
31,406

 Total underwriting revenue
 
$
386,569

 
$
44,940

 
$
431,509

 
 
$
190,467

 
$
20,224

 
$
210,691

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 Loss and loss adjustment expense
 
$
231,008

 
$
24,596

 
$
255,604

 
 
$
93,205

 
$
5,464

 
$
98,669

 Acquisition costs and other
 
61,440

 
12,978

 
74,418

 
 
25,505

 
6,717

 
32,222

 General and administrative
 
64,715

 
12,344

 
77,059

 
 
61,620

 
6,792

 
68,412

 Total underwriting expenses
 
357,163

 
49,918

 
407,081

 
 
180,330

 
18,973

 
199,303

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Underwriting income (loss)
 
29,406

 
(4,978
)
 
24,428

 
 
10,137

 
1,251

 
11,388

Non cash amortization of intangible assets
 
773

 
1,966

 
2,739

 
 
(419
)
 
107

 
(312
)
Underwriting income (loss) before non cash amortization of intangible assets
 
$
30,179

 
$
(3,012
)
 
$
27,167

 
 
$
9,718

 
$
1,358

 
$
11,076

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Underwriting ratios
 
 
 
 
 
 
 
 
 
 
 
 
 
Loss and loss adjustment expense ratio (6)
 
63.9
%
 
82.4
%
 
65.3
%
 
 
64.1
%
 
59.5
%
 
63.8
%
Operating expense ratio (Non-GAAP) (7,8)
 
28.0
%
 
34.3
%
 
28.5
%
 
 
28.9
%
 
26.9
%
 
28.8
%
Combined ratio (Non-GAAP) (7,9)
 
91.9
%
 
116.7
%
 
93.8
%
 
 
93.0
%
 
86.4
%
 
92.6
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Underwriting ratios (before amortization)
 
 
 
 
 
 
 
 
 
 
 
 
 
Loss and loss adjustment expense ratio (6)
 
63.9
%
 
82.4
%
 
65.3
%
 
 
64.1
%
 
59.5
%
 
63.8
%
Operating expense ratio (Non-GAAP) (7,10)
 
27.8
%
 
27.7
%
 
27.8
%
 
 
29.2
%
 
25.7
%
 
29.0
%
Combined ratio (Non-GAAP) (7,9)
 
91.7
%
 
110.1
%
 
93.1
%
 
 
93.3
%
 
85.2
%
 
92.8
%

NOTE: Loss and loss adjustment expense ratio and operating expense ratio may not sum to combined ratio due to rounding.

9




Segment Information - Year to Date
$ in thousands
(Unaudited)
 
 
Six Months Ended June 30,
 
 
2014
 
 
2013
 
 
P&C
 
A&H
 
Total
 
 
P&C
 
A&H
 
Total
Gross written premium
 
$
1,014,471

 
$
100,144

 
$
1,114,615

 
 
$
671,736

 
$
16,566

 
$
688,302

Net written premium
 
886,094

 
99,947

 
986,041

 
 
303,029

 
16,491

 
319,520

Net earned premium
 
688,842

 
60,476

 
749,318

 
 
290,216

 
16,490

 
306,706

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 Ceding commission income (primarily related parties)
 
6,927

 
—

 
6,927

 
 
49,992

 
—

 
49,992

 Service, fees, and other income
 
45,062

 
30,130

 
75,192

 
 
41,413

 
17,255

 
58,668

 Total underwriting revenue
 
$
740,831

 
$
90,606

 
$
831,437

 
 
$
381,621

 
$
33,745

 
$
415,366

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 Loss and loss adjustment expense
 
$
440,438

 
$
40,513

 
$
480,951

 
 
$
189,178

 
$
12,693

 
$
201,871

 Acquisition costs and other
 
117,213

 
31,578

 
148,791

 
 
51,186

 
11,246

 
62,432

 General and administrative
 
128,236

 
25,022

 
153,258

 
 
125,445

 
9,776

 
135,221

 Total underwriting expenses
 
685,887

 
97,113

 
783,000

 
 
365,809

 
33,715

 
399,524

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Underwriting income (loss)
 
54,944

 
(6,507
)
 
48,437

 
 
15,812

 
30

 
15,842

Non cash amortization of intangible assets
 
1,616

 
4,336

 
5,952

 
 
656

 
435

 
1,091

Underwriting income (loss) before non cash amortization of intangible assets
 
$
56,560

 
$
(2,171
)
 
$
54,389

 
 
$
16,468

 
$
465

 
$
16,933

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Underwriting ratios
 
 
 
 
 
 
 
 
 
 
 
 
 
Loss and loss adjustment expense ratio (6)
 
63.9
%
 
67.0
%
 
64.2
%
 
 
65.2
%
 
77.0
%
 
65.8
%
Operating expense ratio (Non-GAAP) (7,8)
 
28.1
%
 
43.8
%
 
29.4
%
 
 
29.4
%
 
22.8
%
 
29.0
%
Combined ratio (Non-GAAP) (7,9)
 
92.0
%
 
110.8
%
 
93.5
%
 
 
94.6
%
 
99.8
%
 
94.8
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Underwriting ratios (before amortization)
 
 
 
 
 
 
 
 
 
 
 
 
 
Loss and loss adjustment expense ratio (6)
 
63.9
%
 
67.0
%
 
64.2
%
 
 
65.2
%
 
77.0
%
 
65.8
%
Operating expense ratio (Non-GAAP) (7,10)
 
27.9
%
 
36.6
%
 
28.6
%
 
 
29.1
%
 
20.2
%
 
28.7
%
Combined ratio (Non-GAAP) (7,9)
 
91.8
%
 
103.6
%
 
92.8
%
 
 
94.3
%
 
97.2
%
 
94.5
%

NOTE: Loss and loss adjustment expense ratio and operating expense ratio may not sum to combined ratio due to rounding.
















10




Reconciliation of Operating Expense Ratio and Operating Expense Ratio Before Amortization (Non-GAAP)
$ in thousands
(Unaudited)
 
 
Three Months Ended June 30,
 
 
2014
 
 
2013
 
 
P&C
 
A&H
 
Total
 
 
P&C
 
A&H
 
Total
Total underwriting expenses
 
$
357,163

 
$
49,918

 
$
407,081

 
 
$
180,330

 
$
18,973

 
$
199,303

Less: Loss and loss adjustment expense
 
231,008

 
24,596

 
255,604

 
 
93,205

 
5,464

 
98,669

Less: Ceding commission income
 
1,557

 
—

 
1,557

 
 
24,735

 
—

 
24,735

Less: Service, fees and other income
 
23,389

 
15,097

 
38,486

 
 
20,363

 
11,043

 
31,406

Operating expense
 
101,209

 
10,225

 
111,434

 
 
42,027

 
2,466

 
44,493

Net earned premium
 
$
361,623

 
$
29,843

 
$
391,466

 
 
$
145,369

 
$
9,181

 
$
154,550

Operating expense ratio (Non-GAAP)
 
28.0
%
 
34.3
%
 
28.5
%
 
 
28.9
%
 
26.9
%
 
28.8
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total underwriting expenses
 
$
357,163

 
$
49,918

 
$
407,081

 
 
$
180,330

 
$
18,973

 
$
199,303

Less: Loss and loss adjustment expense
 
231,008

 
24,596

 
255,604

 
 
93,205

 
5,464

 
98,669

Less: Ceding commission income
 
1,557

 
—

 
1,557

 
 
24,735

 
—

 
24,735

Less: Service, fees and other income
 
23,389

 
15,097

 
38,486

 
 
20,363

 
11,043

 
31,406

Less: Non cash amortization of intangible assets
 
773

 
1,966

 
2,739

 
 
(419
)
 
107

 
(312
)
Operating expense before amortization
 
100,436

 
8,259

 
108,695

 
 
42,446

 
2,359

 
44,805

Net earned premium
 
$
361,623

 
$
29,843

 
391,466

 
 
$
145,369

 
$
9,181

 
$
154,550

Operating expense ratio before amortization (Non-GAAP)
 
27.8
%
 
27.7
%
 
27.8
%
 
 
29.2
%
 
25.7
%
 
29.0
%

 
 
Six Months Ended June 30,
 
 
2014
 
 
2013
 
 
P&C
 
A&H
 
Total
 
 
P&C
 
A&H
 
Total
Total underwriting expenses
 
$
685,887

 
$
97,113

 
$
783,000

 
 
$
365,809

 
$
33,715

 
$
399,524

Less: Loss and loss adjustment expense
 
440,438

 
40,513

 
480,951

 
 
189,178

 
12,693

 
201,871

Less: Ceding commission income
 
6,927

 
—

 
6,927

 
 
49,992

 
—

 
49,992

Less: Service, fees and other income
 
45,062

 
30,130

 
75,192

 
 
41,413

 
17,255

 
58,668

Operating expense
 
193,460

 
26,470

 
219,930

 
 
85,226

 
3,767

 
88,993

Net earned premium
 
$
688,842

 
$
60,476

 
$
749,318

 
 
$
290,216

 
$
16,490

 
$
306,706

Operating expense ratio (Non-GAAP)
 
28.1
%
 
43.8
%
 
29.4
%
 
 
29.4
%
 
22.8
%
 
29.0
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total underwriting expenses
 
$
685,887

 
$
97,113

 
$
783,000

 
 
$
365,809

 
$
33,715

 
$
399,524

Less: Loss and loss adjustment expense
 
440,438

 
40,513

 
480,951

 
 
189,178

 
12,693

 
201,871

Less: Ceding commission income
 
6,927

 
—

 
6,927

 
 
49,992

 
—

 
49,992

Less: Service, fees and other income
 
45,062

 
30,130

 
75,192

 
 
41,413

 
17,255

 
58,668

Less: Non cash amortization of intangible assets
 
1,616

 
4,336

 
5,952

 
 
656

 
435

 
1,091

Operating expense before amortization
 
191,844

 
22,134

 
213,978

 
 
84,570

 
3,332

 
87,902

Net earned premium
 
$
688,842

 
$
60,476

 
$
749,318

 
 
$
290,216

 
$
16,490

 
$
306,706

Operating expense ratio before amortization (Non-GAAP)
 
27.9
%
 
36.6
%
 
28.6
%
 
 
29.1
%
 
20.2
%
 
28.7
%


11







Gross Written Premium by Business Line
$ in thousands
(Unaudited)
 
 
Three Months Ended June 30,
 
 
Six Months Ended June 30,
 
 
 
 
 
 
% of Total
 
 
 
 
 
 
% of Total
 
 
2014
 
2013
 
% Change
 
2014
 
2013
 
 
2014
 
2013
 
% Change
 
2014
 
2013
Property & Casualty
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Personal Auto
 
$
288,654

 
$
241,243

 
19.7%
 
61.6%
 
73.0%
 
 
$
637,337

 
$
523,044

 
21.9%
 
57.2%
 
76.0%
Homeowners
 
34,018

 
109

 
NA
 
7.3%
 
—%
 
 
216,085

 
109

 
NA
 
19.4%
 
—%
RV/Packaged
 
42,148

 
43,577

 
(3.3)%
 
9.0%
 
13.2%
 
 
80,693

 
82,523

 
(2.2)%
 
7.2%
 
12.0%
Commercial Auto
 
37,269

 
31,338

 
18.9%
 
8.0%
 
9.5%
 
 
71,554

 
59,329

 
20.6%
 
6.4%
 
8.6%
Other
 
5,774

 
5,171

 
11.7%
 
1.2%
 
1.6%
 
 
8,802

 
6,731

 
30.8%
 
0.8%
 
1.0%
P&C Total
 
407,863

 
321,438

 
26.9%
 
87.1%
 
97.2%
 
 
1,014,471

 
671,736

 
51.0%
 
91.0%
 
97.6%
 
 
 
 
 
 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Accident & Health
 
60,610

 
9,251

 
555.2%
 
12.9%
 
2.8%
 
 
100,144

 
16,566

 
504.5%
 
9.0%
 
2.4%
 
 
 
 
 
 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total National General
 
$
468,473

 
$
330,689

 
41.7%
 
100.0%
 
100.0%
 
 
$
1,114,615

 
$
688,302

 
61.9%
 
100.0%
 
100.0%

NOTE: Percentage totals may not sum due to rounding.


12




Additional Disclosures

(1) References to operating earnings and basic and diluted operating EPS are Non-GAAP financial measures defined by the Company as net income and basic earnings per share excluding after-tax net realized investment gain or loss on securities, equity in earnings (losses) of unconsolidated subsidiaries, and non-cash amortization of intangible assets. Please see the Non-GAAP Financial Measures table within this release for important information about the use of these Non-GAAP measures and their reconciliation to GAAP.
(2) Reinsurance recoverable on paid losses includes $119,209 and $176,241 from related parties at June 30, 2014 and December 31, 2013, respectively.
(3) Reinsurance payable includes $33,654 and $76,360 to related parties at June 30, 2014 and December 31, 2013, respectively.
(4) Common stock: $0.01 par value - authorized 150,000,000 shares, issued and outstanding 93,344,400 shares - June 30, 2014; authorized 150,000,000 shares, issued and outstanding 79,731,800 shares - December 31, 2013.
(5) Preferred stock: $0.01 par value - authorized 10,000,000 shares, issued and outstanding 2,200,000 shares and 0 shares - June 30, 2014 and December 31, 2013.
(6) Loss and loss adjustment expense ratio is calculated by dividing loss and loss adjustment expenses by net earned premium.
(7) Operating expense ratio and combined ratio are considered non-GAAP financial measures under applicable SEC rules because a component of those ratios, operating expense, is calculated by offsetting acquisition and other underwriting costs and general and administrative expense by ceding commission income and service fee income. Management uses operating expense ratio (non-GAAP) and combined ratio (non-GAAP) to evaluate financial performance against historical results and establish targets on a consolidated basis. Other companies may calculate these measures differently, and, therefore, their measures may not be comparable to those used by National General. Please see the Non-GAAP Financial Measures table within this release for important information about the use of these Non-GAAP measures and their reconciliation to GAAP.
(8) Operating expense ratio (non-GAAP) is calculated by dividing operating expense by net earned premium. Operating expense consists of the sum of acquisition and other underwriting costs and general and administrative expense less ceding commission income and service and fee income.
(9) Combined ratio (non-GAAP) is calculated by adding the loss and loss adjustment expense ratio and the operating expense ratio (non-GAAP) together.
(10) Operating expense ratio (non-GAAP) before amortization is calculated by dividing the operating expense before amortization by net earned premium. Operating expense before amortization consists of the sum of acquisition and other underwriting costs and general and administrative expense less ceding commission income and service and fee income less non cash amortization of intangible assets.



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


13