National General Holdings Corp. Reports Third Quarter 2020 Results

NEW YORK, Oct. 29, 2020 (GLOBE NEWSWIRE) -- National General Holdings Corp. (Nasdaq: NGHC) reported third quarter 2020 net income of $102.1 million or $0.88 per diluted share, compared to net income of $63.3 million or $0.54 per diluted share in the third quarter of 2019. Third quarter 2020 operating earnings (non-GAAP)(1) were $105.2 million or $0.90 per diluted share compared to $68.2 million or $0.59 per diluted share in the third quarter of 2019.

Third Quarter 2020 Highlights versus Third Quarter 2019*

  • Gross written premium grew by $57.9 million to $1,374.7 million compared to the prior year’s quarter. Our P&C segment growth of 2.1%, was primarily driven by our personal auto product line; and our A&H domestic segment growth of 23.3%, excluding our previously sold A&H international business.

  • The overall combined ratio(11,12) was 89.2% compared to 92.5% in the prior year’s quarter, excluding non-cash amortization of intangible assets.

    – The P&C segment reported a decrease in the combined ratio to 92.4% from 97.0% in the prior year’s quarter driven by continued strong underwriting and lower claims frequency. The P&C combined ratio includes prior year unfavorable loss development of $0.9 million compared to $14.9 million unfavorable loss development in the prior year’s quarter, and $87.1 million of pre-tax catastrophe losses related to weather-related events compared to $11.5 million of catastrophe losses in the prior year’s quarter.

    –  The A&H segment reported an increase in the combined ratio to 71.8% from 70.2% in the prior year’s quarter driven by the absence of our international business which was sold in the fourth quarter of 2019. The A&H service and fee income increased 39.0%. The A&H combined ratio includes $5.8 million of favorable loss development compared to $18.8 million of favorable loss development in the prior year’s quarter.

  • Stockholders’ equity was $3.1 billion and fully diluted book value per share was $22.74 at September 30, 2020, growth of 17.1% and 19.3%, respectively, from December 31, 2019. Excluding accumulated other comprehensive income, fully diluted book value per share was $21.07 at September 30, 2020, growth of 14.4%, from December 31, 2019. Our trailing twelve-month operating return on average equity (ROE)(13) was 19.0% as of September 30, 2020.

  • Third quarter of 2020 operating earnings (non-GAAP)(1) excludes the following, net of tax: $2.1 million or $0.02 per share loss on equity method investments, $5.3 million or $0.05 per share of net gain on investments, $3.5 million or $0.03 per share of non-cash amortization of intangible assets, and $2.8 million or $0.02 per share of other expenses reflecting a M&A advisory cost.

  • On September 30, 2020, the Company’s stockholders approved the proposal to merge with The Allstate Corporation. The merger remains subject to regulatory approval and the satisfaction of other customary conditions. The Company expects the merger to close in the first quarter of 2021.

Barry Karfunkel, National General’s CEO, stated: “I’m proud of the earnings National General was able to generate during a quarter that was highlighted by many catastrophic weather events. We’re excited with how we’ll be able to leverage our platform across a larger entity once our pending transaction closes. ”

*NOTE: Unless specified otherwise, discussion of our third quarter 2020 and 2019 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 2020 as Compared to Third Quarter 2019

  • Property & Casualty - Gross written premium grew by 2.1% to $1,178.8 million, net written premium increased by 29.4% to $1,061.4 million, and net earned premium increased by 14.7% to $949.1 million. The P&C net earned premium increase was driven by lower cession to the quota shares, and growth in our personal auto, homeowners, and lender-placed product lines. Service and fee income was $109.8 million compared to $115.6 million in the prior year’s quarter. Excluding non-cash amortization of intangible assets, the combined ratio(11,12) was 92.4% with a loss and LAE ratio of 68.9% and an expense ratio(10,12) of 23.5%, versus a prior year combined ratio of 97.0% with a loss and LAE ratio of 75.8% and an expense ratio of 21.2%. The loss and LAE ratio was impacted by pre-tax catastrophe losses of approximately $87.1 million primarily related to weather-related events in the third quarter of 2020, compared to $11.5 million of losses in the third quarter of 2019. Unfavorable loss development was $0.9 million in the third quarter of 2020 primarily driven by small business auto, compared to unfavorable loss development of $14.9 million in the third quarter of 2019.
     
  • Accident & Health - Gross written premium grew by $33.4 million compared to the prior year’s quarter due to growth in both our small group self-funded and individual products. Excluding our A&H international business, our A&H domestic segment grew by 23.3% to $195.9 million. Service and fee income grew 39.0% to $88.6 million compared to $63.7 million in the prior year’s quarter. Excluding non-cash amortization of intangible assets, the combined ratio(11,12) was 71.8% with a loss and LAE ratio of 44.4% and an expense ratio(10,12) of 27.4%, versus a prior year combined ratio of 70.2% with a loss and LAE ratio of 41.8% and an expense ratio of 28.4%. The current quarter loss and LAE ratio reflects higher medical claims. Favorable loss development was $5.8 million in the third quarter of 2020, compared to favorable loss development of $18.8 million in the third quarter of 2019.
     
  • Reciprocal Exchanges - Results for the Reciprocal Exchanges are not included in net income available to NGHC common stockholders. Gross written premium was $98.4 million, net written premium was $29.5 million, and net earned premium was $54.1 million. Reciprocal Exchanges combined ratio(11,12) excluding non-cash amortization of intangible assets was 111.7% with a loss and LAE ratio of 78.5% and an expense ratio(10,12) of 33.2%.

Third quarter of 2020 net investment income decreased to $28.0 million, compared to $33.5 million in the third quarter of 2019. Total investments and cash and cash equivalents (including restricted cash) were $5.4 billion as of September 30, 2020. Unrealized gains on investments, included in accumulated other comprehensive income, increased to a $195.0 million gain at September 30, 2020, from a $74.5 million gain at December 31, 2019, primarily due to market improvement.

Interest expense was $11.3 million, down from $12.9 million in the prior year’s quarter. Debt was $679.4 million at September 30, 2020, compared to $686.0 million at December 31, 2019.

The third quarter of 2020 provision for income taxes was $26.7 million and the effective tax rate for the quarter was 19.5% compared with income taxes of $19.3 million and an effective rate of 21.3% in the third quarter of 2019.

Stockholders’ equity was $3,103.8 million at September 30, 2020, growth of 17.1% from $2,649.5 million at December 31, 2019. Fully diluted book value per share was $22.74 at September 30, 2020, growth of 19.3% from $19.06 at December 31, 2019. Excluding accumulated other comprehensive income, fully diluted book value per share was $21.07 at September 30, 2020, growth of 14.4%, from December 31, 2019. Our trailing twelve-month operating return on average equity (ROE)(13) was 19.0% as of September 30, 2020.

Year-to-Date P&C Segment Notable Large Losses
Year Quarter Event P&C Notable Large
Losses and LAE 
($ millions)
 P&C Loss and
LAE Ratio
Points*
 EPS
Impact
After Tax
2020 Q3 Weather-related Events $87.1 9.2% $0.59
2020 Q2 Weather-related Events $35.3 4.2% $0.24
2020 Q1 Weather-related Events $8.1 0.9% $0.06
           
2019 Q3 Weather-related Events $11.5 1.4% $0.08
2019 Q2 Weather-related Events $18.4 2.2% $0.13
2019 Q1 Winter Weather $12.1 1.6% $0.08

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

About National General Holdings Corp.

National General Holdings Corp. (NASDAQ: NGHC), 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 us. 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, plans and expectations related to our proposed merger with The Allstate Corporation (“Allstate”), including anticipated timing for closing of the merger, the occurrence of any event, change or other circumstances that could give rise to the termination of the merger agreement with Allstate, the inability to complete the proposed merger due to the failure to obtain regulatory approval for the proposed merger or the failure to satisfy other conditions to completion of the proposed merger, the possibility that competing offers will be made, 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 potential effect of changes in LIBOR reporting practices, the effects of pandemics or other widespread health problems such as the ongoing COVID-19 pandemic on our business, including our investment portfolio, and the national and global economy generally, 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 - Third Quarter
$ in thousands
(Unaudited)

  Three Months Ended September 30,
  2020  2019 
  NGHC Reciprocal
Exchanges
 Consolidated  NGHC Reciprocal
Exchanges
 Consolidated 
Revenues:              
Gross written premium $1,374,740  $98,387  $1,473,127   $1,316,890  $118,267   $1,435,157   
Net written premium 1,235,765  29,491  1,265,256   967,319  67,285   1,034,604   
Net earned premium 1,124,475  54,098  1,178,573   996,521  57,117   1,053,638   
               
Ceding commission income 21,772  8,952  30,724   42,521  15,066   57,587   
Service and fee income 198,353  1,628  184,969 (A) 179,293  1,585   161,626  (G)
Net investment income 28,019  2,254  28,904 (B) 33,451  2,160   33,740  (H)
Net gain (loss) on investments 6,736  13,103  19,839   1,718  (137)  1,581   
Total revenues $1,379,355  $80,035  $1,443,009 (C) $1,253,504  $75,791   $1,308,172  (I)
               
Expenses:              
Loss and loss adjustment expense $731,722  $42,442  $774,164   $698,064  $47,270   $745,334   
Acquisition costs and other underwriting expenses 252,444  16,201  268,645   193,521  15,569   209,090   
General and administrative expenses 247,241  12,382  244,611 (D) 258,583  24,533   263,864  (J)
Interest expense 11,292  1,369  11,292 (E) 12,898  1,871   12,898  (K)
Total expenses $1,242,699   $72,394   $1,298,712 (F) $1,163,066  $89,243   $1,231,186  (L)
               
Income (loss) before provision (benefit) for income taxes $136,656  $7,641  $144,297   $90,438  $(13,452)  $76,986   
Provision (benefit) for income taxes 26,687  741  27,428   19,284  (2,537)  16,747   
Net income (loss) before non-controlling interest and dividends on preferred shares 109,969  6,900  116,869   71,154  (10,915)  60,239   
Less: net income (loss) attributable to noncontrolling interest   6,900  6,900     (10,915)  (10,915)  
Net income before dividends on preferred shares 109,969    109,969   71,154     71,154   
Less: dividends on preferred shares 7,875    7,875   7,875     7,875   
Net income available to common stockholders $102,094  $  $102,094   $63,279  $   $63,279   

NOTES: Consolidated column includes eliminations as follows: (A) $(15,012), (B) $(1,369), (C) $(16,381), (D) $(15,012), (E) $(1,369), (F) $(16,381), (G) $(19,252), (H) $(1,871), (I) $(21,123), (J) $(19,252), (K) $(1,871) and (L) $(21,123).

Income Statement - Year To Date
$ in thousands
(Unaudited)

  Nine Months Ended September 30,
  2020  2019 
  NGHC Reciprocal
Exchanges
 Consolidated  NGHC Reciprocal
Exchanges
 Consolidated 
Revenues:              
Gross written premium $4,002,606  $288,676  $4,291,282   $3,913,861   $344,982   $4,258,843   
Net written premium 3,347,713  142,054  3,489,767   3,022,206   172,460   3,194,666   
Net earned premium 3,152,865  166,481  3,319,346   2,899,041   149,405   3,048,446   
               
Ceding commission income 93,893  33,776  127,669   136,867   50,446   187,313   
Service and fee income 581,533  5,121  545,002 (A) 525,730   4,471   476,041  (G)
Net investment income 88,289  6,449  90,322 (B) 103,683   6,454   102,316  (H)
Net gain (loss) on investments 6,179  11,957  18,136   (2,790)  (837)  (3,627)  
Total revenues $3,922,759  $223,784  $4,100,475 (C) $3,662,531   $209,939   $3,810,489  (I)
               
Expenses:              
Loss and loss adjustment expense $1,951,792  $114,816  $2,066,608   $1,988,094   $124,584   $2,112,678   
Acquisition costs and other underwriting expenses 689,467  36,798  726,265   582,805   32,329   615,134   
General and administrative expenses 765,438  50,803  774,589 (D) 746,243   67,642   759,725  (J)
Interest expense 34,851  4,416  34,851 (E) 38,822   7,821   38,822  (K)
Total expenses $3,441,548  $206,833  $3,602,313 (F) $3,355,964   $232,376   $3,526,359  (L)
               
Income (loss) before provision (benefit) for income taxes $481,211  $16,951  $498,162   $306,567   $(22,437)  $284,130   
Provision (benefit) for income taxes 103,909  2,198  106,107   65,779   (4,285)  61,494   
Net income (loss) before non-controlling interest and dividends on preferred shares 377,302  14,753  392,055   240,788   (18,152)  222,636   
Less: net income (loss) attributable to noncontrolling interest   14,753  14,753      (18,152)  (18,152)  
Net income before dividends on preferred shares 377,302    377,302   240,788      240,788   
Less: dividends on preferred shares 24,675    24,675   24,675      24,675   
Net income available to common stockholders $352,627  $  $352,627   $216,113   $   $216,113   

NOTES: Consolidated column includes eliminations as follows: (A) $(41,652), (B) $(4,416), (C) $(46,068), (D) $(41,652), (E) $(4,416), (F) $(46,068) (G) $(54,160), (H) $(7,821), (I) $(61,981), (J) $(54,160), (K) $(7,821) and (L) $(61,981).

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

 Three Months Ended
September 30,
 Nine Months Ended
September 30,
 2020 2019 2020 2019
Net income available to common stockholders$102,094  $63,279  $352,627  $216,113 
Basic net income per common share$0.90  $0.56  $3.11  $1.91 
Diluted net income per common share$0.88  $0.54  $3.04  $1.87 
        
Operating earnings attributable to NGHC (non-GAAP)(1)$105,174  $68,237  $368,576  $236,093 
Basic operating earnings per common share (non-GAAP)(1)$0.93  $0.60  $3.25  $2.09 
Diluted operating earnings per common share (non-GAAP)(1)$0.90  $0.59  $3.17  $2.03 
        
Dividends declared per common share$0.05  $0.05  $0.15  $0.13 
        
Weighted average number of basic shares outstanding113,418,411  113,263,367  113,505,785  113,153,121 
Weighted average number of diluted shares outstanding116,666,374  116,138,489  116,231,852  116,087,524 
Shares outstanding, end of period113,475,176  113,313,042     
Fully diluted shares outstanding, end of period116,723,139  116,188,164     
Book value per share$23.39  $18.62     
Fully diluted book value per share$22.74  $18.16     

Reconciliation of Net Income to Operating Earnings (Non-GAAP)(1)(13)
$ in thousands, except per share data
(Unaudited)

 Three Months Ended
September 30,
 Nine Months Ended
September 30,
 2020 2019 2020 2019
Net income available to common stockholders$102,094  $63,279  $352,627  $216,113 
Add (subtract):       
Equity in losses of equity method investments2,635  1,205  6,523  1,408 
Net (gain) loss on investments(6,736) (1,718) (6,179) 2,790 
Non-cash amortization of intangible assets4,427  6,788  16,272  21,093 
M&A advisory cost3,573    3,573   
Income tax benefit(819) (1,317) (4,240) (5,311)
Operating earnings attributable to NGHC (non-GAAP)(1)$105,174  $68,237  $368,576  $236,093 
        
Operating earnings per common share (non-GAAP)(1):       
Basic operating earnings per common share (non-GAAP)(1)$0.93  $0.60  $3.25  $2.09 
Diluted operating earnings per common share (non-GAAP)(1)$0.90  $0.59  $3.17  $2.03 

Balance Sheet
$ in thousands
(Unaudited)

  September 30, 2020  December 31, 2019 
ASSETS NGHC Reciprocal
Exchanges
 Consolidated  NGHC Reciprocal
Exchanges
 Consolidated 
Total investments (2) $5,119,295   $331,076   $5,342,799  (A) $4,632,960  $329,494   $4,854,998  (H)
Cash and cash equivalents, including restricted cash 250,602   741   251,343    163,480  983   164,463   
Premiums and other receivables, net 1,528,240   70,076   1,598,316    1,373,089  55,859   1,428,948   
Reinsurance balances 1,515,120   230,692   1,745,812    1,745,036  225,019   1,970,055   
Intangible assets, net 342,884   3,090   345,974    362,598  3,225   365,823   
Goodwill 179,328      179,328    179,328     179,328   
Other (3) 775,595   24,216   760,684  (B) 798,675  29,070   792,919  (I)
Total assets $9,711,064   $659,891   $10,224,256  (C) $9,255,166  $643,650   $9,756,534  (J)
LIABILITIES AND STOCKHOLDERS’ EQUITY              
Liabilities:              
Unpaid loss and loss adjustment expense reserves $2,688,969   $208,496   $2,897,465    $2,680,628  $205,786   $2,886,414   
Unearned premiums and other revenue 2,117,887   219,582   2,337,469    2,059,688  252,553   2,312,241   
Reinsurance payable 350,717   51,711   402,428    527,155  35,689   562,844   
Accounts payable and accrued expenses 412,540   46,731   420,144  (D) 306,869  43,323   315,366  (K)
Debt 679,436   107,572   679,436  (E) 686,006  107,456   686,006  (L)
Other 357,745   44,004   401,749    345,366  30,803   376,169   
Total liabilities $6,607,294   $678,096   $7,138,691  (F) $6,605,712  $675,610   $7,139,040  (M)
Stockholders’ equity:              
Preferred stock (4) $450,000   $   $450,000    $450,000  $   $450,000   
Common stock (5) 1,139      1,139    1,134     1,134   
Treasury stock, at cost (6) (8,482)     (8,482)           
Additional paid-in capital 1,073,288      1,073,288    1,065,634     1,065,634   
Accumulated other comprehensive income 194,953      194,953    74,548     74,548   
Retained earnings 1,392,872      1,392,872    1,058,138     1,058,138   
Total National General Holdings Corp. stockholders’ equity 3,103,770      3,103,770    2,649,454     2,649,454   
Noncontrolling interest    (18,205)  (18,205)     (31,960)  (31,960)  
Total stockholders’ equity $3,103,770   $(18,205)  $3,085,565     $2,649,454  $(31,960)  $2,617,494   
Total liabilities and stockholders’ equity $9,711,064   $659,891   $10,224,256   (G) $9,255,166  $643,650   $9,756,534  (N)

NOTES: Consolidated column includes eliminations as follows: (A) $(107,572), (B) $(39,127), (C) $(146,699), (D) $(39,127), (E) $(107,572), (F) $(146,699), (G) $(146,699) (H) $(107,456), (I) $(34,826), (J) $(142,282), (K) $(34,826), (L) $(107,456), (M) $(142,282) and (N) $(142,282).

Segment Information - Third Quarter
$ in thousands
(Unaudited)

  Three Months Ended September 30,
  2020  2019
  P&C A&H NGHC  Reciprocal
Exchanges
  P&C A&H NGHC  Reciprocal
Exchanges
Gross written premium $1,178,803  $195,937  $1,374,740   $98,387    $1,154,335  $162,555  $1,316,890   $118,267  
Net written premium 1,061,435  174,330  1,235,765   29,491    819,970  147,349   967,319   67,285  
Net earned premium 949,071  175,404  1,124,475   54,098    827,618  168,903  996,521   57,117  
                    
Ceding commission income 21,567  205  21,772   8,952    40,260  2,261  42,521   15,066  
Service and fee income 109,756  88,597  198,353   1,628    115,557  63,736  179,293   1,585  
Total underwriting revenues $1,080,394  $264,206  $1,344,600   $64,678    $983,435  $234,900  $1,218,335   $73,768  
                    
Loss and loss adjustment expense (A) 653,774  77,948  731,722   42,442    627,452  70,612  698,064   47,270  
Acquisition costs and other underwriting expenses 173,166  79,278  252,444   16,201    146,307  47,214  193,521   15,569  
General and administrative expenses (B) 184,776  58,892  243,668   12,382    190,286  68,297  258,583   24,533  
Total underwriting expenses $1,011,716  $216,118  $1,227,834   $71,025    $964,045  $186,123  $1,150,168   $87,372  
                    
Underwriting income (loss) 68,678  48,088  116,766   (6,347)   19,390  48,777  68,167   (13,604) 
Non-cash amortization of intangible assets 3,140  1,287  4,427   33    5,257  1,531  6,788   18  
Underwriting income (loss) before amortization and impairment $71,818  $49,375  $121,193   $(6,314)   $24,647  $50,308  $74,955   $(13,586) 
                    
Underwriting ratios                   
Loss and loss adjustment expense ratio (7) 68.9% 44.4% 65.1%  78.5 %  75.8% 41.8% 70.1%  82.8 %
Operating expense ratio (Non-GAAP) (8) 23.9% 28.1% 24.5%  33.3 %  21.8% 29.3% 23.1%  41.1 %
Combined ratio (Non-GAAP) (9) 92.8% 72.5% 89.6%  111.8 %  97.6% 71.1% 93.2%  123.9 %
                    
Underwriting ratios (before amortization and impairment)                   
Loss and loss adjustment expense ratio (7) 68.9% 44.4% 65.1%  78.5 %  75.8% 41.8% 70.1%  82.8 %
Operating expense ratio (Non-GAAP) (10) 23.5% 27.4% 24.1%  33.2 %  21.2% 28.4% 22.4%  41.0 %
Combined ratio before amortization and impairment (Non-GAAP) (11) 92.4% 71.8% 89.2%  111.7 %  97.0% 70.2% 92.5%  123.8 %

(A) Loss and loss adjustment expenses for the three months ended September 30, 2020, included $934 of unfavorable loss development on prior accident year loss and loss adjustment expense reserves in the P&C segment, and $5,827 of favorable loss development in the A&H segment, versus $14,909 of unfavorable loss development in the P&C segment, and $18,788 of favorable loss development in the A&H segment for the three months ended September 30, 2019.

(B) General and administrative expenses includes expenses allocated to segments only.

Segment Information - Year To Date
$ in thousands
(Unaudited)

  Nine Months Ended September 30,
  2020  2019
  P&C A&H NGHC  Reciprocal
Exchanges
  P&C A&H NGHC  Reciprocal
Exchanges
Gross written premium $3,429,987  $572,619  $4,002,606   $288,676   $3,321,090  $592,771  $3,913,861   $344,982  
Net written premium 2,836,955  510,758  3,347,713   142,054   2,521,969  500,237   3,022,206   172,460  
Net earned premium 2,643,958  508,907  3,152,865   166,481   2,402,509  496,532  2,899,041   149,405  
                    
Ceding commission income 92,657  1,236  93,893   33,776   128,087  8,780  136,867   50,446  
Service and fee income 332,344  249,189  581,533   5,121   348,045  177,685  525,730   4,471  
Total underwriting revenues $3,068,959  $759,332  $3,828,291   $205,378   $2,878,641  $682,997  $3,561,638   $204,322  
                    
Loss and loss adjustment expense (A) 1,725,588  226,204  1,951,792   114,816   1,746,409  241,685  1,988,094   124,584  
Acquisition costs and other underwriting expenses 474,824  214,643  689,467   36,798   429,742  153,063  582,805   32,329  
General and administrative expenses (B) 585,230  176,635  761,865   50,803   558,016  188,227  746,243   67,642  
Total underwriting expenses $2,785,642  $617,482  $3,403,124   $202,417   $2,734,167  $582,975  $3,317,142   $224,555  
                    
Underwriting income (loss) 283,317  141,850  425,167   2,961   144,474  100,022  244,496   (20,233) 
Non-cash amortization of intangible assets 12,368  3,904  16,272   93   16,154  4,939  21,093   41  
Underwriting income (loss) before amortization and impairment $295,685  $145,754  $441,439   $3,054   $160,628  $104,961  $265,589   $(20,192) 
                    
Underwriting ratios                   
Loss and loss adjustment expense ratio (7) 65.3% 44.4% 61.9%  69.0%  72.7% 48.7% 68.6%  83.4 %
Operating expense ratio (Non-GAAP) (8) 24.0% 27.7% 24.6%  29.3%  21.3% 31.2% 23.0%  30.2 %
Combined ratio (Non-GAAP) (9) 89.3% 72.1% 86.5%  98.3%  94.0% 79.9% 91.6%  113.6 %
                    
Underwriting ratios (before amortization and impairment)                   
Loss and loss adjustment expense ratio (7) 65.3% 44.4% 61.9%  69.0%  72.7% 48.7% 68.6%  83.4 %
Operating expense ratio (Non-GAAP) (10) 23.6% 26.9% 24.1%  29.2%  20.6% 30.2% 22.3%  30.1 %
Combined ratio before amortization and impairment (Non-GAAP) (11) 88.9% 71.3% 86.0%  98.2%  93.3% 78.9% 90.9%  113.5 %

(A) Loss and loss adjustment expenses for the nine months ended September 30, 2020, included $13,989 of unfavorable loss development on prior accident year loss and loss adjustment expense reserves in the P&C segment, and $22,065 of favorable loss development in the A&H segment, versus $19,791 of unfavorable loss development in the P&C segment, and $37,775 of favorable loss development in the A&H segment for the nine months ended September 30, 2019.

(B) General and administrative expenses includes expenses allocated to segments only.

Reconciliation of Operating Expense Ratio (Non-GAAP)(8,10,12)
$ in thousands
(Unaudited)

  Three Months Ended September 30,
  2020  2019
  P&C A&H NGHC  Reciprocal
Exchanges
  P&C A&H NGHC  Reciprocal
Exchanges
Total underwriting expenses $1,011,716  $216,118  $1,227,834   $71,025   $964,045  $186,123  $1,150,168   $87,372 
Less: Loss and loss adjustment expense 653,774  77,948  731,722   42,442   627,452  70,612  698,064   47,270 
Less: Ceding commission income 21,567  205  21,772   8,952   40,260  2,261  42,521   15,066 
Less: Service and fee income 109,756  88,597  198,353   1,628   115,557  63,736  179,293   1,585 
Operating expense (Non-GAAP) (8) 226,619  49,368  275,987   18,003   180,776  49,514  230,290   23,451 
Net earned premium $949,071  $175,404  $1,124,475   $54,098   $827,618  $168,903  $996,521   $57,117 
Operating expense ratio (Non-GAAP) (8) 23.9% 28.1% 24.5%  33.3%  21.8% 29.3% 23.1%  41.1%
                    
Total underwriting expenses $1,011,716  $216,118  $1,227,834   $71,025   $964,045  $186,123  $1,150,168   $87,372 
Less: Loss and loss adjustment expense 653,774  77,948  731,722   42,442   627,452  70,612  698,064   47,270 
Less: Ceding commission income 21,567  205  21,772   8,952   40,260  2,261  42,521   15,066 
Less: Service and fee income 109,756  88,597  198,353   1,628   115,557  63,736  179,293   1,585 
Less: Non-cash amortization of intangible assets 3,140  1,287  4,427   33   5,257  1,531  6,788   18 
Operating expense before amortization and impairment (Non-GAAP) (10) 223,479  48,081  271,560   17,970   175,519  47,983  223,502   23,433 
Net earned premium $949,071  $175,404  $1,124,475   $54,098   $827,618  $168,903  $996,521   $57,117 
Operating expense ratio before amortization and impairment (Non-GAAP) (10) 23.5% 27.4% 24.1%  33.2%  21.2% 28.4% 22.4%  41.0%

Reconciliation of Operating Expense Ratio (Non-GAAP)(8,10,12)
$ in thousands
(Unaudited)

  Nine Months Ended September 30,
  2020  2019
  P&C A&H NGHC  Reciprocal
Exchanges
  P&C A&H NGHC  Reciprocal
Exchanges
Total underwriting expenses $2,785,642   $617,482   $3,403,124    $202,417    $2,734,167   $582,975   $3,317,142    $224,555  
Less: Loss and loss adjustment expense 1,725,588   226,204   1,951,792    114,816    1,746,409   241,685   1,988,094    124,584  
Less: Ceding commission income 92,657   1,236   93,893    33,776    128,087   8,780   136,867    50,446  
Less: Service and fee income 332,344   249,189   581,533    5,121    348,045   177,685   525,730    4,471  
Operating expense (Non-GAAP) (8) 635,053   140,853   775,906    48,704    511,626   154,825   666,451    45,054  
Net earned premium $2,643,958   $508,907   $3,152,865    $166,481    $2,402,509   $496,532   $2,899,041    $149,405  
Operating expense ratio (Non-GAAP) (8) 24.0 % 27.7 % 24.6 %  29.3 %  21.3 % 31.2 % 23.0 %  30.2 %
                    
Total underwriting expenses $2,785,642   $617,482   $3,403,124    $202,417    $2,734,167   $582,975   $3,317,142    $224,555  
Less: Loss and loss adjustment expense 1,725,588   226,204   1,951,792    114,816    1,746,409   241,685   1,988,094    124,584  
Less: Ceding commission income 92,657   1,236   93,893    33,776    128,087   8,780   136,867    50,446  
Less: Service and fee income 332,344   249,189   581,533    5,121    348,045   177,685   525,730    4,471  
Less: Non-cash amortization of intangible assets 12,368   3,904   16,272    93    16,154   4,939   21,093    41  
Operating expense before amortization and impairment (Non-GAAP) (10) 622,685   136,949   759,634    48,611    495,472   149,886   645,358    45,013  
Net earned premium $2,643,958   $508,907   $3,152,865    $166,481    $2,402,509   $496,532   $2,899,041    $149,405  
Operating expense ratio before amortization and impairment (Non-GAAP) (10) 23.6 % 26.9 % 24.1 %  29.2 %  20.6 % 30.2 % 22.3 %  30.1 %


Premiums by Product Line

$ in thousands
(Unaudited)

 Three Months Ended September 30,
 Gross Written Premium  Net Written Premium  Net Earned Premium
 2020 2019 Change  2020 2019 Change  2020 2019 Change
Property & Casualty                   
Personal Auto$741,306  $705,709  5.0%  $650,889  $560,032   16.2%  $632,781  $568,346  11.3%
Homeowners210,721  201,977  4.3%  217,960  82,601   163.9%  130,278  86,525  50.6%
RV/Packaged59,191  55,631  6.4%  57,834  52,283   10.6%  52,126  51,023  2.2%
Small Business Auto62,159  76,987  (19.3)%  47,556  56,615   (16.0)%  53,158  62,265  (14.6)%
Lender-placed insurance96,327  97,468  (1.2)%  82,599  61,579   34.1%  77,441  56,599  36.8%
Other9,099  16,563  (45.1)%  4,597  6,860   (33.0)%  3,287  2,860  14.9%
Total Premium$1,178,803  $1,154,335  2.1%  $1,061,435  $819,970   29.4%  $949,071  $827,618  14.7%
                    
Accident & Health                   
Group89,852  73,223  22.7%  70,672  59,001   19.8%  70,670  59,009  19.8%
Individual106,085  85,728  23.7%  103,658  85,541   21.2%  104,734  85,971  21.8%
Total Premium Domestic$195,937  $158,951  23.3%  $174,330  $144,542   20.6%  $175,404  $144,980  21.0%
International  3,604  (100.0)%    2,807   (100.0)%    23,923  (100.0)%
                    
Total National General$1,374,740  $1,316,890  4.4%  $1,235,765  $967,319   27.8%  $1,124,475  $996,521  12.8%
Total National General (A)$1,374,740  $1,313,286  4.7%  $1,235,765  $964,512   28.1%  $1,124,475  $972,598  15.6%
                    
Reciprocal Exchanges                   
Personal Auto$33,561  $39,166  (14.3)%  $10,323  $67,154   (84.6)%  $24,654  $33,953  (27.4)%
Homeowners63,935  78,079  (18.1)%  18,166  (2,047)  (987.4)%  28,963  22,759  27.3%
Other891  1,022  (12.8)%  1,002  2,178   (54.0)%  481  405  18.8%
Total Premium$98,387  $118,267  (16.8)%  $29,491  $67,285   (56.2)%  $54,098  $57,117  (5.3)%
                    
Consolidated Total$1,473,127  $1,435,157  2.6%  $1,265,256  $1,034,604   22.3%  $1,178,573  $1,053,638  11.9%

(A) Excludes A&H international product line which was sold in the fourth quarter of 2019.

Premiums by Product Line
$ in thousands
(Unaudited)

 Nine Months Ended September 30,
 Gross Written Premium  Net Written Premium  Net Earned Premium
 2020 2019 Change  2020 2019 Change  2020 2019 Change
Property & Casualty                   
Personal Auto$2,148,730  $2,083,702  3.1%  $1,886,438  $1,730,904  9.0%  $1,773,831  $1,621,734  9.4%
Homeowners581,185  544,056  6.8%  390,760  276,250  41.5%  321,129  272,591  17.8%
RV/Packaged170,120  168,796  0.8%  165,694  162,047  2.3%  148,374  150,739  (1.6)%
Small Business Auto195,628  246,694  (20.7)%  152,584  196,221  (22.2)%  166,316  189,957  (12.4)%
Lender-placed insurance295,693  232,265  27.3%  224,742  140,863  59.5%  218,210  158,595  37.6%
Other38,631  45,577  (15.2)%  16,737  15,684  6.7%  16,098  8,893  81.0%
Total Premium$3,429,987  $3,321,090  3.3%  $2,836,955  $2,521,969  12.5%  $2,643,958  $2,402,509  10.0%
                    
Accident & Health                   
Group266,857  213,197  25.2%  209,360  170,911  22.5%  209,372  170,921  22.5%
Individual305,762  252,719  21.0%  301,398  252,316  19.5%  299,535  252,122  18.8%
Total Premium Domestic$572,619  $465,916  22.9%  $510,758  $423,227  20.7%  $508,907  $423,043  20.3%
International  126,855  (100.0)%    77,010  (100.0)%    73,489  (100.0)%
                    
Total National General$4,002,606  $3,913,861  2.3%  $3,347,713  $3,022,206  10.8%  $3,152,865  $2,899,041  8.8%
Total National General (A)$4,002,606  $3,787,006  5.7%  $3,347,713  $2,945,196  13.7%  $3,152,865  $2,825,552  11.6%
                    
Reciprocal Exchanges                   
Personal Auto$102,752  $120,012  (14.4)%  $73,678  $101,460  (27.4)%  $89,291  $65,907  35.5%
Homeowners183,331  222,019  (17.4)%  66,758  68,180  (2.1)%  76,037  82,475  (7.8)%
Other2,593  2,951  (12.1)%  1,618  2,820  (42.6)%  1,153  1,023  12.7%
Total Premium$288,676  $344,982  (16.3)%  $142,054  $172,460  (17.6)%  $166,481  $149,405  11.4%
                    
Consolidated Total$4,291,282  $4,258,843  0.8%  $3,489,767  $3,194,666  9.2%  $3,319,346  $3,048,446  8.9%

(A) Excludes A&H international product line which was sold in the fourth quarter of 2019.

Fee Income
$ in thousands
(Unaudited)

 Three Months Ended September 30, Nine Months Ended September 30,
 2020 2019 Change 2020 2019 Change
Property & Casualty           
Service and Fee Income$109,756  $115,557  (5.0)% $332,344  $348,045  (4.5)%
Ceding Commission Income21,567  40,260  (46.4)% 92,657  128,087  (27.7)%
Property & Casualty$131,323  $155,817  (15.7)% $425,001  $476,132  (10.7)%
            
Accident & Health           
Service and Fee Income           
Group$44,306  $34,848  27.1% $128,029  $98,084  30.5%
Individual2,379  2,128  11.8% 6,861  5,506  24.6%
Medicare Sales10,032  5,610  78.8% 32,822  17,870  83.7%
Third Party Fee31,881  21,150  50.7% 81,478  56,225  44.9%
Total Service and Fee Income88,598  63,736  39.0% 249,190  177,685  40.2%
Ceding Commission Income205  2,261  (90.9)% 1,236  8,780  (85.9)%
Accident and Health$88,803  $65,997  34.6% $250,426  $186,465  34.3%
            
Total National General$220,126  $221,814  (0.8)% $675,427  $662,597  1.9%
            
Reciprocal Exchanges           
Service and Fee Income$1,628  $1,585  2.7% $5,121  $4,471  14.5%
Ceding Commission Income8,952  15,066  (40.6)% 33,776  50,446  (33.0)%
Reciprocal Exchanges$10,580  $16,651  (36.5)% $38,897  $54,917  (29.2)%
            
Consolidated Total (A)$215,694  $219,213  (1.6)% $672,672  $663,354  1.4%

NOTES: (A) Consolidated Total includes eliminations between National General and the Reciprocal Exchanges in Service and Fee Income of $(15,012) and $(19,252) in the three months ended September 30, 2020, and 2019, respectively, and $(41,652) and $(54,160) in the nine months ended September 30, 2020, and 2019, 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 credit loss on investments in debt securities and foreign exchange gain or loss), 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 financial measures to the most directly comparable GAAP measure.

(2) Total investments includes $231,593 and $238,841 from related parties at September 30, 2020, and December 31, 2019, respectively.

(3) Other includes $1,210 and $2,391 from related parties at September 30, 2020, and December 31, 2019, respectively.

(4) Preferred stock: $0.01 par value - authorized 10,000,000 shares, issued and outstanding 2,565,120 shares - September 30, 2020; authorized 10,000,000 shares, issued and outstanding 2,565,120 shares - December 31, 2019.

(5) Common stock: $0.01 par value - authorized 150,000,000 shares, issued 113,934,259 and outstanding 113,475,176 shares - September 30, 2020; authorized 150,000,000 shares, issued and outstanding 113,368,811 shares - December 31, 2019.

(6) Treasury stock, at cost: 459,083 shares - September 30, 2020.

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

(8) Operating expense ratio is a non-GAAP financial measure defined by the Company, which 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 and other general and administrative expenses (M&A advisory cost). The ratio is used as an indicator of the Company’s efficiency in acquiring and servicing its business.

(9) Combined ratio is a non-GAAP financial measure defined by the Company, which is commonly used in the insurance industry. The Company calculates the ratio by adding the loss and loss adjustment expense ratio(7) and the operating expense ratio (non-GAAP)(8) 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. Management uses operating expense ratio (non-GAAP) and combined ratio (non-GAAP) to evaluate financial performance against historical results and establish targets. A combined ratio under 100% generally indicates an underwriting profit, while over 100% an underwriting loss.

(10) Operating expense ratio before amortization and impairment is a non-GAAP financial measure defined by the Company, which 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, service and fee income and other general and administrative expenses (M&A advisory cost) 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. Management believes that this measure provides a more useful comparison to the operating expense ratio of other insurance companies involved in fewer acquisitions.

(11) Combined ratio before amortization and impairment is a non-GAAP financial measure defined by the Company, which is commonly used in the insurance industry. The Company calculates the ratio by adding the loss and loss adjustment expense ratio(7) and the operating expense ratio before amortization and impairment (non-GAAP)(10) 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. Management believes that this measure of underwriting profitability provides a more useful comparison to the combined ratio of other insurance companies involved in fewer acquisitions. A combined ratio under 100% generally indicates an underwriting profit, while over 100% an underwriting loss.

(12) Combined ratio (non-GAAP), operating expense ratio (non-GAAP), combined ratio before amortization and impairment (non-GAAP) and operating expense ratio before amortization and impairment (non-GAAP) are considered non-GAAP financial measures under applicable SEC rules. Other companies may calculate these ratios 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 financial measures to the most directly comparable GAAP measure.

(13) 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 same twelve-month period. Average shareholders’ equity is the sum of the shareholders’ equity excluding preferred stock at the beginning and end of the period 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.

(14) Combined ratio excluding losses from various weather-related events, is calculated by taking the combined ratio as defined in Note 11, and adjusting it to exclude the total net losses of $87.1 million and $11.5 million from these events for the three months ended September 30, 2020, and 2019, 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 (11) Impact of Weather-
related Events
 Combined Ratio
Excluding Weather-
related Events (14)
2020 P&C Segment 92.4% 9.2% 83.2%
         
2020 Overall NGHC 89.2% 7.7% 81.5%
         
         
2019 P&C Segment 97.0% 1.4% 95.6%
         
2019 Overall NGHC 92.5% 1.2% 91.3%

(15) 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 product 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 and revenue 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. Medicare fees include commission and general agent fees for selling Medicare policies issued by third-party insurance companies as well as revenue from our Medicare Supplement product. 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.

Investor Contact

Clifford Gallant
SVP of Capital Strategy and Investor Relations
Phone: 212-380-9462
Email: Clifford.Gallant@NGIC.COM

 

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