National General Holdings Corp. Reports 2018 Results

National General Holdings Corp. (Nasdaq:NGHC) reported fourth quarter and full year 2018 results, highlighting the strength of the well-diversified, niche portfolio.

Fourth Quarter 2018 Highlights Versus Fourth Quarter 2017*

Gross written premium grew $108.5 million or 10.2% to $1,175.7 million, driven by continued organic growth in our P&C segment of 8.8% and in our A&H segment of 19.2%.
In the fourth quarter, our homeowners’ product experienced organic growth of 17.8% driven by continued growth from strategic partnerships and the expansion in our high net worth product offering. Our personal auto product experienced organic growth of 7.8% driven by rate increases and PIF growth.
The overall combined ratio(9,13) was 95.9% in the fourth quarter compared to 96.9% in the prior year’s quarter and 92.6% for the full year compared to 96.1% in 2017, excluding non-cash impairment of goodwill and amortization of intangible assets. The P&C segment reported an increase in combined ratio to 100.5% from 98.2% in the prior year’s quarter. The combined ratio includes $59.0 million of losses, or 7.9 P&C loss ratio points, primarily related to Hurricane Michael and November California Fires in the fourth quarter 2018, compared to $52.9 million of losses, or 7.5 P&C loss ratio points, from events in the fourth quarter 2017. The A&H segment reported a combined ratio of 73.6% compared to 89.9% in the prior year’s quarter with the decrease driven by strong operating results in our small group self-funded and individual products.
Service and fee income grew 11.0% to $162.2 million, driven by organic growth in both our Accident & Health and Property & Casualty segments.
Shareholders’ equity was $2.22 billion and fully diluted book value per share was $15.25 at December 31, 2018, growth of 15.2% and 10.0%, respectively, from December 31, 2017. Our trailing twelve month operating return on average equity (ROE)(14) was 14.6% as of December 31, 2018. In November we completed a 5.75 million share secondary common stock offering.
Fourth quarter 2018 operating earnings (non-GAAP)(1) exclude the following items, net of tax: $7.9 million or $0.07 per share of estimated litigation resolution expense, $6.3 million or $0.06 per share of non-cash amortization of intangible assets and $3.7 million or $0.03 per share of net loss on investments.

Barry Karfunkel, National General’s CEO, stated: “I’m pleased to report a year of record earnings for National General despite continued elevated catastrophe losses for the industry. Our diversified approach to niche areas in personal lines insurance is paying dividends, with strength in our Accident and Health segment driving an increasing share of underwriting income. In the quarter, we entered into an agreement to acquire National Farmers Union Insurance. This acquisition brings new competencies to National General through geographic diversification as well as a new distribution partner with the National Farmers Union. I think the strength of the platform that we have built since National General’s founding was evident this year, and I expect it to drive continued out-performance in the coming years.”

Overview of Fourth Quarter 2018 as Compared to Fourth Quarter 2017 by Segment

Property & Casualty - Gross written premium grew by 8.8% to $1,012.1 million, net written premium increased by 6.3% to $716.4 million, and net earned premium increased by 5.4% to $747.5 million. P&C gross written premium growth was primarily driven by organic growth of 17.8% from our homeowners’ product and 7.8% from our personal auto product. Service and fee income grew 11.6% to $110.8 million. Excluding non-cash impairment of goodwill and amortization of intangible assets, the combined ratio(9,13) was 100.5% with a loss ratio of 79.6% and an expense ratio(9,12) of 20.9%, versus a prior year combined ratio of 98.2% with a loss ratio of 76.9% and an expense ratio of 21.3%. The loss ratio was impacted by pre-tax catastrophe losses of approximately $59.0 million primarily related to Hurricane Michael and November California Fires in the fourth quarter 2018.
Accident & Health - Gross written premium grew by 19.2% to $163.5 million, net written premium grew by 11.6% to $140.4 million, and net earned premium grew by 12.9% to $151.0 million. The A&H gross written premium increase was driven by the continued growth across the entire book. Service and fee income was $51.4 million compared to $46.8 million in the prior year’s quarter. Excluding non-cash impairment of goodwill and amortization of intangible assets, the combined ratio(9,13) was 73.6% with a loss ratio of 45.7% and an expense ratio(9,12) of 27.9%, versus a prior year combined ratio of 89.9% with a loss ratio of 59.9% and an expense ratio of 30.0%. The loss ratio reflects continued strong performance in both small group self-funded and individual products.
Reciprocal Exchanges - Results for the Reciprocal Exchanges are not included in net income available to NGHC common stockholders. Gross written premium was $111.9 million, net written premium was $51.3 million, and net earned premium was $45.8 million. Reciprocal Exchanges combined ratio(9,13) excluding non-cash amortization of intangible assets was 105.8% with a loss ratio of 79.3% and an expense ratio(9,12) of 26.5%.

Fourth quarter 2018 investment income grew to $37.7 million, compared to $20.6 million in the fourth quarter of 2017, with the increase primarily driven by an improvement in the book yield, increased income from our remaining minority interest life settlement investment and increased investment of cash. Total investments and cash and cash equivalents (including restricted cash) were $4.2 billion as of December 31, 2018. Accumulated other comprehensive income (loss) increased to a $52.1 million loss at December 31, 2018 from a $8.1 million loss at December 31, 2017, primarily due to the impact of higher interest rates which negatively impacted bond valuations.

Interest expense was $12.7 million, up from $12.5 million in the prior year’s quarter. Debt was $675.4 million at December 31, 2018, down from $713.7 million at December 31, 2017.

The fourth quarter of 2018 provision for income taxes was $12.6 million and the effective tax rate for the quarter was 32.5% compared with income taxes of $24.8 million and an effective rate of 81.9% in the fourth quarter of 2017, which was impacted by the re-evaluation of our deferred tax asset related to the Tax Cuts and Jobs Act. The effective tax rate for the year ended December 31, 2018 was 21.6%.

Shareholders’ equity was $2,220.8 million at December 31, 2018, growth of 15.2% from $1,928.6 million at December 31, 2017. Fully diluted book value per share was $15.25 at December 31, 2018, growth of 10.0% from $13.86 at December 31, 2017. Our trailing twelve month operating return on average equity (ROE)(14) was 14.6% as of December 31, 2018.

*NOTE: Unless specified otherwise, discussion of our fourth quarter 2018 and 2017 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.

Year-to-Date P&C Segment Notable Large Losses
2018 Quarter		P&C Notable Large Losses and LAE($ millions)	P&C Loss Ratio Points*	EPS Impact After Tax
Q4	Hurricane Michael and November California Fires	$59.0	7.9%	$0.41
Q3	California Fires and Hurricane Florence	$35.0	4.7%	$0.25
Q2	Spring Weather-related and Texas Hail Events	$20.5	2.8%	$0.15
Q1	Northeastern 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.

Additional Items

Auto quota share reduction. Effective January 1, 2019, we reduced the amount ceded under new and renewal auto policies written on or after January 1, 2019 on our auto quota share agreement to 7% from 15%.
Revolving credit agreement. On February 25th, 2019, National General entered into a new credit agreement with a $340 million base revolving credit facility with a letter of credit sublimit of $150 million and an expansion feature of up to $50 million, replacing the previous $245 million base revolving credit facility. The credit agreement will bear interest at LIBOR plus 1.75% and a commitment fee of 0.225%, depending on our leverage ratio. There is currently $160 million outstanding under the new credit agreement.
Class action lawsuit. National General is a defendant in a consolidated multi-district class action litigation alleging improper practices in the placement of insurance in the historical and no longer existing collateral protection insurance program for Wells Fargo. Management believes that the Company’s actions were, at all times, in compliance with applicable requirements and that the Company has a meritorious defense in litigation. The estimated probable net pre-tax impact to the company to resolve this matter is $10 million.

Conference Call

On Tuesday, February 26, 2019 at 9:30 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:

800-346-7359973-528-0008986437http://ir.nationalgeneral.com/events-and-presentations

A replay of the conference call will be accessible from 2:00 PM ET on Tuesday, February 26, 2019 to 11:59 PM ET on Tuesday, March 12, 2019 by dialing either 800-332-6854 (toll-free) within the U.S. or 973-528-0005 outside the U.S. and entering passcode 986437. 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 or vendor 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 - Fourth Quarter$ in thousands(Unaudited)

	Three Months Ended December 31,
	2018										2017
	NGHC			Reciprocal Exchanges			Consolidated				NGHC			Reciprocal Exchanges			Consolidated
Revenues:
Gross written premium	$	1,175,687		$	111,902		$	1,287,589			$	1,067,188		$	97,994		$	1,164,382		(G)
Net written premium	856,746			51,325			908,071				799,816			39,172			838,988
Net earned premium	898,479			45,752			944,231				843,034			46,605			889,639

Ceding commission income	48,495			17,226			65,721				19,229			5,623			24,852
Service and fee income	162,170			1,285			146,270			(A)	146,098			(1,864		)	129,283			(H)
Net investment income	37,666			2,182			37,332			(B)	20,615			2,105			20,225			(I)
Net gain (loss) on investments	(4,689		)	(2,100		)	(6,789		)		2,755			(10		)	2,745
Total revenues	$	1,142,121		$	64,345		$	1,186,765		(C)	$	1,031,731		$	52,459		$	1,066,744		(J)

Expenses:
Loss and loss adjustment expense	$	664,125		$	36,297		$	700,422			$	625,862		$	31,064		$	656,926
Acquisition costs and other underwriting expenses	184,195			9,031			193,226				142,005			3,324			145,329
General and administrative expenses	242,340			21,724			246,879			(D)	228,601			18,540			232,190			(K)
Interest expense	12,650			2,516			12,650			(E)	12,496			2,495			12,496			(L)
Total expenses	$	1,103,310		$	69,568		$	1,153,177		(F)	$	1,008,964		$	55,423		$	1,046,941		(M)

Income (loss) before provision (benefit) for income taxes	$	38,811		$	(5,223	)	$	33,588			$	22,767		$	(2,964	)	$	19,803
Provision (benefit) for income taxes	12,595			2,628			15,223				24,822			(4,300		)	20,522
Net income (loss) before non-controlling interest and dividends on preferred shares	26,216			(7,851		)	18,365				(2,055		)	1,336			(719		)
Less: net income (loss) attributable to non-controlling interest	—			(7,851		)	(7,851		)		—			1,336			1,336
Net income (loss) before dividends on preferred shares	26,216			—			26,216				(2,055		)	—			(2,055		)
Less: dividends on preferred shares	8,867			—			8,867				7,875			—			7,875
Net income (loss) available to common stockholders	$	17,349		$	—		$	17,349			$	(9,930	)	$	—		$	(9,930	)

NOTES: Consolidated column includes eliminations as follows: (A) $(17,185), (B) $(2,516), (C) $(19,701), (D) $(17,185), (E) $(2,516), (F) $(19,701), || (G) $(800), (H) $(14,951), (I) $(2,495), (J) $(17,446), (K) $(14,951), (L) $(2,495) and (M) $(17,446).

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

	Year Ended December 31,
	2018										2017
	NGHC			Reciprocal Exchanges			Consolidated				NGHC			Reciprocal Exchanges			Consolidated
Revenues:
Gross written premium	$	4,969,517		$	448,923		$	5,416,839		(A)	$	4,375,414		$	383,773		$	4,755,985		(H)
Net written premium	3,644,148			183,565			3,827,713				3,401,946			175,649			3,577,595
Net earned premium	3,545,441			186,761			3,732,202				3,484,305			169,871			3,654,176

Ceding commission income	167,948			56,749			224,697				56,276			60,180			116,456
Service and fee income	625,463			5,751			561,583			(B)	552,580			5,794			502,927			(I)
Net investment income	119,852			8,875			119,034			(C)	102,229			9,325			101,950			(J)
Net gain (loss) on investments	(26,179		)	(3,366		)	(29,545		)		40,640			6,123			46,763
Other income (expense)	—			—			—				(198		)	—			(198		)
Total revenues	$	4,432,525		$	254,770		$	4,607,971		(D)	$	4,235,832		$	251,293		$	4,422,074		(K)

Expenses:
Loss and loss adjustment expense	$	2,499,508		$	162,718		$	2,662,226			$	2,506,242		$	119,840		$	2,626,082
Acquisition costs and other underwriting expenses	693,283			41,983			735,266				622,269			50,160			672,429
General and administrative expenses	923,921			83,756			938,046			(E)	887,472			80,971			912,996			(L)
Interest expense	51,425			9,693			51,425			(F)	47,086			9,604			47,086			(M)
Total expenses	$	4,168,137		$	298,150		$	4,386,963		(G)	$	4,063,069		$	260,575		$	4,258,593		(N)

Income (loss) before provision (benefit) for income taxes	$	264,388		$	(43,380	)	$	221,008			$	172,763		$	(9,282	)	$	163,481
Provision (benefit) for income taxes	57,034			(3,550		)	53,484				66,918			(5,645		)	61,273
Net income (loss) before non-controlling interest and dividends on preferred shares	207,354			(39,830		)	167,524				105,845			(3,637		)	102,208
Less: net income (loss) attributable to non-controlling interest	—			(39,830		)	(39,830		)		—			(3,637		)	(3,637		)
Net income before dividends on preferred shares	207,354			—			207,354				105,845			—			105,845
Less: dividends on preferred shares	32,492			—			32,492				31,500			—			31,500
Net income available to common stockholders	$	174,862		$	—		$	174,862			$	74,345		$	—		$	74,345

NOTES: Consolidated column includes eliminations as follows: (A) $(1,601), (B) $(69,631), (C) $(9,693), (D) $(79,324), (E) $(69,631), (F) $(9,693), (G) $(79,324), || (H) $(3,202), (I) $(55,447), (J) $(9,604), (K) $(65,051), (L) $(55,447), (M) $(9,604) and (N) $(65,051).

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

	Three Months Ended December 31,					Year EndedDecember 31,
	2018		2017			2018		2017
Net income (loss) available to common stockholders	$	17,349	$	(9,930	)	$	174,862	$	74,345
Basic net income (loss) per common share	$	0.16	$	(0.09	)	$	1.62	$	0.70
Diluted net income (loss) per common share	$	0.16	$	(0.09	)	$	1.59	$	0.68

Operating earnings attributable to NGHC (non-GAAP)(1)	$	33,590	$	29,974		$	231,495	$	118,065
Basic operating earnings per common share (non-GAAP)(1)	$	0.31	$	0.28		$	2.15	$	1.11
Diluted operating earnings per common share (non-GAAP)(1)	$	0.30	$	0.28		$	2.09	$	1.09

Dividends declared per common share	$	0.04	$	0.04		$	0.16	$	0.16

Weighted average number of basic shares outstanding	109,782,543		106,682,586			107,659,813		106,588,402
Weighted average number of diluted shares outstanding	112,947,180		108,793,184			110,822,056		108,752,262
Shares outstanding, end of period	112,940,595		106,697,648
Fully diluted shares outstanding, end of period	116,105,232		108,808,246
Book value per share	$	15.68	$	14.14
Fully diluted book value per share	$	15.25	$	13.86

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

	Three Months Ended December 31,						Year EndedDecember 31,
	2018			2017			2018			2017
Net income (loss) available to common stockholders	$	17,349		$	(9,930	)	$	174,862		$	74,345
Add (subtract):
Net (gain) loss on investments	4,689			(2,755		)	26,179			(40,640		)
Other (income) expense	10,000			—			10,000			198
Equity in (earnings) losses of equity method investments	(3,144		)	7,537			(165		)	8,795
Non-cash impairment of goodwill (non-deductible)	—			4,884			—			4,884
Non-cash amortization of intangible assets	7,926			9,428			31,323			51,729
Income tax expense (benefit)	(3,230		)	(4,973		)	(10,704		)	(7,029		)
Tax reform impact	—			25,783			—			25,783
Operating earnings attributable to NGHC (non-GAAP)(1)	$	33,590		$	29,974		$	231,495		$	118,065

Operating earnings per common share (non-GAAP):
Basic operating earnings per common share (non-GAAP)	$	0.31		$	0.28		$	2.15		$	1.11
Diluted operating earnings per common share (non-GAAP)	$	0.30		$	0.28		$	2.09		$	1.09

Balance Sheet$ in thousands(Unaudited)

	December 31, 2018										December 31, 2017
ASSETS	NGHC			Reciprocal Exchanges			Consolidated				NGHC			Reciprocal Exchanges		Consolidated
Total investments (2)	$	4,013,699		$	314,411		$	4,226,806		(A)	$	3,411,730		$	327,213	$	3,649,788		(H)
Cash and cash equivalents, including restricted cash	233,383			200			233,583				351,433			6,051		357,484
Premiums and other receivables, net	1,338,485			61,327			1,399,812				1,268,330			56,792		1,324,321			(I)
Reinsurance activity (3)	2,023,911			253,501			2,277,412				1,616,103			195,184		1,811,287
Intangible assets, net	376,532			3,405			379,937				400,385			3,685		404,070
Goodwill	180,183			—			180,183				174,153			—		174,153
Other (4)	739,068			27,879			741,547			(B)	705,321			29,174		718,640			(J)
Total assets	$	8,905,261		$	660,723		$	9,439,280		(C)	$	7,927,455		$	618,099	$	8,439,743		(K)
LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities:
Unpaid loss and loss adjustment expense reserves	$	2,778,689		$	178,470		$	2,957,159			$	2,520,204		$	143,353	$	2,663,557
Unearned premiums and other revenue	2,014,965			265,763			2,280,728				1,807,210			225,395		2,032,605
Reinsurance payable	615,872			40,393			656,265				329,772			69,076		398,047			(L)
Accounts payable and accrued expenses (5)	390,338			33,120			398,058			(D)	390,507			24,682		399,334			(M)
Debt	675,449			101,304			675,449			(E)	713,710			89,155		713,710			(N)
Other	209,110			61,640			270,750				237,483			41,582		279,065
Total liabilities	$	6,684,423		$	680,690		$	7,238,409		(F)	$	5,998,886		$	593,243	$	6,486,318		(O)
Stockholders’ equity:
Common stock (6)	$	1,129		$	—		$	1,129			$	1,067		$	—	$	1,067
Preferred stock (7)	450,000			—			450,000				420,000			—		420,000
Additional paid-in capital	1,057,783			—			1,057,783				917,751			—		917,751
Accumulated other comprehensive income (loss)	(52,130		)	—			(52,130		)		(8,112		)	—		(8,112		)
Retained earnings	764,056			—			764,056				597,863			—		597,863
Total National General Holdings Corp. stockholders’ equity	2,220,838			—			2,220,838				1,928,569			—		1,928,569
Non-controlling interest	—			(19,967		)	(19,967		)		—			24,856		24,856
Total stockholders’ equity	$	2,220,838		$	(19,967	)	$	2,200,871			$	1,928,569		$	24,856	$	1,953,425
Total liabilities and stockholders’ equity	$	8,905,261		$	660,723		$	9,439,280		(G)	$	7,927,455		$	618,099	$	8,439,743		(P)

NOTES: Consolidated column includes eliminations as follows: (A) $(101,304), (B) $(25,400), (C) $(126,704), (D) $(25,400), (E) $(101,304), (F) $(126,704), (G) $(126,704), || (H) $(89,155), (I) $(801), (J) $(15,855), (K) $(105,811), (L) $(801), (M) $(15,855), (N) $(89,155), (O) $(105,811) and (P) $(105,811).

Segment Information - Fourth Quarter$ in thousands(Unaudited)

	Three Months Ended December 31,
	2018												2017
	P&C			A&H			NGHC			ReciprocalExchanges			P&C			A&H			NGHC			Reciprocal Exchanges
Gross written premium	$	1,012,138		$	163,549		$	1,175,687		$	111,902		$	929,981		$	137,207		$	1,067,188		$	97,994
Net written premium	716,394			140,352			856,746			51,325			674,080			125,736			799,816			39,172
Net earned premium	747,457			151,022			898,479			45,752			709,256			133,778			843,034			46,605

Ceding commission income	42,281			6,214			48,495			17,226			19,000			229			19,229			5,623
Service and fee income	110,776			51,394			162,170			1,285			99,292			46,806			146,098			(1,864		)
Total underwriting revenues	$	900,514		$	208,630		$	1,109,144		$	64,263		$	827,548		$	180,813		$	1,008,361		$	50,364

Loss and loss adjustment expense (A)	595,144			68,981			664,125			36,297			545,726			80,136			625,862			31,064
Acquisition costs and other underwriting expenses	135,968			48,227			184,195			9,031			99,201			42,804			142,005			3,324
General and administrative expenses (B)	178,797			53,543			232,340			21,724			179,622			48,979			228,601			18,540
Total underwriting expenses	$	909,909		$	170,751		$	1,080,660		$	67,052		$	824,549		$	171,919		$	996,468		$	52,928

Underwriting income (loss)	(9,395		)	37,879			28,484			(2,789		)	2,999			8,894			11,893			(2,564		)
Non-cash impairment of goodwill	—			—			—			—			4,884			—			4,884			—
Non-cash amortization of intangible assets	5,835			2,091			7,926			111			4,852			4,576			9,428			(27		)
Underwriting income (loss) before amortization and impairment	$	(3,560	)	$	39,970		$	36,410		$	(2,678	)	$	12,735		$	13,470		$	26,205		$	(2,591	)

Underwriting ratios
Loss and loss adjustment expense ratio (8)	79.6		%	45.7		%	73.9		%	79.3		%	76.9		%	59.9		%	74.2		%	66.7		%
Operating expense ratio (Non-GAAP) (9,10)	21.6		%	29.2		%	22.9		%	26.8		%	22.6		%	33.4		%	24.4		%	38.8		%
Combined ratio (Non-GAAP) (9,11)	101.2		%	74.9		%	96.8		%	106.1		%	99.5		%	93.3		%	98.6		%	105.5		%

Underwriting ratios (before amortization and impairment)
Loss and loss adjustment expense ratio (8)	79.6		%	45.7		%	73.9		%	79.3		%	76.9		%	59.9		%	74.2		%	66.7		%
Operating expense ratio (Non-GAAP) (9,12)	20.9		%	27.9		%	22.0		%	26.5		%	21.3		%	30.0		%	22.7		%	38.9		%
Combined ratio before amortization and impairment (Non-GAAP) (9,13)	100.5		%	73.6		%	95.9		%	105.8		%	98.2		%	89.9		%	96.9		%	105.6		%

NOTE: (A) Loss and loss adjustment expenses for the three months ended December 31, 2018 included $8,558 of unfavorable development on prior accident year loss and loss adjustment expense reserves in the P&C segment, and $6,354 of favorable development in the A&H segment, versus $8,096 of unfavorable development in the P&C segment, and $1,280 of unfavorable development in the A&H segment for the three months ended December 31, 2017. (B) General and administrative expenses includes expenses allocated to segments only.

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

	Year Ended December 31,
	2018												2017
	P&C			A&H			NGHC			ReciprocalExchanges			P&C			A&H			NGHC			Reciprocal Exchanges
Gross written premium	$	4,271,408		$	698,109		$	4,969,517		$	448,923		$	3,794,012		$	581,402		$	4,375,414		$	383,773
Net written premium	3,017,609			626,539			3,644,148			183,565			2,866,650			535,296			3,401,946			175,649
Net earned premium	2,929,028			616,413			3,545,441			186,761			2,951,022			533,283			3,484,305			169,871

Ceding commission income	160,945			7,003			167,948			56,749			55,263			1,013			56,276			60,180
Service and fee income	439,483			185,980			625,463			5,751			397,966			154,614			552,580			5,794
Total underwriting revenues	$	3,529,456		$	809,396		$	4,338,852		$	249,261		$	3,404,251		$	688,910		$	4,093,161		$	235,845

Loss and loss adjustment expense (A)	2,178,163			321,345			2,499,508			162,718			2,187,779			318,463			2,506,242			119,840
Acquisition costs and other underwriting expenses	508,557			184,726			693,283			41,983			467,390			154,879			622,269			50,160
General and administrative expenses (B)	712,113			201,808			913,921			83,756			715,975			171,497			887,472			80,971
Total underwriting expenses	$	3,398,833		$	707,879		$	4,106,712		$	288,457		$	3,371,144		$	644,839		$	4,015,983		$	250,971

Underwriting income (loss)	130,623			101,517			232,140			(39,196		)	33,107			44,071			77,178			(15,126		)
Non-cash impairment of goodwill	—			—			—			—			4,884			—			4,884			—
Non-cash amortization of intangible assets	23,960			7,363			31,323			44			42,858			8,871			51,729			6,882
Underwriting income (loss) before amortization and impairment	$	154,583		$	108,880		$	263,463		$	(39,152	)	$	80,849		$	52,942		$	133,791		$	(8,244	)

Underwriting ratios
Loss and loss adjustment expense ratio (8)	74.4		%	52.1		%	70.5		%	87.1		%	74.1		%	59.7		%	71.9		%	70.5		%
Operating expense ratio (Non-GAAP) (9,10)	21.2		%	31.4		%	23.0		%	33.9		%	24.7		%	32.0		%	25.9		%	38.4		%
Combined ratio (Non-GAAP) (9,11)	95.6		%	83.5		%	93.5		%	121.0		%	98.8		%	91.7		%	97.8		%	108.9		%

Underwriting ratios (before amortization and impairment)
Loss and loss adjustment expense ratio (8)	74.4		%	52.1		%	70.5		%	87.1		%	74.1		%	59.7		%	71.9		%	70.5		%
Operating expense ratio (Non-GAAP) (9,12)	20.4		%	30.2		%	22.1		%	33.8		%	23.1		%	30.4		%	24.2		%	34.3		%
Combined ratio before amortization and impairment (Non-GAAP) (9,13)	94.8		%	82.3		%	92.6		%	120.9		%	97.2		%	90.1		%	96.1		%	104.8		%

NOTE: (A) Loss and loss adjustment expenses for the year ended December 31, 2018 included $4,760 of favorable development on prior accident year loss and loss adjustment expense reserves in the P&C segment, and $30,977 of favorable development in the A&H segment, versus $15,273 of unfavorable development in the P&C segment, and $8,826 of favorable development in the A&H segment for the year ended December 31, 2017.(B) General and administrative expenses includes expenses allocated to segments only.

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

	Three Months Ended December 31,
	2018												2017
	P&C			A&H			NGHC			Reciprocal Exchanges			P&C			A&H			NGHC			Reciprocal Exchanges
Total underwriting expenses	$	909,909		$	170,751		$	1,080,660		$	67,052		$	824,549		$	171,919		$	996,468		$	52,928
Less: Loss and loss adjustment expense	595,144			68,981			664,125			36,297			545,726			80,136			625,862			31,064
Less: Ceding commission income	42,281			6,214			48,495			17,226			19,000			229			19,229			5,623
Less: Service and fee income	110,776			51,394			162,170			1,285			99,292			46,806			146,098			(1,864		)
Operating expense	161,708			44,162			205,870			12,244			160,531			44,748			205,279			18,105
Net earned premium	$	747,457		$	151,022		$	898,479		$	45,752		$	709,256		$	133,778		$	843,034		$	46,605
Operating expense ratio (Non-GAAP)	21.6		%	29.2		%	22.9		%	26.8		%	22.6		%	33.4		%	24.4		%	38.8		%

Total underwriting expenses	$	909,909		$	170,751		$	1,080,660		$	67,052		$	824,549		$	171,919		$	996,468		$	52,928
Less: Loss and loss adjustment expense	595,144			68,981			664,125			36,297			545,726			80,136			625,862			31,064
Less: Ceding commission income	42,281			6,214			48,495			17,226			19,000			229			19,229			5,623
Less: Service and fee income	110,776			51,394			162,170			1,285			99,292			46,806			146,098			(1,864		)
Less: Non-cash impairment of goodwill	—			—			—			—			4,884			—			4,884			—
Less: Non-cash amortization of intangible assets	5,835			2,091			7,926			111			4,852			4,576			9,428			(27		)
Operating expense before amortization and impairment	155,873			42,071			197,944			12,133			150,795			40,172			190,967			18,132
Net earned premium	$	747,457		$	151,022		$	898,479		$	45,752		$	709,256		$	133,778		$	843,034		$	46,605
Operating expense ratio before amortization and impairment (Non-GAAP)	20.9		%	27.9		%	22.0		%	26.5		%	21.3		%	30.0		%	22.7		%	38.9		%

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

	Year Ended December 31,
	2018												2017
	P&C			A&H			NGHC			Reciprocal Exchanges			P&C			A&H			NGHC			Reciprocal Exchanges
Total underwriting expenses	$	3,398,833		$	707,879		$	4,106,712		$	288,457		$	3,371,144		$	644,839		$	4,015,983		$	250,971
Less: Loss and loss adjustment expense	2,178,163			321,345			2,499,508			162,718			2,187,779			318,463			2,506,242			119,840
Less: Ceding commission income	160,945			7,003			167,948			56,749			55,263			1,013			56,276			60,180
Less: Service and fee income	439,483			185,980			625,463			5,751			397,966			154,614			552,580			5,794
Operating expense	620,242			193,551			813,793			63,239			730,136			170,749			900,885			65,157
Net earned premium	$	2,929,028		$	616,413		$	3,545,441		$	186,761		$	2,951,022		$	533,283		$	3,484,305		$	169,871
Operating expense ratio (Non-GAAP)	21.2		%	31.4		%	23.0		%	33.9		%	24.7		%	32.0		%	25.9		%	38.4		%

Total underwriting expenses	$	3,398,833		$	707,879		$	4,106,712		$	288,457		$	3,371,144		$	644,839		$	4,015,983		$	250,971
Less: Loss and loss adjustment expense	2,178,163			321,345			2,499,508			162,718			2,187,779			318,463			2,506,242			119,840
Less: Ceding commission income	160,945			7,003			167,948			56,749			55,263			1,013			56,276			60,180
Less: Service and fee income	439,483			185,980			625,463			5,751			397,966			154,614			552,580			5,794
Less: Non-cash impairment of goodwill	—			—			—			—			4,884			—			4,884			—
Less: Non-cash amortization of intangible assets	23,960			7,363			31,323			44			42,858			8,871			51,729			6,882
Operating expense before amortization and impairment	596,282			186,188			782,470			63,195			682,394			161,878			844,272			58,275
Net earned premium	$	2,929,028		$	616,413		$	3,545,441		$	186,761		$	2,951,022		$	533,283		$	3,484,305		$	169,871
Operating expense ratio before amortization and impairment (Non-GAAP)	20.4		%	30.2		%	22.1		%	33.8		%	23.1		%	30.4		%	24.2		%	34.3		%

Premiums by Business Line$ in thousands(Unaudited)

	Three Months Ended December 31,
	Gross Written Premium					Net Written Premium					Net Earned Premium
	2018		2017		Change	2018		2017		Change	2018		2017		Change
Property & Casualty
Personal Auto	$	619,180	$	574,179	7.8%	$	474,173	$	437,908	8.3%	$	490,874	$	450,552	8.9%
Homeowners	164,698		139,848		17.8%	75,830		57,423		32.1%	87,689		66,968		30.9%
RV/Packaged	43,967		40,195		9.4%	43,806		39,737		10.2%	51,347		46,182		11.2%
Small Business Auto	72,851		70,396		3.5%	52,142		50,495		3.3%	59,285		57,998		2.2%
Lender-placed insurance	103,061		94,263		9.3%	67,439		83,186		(18.9)%	53,182		80,005		(33.5)%
Other	8,381		11,100		(24.5)%	3,004		5,331		(43.7)%	5,080		7,551		(32.7)%
Property & Casualty	1,012,138		929,981		8.8%	716,394		674,080		6.3%	747,457		709,256		5.4%

Accident & Health	163,549		137,207		19.2%	140,352		125,736		11.6%	151,022		133,778		12.9%
Total National General	$	1,175,687	$	1,067,188	10.2%	$	856,746	$	799,816	7.1%	$	898,479	$	843,034	6.6%

Reciprocal Exchanges
Personal Auto	$	36,527	$	30,424	20.1%	$	20,899	$	17,052	22.6%	$	21,111	$	18,042	17.0%
Homeowners	74,421		66,844		11.3%	30,049		21,649		38.8%	24,228		28,115		(13.8)%
Other	954		726		31.4%	377		471		(20.0)%	413		448		(7.8)%
Reciprocal Exchanges	$	111,902	$	97,994	14.2%	$	51,325	$	39,172	31.0%	$	45,752	$	46,605	(1.8)%

Consolidated Total (A)	$	1,287,589	$	1,164,382	10.6%	$	908,071	$	838,988	8.2%	$	944,231	$	889,639	6.1%

NOTES: (A) Consolidated Total includes eliminations between National General and the Reciprocal Exchanges of $(254) in Personal Auto and $(546) in Homeowners Gross Written Premium in 2017, respectively.

Premiums by Business Line$ in thousands(Unaudited)

	Year Ended December 31,
	Gross Written Premium					Net Written Premium					Net Earned Premium
	2018		2017		Change	2018		2017		Change	2018		2017		Change
Property & Casualty
Personal Auto	$	2,637,743	$	2,335,958	12.9%	$	2,016,858	$	1,824,932	10.5%	$	1,927,667	$	1,828,304	5.4%
Homeowners	689,040		560,909		22.8%	331,120		275,013		20.4%	329,850		349,709		(5.7)%
RV/Packaged	208,394		187,475		11.2%	206,740		185,993		11.2%	197,258		175,888		12.1%
Small Business Auto	319,299		316,958		0.7%	233,456		246,072		(5.1)%	237,587		251,576		(5.6)%
Lender-placed insurance	363,056		345,354		5.1%	202,069		313,124		(35.5)%	215,811		321,995		(33.0)%
Other	53,876		47,358		13.8%	27,366		21,516		27.2%	20,855		23,550		(11.4)%
Property & Casualty	4,271,408		3,794,012		12.6%	3,017,609		2,866,650		5.3%	2,929,028		2,951,022		(0.7)%

Accident & Health	698,109		581,402		20.1%	626,539		535,296		17.0%	616,413		533,283		15.6%
Total National General	$	4,969,517	$	4,375,414	13.6%	$	3,644,148	$	3,401,946	7.1%	$	3,545,441	$	3,484,305	1.8%

Reciprocal Exchanges
Personal Auto	$	153,129	$	132,844	15.3%	$	61,759	$	68,292	(9.6)%	$	59,923	$	66,565	(10.0)%
Homeowners	291,907		247,460		18.0%	120,875		105,536		14.5%	125,806		101,648		23.8%
Other	3,887		3,469		12.0%	931		1,821		(48.9)%	1,032		1,658		(37.8)%
Reciprocal Exchanges	$	448,923	$	383,773	17.0%	$	183,565	$	175,649	4.5%	$	186,761	$	169,871	9.9%

Consolidated Total (A)	$	5,416,839	$	4,755,985	13.9%	$	3,827,713	$	3,577,595	7.0%	$	3,732,202	$	3,654,176	2.1%

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, and $(1,120) in Personal Auto and $(2,082) in Homeowners Gross Written Premium in 2017, 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 $233,723 and $347,548 in related parties at December 31, 2018 and December 31, 2017, respectively.

(3) Reinsurance activity includes $7,425 and $15,688 from related parties at December 31, 2018 and December 31, 2017, respectively.

(4) Other includes $2,362 and $2,334 from related parties at December 31, 2018 and December 31, 2017, respectively.

(5) Accounts payable and accrued expenses includes $69,874 and $140,057 to related parties at December 31, 2018 and December 31, 2017, respectively.

(6) Common stock: $0.01 par value - authorized 150,000,000 shares, issued and outstanding 112,940,595 shares - December 31, 2018; authorized 150,000,000 shares, issued and outstanding 106,697,648 shares - December 31, 2017.

(7) Preferred stock: $0.01 par value - authorized 10,000,000 shares, issued and outstanding 2,565,120 shares - December 31, 2018; authorized 10,000,000 shares, issued and outstanding 2,565,000 shares - December 31, 2017.

(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, service and fee income and significant corporate litigation expenses. 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, service and fee income and significant corporate litigation expenses. 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, service and fee income and significant corporate litigation expenses 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 Q4'18 weather-related events, and is calculated by taking the combined ratio as defined in Note 13, and adjusting it to exclude the total net losses of $59.0 million from these events. The company believes this measure enhances investors’ understanding of our results by eliminating what we believe are volatile and unusual events.

	Q4'18 Combined Ratio	Impact of Q4'18 Weather-related Events	Q4'18 Combined Ratio Excluding Weather-related Events
P&C Segment	100.5%	7.9%	92.6%

Overall NGHC	95.9%	6.6%	89.3%