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% |
Investor Contact
Christine WorleyDirector of Investor
RelationsPhone: 212-380-9462Email: Christine.Worley@NGIC.com
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