NGHC National General Holdings Corporation

National General Holdings Corp. (Nasdaq:NGHC) reported third quarter 2019 net income of $63.3 million or $0.54 per diluted share, compared to net income of $60.5 million or $0.55 per diluted share in the third quarter of 2018. Third quarter 2019 operating earnings (non-GAAP)(1) was $68.2 million or $0.59 per diluted share compared to $70.8 million or $0.65 per diluted share in the third quarter of 2018.

Third Quarter 2019 Highlights versus Third Quarter 2018*

• Gross written premium grew $82.6 million or 6.7% to $1,316.9 million driven by continued underlying organic growth in our P&C segment of 3.1% and the acquisition of National Farmers Union Property and Casualty Company (“Farmers Union Insurance”) which closed on August 1, 2019, and continued organic growth in our A&H segment of 12.9%.
• The overall combined ratio(12,13) was 92.5% compared to 91.3% in the prior year’s quarter, excluding non-cash amortization of intangible assets. The P&C segment reported an increase in combined ratio to 97.0% from 94.4% in the prior year’s quarter. The combined ratio includes prior year unfavorable development of $14.9 million compared to $7.2 million unfavorable in the prior year’s quarter, higher non-catastrophe weather losses predominantly in the Midwest, and $11.5 million of catastrophe losses related to weather-related events compared to $35.0 million of catastrophe losses in the prior year’s quarter. The A&H segment reported a decrease in combined ratio to 70.2% from 77.0% in the prior year’s quarter, driven by strong operating results in our small group self-funded and individual products and higher third party fees.
• Service and fee income grew 11.8% to $179.3 million, driven by organic growth primarily in our group administration fees and third party technology services fees within our A&H segment.
• Stockholders’ equity was $2.56 billion and fully diluted book value per share was $18.16 at September 30, 2019, growth of 15.3% and 19.1%, respectively, from December 31, 2018. Our trailing twelve-month operating return on average equity (ROE)(14) was 14.5% as of September 30, 2019.
• Third quarter 2019 operating earnings (non-GAAP)(1) excludes the following, net of tax: $1.0 million or $0.01 per share loss on equity method investments, $0.3 million of net loss on investments, $5.4 million or $0.05 per share of non-cash amortization of intangible assets and $1.7 million or $0.01 per share bargain purchase gain on the acquisition of Farmers Union Insurance.

Barry Karfunkel, National General’s CEO, stated: “Our third quarter 2019 results generated a 92.5% combined ratio which highlights the diverse capabilities of our platform. While our P&C segment earnings were negatively impacted by non-catastrophe weather events within our homeowners product line and reserve strengthening within our small business auto product line, our personal auto line continued its strong performance via both our independent agency and direct to consumer distribution channels. Our A&H segment reported record profitability and growth in the quarter, utilizing our suite of products and owned distribution. I am pleased with the continued execution of our strategy of focused underwriting discipline and long term growth initiatives.”

*NOTE: Unless specified otherwise, discussion of our third quarter 2019 and 2018 results do not include financial results from the Reciprocal Exchanges, which are presented within our consolidated financial results within this release but are not included in net income available to NGHC common stockholders.

Overview of Third Quarter 2019 as Compared to Third Quarter 2018

• Property & Casualty - Gross written premium grew by 5.9% to $1,154.3 million, net written premium increased by 4.5% to $820.0 million, and net earned premium increased by 11.7% to $827.6 million. P&C gross written premium growth was primarily driven by organic growth of 3.1% and $29.9 million or 2.8% of added premiums from the acquisition of Farmers Union Insurance. Service and fee income was $115.6 million compared to $114.0 million in the prior year’s quarter. Excluding non-cash amortization of intangible assets, the combined ratio(12,13) was 97.0% with a loss and LAE ratio of 75.8% and an expense ratio(11,13) of 21.2%, versus a prior year combined ratio of 94.4% with a loss and LAE ratio of 73.5% and an expense ratio of 20.9%. The loss and LAE ratio was impacted by pre-tax catastrophe losses of approximately $11.5 million primarily related to weather-related events in the third quarter 2019, compared to $35.0 million of losses in the third quarter 2018 and higher non-catastrophe weather losses. Unfavorable loss development was $14.9 million in the third quarter 2019 primarily driven by small business auto, compared to unfavorable loss development of $7.2 million in the third quarter 2018. 
• Accident & Health - Gross written premium grew by 12.9% to $162.6 million, net written premium grew by 19.2% to $147.3 million, and net earned premium grew by 8.7% to $168.9 million. The A&H gross written premium increase was driven by continued growth in our domestic A&H business. Service and fee income grew 37.2% to $63.7 million compared to $46.5 million in the prior year’s quarter, primarily driven by group administration fees and third party technology services fees which included a $5.8 million pre-tax sale of a software license to a third party. Excluding non-cash amortization of intangible assets, the combined ratio(12,13) was 70.2% with a loss and LAE ratio of 41.8% and an expense ratio(11,13) of 28.4%, versus a prior year combined ratio of 77.0% with a loss and LAE ratio of 46.8% and an expense ratio of 30.2%. The loss and LAE ratio reflects continued strong performance in both small group self-funded and individual products. Favorable loss development was $18.8 million in the third quarter 2019, compared to favorable loss development of $13.2 million in the third quarter 2018. 
• Reciprocal Exchanges - Results for the Reciprocal Exchanges are not included in net income available to NGHC common stockholders. Gross written premium was $118.3 million, net written premium was $67.3 million, and net earned premium was $57.1 million. Reciprocal Exchanges combined ratio(12,13) excluding non-cash amortization of intangible assets was 123.8% with a loss and LAE ratio of 82.8% and an expense ratio(11,13) of 41.0%.The loss and LAE ratio was impacted by higher non-catastrophe weather losses.

Third quarter 2019 investment income grew to $33.5 million, compared to $31.0 million in the third quarter of 2018. Total investments and cash and cash equivalents (including restricted cash) were $4.8 billion as of September 30, 2019. Accumulated other comprehensive income (loss) increased to a $80.4 million gain at September 30, 2019 from a $52.1 million loss at December 31, 2018, primarily due to the impact of lower interest rates which positively impacted bond valuations.

Interest expense was $12.9 million, up from $12.6 million in the prior year’s quarter. Debt was $688.0 million at September 30, 2019, down from $705.8 million at December 31, 2018.

On August 1, 2019, we closed the acquisition of all of the issued and outstanding shares of capital stock of Farmers Union Insurance from a subsidiary of QBE Insurance Group. The purchase price for the transaction was $52.8 million, subject to customary post-closing adjustments. The net assets acquired exceeded the amount paid by the Company and, as a result, we recorded a pre-tax bargain purchase gain of $2.1 million.

The third quarter of 2019 provision for income taxes was $19.3 million and the effective tax rate for the quarter was 21.3% compared with income taxes of $16.4 million and an effective rate of 19.4% in the third quarter of 2018.

Stockholders’ equity was $2,559.8 million at September 30, 2019, growth of 15.3% from $2,220.8 million at December 31, 2018. Fully diluted book value per share was $18.16 at September 30, 2019, growth of 19.1% from $15.25 at December 31, 2018. Our trailing twelve-month operating return on average equity (ROE)(14) was 14.5% as of September 30, 2019.

Year-to-Date P&C Segment Notable Large Losses
Year												Quarter		Event		P&C Notable Large Losses and LAE($ millions)			P&C Loss and LAE Ratio Points*			EPS Impact After Tax
2019												Q3		Weather-related Events		$	11.5		1.4	%		$	0.08
2019												Q2		Weather-related Events		$	18.4		2.2	%		$	0.13
2019												Q1		Winter Weather		$	12.1		1.6	%		$	0.08
2018												Q3		California Fires and Hurricane Florence		$	35.0		4.7	%		$	0.25
2018												Q2		Spring Weather-related and Texas Hail Events		$	20.5		2.8	%		$	0.15
2018												Q1		Winter Weather		$	14.2		2.0	%		$	0.10

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

Additional Item

• National General Enters into Business Share Purchase Agreement with an Investor Group Arranged by Impilo AB. - On August 30, 2019, we entered into a share purchase agreement, pursuant to which, subject to the satisfaction or waiver of the conditions set forth therein, we agreed to sell our Euro Accident Health and Care Insurance Sweden operation, to an investor group arranged by Impilo AB, a Swedish investment company focused on Nordic healthcare investments. The estimated sale price for this transaction is $138 million. Since this transaction is based on Swedish Krona (SEK) and will reflect certain closing adjustments, the final price will vary accordingly. The transaction is expected to close in late 2019 or early 2020, subject to customary closing conditions and regulatory approvals.

Conference Call

On Thursday, October 31, 2019 at 9:00 AM ET, Chief Executive Officer Barry Karfunkel and Chief Financial Officer Mike Weiner will review results and discuss business conditions via a conference call that may be accessed as follows:

800 Access Number:973 Access Number:Conference Entry Code:Webcast Registration:		800-346-7359973-528-0008313533http://ir.nationalgeneral.com/events-and-presentations

A replay of the conference call will be accessible from 2:00 PM ET on Thursday, October 31, 2019 to 11:59 PM ET on Thursday, November 14, 2019 by dialing either 800-332-6854 (toll-free) within the U.S. or 973-528-0005 outside the U.S. and entering passcode 313533. In addition, a replay of the webcast can also be retrieved at http://ir.nationalgeneral.com/events-and-presentations.

About National General Holdings Corp.

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

Forward Looking Statements

This news release contains “forward-looking statements” that are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. The forward-looking statements are based on the Company’s current expectations and beliefs concerning future developments and their potential effects on the Company. Forward-looking statements can generally be identified by the use of forward-looking terminology, such as “may,” “will,” “plan,” “expect,” “project,” “intend,” “estimate,” “anticipate” and “believe” or their variations or similar terminology. There can be no assurance that actual developments will be those anticipated by the Company. Actual results may differ materially from those expressed or implied in these statements as a result of significant risks and uncertainties, including, but not limited to, non-receipt of expected payments from insureds or reinsurers, changes in interest rates, a downgrade in the financial strength ratings of our insurance subsidiaries, the effect of the performance of financial markets on our investment portfolio, our ability to accurately underwrite and price our products and to maintain and establish accurate loss reserves, estimates of the fair value of investments, development of claims and the effect on loss reserves, large loss activity including hurricanes and wildfires, the cost and availability of reinsurance coverage, the effects of emerging claim and coverage issues, the effect of unpredictable catastrophic losses, changes in the demand for our products, our degree of success in integrating acquired businesses, the effect of general economic conditions, state and federal legislation, the effects of tax reform, regulations and regulatory investigations into industry practices, risks associated with conducting business outside the United States, developments relating to existing agreements, disruptions to our business relationships with third party vendors or agencies, breaches in data security or other disruptions involving our technology, heightened competition, changes in pricing environments, and changes in asset valuations. The forward-looking statements contained in this news release are made only as of the date of this release. The Company undertakes no obligation to publicly update any forward-looking statement except as may be required by law. Additional information about these risks and uncertainties, as well as others that may cause actual results to differ materially from those projected is contained in the Company’s filings with the Securities and Exchange Commission.

Income Statement - Third Quarter$ in thousands(Unaudited)

		Three Months Ended September 30,
		2019													2018
		NGHC				Reciprocal Exchanges				Consolidated					NGHC				Reciprocal Exchanges				Consolidated
Revenues:
Gross written premium		$	1,316,890			$	118,267			$	1,435,157				$	1,234,320			$	121,351			$	1,355,671
Net written premium		967,319				67,285				1,034,604					908,210				14,814				923,024
Net earned premium		996,521				57,117				1,053,638					896,376				43,151				939,527
Ceding commission income		42,521				15,066				57,587					44,513				14,587				59,100
Service and fee income		179,293				1,585				161,626			(A)		160,425				1,575				142,690			(G)
Net investment income		33,451				2,160				33,740			(B)		30,984				2,344				30,696			(H)
Net loss on investments		(428		)		(137		)		(565		)			(3,003		)		(167		)		(3,170		)
Other income		2,146				—				2,146					—				—				—
Total revenues		$	1,253,504			$	75,791			$	1,308,172		(C)		$	1,129,295			$	61,490			$	1,168,843		(I)
Expenses:
Loss and loss adjustment expense		$	698,064			$	47,270			$	745,334				$	617,098			$	40,212			$	657,310
Acquisition costs and other underwriting expenses		193,521				15,569				209,090					180,180				11,290				191,470
General and administrative expenses		258,583				24,533				263,864			(D)		234,626				20,417				235,733			(J)
Interest expense		12,898				1,871				12,898			(E)		12,583				2,632				12,583			(K)
Total expenses		$	1,163,066			$	89,243			$	1,231,186		(F)		$	1,044,487			$	74,551			$	1,097,096		(L)
Income (loss) before provision (benefit) for income taxes		$	90,438			$	(13,452	)		$	76,986				$	84,808			$	(13,061	)		$	71,747
Provision (benefit) for income taxes		19,284				(2,537		)		16,747					16,426				(908		)		15,518
Net income (loss) before non-controlling interest and dividends on preferred shares		71,154				(10,915		)		60,239					68,382				(12,153		)		56,229
Less: net income (loss) attributable to noncontrolling interest		—				(10,915		)		(10,915		)			—				(12,153		)		(12,153		)
Net income before dividends on preferred shares		71,154				—				71,154					68,382				—				68,382
Less: dividends on preferred shares		7,875				—				7,875					7,875				—				7,875
Net income available to common stockholders		$	63,279			$	—			$	63,279				$	60,507			$	—			$	60,507

NOTES: Consolidated column includes eliminations as follows: (A) $(19,252), (B) $(1,871), (C) $(21,123), (D) $(19,252), (E) $(1,871), (F) $(21,123) || (G) $(19,310), (H) $(2,632), (I) $(21,942), (J) $(19,310), (K) $(2,632) and (L) $(21,942).

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

		Nine Months Ended September 30,
		2019													2018
		NGHC				Reciprocal Exchanges				Consolidated					NGHC				Reciprocal Exchanges				Consolidated
Revenues:
Gross written premium		$	3,913,861			$	344,982			$	4,258,843				$	3,793,830			$	337,021			$	4,129,250		(G)
Net written premium		3,022,206				172,460				3,194,666					2,787,402				132,240				2,919,642
Net earned premium		2,899,041				149,405				3,048,446					2,646,962				141,009				2,787,971
Ceding commission income		136,867				50,446				187,313					119,453				39,523				158,976
Service and fee income		525,730				4,471				476,041			(A)		463,293				4,466				415,313			(H)
Net investment income		103,683				6,454				102,316			(B)		82,186				6,693				81,702			(I)
Net loss on investments		(4,936		)		(837		)		(5,773		)			(21,490		)		(1,266		)		(22,756		)
Other income		2,146				—				2,146					—				—				—
Total revenues		$	3,662,531			$	209,939			$	3,810,489		(C)		$	3,290,404			$	190,425			$	3,421,206		(J)
Expenses:
Loss and loss adjustment expense		$	1,988,094			$	124,584			$	2,112,678				$	1,835,383			$	126,421			$	1,961,804
Acquisition costs and other underwriting expenses		582,805				32,329				615,134					509,088				32,952				542,040
General and administrative expenses		746,243				67,642				759,725			(D)		681,581				62,032				691,167			(K)
Interest expense		38,822				7,821				38,822			(E)		38,775				7,177				38,775			(L)
Total expenses		$	3,355,964			$	232,376			$	3,526,359		(F)		$	3,064,827			$	228,582			$	3,233,786		(M)
Income (loss) before provision (benefit) for income taxes		$	306,567			$	(22,437	)		$	284,130				$	225,577			$	(38,157	)		$	187,420
Provision (benefit) for income taxes		65,779				(4,285		)		61,494					44,439				(6,178		)		38,261
Net income (loss) before non-controlling interest and dividends on preferred shares		240,788				(18,152		)		222,636					181,138				(31,979		)		149,159
Less: net income (loss) attributable to noncontrolling interest		—				(18,152		)		(18,152		)			—				(31,979		)		(31,979		)
Net income before dividends on preferred shares		240,788				—				240,788					181,138				—				181,138
Less: dividends on preferred shares		24,675				—				24,675					23,625				—				23,625
Net income available to common stockholders		$	216,113			$	—			$	216,113				$	157,513			$	—			$	157,513

NOTES: Consolidated column includes eliminations as follows: (A) $(54,160), (B) $(7,821), (C) $(61,981), (D) $(54,160), (E) $(7,821), (F) $(61,981) || (G) $(1,601), (H) $(52,446), (I) $(7,177), (J) $(59,623), (K) $(52,446), (L) $(7,177) and (M) $(59,623).

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

	Three Months Ended September 30,								Nine Months Ended September 30,
	2019				2018				2019				2018
Net income available to common stockholders	$	63,279			$	60,507			$	216,113			$	157,513
Basic net income per common share	$	0.56			$	0.56			$	1.91			$	1.47
Diluted net income per common share	$	0.54			$	0.55			$	1.87			$	1.44
Operating earnings attributable to NGHC (non-GAAP)(1)	$	68,237			$	70,798			$	236,093			$	197,905
Basic operating earnings per common share (non-GAAP)(1)	$	0.60			$	0.66			$	2.09			$	1.85
Diluted operating earnings per common share (non-GAAP)(1)	$	0.59			$	0.65			$	2.03			$	1.81
Dividends declared per common share	$	0.05			$	0.04			$	0.13			$	0.12
Weighted average number of basic shares outstanding	113,263,367				107,101,837				113,153,121				106,944,461
Weighted average number of diluted shares outstanding	116,138,489				109,563,392				116,087,524				109,315,780
Shares outstanding, end of period	113,313,042				107,132,560
Fully diluted shares outstanding, end of period	116,188,164				109,594,115
Book value per share	$	18.62			$	15.00
Fully diluted book value per share	$	18.16			$	14.66

Reconciliation of Net Income to Operating Earnings (Non-GAAP)(1)(14)$ in thousands, except per share data(Unaudited)

		Three Months Ended September 30,								Nine Months Ended September 30,
		2019				2018				2019				2018
Net income available to common stockholders		$	63,279			$	60,507			$	216,113			$	157,513
Add (subtract):
Equity in losses of equity method investments		1,205				676				1,408				2,979
Net loss on investments		428				3,003				4,936				21,490
Non-cash amortization of intangible assets		6,788				8,260				21,093				23,397
Other income (bargain purchase gain)		(2,146		)		—				(2,146		)		—
Income tax expense (benefit)		(1,317		)		(1,648		)		(5,311		)		(7,474		)
Operating earnings attributable to NGHC (non-GAAP)(1)		$	68,237			$	70,798			$	236,093			$	197,905
Operating earnings per common share (non-GAAP)(1):
Basic operating earnings per common share (non-GAAP)(1)		$	0.60			$	0.66			$	2.09			$	1.85
Diluted operating earnings per common share (non-GAAP)(1)		$	0.59			$	0.65			$	2.03			$	1.81

Balance Sheet$ in thousands(Unaudited)

		September 30, 2019													December 31, 2018
ASSETS		NGHC				Reciprocal Exchanges				Consolidated					NGHC				Reciprocal Exchanges				Consolidated
Total investments (2)		$	4,612,272			$	334,398			$	4,839,252		(A)		$	4,013,699			$	314,411			$	4,226,806		(H)
Cash and cash equivalents, including restricted cash		226,888				434				227,322					233,383				200				233,583
Premiums and other receivables, net		1,478,586				62,540				1,541,126					1,338,485				61,327				1,399,812
Reinsurance balances (3)		1,909,583				238,234				2,147,817					2,023,911				253,501				2,277,412
Intangible assets, net		388,953				3,270				392,223					376,532				3,405				379,937
Goodwill		181,587				—				181,587					180,183				—				180,183
Other (4)		751,970				25,806				744,669			(B)		739,068				27,879				741,547			(I)
Total assets		$	9,549,839			$	664,682			$	10,073,996		(C)		$	8,905,261			$	660,723			$	9,439,280		(J)
LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities:
Unpaid loss and loss adjustment expense reserves		$	2,845,799			$	193,456			$	3,039,255				$	2,778,689			$	178,470			$	2,957,159
Unearned premiums and other revenue		2,184,938				265,538				2,450,476					2,014,965				265,763				2,280,728
Reinsurance payable		629,300				44,424				673,724					615,872				40,393				656,265
Accounts payable and accrued expenses (5)		312,475				38,307				317,675			(D)		390,338				33,120				398,058			(K)
Debt		687,978				107,418				687,978			(E)		705,795				101,304				705,795			(L)
Other		329,515				43,754				373,269					178,764				61,640				240,404
Total liabilities		$	6,990,005			$	692,897			$	7,542,377		(F)		$	6,684,423			$	680,690			$	7,238,409		(M)
Stockholders’ equity:
Common stock (6)		$	1,133			$	—			$	1,133				$	1,129			$	—			$	1,129
Preferred stock (7)		450,000				—				450,000					450,000				—				450,000
Additional paid-in capital		1,062,859				—				1,062,859					1,057,783				—				1,057,783
Accumulated other comprehensive income (loss)		80,387				—				80,387					(52,130		)		—				(52,130		)
Retained earnings		965,455				—				965,455					764,056				—				764,056
Total National General Holdings Corp. stockholders’ equity		2,559,834				—				2,559,834					2,220,838				—				2,220,838
Noncontrolling interest		—				(28,215		)		(28,215		)			—				(19,967		)		(19,967		)
Total stockholders’ equity		$	2,559,834			$	(28,215	)		$	2,531,619				$	2,220,838			$	(19,967	)		$	2,200,871
Total liabilities and stockholders’ equity		$	9,549,839			$	664,682			$	10,073,996		(G)		$	8,905,261			$	660,723			$	9,439,280		(N)

NOTES: Consolidated column includes eliminations as follows: (A) $(107,418), (B) $(33,107), (C) $(140,525), (D) $(33,107), (E) $(107,418), (F) $(140,525), (G) $(140,525) || (H) $(101,304), (I) $(25,400), (J) $(126,704), (K) $(25,400), (L) $(101,304), (M) $(126,704) and (N) $(126,704).

Segment Information - Third Quarter$ in thousands(Unaudited)

		Three Months Ended September 30,
		2019																		2018
		P&C				A&H				NGHC					ReciprocalExchanges					P&C				A&H				NGHC					Reciprocal Exchanges
Gross written premium		$	1,154,335			$	162,555			$	1,316,890				$	118,267				$	1,090,372			$	143,948			$	1,234,320				$	121,351
Net written premium		819,970				147,349				967,319					67,285					784,634				123,576				908,210					14,814
Net earned premium		827,618				168,903				996,521					57,117					741,030				155,346				896,376					43,151
Ceding commission income		40,260				2,261				42,521					15,066					44,244				269				44,513					14,587
Service and fee income		115,557				63,736				179,293					1,585					113,967				46,458				160,425					1,575
Total underwriting revenues		$	983,435			$	234,900			$	1,218,335				$	73,768				$	899,241			$	202,073			$	1,101,314				$	59,313
Loss and loss adjustment expense		627,452				70,612				698,064					47,270					544,446				72,652				617,098					40,212
Acquisition costs and other underwriting expenses		146,307				47,214				193,521					15,569					135,406				44,774				180,180					11,290
General and administrative expenses		190,286				68,297				258,583					24,533					184,101				50,525				234,626					20,417
Total underwriting expenses		$	964,045			$	186,123			$	1,150,168				$	87,372				$	863,953			$	167,951			$	1,031,904				$	71,919
Underwriting income (loss)		19,390				48,777				68,167					(13,604		)			35,288				34,122				69,410					(12,606		)
Non-cash amortization of intangible assets		5,257				1,531				6,788					18					6,546				1,714				8,260					(14		)
Underwriting income (loss) before amortization and impairment		$	24,647			$	50,308			$	74,955				$	(13,586	)			$	41,834			$	35,836			$	77,670				$	(12,620	)
Underwriting ratios
Loss and loss adjustment expense ratio (8)		75.8		%		41.8		%		70.1		%			82.8		%			73.5		%		46.8		%		68.8		%			93.2		%
Operating expense ratio (Non-GAAP) (9)		21.8		%		29.3		%		23.1		%			41.1		%			21.8		%		31.3		%		23.4		%			36.0		%
Combined ratio (Non-GAAP) (10)		97.6		%		71.1		%		93.2		%			123.9		%			95.3		%		78.1		%		92.2		%			129.2		%
Underwriting ratios (before amortization and impairment)
Loss and loss adjustment expense ratio (8)		75.8		%		41.8		%		70.1		%			82.8		%			73.5		%		46.8		%		68.8		%			93.2		%
Operating expense ratio (Non-GAAP) (11)		21.2		%		28.4		%		22.4		%			41.0		%			20.9		%		30.2		%		22.5		%			36.1		%
Combined ratio before amortization and impairment (Non-GAAP) (12)		97.0		%		70.2		%		92.5		%			123.8		%			94.4		%		77.0		%		91.3		%			129.3		%

NOTE: Loss and loss adjustment expenses for the three months ended September 30, 2019 included $14,909 of unfavorable development on prior accident year loss and loss adjustment expense reserves in the P&C segment, and $18,788 of favorable development in the A&H segment, versus $7,234 of unfavorable development in the P&C segment, and $13,200 of favorable development in the A&H segment for the three months ended September 30, 2018.

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

		Nine Months Ended September 30,
		2019																		2018
		P&C				A&H				NGHC					ReciprocalExchanges					P&C				A&H				NGHC					Reciprocal Exchanges
Gross written premium		$	3,321,090			$	592,771			$	3,913,861				$	344,982				$	3,259,270			$	534,560			$	3,793,830				$	337,021
Net written premium		2,521,969				500,237				3,022,206					172,460					2,301,215				486,187				2,787,402					132,240
Net earned premium		2,402,509				496,532				2,899,041					149,405					2,181,571				465,391				2,646,962					141,009
Ceding commission income		128,087				8,780				136,867					50,446					118,664				789				119,453					39,523
Service and fee income		348,045				177,685				525,730					4,471					328,707				134,586				463,293					4,466
Total underwriting revenues		$	2,878,641			$	682,997			$	3,561,638				$	204,322				$	2,628,942			$	600,766			$	3,229,708				$	184,998
Loss and loss adjustment expense		1,746,409				241,685				1,988,094					124,584					1,583,019				252,364				1,835,383					126,421
Acquisition costs and other underwriting expenses		429,742				153,063				582,805					32,329					372,589				136,499				509,088					32,952
General and administrative expenses		558,016				188,227				746,243					67,642					533,316				148,265				681,581					62,032
Total underwriting expenses		$	2,734,167			$	582,975			$	3,317,142				$	224,555				$	2,488,924			$	537,128			$	3,026,052				$	221,405
Underwriting income (loss)		144,474				100,022				244,496					(20,233		)			140,018				63,638				203,656					(36,407		)
Non-cash amortization of intangible assets		16,154				4,939				21,093					41					18,125				5,272				23,397					(67		)
Underwriting income (loss) before amortization and impairment		$	160,628			$	104,961			$	265,589				$	(20,192	)			$	158,143			$	68,910			$	227,053				$	(36,474	)
Underwriting ratios
Loss and loss adjustment expense ratio (8)		72.7		%		48.7		%		68.6		%			83.4		%			72.6		%		54.2		%		69.3		%			89.7		%
Operating expense ratio (Non-GAAP) (9)		21.3		%		31.2		%		23.0		%			30.2		%			21.0		%		32.1		%		23.0		%			36.2		%
Combined ratio (Non-GAAP) (10)		94.0		%		79.9		%		91.6		%			113.6		%			93.6		%		86.3		%		92.3		%			125.9		%
Underwriting ratios (before amortization and impairment)
Loss and loss adjustment expense ratio (8)		72.7		%		48.7		%		68.6		%			83.4		%			72.6		%		54.2		%		69.3		%			89.7		%
Operating expense ratio (Non-GAAP) (11)		20.6		%		30.2		%		22.3		%			30.1		%			20.2		%		31.0		%		22.1		%			36.2		%
Combined ratio before amortization and impairment (Non-GAAP) (12)		93.3		%		78.9		%		90.9		%			113.5		%			92.8		%		85.2		%		91.4		%			125.9		%

NOTE: Loss and loss adjustment expenses for the nine months ended September 30, 2019 included $19,791 of unfavorable development on prior accident year loss and loss adjustment expense reserves in the P&C segment, and $37,775 of favorable development in the A&H segment, versus $13,318 of favorable development in the P&C segment, and $24,623 of favorable development in the A&H segment for the nine months ended September 30, 2018.

Reconciliation of Operating Expense Ratio (Non-GAAP)(9,11,13)$ in thousands(Unaudited)

		Three Months Ended September 30,
		2019																		2018
		P&C				A&H				NGHC					Reciprocal Exchanges					P&C				A&H				NGHC					Reciprocal Exchanges
Total underwriting expenses		$	964,045			$	186,123			$	1,150,168				$	87,372				$	863,953			$	167,951			$	1,031,904				$	71,919
Less: Loss and loss adjustment expense		627,452				70,612				698,064					47,270					544,446				72,652				617,098					40,212
Less: Ceding commission income		40,260				2,261				42,521					15,066					44,244				269				44,513					14,587
Less: Service and fee income		115,557				63,736				179,293					1,585					113,967				46,458				160,425					1,575
Operating expense		180,776				49,514				230,290					23,451					161,296				48,572				209,868					15,545
Net earned premium		$	827,618			$	168,903			$	996,521				$	57,117				$	741,030			$	155,346			$	896,376				$	43,151
Operating expense ratio (Non-GAAP) (9)		21.8		%		29.3		%		23.1		%			41.1		%			21.8		%		31.3		%		23.4		%			36.0		%
Total underwriting expenses		$	964,045			$	186,123			$	1,150,168				$	87,372				$	863,953			$	167,951			$	1,031,904				$	71,919
Less: Loss and loss adjustment expense		627,452				70,612				698,064					47,270					544,446				72,652				617,098					40,212
Less: Ceding commission income		40,260				2,261				42,521					15,066					44,244				269				44,513					14,587
Less: Service and fee income		115,557				63,736				179,293					1,585					113,967				46,458				160,425					1,575
Less: Non-cash amortization of intangible assets		5,257				1,531				6,788					18					6,546				1,714				8,260					(14		)
Operating expense before amortization and impairment		175,519				47,983				223,502					23,433					154,750				46,858				201,608					15,559
Net earned premium		$	827,618			$	168,903			$	996,521				$	57,117				$	741,030			$	155,346			$	896,376				$	43,151
Operating expense ratio before amortization and impairment (Non-GAAP) (11)		21.2		%		28.4		%		22.4		%			41.0		%			20.9		%		30.2		%		22.5		%			36.1		%

Reconciliation of Operating Expense Ratio (Non-GAAP)(9,11,13)$ in thousands(Unaudited)

		Nine Months Ended September 30,
		2019																		2018
		P&C				A&H				NGHC					Reciprocal Exchanges					P&C				A&H				NGHC					Reciprocal Exchanges
Total underwriting expenses		$	2,734,167			$	582,975			$	3,317,142				$	224,555				$	2,488,924			$	537,128			$	3,026,052				$	221,405
Less: Loss and loss adjustment expense		1,746,409				241,685				1,988,094					124,584					1,583,019				252,364				1,835,383					126,421
Less: Ceding commission income		128,087				8,780				136,867					50,446					118,664				789				119,453					39,523
Less: Service and fee income		348,045				177,685				525,730					4,471					328,707				134,586				463,293					4,466
Operating expense		511,626				154,825				666,451					45,054					458,534				149,389				607,923					50,995
Net earned premium		$	2,402,509			$	496,532			$	2,899,041				$	149,405				$	2,181,571			$	465,391			$	2,646,962				$	141,009
Operating expense ratio (Non-GAAP) (9)		21.3		%		31.2		%		23.0		%			30.2		%			21.0		%		32.1		%		23.0		%			36.2		%
Total underwriting expenses		$	2,734,167			$	582,975			$	3,317,142				$	224,555				$	2,488,924			$	537,128			$	3,026,052				$	221,405
Less: Loss and loss adjustment expense		1,746,409				241,685				1,988,094					124,584					1,583,019				252,364				1,835,383					126,421
Less: Ceding commission income		128,087				8,780				136,867					50,446					118,664				789				119,453					39,523
Less: Service and fee income		348,045				177,685				525,730					4,471					328,707				134,586				463,293					4,466
Less: Non-cash amortization of intangible assets		16,154				4,939				21,093					41					18,125				5,272				23,397					(67		)
Operating expense before amortization and impairment		495,472				149,886				645,358					45,013					440,409				144,117				584,526					51,062
Net earned premium		$	2,402,509			$	496,532			$	2,899,041				$	149,405				$	2,181,571			$	465,391			$	2,646,962				$	141,009
Operating expense ratio before amortization and impairment (Non-GAAP) (11)		20.6		%		30.2		%		22.3		%			30.1		%			20.2		%		31.0		%		22.1		%			36.2		%

Premiums by Product Line$ in thousands(Unaudited)

	Three Months Ended September 30,
	Gross Written Premium												Net Written Premium												Net Earned Premium
	2019				2018				Change				2019				2018				Change				2019				2018				Change
Property & Casualty
Personal Auto	$	705,709			$	661,126			6.7	%			$	560,032			$	502,964			11.3	%			$	568,346			$	496,139			14.6	%
Homeowners	201,977				192,349				5.0	%			82,601				112,390				(26.5	)%			86,525				80,308				7.7	%
RV/Packaged	55,631				54,964				1.2	%			52,283				54,627				(4.3	)%			51,023				51,229				(0.4	)%
Small Business Auto	76,987				75,218				2.4	%			56,615				53,155				6.5	%			62,265				59,636				4.4	%
Lender-placed insurance	97,468				94,462				3.2	%			61,579				56,529				8.9	%			56,599				48,466				16.8	%
Other	16,563				12,253				35.2	%			6,860				4,969				38.1	%			2,860				5,252				(45.5	)%
Total Premium	$	1,154,335			$	1,090,372			5.9	%			$	819,970			$	784,634			4.5	%			$	827,618			$	741,030			11.7	%
Accident & Health
Group	73,223				61,743				18.6	%			59,001				51,296				15.0	%			59,009				51,310				15.0	%
Individual	85,728				78,378				9.4	%			85,541				78,372				9.1	%			85,971				78,874				9.0	%
International	3,604				3,827				(5.8	)%			2,807				(6,092		)		nm				23,923				25,162				(4.9	)%
Total Premium	$	162,555			$	143,948			12.9	%			$	147,349			$	123,576			19.2	%			$	168,903			$	155,346			8.7	%
Total National General	$	1,316,890			$	1,234,320			6.7	%			$	967,319			$	908,210			6.5	%			$	996,521			$	896,376			11.2	%
Reciprocal Exchanges
Personal Auto	$	39,166			$	40,240			(2.7	)%			$	67,154			$	12,845			nm				$	33,953			$	13,353			nm
Homeowners	78,079				80,070				(2.5	)%			(2,047		)		2,002				nm				22,759				29,698				(23.4	)%
Other	1,022				1,041				(1.8	)%			2,178				(33		)		nm				405				100				nm
Total Premium	$	118,267			$	121,351			(2.5	)%			$	67,285			$	14,814			nm				$	57,117			$	43,151			32.4	%
Consolidated Total	$	1,435,157			$	1,355,671			5.9	%			$	1,034,604			$	923,024			12.1	%			$	1,053,638			$	939,527			12.1	%

nm - not meaningful

Premiums by Product Line$ in thousands(Unaudited)

	Nine Months Ended September 30,
	Gross Written Premium												Net Written Premium												Net Earned Premium
	2019				2018				Change				2019				2018				Change				2019				2018				Change
Property & Casualty
Personal Auto	$	2,083,702			$	2,018,563			3.2	%			$	1,730,904			$	1,542,685			12.2	%			$	1,621,734			$	1,436,793			12.9	%
Homeowners	544,056				524,342				3.8	%			276,250				255,290				8.2	%			272,591				242,161				12.6	%
RV/Packaged	168,796				164,427				2.7	%			162,047				162,934				(0.5	)%			150,739				145,911				3.3	%
Small Business Auto	246,694				246,448				0.1	%			196,221				181,314				8.2	%			189,957				178,302				6.5	%
Lender-placed insurance	232,265				259,995				(10.7	)%			140,863				134,630				4.6	%			158,595				162,629				(2.5	)%
Other	45,577				45,495				0.2	%			15,684				24,362				(35.6	)%			8,893				15,775				(43.6	)%
Total Premium	$	3,321,090			$	3,259,270			1.9	%			$	2,521,969			$	2,301,215			9.6	%			$	2,402,509			$	2,181,571			10.1	%
Accident & Health
Group	213,197				177,036				20.4	%			170,911				145,760				17.3	%			170,921				145,788				17.2	%
Individual	252,719				231,890				9.0	%			252,316				231,884				8.8	%			252,122				232,069				8.6	%
International	126,855				125,634				1.0	%			77,010				108,543				(29.1	)%			73,489				87,534				(16.0	)%
Total Premium	$	592,771			$	534,560			10.9	%			$	500,237			$	486,187			2.9	%			$	496,532			$	465,391			6.7	%
Total National General	$	3,913,861			$	3,793,830			3.2	%			$	3,022,206			$	2,787,402			8.4	%			$	2,899,041			$	2,646,962			9.5	%
Reciprocal Exchanges
Personal Auto	$	120,012			$	116,602			2.9	%			$	101,460			$	40,860			nm				$	65,907			$	38,812			69.8	%
Homeowners	222,019				217,486				2.1	%			68,180				90,826				(24.9	)%			82,475				101,578				(18.8	)%
Other	2,951				2,933				0.6	%			2,820				554				nm				1,023				619				65.3	%
Total Premium	$	344,982			$	337,021			2.4	%			$	172,460			$	132,240			30.4	%			$	149,405			$	141,009			6.0	%
Consolidated Total (A)	$	4,258,843			$	4,129,250			3.1	%			$	3,194,666			$	2,919,642			9.4	%			$	3,048,446			$	2,787,971			9.3	%

nm - not meaningful

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

Fee Income$ in thousands(Unaudited)

	Three Months Ended September 30,											Nine Months Ended September 30,
	2019				2018				Change			2019				2018				Change
Property & Casualty
Service and Fee Income	$	115,557			$	113,967			1.4	%		$	348,045			$	328,707			5.9	%
Ceding Commission Income	40,260				44,244				(9.0	)%		128,087				118,664				7.9	%
Property & Casualty	$	155,817			$	158,211			(1.5	)%		$	476,132			$	447,371			6.4	%
Accident & Health
Service and Fee Income
Group	$	34,848			$	25,198			38.3	%		$	98,084			$	74,768			31.2	%
Individual	2,128				4,512				(52.8	)%		5,506				7,973				(30.9	)%
Third Party Fee	26,760				16,748				59.8	%		74,095				51,845				42.9	%
Total Service and Fee Income	63,736				46,458				37.2	%		177,685				134,586				32.0	%
Ceding Commission Income	2,261				269				nm			8,780				789				nm
Accident and Health	$	65,997			$	46,727			41.2	%		$	186,465			$	135,375			37.7	%
Total National General	$	221,814			$	204,938			8.2	%		$	662,597			$	582,746			13.7	%
Reciprocal Exchanges
Service and Fee Income	$	1,585			$	1,575			0.6	%		$	4,471			$	4,466			0.1	%
Ceding Commission Income	15,066				14,587				3.3	%		50,446				39,523				27.6	%
Reciprocal Exchanges	$	16,651			$	16,162			3.0	%		$	54,917			$	43,989			24.8	%
Consolidated Total (A)	$	219,213			$	201,790			8.6	%		$	663,354			$	574,289			15.5	%

nm - not meaningful

NOTES: (A) Consolidated Total includes eliminations between National General and the Reciprocal Exchanges in Service and Fee Income of $(19,252) and $(19,310) in the three months ended September 30, 2019 and 2018, respectively, and $(54,160) and $(52,446) in the nine months ended September 30, 2019 and 2018, respectively.

Additional Disclosures

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

(2) Total investments includes $234,617 and $233,723 in related parties at September 30, 2019 and December 31, 2018, respectively.

(3) Reinsurance balances includes $4,496 and $7,425 from related parties at September 30, 2019 and December 31, 2018, respectively.

(4) Other includes $1,195 and $2,362 from related parties at September 30, 2019 and December 31, 2018, respectively.

(5) Accounts payable and accrued expenses includes $771 and $69,874 to related parties at September 30, 2019 and December 31, 2018, respectively.

(6) Common stock: $0.01 par value - authorized 150,000,000 shares, issued and outstanding 113,313,042 shares - September 30, 2019; authorized 150,000,000 shares, issued and outstanding 112,940,595 shares - December 31, 2018.

(7) Preferred stock: $0.01 par value - authorized 10,000,000 shares, issued and outstanding 2,565,120 shares - September 30, 2019; authorized 10,000,000 shares, issued and outstanding 2,565,120 shares - December 31, 2018.

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

(9) Operating expense ratio is a non-GAAP financial measure defined by the Company, which is commonly used in the insurance industry. The Company calculates the ratio by dividing operating expense by net earned premium. Operating expense consists of the sum of acquisition and other underwriting costs and general and administrative expenses less ceding commission income and service and fee income. The ratio is used as an indicator of the Company’s efficiency in acquiring and servicing its business.

(10) Combined ratio is a non-GAAP financial measure defined by the Company, which is commonly used in the insurance industry. The Company calculates the ratio by adding the loss and loss adjustment expense ratio(8) and the operating expense ratio (non-GAAP)(9) together. The ratio is used as an indicator of the Company’s underwriting discipline, efficiency in acquiring and servicing its business, and overall underwriting profit. Management uses operating expense ratio (non-GAAP) and combined ratio (non-GAAP) to evaluate financial performance against historical results and establish targets. A combined ratio under 100% generally indicates an underwriting profit, while over 100% an underwriting loss.

(11) Operating expense ratio before amortization and impairment is a non-GAAP financial measure defined by the Company, which is commonly used in the insurance industry. The Company calculates the ratio by dividing the operating expense before amortization and impairment by net earned premium. Operating expense before amortization and impairment consists of the sum of acquisition and other underwriting costs and general and administrative expenses less ceding commission income and service and fee income less non-cash amortization of intangible assets and non-cash impairment of goodwill. The ratio is used as an indicator of the Company’s efficiency in acquiring and servicing its business. Management believes that this measure provides a more useful comparison to the operating expense ratio of other insurance companies involved in fewer acquisitions.

(12) Combined ratio before amortization and impairment is a non-GAAP financial measure defined by the Company, which is commonly used in the insurance industry. The Company calculates the ratio by adding the loss and loss adjustment expense ratio(8) and the operating expense ratio before amortization and impairment (non-GAAP)(11) together. The ratio is used as an indicator of the Company’s underwriting discipline, efficiency in acquiring and servicing its business, and overall underwriting profit. Management believes that this measure of underwriting profitability provides a more useful comparison to the combined ratio of other insurance companies involved in fewer acquisitions. A combined ratio under 100% generally indicates an underwriting profit, while over 100% an underwriting loss.

(13) Combined ratio (non-GAAP), operating expense ratio (non-GAAP), combined ratio before amortization and impairment (non-GAAP) and operating expense ratio before amortization and impairment (non-GAAP) are considered non-GAAP financial measures under applicable SEC rules. Other companies may calculate these ratios differently, and therefore, their measures may not be comparable to those used by National General. Please see the Non-GAAP Financial Measures table within this release for the reconciliation of these non-GAAP financial measures to the most directly comparable GAAP measure.

(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 same twelve-month period. Average shareholders’ equity is the sum of the shareholders’ equity excluding preferred stock at the beginning and end of the period divided by two. In the opinion of the Company’s management this ratio is an important indicator of how well management creates value for its shareholders through its operating activities and capital management. Other companies may calculate these measures differently, and therefore, their measures may not be comparable to those used by National General. Please see the Non-GAAP Financial Measures table within this release for the reconciliation of net income to operating earnings, which is the Non-GAAP component of the operating return on average equity.

(15) Combined ratio excluding losses from various weather-related events, is calculated by taking the combined ratio as defined in Note 12, and adjusting it to exclude the total net losses of $11.5 million and $35.0 million from these events for the three months ended September 30, 2019 and 2018, respectively. The Company believes this measure enhances investors’ understanding of our results by eliminating what we believe are volatile and unusual events.

Year				Combined Ratio (12)			Impact of Weather-related Events			Combined Ratio Excluding Weather-related Events (15)
2019		P&C Segment		97.0	%		1.4	%		95.6	%
2019		Overall NGHC		92.5	%		1.2	%		91.3	%
2018		P&C Segment		94.4	%		4.7	%		89.7	%
2018		Overall NGHC		91.3	%		3.9	%		87.4	%

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

Investor Contact

Paul AndersonDirector of Investor RelationsPhone: 212-380-9462Email: Paul.Anderson@NGIC.com