National General Holdings Corp. Reports Second Quarter 2019 Results

NEW YORK, July 29, 2019 (GLOBE NEWSWIRE) - National General Holdings Corp. (Nasdaq:NGHC) reported second quarter 2019 net income of $69.0 million or $0.60 per diluted share, compared to net income of $36.7 million or $0.34 per diluted share in the second quarter of 2018. Second quarter 2019 operating earnings (non-GAAP)⁽¹⁾ was $78.1 million or $0.67 per diluted share compared to $59.5 million or $0.54 per diluted share in the second quarter of 2018.

Second Quarter 2019 Highlights versus Second Quarter 2018*

• Net earned premium grew$92.9 million or 10.4% to $984.0 million driven by organic growth in our P&C segment of 11.3% and in our A&H segment of 6.3%.

• The overall combined ratio^(12,13) was 90.9% compared to 92.1% in the prior year’s quarter, excluding non-cash amortization of intangible assets. The P&C segment reported a decrease in combined ratio to 92.6% from 92.9% in the prior year’s quarter. The A&H segment reported a decrease in combined ratio to 82.6% from 88.6% in the prior year’s quarter, driven by strong operating results in our small group self-funded and individual products.

• Service and fee income grew12.1% to $166.0 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 $2.48 billion and fully diluted book value per share was $17.48 at June 30, 2019, growth of 11.6% and 14.6%, respectively, from December 31, 2018. Our trailing twelve month operating return on average equity (ROE)⁽¹⁴⁾ was 15.2% as of June 30, 2019.

• Second quarter 2019 operating earnings (non-GAAP)⁽¹⁾ primarily excludes $4.2 million or $0.04 net loss on investments and $5.6 million or $0.05 per share of non-cash amortization of intangible assets, net of tax.

Barry Karfunkel, National General’s CEO, stated: “Our second quarter 2019 results continue to highlight the earnings capabilities of our platform. Our P&C segment was able to generate a 92.6% combined ratio. Our A&H segment continues to grow profitably with a combined ratio of 82.6% 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.”

*NOTE: Unless specified otherwise, discussion of our second 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.

1

Overview of Second Quarter 2019 as Compared to Second Quarter 2018

• Property & Casualty - Gross written premium decreased by 4.2% to $1,021.1 million, net written premium increased by 15.0% to $786.5 million, and net earned premium increased by 11.3% to $818.0 million. Service and fee income grew7.6% to $113.1 million compared to $105.2 million in the prior year’s quarter. Excluding non-cash amortization of intangible assets, the combined ratio^(12,13) was 92.6% with a loss and LAE ratio of 72.6% and an expense ratio^(11,13) of 20.0%, versus a prior year combined ratio of 92.9% with a loss and LAE ratio of 73.5% and an expense ratio of 19.4%. The loss and LAE ratio was impacted by pre-tax catastrophe losses of approximately $18.4 million primarily related to weather-related events in the second quarter 2019, compared to $20.5 million of losses in the second quarter 2018. Unfavorable loss development was $10.4 million in the second quarter 2019, compared to favorable loss development of $5.4 million in the second quarter 2018.

• Accident & Health - Gross written premium grew by 9.5% to $171.7 million, net written premium grew by 9.7% to $152.7 million, and net earned premium grew by 6.3% to $166.0 million. The A&H gross written premium increase was driven by the continued growth across the entire book. Service and fee income grew23.3% to $52.9 million compared to $42.9 million in the prior year’s quarter, primarily driven by group administration fees and third party technology services fees. Excluding non-cash amortization of intangible assets, the combined ratio^(12,13) was 82.6% with a loss and LAE ratio of 52.0% and an expense ratio^(11,13) of 30.6%, versus a prior year combined ratio of 88.6% with a loss and LAE ratio of 56.6% and an expense ratio of 32.0%. The loss and LAE ratio reflects continued strong performance in both small group self-funded and individual products. Favorable loss development was $8.1 million in the second quarter 2019, compared to $8.0 million in the second quarter 2018.

• Reciprocal Exchanges - Results for the Reciprocal Exchanges are not included in net income available to NGHC common stockholders. Gross written premium was $121.1 million, net written premium was $56.2 million, and net earned premium was $46.6 million. Reciprocal Exchanges combined ratio^(12,13) excluding non-cash amortization of intangible assets was 100.1% with a loss and LAE ratio of 75.7% and an expense ratio^(11,13) of 24.4%.

Second quarter 2019 investment income grew to $35.9 million, compared to $26.2 million in the second quarter of 2018, with the growth primarily driven by an increase in our investment portfolio. Total investments and cash and cash equivalents (including restricted cash) were $4.6 billion as of June 30, 2019. Accumulated other comprehensive income (loss) increased to a $59.9 million gain at June 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, down from $15.0 million in the prior year’s quarter. Debt was $708.7 million at June 30, 2019, up from $705.8 million at December 31, 2018.

The second quarter of 2019 provision for income taxes was $22.3 million and the effective tax rate for the quarter was 22.2% compared with income taxes of $9.4 million and an effective rate of 17.5% in the second quarter of 2018. The effective tax rate was impacted by the implementation of tax law changes under the Tax Cuts and Jobs Act in 2018.

Stockholders’ equity was $2,479.3 million at June 30, 2019, growth of 11.6% from $2,220.8 million at December 31, 2018. Fully diluted book value per share was $17.48 at June 30, 2019, growth of 14.6% from $15.25 at December 31, 2018. Our trailing twelve month operating return on average equity (ROE)⁽¹⁴⁾ was 15.2% as of June 30, 2019.

2

Year-to-Date P&C Segment Notable Large Losses
Year	Quarter	Event	P&C Notable Large Losses and LAE ($ millions)	P&C Loss Ratio Points*	EPS Impact After Tax
2019	Q2	Weather-related Events	$18.4	2.2%	$0.13
2019	Q1	Winter Weather	$12.1	1.6%	$0.08
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 Items

• Auto and Homeowners Quota Share Renewals.

Effective July 1, 2019, the Company renewed its auto quota share reinsurance agreement for a two year term. Effective July 1, 2019, the Company cedes 10.0% of net liability under new and renewal auto policies with the ability to increase the cession to up to 30.0% and decrease the cession down to 5.0% under certain conditions. The Company receives a 31.2% provisional ceding commission on premiums ceded to the reinsurer during the term of the Auto Quota Share Agreement, subject to a sliding scale adjustment to a maximum of 32.8% if the loss ratio for the reinsured business is 64.7% or less and a minimum of 30.0% if the loss ratio is 67.5% or higher.

Effective July 1, 2019, the Company renewed its homeowners quota share reinsurance agreement for a one year term. Effective July 1, 2019, the Company cedes 40.0% of net liability under homeowners policies and receives a 36.0% ceding commission on new and renewal business and a portion of the in-force business. A portion of the in-force business is being run-off under the prior agreements. The weighted average expected ceding commission for all in-force business and new and renewal homeowners business is 37.5% over the contract term.

Conference Call

On Tuesday, July 30, 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:        800-346-7359

973 Access Number:        973-528-0008

Conference Entry Code:        620532

Webcast Registration:        http://ir.nationalgeneral.com/events-and-presentations

A replay of the conference call will be accessible from 2:00 PM ET on Tuesday, July 30, 2019 to 11:59 PM ET on Tuesday, August 13, 2019 by dialing either 800-332-6854 (toll-free) within the U.S. or 973-528-0005 outside the U.S. and entering passcode 620532. In addition, a replay of the webcast can also be retrieved at http://ir.nationalgeneral.com/events-and-presentations.

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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.

4

Income Statement - Second Quarter

$ in thousands

(Unaudited)

	Three Months Ended June 30,
	2019										2018
	NGHC			Reciprocal Exchanges			Consolidated				NGHC			Reciprocal Exchanges			Consolidated
Revenues:
Gross written premium	$	1,192,762		$	121,146		$	1,313,908			$	1,222,468		$	117,981		$	1,340,449
Net written premium	939,178			56,220			995,398				823,127			66,848			889,975
Net earned premium	984,021			46,630			1,030,651				891,103			51,803			942,906
Ceding commission income	43,346			16,846			60,192				41,982			13,426			55,408
Service and fee income	166,049			1,516			148,908			(A)	148,108			445			130,501			(G)
Net investment income	35,949			2,124			35,131			(B)	26,183			2,205			25,995			(H)
Net gain (loss) on investments	(5,274		)	44			(5,230		)		(18,736		)	(968		)	(19,704		)
Total revenues	$	1,224,091		$	67,160		$	1,269,652		(C)	$	1,088,640		$	66,911		$	1,135,106		(I)
Expenses:
Loss and loss adjustment expense	$	680,246		$	35,289		$	715,535			$	628,650		$	41,678		$	670,328
Acquisition costs and other underwriting expenses	185,951			8,175			194,126				171,300			10,560			181,860
General and administrative expenses	244,827			21,597			247,767			(D)	219,662			22,819			224,429			(J)
Interest expense	12,925			2,942			12,925			(E)	15,038			2,393			15,038			(K)
Total expenses	$	1,123,949		$	68,003		$	1,170,353		(F)	$	1,034,650		$	77,450		$	1,091,655		(L)
Income (loss) before provision (benefit) for income taxes	$	100,142		$	(843	)	$	99,299			$	53,990		$	(10,539	)	$	43,451
Provision (benefit) for income taxes	22,266			(25		)	22,241				9,442			(2,901		)	6,541
Net income (loss) before non-controlling interest and dividends on preferred shares	77,876			(818		)	77,058				44,548			(7,638		)	36,910
Less: net income (loss) attributable to non-controlling interest	—			(818		)	(818		)		—			(7,638		)	(7,638		)
Net income before dividends on preferred shares	77,876			—			77,876				44,548			—			44,548
Less: dividends on preferred shares	8,925			—			8,925				7,875			—			7,875
Net income available to common stockholders	$	68,951		$	—		$	68,951			$	36,673		$	—		$	36,673

NOTES: Consolidated column includes eliminations as follows: (A) $(18,657), (B) $(2,942), (C) $(21,599), (D) $(18,657), (E) $(2,942), (F) $(21,599) || (G) $(18,052), (H) $(2,393), (I) $(20,445), (J) $(18,052), (K) $(2,393) and (L) $(20,445).

5

Income Statement - Year to Date

$ in thousands

(Unaudited)

	Six Months Ended June 30,
	2019										2018
	NGHC			Reciprocal Exchanges			Consolidated				NGHC			Reciprocal Exchanges			Consolidated
Revenues:
Gross written premium	$	2,596,971		$	226,715		$	2,823,686			$	2,559,510		$	215,670		$	2,773,579		(G)
Net written premium	2,054,887			105,175			2,160,062				1,879,192			117,426			1,996,618
Net earned premium	1,902,520			92,288			1,994,808				1,750,586			97,858			1,848,444
Ceding commission income	94,346			35,380			129,726				74,940			24,936			99,876
Service and fee income	346,437			2,886			314,415			(A)	302,868			2,891			272,623			(H)
Net investment income	70,232			4,294			68,576			(B)	51,202			4,349			51,006			(I)
Net loss on investments	(4,508		)	(700		)	(5,208		)		(18,487		)	(1,099		)	(19,586		)
Total revenues	$	2,409,027		$	134,148		$	2,502,317		(C)	$	2,161,109		$	128,935		$	2,252,363		(J)
Expenses:
Loss and loss adjustment expense	$	1,290,030		$	77,314		$	1,367,344			$	1,218,285		$	86,209		$	1,304,494
Acquisition costs and other underwriting expenses	389,284			16,760			406,044				328,908			21,662			350,570
General and administrative expenses	487,660			43,109			495,861			(D)	446,955			41,615			455,434			(K)
Interest expense	25,924			5,950			25,924			(E)	26,192			4,545			26,192			(L)
Total expenses	$	2,192,898		$	143,133		$	2,295,173		(F)	$	2,020,340		$	154,031		$	2,136,690		(M)
Income (loss) before provision (benefit) for income taxes	$	216,129		$	(8,985	)	$	207,144			$	140,769		$	(25,096	)	$	115,673
Provision (benefit) for income taxes	46,495			(1,748		)	44,747				28,013			(5,270		)	22,743
Net income (loss) before non-controlling interest and dividends on preferred shares	169,634			(7,237		)	162,397				112,756			(19,826		)	92,930
Less: net income (loss) attributable to non-controlling interest	—			(7,237		)	(7,237		)		—			(19,826		)	(19,826		)
Net income before dividends on preferred shares	169,634			—			169,634				112,756			—			112,756
Less: dividends on preferred shares	16,800			—			16,800				15,750			—			15,750
Net income available to common stockholders	$	152,834		$	—		$	152,834			$	97,006		$	—		$	97,006

NOTES: Consolidated column includes eliminations as follows: (A) $(34,908), (B) $(5,950), (C) $(40,858), (D) $(34,908), (E) $(5,950), (F) $(40,858) || (G) $(1,601), (H) $(33,136), (I) $(4,545), (J) $(37,681), (K) $(33,136), (L) $(4,545) and (M) $(37,681).

6

Earnings and Per Share Data

$ in thousands, except shares and per share data

(Unaudited)

	Three Months Ended June 30,				Six Months Ended June 30,
	2019		2018		2019		2018
Net income available to common stockholders	$	68,951	$	36,673	$	152,834	$	97,006
Basic net income per common share	$	0.61	$	0.34	$	1.35	$	0.91
Diluted net income per common share	$	0.60	$	0.34	$	1.33	$	0.89
Operating earnings attributable to NGHC (non-GAAP)(1)	$	78,140	$	59,484	$	167,856	$	127,107
Basic operating earnings per common share (non-GAAP)(1)	$	0.69	$	0.56	$	1.48	$	1.19
Diluted operating earnings per common share (non-GAAP)(1)	$	0.67	$	0.54	$	1.45	$	1.16
Dividends declared per common share	$	0.04	$	0.04	$	0.08	$	0.08
Weighted average number of basic shares outstanding	113,178,552		106,969,134		113,097,084		106,864,469
Weighted average number of diluted shares outstanding	116,050,267		109,402,465		116,062,721		109,181,041
Shares outstanding, end of period	113,215,632		107,057,771
Fully diluted shares outstanding, end of period	116,087,347		109,374,343
Book value per share	$	17.92	$	14.59
Fully diluted book value per share	$	17.48	$	14.28

Reconciliation of Net Income to Operating Earnings (Non-GAAP)^(1)(14) 

$ in thousands, except per share data

(Unaudited)

	Three Months Ended June 30,						Six Months Ended June 30,
	2019			2018			2019			2018
Net income available to common stockholders	$	68,951		$	36,673		$	152,834		$	97,006
Add (subtract):
Net loss on investments	5,274			18,736			4,508			18,487
Equity in (earnings) losses of equity method investments	(731		)	834			203			2,303
Non-cash amortization of intangible assets	7,089			8,217			14,305			15,137
Income tax expense (benefit)	(2,443		)	(4,976		)	(3,994		)	(5,826		)
Operating earnings attributable to NGHC (non-GAAP)(1)	$	78,140		$	59,484		$	167,856		$	127,107
Operating earnings per common share (non-GAAP)(1):
Basic operating earnings per common share (non-GAAP)(1)	$	0.69		$	0.56		$	1.48		$	1.19
Diluted operating earnings per common share (non-GAAP)(1)	$	0.67		$	0.54		$	1.45		$	1.16

7

Balance Sheet

$ in thousands

(Unaudited)

	June 30, 2019									December 31, 2018
ASSETS	NGHC		Reciprocal Exchanges			Consolidated				NGHC			Reciprocal Exchanges			Consolidated
Total investments (2)	$	4,325,977	$	321,365		$	4,539,962		(A)	$	4,013,699		$	314,411		$	4,226,806		(H)
Cash and cash equivalents, including restricted cash	244,051		289			244,340				233,383			200			233,583
Premiums and other receivables, net	1,467,727		65,053			1,532,780				1,338,485			61,327			1,399,812
Reinsurance balances (3)	1,798,741		253,869			2,052,610				2,023,911			253,501			2,277,412
Intangible assets, net	365,685		3,315			369,000				376,532			3,405			379,937
Goodwill	183,430		—			183,430				180,183			—			180,183
Other (4)	751,784		24,024			744,534			(B)	739,068			27,879			741,547			(I)
Total assets	$	9,137,395	$	667,915		$	9,666,656		(C)	$	8,905,261		$	660,723		$	9,439,280		(J)
LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities:
Unpaid loss and loss adjustment expense reserves	$	2,692,943	$	194,297		$	2,887,240			$	2,778,689		$	178,470		$	2,957,159
Unearned premiums and other revenue	2,099,746		267,086			2,366,832				2,014,965			265,763			2,280,728
Reinsurance payable	554,685		36,733			591,418				615,872			40,393			656,265
Accounts payable and accrued expenses (5)	305,045		35,402			309,173			(D)	390,338			33,120			398,058			(K)
Debt	708,657		107,380			708,657			(E)	705,795			101,304			705,795			(L)
Other	297,057		45,411			342,468				178,764			61,640			240,404
Total liabilities	$	6,658,133	$	686,309		$	7,205,788		(F)	$	6,684,423		$	680,690		$	7,238,409		(M)
Stockholders’ equity:
Common stock (6)	$	1,132	$	—		$	1,132			$	1,129		$	—		$	1,129
Preferred stock (7)	450,000		—			450,000				450,000			—			450,000
Additional paid-in capital	1,060,379		—			1,060,379				1,057,783			—			1,057,783
Accumulated other comprehensive income (loss)	59,910		—			59,910				(52,130		)	—			(52,130		)
Retained earnings	907,841		—			907,841				764,056			—			764,056
Total National General Holdings Corp. stockholders’ equity	2,479,262		—			2,479,262				2,220,838			—			2,220,838
Non-controlling interest	—		(18,394		)	(18,394		)		—			(19,967		)	(19,967		)
Total stockholders’ equity	$	2,479,262	$	(18,394	)	$	2,460,868			$	2,220,838		$	(19,967	)	$	2,200,871
Total liabilities and stockholders’ equity	$	9,137,395	$	667,915		$	9,666,656		(G)	$	8,905,261		$	660,723		$	9,439,280		(N)

NOTES: Consolidated column includes eliminations as follows: (A) $(107,380), (B) $(31,274), (C) $(138,654), (D) $(31,274), (E) $(107,380), (F) $(138,654), (G) $(138,654) || (H) $(101,304), (I) $(25,400), (J) $(126,704), (K) $(25,400), (L) $(101,304), (M) $(126,704) and (N) $(126,704).

8

Segment Information - Second Quarter

$ in thousands

(Unaudited)

	Three Months Ended June 30,
	2019												2018
	P&C			A&H			NGHC			Reciprocal Exchanges			P&C			A&H			NGHC			Reciprocal Exchanges
Gross written premium	$	1,021,090		$	171,672		$	1,192,762		$	121,146		$	1,065,632		$	156,836		$	1,222,468		$	117,981
Net written premium	786,471			152,707			939,178			56,220			683,869			139,258			823,127			66,848
Net earned premium	817,972			166,049			984,021			46,630			734,934			156,169			891,103			51,803
Ceding commission income	39,418			3,928			43,346			16,846			41,720			262			41,982			13,426
Service and fee income	113,112			52,937			166,049			1,516			105,167			42,941			148,108			445
Total underwriting revenues	$	970,502		$	222,914		$	1,193,416		$	64,992		$	881,821		$	199,372		$	1,081,193		$	65,674
Loss and loss adjustment expense	593,922			86,324			680,246			35,289			540,216			88,434			628,650			41,678
Acquisition costs and other underwriting expenses	137,950			48,001			185,951			8,175			123,183			48,117			171,300			10,560
General and administrative expenses	183,535			61,292			244,827			21,597			172,530			47,132			219,662			22,819
Total underwriting expenses	$	915,407		$	195,617		$	1,111,024		$	65,061		$	835,929		$	183,683		$	1,019,612		$	75,057
Underwriting income (loss)	55,095			27,297			82,392			(69		)	45,892			15,689			61,581			(9,383		)
Non-cash amortization of intangible assets	5,412			1,677			7,089			12			6,179			2,038			8,217			(26		)
Underwriting income (loss) before amortization and impairment	$	60,507		$	28,974		$	89,481		$	(57	)	$	52,071		$	17,727		$	69,798		$	(9,409	)
Underwriting ratios
Loss and loss adjustment expense ratio (8)	72.6		%	52.0		%	69.1		%	75.7		%	73.5		%	56.6		%	70.5		%	80.5		%
Operating expense ratio (Non-GAAP) (9)	20.7		%	31.6		%	22.5		%	24.5		%	20.3		%	33.3		%	22.5		%	37.7		%
Combined ratio (Non-GAAP) (10)	93.3		%	83.6		%	91.6		%	100.2		%	93.8		%	89.9		%	93.0		%	118.2		%
Underwriting ratios (before amortization and impairment)
Loss and loss adjustment expense ratio (8)	72.6		%	52.0		%	69.1		%	75.7		%	73.5		%	56.6		%	70.5		%	80.5		%
Operating expense ratio(Non-GAAP) (11)	20.0		%	30.6		%	21.8		%	24.4		%	19.4		%	32.0		%	21.6		%	37.7		%
Combined ratio before amortization and impairment (Non-GAAP) (12)	92.6		%	82.6		%	90.9		%	100.1		%	92.9		%	88.6		%	92.1		%	118.2		%

NOTE: Loss and loss adjustment expenses for the three months ended June 30, 2019 included $10,396 of unfavorable development on prior accident year loss and loss adjustment expense reserves in the P&C segment, and $8,135 of favorable development in the A&H segment, versus $5,383 of favorable development in the P&C segment, and $8,040 of favorable development in the A&H segment for the three months ended June 30, 2018.

9

Segment Information - Year to Date

$ in thousands

(Unaudited)

	Six Months Ended June 30,
	2019												2018
	P&C			A&H			NGHC			Reciprocal Exchanges			P&C			A&H			NGHC			Reciprocal Exchanges
Gross written premium	$	2,166,755		$	430,216		$	2,596,971		$	226,715		$	2,168,898		$	390,612		$	2,559,510		$	215,670
Net written premium	1,701,999			352,888			2,054,887			105,175			1,516,581			362,611			1,879,192			117,426
Net earned premium	1,574,891			327,629			1,902,520			92,288			1,440,541			310,045			1,750,586			97,858
Ceding commission income	87,827			6,519			94,346			35,380			74,420			520			74,940			24,936
Service and fee income	232,488			113,949			346,437			2,886			214,740			88,128			302,868			2,891
Total underwriting revenues	$	1,895,206		$	448,097		$	2,343,303		$	130,554		$	1,729,701		$	398,693		$	2,128,394		$	125,685
Loss and loss adjustment expense	1,118,957			171,073			1,290,030			77,314			1,038,573			179,712			1,218,285			86,209
Acquisition costs and other underwriting expenses	283,435			105,849			389,284			16,760			237,183			91,725			328,908			21,662
General and administrative expenses	367,730			119,930			487,660			43,109			349,215			97,740			446,955			41,615
Total underwriting expenses	$	1,770,122		$	396,852		$	2,166,974		$	137,183		$	1,624,971		$	369,177		$	1,994,148		$	149,486
Underwriting income (loss)	125,084			51,245			176,329			(6,629		)	104,730			29,516			134,246			(23,801		)
Non-cash amortization of intangible assets	10,897			3,408			14,305			23			11,579			3,558			15,137			(53		)
Underwriting income (loss) before amortization and impairment	$	135,981		$	54,653		$	190,634		$	(6,606	)	$	116,309		$	33,074		$	149,383		$	(23,854	)
Underwriting ratios
Loss and loss adjustment expense ratio (8)	71.0		%	52.2		%	67.8		%	83.8		%	72.1		%	58.0		%	69.6		%	88.1		%
Operating expense ratio (Non-GAAP) (9)	21.0		%	32.1		%	22.9		%	23.4		%	20.6		%	32.5		%	22.7		%	36.2		%
Combined ratio (Non-GAAP) (10)	92.0		%	84.3		%	90.7		%	107.2		%	92.7		%	90.5		%	92.3		%	124.3		%
Underwriting ratios (before amortization and impairment)
Loss and loss adjustment expense ratio (8)	71.0		%	52.2		%	67.8		%	83.8		%	72.1		%	58.0		%	69.6		%	88.1		%
Operating expense ratio(Non-GAAP) (11)	20.3		%	31.1		%	22.2		%	23.4		%	19.8		%	31.4		%	21.9		%	36.3		%
Combined ratio before amortization and impairment (Non-GAAP) (12)	91.3		%	83.3		%	90.0		%	107.2		%	91.9		%	89.4		%	91.5		%	124.4		%

NOTE: Loss and loss adjustment expenses for the six months ended June 30, 2019 included $4,882 of unfavorable development on prior accident year loss and loss adjustment expense reserves in the P&C segment, and $18,987 of favorable development in the A&H segment, versus $20,552 of favorable development in the P&C segment, and $11,423 of favorable development in the A&H segment for the six months ended June 30, 2018.

10

Reconciliation of Operating Expense Ratio (Non-GAAP)^(9,11,13) 

$ in thousands

(Unaudited)

	Three Months Ended June 30,
	2019												2018
	P&C			A&H			NGHC			Reciprocal Exchanges			P&C			A&H			NGHC			Reciprocal Exchanges
Total underwriting expenses	$	915,407		$	195,617		$	1,111,024		$	65,061		$	835,929		$	183,683		$	1,019,612		$	75,057
Less: Loss and loss adjustment expense	593,922			86,324			680,246			35,289			540,216			88,434			628,650			41,678
Less: Ceding commission income	39,418			3,928			43,346			16,846			41,720			262			41,982			13,426
Less: Service and fee income	113,112			52,937			166,049			1,516			105,167			42,941			148,108			445
Operating expense	168,955			52,428			221,383			11,410			148,826			52,046			200,872			19,508
Net earned premium	$	817,972		$	166,049		$	984,021		$	46,630		$	734,934		$	156,169		$	891,103		$	51,803
Operating expense ratio (Non-GAAP) (9)	20.7		%	31.6		%	22.5		%	24.5		%	20.3		%	33.3		%	22.5		%	37.7		%
Total underwriting expenses	$	915,407		$	195,617		$	1,111,024		$	65,061		$	835,929		$	183,683		$	1,019,612		$	75,057
Less: Loss and loss adjustment expense	593,922			86,324			680,246			35,289			540,216			88,434			628,650			41,678
Less: Ceding commission income	39,418			3,928			43,346			16,846			41,720			262			41,982			13,426
Less: Service and fee income	113,112			52,937			166,049			1,516			105,167			42,941			148,108			445
Less: Non-cash amortization of intangible assets	5,412			1,677			7,089			12			6,179			2,038			8,217			(26		)
Operating expense before amortization and impairment	163,543			50,751			214,294			11,398			142,647			50,008			192,655			19,534
Net earned premium	$	817,972		$	166,049		$	984,021		$	46,630		$	734,934		$	156,169		$	891,103		$	51,803
Operating expense ratio before amortization and impairment (Non-GAAP) (11)	20.0		%	30.6		%	21.8		%	24.4		%	19.4		%	32.0		%	21.6		%	37.7		%

11

Reconciliation of Operating Expense Ratio (Non-GAAP)^(9,11,13) 

$ in thousands

(Unaudited)

	Six Months Ended June 30,
	2019												2018
	P&C			A&H			NGHC			Reciprocal Exchanges			P&C			A&H			NGHC			Reciprocal Exchanges
Total underwriting expenses	$	1,770,122		$	396,852		$	2,166,974		$	137,183		$	1,624,971		$	369,177		$	1,994,148		$	149,486
Less: Loss and loss adjustment expense	1,118,957			171,073			1,290,030			77,314			1,038,573			179,712			1,218,285			86,209
Less: Ceding commission income	87,827			6,519			94,346			35,380			74,420			520			74,940			24,936
Less: Service and fee income	232,488			113,949			346,437			2,886			214,740			88,128			302,868			2,891
Operating expense	330,850			105,311			436,161			21,603			297,238			100,817			398,055			35,450
Net earned premium	$	1,574,891		$	327,629		$	1,902,520		$	92,288		$	1,440,541		$	310,045		$	1,750,586		$	97,858
Operating expense ratio (Non-GAAP) (9)	21.0		%	32.1		%	22.9		%	23.4		%	20.6		%	32.5		%	22.7		%	36.2		%
Total underwriting expenses	$	1,770,122		$	396,852		$	2,166,974		$	137,183		$	1,624,971		$	369,177		$	1,994,148		$	149,486
Less: Loss and loss adjustment expense	1,118,957			171,073			1,290,030			77,314			1,038,573			179,712			1,218,285			86,209
Less: Ceding commission income	87,827			6,519			94,346			35,380			74,420			520			74,940			24,936
Less: Service and fee income	232,488			113,949			346,437			2,886			214,740			88,128			302,868			2,891
Less: Non-cash amortization of intangible assets	10,897			3,408			14,305			23			11,579			3,558			15,137			(53		)
Operating expense before amortization and impairment	319,953			101,903			421,856			21,580			285,659			97,259			382,918			35,503
Net earned premium	$	1,574,891		$	327,629		$	1,902,520		$	92,288		$	1,440,541		$	310,045		$	1,750,586		$	97,858
Operating expense ratio before amortization and impairment (Non-GAAP) (11)	20.3		%	31.1		%	22.2		%	23.4		%	19.8		%	31.4		%	21.9		%	36.3		%

12

Premiums by Product Line

$ in thousands

(Unaudited)

	Three Months Ended June 30,
	Gross Written Premium					Net Written Premium					Net Earned Premium
	2019		2018		Change	2019		2018		Change	2019		2018		Change
Property & Casualty
Personal Auto	$	611,312	$	632,225	(3.3)%	$	511,952	$	485,724	5.4%	$	542,834	$	486,438	11.6%
Homeowners	190,037		190,706		(0.4)%	108,404		50,304		nm	102,008		79,658		28.1%
RV/Packaged	61,314		59,999		2.2%	58,167		59,118		(1.6)%	49,411		48,993		0.9%
Small Business Auto	83,829		84,986		(1.4)%	65,420		63,432		3.1%	60,059		60,104		(0.1)%
Lender-placed insurance	58,859		80,599		(27.0)%	37,214		14,887		nm	60,278		53,694		12.3%
Other	15,739		17,117		(8.1)%	5,314		10,404		(48.9)%	3,382		6,047		(44.1)%
Total Premium	$	1,021,090	$	1,065,632	(4.2)%	$	786,471	$	683,869	15.0%	$	817,972	$	734,934	11.3%
Accident & Health
Group	75,036		59,233		26.7%	57,960		48,827		18.7%	57,949		48,839		18.7%
Individual	82,799		78,464		5.5%	82,652		78,464		5.3%	83,916		79,329		5.8%
International	13,837		19,139		(27.7)%	12,095		11,967		1.1%	24,184		28,001		(13.6)%
Total Premium	$	171,672	$	156,836	9.5%	$	152,707	$	139,258	9.7%	$	166,049	$	156,169	6.3%
Total National General	$	1,192,762	$	1,222,468	(2.4)%	$	939,178	$	823,127	14.1%	$	984,021	$	891,103	10.4%
Reciprocal Exchanges
Personal Auto	$	43,984	$	42,065	4.6%	$	18,661	$	14,520	28.5%	$	16,093	$	12,462	29.1%
Homeowners	76,140		74,895		1.7%	37,211		52,016		(28.5)%	30,225		39,109		(22.7)%
Other	1,022		1,021		0.1%	348		312		11.5%	312		232		34.5%
Total Premium	$	121,146	$	117,981	2.7%	$	56,220	$	66,848	(15.9)%	$	46,630	$	51,803	(10.0)%
Consolidated Total	$	1,313,908	$	1,340,449	(2.0)%	$	995,398	$	889,975	11.8%	$	1,030,651	$	942,906	9.3%

nm - not meaningful

13

Premiums by Product Line

$ in thousands

(Unaudited)

	Six Months Ended June 30,
	Gross Written Premium					Net Written Premium					Net Earned Premium
	2019		2018		Change	2019		2018		Change	2019		2018		Change
Property & Casualty
Personal Auto	$	1,377,993	$	1,357,437	1.5%	$	1,170,872	$	1,039,721	12.6%	$	1,053,388	$	940,654	12.0%
Homeowners	342,079		331,993		3.0%	193,649		142,900		35.5%	186,066		161,853		15.0%
RV/Packaged	113,165		109,463		3.4%	109,764		108,307		1.3%	99,716		94,682		5.3%
Small Business Auto	169,707		171,230		(0.9)%	139,606		128,159		8.9%	127,692		118,666		7.6%
Lender-placed insurance	134,797		165,533		(18.6)%	79,284		78,101		1.5%	101,996		114,163		(10.7)%
Other	29,014		33,242		(12.7)%	8,824		19,393		(54.5)%	6,033		10,523		(42.7)%
Total Premium	$	2,166,755	$	2,168,898	(0.1)%	$	1,701,999	$	1,516,581	12.2%	$	1,574,891	$	1,440,541	9.3%
Accident & Health
Group	139,974		115,293		21.4%	111,910		94,464		18.5%	111,912		94,478		18.5%
Individual	166,991		153,512		8.8%	166,775		153,512		8.6%	166,151		153,195		8.5%
International	123,251		121,807		1.2%	74,203		114,635		(35.3)%	49,566		62,372		(20.5)%
Total Premium	$	430,216	$	390,612	10.1%	$	352,888	$	362,611	(2.7)%	$	327,629	$	310,045	5.7%
Total National General	$	2,596,971	$	2,559,510	1.5%	$	2,054,887	$	1,879,192	9.3%	$	1,902,520	$	1,750,586	8.7%
Reciprocal Exchanges
Personal Auto	$	80,846	$	76,362	5.9%	$	34,306	$	28,015	22.5%	$	31,954	$	25,459	25.5%
Homeowners	143,940		137,416		4.7%	70,227		88,824		(20.9)%	59,716		71,880		(16.9)%
Other	1,929		1,892		2.0%	642		587		9.4%	618		519		19.1%
Total Premium	$	226,715	$	215,670	5.1%	$	105,175	$	117,426	(10.4)%	$	92,288	$	97,858	(5.7)%
Consolidated Total (A)	$	2,823,686	$	2,773,579	1.8%	$	2,160,062	$	1,996,618	8.2%	$	1,994,808	$	1,848,444	7.9%

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.

14

Fee Income

$ in thousands

(Unaudited)

	Three Months Ended June 30,					Six Months Ended June 30,
	2019		2018		Change	2019		2018		Change
Property & Casualty
Service and Fee Income	$	113,112	$	105,167	7.6%	$	232,488	$	214,740	8.3%
Ceding Commission Income	39,418		41,720		(5.5)%	87,827		74,420		18.0%
Property & Casualty	$	152,530	$	146,887	3.8%	$	320,315	$	289,160	10.8%
Accident & Health
Service and Fee Income
Group	$	32,862	$	24,756	32.7%	$	63,236	$	49,570	27.6%
Individual	1,242		2,164		(42.6)%	3,378		3,461		(2.4)%
Third Party Fee	18,833		16,021		17.6%	47,335		35,097		34.9%
Total Service and Fee Income	52,937		42,941		23.3%	113,949		88,128		29.3%
Ceding Commission Income	3,928		262		nm	6,519		520		nm
Accident and Health	$	56,865	$	43,203	31.6%	$	120,468	$	88,648	35.9%
Total National General	$	209,395	$	190,090	10.2%	$	440,783	$	377,808	16.7%
Reciprocal Exchanges
Service and Fee Income	$	1,516	$	445	nm	$	2,886	$	2,891	(0.2)%
Ceding Commission Income	16,846		13,426		25.5%	35,380		24,936		41.9%
Reciprocal Exchanges	$	18,362	$	13,871	32.4%	$	38,266	$	27,827	37.5%
Consolidated Total (A)	$	209,100	$	185,909	12.5%	$	444,141	$	372,499	19.2%

nm - not meaningful

NOTES: (A) Consolidated Total includes eliminations between National General and the Reciprocal Exchanges in Service and Fee Income of $(18,657) and $(18,052) in the three months ended June 30, 2019 and 2018, respectively, and $(34,908) and $(33,136) in the six months ended June 30, 2019 and 2018, respectively.

15

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 $235,141 and $233,723 in related parties at June 30, 2019 and December 31, 2018, respectively.

(3) Reinsurance balances includes $5,664 and $7,425 from related parties at June 30, 2019 and December 31, 2018, respectively.

(4) Other includes $2,376 and $2,362 from related parties at June 30, 2019 and December 31, 2018, respectively.

(5) Accounts payable and accrued expenses includes $2,454 and $69,874 to related parties at June 30, 2019 and December 31, 2018, respectively.

(6) Common stock: $0.01 par value - authorized 150,000,000 shares, issued and outstanding 113,215,632 shares - June 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 - June 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

16

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 $18.4 million and $20.5 million from these events for the three months ended June 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	92.6%	2.2%	90.4%
2019	Overall NGHC	90.9%	1.2%	89.7%
2018	P&C Segment	92.9%	2.8%	90.1%
2018	Overall NGHC	92.1%	2.3%	89.8%

(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

Investor Relations Department

Phone: 212-380-9462

Email: InvestorRelations@NGIC.COM

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