National General Holdings Corp. Reports 2019 Results

NEW YORK, February 20, 2020 (GLOBE NEWSWIRE) - National General Holdings Corp. (Nasdaq:NGHC) reported fourth quarter2019 net income of $98.4 million or $0.85 per diluted share, compared to net income of $17.3 million or $0.16 per diluted share in the fourth quarter of 2018. Fourth quarter 2019 operating earnings (non-GAAP)⁽¹⁾ was $83.1 million or $0.72 per diluted share compared to $33.6 million or $0.30 per diluted share in the fourth quarter of 2018.

Full year 2019 net income was $314.5 million or $2.73 per diluted share, compared to net income of $174.9 million or $1.59 per diluted share in 2018. 2019 operating earnings (non-GAAP)⁽¹⁾ was $319.2 million or $2.75 per diluted share compared to $231.5 million or $2.09 per diluted share in 2018.

Fourth Quarter 2019 Highlights versus Fourth Quarter 2018*

• Gross written premium grew$46.1 million or 3.9% to $1,221.8 million, primarily driven by 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 7.5%, partially offset by the impact of the Euro Accident Health and Care Insurance (“Euroaccident”) sale which closed on December 2, 2019.

• The overall combined ratio^(12,13) was 91.4% in the fourth quarter compared to 95.9% in the prior year’s quarter and 91.0% for the full year compared to 92.6% in 2018, excluding non-cash amortization of intangible assets. The P&C segment reported a decrease in combined ratio to 94.2% from 100.5% in the prior year’s quarter. The combined ratio includes $9.2 million of catastrophe losses related to weather-related events compared to $59.0 million of Hurricane Michael and California fires catastrophe losses in the prior year’s quarter. The A&H segment reported an increase in combined ratio to 77.1% from 73.6% in the prior year’s quarter.

• Service and fee income grew10.5% 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 $2.65 billion and fully diluted book value per share was $19.06 at December 31, 2019, growth of 19.3% and 25.0%, respectively, from December 31, 2018. Our trailing twelve month operating return on average equity (ROE)⁽¹⁴⁾ was 16.1% as of December 31, 2019.

• Fourth quarter 2019 operating earnings (non-GAAP)⁽¹⁾ excludes the following items, net of tax: $3.4 million or $0.03 per share earnings from equity method investments, $33.8 million or $0.29 per share of net gain on investments (including $20.9 million gain on the sale of Euroaccident, net of tax), $10.7 million or $0.09 per share of non-cash amortization of intangible assets and $11.3 million or $0.10 per share of other expenses reflecting an acquisition related arbitration award.

Barry Karfunkel, National General’s CEO, stated: “2019 was an exceptional year for National General generating a 91.0% combined ratio, $319.2 million of operating earnings, ROE of 16.1% and growth in diluted book value per share of 25.0%. While our P&C segment earnings were negatively impacted by reserve strengthening within our small business auto product line, the P&C segment continued its strong performance via both our independent agency and direct to consumer distribution channels. Our A&H segment reported very strong profitability within our group and individual products. 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 fourth 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 Fourth Quarter 2019 as Compared to Fourth Quarter 2018

• Property & Casualty - Gross written premium grew by 3.3% to $1,045.9 million, net written premium increased by 12.7% to $807.6 million, and net earned premium increased by 12.7% to $842.3 million. P&C gross written premium growth was primarily driven by $47.4 million of added premiums from the acquisition of Farmers Union Insurance. Service and fee income was $107.5 million compared to $110.8 million in the prior year’s quarter. Excluding amortization of intangible assets, the combined ratio^(12,13) was 94.2% with a loss and LAE ratio of 73.6% and an expense ratio^(11,13) of 20.6%, versus a prior year combined ratio of 100.5% with a loss and LAE ratio of 79.6% and an expense ratio of 20.9%. The loss and LAE ratio was impacted by pre-tax catastrophe losses of approximately $9.2 million primarily related to weather-related events in the fourth quarter 2019, compared to $59.0 million of losses in the fourth quarter 2018. Prior year loss development was $26.8 millionunfavorable in the fourth quarter 2019 primarily driven by small business auto, compared to unfavorable loss development of $8.6 million in the fourth quarter 2018.

• Accident & Health - Gross written premium grew by 7.5% to $175.8 million, net written premium grew by 14.3% to $160.4 million, and net earned premium grew by 10.2% to $166.5 million. The A&H gross written premium increase was driven by the continued growth in our domestic A&H business. Service and fee income grew39.7% to $71.8 million compared to $51.4 million in the prior year’s quarter, primarily driven by group administrative fees and third party technology services fees. Excluding non-cash amortization of intangible assets, the combined ratio^(12,13) was 77.1% with a loss and LAE ratio of 41.4% and an expense ratio^(11,13) of 35.7%, versus a prior year combined ratio of 73.6% with a loss and LAE ratio of 45.7% and an expense ratio of 27.9%. The loss and LAE ratio reflects continued strong performance in both small group self-funded and individual products. Prior year loss development was $7.6 millionfavorable in the fourth quarter 2019, compared to favorable loss development of $6.4 million in the fourth quarter 2018.

• Reciprocal Exchanges - Results for the Reciprocal Exchanges are not included in net income available to NGHC common stockholders. Gross written premium was $102.5 million, net written premium was $62.0 million, and net earned premium was $60.8 million. Reciprocal Exchanges combined ratio^(12,13) excluding non-cash amortization of intangible assets was 113.8% with a loss and LAE ratio of 86.4% and an expense ratio^(11,13) of 27.4%.

Fourth quarter 2019 investment income grew to $38.5 million, compared to $37.7 million in the fourth quarter of 2018. Total investments and cash and cash equivalents (including restricted cash) were $4.8 billion as of December 31, 2019. Accumulated other comprehensive income (loss) increased to a $74.5 milliongain at December 31, 2019 from a $52.1 millionloss at December 31, 2018, primarily due to the impact of lower interest rates which positively impacted bond valuations.

Interest expense was $12.7 million for both the current and prior year’s quarter. Debt was $686.0 million at December 31, 2019, down from $705.8 million at December 31, 2018.

The fourth quarter of 2019 provision for income taxes was $20.3 million and the effective tax rate for the quarter was 15.9% compared with income taxes of $12.6 million and an effective rate of 32.5% in the fourth quarter of 2018. The effective tax rate for the year ended December 31, 2019 was 19.8%.

Stockholders’ equity was $2,649.5 million at December 31, 2019, growth of 19.3% from $2,220.8 million at December 31, 2018. Fully diluted book value per share was $19.06 at December 31, 2019, growth of 25.0% from $15.25 at December 31, 2018. Our trailing twelve month operating return on average equity (ROE)⁽¹⁴⁾ was 16.1% as of December 31, 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 and LAE Ratio Points*	EPS Impact After Tax
2019	Q4	Weather-related Events	$9.2	1.1%	$0.06
2019	Q3	Weather-related Events	$11.5	1.4%	$0.08
2019	Q2	Weather-related Events	$18.4	2.2%	$0.13
2019	Q1	Winter Weather	$12.1	1.6%	$0.08
2018	Q4	Hurricane Michael and November California Fires	$59.0	7.9%	$0.41
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

Auto Quota Share - Effective January 1, 2020, we cede 5.0% of net liability under our auto quota share reinsurance agreement.

Conference Call

On Friday, February 21, 2020 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:        652437

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

A replay of the conference call will be accessible from 2:00 PM ET on Friday, February 21, 2020 to 11:59 PM ET on Friday, March 6, 2020 by dialing either 800-332-6854 (toll-free) within the U.S. or 973-528-0005 outside the U.S. and entering passcode 652437. 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.

3

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 potential effect of changes in LIBOR reporting practices, 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 - Fourth Quarter

$ in thousands

(Unaudited)

	Three Months Ended December 31,
	2019									2018
	NGHC		Reciprocal Exchanges			Consolidated				NGHC			Reciprocal Exchanges			Consolidated
Revenues:
Gross written premium	$	1,221,772	$	102,465		$	1,324,237			$	1,175,687		$	111,902		$	1,287,589
Net written premium	967,943		62,012			1,029,955				856,746			51,325			908,071
Net earned premium	1,008,770		60,826			1,069,596				898,479			45,752			944,231
Ceding commission income	38,085		13,055			51,140				48,495			17,226			65,721
Service and fee income	179,276		1,284			165,924			(A)	162,170			1,285			146,270			(G)
Net investment income	38,491		2,184			38,917			(B)	37,666			2,182			37,332			(H)
Net gain (loss) on investments	16,393		707			17,100				(4,689		)	(2,100		)	(6,789		)
Other income	26,428		—			26,428				—			—			—
Total revenues	$	1,307,443	$	78,056		$	1,369,105		(C)	$	1,142,121		$	64,345		$	1,186,765		(I)
Expenses:
Loss and loss adjustment expense	$	689,262	$	52,528		$	741,790			$	664,125		$	36,297		$	700,422
Acquisition costs and other underwriting expenses	199,523		12,710			212,233				184,195			9,031			193,226
General and administrative expenses	278,331		18,352			282,047			(D)	242,340			21,724			246,879			(J)
Interest expense	12,722		1,758			12,722			(E)	12,650			2,516			12,650			(K)
Total expenses	$	1,179,838	$	85,348		$	1,248,792		(F)	$	1,103,310		$	69,568		$	1,153,177		(L)
Income (loss) before provision (benefit) for income taxes	$	127,605	$	(7,292	)	$	120,313			$	38,811		$	(5,223	)	$	33,588
Provision (benefit) for income taxes	20,324		(4,805		)	15,519				12,595			2,628			15,223
Net income (loss) before noncontrolling interest and dividends on preferred shares	107,281		(2,487		)	104,794				26,216			(7,851		)	18,365
Less: net income (loss) attributable to noncontrolling interest	—		(2,487		)	(2,487		)		—			(7,851		)	(7,851		)
Net income before dividends on preferred shares	107,281		—			107,281				26,216			—			26,216
Less: dividends on preferred shares	8,925		—			8,925				8,867			—			8,867
Net income available to common stockholders	$	98,356	$	—		$	98,356			$	17,349		$	—		$	17,349

Consolidated column includes eliminations as follows: (A) $(14,636), (B) $(1,758), (C) $(16,394), (D) $(14,636), (E) $(1,758), (F) $(16,394), (G) $(17,185), (H) $(2,516), (I) $(19,701), (J) $(17,185), (K) $(2,516) and (L) $(19,701).

5

Income Statement - Year to Date

$ in thousands

(Unaudited)

	Year Ended December 31,
	2019									2018
	NGHC		Reciprocal Exchanges			Consolidated				NGHC			Reciprocal Exchanges			Consolidated
Revenues:
Gross written premium	$	5,135,633	$	447,447		$	5,583,080			$	4,969,517		$	448,923		$	5,416,839		(G)
Net written premium	3,990,149		234,472			4,224,621				3,644,148			183,565			3,827,713
Net earned premium	3,907,811		210,231			4,118,042				3,545,441			186,761			3,732,202
Ceding commission income	174,952		63,501			238,453				167,948			56,749			224,697
Service and fee income	705,006		5,755			641,965			(A)	625,463			5,751			561,583			(H)
Net investment income	142,174		8,638			141,233			(B)	119,852			8,875			119,034			(I)
Net gain (loss) on investments	13,603		(130		)	13,473				(26,179		)	(3,366		)	(29,545		)
Other income	26,428		—			26,428				—			—			—
Total revenues	$	4,969,974	$	287,995		$	5,179,594		(C)	$	4,432,525		$	254,770		$	4,607,971		(J)
Expenses:
Loss and loss adjustment expense	$	2,677,356	$	177,112		$	2,854,468			$	2,499,508		$	162,718		$	2,662,226
Acquisition costs and other underwriting expenses	782,328		45,039			827,367				693,283			41,983			735,266
General and administrative expenses	1,024,574		85,994			1,041,772			(D)	923,921			83,756			938,046			(K)
Interest expense	51,544		9,579			51,544			(E)	51,425			9,693			51,425			(L)
Total expenses	$	4,535,802	$	317,724		$	4,775,151		(F)	$	4,168,137		$	298,150		$	4,386,963		(M)
Income (loss) before provision (benefit) for income taxes	$	434,172	$	(29,729	)	$	404,443			$	264,388		$	(43,380	)	$	221,008
Provision (benefit) for income taxes	86,103		(9,090		)	77,013				57,034			(3,550		)	53,484
Net income (loss) before noncontrolling interest and dividends on preferred shares	348,069		(20,639		)	327,430				207,354			(39,830		)	167,524
Less: net income (loss) attributable to noncontrolling interest	—		(20,639		)	(20,639		)		—			(39,830		)	(39,830		)
Net income before dividends on preferred shares	348,069		—			348,069				207,354			—			207,354
Less: dividends on preferred shares	33,600		—			33,600				32,492			—			32,492
Net income available to common stockholders	$	314,469	$	—		$	314,469			$	174,862		$	—		$	174,862

Consolidated column includes eliminations as follows: (A) $(68,796), (B) $(9,579), (C) $(78,375), (D) $(68,796), (E) $(9,579), (F) $(78,375), (G) $(1,601), (H) $(69,631), (I) $(9,693), (J) $(79,324), (K) $(69,631), (L) $(9,693) and (M) $(79,324).

6

Earnings and Per Share Data

$ in thousands, except shares and per share data

(Unaudited)

	Three Months Ended December 31,				Year Ended December 31,
	2019		2018		2019		2018
Net income available to common stockholders	$	98,356	$	17,349	$	314,469	$	174,862
Basic net income per common share	$	0.87	$	0.16	$	2.78	$	1.62
Diluted net income per common share	$	0.85	$	0.16	$	2.73	$	1.59
Operating earnings attributable to NGHC (non-GAAP)(1)	$	83,081	$	33,590	$	319,174	$	231,495
Basic operating earnings per common share (non-GAAP)(1)	$	0.73	$	0.31	$	2.82	$	2.15
Diluted operating earnings per common share (non-GAAP)(1)	$	0.72	$	0.30	$	2.75	$	2.09
Dividends declared per common share	$	0.05	$	0.04	$	0.18	$	0.16
Weighted average number of basic shares outstanding	113,337,130		109,782,543		113,199,501		107,659,813
Weighted average number of diluted shares outstanding	115,344,349		112,947,180		116,096,972		110,822,056
Shares outstanding, end of period	113,368,811		112,940,595
Fully diluted shares outstanding, end of period	115,376,030		116,105,232
Book value per share	$	19.40	$	15.68
Fully diluted book value per share	$	19.06	$	15.25

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

$ in thousands, except per share data

(Unaudited)

	Three Months Ended December 31,						Year Ended December 31,
	2019			2018			2019			2018
Net income available to common stockholders	$	98,356		$	17,349		$	314,469		$	174,862
Add (subtract):
Equity in earnings of equity method investments	(4,359		)	(3,144		)	(2,951		)	(165		)
Net (gain) loss on investments and gain on sale of a business	(42,821		)	4,689			(40,031		)	26,179
Non-cash amortization of intangible assets	13,572			7,926			34,665			31,323
Arbitration award / Litigation settlement	14,273			10,000			14,273			10,000
Income tax expense (benefit)	4,060			(3,230		)	(1,251		)	(10,704		)
Operating earnings attributable to NGHC (non-GAAP)(1)	$	83,081		$	33,590		$	319,174		$	231,495
Operating earnings per common share (non-GAAP)(1):
Basic operating earnings per common share (non-GAAP)(1)	$	0.73		$	0.31		$	2.82		$	2.15
Diluted operating earnings per common share (non-GAAP)(1)	$	0.72		$	0.30		$	2.75		$	2.09

7

Balance Sheet

$ in thousands

(Unaudited)

	December 31, 2019									December 31, 2018
ASSETS	NGHC		Reciprocal Exchanges			Consolidated				NGHC			Reciprocal Exchanges			Consolidated
Total investments (2)	$	4,632,960	$	329,494		$	4,854,998		(A)	$	4,013,699		$	314,411		$	4,226,806		(H)
Cash and cash equivalents, including restricted cash	163,480		983			164,463				233,383			200			233,583
Premiums and other receivables, net	1,373,089		55,859			1,428,948				1,338,485			61,327			1,399,812
Reinsurance balances (3)	1,745,036		225,019			1,970,055				2,023,911			253,501			2,277,412
Intangible assets, net	362,598		3,225			365,823				376,532			3,405			379,937
Goodwill	179,328		—			179,328				180,183			—			180,183
Other (4)	798,675		29,070			792,919			(B)	739,068			27,879			741,547			(I)
Total assets	$	9,255,166	$	643,650		$	9,756,534		(C)	$	8,905,261		$	660,723		$	9,439,280		(J)
LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities:
Unpaid loss and loss adjustment expense reserves	$	2,680,628	$	205,786		$	2,886,414			$	2,778,689		$	178,470		$	2,957,159
Unearned premiums and other revenue	2,059,688		252,553			2,312,241				2,014,965			265,763			2,280,728
Reinsurance payable	527,155		35,689			562,844				615,872			40,393			656,265
Accounts payable and accrued expenses (5)	306,869		43,323			315,366			(D)	390,338			33,120			398,058			(K)
Debt	686,006		107,456			686,006			(E)	705,795			101,304			705,795			(L)
Other	345,366		30,803			376,169				178,764			61,640			240,404
Total liabilities	$	6,605,712	$	675,610		$	7,139,040		(F)	$	6,684,423		$	680,690		$	7,238,409		(M)
Stockholders’ equity:
Common stock (6)	$	1,134	$	—		$	1,134			$	1,129		$	—		$	1,129
Preferred stock (7)	450,000		—			450,000				450,000			—			450,000
Additional paid-in capital	1,065,634		—			1,065,634				1,057,783			—			1,057,783
Accumulated other comprehensive income (loss)	74,548		—			74,548				(52,130		)	—			(52,130		)
Retained earnings	1,058,138		—			1,058,138				764,056			—			764,056
Total National General Holdings Corp. stockholders’ equity	2,649,454		—			2,649,454				2,220,838			—			2,220,838
Noncontrolling interest	—		(31,960		)	(31,960		)		—			(19,967		)	(19,967		)
Total stockholders’ equity	$	2,649,454	$	(31,960	)	$	2,617,494			$	2,220,838		$	(19,967	)	$	2,200,871
Total liabilities and stockholders’ equity	$	9,255,166	$	643,650		$	9,756,534		(G)	$	8,905,261		$	660,723		$	9,439,280		(N)

Consolidated column includes eliminations as follows: (A) $(107,456), (B) $(34,826), (C) $(142,282), (D) $(34,826), (E) $(107,456), (F) $(142,282), (G) $(142,282), (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 - Fourth Quarter

$ in thousands

(Unaudited)

	Three Months Ended December 31,
	2019												2018
	P&C			A&H			NGHC			Reciprocal Exchanges			P&C			A&H			NGHC			Reciprocal Exchanges
Gross written premium	$	1,045,926		$	175,846		$	1,221,772		$	102,465		$	1,012,138		$	163,549		$	1,175,687		$	111,902
Net written premium	807,574			160,369			967,943			62,012			716,394			140,352			856,746			51,325
Net earned premium	842,283			166,487			1,008,770			60,826			747,457			151,022			898,479			45,752
Ceding commission income	35,926			2,159			38,085			13,055			42,281			6,214			48,495			17,226
Service and fee income	107,474			71,802			179,276			1,284			110,776			51,394			162,170			1,285
Total underwriting revenues	$	985,683		$	240,448		$	1,226,131		$	75,165		$	900,514		$	208,630		$	1,109,144		$	64,263
Loss and loss adjustment expense (A)	620,267			68,995			689,262			52,528			595,144			68,981			664,125			36,297
Acquisition costs and other underwriting expenses	130,238			69,285			199,523			12,710			135,968			48,227			184,195			9,031
General and administrative expenses (B)	198,077			65,981			264,058			18,352			178,797			53,543			232,340			21,724
Total underwriting expenses	$	948,582		$	204,261		$	1,152,843		$	83,590		$	909,909		$	170,751		$	1,080,660		$	67,052
Underwriting income (loss)	37,101			36,187			73,288			(8,425		)	(9,395		)	37,879			28,484			(2,789		)
Non-cash amortization of intangible assets	11,766			1,806			13,572			30			5,835			2,091			7,926			111
Underwriting income (loss) before amortization and impairment	$	48,867		$	37,993		$	86,860		$	(8,395	)	$	(3,560	)	$	39,970		$	36,410		$	(2,678	)
Underwriting ratios
Loss and loss adjustment expense ratio (8)	73.6		%	41.4		%	68.3		%	86.4		%	79.6		%	45.7		%	73.9		%	79.3		%
Operating expense ratio (Non-GAAP) (9)	22.0		%	36.8		%	24.4		%	27.5		%	21.6		%	29.2		%	22.9		%	26.8		%
Combined ratio (Non-GAAP) (10)	95.6		%	78.2		%	92.7		%	113.9		%	101.2		%	74.9		%	96.8		%	106.1		%
Underwriting ratios (before amortization and impairment)
Loss and loss adjustment expense ratio (8)	73.6		%	41.4		%	68.3		%	86.4		%	79.6		%	45.7		%	73.9		%	79.3		%
Operating expense ratio(Non-GAAP) (11)	20.6		%	35.7		%	23.1		%	27.4		%	20.9		%	27.9		%	22.0		%	26.5		%
Combined ratio before amortization and impairment (Non-GAAP) (12)	94.2		%	77.1		%	91.4		%	113.8		%	100.5		%	73.6		%	95.9		%	105.8		%

(A) Loss and loss adjustment expenses for the three months ended December 31, 2019 included $26,832 of unfavorable development on prior accident year loss and loss adjustment expense reserves in the P&C segment, and $7,581 of favorable development in the A&H segment, versus $8,558 of unfavorable development in the P&C segment, and $6,354 of favorable development in the A&H segment for the three months ended December 31, 2018.

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

9

Segment Information - Year to Date

$ in thousands

(Unaudited)

	Year Ended December 31,
	2019												2018
	P&C			A&H			NGHC			Reciprocal Exchanges			P&C			A&H			NGHC			Reciprocal Exchanges
Gross written premium	$	4,367,016		$	768,617		$	5,135,633		$	447,447		$	4,271,408		$	698,109		$	4,969,517		$	448,923
Net written premium	3,329,543			660,606			3,990,149			234,472			3,017,609			626,539			3,644,148			183,565
Net earned premium	3,244,792			663,019			3,907,811			210,231			2,929,028			616,413			3,545,441			186,761
Ceding commission income	164,013			10,939			174,952			63,501			160,945			7,003			167,948			56,749
Service and fee income	455,519			249,487			705,006			5,755			439,483			185,980			625,463			5,751
Total underwriting revenues	$	3,864,324		$	923,445		$	4,787,769		$	279,487		$	3,529,456		$	809,396		$	4,338,852		$	249,261
Loss and loss adjustment expense (A)	2,366,676			310,680			2,677,356			177,112			2,178,163			321,345			2,499,508			162,718
Acquisition costs and other underwriting expenses	559,980			222,348			782,328			45,039			508,557			184,726			693,283			41,983
General and administrative expenses (B)	756,093			254,208			1,010,301			85,994			712,113			201,808			913,921			83,756
Total underwriting expenses	$	3,682,749		$	787,236		$	4,469,985		$	308,145		$	3,398,833		$	707,879		$	4,106,712		$	288,457
Underwriting income (loss)	181,575			136,209			317,784			(28,658		)	130,623			101,517			232,140			(39,196		)
Non-cash amortization of intangible assets	27,920			6,745			34,665			71			23,960			7,363			31,323			44
Underwriting income (loss) before amortization and impairment	$	209,495		$	142,954		$	352,449		$	(28,587	)	$	154,583		$	108,880		$	263,463		$	(39,152	)
Underwriting ratios
Loss and loss adjustment expense ratio (8)	72.9		%	46.9		%	68.5		%	84.2		%	74.4		%	52.1		%	70.5		%	87.1		%
Operating expense ratio (Non-GAAP) (9)	21.5		%	32.6		%	23.4		%	29.4		%	21.2		%	31.4		%	23.0		%	33.9		%
Combined ratio (Non-GAAP) (10)	94.4		%	79.5		%	91.9		%	113.6		%	95.6		%	83.5		%	93.5		%	121.0		%
Underwriting ratios (before amortization and impairment)
Loss and loss adjustment expense ratio (8)	72.9		%	46.9		%	68.5		%	84.2		%	74.4		%	52.1		%	70.5		%	87.1		%
Operating expense ratio(Non-GAAP) (11)	20.6		%	31.6		%	22.5		%	29.4		%	20.4		%	30.2		%	22.1		%	33.8		%
Combined ratio before amortization and impairment (Non-GAAP) (12)	93.5		%	78.5		%	91.0		%	113.6		%	94.8		%	82.3		%	92.6		%	120.9		%

(A) Loss and loss adjustment expenses for the year ended December 31, 2019 included $46,623 of unfavorable development on prior accident year loss and loss adjustment expense reserves in the P&C segment, and $45,356 of favorable development in the A&H segment, versus $4,760 of favorable development in the P&C segment, and $30,977 of favorable development in the A&H segment for the year ended December 31, 2018.

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

10

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

$ in thousands

(Unaudited)

	Three Months Ended December 31,
	2019												2018
	P&C			A&H			NGHC			Reciprocal Exchanges			P&C			A&H			NGHC			Reciprocal Exchanges
Total underwriting expenses	$	948,582		$	204,261		$	1,152,843		$	83,590		$	909,909		$	170,751		$	1,080,660		$	67,052
Less: Loss and loss adjustment expense	620,267			68,995			689,262			52,528			595,144			68,981			664,125			36,297
Less: Ceding commission income	35,926			2,159			38,085			13,055			42,281			6,214			48,495			17,226
Less: Service and fee income	107,474			71,802			179,276			1,284			110,776			51,394			162,170			1,285
Operating expense	184,915			61,305			246,220			16,723			161,708			44,162			205,870			12,244
Net earned premium	$	842,283		$	166,487		$	1,008,770		$	60,826		$	747,457		$	151,022		$	898,479		$	45,752
Operating expense ratio (Non-GAAP) (9)	22.0		%	36.8		%	24.4		%	27.5		%	21.6		%	29.2		%	22.9		%	26.8		%
Total underwriting expenses	$	948,582		$	204,261		$	1,152,843		$	83,590		$	909,909		$	170,751		$	1,080,660		$	67,052
Less: Loss and loss adjustment expense	620,267			68,995			689,262			52,528			595,144			68,981			664,125			36,297
Less: Ceding commission income	35,926			2,159			38,085			13,055			42,281			6,214			48,495			17,226
Less: Service and fee income	107,474			71,802			179,276			1,284			110,776			51,394			162,170			1,285
Less: Non-cash amortization of intangible assets	11,766			1,806			13,572			30			5,835			2,091			7,926			111
Operating expense before amortization and impairment	173,149			59,499			232,648			16,693			155,873			42,071			197,944			12,133
Net earned premium	$	842,283		$	166,487		$	1,008,770		$	60,826		$	747,457		$	151,022		$	898,479		$	45,752
Operating expense ratio before amortization and impairment (Non-GAAP) (11)	20.6		%	35.7		%	23.1		%	27.4		%	20.9		%	27.9		%	22.0		%	26.5		%

11

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

$ in thousands

(Unaudited)

	Year Ended December 31,
	2019												2018
	P&C			A&H			NGHC			Reciprocal Exchanges			P&C			A&H			NGHC			Reciprocal Exchanges
Total underwriting expenses	$	3,682,749		$	787,236		$	4,469,985		$	308,145		$	3,398,833		$	707,879		$	4,106,712		$	288,457
Less: Loss and loss adjustment expense	2,366,676			310,680			2,677,356			177,112			2,178,163			321,345			2,499,508			162,718
Less: Ceding commission income	164,013			10,939			174,952			63,501			160,945			7,003			167,948			56,749
Less: Service and fee income	455,519			249,487			705,006			5,755			439,483			185,980			625,463			5,751
Operating expense	696,541			216,130			912,671			61,777			620,242			193,551			813,793			63,239
Net earned premium	$	3,244,792		$	663,019		$	3,907,811		$	210,231		$	2,929,028		$	616,413		$	3,545,441		$	186,761
Operating expense ratio (Non-GAAP) (9)	21.5		%	32.6		%	23.4		%	29.4		%	21.2		%	31.4		%	23.0		%	33.9		%
Total underwriting expenses	$	3,682,749		$	787,236		$	4,469,985		$	308,145		$	3,398,833		$	707,879		$	4,106,712		$	288,457
Less: Loss and loss adjustment expense	2,366,676			310,680			2,677,356			177,112			2,178,163			321,345			2,499,508			162,718
Less: Ceding commission income	164,013			10,939			174,952			63,501			160,945			7,003			167,948			56,749
Less: Service and fee income	455,519			249,487			705,006			5,755			439,483			185,980			625,463			5,751
Less: Non-cash amortization of intangible assets	27,920			6,745			34,665			71			23,960			7,363			31,323			44
Operating expense before amortization and impairment	668,621			209,385			878,006			61,706			596,282			186,188			782,470			63,195
Net earned premium	$	3,244,792		$	663,019		$	3,907,811		$	210,231		$	2,929,028		$	616,413		$	3,545,441		$	186,761
Operating expense ratio before amortization and impairment (Non-GAAP) (11)	20.6		%	31.6		%	22.5		%	29.4		%	20.4		%	30.2		%	22.1		%	33.8		%

12

Premiums by Product Line

$ in thousands

(Unaudited)

	Three Months Ended December 31,
	Gross Written Premium					Net Written Premium						Net Earned Premium
	2019		2018		Change	2019			2018		Change	2019		2018		Change
Property & Casualty
Personal Auto	$	637,500	$	619,180	3.0%	$	529,481		$	474,173	11.7%	$	569,014	$	490,874	15.9%
Homeowners	174,763		164,698		6.1%	128,028			75,830		68.8%	132,715		87,689		51.3%
RV/Packaged	43,950		43,967		—%	36,690			43,806		(16.2)%	44,900		51,347		(12.6)%
Small Business Auto	68,875		72,851		(5.5)%	52,846			52,142		1.4%	62,402		59,285		5.3%
Lender-placed insurance	110,002		103,061		6.7%	57,308			67,439		(15.0)%	23,636		53,182		(55.6)%
Other	10,836		8,381		29.3%	3,221			3,004		7.2%	9,616		5,080		89.3%
Total Premium	$	1,045,926	$	1,012,138	3.3%	$	807,574		$	716,394	12.7%	$	842,283	$	747,457	12.7%
Accident & Health
Group	$	75,352	$	62,693	20.2%	$	60,477		$	51,626	17.1%	$	60,477	$	51,618	17.2%
Individual	88,012		76,232		15.5%	87,733			76,181		15.2%	88,129		75,883		16.1%
International	12,482		24,624		(49.3)%	12,159			12,545		(3.1)%	17,881		23,521		(24.0)%
Total Premium	$	175,846	$	163,549	7.5%	$	160,369		$	140,352	14.3%	$	166,487	$	151,022	10.2%
Total National General	$	1,221,772	$	1,175,687	3.9%	$	967,943		$	856,746	13.0%	$	1,008,770	$	898,479	12.3%
Reciprocal Exchanges
Personal Auto	$	32,676	$	36,527	(10.5)%	$	33,498		$	20,899	60.3%	$	40,642	$	21,111	92.5%
Homeowners	68,953		74,421		(7.3)%	29,829			30,049		(0.7)%	19,489		24,228		(19.6)%
Other	836		954		(12.4)%	(1,315		)	377		nm	695		413		68.3%
Total Premium	$	102,465	$	111,902	(8.4)%	$	62,012		$	51,325	20.8%	$	60,826	$	45,752	32.9%
Consolidated Total	$	1,324,237	$	1,287,589	2.8%	$	1,029,955		$	908,071	13.4%	$	1,069,596	$	944,231	13.3%

nm - not meaningful

13

Premiums by Product Line

$ in thousands

(Unaudited)

	Year Ended December 31,
	Gross Written Premium					Net Written Premium					Net Earned Premium
	2019		2018		Change	2019		2018		Change	2019		2018		Change
Property & Casualty
Personal Auto	$	2,721,202	$	2,637,743	3.2%	$	2,260,385	$	2,016,858	12.1%	$	2,190,748	$	1,927,667	13.6%
Homeowners	718,819		689,040		4.3%	404,278		331,120		22.1%	405,306		329,850		22.9%
RV/Packaged	212,746		208,394		2.1%	198,737		206,740		(3.9)%	195,639		197,258		(0.8)%
Small Business Auto	315,569		319,299		(1.2)%	249,067		233,456		6.7%	252,359		237,587		6.2%
Lender-placed insurance	342,267		363,056		(5.7)%	198,171		202,069		(1.9)%	182,231		215,811		(15.6)%
Other	56,413		53,876		4.7%	18,905		27,366		(30.9)%	18,509		20,855		(11.2)%
Total Premium	$	4,367,016	$	4,271,408	2.2%	$	3,329,543	$	3,017,609	10.3%	$	3,244,792	$	2,929,028	10.8%
Accident & Health
Group	$	288,549	$	239,729	20.4%	$	231,388	$	197,386	17.2%	$	231,398	$	197,406	17.2%
Individual	340,731		308,122		10.6%	340,049		308,065		10.4%	340,251		307,952		10.5%
International	139,337		150,258		(7.3)%	89,169		121,088		(26.4)%	91,370		111,055		(17.7)%
Total Premium	$	768,617	$	698,109	10.1%	$	660,606	$	626,539	5.4%	$	663,019	$	616,413	7.6%
Total National General	$	5,135,633	$	4,969,517	3.3%	$	3,990,149	$	3,644,148	9.5%	$	3,907,811	$	3,545,441	10.2%
Reciprocal Exchanges
Personal Auto	$	152,688	$	153,129	(0.3)%	$	134,958	$	61,759	nm	$	106,549	$	59,923	77.8%
Homeowners	290,972		291,907		(0.3)%	98,009		120,875		(18.9)%	101,964		125,806		(19.0)%
Other	3,787		3,887		(2.6)%	1,505		931		61.7%	1,718		1,032		66.5%
Total Premium	$	447,447	$	448,923	(0.3)%	$	234,472	$	183,565	27.7%	$	210,231	$	186,761	12.6%
Consolidated Total (A)	$	5,583,080	$	5,416,839	3.1%	$	4,224,621	$	3,827,713	10.4%	$	4,118,042	$	3,732,202	10.3%

nm - not meaningful

(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 the year ended December 31, 2018, respectively.

14

Fee Income

$ in thousands

(Unaudited)

	Three Months Ended December 31,					Year Ended December 31,
	2019		2018		Change	2019		2018		Change
Property & Casualty
Service and Fee Income	$	107,474	$	110,776	(3.0)%	$	455,519	$	439,483	3.6%
Ceding Commission Income	35,926		42,281		(15.0)%	164,013		160,945		1.9%
Property & Casualty	$	143,400	$	153,057	(6.3)%	$	619,532	$	600,428	3.2%
Accident & Health
Service and Fee Income
Group	$	36,122	$	29,736	21.5%	$	134,206	$	104,504	28.4%
Individual	4,144		1,331		nm	9,650		9,304		3.7%
Third Party Fee	31,536		20,327		55.1%	105,631		72,172		46.4%
Total Service and Fee Income	71,802		51,394		39.7%	249,487		185,980		34.1%
Ceding Commission Income	2,159		6,214		(65.3)%	10,939		7,003		56.2%
Accident and Health	$	73,961	$	57,608	28.4%	$	260,426	$	192,983	34.9%
Total National General	$	217,361	$	210,665	3.2%	$	879,958	$	793,411	10.9%
Reciprocal Exchanges
Service and Fee Income	$	1,284	$	1,285	(0.1)%	$	5,755	$	5,751	0.1%
Ceding Commission Income	13,055		17,226		(24.2)%	63,501		56,749		11.9%
Reciprocal Exchanges	$	14,339	$	18,511	(22.5)%	$	69,256	$	62,500	10.8%
Consolidated Total (A)	$	217,064	$	211,991	2.4%	$	880,418	$	786,280	12.0%

nm - not meaningful

(A) Consolidated Total includes eliminations between National General and the Reciprocal Exchanges in Service and Fee Income of $(14,636) and $(17,185) in the three months ended December 31, 2019 and 2018, respectively, and $(68,796) and $(69,631) in the year ended December 31, 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 $238,841 and $233,723 in related parties at December 31, 2019 and December 31, 2018, respectively.

(3) Reinsurance balances includes $0 and $7,425 from related parties at December 31, 2019 and December 31, 2018, respectively.

(4) Other includes $2,391 and $2,362 from related parties at December 31, 2019 and December 31, 2018, respectively.

(5) Accounts payable and accrued expenses includes $639 and $69,874 to related parties at December 31, 2019 and December 31, 2018, respectively.

(6) Common stock: $0.01 par value - authorized 150,000,000 shares, issued and outstanding 113,368,811 shares - December 31, 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 - December 31, 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, service and fee income and other general and administrative expenses (arbitration award / litigation settlement expense). 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, service and fee income and other general and administrative expenses (arbitration award / litigation settlement expense) 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

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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) 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 Anderson

Director of Investor Relations

Phone: 212-380-9462

Email: Paul.Anderson@NGIC.com

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