NEW YORK, Aug. 3, 2015 (GLOBE NEWSWIRE) -- National General Holdings Corp. (Nasdaq:NGHC) today reported second quarter 2015 operating earnings(1) of $35.1 million or $0.36 per diluted share, compared to $34.1 million or $0.36 per diluted share in the second quarter of 2014. Net income was $33.8 million or $0.35 per diluted share, compared to $30.3 million or $0.32 per diluted share in the second quarter of 2014.
Second Quarter 2015 Highlights Versus Second Quarter 2014*
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Net written premium grew by $30.1 million or 7.2% to $448.6 million, driven by the run-off of our third-party quota share treaty, additional premiums from acquisitions completed during the past year, and underlying organic growth within our P&C business.
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The combined ratio was 91.5% compared to 93.1% in the prior year's quarter, excluding non-cash amortization of intangible assets, driven by improvement within both our P&C and A&H segments.
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Total revenue grew $86.7 million or 19.6% to $529.6 million, driven by $55.1 million or 14.1% growth in net earned premiums, $28.9 million or 75.0% growth in service and fee income (including Attorney-in-Fact management fees of $10.7 million), and $4.8 million or 42.7% growth in net investment income, partially offset by a $1.5 million or 97.0% decline in ceding commission income from the run-off of our terminated third-party quota share.
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Shareholders' equity grew 2.5% from March 31, 2015 to $1.29 billion, while fully diluted book value per share grew 1.3% to $11.11 at June 30, 2015. Annualized operating return on average common equity (ROE) was 13.2% for the second quarter of 2015.
- Second quarter 2015 operating earnings exclude the following items, net of tax: $1.9 million or $0.02 per share of non-cash amortization of intangible assets, $1.6 million or $0.02 per share of net realized investment gains, $1.1 million or $0.01 per share of equity in earnings of unconsolidated subsidiaries, $1.1 million or $0.01 per share of foreign exchange losses, and $1.0 million or $0.01 per share of other than temporary impairment losses. Second quarter 2015 operating earnings include $7.2 million, or approximately $0.05 per share, of additional expenses related to transition and integration costs for to the Tower Personal Lines business.
Michael Karfunkel, National General's Chairman and CEO, stated: "We are pleased with our second quarter results, which included underlying growth and solid underwriting profitability in both of our operating segments. Within P&C, we have seen strong performance from both our legacy business and recent acquisitions, including our newest addition Assigned Risk Solutions (ARS), which closed early in the second quarter. We continue to make progress transitioning the homeowners product to our state-of-the-art technology platform, as we have already moved several key states and expect to be completed with the others by year-end, putting the majority of homeowners products on our system. Within A&H, we again posted solid profitability, and we believe we have only scratched the surface on the potential for what this business can become. We remained busy on the acquisition front, announcing our acquisition of the QBE Lender-Placed Insurance business on July 15 and announcing an agreement in principle to acquire certain business lines from Assurant Health on June 10. We expect both of these transactions will be immediately accretive to earnings and will greatly enhance the value of our franchise. Through the first half of 2015, we have profitably grown our business and made several great additions to our platform, and we now stand in an excellent position to capitalize on these moves during the rest of this year and throughout 2016. Going forward, we plan to continue to grow our business both organically and through additive transactions like these, building a premier personal lines insurer and further enhancing shareholder value."
*NOTE: Unless specified otherwise, discussion of our second quarter 2015 results does 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. Attorney-in-Fact management fees referenced within this release are eliminated in consolidated financial results.
Overview of Second Quarter 2015 as Compared to Second Quarter 2014
Gross written premium grew 6.5% to $499.0 million, net written premium grew 7.2% to $448.6 million, and net earned premium grew 14.1% to $446.6 million. Underlying premium growth was driven by several key factors: a continued increase in net retention due to the run-off of our terminated third party quota share, which was 100% complete as of July 31, 2014; additional premiums from acquisitions completed during the past year; and underlying organic growth within our P&C segment.
Ceding commission income decreased to $0.0 million from $1.6 million in the prior year's quarter, reflecting the run-off of our terminated third-party quota share. Service and fee income grew 75.0% to $67.3 million, driven by growth in both the P&C and A&H segments, and including management fees of $10.7 million related to the Attorneys-in-Fact that manage the Reciprocal Exchanges within the P&C segment.
Excluding non-cash amortization of intangible assets, the combined ratio was 91.5% with a loss ratio of 60.8% and an expense ratio of 30.7%, versus a prior year combined ratio of 93.1% with a loss ratio of 65.3% and an expense ratio of 27.8%. The lower loss ratio was driven by an improvement in both P&C and A&H loss ratios, and the higher expense ratio was driven by an increased P&C expense ratio partially offset by a reduced A&H expense ratio.
Underwriting results detailed by each of our business segments are as follows:
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Property & Casualty - Gross written premium grew 13.9% to $464.5 million, net written premium grew 18.1% to $422.8 million, and net earned premium grew 13.5% to $410.3 million. Underlying P&C premium growth was driven by three key factors: (1) a continued increase in net retention due to the run-off of our terminated third party quota share, which was 100% complete as of July 31, 2014; (2) additional premiums from acquisitions completed during the past year, including Imperial which was acquired during the second quarter of 2014; and (3) underlying organic growth of approximately 6%. Ceding commission income decreased to $(0.2) million from $1.6 million in the prior year's quarter, reflecting the run-off of our terminated third-party quota share. Service and fee income grew 112.4% to $49.7 million, driven by increased underlying premium volume in the quarter, the addition of service and fee income from acquisitions completed during the past year (including our acquisition of Assigned Risk Solutions which closed on April 1, 2015), and the addition of $10.7 million of fees earned by the Attorneys-in-Fact that manage the Reciprocal Exchanges. Excluding non-cash amortization of intangible assets, the combined ratio was 91.6% with a loss ratio of 59.8% and an expense ratio of 31.8%, versus a prior year combined ratio of 91.7% with a loss ratio of 63.9% and an expense ratio of 27.8%. The improved loss ratio versus the prior year's quarter is the result of business mix changes, most notably a growing proportion of homeowners business within our product portfolio. The increased expense ratio is primarily the result of $7.2 million, or approximately 1.8 points, of additional expenses related to transition and integration costs for the Tower Personal Lines business, which relate to IT, facilities management, operations, underwriting, and claims.
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Accident & Health - Gross written premium declined 43.1% to $34.5 million, net written premium declined 57.3% to $25.8 million, and net earned premium grew 21.5% to $36.3 million. The decline in gross and net written premium was driven by a reduction in written premium at EuroAccident (our Swedish group life and health MGA), partially offset by growth within our domestic operations. EuroAccident net written premium declined to $10.0 million from $49.7 million in the prior year's quarter driven by two key factors: (1) a substantial shift in exchange rates between U.S. Dollars and Swedish Krona between the two periods; and (2) as previously expected, a reduction from a higher level of second quarter 2014 premiums as the 2014 quarter included both a portion of year-to-date reinsured premium and the initial quarter of EuroAccident business being written on National General paper, while the 2015 second quarter includes only business written on National General paper. Our domestic operations continue to demonstrate strong growth, with a total of $15.9 million in net written premium at our U.S. underwriting subsidiaries, compared to $10.7 million in the prior year's quarter. Service and fee income grew 17.1% to $17.7 million, with strong growth at VelaPoint (our call center general agency) and TABS (our domestic stop loss business), and added service and fee income from HST (which was acquired in the first quarter of 2015), partially offset by a decline at EuroAccident, where fee income is eliminated in consolidation as business is now written on National General paper. Excluding non-cash amortization of intangible assets, the combined ratio was 89.9% with a loss ratio of 72.0% and an expense ratio of 17.9%, versus a prior year combined ratio of 110.1% with a loss ratio of 82.4% and an expense ratio of 27.7%. The improved profitability was driven by a reduction in both the loss and expense ratios, reflecting the continued maturation of the A&H business and higher service and fee income.
- Reciprocal Exchanges - Results for the Reciprocal Exchanges are not included in net income available to NGHC common stockholders. Gross written premium was $76.7 million, net written premium was $30.8 million, and net earned premium was $22.2 million. Excluding non-cash amortization of intangible assets, the combined ratio was 98.5% with a loss ratio of 68.5% and an expense ratio of 30.0%.
Investment income grew 42.7% to $16.2 million, reflecting an increase in the size of our investment portfolio as compared to the prior year's quarter and our continued growth in retained earnings. Second quarter 2015 results included $2.4 million of net realized investment gains compared with no realized gains or losses in the second quarter of 2014, as well as an other than temporary impairment (OTTI) loss of $1.5 million compared to zero OTTI impact in the second quarter of 2014. Total cash, cash equivalents and investments grew to $1.91 billion at June 30, 2015 from $1.85 billion at March 31, 2015. Accumulated other comprehensive income (AOCI) declined to $15.0 million at June 30, 2015 from $32.7 million at March 31, 2015.
Other revenue was a loss of $1.4 million, with a negligible amount of other revenue in the prior year's quarter, driven by a $1.6 million foreign exchange loss from currency fluctuations within our European subsidiaries.
Interest expense of $4.8 million increased from $2.5 million in the prior year's quarter, as the second quarter 2014 did not reflect a full quarter of interest payments on our $250 million May 2014 senior note issuance. Debt was $250.3 million as of June 30, 2015.
Equity in earnings of unconsolidated subsidiaries (predominantly our investment in Life Settlement Entities) was $1.7 million in the second quarter of 2015 versus a loss of $2.6 million in the prior year's quarter, reflecting fair value adjustments on life settlement contracts.
The second quarter 2015 provision for income taxes was $9.1 million and the effective tax rate for the quarter was 19.8%. Included in the second quarter 2015 provision for income taxes was a $2.6 million benefit attributable to a reduction of the deferred tax liability (DTL) associated with the equalization reserves of our Luxembourg Reinsurance Company (LRC) subsidiaries. Excluding this benefit, the adjusted second quarter 2015 effective tax rate was 25.4%. As of June 30, 2015, the DTL associated with our LRC subsidiaries was $28.4 million.
National General Holding Corp. shareholders' equity was $1,289.7 million at June 30, 2015, growth of 2.5% from $1,258.9 million at March 31, 2015, reflecting the quarter's retained earnings as well as the addition of $15 million of preferred stock from the exercise of the underwriters' over-allotment option on our March 2015 preferred share offering, partially offset by a reduction in AOCI. Fully diluted book value per share was $11.11 at June 30, 2015, growth of 1.3% from $10.96 at March 31, 2015, and growth of 17.2% from $9.48 at June 30, 2014. Annualized operating return on average common equity (ROE) was 13.2% for the second quarter of 2015.
Additional Items
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Assurant Health - On June 10, 2015 we announced that we had reached an agreement in principle, subject to final documentation and regulatory approval, to acquire certain business lines and assets from Assurant Health, which is a business segment of Assurant, Inc. (NYSE:AIZ). Included in the transaction are the small group self-funded and supplemental product lines, as well as the right to acquire certain other assets including North Star Marketing, a proprietary small group sales channel. In total, these businesses will provide National General with access to up to approximately $280 million of potential additional A&H revenues. Assurant Health will continue sales of its small group self-funded and supplemental products while the transaction is finalized. The transaction will be subject to customary closing conditions and regulatory approvals. In addition, National General and Assurant have entered into an exclusivity arrangement until a definitive agreement can be reached, during which National General will reinsure business written by Assurant Health.
- QBE Lender-Placed Insurance - On July 15, 2015 we announced that we had reached an agreement to acquire the Lender-Placed Insurance business of QBE North America, a division of QBE Insurance Group Limited (ASX:QBE.AX). The transaction includes the acquisition of certain assets, including loan-tracking systems and technology, client servicing accounts, intellectual property, and vendor relationships, as well as the assumption of all related insurance liabilities in a reinsurance transaction through which National General will receive the loss reserves, unearned premium reserves, and invested assets at closing. As of June 30, 2015 these amounts were approximately $92 million, $247 million, and $342 million, respectively. The purchase price will be an aggregate cash payment of $90 million, payable at closing, which is expected to occur within 90 days. The transaction is subject to customary closing conditions and regulatory approvals. QBE LPI is the second largest lender-placed insurance platform in the U.S., produced $576 million of gross written and managed premium in 2014 and tracked 10.7 million home and auto loans as of December 31, 2014. QBE LPI offers a full suite of lender-placed insurance products to customers through three business segments: (1) LPI Home offers fire, home, and flood products, wrote $390 million GWP and tracked 7.8 million loans in 2014; (2) LPI Auto offers collateral protection insurance and guaranteed asset protection products for automobiles, wrote $150 million GWP and tracked 2.9 million loans in 2014; and (3) Seattle Specialty Insurance Services is an agency and tracking business focused on the smaller niche loan servicing market which wrote $36 million of GWP primarily on behalf of third-parties and tracked 595,000 loans in 2014. The company has an industry leading technology platform supported by comprehensive enterprise risk management capabilities, and a seasoned management team with significant operational expertise.
Conference Call
On Tuesday, August 4, 2015 at 11:00 AM ET, Chairman and Chief Executive Officer Michael Karfunkel and Chief Financial Officer Mike Weiner will review these results via a conference call that may be accessed as follows:
| Toll-Free U.S. Dial-in: | 888-267-2860 | |
| International Dial-in: | 973-413-6102 | |
| Conference Entry Code: | 842046 | |
| Webcast Registration: | http://ir.nationalgeneral.com/events.cfm | |
A replay of the conference call will be accessible from 2:00 PM ET on Tuesday, August 4, 2015 to 11:59 PM ET on Tuesday, August 18, 2015 by dialing either 800-332-6854 (toll-free) within the U.S. or 973-528-0005 outside the U.S. and entering passcode 842046. In addition, a replay of the webcast can also be retrieved at http://ir.nationalgeneral.com/events.cfm.
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, 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, estimates of the fair value of life settlement contracts, development of claims and the effect on loss reserves, accuracy in projecting loss reserves, the cost and availability of reinsurance coverage, the effects of emerging claim and coverage issues, 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, 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 AmTrust Financial Services, Inc., ACP Re Ltd., Maiden Holdings, Ltd. or third parties, 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 - Second Quarter | |||||
| $ in thousands | |||||
| (Unaudited) | |||||
| Three Months Ended June 30, | |||||
| 2015 | 2014 | ||||
| NGHC |
Reciprocal Exchanges |
Consolidated | NGHC | ||
| Revenues: | |||||
| Gross written premium | $ 498,952 | $ 76,729 | $ 575,681 | $ 468,473 | |
| Ceded premiums (related parties - $373, $(20), and $353 in 2015 and $12,690 in 2014) | (50,308) | (45,963) | (96,271) | (49,917) | |
| Net written premium | 448,644 | 30,766 | 479,410 | 418,556 | |
| Net earned premium | 446,568 | 22,248 | 468,816 | 391,466 | |
| Ceding commission income | 46 | 9,924 | 9,970 | 1,557 | |
| Service and fee income | 67,343 | 947 | 57,558 | (A) | 38,486 |
| Net investment income | 16,154 | 2,181 | 18,335 | 11,321 | |
| Net realized gain/(loss) on investments | 2,402 | (546) | 1,856 | — | |
| Other than temporary impairment loss | (1,467) | — | (1,467) | — | |
| Other revenue | (1,415) | — | (1,415) | 100 | |
| Total revenues | $ 529,631 | $ 34,754 | $ 553,653 | (B) | $ 442,930 |
| Expenses: | |||||
| Loss and loss adjustment expense | $ 271,584 | $ 15,245 | $ 286,829 | $ 255,604 | |
| Acquisition costs and other underwriting expenses | 88,912 | 7,611 | 96,502 | (C) | 74,418 |
| General and administrative | 118,328 | 11,541 | 119,158 | (D) | 77,059 |
| Interest expense | 4,804 | 3,797 | 8,601 | 2,519 | |
| Total expenses | $ 483,628 | $ 38,194 | $ 511,090 | (E) | $ 409,600 |
| Income before provision for income taxes and equity in earnings (losses) of unconsolidated subsidiaries | $ 46,003 | $ (3,440) | $ 42,563 | $ 33,330 | |
| Provision for income taxes | 9,110 | (1,219) | 7,891 | 424 | |
| Income before equity in earnings (losses) of unconsolidated subsidiaries | 36,893 | (2,221) | 34,672 | 32,906 | |
| Equity in earnings (losses) of unconsolidated subsidiaries | 1,654 | — | 1,654 | (2,610) | |
| Net income before non-controlling interest and dividends on preferred shares | 38,547 | (2,221) | 36,326 | 30,296 | |
| Less: net income attributable to non-controlling interest | 20 | (2,221) | (2,201) | (38) | |
| Net income before dividends on preferred shares | 38,527 | — | 38,527 | 30,334 | |
| Less: dividends on preferred shares | 4,744 | — | 4,744 | — | |
| Net income available to common stockholders | $ 33,783 | $ — | $ 33,783 | $ 30,334 | |
| NOTE: Consolidated column includes eliminations as follows: (A) $(10,732), (B) $(10,732), (C) $(21), (D) $(10,711), (E) $(10,732). | |||||
| Income Statement - Year to Date | |||||||
| $ in thousands | |||||||
| (Unaudited) | |||||||
| Six Months Ended June 30, | |||||||
| 2015 | 2014 | ||||||
| NGHC |
Reciprocal Exchanges |
Consolidated | NGHC | ||||
| Revenues: | |||||||
| Gross written premium | $ 1,084,760 | $ 137,966 | $ 1,219,136 | (A) | $ 1,114,615 | ||
| Ceded premiums (related parties - $721, $3,570, and $4,291 in 2015 and $42,967 in 2014) | (124,728) | (88,563) | (209,701) | (B) | (128,574) | ||
| Net written premium | 960,032 | 49,403 | 1,009,435 | 986,041 | |||
| Net earned premium | 883,837 | 64,144 | 947,981 | 749,318 | |||
| Ceding commission income | 1,099 | 13,951 | 15,050 | 6,927 | |||
| Service and fee income | 129,996 | 1,742 | 112,428 | (C) | 75,192 | ||
| Net investment income | 30,263 | 4,220 | 34,483 | 20,535 | |||
| Net realized gain/(loss) on investments | 3,912 | 147 | 4,059 | — | |||
| Other than temporary impairment loss | (2,483) | — | (2,483) | — | |||
| Other revenue | (170) | — | (170) | 107 | |||
| Total revenues | $ 1,046,454 | $ 84,204 | $ 1,111,348 | (D) | $ 852,079 | ||
| Expenses: | |||||||
| Loss and loss adjustment expense | $ 550,266 | $ 43,249 | $ 593,515 | $ 480,951 | |||
| Acquisition costs and other underwriting expenses | 175,541 | 10,872 | 186,387 | (E) | 148,791 | ||
| General and administrative | 218,204 | 25,925 | 224,845 | (F) | 153,258 | ||
| Interest expense | 10,187 | 7,494 | 17,681 | 3,112 | |||
| Total expenses | $ 954,198 | $ 87,540 | $ 1,022,428 | (G) | $ 786,112 | ||
| Income before provision for income taxes and equity in earnings (losses) of unconsolidated subsidiaries | $ 92,256 | $ (3,336) | $ 88,920 | $ 65,967 | |||
| Provision for income taxes | 17,529 | (1,251) | 16,278 | 7,760 | |||
| Income before equity in earnings (losses) of unconsolidated subsidiaries | 74,727 | (2,085) | 72,642 | 58,207 | |||
| Equity in earnings (losses) of unconsolidated subsidiaries | 6,612 | — | 6,612 | (1,487) | |||
| Net income before non-controlling interest and dividends on preferred shares | 81,339 | (2,085) | 79,254 | 56,720 | |||
| Less: net income attributable to non-controlling interest | 44 | (2,085) | (2,041) | (6) | |||
| Net income before dividends on preferred shares | 81,295 | — | 81,295 | 56,726 | |||
| Less: dividends on preferred shares | 5,775 | — | 5,775 | — | |||
| Net income available to common stockholders | $ 75,520 | $ — | $ 75,520 | $ 56,726 | |||
| NOTE: Consolidated column includes eliminations as follows: (A) $(3,590), (B) $3,590, (C) $(19,310), (D) $(19,310), (E) $(26), (F) $(19,284), and (G) $(19,310). | |||||||
| Earnings and Per Share Data | ||||
| $ in thousands, except shares and per share data | ||||
| (Unaudited) | ||||
| Three Months Ended June 30, | Six Months Ended June 30, | |||
| 2015 | 2014 | 2015 | 2014 | |
| Net income available to common stockholders | $ 33,783 | $ 30,334 | $ 75,520 | $ 56,726 |
| Basic net income per common share | $ 0.36 | $ 0.32 | $ 0.81 | $ 0.63 |
| Diluted net income per common share | $ 0.35 | $ 0.32 | $ 0.79 | $ 0.62 |
| Operating earnings attributable to NGHC(1) | $ 35,082 | $ 34,057 | $ 74,770 | $ 61,808 |
| Basic operating earnings per common share(1) | $ 0.37 | $ 0.36 | $ 0.80 | $ 0.69 |
| Diluted operating earnings per common share(1) | $ 0.36 | $ 0.36 | $ 0.78 | $ 0.68 |
| Dividends declared per common share | $ 0.02 | $ 0.01 | $ 0.04 | $ 0.02 |
| Weighted average number of basic shares outstanding | 93,597,448 | 93,344,400 | 93,527,977 | 89,526,029 |
| Weighted average number of diluted shares outstanding | 96,181,037 | 94,819,307 | 96,005,397 | 90,898,518 |
| Shares outstanding, end of period | 93,713,986 | 93,344,400 | 93,713,986 | 93,344,400 |
| Fully diluted shares outstanding, end of period | 96,297,575 | 94,819,307 | 96,191,405 | 94,819,307 |
| Book value per share | $ 11.41 | $ 9.63 | $ 11.41 | $ 9.63 |
| Fully diluted book value per share | $ 11.11 | $ 9.48 | $ 11.12 | $ 9.48 |
| Reconciliation of Net Income to Operating Earnings (Non-GAAP) | ||||
| $ in thousands, except per share data | ||||
| (Unaudited) | ||||
| Three Months Ended June 30, | Six Months Ended June 30, | |||
| 2015 | 2014 | 2015 | 2014 | |
| Net income available to common stockholders | $ 33,783 | $ 30,334 | $ 75,520 | $ 56,726 |
| Add (subtract) net of tax: | ||||
| Net realized (gain)/loss on investments | (1,561) | — | (2,543) | — |
| Other than temporary impairment losses | 954 | — | 1,614 | — |
| Foreign exchange (gain)/loss | 1,062 | 246 | 783 | 247 |
| Equity in (earnings)/losses of unconsolidated subsidiaries | (1,075) | 1,697 | (4,298) | 967 |
| Non-cash amortization of intangible assets | 1,920 | 1,780 | 3,694 | 3,869 |
| Non-cash impairment of goodwill | — | — | — | — |
| Operating earnings attributable to NGHC (1) | $ 35,082 | $ 34,057 | $ 74,770 | $ 61,808 |
| Operating earnings per common share: | ||||
| Basic operating earnings per common share | $ 0.37 | $ 0.36 | $ 0.80 | $ 0.69 |
| Diluted operating earnings per common share | $ 0.36 | $ 0.36 | $ 0.78 | $ 0.68 |
| Balance Sheet | ||||||
| $ in thousands | ||||||
| (Unaudited) | ||||||
|
June 30, 2015 (unaudited) |
December 31, 2014 (audited) |
|||||
| ASSETS | NGHC |
Reciprocal Exchanges |
Consolidated | NGHC |
Reciprocal Exchanges |
Consolidated |
| Investments: | ||||||
| Fixed maturities (2) | $ 1,461,944 | $ 223,453 | $ 1,685,397 | $ 1,374,087 | $ 222,739 | $ 1,596,826 |
| Equity securities (3) | 55,848 | 1,515 | 57,363 | 45,802 | 2,817 | 48,619 |
| Short-term investments | 50 | 9,261 | 9,311 | 50 | 10,490 | 10,540 |
| Equity investment in unconsolidated subsidiaries | 178,557 | — | 178,557 | 155,900 | — | 155,900 |
| Other investments | 7,607 | — | 7,607 | 4,764 | — | 4,764 |
| Securities pledged (4) | 68,826 | — | 68,826 | 49,456 | — | 49,456 |
| Total investments | 1,772,832 | 234,229 | 2,007,061 | 1,630,059 | 236,046 | 1,866,105 |
| Cash and cash equivalents | 132,791 | 35,270 | 168,061 | 123,178 | 9,437 | 132,615 |
| Accrued investment income | 13,463 | 1,976 | 15,439 | 12,553 | 1,898 | 14,451 |
| Premiums and other receivables, net (5) | 711,439 | 54,716 | 766,155 | 589,205 | 58,238 | 647,443 |
| Deferred acquisition costs | 122,232 | 19,028 | 141,260 | 121,514 | 4,485 | 125,999 |
| Reinsurance recoverable on unpaid losses (6) | 836,627 | 42,039 | 878,666 | 888,215 | 23,583 | 911,798 |
| Prepaid reinsurance premiums | 64,847 | 59,047 | 123,894 | 75,837 | 26,924 | 102,761 |
| Notes receivable from related party | 125,000 | — | 125,000 | 125,000 | — | 125,000 |
| Due from affiliate | 24,701 | — | 24,701 | 5,129 | — | 5,129 |
| Premises and equipment, net | 28,709 | — | 28,709 | 30,583 | — | 30,583 |
| Intangible assets, net | 264,863 | 7,567 | 272,430 | 237,404 | 11,433 | 248,837 |
| Goodwill | 113,843 | — | 113,843 | 70,764 | — | 70,764 |
| Prepaid and other assets | 18,351 | 24,348 | 42,699 | 43,160 | 71 | 43,231 |
| Total assets | $ 4,229,698 | $ 478,220 | $ 4,707,918 | $ 3,952,601 | $ 372,115 | $ 4,324,716 |
| LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||
| Liabilities: | ||||||
| Unpaid loss and loss adjustment expense reserves | $ 1,429,244 | $ 124,328 | $ 1,553,572 | $ 1,450,305 | $ 111,848 | $ 1,562,153 |
| Unearned premiums | 808,395 | 137,380 | 945,775 | 744,438 | 119,998 | 864,436 |
| Unearned service contract and other revenue | 9,336 | 35,145 | 44,481 | 8,527 | — | 8,527 |
| Reinsurance payable (7) | 83,008 | 6,675 | 89,683 | 97,830 | 13,811 | 111,641 |
| Accounts payable and accrued expenses (8) | 165,912 | 22,923 | 188,835 | 189,430 | 17,691 | 207,121 |
| Due to affiliate | — | 38,056 | 38,056 | — | 1,552 | 1,552 |
| Securities sold under agreements to repurchase, at contract value | 61,154 | — | 61,154 | 46,804 | — | 46,804 |
| Deferred tax liability | (7,559) | 38,855 | 31,296 | 29,133 | 38,402 | 67,535 |
| Income tax payable | 46,500 | 35 | 46,535 | 29,532 | 1,059 | 30,591 |
| Notes payable (9) | 250,337 | 52,547 | 302,884 | 250,708 | 48,374 | 299,082 |
| Other liabilities | 93,697 | 14,809 | 108,506 | 46,114 | 5,710 | 51,824 |
| Total liabilities | $ 2,940,024 | $ 470,753 | $ 3,410,777 | $ 2,892,821 | $ 358,445 | $ 3,251,266 |
| Stockholders' equity: | ||||||
| Common stock (10) | $ 937 | $ — | $ 937 | $ 934 | $ — | $ 934 |
| Preferred stock (11) | 220,000 | — | 220,000 | 55,000 | — | 55,000 |
| Additional paid-in capital | 688,967 | — | 688,967 | 690,736 | — | 690,736 |
| Accumulated other comprehensive income | 14,993 | — | 14,993 | 20,192 | — | 20,192 |
| Retained earnings | 364,609 | — | 364,609 | 292,832 | — | 292,832 |
| Total National General Holdings Corp. stockholders' equity | 1,289,506 | — | 1,289,506 | 1,059,694 | — | 1,059,694 |
| Non-controlling interest | 168 | 7,467 | 7,635 | 86 | 13,670 | 13,756 |
| Total stockholders' equity | 1,289,674 | 7,467 | 1,297,141 | 1,059,780 | 13,670 | 1,073,450 |
| Total liabilities and stockholders' equity | $ 4,229,698 | $ 478,220 | $ 4,707,918 | $ 3,952,601 | $ 372,115 | $ 4,324,716 |
| Segment Information - Second Quarter | |||||||||
| $ in thousands | |||||||||
| (Unaudited) | |||||||||
| Three Months Ended June 30, | |||||||||
| 2015 | 2014 | ||||||||
| P&C | A&H | NGHC |
Reciprocal Exchanges |
P&C | A&H | NGHC | |||
| Gross written premium | $ 464,494 | $ 34,458 | $ 498,952 | $ 76,729 | $ 407,863 | $ 60,610 | $ 468,473 | ||
| Net written premium | 422,838 | 25,806 | 448,644 | 30,766 | 358,096 | 60,460 | 418,556 | ||
| Net earned premium | 410,301 | 36,267 | 446,568 | 22,248 | 361,623 | 29,843 | 391,466 | ||
| Ceding commission income | (225) | 271 | 46 | 9,924 | 1,557 | — | 1,557 | ||
| Service and fee income | 49,671 | 17,672 | 67,343 | 947 | 23,389 | 15,097 | 38,486 | ||
| Total underwriting revenue | $ 459,747 | $ 54,210 | $ 513,957 | $ 33,119 | $ 386,569 | $ 44,940 | $ 431,509 | ||
| Loss and loss adjustment expense | $ 245,454 | $ 26,130 | $ 271,584 | $ 15,245 | $ 231,008 | $ 24,596 | $ 255,604 | ||
| Acquisition costs and other | 77,293 | 11,619 | 88,912 | 7,611 | 61,440 | 12,978 | 74,418 | ||
| General and administrative | 104,297 | 14,031 | 118,328 | 11,541 | 64,715 | 12,344 | 77,059 | ||
| Total underwriting expenses | $ 427,044 | $ 51,780 | $ 478,824 | $ 34,397 | $ 357,163 | $ 49,918 | $ 407,081 | ||
| Underwriting income (loss) | $ 32,703 | $ 2,430 | $ 35,133 | $ (1,278) | $ 29,406 | $ (4,978) | $ 24,428 | ||
| Non-cash impairment of goodwill | — | — | — | — | — | — | — | ||
| Non-cash amortization of intangible assets | 1,733 | 1,221 | 2,954 | 1,615 | 773 | 1,966 | 2,739 | ||
| Underwriting income (loss) before amortization and impairment | $ 34,436 | $ 3,651 | $ 38,087 | $ 337 | $ 30,179 | $ (3,012) | $ 27,167 | ||
| Underwriting ratios | |||||||||
| Loss and loss adjustment expense ratio (12) | 59.8% | 72.0% | 60.8% | 68.5% | 63.9% | 82.4% | 65.3% | ||
| Operating expense ratio (Non-GAAP) (13,14) | 32.2% | 21.3% | 31.3% | 37.2% | 28.0% | 34.3% | 28.5% | ||
| Combined ratio (Non-GAAP) (13,15) | 92.0% | 93.3% | 92.1% | 105.7% | 91.9% | 116.7% | 93.8% | ||
| Underwriting ratios (before amortization and impairment) | |||||||||
| Loss and loss adjustment expense ratio (12) | 59.8% | 72.0% | 60.8% | 68.5% | 63.9% | 82.4% | 65.3% | ||
| Operating expense ratio(Non-GAAP) (13,16) | 31.8% | 17.9% | 30.7% | 30.0% | 27.8% | 27.7% | 27.8% | ||
| Combined ratio (Non-GAAP) (13,15) | 91.6% | 89.9% | 91.5% | 98.5% | 91.7% | 110.1% | 93.1% | ||
| NOTE: Loss and loss adjustment expense ratio and operating expense ratio may not sum to combined ratio due to rounding. | |||||||||
| Segment Information - Year to Date | ||||||||
| $ in thousands | ||||||||
| (Unaudited) | ||||||||
| Six Months Ended June 30, | ||||||||
| 2015 | 2014 | |||||||
| P&C | A&H | NGHC |
Reciprocal Exchanges |
P&C | A&H | NGHC | ||
| Gross written premium | $ 974,945 | $ 109,815 | $ 1,084,760 | $ 137,966 | $ 1,014,471 | $ 100,144 | $ 1,114,615 | |
| Net written premium | 867,098 | 92,934 | 960,032 | 49,403 | 886,094 | 99,947 | 986,041 | |
| Net earned premium | 816,395 | 67,442 | 883,837 | 64,144 | 688,842 | 60,476 | 749,318 | |
| Ceding commission income | 546 | 553 | 1,099 | 13,951 | 6,927 | — | 6,927 | |
| Service and fee income | 94,905 | 35,091 | 129,996 | 1,742 | 45,062 | 30,130 | 75,192 | |
| Total underwriting revenue | $ 911,846 | $ 103,086 | $ 1,014,932 | $ 79,837 | $ 740,831 | $ 90,606 | $ 831,437 | |
| Loss and loss adjustment expense | $ 504,033 | $ 46,233 | $ 550,266 | $ 43,249 | $ 440,438 | $ 40,513 | $ 480,951 | |
| Acquisition costs and other | 152,630 | 22,911 | 175,541 | 10,872 | 117,213 | 31,578 | 148,791 | |
| General and administrative | 190,026 | 28,178 | 218,204 | 25,925 | 128,236 | 25,022 | 153,258 | |
| Total underwriting expenses | $ 846,689 | $ 97,322 | $ 944,011 | $ 80,046 | $ 685,887 | $ 97,113 | $ 783,000 | |
| Underwriting income (loss) | $ 65,157 | $ 5,764 | $ 70,921 | $ (209) | $ 54,944 | $ (6,507) | $ 48,437 | |
| Non-cash impairment of goodwill | — | — | — | — | — | — | — | |
| Non-cash amortization of intangible assets | 3,752 | 1,931 | 5,683 | 3,866 | 1,616 | 4,336 | 5,952 | |
| Underwriting income (loss) before amortization and impairment | $ 68,909 | $ 7,695 | $ 76,604 | $ 3,657 | $ 56,560 | $ (2,171) | $ 54,389 | |
| Underwriting ratios | ||||||||
| Loss and loss adjustment expense ratio (12) | 61.7% | 68.6% | 62.3% | 67.4% | 63.9% | 67.0% | 64.2% | |
| Operating expense ratio (Non-GAAP) (13,14) | 30.3% | 22.9% | 29.7% | 32.9% | 28.1% | 43.8% | 29.4% | |
| Combined ratio (Non-GAAP) (13,15) | 92.0% | 91.5% | 92.0% | 100.3% | 92.0% | 110.8% | 93.5% | |
| Underwriting ratios (before amortization and impairment) | ||||||||
| Loss and loss adjustment expense ratio (12) | 61.7% | 68.6% | 62.3% | 67.4% | 63.9% | 67.0% | 64.2% | |
| Operating expense ratio(Non-GAAP) (13,16) | 29.8% | 20.0% | 29.1% | 26.9% | 27.9% | 36.6% | 28.6% | |
| Combined ratio (Non-GAAP) (13,15) | 91.6% | 88.6% | 91.4% | 94.3% | 91.8% | 103.6% | 92.8% | |
| NOTE: Loss and loss adjustment expense ratio and operating expense ratio may not sum to combined ratio due to rounding. | ||||||||
| Reconciliation of Operating Expense Ratio (Non-GAAP) | |||||||
| $ in thousands | |||||||
| (Unaudited) | |||||||
| Three Months Ended June 30, | |||||||
| 2015 | 2014 | ||||||
| P&C | A&H | NGHC |
Reciprocal Exchanges |
P&C | A&H | NGHC | |
| Total underwriting expenses | $ 427,044 | $ 51,780 | $ 478,824 | $ 34,397 | $ 357,163 | $ 49,918 | $ 407,081 |
| Less: Loss and loss adjustment expense | 245,454 | 26,130 | 271,584 | 15,245 | 231,008 | 24,596 | 255,604 |
| Less: Ceding commission income | (225) | 271 | 46 | 9,924 | 1,557 | — | 1,557 |
| Less: Service and fee income | 49,671 | 17,672 | 67,343 | 947 | 23,389 | 15,097 | 38,486 |
| Operating expense | 132,144 | 7,707 | 139,851 | 8,281 | 101,209 | 10,225 | 111,434 |
| Net earned premium | $ 410,301 | $ 36,267 | $ 446,568 | $ 22,248 | $ 361,623 | $ 29,843 | $ 391,466 |
| Operating expense ratio (Non-GAAP) | 32.2% | 21.3% | 31.3% | 37.2% | 28.0% | 34.3% | 28.5% |
| Total underwriting expenses | $ 427,044 | $ 51,780 | $ 478,824 | $ 34,397 | $ 357,163 | $ 49,918 | $ 407,081 |
| Less: Loss and loss adjustment expense | 245,454 | 26,130 | 271,584 | 15,245 | 231,008 | 24,596 | 255,604 |
| Less: Ceding commission income | (225) | 271 | 46 | 9,924 | 1,557 | — | 1,557 |
| Less: Service and fee income | 49,671 | 17,672 | 67,343 | 947 | 23,389 | 15,097 | 38,486 |
| Less: Non-cash impairment of goodwill | — | — | — | — | — | — | — |
| Less: Non-cash amortization of intangible assets | 1,733 | 1,221 | 2,954 | 1,615 | 773 | 1,966 | 2,739 |
| Operating expense before amortization and impairment | 130,411 | 6,486 | 136,897 | 6,666 | 100,436 | 8,259 | 108,695 |
| Net earned premium | $ 410,301 | $ 36,267 | $ 446,568 | $ 22,248 | $ 361,623 | $ 29,843 | $ 391,466 |
| Operating expense ratio before amortization and impairment (Non-GAAP) | 31.8% | 17.9% | 30.7% | 30.0% | 27.8% | 27.7% | 27.8% |
| Six Months Ended June 30, | |||||||
| 2015 | 2014 | ||||||
| P&C | A&H | NGHC |
Reciprocal Exchanges |
P&C | A&H | NGHC | |
| Total underwriting expenses | $ 846,689 | $ 97,322 | $ 944,011 | $ 80,046 | $ 685,887 | $ 97,113 | $ 783,000 |
| Less: Loss and loss adjustment expense | 504,033 | 46,233 | 550,266 | 43,249 | 440,438 | 40,513 | 480,951 |
| Less: Ceding commission income | 546 | 553 | 1,099 | 13,951 | 6,927 | — | 6,927 |
| Less: Service and fee income | 94,905 | 35,091 | 129,996 | 1,742 | 45,062 | 30,130 | 75,192 |
| Operating expense | 247,205 | 15,445 | 262,650 | 21,104 | 193,460 | 26,470 | 219,930 |
| Net earned premium | $ 816,395 | $ 67,442 | $ 883,837 | $ 64,144 | $ 688,842 | $ 60,476 | $ 749,318 |
| Operating expense ratio (Non-GAAP) | 30.3% | 22.9% | 29.7% | 32.9% | 28.1% | 43.8% | 29.4% |
| Total underwriting expenses | $ 846,689 | $ 97,322 | $ 944,011 | $ 80,046 | $ 685,887 | $ 97,113 | $ 783,000 |
| Less: Loss and loss adjustment expense | 504,033 | 46,233 | 550,266 | 43,249 | 440,438 | 40,513 | 480,951 |
| Less: Ceding commission income | 546 | 553 | 1,099 | 13,951 | 6,927 | — | 6,927 |
| Less: Service and fee income | 94,905 | 35,091 | 129,996 | 1,742 | 45,062 | 30,130 | 75,192 |
| Less: Non-cash impairment of goodwill | — | — | — | — | — | — | — |
| Less: Non-cash amortization of intangible assets | 3,752 | 1,931 | 5,683 | 3,866 | 1,616 | 4,336 | 5,952 |
| Operating expense before amortization and impairment | 243,453 | 13,514 | 256,967 | 17,238 | 191,844 | 22,134 | 213,978 |
| Net earned premium | $ 816,395 | $ 67,442 | $ 883,837 | $ 64,144 | $ 688,842 | $ 60,476 | $ 749,318 |
| Operating expense ratio before amortization and impairment (Non-GAAP) | 29.8% | 20.0% | 29.1% | 26.9% | 27.9% | 36.6% | 28.6% |
| Premiums by Business Line | ||||||||||||
| $ in thousands | ||||||||||||
| (Unaudited) | ||||||||||||
| Three Months Ended June 30, | ||||||||||||
| Gross Written Premium | Net Written Premium | Net Earned Premium | ||||||||||
| 2015 | 2014 | Change | 2015 | 2014 | Change | 2015 | 2014 | Change | ||||
| Property & Casualty | ||||||||||||
| Personal Auto | $289,264 | $288,654 | 0.2% | $252,406 | $244,938 | 3.0% | $267,112 | $244,126 | 9.4% | |||
| Homeowners | 74,438 | 34,018 | 118.8% | 75,456 | 34,018 | 121.8% | 63,227 | 49,024 | 29.0% | |||
| RV/Packaged | 43,096 | 42,148 | 2.2% | 42,774 | 40,206 | 6.4% | 37,576 | 36,720 | 2.3% | |||
| Commercial Auto | 50,482 | 37,269 | 35.5% | 46,258 | 33,639 | 37.5% | 37,429 | 28,146 | 33.0% | |||
| Other | 7,214 | 5,774 | 24.9% | 5,944 | 5,295 | 12.3% | 4,957 | 3,607 | 37.4% | |||
| Property & Casualty Total | 464,494 | 407,863 | 13.9% | 422,838 | 358,096 | 18.1% | 410,301 | 361,623 | 13.5% | |||
| Accident & Health | 34,458 | 60,610 | (43.1)% | 25,806 | 60,460 | (57.3)% | 36,267 | 29,843 | 21.5% | |||
| Total National General | 498,952 | 468,473 | 6.5% | 448,644 | 418,556 | 7.2% | 446,568 | 391,466 | 14.1% | |||
| Reciprocal Exchanges | ||||||||||||
| Personal Auto | 25,773 | — | NA | 25,696 | — | NA | 23,541 | — | NA | |||
| Homeowners | 43,909 | — | NA | (2,041) | — | NA | (5,528) | — | NA | |||
| Other | 7,047 | — | NA | 7,111 | — | NA | 4,235 | — | NA | |||
| Reciprocal Exchanges Total | 76,729 | — | NA | 30,766 | — | NA | 22,248 | — | NA | |||
| Consolidated Total | $575,681 | $468,473 | 22.9% | $479,410 | $418,556 | 14.5% | $468,816 | $391,466 | 19.8% | |||
| Six Months Ended June 30, | ||||||||||||
| Gross Written Premium | Net Written Premium | Net Earned Premium | ||||||||||
| 2015 | 2014 | Change | 2015 | 2014 | Change | 2015 | 2014 | Change | ||||
| Property & Casualty | ||||||||||||
| Personal Auto | $628,598 | $637,338 | (1.4)% | $547,649 | $521,589 | 5.0% | $534,643 | $451,328 | 18.5% | |||
| Homeowners | 162,262 | 216,085 | (24.9)% | 145,846 | 216,085 | (32.5)% | 127,350 | 106,777 | 19.3% | |||
| RV/Packaged | 80,646 | 80,693 | (0.1)% | 79,668 | 76,363 | 4.3% | 73,552 | 70,861 | 3.8% | |||
| Commercial Auto | 91,828 | 71,553 | 28.3% | 84,251 | 63,760 | 32.1% | 72,051 | 52,921 | 36.1% | |||
| Other | 11,611 | 8,802 | 31.9% | 9,684 | 8,297 | 16.7% | 8,799 | 6,955 | 26.5% | |||
| Property & Casualty Total | 974,945 | 1,014,471 | (3.9)% | 867,098 | 886,094 | (2.1)% | 816,395 | 688,842 | 18.5% | |||
| Accident & Health | 109,815 | 100,144 | 9.7% | 92,934 | 99,947 | (7.0)% | 67,442 | 60,476 | 11.5% | |||
| Total National General | 1,084,760 | 1,114,615 | (2.7)% | 960,032 | 986,041 | (2.6)% | 883,837 | 749,318 | 18.0% | |||
| Reciprocal Exchanges | ||||||||||||
| Personal Auto | 43,464 | — | NA | 42,135 | — | NA | 46,471 | — | NA | |||
| Homeowners | 80,722 | — | NA | (6,823) | — | NA | 9,886 | — | NA | |||
| Other | 13,780 | — | NA | 14,091 | — | NA | 7,787 | — | NA | |||
| Reciprocal Exchanges Total | 137,966 | — | NA | 49,403 | — | NA | 64,144 | — | NA | |||
| Consolidated Total | $1,219,136 | $1,114,615 | 9.4% | $1,009,435 | $986,041 | 2.4% | $947,981 | $749,318 | 26.5% | |||
| NOTE: Consolidated Total includes elimination of $(3,590) within Gross Written Premium for Six Months Ended June 30, 2015. | ||||||||||||
Additional Disclosures
(1) References to operating earnings and basic and diluted operating EPS are Non-GAAP financial measures defined by the Company as net income and basic earnings per share excluding after-tax net realized investment gain or loss on securities, other than temporary impairment losses, foreign exchange gain or loss, equity in earnings or losses of unconsolidated subsidiaries, non-cash amortization of intangible assets, and non-cash impairment of goodwill. The Company believes operating earnings and basic and diluted operating EPS are more relevant measures of the Company's profitability because operating earnings and basic and diluted operating EPS contain the components of net income upon which the Company's management has the most influence and excludes factors outside management's direct control and non-recurring items. Other companies may calculate these measures differently, and therefore, their measures may not be comparable to those used by National General. Please see the Non-GAAP Financial Measures table within this release for the reconciliation of these Non-GAAP measures to the most directly comparable GAAP measure.
(2) Fixed maturities, available-for-sale, at fair value (amortized cost $1,436,983, $225,924, $1,662,907 at June 30, 2015 and $1,330,760, $222,121, $1,522,881 at December 31, 2014).
(3) Equity securities, available-for-sale, at fair value (cost $55,937, $1,501, $57,438 at June 30, 2015 and $52,272, $2,752, $55,024 at December 31, 2014).
(4) Securities pledged (amortized cost $68,942, $0, $68,942 at June 30, 2015 and $47,546, $0, $47,546 at December 31, 2014).
(5) Premiums and other receivables, net (NGHC) includes $108,542 and $64,129 from related parties at June 30, 2015 and December 31, 2014, respectively.
(6) Reinsurance recoverable on unpaid losses (NGHC) includes $60,384 and $88,970 from related parties at June 30, 2015 and December 31, 2014, respectively.
(7)Reinsurance payable (NGHC) includes $41,600 and $41,965 to related parties at June 30, 2015 and December 31, 2014, respectively.
(8) Accounts payable and accrued expenses (NGHC) includes $47,550 and $38,576 to related parties at June 30, 2015 and December 31, 2014, respectively.
(9) Notes payable (Reciprocal Exchanges) includes $52,547 and $48,374 owed to related party at June 30, 2015 and December 31, 2014, respectively.
(10) Common stock: $0.01 par value - authorized 150,000,000 shares, issued and outstanding 93,713,986 shares - June 30, 2015; authorized 150,000,000 shares, issued and outstanding 93,427,382 - December 31, 2014.
(11) Preferred stock: $0.01 par value, authorized 10,000,000 shares, issued and outstanding 2,365,000 shares and 2,200,000 shares at June 30, 2015 and December 31, 2014, respectively.
(12) Loss and loss adjustment expense ratio is calculated by dividing loss and loss adjustment expenses by net earned premium.
(13) Operating expense ratio and combined ratio are considered non-GAAP financial measures under applicable SEC rules because a component of those ratios, operating expense, is calculated by offsetting acquisition and other underwriting costs and general and administrative expense by ceding commission income and service and fee income. Management uses operating expense ratio (non-GAAP) and combined ratio (non-GAAP) to evaluate financial performance against historical results and establish targets on a consolidated basis. The Company believes this presentation enhances the understanding of our results by eliminating what we believe are volatile and unusual events and presenting the ratios with what we believe are the underlying run rates of the business. Other companies may calculate these measures differently, and, therefore, their measures may not be comparable to those used by National General. Please see the Non-GAAP Financial Measures table within this release for the reconciliation of these Non-GAAP measures to the most directly comparable GAAP measure.
(14) Operating expense ratio (non-GAAP) is calculated by dividing operating expense by net earned premium. Operating expense consists of the sum of acquisition and other underwriting costs and general and administrative expense less ceding commission income and service and fee income.
(15) Combined ratio (non-GAAP) is calculated by adding the loss and loss adjustment expense ratio and the operating expense ratio (non-GAAP) together.
(16) Operating expense ratio (non-GAAP) before amortization and impairment is calculated 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 expense less ceding commission income and service and fee income less non-cash amortization of intangible assets and non-cash impairment of goodwill.