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The information in this preliminary prospectus supplement is not complete and may be changed. This preliminary prospectus supplement and the accompanying prospectus do not constitute an offer to sell these securities and we are not soliciting an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.

 

 

Filed pursuant to Rule 424(b)(5)

SEC File No. 333-224717

SUBJECT TO COMPLETION

PRELIMINARY PROSPECTUS SUPPLEMENT DATED NOVEMBER 13, 2018

PROSPECTUS SUPPLEMENT

(To Prospectus dated May 7, 2018)

5,000,000 Shares

 

LOGO

COMMON STOCK

 

 

We are offering 5,000,000 shares of our common stock.

Our shares of common stock are quoted on the NASDAQ Global Market under the symbol “NGHC.” On November 12, 2018, the last sale price of the shares as reported on the NASDAQ Global Market was $27.73 per share.

Investing in our common stock involves risks. See “Risk Factors” on page 2 of the accompanying prospectus, as well as the risks described in the documents incorporated by reference in this prospectus supplement and the accompanying prospectus, to read about important factors you should consider before making a decision to invest in our common stock.

 

 

Price $             per share

 

 

 

     Price to
Public
     Underwriting
Discount
     Proceeds, before
expenses, to
Company
 

Per Share

   $                    $                    $                

Total

   $        $        $    

To the extent the underwriters sell more than 5,000,000 shares of common stock, we have granted the underwriters an option to purchase up to an additional 750,000 shares of our common stock within 30 days after the date of this prospectus supplement at the purchase price less the underwriting discount stated above.

Neither the Securities and Exchange Commission (the “SEC”), any state securities commission or any other regulatory body has approved or disapproved of these securities or passed upon the adequacy or accuracy of this prospectus supplement or the accompanying prospectus. Any representation to the contrary is a criminal offense.

The shares are expected to be ready for delivery on or about                     , 2018.

 

 

Joint Book-Running Managers

 

Goldman Sachs & Co. LLC   J.P. Morgan
 
Deutsche Bank Securities

Co-Managers

 

JMP Securities    B. Riley FBR    Keefe, Bruyette & Woods    William Blair
                            A Stifel  Company   

 

 

The date of this prospectus supplement is                     , 2018.


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You should rely only on the information contained or incorporated by reference in this prospectus supplement, the accompanying prospectus and in any free writing prospectus filed by us with the SEC, for use in connection with this offering. We have not, and the underwriters have not, authorized anyone to provide you with different or additional information and, accordingly, you should not rely on any such information if it is provided to you. We are not, and the underwriters are not, making an offer to sell, or the solicitation of an offer to buy, any of these securities in any jurisdiction where such an offer or sale is not permitted. You should not assume that the information contained or incorporated by reference in this prospectus supplement, the accompanying prospectus or any such free writing prospectus is accurate as of any date other than the respective dates of the related documents or the incorporated documents, as the case may be.

References in this prospectus supplement and the accompanying prospectus to “we,” “us,” “our,” “the Company” or “National General” or other similar terms refer to National General Holdings Corp. and its consolidated subsidiaries, unless we state otherwise or the context indicates otherwise. Additionally, in this prospectus supplement and the accompanying prospectus, unless otherwise stated or the context otherwise requires, references to “dollars” or “$” are to the lawful currency of the United States.


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TABLE OF CONTENTS

 

Prospectus Supplement

 

ABOUT THIS PROSPECTUS SUPPLEMENT

     S-2  

SUMMARY

     S-3  

OUR COMPANY

     S-3  

CORPORATE AND OTHER INFORMATION

     S-5  

THE OFFERING

     S-6  

SUMMARY HISTORICAL FINANCIAL DATA

     S-7  

USE OF PROCEEDS

     S-10  

CAPITALIZATION

     S-11  

PRICE RANGE OF OUR COMMON STOCK

     S-12  

DIVIDEND POLICY

     S-13  

MATERIAL U.S. FEDERAL INCOME TAX CONSIDERATIONS

     S-14  

CERTAIN ERISA CONSIDERATIONS

     S-18  

UNDERWRITING

     S-19  

WHERE YOU CAN FIND MORE INFORMATION; INCORPORATION BY REFERENCE

     S-24  

LEGAL MATTERS

     S-25  

EXPERTS

     S-25  

ANNEX A

     S-26  
Prospectus   

ABOUT THIS PROSPECTUS

     1  

RISK FACTORS

     2  

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

     3  

WHERE YOU CAN FIND MORE INFORMATION

     5  

INCORPORATION OF CERTAIN INFORMATION BY REFERENCE

     6  

NATIONAL GENERAL HOLDINGS CORP.

     7  

USE OF PROCEEDS

     8  

RATIO OF EARNINGS TO FIXED CHARGES AND PREFERRED STOCK DIVIDENDS

     9  

DESCRIPTION OF DEBT SECURITIES

     10  

DESCRIPTION OF COMMON STOCK

     21  

DESCRIPTION OF PREFERRED STOCK

     25  

DESCRIPTION OF DEPOSITARY SHARES

     27  

DESCRIPTION OF WARRANTS

     30  

DESCRIPTION OF UNITS

     32  

PLAN OF DISTRIBUTION

     33  

LEGAL MATTERS

     35  

EXPERTS

     35  

 

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ABOUT THIS PROSPECTUS SUPPLEMENT

This prospectus supplement is a supplement to the accompanying prospectus that is also a part of this document. The accompanying prospectus is part of a registration statement that we filed with the SEC using a shelf registration process. Under the shelf registration process, from time to time, we may offer debt securities, common stock, preferred stock, depositary shares, warrants and units. In the accompanying prospectus, we provide you with a general description of the securities we may offer from time to time under this shelf registration statement. In this prospectus supplement, we provide you with specific information about the shares of common stock that we are selling in this offering. Both this prospectus supplement and the accompanying prospectus include, or incorporate by reference, important information about us, the securities being offered and other information you should know before making a decision to invest in our common stock. This prospectus supplement also adds to, updates and changes information contained or incorporated by reference in the accompanying prospectus. If any specific information regarding the common stock being offered by this prospectus supplement is inconsistent with the more general description of the securities in the accompanying prospectus, you should rely on the information contained in this prospectus supplement. You should read this prospectus supplement, the accompanying prospectus and any free writing prospectus we file with the SEC in connection with this offering, as well as the additional information described under “Where You Can Find More Information; Incorporation by Reference” in this prospectus supplement, before making a decision to invest in our common stock. In particular, you should review the information under the heading “Risk Factors” in the accompanying prospectus and included in our Annual Report on Form 10-K for the year ended December 31, 2017 and our Quarterly Reports on Form 10-Q for the quarters ended March 31, 2018, June 30, 2018 and September 30, 2018, each of which is incorporated by reference herein.

 

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SUMMARY

The information below is only a summary of more detailed information included elsewhere or incorporated by reference in this prospectus supplement and the accompanying prospectus. This summary does not contain all the information that you should consider before making a decision to invest in the securities in this offering. The other information is important, so please read this entire prospectus supplement and the accompanying prospectus, as well as the information incorporated by reference herein, carefully. You should pay special attention to the information under the heading “Risk Factors” in the accompanying prospectus and included in our Annual Report on Form 10-K for the year ended December 31, 2017 and our Quarterly Reports on Form 10-Q for the quarters ended March 31, 2018, June 30, 2018 and September 30, 2018, each of which is incorporated by reference herein.

OUR COMPANY

Overview

We are a specialty personal lines insurance holding company that, through our subsidiaries, provides a variety of insurance products, including personal and small business automobile, homeowners, umbrella, recreational vehicle, motorcycle, lender-placed, supplemental health and other niche insurance products. We sell insurance products with a focus on underwriting profitability through a combination of our customized and predictive analytics and our technology driven low cost infrastructure.

Our automobile insurance products protect our customers against losses due to physical damage to their motor vehicles, bodily injury and liability to others for personal injury or property damage arising from auto accidents. Our homeowners and umbrella insurance products protect our customers against losses to dwellings and their contents from a variety of perils, as well as coverage for personal liability. We offer our property and casualty (“P&C”) insurance products through a network of approximately 32,100 independent agents, a number of affinity partners and through direct-response marketing programs and retail storefronts. We have approximately 3.9 million P&C policyholders.

Our accident and health (“A&H”) business provides accident and non-major medical health insurance products targeting our existing P&C policyholders and persons who are uninsured or underinsured. We market our and other carriers’ A&H insurance products through a multi-pronged distribution platform that includes a network of over 34,300 independent agents, direct-to-consumer marketing, wholesaling, worksite marketing and the internet.

We are licensed to operate in 50 states and the District of Columbia, but focus on underserved niche markets. As of December 31, 2017, approximately 77.8% of our P&C premium written is originated in ten core states: California, North Carolina, New York, Florida, Texas, New Jersey, Louisiana, Virginia, Michigan and Washington.

For the years ended December 31, 2017, 2016 and 2015, our gross premium written was $4,756 million, $3,501 million and $2,590 million, net premium written was $3,578 million, $3,073 million and $2,187 million and total consolidated revenues were $4,422 million, $3,569 million and $2,515 million, respectively.

Our company was formed to acquire the private passenger auto business of the U.S. consumer property and casualty insurance segment of General Motors Acceptance Corporation (now known as Ally Financial Inc.), which operations date back to 1939. We acquired this business on March 1, 2010.



 

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Our wholly-owned subsidiaries include twenty-one regulated domestic insurance companies, of which nineteen write primarily P&C insurance and two write A&H insurance. Our insurance subsidiaries have an “A-” (Excellent) group rating by A.M. Best Company, Inc. We currently conduct a limited amount of business outside the United States, primarily in Bermuda, Luxembourg and Sweden.

Two of our wholly-owned subsidiaries that we acquired in 2014 are management companies that act as attorneys-in-fact for Adirondack Insurance Exchange, a New York reciprocal insurer, and New Jersey Skylands Insurance Association, a New Jersey reciprocal insurer (together, the “Reciprocal Exchanges” or “Exchanges”). We do not own the Reciprocal Exchanges but are paid a fee to manage their business operations through our wholly-owned management companies.

Business Segments

We are a specialty national carrier with regional focuses. We manage our business through two segments:

 

   

Property and CasualtyOur P&C segment operates its business through three primary distribution channels: agency, affinity and direct. Our agency channel focuses primarily on writing standard, preferred and nonstandard auto coverage and homeowners and umbrella coverage through our network of approximately 32,100 independent agents. In our affinity channel, we partner with a number of affinity groups and membership organizations to deliver insurance products tailored to the needs of our affinity partners’ members or customers under our affinity partners’ brand name or label, which we refer to as selling on a “white label” basis. A primary focus of a number of our affinity relationships is providing recreational vehicle coverage, of which we believe we are one of the top writers in the United States. Our direct channel is operated through approximately 430 store fronts, web/mobile, phone sales centers and kiosks. In addition, we operate our lender-placed services through long-term distribution agreements with certain mortgage lenders.

 

   

Accident and HealthOur A&H segment provides accident and non-major medical health insurance products targeting our existing policyholders and uninsured or underinsured individuals. Through a number of acquisitions of both carriers and general agencies, including VelaPoint, LLC, our call center general agency, National Health Insurance Company, a life and health insurance carrier established in 1979, Euro Accident Health & Care Insurance Aktiebolag, our European group life and health insurance managing general agent, Quotit Corporation, an application service provider for health insurance, HealthCompare Insurance Services, Inc., a call center agency, Healthcare Solutions Team, LLC, a healthcare insurance managing general agency, and North Star Marketing Corporation, a proprietary small group sales channel, we have assembled a multi-pronged distribution platform that includes direct-to-consumer marketing through our call center agency, selling through approximately 34,300 independent agents, wholesaling insurance products through large general agencies/program managers and, through our affinity relationships, worksite marketing through employers and the internet.

Additional financial information regarding our segments and additional information regarding the products we sell and the distribution channels through which we sell them is presented in our Annual Report on Form 10-K for the year ended December 31, 2017 and our Quarterly Reports on Form 10-Q for the quarters ended March 31, 2018, June 30, 2018 and September 30, 2018, each of which is incorporated by reference herein. See “Where You Can Find More Information; Incorporation by Reference” in this prospectus supplement.

Recent Developments

On November 13, 2018, a subsidiary of the Company entered into a securities purchase agreement, pursuant to which, subject to the satisfaction or waiver of the conditions set forth therein, such subsidiary agreed to



 

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acquire National Farmers Union Property & Casualty Insurance Company (“National Farmers Union Insurance”) from a subsidiary of QBE Insurance Group. National Farmers Union Insurance is a Wisconsin domiciled P&C insurance company that predominantly writes personal and farm auto and farm and homeowners insurance in the Midwestern United States. The estimated purchase price for the transaction is approximately $43 million, subject to closing adjustments. The transaction is expected to close in the first half of 2019, subject to approval of governmental authorities and other customary closing conditions.

The Company expects that gross losses from the early November California wildfires will breach the retention under its property catastrophe excess of loss reinsurance program. Accordingly, the Company expects its fourth quarter 2018 results to include approximately $41 million in losses (approximately $32 million after-tax), net of reinsurance recoverables and excluding reinstatement premiums, relating to the wildfires.

Supplemental Financial Information

Annex A to this prospectus supplement includes certain supplemental financial and other statistical information about our business and financial condition. Such information in Annex A includes certain non-GAAP financial measures presented on a segment and consolidated basis, including operating expense ratio, combined ratio, operating expense ratio before amortization and impairment and combined ratio before amortization and impairment, as well as reconciliations thereto, each for the periods presented. This financial and statistical information supplements, but is not a substitution for, our consolidated financial statements under GAAP that are incorporated by reference herein.

CORPORATE AND OTHER INFORMATION

Our principal executive offices are located at 59 Maiden Lane, 38th Floor, New York, New York 10038, and our telephone number at that location is (212) 380-9500.

Our website address is http://www.nationalgeneral.com. Our internet website and the information contained therein or connected thereto are not intended to be incorporated by reference into this prospectus supplement and the accompanying prospectus.



 

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THE OFFERING

The following is a brief summary of certain terms of this offering. For a more complete description of our common stock, see “Description of Common Stock” in the accompanying prospectus.

 

Issuer

National General Holdings Corp. (“NGHC”).

 

Securities Offered

We are offering 5,000,000 shares (or 5,750,000 shares if the underwriters exercise their option to purchase additional shares in full) of common stock, par value $0.01 per share.

 

Approximate Number of Shares of Common Stock to Be Outstanding Immediately After this Offering

112,132,560 shares (or 112,882,560 shares if the underwriters exercise their option to purchase additional shares in full) of common stock.

 

Voting Rights

Each share of our common stock entitles its holder to one vote on all matters to be voted upon by the stockholders. See “Description of Common Stock” in the accompanying prospectus.

 

Use of Proceeds

We estimate that the net proceeds to us from the sale of the common stock issued in this offering will be approximately $             (or $             if the underwriters exercise their option to purchase additional shares in full) after deducting the underwriting discount and our estimated offering expenses. We intend to use the net proceeds of this offering for general corporate purposes, including strategic acquisitions (including our acquisition of National Farmers Union Insurance) and to support our current and future policy writings. See “Use of Proceeds” in this prospectus supplement.

 

Transfer Agent

American Stock Transfer & Trust Company, LLC.

 

Risk Factors

See “Risk Factors” in the accompanying prospectus and in our Annual Report on Form 10-K for the year ended December 31, 2017 and our Quarterly Report on Form 10-Q for the quarter ended September 30, 2018, each of which is incorporated by reference herein, for the risks you should consider carefully before deciding to invest in our common stock.

The number of shares of common stock to be outstanding immediately after this offering that appears above is based on the number of shares of common stock outstanding as of September 30, 2018, and excludes:

 

   

an aggregate of approximately 3,235,127 shares of common stock issuable pursuant to outstanding employee stock options with a weighted average exercise price of $9.48 per share;

 

   

outstanding restricted stock units issuable into a maximum of 948,545 shares of common stock; and

 

   

521,311 additional shares of common stock available for grant under our share based compensation plans.



 

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SUMMARY HISTORICAL FINANCIAL DATA

The following tables set forth our selected historical consolidated financial and operating information for the periods ended and as of the dates indicated, which, except for the nine months ended September 30, 2018 and 2017, is derived from our audited consolidated financial statements and the notes thereto. Our consolidated balance sheet data as of September 30, 2018 and our consolidated statements of operations data for the nine months ended September 30, 2018 and 2017 are derived from our unaudited condensed consolidated financial statements. In the opinion of our management, our unaudited condensed consolidated financial statements include all adjustments, consisting only of normal recurring adjustments, considered necessary for a fair presentation of the financial information. Operating results for the nine months ended September 30, 2018 are not necessarily indicative of the results that may be expected for the year ending December 31, 2018. The following information should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and related notes, which appear in Part II, Items 7 and 8, respectively, of our Annual Report on Form 10-K for the year ended December 31, 2017 and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the condensed consolidated financial statements and related notes, which appear in Part I, Items 2 and 1, respectively, of our Quarterly Report on Form 10-Q for the quarter ended September 30, 2018, each of which is incorporated by reference herein. For more details on how you can obtain our SEC reports and other information, you should read the section entitled “Where You Can Find More Information; Incorporation by Reference” in this prospectus supplement.

 

    Nine Months Ended
September 30,
    Year Ended December 31,  
    2018     2017 (1)     2017     2016 (1)     2015 (1)     2014 (1)     2013 (1)  
    (Amounts in thousands, except percentages and per share data)  

Selected Income Statement Data (2)

 

Gross premium written

  $ 4,129,250     $ 3,591,603     $ 4,755,985     $ 3,500,898     $ 2,590,044     $ 2,135,107     $ 1,338,755  

Ceded premiums (3)

    (1,209,608     (852,996     (1,178,390     (428,202     (403,502     (265,083     (659,439
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net premium written

  $ 2,919,642     $ 2,738,607     $ 3,577,595     $ 3,072,696     $ 2,186,542     $ 1,870,024     $ 679,316  

Change in unearned premium

    (131,671     25,930       76,581       (77,525     (56,436     (236,804     8,750  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net earned premium

  $ 2,787,971     $ 2,764,537     $ 3,654,176     $ 2,995,171     $ 2,130,106     $ 1,633,220     $ 688,066  

Ceding commission income

    158,976       91,604       116,456       45,600       43,790       12,430       87,100  

Service and fee income

    415,313       373,644       502,927       380,817       273,548       168,571       127,541  

Net investment income (4)

    81,702       81,725       101,950       115,187       78,783       53,606       32,082  

Net gain (loss) on investments

    (22,756     44,018       46,763       7,904       (11,095     (4,552     (1,653

Other income (expense)

    —         (198     (198     24,308       —         —         —    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total revenues

  $ 3,421,206     $ 3,355,330     $ 4,422,074     $ 3,568,987     $ 2,515,132     $ 1,863,275     $ 933,136  

Loss and loss adjustment expense

    1,961,804       1,969,156       2,626,082       2,092,280       1,485,320       1,125,136       521,022  

Acquisition costs and other underwriting expenses (5)

    542,040       527,100       672,429       497,007       406,662       315,089       134,887  

General and administrative expenses (6)

    691,167       680,806       912,996       709,148       426,976       283,334       221,654  

Interest expense

    38,775       34,590       47,086       40,180       28,885       17,736       2,042  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total expenses

  $ 3,233,786     $ 3,211,652     $ 4,258,593     $ 3,338,615     $ 2,347,843     $ 1,741,295     $ 879,605  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income before provision for income taxes

  $ 187,420     $ 143,678     $ 163,481     $ 230,372     $ 167,289     $ 121,980     $ 53,531  

Provision for income taxes

    38,261       40,751       61,273       33,998       16,176       21,551       11,140  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income

  $ 149,159     $ 102,927     $ 102,208     $ 196,374     $ 151,113     $ 100,429     $ 42,391  

Less: Net (income) loss attributable to non-controlling interest

    31,979       4,973       3,637       (20,668     (14,025     (2,504     (82
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to National General Holdings Corp.

  $ 181,138     $ 107,900     $ 105,845     $ 175,706     $ 137,088     $ 97,925     $ 42,309  

Dividends on preferred stock

    (23,625     (23,625     (31,500     (24,333     (14,025     (2,291     (2,158
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to National General Holdings Corp. common stockholders

  $ 157,513     $ 84,275     $ 74,345     $ 151,373     $ 123,063     $ 95,634     $ 40,151  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 


 

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    Nine Months Ended
September 30,
    Year Ended December 31,  
    2018     2017 (1)     2017     2016 (1)     2015 (1)     2014 (1)     2013 (1)  
    (Amounts in thousands, except percentages and per share data)  

Per common share data:

             

Basic earnings per share

  $ 1.47     $ 0.79     $ 0.70     $ 1.43     $ 1.25     $ 1.05     $ 0.62  

Weighted average shares outstanding—basic

    106,944       106,557       106,588       105,952       98,242       91,499       65,018  

Diluted earnings per share

  $ 1.44     $ 0.78     $ 0.68     $ 1.40     $ 1.22     $ 1.02     $ 0.59  

Weighted average shares outstanding—diluted

    109,316       108,690       108,752       108,278       100,724       93,515       71,802  

Dividends declared per common share

  $ 0.12     $ 0.12     $ 0.16     $ 0.14     $ 0.09     $ 0.05     $ 0.01  

Insurance Ratios

             

Net loss ratio (7)

    70.4     71.2     71.9     69.9     69.7     68.9     75.7

Net operating expense ratio (non-GAAP) (8)(9)

    23.6     26.9     26.4     26.0     24.2     25.6     20.6
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net combined ratio (non-GAAP) (8)(10)

    94.0     98.1     98.3     95.9     93.9     94.5     96.3
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

    As of
September 30,
    As of December 31,  
    2018     2017     2016 (1)     2015 (1)     2014 (1)     2013 (1)  
    (Amounts in thousands)  

Selected Balance Sheet Data

           

Investments

  $ 3,863,534     $ 3,649,788     $ 3,631,064     $ 2,785,510     $ 1,991,105     $ 1,042,884  

Cash, cash equivalents and restricted cash

  $ 434,930     $ 357,484     $ 285,900     $ 282,277     $ 132,615     $ 73,823  

Premiums and other receivables, net

  $ 1,461,332     $ 1,324,321     $ 1,091,774     $ 694,577     $ 588,125     $ 344,633  

Reinsurance recoverable

  $ 1,527,040     $ 1,294,165     $ 948,236     $ 897,232     $ 971,116     $ 1,055,447  

Intangible assets, net and Goodwill

  $ 567,186     $ 578,223     $ 626,084     $ 461,312     $ 319,601     $ 156,915  

Total assets

  $ 9,249,088     $ 8,439,743     $ 7,238,028     $ 5,556,192     $ 4,324,716     $ 2,837,515  

Unpaid loss and loss adjustment expense reserves

  $ 2,855,135     $ 2,663,557     $ 2,273,866     $ 1,762,575     $ 1,568,796     $ 1,259,241  

Unearned premiums and other revenue

  $ 2,331,855     $ 2,032,605     $ 1,701,286     $ 1,257,598     $ 872,963     $ 483,551  

Debt

  $ 675,263     $ 713,710     $ 752,001     $ 491,537     $ 299,082     $ 81,142  

Total liabilities

  $ 7,206,109     $ 6,486,318     $ 5,320,670     $ 4,029,034     $ 3,255,584     $ 2,194,648  

Common stock and additional paid-in capital

  $ 924,195     $ 918,818     $ 914,851     $ 901,170     $ 691,670     $ 437,803  

Preferred stock

  $ 450,000     $ 420,000     $ 420,000     $ 220,000     $ 55,000     $ —    

Non-controlling interest

  $ (13,955   $ 24,856     $ 31,918     $ 22,840     $ 13,756     $ 87  

Total stockholders’ equity

  $ 2,042,979     $ 1,953,425     $ 1,917,358     $ 1,527,158     $ 1,069,132     $ 642,867  

 

(1)

Prior years reflect the retrospective correction of errors and certain reclassifications have been made to facilitate period-to-period comparisons. For the year ended December 31, 2014, Loss and loss adjustment expense increased by $72,071, and General and administrative expenses and Provision for income taxes decreased by $65,428 and $2,325, respectively. For the year ended December 31, 2013, Loss and loss adjustment expense increased by $58,898 and General and administrative expenses decreased by $58,898. As of December 31, 2015, both Investments and Total assets decreased by $7,200, Unpaid loss and loss adjustment expense reserves increased by $6,951, Unearned premiums and other revenue decreased by $296, Total liabilities increased by $2,282 and Total stockholders’ equity decreased by $9,482. As of December 31, 2014, Unpaid loss and loss adjustment expense reserves and Total liabilities increased by $6,643 and $4,318, respectively, and Total stockholders’ equity decreased by $4,318. See Note 3, “Revisions of Previously Issued Financial Statements” in the notes to our consolidated financial statements contained in our Annual Report on Form 10-K for the year ended December 31, 2017, which is incorporated by reference herein, for more information about these accounting changes.

(2)

Results of operations were affected by our various acquisitions and reinsurance transactions from 2013 to 2018.

(3)

Premiums ceded to related parties were not material for the nine months ended September 30, 2018 and 2017, and for the years ended December 31, 2017 and 2016, and amounted to $1,578, $44,936 and $501,067 for the years ended December 31, 2015, 2014 and 2013, respectively.

(4)

Earnings (losses) of equity method investments with related parties is included as a component of net investment income.

(5)

Acquisition costs and other underwriting expenses include policy acquisition expenses, commissions paid directly to producers, premium taxes and assessments, salary and benefits and other insurance general and administrative expenses, which represent other costs that are directly attributable to insurance activities.

(6)

General and administrative expenses are composed of all other operating expenses, including various departmental salaries and benefits expenses for employees that are directly involved in the maintenance of policies, information systems, and accounting for insurance transactions, and other insurance expenses such as federal excise tax, postage, telephones and internet access charges, as well as legal and auditing fees and board and bureau charges. In addition, general and administrative expenses include those charges that are related to the amortization of tangible and intangible assets and non-insurance activities in which we engage.



 

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(7)

Net loss ratio is calculated by dividing the loss and loss adjustment expense by net earned premiums.

(8)

Net operating expense ratio and net combined ratio are considered non-GAAP financial measures under applicable SEC rules because a component of those ratios, net operating expense, is calculated by offsetting acquisition costs and other underwriting expenses and general and administrative expenses by ceding commission income and service and fee income. Management uses net operating expense ratio (non-GAAP) and net combined ratio (non-GAAP) to evaluate financial performance against historical results and establish targets on a consolidated basis. We believe 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 the Company’s management. For a reconciliation showing the total amounts by which acquisition costs and other underwriting expenses and general and administrative expenses were offset by ceding commission income and service and fee income in the calculation of net operating expense, see Annex A to this prospectus supplement.

(9)

Net operating expense ratio (non-GAAP) is calculated by dividing the net operating expense by net earned premium. Net operating expense consists of the sum of acquisition costs and other underwriting expenses and general and administrative expenses less ceding commission income and service and fee income. See Annex A to this prospectus supplement.

(10)

Net combined ratio (non-GAAP) is calculated by adding net loss ratio and net operating expense ratio (non-GAAP) together. See Annex A to this prospectus supplement.



 

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USE OF PROCEEDS

We estimate that the net proceeds we will receive from this offering will be approximately $             (or $             if the underwriters exercise their option to purchase additional shares in full) after deducting the underwriting discount and the estimated offering expenses payable by us.

We will retain broad discretion over the use of the net proceeds from this offering. We currently intend to use the net proceeds from this offering for general corporate purposes, including strategic acquisitions (including our acquisition of National Farmers Union Insurance) and to support our current and future policy writings. Pending the application of any net proceeds, we intend to invest them in short-term interest-bearing securities.

 

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CAPITALIZATION

The following table sets forth our consolidated capitalization as of September 30, 2018:

 

   

on an actual basis; and

 

   

on an as adjusted basis to give effect to the issuance of the shares of common stock in this offering (assuming the underwriters do not exercise any part of their option to purchase additional shares).

This table should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements and the related notes, which appear in our Annual Report on Form 10-K for the year ended December 31, 2017 and our Quarterly Report on Form 10-Q for the quarter ended September 30, 2018, each of which is incorporated by reference herein. For more details on how you can obtain our SEC reports and other information, you should read the section entitled “Where You Can Find More Information; Incorporation by Reference” in this prospectus supplement.

 

     As of September 30, 2018  

(Dollar and Share Amounts In Thousands, Except Par Value)

   Actual     As Adjusted  

Debt outstanding:

    

Long-term debt

   $ 675,263     $  675,263  

Stockholders’ equity:

    

Common stock, par value $0.01 per share; 150,000 shares authorized, 107,133 shares issued and outstanding on an actual basis and 112,133 shares issued and outstanding on an as adjusted basis

   $ 1,071    

Preferred stock, par value $0.01 per share; 10,000 shares authorized, 2,565 shares issued and outstanding on an actual and as adjusted basis

     450,000       450,000  

Additional paid-in capital

     923,124    

Retained earnings

     751,320       748,838  

Accumulated other comprehensive income (loss)

     (68,581     (68,581
  

 

 

   

 

 

 

Total National General Holdings Corp. stockholders’ equity

   $ 2,056,934    
  

 

 

   

 

 

 

Non-controlling interest

     (13,955     (13,955
  

 

 

   

 

 

 

Total stockholders’ equity

   $ 2,042,979    
  

 

 

   

 

 

 

Total capitalization

   $  2,718,242    
  

 

 

   

 

 

 

 

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PRICE RANGE OF OUR COMMON STOCK

Our common stock is traded on the NASDAQ Global Market under the symbol “NGHC.” The following table shows the high and low sales prices per share for our common stock and the cash dividends declared with respect to such stock:

 

Year Ending December 31, 2018

   High      Low      Dividends
Declared
 

First quarter

   $  25.17      $ 18.22      $ 0.04  

Second quarter

   $ 28.05      $ 23.71      $ 0.04  

Third quarter

   $ 28.25      $ 25.10      $ 0.04  

Fourth quarter (through November 12, 2018)

   $ 28.89      $ 23.25      $ 0.04  

 

Year Ended December 31, 2017

   High      Low      Dividends
Declared
 

First quarter

   $ 26.99      $ 21.98      $ 0.04  

Second quarter

   $ 23.78      $ 20.98      $ 0.04  

Third quarter

   $ 21.96      $ 16.21      $ 0.04  

Fourth quarter

   $ 22.38      $ 19.00      $ 0.04  

On November 12, 2018, the closing price per share for our common stock was $27.73.

 

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DIVIDEND POLICY

Our board of directors currently intends to continue to authorize the payment of a quarterly cash dividend to our stockholders of record. Any declaration and payment of dividends by our board of directors will depend on many factors, including general economic and business conditions, our strategic plans, our financial results and condition, legal and regulatory requirements and other factors that our board of directors deems relevant.

We are a holding company and have no direct operations. Our ability to pay dividends in the future depends on the ability of our operating subsidiaries, including our insurance subsidiaries, to pay dividends to us. The laws of the jurisdictions in which our insurance subsidiaries are organized regulate and restrict, under certain circumstances, their ability to pay dividends to us. The aggregate amount of dividends that could be paid to us by our insurance subsidiaries without prior approval by the various domiciliary states of our insurance subsidiaries was approximately $387.6 million as of December 31, 2017, taking into account dividends paid in the prior twelve month period. Under the terms of our credit agreement, we are not prohibited from paying cash dividends so long as no event of default has occurred and is continuing and we are not out of compliance with our financial covenants. We may, however, enter into credit agreements or other debt arrangements in the future that will restrict our ability to declare or pay cash dividends on our common stock.

 

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MATERIAL U.S. FEDERAL INCOME TAX CONSIDERATIONS

The following discussion summarizes the material U.S. federal income tax consequences applicable to “U.S. holders” and “non-U.S. holders” (each as defined below) with respect to the purchase, ownership and disposition of shares of our common stock. This summary is based upon current provisions of the Internal Revenue Code of 1986, as amended from time to time (the “Code”), Treasury regulations and judicial and administrative authority, all of which are subject to differing interpretations or change, possibly with retroactive effect. This summary is limited to investors who will hold shares of our common stock as capital assets and does not discuss all aspects of U.S. federal income taxation that may be important to particular investors in light of their individual circumstances. This discussion does not address all of the tax consequences relevant to investors who are subject to special tax rules, such as banks and other financial institutions, insurance companies, governments and governmental entities, broker-dealers, partnerships and their partners, tax-exempt organizations, investors that will hold the common stock as part of a straddle, hedge, conversion, constructive sale, or other integrated security transaction for U.S. federal income tax purposes, U.S. expatriates, U.S. holders that have a functional currency that is not the U.S. dollar, or an accrual method taxpayer subject to special tax accounting rules as a result of its use of certain financial statements under Section 451(b) of the Code, all of whom may be subject to tax rules that differ significantly from those summarized below. In addition, this summary does not address any alternative minimum tax consequences, estate or gift tax consequences or any state, local or non U.S. tax consequences. Each prospective investor is urged to consult its own tax advisors regarding the U.S. federal, state, local, and non-U.S. income and other tax considerations of the purchase, ownership, and disposition of shares of our common stock.

For purposes of this summary, you are a “U.S. holder” if you are a beneficial owner of shares of our common stock and you are for U.S. federal income tax purposes (i) an individual citizen or resident of the United States, (ii) a corporation created or organized in the United States or under the laws of the United States, any state thereof or the District of Columbia, (iii) an estate the income of which is subject to U.S. federal income taxation regardless of its source, or (iv) a trust if it (A) is subject to the primary supervision of a court within the United States and one or more U.S. persons have the authority to control all substantial decisions of the trust, or (B) has a valid election in effect under applicable U.S. Treasury regulations to be treated as a U.S. person. You are a “non-U.S. holder” if you are a beneficial owner of shares of our common stock that is an individual, corporation, estate or trust that is not a U.S. holder.

If a partnership (including any other entity treated as a partnership for U.S. federal income tax purposes) is a holder of shares of our common stock, the U.S. federal income tax treatment of a partner in the partnership will generally depend on the status of the partner and the activities of the partnership. If you are a partnership or a partner of a partnership holding shares of our common stock, you should consult your own tax advisors as to the particular U.S. federal income tax consequences of the purchase, ownership and disposition of shares of our common stock.

U.S. Holders

Distributions on the Common Stock. In general, if distributions are made with respect to shares of our common stock, the distributions will be treated as dividends to the extent of our current or accumulated earnings and profits as determined for U.S. federal income tax purposes. Any portion of a distribution in excess of our current and accumulated earnings and profits is treated first as a nontaxable return of capital reducing your tax basis in the shares of our common stock. Any amount in excess of your tax basis is treated as capital gain, the tax treatment of which is discussed below under “U.S. Holders—Sale or Exchange of the Common Stock.”

Dividends received by individual U.S. holders of shares of our common stock will generally be subject to a reduced maximum tax rate of 20% if such dividends are treated as “qualified dividend income” for U.S. federal income tax purposes. The rate reduction does not apply to dividends that are paid to individual stockholders with respect to shares of our common stock that are held for 60 days or less during the 121-day period beginning on the date which is 60 days before the date on which the shares of our common stock become ex-dividend.

 

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Furthermore, the rate reduction does not apply to dividends received to the extent that an individual holder elects to treat the dividends as “investment income” for purposes of determining the holder’s limit for the deduction of investment interest under Section 163(d) of the Code.

Dividends received by corporate holders of shares of our common stock may be eligible for a dividends received deduction equal to 50% of the amount of the distribution, subject to applicable limitations, including limitations related to “debt-financed portfolio stock” under Section 246A of the Code and to the holding period requirements of Section 246 of the Code.

Sale or Exchange of the Common Stock. On the sale or exchange of shares of our common stock (including upon a redemption), you generally will realize capital gain or loss in an amount equal to the difference between (a) the amount of cash and the fair market value of any property you receive on the sale and (b) your tax basis in the shares of our common stock. We strongly encourage you to consult your own tax advisors regarding applicable rates, holding periods and netting rules for capital gains and losses in light of your particular facts and circumstances. Certain limitations exist on the deduction of capital losses by both corporate and non-corporate taxpayers.

Medicare Tax. A U.S. holder that is an individual or estate, or a trust that does not fall into a special class of trusts that is exempt from such tax, will be subject to a 3.8% tax on the lesser of (1) the U.S. holder’s “net investment income” (or undistributed “net investment income” in the case of an estate or trust) for the relevant taxable year and (2) the excess of the U.S. holder’s modified adjusted gross income for the taxable year over a certain threshold (which in the case of individuals will be between $125,000 and $250,000, depending on the individual’s circumstances). A U.S. holder’s net investment income will generally include its dividend income and its net gains from the disposition of shares of our common stock, unless such dividends or net gains are derived in the ordinary course of the conduct of a trade or business (other than a trade or business that consists of certain passive or trading activities). If you are a U.S. holder that is an individual, estate or trust, you are urged to consult your tax advisors regarding the applicability of the Medicare tax to your income and gains in respect of your investment in the common stock.

Information Reporting and Backup Withholding. Information reporting will generally apply to noncorporate U.S. holders with respect to payments of dividends on shares of our common stock and to certain payments of proceeds on the sale or other disposition of shares of our common stock. Certain noncorporate U.S. holders may be subject to U.S. backup withholding (at a rate of 24%) on payments of dividends on shares of our common stock and certain payments of proceeds on the sale or other disposition of shares of our common stock unless the beneficial owner of the shares of our common stock furnishes the payor or its agent with a taxpayer identification number, certified under penalties of perjury, and certain other information, or otherwise establishes, in the manner prescribed by law, an exemption from backup withholding.

U.S. backup withholding is not an additional tax. Any amounts withheld under the backup withholding rules may be allowed as a credit against a U.S. holder’s U.S. federal income tax liability, which may entitle the U.S. holder to a refund, provided the U.S. holder timely furnishes the required information to the Internal Revenue Service (the “IRS”).

Non-U.S. Holders

Distributions on the Common Stock. Distributions treated as dividends (as described above under “U.S. Holders—Distributions on the Common Stock”) paid to a non-U.S. holder of shares of our common stock will generally be subject to withholding of U.S. federal income tax at a 30% rate or such lower rate as may be specified by an applicable income tax treaty. However, distributions that are effectively connected with the conduct by the non-U.S. holder of a trade or business within the United States (and, if a tax treaty applies, is attributable to a permanent establishment maintained by the non-U.S. holder in the United States) are not subject to the withholding tax, provided certain certification and disclosure requirements are satisfied. Instead, such

 

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distributions are subject to U.S. federal income tax on a net income basis in the same manner as if the non-U.S. holder were a United States person as defined under the Code, unless an applicable income tax treaty provides otherwise. Any such effectively connected dividends received by a foreign corporation may be subject to an additional “branch profits tax” at a 30% rate or such lower rate as may be specified by an applicable income tax treaty.

For purposes of obtaining a reduced rate of withholding under an income tax treaty or an exemption from withholding for dividends effectively connected to a U.S. trade or business, a non-U.S. holder will generally be required to provide a U.S. taxpayer identification number as well as certain information concerning the holder’s country of residence and entitlement to tax benefits. A non-U.S. holder can generally meet the certification requirements by providing a properly executed IRS Form W-8BEN or W-8BEN-E (if the holder is claiming the benefits of an income tax treaty) or Form W-8ECI (if the dividends are effectively connected with a trade or business in the United States) or suitable substitute or successor form.

Sale or Exchange of the Common Stock. A non-U.S. holder generally will not be subject to U.S. federal income or withholding tax on gain realized on the sale, exchange, or other disposition of shares of our common stock except for (i) certain non-resident alien individuals that are present in the United States for 183 or more days in the taxable year of the sale or disposition, (ii) gain that is effectively connected with the conduct by the non-U.S. holder of a trade or business within the United States (and, if a tax treaty applies, is attributable to a permanent establishment maintained by the non-U.S. holder in the United States), (iii) non-U.S. holders that are subject to tax pursuant to certain provisions of U.S. federal income tax law applicable to certain expatriates, and (iv) gain if we are or have been a “United States real property holding corporation” for U.S. federal income tax purposes.

Gain that is treated as effectively connected with a trade or business within the United States will be subject to U.S. federal income tax on a net income basis in the same manner as if the non-U.S. holder were a United States person as defined under the Code, unless an applicable income tax treaty provides otherwise. Any such effectively connected gain realized by a foreign corporation may be subject to an additional “branch profits tax” at a 30% rate or such lower rate as may be specified by an applicable income tax treaty.

We would not be treated as a “United States real property holding corporation” if less than 50% of our assets throughout a prescribed testing period consist of interests in real property located within the United States, excluding, for this purpose, interest in real property solely in a capacity as a creditor. We believe that we are not currently and do not anticipate becoming a “United States real property holding corporation” for U.S. federal income tax purposes.

Information Reporting and Backup Withholding. Information returns will be filed with the IRS reporting payments of dividends on shares of our common stock and the amount of tax, if any, withheld with respect to those payments. Copies of information returns reporting such dividends and withholding may also be made available to the tax authorities in the country in which a non-U.S. holder resides under the provisions of an applicable income tax treaty. Unless the non-U.S. holder complies with certification procedures to establish that it is not a U.S. person, information returns may be filed with the IRS in connection with the proceeds from a sale or other disposition of shares of our common stock and the non-U.S. holder may be subject to U.S. backup withholding on dividend payments on shares of our common stock or on the proceeds from a sale or other disposition of shares of our common stock. Satisfaction of the certification procedures required to claim a reduced rate of or exemption from withholding under the rules described above under Non-U.S. Holders—Distributions on the Common Stock will satisfy the certification requirements necessary to avoid backup withholding as well. The amount of any backup withholding from a payment to a non-U.S. holder will be allowed as a credit against such holder’s U.S. federal income tax liability and may entitle such holder to a refund, provided that the required information is timely furnished to the IRS. Non-U.S. holders are urged to consult their own tax advisors regarding the application of backup withholding in their particular circumstances and the availability of and procedure for obtaining an exemption from backup withholding under current Treasury regulations.

 

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Additional Withholding Tax Relating to Foreign Accounts.

Withholding taxes may apply to certain types of payments made to “foreign financial institutions” (as specially defined in the Code) and certain other non-United States entities. Specifically, a 30% withholding tax may be imposed on dividends on, and gross proceeds from the sale or other disposition of, shares of our common stock paid to a foreign financial institution or to a nonfinancial foreign entity (including any intermediaries through which such shares of our common stock are held), unless (1) the foreign financial institution and the intermediary, as applicable, undertake certain diligence and reporting, (2) the nonfinancial foreign entity either certifies that it does not have any substantial United States owners or furnish identifying information regarding each substantial United States owner, or (3) the foreign financial institution or non-financial foreign entity and the intermediary, as applicable, otherwise qualifies for an exemption from these rules. If the payee, including an intermediary, is a foreign financial institution and is subject to the diligence and reporting requirements in clause (1) above, it must enter into an agreement with the U.S. Treasury requiring, among other things, that it undertake to identify accounts held by certain U.S. persons or U.S.-owned foreign entities, annually report certain information about such accounts, and withhold 30% on payments to noncompliant foreign financial institutions and certain other account holders. Foreign financial institutions located in jurisdictions that have entered into an intergovernmental agreement with the United States governing these withholding taxes and reporting requirements may be subject to different rules. Final Treasury regulations provide that the withholding provisions described above will generally currently apply to payments of dividends and will apply to payments of gross proceeds from a sale or other disposition of shares of our common stock on or after January 1, 2019.

The preceding discussion of certain U.S. federal income tax consequences is for general information only and is not tax advice. Accordingly, each investor should consult its own tax advisor as to particular tax consequences to it of purchasing, holding and disposing of shares of our common stock, including the applicability and effect of any state, local or foreign tax laws, and of any pending or subsequent changes in applicable laws.

 

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CERTAIN ERISA CONSIDERATIONS

The Employee Retirement Income Security Act of 1974, as amended (“ERISA”), and Section 4975 of the Code, prohibit certain transactions (“prohibited transactions”) involving the assets of (i) an employee benefit plan that is subject to the prohibited transaction provisions of Title I of ERISA or Section 4975 of the Code (including individual retirement accounts, Keogh plans and other plans described in Section 4975(e)(1) of the Code) and (ii) entities whose underlying assets are considered to include “plan assets” of any such plan, account or arrangement (each of the foregoing described in clauses (i) and (ii) being referred to herein as a “Plan”) and certain persons who are “parties in interest” (within the meaning of ERISA) or “disqualified persons” (within the meaning of the Code) with respect to the Plan.

We, the underwriters and certain of our respective affiliates may be considered a “party in interest” or a “disqualified person” with respect to many Plans, and, accordingly, prohibited transactions may arise if shares of common stock are acquired by or on behalf of a Plan unless the shares of common stock are acquired and held pursuant to an available exemption, of which there are many. In this regard the U.S. Department of Labor has issued prohibited transaction class exemptions that may apply to the acquisition of shares of common stock. These exemptions include transactions effected on behalf of a Plan by a “qualified professional asset manager” (prohibited transaction exemption 84-14) or an “in-house asset manager” (prohibited transaction exemption 96-23), transactions involving insurance company general accounts (prohibited transaction exemption 95-60), transactions involving insurance company pooled separate accounts (prohibited transaction exemption 90-1), and transactions involving bank collective investment funds (prohibited transaction exemption 91-38). In addition, Section 408(b)(17) of ERISA and Section 4975(d)(20) of the Code provide relief from the prohibited transaction provisions of ERISA and Section 4975 of the Code for certain transactions, provided that neither the issuer of the securities nor any of its affiliates (directly or indirectly) have or exercise any discretionary authority or control or render any investment advice with respect to the assets of any Plan involved in the transaction and provided further that the Plan receives no less and pays no more than “adequate consideration” (within the meaning of Section 408(b)(17) of ERISA and Section 4975(f)(10) of the Code). There can be no assurance that all of the conditions of any such exemptions will be satisfied.

Governmental plans, certain church plans and non-U.S. plans may not be subject to the prohibited transaction provisions of ERISA or the Code but may be subject to similar laws (“Similar Laws”). Fiduciaries of any such plans should consult with counsel before acquisition or ownership of shares of our common stock.

Because of the foregoing, the person making the decision on behalf of a Plan or a governmental, church or foreign plan will be deemed, by purchasing the shares of common stock, to represent on behalf of itself and the plan that the purchase of the shares of common stock will not result in a non-exempt prohibited transaction under ERISA or Section 4975 of the Code or any applicable Similar Law.

The foregoing discussion is general in nature and is not intended to be all inclusive. Due to the complexity of these rules and the penalties that may be imposed upon persons involved in non-exempt prohibited transactions, it is particularly important that fiduciaries, or other persons considering the acquisition or ownership of our shares of common stock on behalf of, or with the assets of, any Plan, consult with their counsel regarding the potential applicability of ERISA, Section 4975 of the Code and any Similar Laws to such investment and whether an exemption would be applicable to the acquisition or ownership of our common stock.

 

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UNDERWRITING

Under the terms and subject to the conditions in an underwriting agreement dated the date of this prospectus supplement, the underwriters named below, for whom Goldman Sachs & Co. LLC and J.P. Morgan Securities LLC are acting as representatives, have severally agreed to purchase, and we have agreed to sell to them, severally, the number of shares of common stock indicated below.

 

Name

   Number of Shares
of Common Stock
 

Goldman Sachs & Co. LLC

                       

J.P. Morgan Securities LLC

  

Deutsche Bank Securities Inc.

  
  

 

 

 

JMP Securities LLC.

  

B. Riley FBR, Inc.

  

Keefe, Bruyette & Woods, Inc.

  

William Blair & Company, L.L.C.

  

Total

     5,000,000  

The underwriting agreement provides that the obligations of the several underwriters to pay for and accept delivery of the shares of common stock offered by this prospectus supplement are subject to the approval of certain legal matters by their counsel and to certain other conditions. The underwriters are obligated to take and pay for all of the shares of common stock offered by this prospectus supplement if any such shares are taken, other than the shares covered by the option described below unless and until this option is exercised.

The underwriters initially propose to offer part of the shares of common stock directly to the public at the public offering price listed on the cover page of this prospectus supplement and part to certain dealers at a price that represents a concession not in excess of $             per share under the public offering price. After the initial offering of shares of common stock to the public, the representatives may change the public offering price, concession and discount. The offering of the shares by the underwriters is subject to receipt and acceptance and subject to the underwriters’ right to reject any order in whole or in part.

The underwriters have agreed to purchase 5,000,000 shares of our common stock at a price of $             per share. We have granted to the underwriters an option, exercisable for 30 days from the date of this prospectus supplement, to purchase up to 750,000 additional shares of our common stock at the purchase price stated above. If any shares are purchased pursuant to this option, the underwriters will severally purchase shares in approximately the same proportion as set forth in the table above. The offering will result in us receiving approximately $             of proceeds before expenses, or $             of proceeds before expenses if the option to purchase additional shares is exercised in full.

The estimated offering expenses payable by us are approximately $            .

We have agreed with the underwriters, subject to certain exceptions, not to offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, lend, or otherwise transfer or dispose of, directly or indirectly, any shares of our common stock or any other securities convertible into or exercisable or exchangeable for our common stock (other than pursuant to employee stock option plans existing on the date hereof, or upon the conversion or exchange of convertible or exchangeable securities issued pursuant to such employee stock plans or outstanding as of the date of this prospectus supplement), during the period from the date of this prospectus supplement continuing through the date that is 90 days from the date of this prospectus supplement, without the prior written consent of the underwriters. This agreement does not apply to any existing employee benefit plans.

Our executive officers, directors and a significant shareholder have agreed with the underwriters, subject to certain exceptions, not to offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, lend, or otherwise transfer or dispose of, directly or indirectly, any shares of our common stock beneficially owned (as such term is used in Rule 13d-3 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), by the individual subject to the

 

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agreement or any other securities so owned convertible into or exercisable or exchangeable for our common stock or (2) enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of our common stock during the period from the date of this prospectus supplement continuing through the date that is 90 days from the date of this prospectus supplement, except with the prior written consent of the representatives. The foregoing restrictions shall not apply to (a) transfers of shares of common stock or any security convertible into common stock as a bona fide gift, (b) transfers to any trust for the direct or indirect benefit of the individual subject to the agreement or his or her immediate family, (c) dispositions from any grantor retained annuity trust or (d) transfers to the undersigned’s affiliates; provided that in the case of any transfer or disposition pursuant to clause (a), (b), (c) or (d), (i) each donee, trustee or transferee shall sign and deliver a lock-up letter substantially in the form of the lock-up agreement, (ii) such transfer or disposition will not involve a disposition for value and (iii) no filing under Section 16(a) of the Exchange Act, reporting a reduction in beneficial ownership of shares of common stock, shall be required or shall be voluntarily made during the Restricted Period, or (e) transfers required pursuant to the Company’s 2010 Equity Incentive Plan and 2013 Equity Incentive Plan in order to reimburse or pay U.S. federal income tax and withholding obligations in connection with vesting of restricted stock or restricted stock unit grants; provided that any public filing made under Section 16(a) of the Exchange Act in connection with any such transfer shall include a description explaining that such transfer was affected for the purposes described in this clause (e). For purposes of this paragraph, “immediate family” means any relationship by blood, marriage or adoption, not more remote than first cousin.

Our common stock is listed on the NASDAQ Global Market under the trading symbol “NGHC”.

In order to facilitate the offering of the common stock, the underwriters may engage in transactions that stabilize, maintain or otherwise affect the price of the common stock. Specifically, the underwriters may sell more shares than it is obligated to purchase under the underwriting agreement, creating a short position. A short position may involve either “covered” short sales or “naked” short sales. Covered short sales are sales made in an amount not greater than the number of shares available for purchase by the underwriters under their option to purchase additional shares. The underwriters may close out a covered short position by exercising the option to purchase additional shares or purchasing shares in the open market. In determining the source of shares to close out a covered short position, the underwriters will consider, among other things, the open market price of shares compared to the price available under the option to purchase additional shares. Naked short sales are sales in excess of the option to purchase additional shares. The underwriters must close out any naked short position by purchasing shares in the open market. A naked short position is more likely to be created if the underwriters are concerned that there may be downward pressure on the price of the common stock in the open market after pricing that could adversely affect investors who purchase in this offering. As an additional means of facilitating this offering, the underwriters may bid for, and purchase, shares of common stock in the open market to stabilize the price of the common stock. These activities may raise or maintain the market price of the common stock above independent market levels or prevent or retard a decline in the market price of the common stock. The underwriters are not required to engage in these activities and may end any of these activities at any time.

The underwriters may also impose a penalty bid. This occurs when a particular underwriter repays to the underwriter a portion of the underwriting discount received by it because the representatives have purchased shares of common stock sold by or for the account of such underwriter in stabilizing or short covering transactions.

In general, purchases of a security for the purpose of stabilizing or reducing a syndicate short position could cause the price of the security to be higher than it might otherwise be in the absence of such purchases.

Neither we nor the underwriters make any representation or prediction as to the direction or magnitude of any effect that the transactions described above may have on the price of the shares of common stock. In addition, neither we nor the underwriters make any representation that the underwriters will engage in such transactions or that such transactions will not be discontinued without notice, once they are commenced.

 

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We and the underwriters have agreed to indemnify each other against certain liabilities, including liabilities under the Securities Act, or to contribute to payments that the other party may be required to make in respect of those liabilities.

A prospectus supplement in electronic format may be made available on websites maintained by one or more underwriters, or selling group members, if any, participating in this offering. The representatives may agree to allocate a number of shares to underwriters for sale to their online brokerage account holders.

Internet distributions will be allocated by the representatives to underwriters that may make Internet distributions on the same basis as other allocations.

The underwriters and their affiliates are full service financial institutions engaged in various activities, which may include securities trading, commercial and investment banking, financial advisory, investment management, investment research, principal investment, hedging, financing and brokerage activities. The underwriters and their affiliates have, from time to time, performed, and may in the future perform, various financial advisory and investment banking services for the issuer, for which they received or will receive customary fees and expenses, including foreign exchange swaps, for us and our affiliates for which they receive customary advisory or transaction fees, as applicable, plus out-of-pocket expenses. In particular, some of the underwriters hereunder have acted as underwriters or placement agents for our prior securities offerings.

In the ordinary course of their various business activities, the underwriters and their affiliates may make or hold a broad array of investments, including serving as counterparties to certain derivative and hedging arrangements, and actively trade debt and equity securities (or related derivative securities) and financial instruments (including bank loans) for their own account and for the accounts of their customers, and such investment and securities activities may involve securities and/or instruments of the issuer. The underwriters and their affiliates may also make investment recommendations and/or publish or express independent research views in respect of such securities or instruments and may at any time hold, or recommend to clients that they acquire, long and/or short positions in such securities and instruments.

Other than in the United States, no action has been taken by us or the underwriters that would permit a public offering of the shares of common stock offered by this prospectus supplement in any jurisdiction where action for that purpose is required. The shares of common stock offered by this prospectus supplement may not be offered or sold, directly or indirectly, nor may this prospectus supplement or any other offering material or advertisements in connection with the offer and sale of any such shares of common stock be distributed or published in any jurisdiction, except under circumstances that will result in compliance with the applicable rules and regulations of that jurisdiction. Persons into whose possession this prospectus supplement comes are advised to inform themselves about and to observe any restrictions relating to the offering and the distribution of this prospectus supplement.

This prospectus supplement does not constitute an offer to sell or a solicitation of an offer to buy any shares of common stock offered by this prospectus supplement in any jurisdiction in which such an offer or a solicitation is unlawful.

Canada

The shares of common stock may be sold only to purchasers purchasing, or deemed to be purchasing, as principal that are accredited investors, as defined in National Instrument 45-106 Prospectus Exemptions or subsection 73.3(1) of the Securities Act (Ontario), and are permitted clients, as defined in National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations. Any resale of the shares of common stock must be made in accordance with an exemption from, or in a transaction not subject to, the prospectus requirements of applicable securities laws.

 

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Securities legislation in certain provinces or territories of Canada may provide a purchaser with remedies for rescission or damages if this prospectus supplement (including any amendment thereto) contains a misrepresentation, provided that the remedies for rescission or damages are exercised by the purchaser within the time limit prescribed by the securities legislation of the purchaser’s province or territory. The purchaser should refer to any applicable provisions of the securities legislation of the purchaser’s province or territory for particulars of these rights or consult with a legal advisor.

Pursuant to section 3A.3 (or, in the case of securities issued or guaranteed by the government of a non-Canadian jurisdiction, section 3A.4) of National Instrument 33-105 Underwriting Conflicts (NI 33-105), the underwriters are not required to comply with the disclosure requirements of NI 33-105 regarding underwriter conflicts of interest in connection with this offering.

European Economic Area

The shares of common stock are not intended to be offered, sold or otherwise made available to and should not be offered, sold or otherwise made available to any retail investor in the European Economic Area (“EEA”). For these purposes, a retail investor means a person who is one (or more) of: (i) a retail client as defined in point (11) of Article 4(1) of Directive 2014/65/EU (as amended, “MiFID II”); or (ii) a customer within the meaning of Directive 2016/97/EU (the “Insurance Distribution Directive”), where that customer would not qualify as a professional client as defined in point (10) of Article 4(1) of MiFID II; or (iii) not a qualified investor as defined in Directive 2003/71/EC (as amended, the “Prospectus Directive”) . Consequently no key information document required by Regulation (EU) No 1286/2014 (as amended or superseded, the “PRIIPs Regulation”) for offering or selling the shares of common stock or otherwise making them available to retail investors in the EEA has been prepared and therefore offering or selling the shares of common stock or otherwise making them available to any retail investor in the EEA may be unlawful under the PRIIPS Regulation. This prospectus supplement and the accompanying prospectus have been prepared on the basis that any offer of shares of common stock in any Member State of the EEA will be made pursuant to an exemption under the Prospectus Directive from the requirement to publish a prospectus for offers of shares of common stock. This prospectus supplement and the accompanying prospectus are not a prospectus for the purposes of the Prospectus Directive.

United Kingdom

In addition, in the United Kingdom, this prospectus supplement and the accompanying prospectus are being distributed only to, and is directed only at, and any offer subsequently made may only be directed at persons who are “qualified investors” (as defined in the Prospectus Directive) (i) who have professional experience in matters relating to investments falling within Article 19 (5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the “Order”) and/or (ii) who are high net worth companies (or persons to whom it may otherwise be lawfully communicated) falling within Article 49(2)(a) to (d) of the Order (all such persons together being referred to as “relevant persons”). This prospectus supplement and the accompanying prospectus must not be acted on or relied on in the United Kingdom by persons who are not relevant persons. In the United Kingdom, any investment or investment activity to which this prospectus supplement and the accompanying prospectus relate is only available to, and will be engaged in with, relevant persons.

Japan

The shares of common stock have not been and will not be registered under the Financial Instruments and Exchange Law of Japan (the Law No. 25 of 1948, as amended, the “FIEL”) and each underwriter has agreed that it will not offer or sell any shares of common stock, directly or indirectly, in Japan or to, or for the benefit of, any resident of Japan (which term as used herein means any person resident in Japan, including any corporation or other entity organized under the laws of Japan), or to others for re-offering or resale, directly or indirectly, in Japan or to a resident of Japan, except pursuant to an exemption from the registration requirements of, and otherwise in compliance with, the FIEL and any other applicable laws, regulations and ministerial guidelines of Japan.

 

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Hong Kong

The shares of common stock may not be offered or sold by means of any document other than (i) in circumstances which do not constitute an offer to the public within the meaning of the Companies Ordinance (Cap.32, Laws of Hong Kong), or (ii) to “professional investors” within the meaning of the Securities and Futures Ordinance (Cap.571, Laws of Hong Kong) and any rules made thereunder, or (iii) in other circumstances which do not result in the document being a “prospectus” within the meaning of the Companies Ordinance (Cap.32, Laws of Hong Kong), and no advertisement, invitation or document relating to the shares of common stock may be issued or may be in the possession of any person for the purpose of issue (in each case whether in Hong Kong or elsewhere), which is directed at, or the contents of which are likely to be accessed or read by, the public in Hong Kong (except if permitted to do so under the laws of Hong Kong) other than with respect to shares of common stock which are or are intended to be disposed of only to persons outside Hong Kong or only to “professional investors” within the meaning of the Securities and Futures Ordinance (Cap. 571, Laws of Hong Kong) and any rules made thereunder.

The contents of this prospectus supplement and the accompanying prospectus have not been reviewed by any regulatory authority in Hong Kong. You are advised to exercise caution in relation to the offering of the shares of common stock. If you are in any doubt about any of the contents of this document, you should obtain independent professional advice.

Singapore

This prospectus has not been registered as a prospectus with the Monetary Authority of Singapore. Accordingly, this prospectus and any other document or material in connection with the offer or sale, or invitation for subscription or purchase, of securities may not be circulated or distributed, nor may the securities be offered or sold, or be made the subject of an invitation for subscription or purchase, whether directly or indirectly, to persons in Singapore other than (i) to an institutional investor under Section 274 of the Securities and Futures Act, Chapter 289 of Singapore (the “SFA”), (ii) to a relevant person pursuant to Section 275(1), or any person pursuant to Section 275(1A), and in accordance with the conditions specified in Section 275, of the SFA, or (iii) otherwise pursuant to, and in accordance with the conditions of, any other applicable provision of the SFA.

Where the securities are subscribed or purchased under Section 275 of the SFA by a relevant person which is:

 

  (a)

a corporation (which is not an accredited investor (as defined in Section 4A of the SFA)) the sole business of which is to hold investments and the entire share capital of which is owned by one or more individuals, each of whom is an accredited investor; or

 

  (b)

a trust (where the trustee is not an accredited investor) whose sole purpose is to hold investments and each beneficiary of the trust is an individual who is an accredited investor, securities (as defined in Section 239(1) of the SFA) of that corporation or the beneficiaries’ rights and interest

(howsoever described) in that trust shall not be transferred within six months after that corporation or that trust has acquired the securities pursuant to an offer made under Section 275 of the SFA except:

 

  (a)

to an institutional investor or to a relevant person defined in Section 275(2) of the SFA, or to any person arising from an offer referred to in Section 275(1A) or Section 276(4)(i)(B) of the SFA;

 

  (b)

where no consideration is or will be given for the transfer;

 

  (c)

where the transfer is by operation of law;

 

  (d)

as specified in Section 276(7) of the SFA; or

 

  (e)

as specified in Regulation 32 of the Securities and Futures (Offers of Investments) (Shares and Debentures) Regulations 2005 of Singapore.

 

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WHERE YOU CAN FIND MORE INFORMATION; INCORPORATION BY REFERENCE

We file annual, quarterly and periodic reports, proxy statements and other information with the SEC. You may read and copy any document we file with the SEC at its Public Reference Room at 100 F Street N.E., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further information on the Public Reference Room. Our SEC filings are also available to the public from the SEC’s website at http://www.sec.gov or from our website at http://www.nationalgeneral.com. Our Corporate Governance Guidelines, our Code of Business Conduct and Ethics and our committee charters are also available on our website at http://www.nationalgeneral.com or in print upon written request addressed to our Corporate Secretary, National General Holdings Corp., 59 Maiden Lane, 38th Floor, New York, New York 10038. However, the information on our website does not constitute a part of, nor is it incorporated by reference in, this prospectus supplement and the accompanying prospectus.

The SEC allows us to “incorporate by reference” into this prospectus supplement and the accompanying prospectus information that we file with the SEC. This means that we can disclose important information to you by referring you to the documents containing that information and that such information will be regarded as an important part of this prospectus supplement and the accompanying prospectus.

We incorporate by reference the information contained in the documents listed below (other than information that is deemed not to be filed):

 

   

Annual Report on Form 10-K for the year ended December 31, 2017, filed with the SEC on February 26, 2018;

 

   

Quarterly Reports on Form 10-Q for the quarters ended March 31, 2018, June 30, 2018 and September 30, 2018, filed with the SEC on May 7, 2018, August 6, 2018 and October 30, 2018, respectively;

 

   

Definitive Proxy Statement on Schedule 14A filed with the SEC on March 29, 2018 (only those portions incorporated by reference in the Annual Report on Form 10-K for the year ended December 31, 2017);

 

   

The description of our common stock as set forth in Item 1 to our Registration Statement on Form 8-A filed with the SEC on February 10, 2014; and

 

   

Current Reports on Form 8-K filed with the SEC on February 26, 2018, May 7, 2018, July 9, 2018 and November 13, 2018.

We also incorporate by reference any future filings we make with the SEC under Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act until this offering is completed (other than information in such documents that is deemed not to be filed). Our future filings with the SEC will automatically update and supersede any inconsistent information in this prospectus supplement and the accompanying prospectus and in our other SEC filings and such outdated or inconsistent information will no longer be regarded as part of this prospectus supplement and the accompanying prospectus.

Nothing in this prospectus supplement or the accompanying prospectus shall be deemed to incorporate information furnished but not filed with the SEC pursuant to Item 2.02 or 7.01 of Form 8-K.

You may request a copy of any of these filings, at no cost, by writing or calling us at the following phone number or postal address:

Jeffrey Weissmann

General Counsel and Secretary

National General Holdings Corp.

59 Maiden Lane, 38th Floor

New York, NY 10038

(212) 380-9500

 

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LEGAL MATTERS

The validity of the securities offered hereby will be passed upon for us by Sidley Austin LLP, New York, New York. The underwriters will be represented by Mayer Brown LLP.

EXPERTS

The consolidated financial statements of National General Holdings Corp. incorporated by reference in National General Holdings Corp.’s Annual Report (Form 10-K) for the year ended December 31, 2017 (including schedules appearing therein), and the effectiveness of National General Holding Corp.’s internal control over financial reporting as of December 31, 2017 have been audited by Ernst & Young LLP, independent registered public accounting firm, as set forth in their reports thereon, incorporated by reference therein, and incorporated herein by reference. The consolidated financial statements of National General Holdings Corp. at December 31, 2016, and 2015 and for each of the two years in the period ended December 31, 2016, incorporated herein by reference from our Annual Report on Form 10-K for the year ended December 31, 2017 (including the schedules appearing therein) have been audited by BDO, USA, LLP, an independent registered public accounting firm, as set forth in their report thereon. Such consolidated financial statements are incorporated herein by reference in reliance upon such reports given on the authority of such firms as experts in accounting and auditing.

 

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ANNEX A

 

    Nine Months Ended September 30, 2018  
    P&C     A&H     NGHC     Reciprocal
Exchanges
    Eliminations     Consolidated  
    (Amounts in thousands, except percentages and per share data)  

Gross written premium

  $ 3,259,270     $ 534,560     $ 3,793,830     $ 337,021     $ (1,601   $ 4,129,250  

Net written premium

  $ 2,301,215     $ 486,187     $ 2,787,402     $ 132,240     $ —       $ 2,919,642  

Net earned premium

  $ 2,181,571     $ 465,391     $ 2,646,962     $ 141,009     $ —       $ 2,787,971  

Ceding commission income

    118,664       789       119,453       39,523       —         158,976  

Service and fee income

    328,707       134,586       463,293       4,466       (52,446     415,313  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total underwriting revenues

  $ 2,628,942     $ 600,766     $ 3,229,708     $ 184,998     $ (52,446   $ 3,362,260  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loss and loss adjustment expense

    1,583,019       252,364       1,835,383       126,421       —         1,961,804  

Acquisition costs and other

    372,589       136,499       509,088       32,952       —         542,040  

General and administrative

    533,316       148,265       681,581       62,032       (52,446     691,167  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total underwriting expenses

  $ 2,488,924     $ 537,128     $ 3,026,052     $ 221,405     $ (52,446   $ 3,195,011  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Underwriting income (loss)

  $ 140,018     $ 63,638     $ 203,656     $ (36,407   $ —       $ 167,249  

Non-cash impairment of goodwill

    —         —         —         —         —         —    

Non-cash amortization of intangible assets

    18,125       5,272       23,397       (67     —         23,330  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Underwriting income (loss) before amortization and impairment

  $ 158,143     $ 68,910     $ 227,053     $ (36,474   $ —       $ 190,579  

Underwriting ratios

           

Loss and loss adjustment expense ratio (1)

    72.6     54.2     69.3     89.7     —       70.4

Operating expense ratio (non-GAAP) (2)(3)

    21.0     32.1     23.0     36.2     —       23.6
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Combined ratio (non-GAAP) (2)(4)

    93.6     86.3     92.3     125.9     —       94.0

Underwriting ratios (before amortization and impairment)

           

Loss and loss adjustment expense ratio (1)

    72.6     54.2     69.3     89.7     —       70.4

Operating expense ratio (non-GAAP) (2)(5)

    20.2     31.0     22.1     36.2     —       22.8
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Combined ratio before amortization and impairment (non-GAAP) (2)(6)

    92.8     85.2     91.4     125.9     —       93.2

Total underwriting expenses

  $ 2,488,924     $ 537,128     $ 3,026,052     $ 221,405     $ (52,446   $ 3,195,011  

Less: Loss and loss adjustment expense

    1,583,019       252,364       1,835,383       126,421       —         1,961,804  

Less: Ceding commission income

    118,664       789       119,453       39,523       —         158,976  

Less: Service and fee income

    328,707       134,586       463,293       4,466       (52,446     415,313  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating expense

  $ 458,534     $ 149,389     $ 607,923     $ 50,995     $ —       $ 658,918  

Net earned premium

  $ 2,181,571     $ 465,391     $ 2,646,962     $ 141,009     $ —       $ 2,787,971  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating expense ratio (non-GAAP)

    21.0     32.1     23.0     36.2     —       23.6
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total underwriting expenses

  $ 2,488,924     $ 537,128     $ 3,026,052     $ 221,405     $ (52,446   $ 3,195,011  

Less: Loss and loss adjustment expense

    1,583,019       252,364       1,835,383       126,421       —         1,961,804  

Less: Ceding commission income

    118,664       789       119,453       39,523       —         158,976  

Less: Service and fee income

    328,707       134,586       463,293       4,466       (52,446     415,313  

Less: Non-cash impairment of goodwill

    —         —         —         —         —         —    

Less: Non-cash amortization of intangible assets

    18,125       5,272       23,397       (67     —         23,330  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating expense before amortization and impairment

  $ 440,409     $ 144,117     $ 584,526     $ 51,062     $ —       $ 635,588  

Net earned premium

  $ 2,181,571     $ 465,391     $ 2,646,962     $ 141,009     $ —       $ 2,787,971  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating expense ratio before amortization and impairment (non-GAAP)

    20.2     31.0     22.1     36.2     —       22.8
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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     Nine Months Ended September 30, 2017  
     P&C     A&H     NGHC     Reciprocal
Exchanges
    Eliminations     Consolidated  
     (Amounts in thousands, except percentages and per share data)  

Gross written premium

   $ 2,864,031     $ 444,195     $ 3,308,226     $ 285,779     $ (2,402   $ 3,591,603  

Net written premium

   $ 2,192,570     $ 409,560     $ 2,602,130     $ 136,477     $ —       $ 2,738,607  

Net earned premium

   $ 2,241,766     $ 399,505     $ 2,641,271     $ 123,266     $ —       $ 2,764,537  

Ceding commission income

     36,263       784       37,047       54,557       —         91,604  

Service and fee income

     298,674       107,808       406,482       7,658       (40,496     373,644  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total underwriting revenues

   $ 2,576,703     $ 508,097     $ 3,084,800     $ 185,481     $ (40,496   $ 3,229,785  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loss and loss adjustment expense

     1,642,053       238,327       1,880,380       88,776       —         1,969,156  

Acquisition costs and other

     368,189       112,075       480,264       46,836       —         527,100  

General and administrative

     536,353       122,518       658,871       62,431       (40,496     680,806  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total underwriting expenses

   $ 2,546,595     $ 472,920     $ 3,019,515     $ 198,043     $ (40,496   $ 3,177,062  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Underwriting income (loss)

   $ 30,108     $ 35,177     $ 65,285     $ (12,562   $ —       $ 52,723  

Non-cash impairment of goodwill

     —         —         —         —         —         —    

Non-cash amortization of intangible assets

     38,006       4,295       42,301       6,909       —         49,210  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Underwriting income (loss) before amortization and impairment

   $ 68,114     $ 39,472     $ 107,586     $ (5,653   $ —       $ 101,933  

Underwriting ratios

            

Loss and loss adjustment expense ratio (1)

     73.2     59.7     71.2     72.0     —       71.2

Operating expense ratio (non-GAAP) (2)(3)

     25.4     31.5     26.3     38.2     —       26.9
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Combined ratio (non-GAAP) (2)(4)

     98.6     91.2     97.5     110.2     —       98.1

Underwriting ratios (before amortization and impairment)

            

Loss and loss adjustment expense ratio (1)

     73.2     59.7     71.2     72.0     —       71.2

Operating expense ratio (non-GAAP) (2)(5)

     23.7     30.5     24.7     32.6     —       25.1
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Combined ratio before amortization and impairment (non-GAAP) (2)(6)

     96.9     90.2     95.9     104.6     —       96.3

Total underwriting expenses

   $ 2,546,595     $ 472,920     $ 3,019,515     $ 198,043     $ (40,496   $ 3,177,062  

Less: Loss and loss adjustment expense

     1,642,053       238,327       1,880,380       88,776       —         1,969,156  

Less: Ceding commission income

     36,263       784       37,047       54,557       —         91,604  

Less: Service and fee income

     298,674       107,808       406,482       7,658       (40,496     373,644  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating expense

   $ 569,605     $ 126,001     $ 695,606     $ 47,052     $ —       $ 742,658  

Net earned premium

   $ 2,241,766     $ 399,505     $ 2,641,271     $ 123,266     $ —       $ 2,764,537  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating expense ratio (non-GAAP)

     25.4     31.5     26.3     38.2     —       26.9
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total underwriting expenses

   $ 2,546,595     $ 472,920     $ 3,019,515     $ 198,043     $ (40,496   $ 3,177,062  

Less: Loss and loss adjustment expense

     1,642,053       238,327       1,880,380       88,776       —         1,969,156  

Less: Ceding commission income

     36,263       784       37,047       54,557       —         91,604  

Less: Service and fee income

     298,674       107,808       406,482       7,658       (40,496     373,644  

Less: Non-cash impairment of goodwill

     —         —         —         —         —         —    

Less: Non-cash amortization of intangible assets

     38,006       4,295       42,301       6,909       —         49,210  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating expense before amortization and impairment

   $ 531,599     $ 121,706     $ 653,305     $ 40,143     $ —       $ 693,448  

Net earned premium

   $ 2,241,766     $ 399,505     $ 2,641,271     $ 123,266     $ —       $ 2,764,537  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating expense ratio before amortization and impairment (non-GAAP)

     23.7     30.5     24.7     32.6     —       25.1
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

S-27


Table of Contents
    Year Ended December 31, 2017  
    P&C     A&H     NGHC     Reciprocal
Exchanges
    Eliminations     Consolidated  
    (Amounts in thousands, except percentages and per share data)  

Gross written premium

  $ 3,794,012     $ 581,402     $ 4,375,414     $ 383,773     $ (3,202   $ 4,755,985  

Net written premium

  $ 2,866,650     $ 535,296     $ 3,401,946     $ 175,649     $ —       $ 3,577,595  

Net earned premium

  $ 2,951,022     $ 533,283     $ 3,484,305     $ 169,871     $ —       $ 3,654,176  

Ceding commission income

    55,263       1,013       56,276       60,180       —         116,456  

Service and fee income

    397,966       154,614       552,580       5,794       (55,447     502,927  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total underwriting revenues

  $ 3,404,251     $ 688,910     $ 4,093,161     $ 235,845     $ (55,447   $ 4,273,559  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loss and loss adjustment expense

    2,187,779       318,463       2,506,242       119,840       —         2,626,082  

Acquisition costs and other

    467,390       154,879       622,269       50,160       —         672,429  

General and administrative

    715,975       171,497       887,472       80,971       (55,447     912,996  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total underwriting expenses

  $ 3,371,144     $ 644,839     $ 4,015,983     $ 250,971     $ (55,447   $ 4,211,507  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Underwriting income (loss)

  $ 33,107     $ 44,071     $ 77,178     $ (15,126   $ —       $ 62,052  

Non-cash impairment of goodwill

    4,884       —         4,884       —         —         4,884  

Non-cash amortization of intangible assets

    42,858       8,871       51,729       6,882       —         58,611  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Underwriting income (loss) before amortization and impairment

  $ 80,849     $ 52,942     $ 133,791     $ (8,244   $ —       $ 125,547  

Underwriting ratios

           

Loss and loss adjustment expense ratio (1)

    74.1     59.7     71.9     70.5     —       71.9

Operating expense ratio (non-GAAP) (2)(3)

    24.7     32.0     25.9     38.4     —       26.4
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Combined ratio (non-GAAP) (2)(4)

    98.8     91.7     97.8     108.9     —       98.3

Underwriting ratios (before amortization and impairment)

           

Loss and loss adjustment expense ratio (1)

    74.1     59.7     71.9     70.5     —       71.9

Operating expense ratio (non-GAAP) (2)(5)

    23.1     30.4     24.2     34.3     —       24.7
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Combined ratio before amortization and impairment (non-GAAP) (2)(6)

    97.2     90.1     96.1     104.8     —       96.6

Total underwriting expenses

  $ 3,371,144     $ 644,839     $ 4,015,983     $ 250,971     $ (55,447   $ 4,211,507  

Less: Loss and loss adjustment expense

    2,187,779       318,463       2,506,242       119,840       —         2,626,082  

Less: Ceding commission income

    55,263       1,013       56,276       60,180       —         116,456  

Less: Service and fee income

    397,966       154,614       552,580       5,794       (55,447     502,927  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating expense

  $ 730,136     $ 170,749     $ 900,885     $ 65,157     $ —       $ 966,042  

Net earned premium

  $ 2,951,022     $ 533,283     $ 3,484,305     $ 169,871     $ —       $ 3,654,176  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating expense ratio (non-GAAP)

    24.7     32.0     25.9     38.4     —       26.4
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total underwriting expenses

  $ 3,371,144     $ 644,839     $ 4,015,983     $ 250,971     $ (55,447   $ 4,211,507  

Less: Loss and loss adjustment expense

    2,187,779       318,463       2,506,242       119,840       —         2,626,082  

Less: Ceding commission income

    55,263       1,013       56,276       60,180       —         116,456  

Less: Service and fee income

    397,966       154,614       552,580       5,794       (55,447     502,927  

Less: Non-cash impairment of goodwill

    4,884       —         4,884       —         —         4,884  

Less: Non-cash amortization of intangible assets

    42,858       8,871       51,729       6,882       —         58,611  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating expense before amortization and impairment

  $ 682,394     $ 161,878     $ 844,272     $ 58,275     $ —       $ 902,547  

Net earned premium

  $ 2,951,022     $ 533,283     $ 3,484,305     $ 169,871     $ —       $ 3,654,176  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating expense ratio before amortization and impairment (non-GAAP)

    23.1     30.4     24.2     34.3     —       24.7
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

S-28


Table of Contents
    Year Ended December 31, 2016  
    P&C     A&H     NGHC     Reciprocal
Exchanges
    Eliminations     Consolidated  
    (Amounts in thousands, except percentages and per share data)  

Gross written premium

  $ 2,797,660     $ 464,010     $ 3,261,670     $ 241,540     $ (2,312   $ 3,500,898  

Net written premium

  $ 2,533,480     $ 418,668     $ 2,952,148     $ 120,548     $ —       $ 3,072,696  

Net earned premium

  $ 2,470,349     $ 414,427     $ 2,884,776     $ 110,395     $ —       $ 2,995,171  

Ceding commission income

    747       1,331       2,078       43,522       —         45,600  

Service and fee income

    271,835       138,936       410,771       3,862       (33,816     380,817  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total underwriting revenues

  $ 2,742,931     $ 554,694     $ 3,297,625     $ 157,779     $ (33,816   $ 3,421,588  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loss and loss adjustment expense

    1,721,854       301,210       2,023,064       69,216       —         2,092,280  

Acquisition costs and other

    379,135       102,730       481,865       15,148       (6     497,007  

General and administrative

    549,249       128,333       677,582       65,376       (33,810     709,148  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total underwriting expenses

  $ 2,650,238     $ 532,273     $ 3,182,511     $ 149,740     $ (33,816   $ 3,298,435  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Underwriting income (loss)

  $ 92,693     $ 22,421     $ 115,114     $ 8,039     $ —       $ 123,153  

Non-cash impairment of goodwill

    3,552       —         3,552       —         —         3,552  

Non-cash amortization of intangible assets

    37,537       10,593       48,130       20,795       —         68,925  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Underwriting income (loss) before amortization and impairment

  $ 133,782     $ 33,014     $ 166,796     $ 28,834     $ —       $ 195,630  

Underwriting ratios

           

Loss and loss adjustment expense ratio (1)

    69.7     72.7     70.1     62.7     —       69.9

Operating expense ratio (non-GAAP) (2)(3)

    26.5     21.9     25.9     30.0     —       26.0
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Combined ratio (non-GAAP) (2)(4)

    96.2     94.6     96.0     92.7     —       95.9

Underwriting ratios (before amortization and impairment)

           

Loss and loss adjustment expense ratio (1)

    69.7     72.7     70.1     62.7     —       69.9

Operating expense ratio (non-GAAP) (2)(5)

    24.9     19.4     24.1     11.2     —       23.6
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Combined ratio before amortization and impairment (non-GAAP) (2)(6)

    94.6     92.1     94.2     73.9     —       93.5

Total underwriting expenses

  $ 2,650,238     $ 532,273     $ 3,182,511     $ 149,740     $ (33,816   $ 3,298,435  

Less: Loss and loss adjustment expense

    1,721,854       301,210       2,023,064       69,216       —         2,092,280  

Less: Ceding commission income

    747       1,331       2,078       43,522       —         45,600  

Less: Service and fee income

    271,835       138,936       410,771       3,862       (33,816     380,817  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating expense

  $ 655,802     $ 90,796     $ 746,598     $ 33,140     $ —       $ 779,738  

Net earned premium

  $ 2,470,349     $ 414,427     $ 2,884,776     $ 110,395     $ —       $ 2,995,171  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating expense ratio (non-GAAP)

    26.5     21.9     25.9     30.0     —       26.0
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total underwriting expenses

  $ 2,650,238     $ 532,273     $ 3,182,511     $ 149,740     $ (33,816   $ 3,298,435  

Less: Loss and loss adjustment expense

    1,721,854       301,210       2,023,064       69,216       —         2,092,280  

Less: Ceding commission income

    747       1,331       2,078       43,522       —         45,600  

Less: Service and fee income

    271,835       138,936       410,771       3,862       (33,816     380,817  

Less: Non-cash impairment of goodwill

    3,552       —         3,552       —         —         3,552  

Less: Non-cash amortization of intangible assets

    37,537       10,593       48,130       20,795       —         68,925  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating expense before amortization and impairment

  $ 614,713     $ 80,203     $ 694,916     $ 12,345     $ —       $ 707,261  

Net earned premium

  $ 2,470,349     $ 414,427     $ 2,884,776     $ 110,395     $ —       $ 2,995,171  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating expense ratio before amortization and impairment (non-GAAP)

    24.9     19.4     24.1     11.2     —       23.6
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

S-29


Table of Contents
    Year Ended December 31, 2015  
    P&C     A&H     NGHC     Reciprocal
Exchanges
    Eliminations     Consolidated  
    (Amounts in thousands, except percentages and per share data)  

Gross written premium

  $ 2,058,130     $ 251,922     $ 2,310,052     $ 283,582     $ (3,590   $ 2,590,044  

Net written premium

  $ 1,844,498     $ 215,953     $ 2,060,451     $ 126,091       —       $ 2,186,542  

Net earned premium

  $ 1,784,096     $ 211,301     $ 1,995,397     $ 134,709       —       $ 2,130,106  

Ceding commission income

    (3,601     1,091       (2,510     46,300       —         43,790  

Service and fee income

    201,304       98,810       300,114       13,226       (39,792     273,548  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total underwriting revenues

  $ 1,981,799     $ 311,202     $ 2,293,001     $ 194,235     $ (39,792   $ 2,447,444  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loss and loss adjustment expense

    1,205,074       171,630       1,376,704       108,616       —         1,485,320  

Acquisition costs and other

    312,799       65,999       378,798       27,972       (108     406,662  

General and administrative

    330,245       82,111       412,356       54,304       (39,684     426,976  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total underwriting expenses

  $ 1,848,118     $ 319,740     $ 2,167,858     $ 190,892     $ (39,792   $ 2,318,958  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Underwriting income (loss)

  $ 133,681     $ (8,538   $ 125,143     $ 3,343     $ —       $ 128,486  

Non-cash impairment of goodwill

    11,222       6,244       17,466       —         —         17,466  

Non-cash amortization of intangible assets

    9,995       6,597       16,592       4,380       —         20,972  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Underwriting income (loss) before amortization and impairment

  $ 154,898     $ 4,303     $ 159,201     $ 7,723     $ —       $ 166,924  

Underwriting ratios

           

Loss and loss adjustment expense ratio (1)

    67.5     81.2     69.0     80.6     —       69.7

Operating expense ratio (non-GAAP) (2)(3)

    25.0     22.8     24.7     16.9     —       24.2
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Combined ratio (non-GAAP) (2)(4)

    92.5     104.0     93.7     97.5     —       93.9

Underwriting ratios (before amortization and impairment)

           

Loss and loss adjustment expense ratio (1)

    67.5     81.2     69.0     80.6     —       69.7

Operating expense ratio (non-GAAP) (2)(5)

    23.8     16.7     23.0     13.6     —       22.4
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Combined ratio before amortization and impairment (non-GAAP) (2)(6)

    91.3     97.9     92.0     94.2     —       92.1

Total underwriting expenses

  $ 1,848,118     $ 319,740     $ 2,167,858     $ 190,892     $ (39,792   $ 2,318,958  

Less: Loss and loss adjustment expense

    1,205,074       171,630       1,376,704       108,616       —         1,485,320  

Less: Ceding commission income

    (3,601     1,091       (2,510     46,300       —         43,790  

Less: Service and fee income

    201,304       98,810       300,114       13,226       (39,792     273,548  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating expense

  $ 445,341     $ 48,209     $ 493,550     $ 22,750     $ —       $ 516,300  

Net earned premium

  $ 1,784,096     $ 211,301     $ 1,995,397     $ 134,709     $ —       $ 2,130,106  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating expense ratio (non-GAAP)

    25.0     22.8     24.7     16.9     —       24.2
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total underwriting expenses

  $ 1,848,118     $ 319,740     $ 2,167,858     $ 190,892     $ (39,792   $ 2,318,958  

Less: Loss and loss adjustment expense

    1,205,074       171,630       1,376,704       108,616       —         1,485,320  

Less: Ceding commission income

    (3,601     1,091       (2,510     46,300       —         43,790  

Less: Service and fee income

    201,304       98,810       300,114       13,226       (39,792     273,548  

Less: Non-cash impairment of goodwill

    11,222       6,244       17,466       —         —         17,466  

Less: Non-cash amortization of intangible assets

    9,995       6,597       16,592       4,380       —         20,972  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating expense before amortization and impairment

  $ 424,124     $ 35,368     $ 459,492     $ 18,370     $ —       $ 477,862  

Net earned premium

  $ 1,784,096     $ 211,301     $ 1,995,397     $ 134,709     $ —       $ 2,130,106  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating expense ratio before amortization and impairment (non-GAAP)

    23.8     16.7     23.0     13.6     —       22.4
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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Table of Contents
    Year Ended December 31, 2014  
    P&C     A&H     NGHC     Reciprocal
Exchanges
    Eliminations     Consolidated  
    (Amounts in thousands, except percentages and per share data)  

Gross written premium

  $ 1,924,666     $ 140,399     $ 2,065,065     $ 70,042     $ —       $ 2,135,107  

Net written premium

  $ 1,676,946     $ 140,002     $ 1,816,948     $ 53,076     $ —       $ 1,870,024  

Net earned premium

  $ 1,465,122     $ 120,476     $ 1,585,598     $ 47,622     $ —       $ 1,633,220  

Ceding commission income

    7,643       —         7,643       4,787       —         12,430  

Service and fee income

    119,876       58,457       178,333       139       (9,901     168,571  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total underwriting revenues

  $ 1,592,641     $ 178,933     $ 1,771,574     $ 52,548     $ (9,901   $ 1,814,221  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loss and loss adjustment expense

    1,005,885       92,532       1,098,417       26,719       —         1,125,136  

Acquisition costs and other

    254,130       54,692       308,822       6,267       —         315,089  

General and administrative

    224,651       56,617       281,268       11,967       (9,901     283,334  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total underwriting expenses

  $ 1,484,666     $ 203,841     $ 1,688,507     $ 44,953     $ (9,901   $ 1,723,559  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Underwriting income (loss)

  $ 107,975     $ (24,908   $ 83,067     $ 7,595     $ —       $ 90,662  

Non-cash impairment of goodwill

    9,419       6,373       15,792       —         —         15,792  

Non-cash amortization of intangible assets

    5,208       6,117       11,325       2,468       —         13,793  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Underwriting income (loss) before amortization and impairment

  $ 122,602     $ (12,418   $ 110,184     $ 10,063     $ —       $ 120,247  

Underwriting ratios

           

Loss and loss adjustment expense ratio (1)

    68.7     76.8     69.3     56.1     —       68.9

Operating expense ratio (non-GAAP) (2)(3)

    24.0     43.9     25.5     27.9     —       25.6
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Combined ratio (non-GAAP) (2)(4)

    92.7     120.7     94.8     84.0     —       94.5

Underwriting ratios (before amortization and impairment)

           

Loss and loss adjustment expense ratio (1)

    68.7     76.8     69.3     56.1     —       68.9

Operating expense ratio (non-GAAP) (2)(5)

    23.0     33.5     23.8     22.8     —       23.7
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Combined ratio before amortization and impairment (non-GAAP) (2)(6)

    91.7     110.3     93.1     78.9     —       92.6

Total underwriting expenses

  $ 1,484,666     $ 203,841     $ 1,688,507     $ 44,953     $ (9,901   $ 1,723,559  

Less: Loss and loss adjustment expense

    1,005,885       92,532       1,098,417       26,719       —         1,125,136  

Less: Ceding commission income

    7,643       —         7,643       4,787       —         12,430  

Less: Service and fee income

    119,876       58,457       178,333       139       (9,901     168,571  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating expense

  $ 351,262     $ 52,852     $ 404,114     $ 13,308     $ —       $ 417,422  

Net earned premium

  $ 1,465,122     $ 120,476     $ 1,585,598     $ 47,622     $ —       $ 1,633,220  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating expense ratio (non-GAAP)

    24.0     43.9     25.5     27.9     —       25.6
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total underwriting expenses

  $ 1,484,666     $ 203,841     $ 1,688,507     $ 44,953     $ (9,901   $ 1,723,559  

Less: Loss and loss adjustment expense

    1,005,885       92,532       1,098,417       26,719       —         1,125,136  

Less: Ceding commission income

    7,643       —         7,643       4,787       —         12,430  

Less: Service and fee income

    119,876       58,457       178,333       139       (9,901     168,571  

Less: Non-cash impairment of goodwill

    9,419       6,373       15,792       —         —         15,792  

Less: Non-cash amortization of intangible assets

    5,208       6,117       11,325       2,468       —         13,793  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating expense before amortization and impairment

  $ 336,635     $ 40,362     $ 376,997     $ 10,840     $ —       $ 387,837  

Net earned premium

  $ 1,465,122     $ 120,476     $ 1,585,598     $ 47,622     $ —       $ 1,633,220  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating expense ratio before amortization and impairment (non-GAAP)

    23.0     33.5     23.8     22.8     —       23.7
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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Table of Contents
     Year Ended December 31, 2013  
     P&C     A&H     Consolidated  
    

(Amounts in thousands, except percentages

and per share data)

 

Gross written premium

   $ 1,305,254     $ 33,501     $ 1,338,755  

Net written premium

   $ 646,100     $ 33,216     $ 679,316  

Net earned premium

   $ 654,849     $ 33,217     $ 688,066  

Ceding commission income

     87,100       —         87,100  

Service and fee income

     82,752       44,789       127,541  
  

 

 

   

 

 

   

 

 

 

Total underwriting revenues

   $ 824,701     $ 78,006     $ 902,707  
  

 

 

   

 

 

   

 

 

 

Loss and loss adjustment expense

     494,887       26,135       521,022  

Acquisition costs and other

     110,509       24,378       134,887  

General and administrative

     193,447       28,207       221,654  
  

 

 

   

 

 

   

 

 

 

Total underwriting expenses

   $ 798,843     $ 78,720     $ 877,563  
  

 

 

   

 

 

   

 

 

 

Underwriting income (loss)

   $ 25,858     $ (714   $ 25,144  

Non-cash impairment of goodwill

     1,445       —         1,445  

Non-cash amortization of intangible assets

     4,590       1,828       6,418  
  

 

 

   

 

 

   

 

 

 

Underwriting income (loss) before amortization and impairment

   $ 31,893     $ 1,114     $ 33,007  

Underwriting ratios

      

Loss and loss adjustment expense ratio (1)

     75.6     78.7     75.7

Operating expense ratio (non-GAAP) (2)(3)

     20.5     23.5     20.6
  

 

 

   

 

 

   

 

 

 

Combined ratio (non-GAAP) (2)(4)

     96.1     102.2     96.3

Underwriting ratios (before amortization and impairment)

      

Loss and loss adjustment expense ratio (1)

     75.6     78.7     75.7

Operating expense ratio (non-GAAP) (2)(5)

     19.6     18.0     19.5
  

 

 

   

 

 

   

 

 

 

Combined ratio before amortization and impairment (non-GAAP) (2)(6)

     95.2     96.7     95.2

Total underwriting expenses

   $ 798,843     $ 78,720     $ 877,563  

Less: Loss and loss adjustment expense

     494,887       26,135       521,022  

Less: Ceding commission income

     87,100       —         87,100  

Less: Service and fee income

     82,752       44,789       127,541  
  

 

 

   

 

 

   

 

 

 

Operating expense

   $ 134,104     $ 7,796     $ 141,900  

Net earned premium

   $ 654,849     $ 33,217     $ 688,066  
  

 

 

   

 

 

   

 

 

 

Operating expense ratio (non-GAAP)

     20.5     23.5     20.6
  

 

 

   

 

 

   

 

 

 

Total underwriting expenses

   $ 798,843     $ 78,720     $ 877,563  

Less: Loss and loss adjustment expense

     494,887       26,135       521,022  

Less: Ceding commission income

     87,100       —         87,100  

Less: Service and fee income

     82,752       44,789       127,541  

Less: Non-cash impairment of goodwill

     1,445       —         1,445  

Less: Non-cash amortization of intangible assets

     4,590       1,828       6,418  
  

 

 

   

 

 

   

 

 

 

Operating expense before amortization and impairment

   $ 128,069     $ 5,968     $ 134,037  

Net earned premium

   $ 654,849     $ 33,217     $ 688,066  
  

 

 

   

 

 

   

 

 

 

Operating expense ratio before amortization and impairment (non-GAAP)

     19.6     18.0     19.5
  

 

 

   

 

 

   

 

 

 

 

(1)

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

(2)

Operating expense ratio and combined ratio are considered non-GAAP financial measures under applicable SEC rules because a component of those ratios, operating expense, is calculated by offsetting acquisition and other underwriting costs and general and administrative expenses by ceding commission income 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.

(3)

Operating expense ratio is a non-GAAP measure defined by the Company, that is commonly used in the insurance industry. The Company calculates the ratio by dividing operating expense by net earned premium. Operating expense

 

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Table of Contents
  consists of the sum of acquisition and other underwriting costs and general and administrative expenses less ceding commission income and service and fee income. The ratio is used as an indicator of the Company’s efficiency in acquiring and servicing its business. Other companies may calculate these measures differently, and therefore, their measures may not be comparable to those used by National General.
(4)

Combined ratio is a non-GAAP measure defined by the Company, that is commonly used in the insurance industry. The Company calculates the ratio by adding the loss and loss adjustment expense ratio and the operating expense ratio (non-GAAP) together. The ratio is used as an indicator of the Company’s underwriting discipline, efficiency in acquiring and servicing its business, and overall underwriting profit. A combined ratio under 100% generally indicates an underwriting profit, while over 100% an underwriting loss. Other companies may calculate these measures differently, and therefore, their measures may not be comparable to those used by National General.

(5)

Operating expense ratio before amortization and impairment is a non-GAAP measure defined by the Company, that is commonly used in the insurance industry. The Company calculates the ratio by dividing the operating expense before amortization and impairment by net earned premium. Operating expense before amortization and impairment consists of the sum of acquisition and other underwriting costs and general and administrative expenses less ceding commission income and service and fee income less non-cash amortization of intangible assets and non-cash impairment of goodwill. The ratio is used as an indicator of the Company’s efficiency in acquiring and servicing its business. Other companies may calculate these measures differently, and therefore, their measures may not be comparable to those used by National General.

(6)

Combined ratio before amortization and impairment is a non-GAAP measure defined by the Company, that is commonly used in the insurance industry. The Company calculates the ratio by adding the loss and loss adjustment expense ratio and the operating expense ratio before amortization and impairment (non-GAAP) together. The ratio is used as an indicator of the Company’s underwriting discipline, efficiency in acquiring and servicing its business, and overall underwriting profit. A combined ratio under 100% generally indicates an underwriting profit, while over 100% an underwriting loss. Other companies may calculate these measures differently, and therefore, their measures may not be comparable to those used by National General.

Reconciliation of Net Income to Operating Earnings (non-GAAP)

 

     Three Months
Ended

September 30,
    Nine Months Ended
September 30,
 
     2018     2017     2018     2017  
     (Amounts in thousands)  

Net income available to common stockholders

   $ 60,507     $ 49,770     $ 157,513     $ 84,275  

Add (subtract):

        

Net (gain) loss on investments

     3,003       (47,659     21,490       (37,885

Other (income) expense