NATIONAL GENERAL HOLDINGS CORP.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In Thousands, Except Per Share Data)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
Revenues:
|
|
|
|
|
|
|
|
Net earned premium
|
$
|
1,178,573
|
|
|
$
|
1,053,638
|
|
|
$
|
3,319,346
|
|
|
$
|
3,048,446
|
|
Ceding commission income
|
30,724
|
|
|
57,587
|
|
|
127,669
|
|
|
187,313
|
|
Service and fee income
|
184,969
|
|
|
161,626
|
|
|
545,002
|
|
|
476,041
|
|
Net investment income
|
28,904
|
|
|
33,740
|
|
|
90,322
|
|
|
102,316
|
|
Net gain (loss) on investments
|
19,839
|
|
|
1,581
|
|
|
18,136
|
|
|
(3,627)
|
|
Total revenues
|
1,443,009
|
|
|
1,308,172
|
|
|
4,100,475
|
|
|
3,810,489
|
|
Expenses:
|
|
|
|
|
|
|
|
Loss and loss adjustment expense
|
774,164
|
|
|
745,334
|
|
|
2,066,608
|
|
|
2,112,678
|
|
Acquisition costs and other underwriting expenses
|
268,645
|
|
|
209,090
|
|
|
726,265
|
|
|
615,134
|
|
General and administrative expenses
|
244,611
|
|
|
263,864
|
|
|
774,589
|
|
|
759,725
|
|
Interest expense
|
11,292
|
|
|
12,898
|
|
|
34,851
|
|
|
38,822
|
|
Total expenses
|
1,298,712
|
|
|
1,231,186
|
|
|
3,602,313
|
|
|
3,526,359
|
|
Income before provision for income taxes
|
144,297
|
|
|
76,986
|
|
|
498,162
|
|
|
284,130
|
|
Provision for income taxes
|
27,428
|
|
|
16,747
|
|
|
106,107
|
|
|
61,494
|
|
Net income
|
116,869
|
|
|
60,239
|
|
|
392,055
|
|
|
222,636
|
|
Net (income) loss attributable to noncontrolling interest
|
(6,900)
|
|
|
10,915
|
|
|
(14,753)
|
|
|
18,152
|
|
Net income attributable to NGHC
|
109,969
|
|
|
71,154
|
|
|
377,302
|
|
|
240,788
|
|
Dividends on preferred stock
|
(7,875)
|
|
|
(7,875)
|
|
|
(24,675)
|
|
|
(24,675)
|
|
Net income attributable to NGHC common stockholders
|
$
|
102,094
|
|
|
$
|
63,279
|
|
|
$
|
352,627
|
|
|
$
|
216,113
|
|
|
|
|
|
|
|
|
|
Earnings Per Share (“EPS”) attributable to NGHC common stockholders:
|
Basic EPS
|
$
|
0.90
|
|
|
$
|
0.56
|
|
|
$
|
3.11
|
|
|
$
|
1.91
|
|
Diluted EPS
|
$
|
0.88
|
|
|
$
|
0.54
|
|
|
$
|
3.04
|
|
|
$
|
1.87
|
|
See accompanying notes to unaudited condensed consolidated financial statements.
3
NATIONAL GENERAL HOLDINGS CORP.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In Thousands)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
Net income
|
$
|
116,869
|
|
|
$
|
60,239
|
|
|
$
|
392,055
|
|
|
$
|
222,636
|
|
|
|
|
|
|
|
|
|
Other comprehensive income:
|
|
|
|
|
|
|
|
Foreign currency translation adjustment
|
62
|
|
|
(4,104)
|
|
|
(550)
|
|
|
(8,147)
|
|
Income tax effect
|
(13)
|
|
|
862
|
|
|
115
|
|
|
1,707
|
|
Total foreign currency translation adjustment, net of tax
|
49
|
|
|
(3,242)
|
|
|
(435)
|
|
|
(6,440)
|
|
|
|
|
|
|
|
|
|
Gross unrealized gain on investments before reclassifications
|
17,347
|
|
|
33,294
|
|
|
173,235
|
|
|
190,266
|
|
Income tax effect
|
(3,644)
|
|
|
(6,991)
|
|
|
(36,380)
|
|
|
(39,955)
|
|
Total change in net unrealized gain on investments, net of tax
|
13,703
|
|
|
26,303
|
|
|
136,855
|
|
|
150,311
|
|
|
|
|
|
|
|
|
|
Reclassification adjustments for investments gain or loss to net income:
|
|
|
|
|
|
|
|
Net realized gain on investments
|
(19,393)
|
|
|
(1,886)
|
|
|
(21,350)
|
|
|
(1,835)
|
|
Income tax effect
|
4,073
|
|
|
396
|
|
|
4,484
|
|
|
385
|
|
Total gain on investments reclassifications to net income, net of tax
|
(15,320)
|
|
|
(1,490)
|
|
|
(16,866)
|
|
|
(1,450)
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss) before income tax effect
|
(1,984)
|
|
|
27,304
|
|
|
151,335
|
|
|
180,284
|
|
Income tax effect
|
416
|
|
|
(5,733)
|
|
|
(31,781)
|
|
|
(37,863)
|
|
Other comprehensive income (loss), net of tax
|
(1,568)
|
|
|
21,571
|
|
|
119,554
|
|
|
142,421
|
|
Comprehensive income
|
115,301
|
|
|
81,810
|
|
|
511,609
|
|
|
365,057
|
|
Comprehensive income (loss) attributable to noncontrolling interest
|
2,757
|
|
|
9,821
|
|
|
(13,902)
|
|
|
8,248
|
|
Comprehensive income attributable to NGHC
|
$
|
118,058
|
|
|
$
|
91,631
|
|
|
$
|
497,707
|
|
|
$
|
373,305
|
|
See accompanying notes to unaudited condensed consolidated financial statements.
4
NATIONAL GENERAL HOLDINGS CORP.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(In Thousands, Except Shares)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, 2020
|
|
Preferred Stock
|
|
Common Stock
|
|
Treasury Stock
|
|
Additional Paid-in Capital
|
|
Accumulated Other Comprehensive Income
|
|
Retained Earnings
|
|
Noncontrolling Interest
|
|
Total
|
Balance July 1, 2020
|
$
|
450,000
|
|
|
$
|
1,139
|
|
|
$
|
(8,482)
|
|
|
$
|
1,069,152
|
|
|
$
|
186,864
|
|
|
$
|
1,296,451
|
|
|
$
|
(15,448)
|
|
|
$
|
2,979,676
|
|
Net income
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
109,969
|
|
|
6,900
|
|
|
116,869
|
|
Foreign currency translation adjustment, net of tax
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
48
|
|
|
—
|
|
|
—
|
|
|
48
|
|
Change in unrealized gain (loss) on investments, net of tax
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
8,041
|
|
|
—
|
|
|
(9,657)
|
|
|
(1,616)
|
|
Common stock dividends declared
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(5,673)
|
|
|
—
|
|
|
(5,673)
|
|
Preferred stock dividends declared
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(7,875)
|
|
|
—
|
|
|
(7,875)
|
|
Common stock issued under employee stock plans and exercises of stock options
|
—
|
|
|
—
|
|
|
—
|
|
|
1,134
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,134
|
|
Shares withheld related to net share settlement
|
—
|
|
|
—
|
|
|
—
|
|
|
(156)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(156)
|
|
Stock-based compensation
|
—
|
|
|
—
|
|
|
—
|
|
|
3,158
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
3,158
|
|
Balance September 30, 2020
|
$
|
450,000
|
|
|
$
|
1,139
|
|
|
$
|
(8,482)
|
|
|
$
|
1,073,288
|
|
|
$
|
194,953
|
|
|
$
|
1,392,872
|
|
|
$
|
(18,205)
|
|
|
$
|
3,085,565
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, 2019
|
|
Preferred Stock
|
|
Common Stock
|
|
Additional Paid-in Capital
|
|
|
|
Accumulated Other Comprehensive Income
|
|
Retained Earnings
|
|
Noncontrolling Interest
|
|
Total
|
Balance July 1, 2019
|
$
|
450,000
|
|
|
$
|
1,132
|
|
|
$
|
1,060,379
|
|
|
|
|
$
|
59,910
|
|
|
$
|
907,841
|
|
|
$
|
(18,394)
|
|
|
$
|
2,460,868
|
|
Net income (loss)
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
—
|
|
|
71,154
|
|
|
(10,915)
|
|
|
60,239
|
|
Foreign currency translation adjustment, net of tax
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
(3,242)
|
|
|
—
|
|
|
—
|
|
|
(3,242)
|
|
Change in unrealized gain on investments, net of tax
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
23,719
|
|
|
—
|
|
|
1,094
|
|
|
24,813
|
|
Common stock dividends declared
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
—
|
|
|
(5,665)
|
|
|
—
|
|
|
(5,665)
|
|
Preferred stock dividends declared
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
—
|
|
|
(7,875)
|
|
|
—
|
|
|
(7,875)
|
|
Common stock issued under employee stock plans and exercises of stock options
|
—
|
|
|
1
|
|
|
188
|
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
189
|
|
Shares withheld related to net share settlement
|
—
|
|
|
—
|
|
|
(493)
|
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(493)
|
|
Stock-based compensation
|
—
|
|
|
—
|
|
|
2,785
|
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2,785
|
|
Balance September 30, 2019
|
$
|
450,000
|
|
|
$
|
1,133
|
|
|
$
|
1,062,859
|
|
|
|
|
$
|
80,387
|
|
|
$
|
965,455
|
|
|
$
|
(28,215)
|
|
|
$
|
2,531,619
|
|
See accompanying notes to unaudited condensed consolidated financial statements.
5
NATIONAL GENERAL HOLDINGS CORP.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(In Thousands, Except Shares)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2020
|
|
Preferred Stock
|
|
Common Stock
|
|
Treasury Stock
|
|
Additional Paid-in Capital
|
|
Accumulated Other Comprehensive Income
|
|
Retained Earnings
|
|
Noncontrolling Interest
|
|
Total
|
Balance January 1, 2020
|
$
|
450,000
|
|
|
$
|
1,134
|
|
|
$
|
—
|
|
|
$
|
1,065,634
|
|
|
$
|
74,548
|
|
|
$
|
1,058,138
|
|
|
$
|
(31,960)
|
|
|
$
|
2,617,494
|
|
Cumulative-effect adjustment of change in accounting principle, net of tax
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(863)
|
|
|
(147)
|
|
|
(1,010)
|
|
Net income
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
377,302
|
|
|
14,753
|
|
|
392,055
|
|
Foreign currency translation adjustment, net of tax
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(436)
|
|
|
—
|
|
|
—
|
|
|
(436)
|
|
Change in unrealized gain (loss) on investments, net of tax
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
120,841
|
|
|
—
|
|
|
(851)
|
|
|
119,990
|
|
Common stock repurchased
|
—
|
|
|
—
|
|
|
(8,482)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(8,482)
|
|
Common stock dividends declared
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(17,030)
|
|
|
—
|
|
|
(17,030)
|
|
Preferred stock dividends declared
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(24,675)
|
|
|
—
|
|
|
(24,675)
|
|
Common stock issued under employee stock plans and exercises of stock options
|
—
|
|
|
5
|
|
|
—
|
|
|
1,965
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,970
|
|
Shares withheld related to net share settlement
|
—
|
|
|
—
|
|
|
—
|
|
|
(3,647)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(3,647)
|
|
Stock-based compensation
|
—
|
|
|
—
|
|
|
—
|
|
|
9,336
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
9,336
|
|
Balance September 30, 2020
|
$
|
450,000
|
|
|
$
|
1,139
|
|
|
$
|
(8,482)
|
|
|
$
|
1,073,288
|
|
|
$
|
194,953
|
|
|
$
|
1,392,872
|
|
|
$
|
(18,205)
|
|
|
$
|
3,085,565
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2019
|
|
Preferred Stock
|
|
Common Stock
|
|
Additional Paid-in Capital
|
|
Accumulated Other Comprehensive Income (Loss)
|
|
Retained Earnings
|
|
Noncontrolling Interest
|
|
Total
|
Balance January 1, 2019
|
$
|
450,000
|
|
|
$
|
1,129
|
|
|
$
|
1,057,783
|
|
|
$
|
(52,130)
|
|
|
$
|
764,056
|
|
|
$
|
(19,967)
|
|
|
$
|
2,200,871
|
|
Net income (loss)
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
240,788
|
|
|
(18,152)
|
|
|
222,636
|
|
Foreign currency translation adjustment, net of tax
|
—
|
|
|
—
|
|
|
—
|
|
|
(6,440)
|
|
|
—
|
|
|
—
|
|
|
(6,440)
|
|
Change in unrealized gain on investments, net of tax
|
—
|
|
|
—
|
|
|
—
|
|
|
138,957
|
|
|
—
|
|
|
9,904
|
|
|
148,861
|
|
Common stock dividends declared
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(14,714)
|
|
|
—
|
|
|
(14,714)
|
|
Preferred stock dividends declared
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(24,675)
|
|
|
—
|
|
|
(24,675)
|
|
Common stock issued under employee stock plans and exercises of stock options
|
—
|
|
|
4
|
|
|
432
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
436
|
|
Shares withheld related to net share settlement
|
—
|
|
|
—
|
|
|
(3,633)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(3,633)
|
|
Stock-based compensation
|
—
|
|
|
—
|
|
|
8,277
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
8,277
|
|
Balance September 30, 2019
|
$
|
450,000
|
|
|
$
|
1,133
|
|
|
$
|
1,062,859
|
|
|
$
|
80,387
|
|
|
$
|
965,455
|
|
|
$
|
(28,215)
|
|
|
$
|
2,531,619
|
|
See accompanying notes to unaudited condensed consolidated financial statements.
6
NATIONAL GENERAL HOLDINGS CORP.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30,
|
|
|
2020
|
|
2019
|
Cash flows from operating activities:
|
|
|
|
|
Net income
|
|
$
|
392,055
|
|
|
$
|
222,636
|
|
Adjustments to reconcile net income to cash provided by (used in) operating activities:
|
|
|
|
|
Net (gain) loss on investments
|
|
(18,136)
|
|
|
3,627
|
|
Credit loss expense
|
|
71,166
|
|
|
61,334
|
|
Depreciation and amortization
|
|
60,760
|
|
|
87,055
|
|
Stock-based compensation expense
|
|
9,336
|
|
|
8,277
|
|
Other, net
|
|
16,971
|
|
|
(1,013)
|
|
Changes in assets and liabilities:
|
|
|
|
|
Accrued investment income
|
|
3,237
|
|
|
(195)
|
|
Premiums and other receivables
|
|
(223,944)
|
|
|
(172,034)
|
|
Deferred acquisition costs
|
|
(21,440)
|
|
|
(17,397)
|
|
Reinsurance recoverable
|
|
106,646
|
|
|
118,763
|
|
Prepaid reinsurance premiums
|
|
116,786
|
|
|
29,372
|
|
Prepaid expenses and other assets
|
|
28,021
|
|
|
81,324
|
|
Unpaid loss and loss adjustment expense reserves
|
|
11,050
|
|
|
(14,165)
|
|
Unearned premiums and other revenue
|
|
25,228
|
|
|
93,853
|
|
Reinsurance payable
|
|
(160,416)
|
|
|
16,361
|
|
Accounts payable and accrued expenses
|
|
38,673
|
|
|
(578)
|
|
Other liabilities
|
|
(4,673)
|
|
|
(7,766)
|
|
Net cash provided by operating activities
|
|
451,320
|
|
|
509,454
|
|
Cash flows from investing activities:
|
|
|
|
|
Purchases of:
|
|
|
|
|
Debt securities, available-for-sale
|
|
(661,632)
|
|
|
(863,050)
|
|
Short-term investments
|
|
(1,647,160)
|
|
|
(2,328,055)
|
|
Other investments
|
|
(2,579)
|
|
|
(4,554)
|
|
Property and equipment
|
|
(25,833)
|
|
|
(84,285)
|
|
Proceeds from:
|
|
|
|
|
Sale of debt securities, available-for-sale
|
|
348,249
|
|
|
273,561
|
|
Maturity of debt securities, available-for-sale
|
|
456,990
|
|
|
244,609
|
|
Sale of short-term investments
|
|
1,206,569
|
|
|
2,293,700
|
|
Sale and return of other investments
|
|
24,597
|
|
|
13,339
|
|
Other investing activities
|
|
(700)
|
|
|
16,128
|
|
Net cash used in investing activities
|
|
$
|
(301,499)
|
|
|
$
|
(438,607)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to unaudited condensed consolidated financial statements.
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NATIONAL GENERAL HOLDINGS CORP.
|
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
|
(In Thousands)
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30,
|
|
|
2020
|
|
2019
|
Cash flows from financing activities:
|
|
|
|
|
Common stock repurchased
|
|
$
|
(8,482)
|
|
|
$
|
—
|
|
Repayments of debt and principal payments under capital leases obligations
|
|
(10,032)
|
|
|
(29,826)
|
|
Issuance of common stock — employee share options
|
|
1,970
|
|
|
436
|
|
Taxes paid related to net share settlement of equity awards
|
|
(3,647)
|
|
|
(3,633)
|
|
Dividends paid to common shareholders
|
|
(17,025)
|
|
|
(13,573)
|
|
Dividends paid to preferred shareholders
|
|
(25,725)
|
|
|
(25,667)
|
|
Other financing activities
|
|
—
|
|
|
(1,726)
|
|
Net cash used in financing activities
|
|
(62,941)
|
|
|
(73,989)
|
|
Effect of exchange rate changes on cash and cash equivalents
|
|
—
|
|
|
(3,119)
|
|
Net increase (decrease) in cash, cash equivalents, and restricted cash
|
|
86,880
|
|
|
(6,261)
|
|
Cash, cash equivalents, and restricted cash at beginning of the period
|
|
164,463
|
|
|
233,583
|
|
Cash, cash equivalents, and restricted cash at end of the period
|
|
$
|
251,343
|
|
|
$
|
227,322
|
|
|
|
|
|
|
Supplemental disclosures of non-cash financing activities:
|
|
|
|
|
Accrued common stock dividends
|
|
$
|
5,673
|
|
|
$
|
5,664
|
|
Accrued preferred stock dividends
|
|
7,875
|
|
|
7,875
|
|
See accompanying notes to unaudited condensed consolidated financial statements.
8
NATIONAL GENERAL HOLDINGS CORP.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands, Except Shares and Per Share Data)
1. Basis of Reporting
The accompanying unaudited interim condensed consolidated financial statements include the accounts of National General Holdings Corp. and its subsidiaries (the “Company” or “NGHC”) and have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial statements and with the instructions to Form 10-Q and Article 10 of Regulation S-X as promulgated by the U.S. Securities and Exchange Commission (the “SEC”). Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. These interim condensed consolidated financial statements should be read in conjunction with the financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019, previously filed with the SEC on February 20, 2020. The balance sheet at December 31, 2019, has been derived from the audited consolidated financial statements at that date.
These interim condensed consolidated financial statements reflect all adjustments that are, in the opinion of management, necessary for a fair presentation of the results for the interim period and all such adjustments are of a normal recurring nature. The results of operations for the interim period are not necessarily indicative, if annualized, of those to be expected for the full year. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. Actual results could differ from those estimates.
The unaudited condensed consolidated financial statements include the accounts and operations of Adirondack Insurance Exchange, a New York reciprocal insurer, and New Jersey Skylands Insurance Association, a New Jersey reciprocal insurer (together with Mountain Valley Indemnity Company, a subsidiary of Adirondack Insurance Exchange, the “Reciprocal Exchanges” or “Exchanges”); variable interest entities (“VIE”) of which the Company is the primary beneficiary. The Company has no ownership interest in the Reciprocal Exchanges but is paid a fee to manage their business operations and has the ability to direct their activities through its wholly-owned management companies. The Reciprocal Exchanges are property and casualty insurers.
A detailed description of the Company’s significant accounting policies and management judgments is located in the notes to the audited consolidated financial statements, included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019, filed with the SEC.
In March 2020, the outbreak of COVID-19 caused by a novel strain of the coronavirus was recognized as a pandemic by the World Health Organization. The pandemic outbreak has caused an economic downturn on a global scale. The Company continues to monitor the impact of the pandemic as it unfolds. As of September 30, 2020, and for the three and nine months ended September 30, 2020, the Company did not experience a material adverse impact due to COVID-19, and cannot, at this time, predict the impact the pandemic will have on its future consolidated financial position, cash flows or results of operations.
On July 7, 2020, the Company, The Allstate Corporation, a Delaware corporation (“Allstate”), and Bluebird Acquisition Corp., a Delaware corporation and an indirect wholly owned subsidiary of Allstate (“Merger Sub”), entered into an Agreement and Plan of Merger (the “Merger Agreement”), pursuant to which Merger Sub will be merged with and into the Company (the “Merger”), with the Company surviving the Merger as a wholly owned subsidiary of Allstate. At a special meeting of stockholders of the Company held on September 30, 2020, the Company’s stockholders approved by the requisite vote a proposal to approve the Merger. The Merger remains subject to regulatory approval and the satisfaction of other customary conditions. The Company expects the Merger to close in the first quarter of 2021.
NATIONAL GENERAL HOLDINGS CORP.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands, Except Shares and Per Share Data)
2. Recent Accounting Pronouncements
Adopted During 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Standard
|
|
Description
|
|
Date of Adoption
|
|
Effect on the Company
|
ASU 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, and related amendments.
|
|
This standard changed the impairment model to a new forward-looking expected loss model for most financial assets and certain other instruments. The standard requires immediate recognition of estimated credit losses expected to occur over the remaining life of many financial assets, which generally results in earlier recognition of allowances for credit losses on loans and other financial instruments. Many of the loss estimation techniques applied prior the adoption of the standard are still permitted, although the inputs to those techniques changed to reflect the full amount of expected credit losses. The Company continues to use judgement to determine which loss estimation method is appropriate for its circumstances. The standard became effective for interim and annual reporting periods beginning after December 15, 2019 and requires using a modified retrospective approach, recognizing a cumulative-effect adjustment as of the beginning of the first reporting period in which the standard is effective.
|
|
January 1, 2020
|
|
The Company adopted ASU 2016-13 using the modified retrospective approach and recorded a cumulative-effect adjustment, net of tax of $1,010 to the opening balance of retained earnings and increased the allowance for premiums receivable, reinsurance recoverable and deferred taxes by the same amount.
|
ASU 2017-04, Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment.
|
|
This standard established a one-step process for testing the value of the goodwill which an entity carries. ASU 2017-04 requires the goodwill impairment to be measured as the excess of the reporting unit’s carrying amount over its fair value.
|
|
January 1, 2020
|
|
The adoption of ASU 2017-04 did not have a material impact on the Company’s condensed consolidated financial statements.
|
With the exception of the adopted accounting pronouncements discussed above, there have been no recent accounting pronouncements, or quantitative or qualitative progress made toward implementation of outstanding accounting pronouncements during the nine months ended September 30, 2020, as compared to those described in Note 2, “Significant Accounting Policies” of the Company’s Annual Report on Form 10-K for the year ended December 31, 2019, that are of significance, or potential significance, to the Company.
Accounting Policies
The following accounting policies have been updated to reflect the Company's adoption of Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments as described above. Premiums and Other Receivables also was updated to include the accounting of the premium refund.
Investment Impairments
The Company conducts a periodic review to identify and evaluate invested assets that may have credit impairments. Beginning on January 1, 2020, credit losses on available-for-sale debt securities are recognized through an allowance account. See Note 4, “Investments” for additional information.
The Company reports accrued investment income separately from debt securities in the Condensed Consolidated Balance Sheets, and has elected not to measure an allowance for credit losses. Accrued investment
NATIONAL GENERAL HOLDINGS CORP.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands, Except Shares and Per Share Data)
income is written off by reversing interest income through net investment income at the time the issuer of the bond defaults or is expected to default on payments.
Uncollectible debt securities are written off to net gain (loss) on investments when the Company determines that no additional payments of principal or interest will be received.
Premiums and Other Receivables
The Company recognizes earned premium on a pro rata basis over the terms of the policies, generally periods of six or twelve months. Unearned premiums represent the portion of premiums written applicable to the unexpired terms of the policies. Premium refunds are recorded against gross premium written.
Premiums and other receivables are reported net of an allowance for expected credit losses. The allowance is based upon the Company’s ongoing review of amounts outstanding, historical loss data, including delinquencies and write-offs, current and forecasted economic conditions, and other relevant factors. The Company uses a loss-rate method to estimate the expected credit losses. Credit risk is partially mitigated by the Company’s ability to cancel the policy if the policyholder does not pay the premium.
Reinsurance Recoverable
Amounts recoverable from reinsurers are estimated in a manner consistent with the associated claim liability. The Company reports its reinsurance recoverable net of an allowance for estimated uncollectible reinsurance. The allowance is based upon the Company’s ongoing review of amounts outstanding, length of collection periods, changes in reinsurer credit standing, applicable coverage defenses, and other relevant factors. The Company evaluates and monitors the financial condition of its reinsurers under voluntary reinsurance arrangements to minimize its exposure to significant losses from reinsurer insolvencies.
3. Allowance for Expected Credit Losses
Premiums and Other Receivables
The following tables present the balances of premiums and other receivables, net of the allowance for expected credit losses, as of January 1, 2020, and September 30, 2020, and changes in the allowance for expected credit losses for the three and nine months ended September 30, 2020.
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, 2020
|
|
Premiums and Other Receivables, Net
|
|
Allowance for Expected Credit Losses
|
Balance, beginning of the period
|
$
|
1,487,734
|
|
|
$
|
40,078
|
|
Current period change for expected credit losses (1)
|
|
|
13,931
|
|
Write-offs of uncollectible premiums and other receivables
|
|
|
(16,846)
|
|
Balance, end of the period
|
$
|
1,598,316
|
|
|
$
|
37,163
|
|
NATIONAL GENERAL HOLDINGS CORP.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands, Except Shares and Per Share Data)
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2020
|
|
Premiums and Other Receivables, Net
|
|
Allowance for Expected Credit Losses
|
Balance, beginning of the period
|
$
|
1,428,948
|
|
|
$
|
24,067
|
|
Cumulative effect of adoption of updated accounting guidance for credit losses at January 1, 2020
|
|
|
762
|
|
Current period change for expected credit losses (1)
|
|
|
70,873
|
|
Write-offs of uncollectible premiums and other receivables
|
|
|
(58,539)
|
|
Balance, end of the period
|
$
|
1,598,316
|
|
|
$
|
37,163
|
|
(1) Current period charges for expected losses are recorded in general and administrative expenses.
Reinsurance Recoverable
The following tables present the balances of reinsurance recoverable, net of the allowance for estimated uncollectible reinsurance, as of January 1, 2020, and September 30, 2020, and changes in the allowance for estimated uncollectible reinsurance for the three and nine months ended September 30, 2020.
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, 2020
|
|
Reinsurance Recoverable, Net
|
|
Allowance for Expected Credit Losses
|
Balance, beginning of the period
|
$
|
1,292,636
|
|
|
$
|
517
|
|
Current period change for estimated uncollectible reinsurance (1)
|
|
|
293
|
|
Write-offs of uncollectible reinsurance
|
|
|
—
|
|
Balance, end of the period
|
$
|
1,286,852
|
|
|
$
|
810
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2020
|
|
Reinsurance Recoverable, Net
|
|
Allowance for Expected Credit Losses
|
Balance, beginning of the period
|
$
|
1,394,308
|
|
|
$
|
—
|
|
Cumulative effect of adoption of updated accounting guidance for credit losses at January 1, 2020
|
|
|
517
|
|
Current period change for estimated uncollectible reinsurance (1)
|
|
|
293
|
|
Write-offs of uncollectible reinsurance
|
|
|
—
|
|
Balance, end of the period
|
$
|
1,286,852
|
|
|
$
|
810
|
|
(1) Current period charges for expected losses are recorded in general and administrative expenses.
Other than the Company’s mandatory pools and associations reinsurance agreements, the Company’s reinsurers generally carry at least an A.M. Best rating of “A-” (Excellent) or the reinsurance recoverable balances are collateralized. The Company also maintains funds held liabilities under the auto quota share reinsurance agreement.
NATIONAL GENERAL HOLDINGS CORP.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands, Except Shares and Per Share Data)
4. Investments
(a) Debt Securities, Available-For-Sale
The following tables summarize the unrealized positions for available-for-sale debt securities, disaggregated by major security type.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortized
|
|
Allowance for
|
|
Gross Unrealized
|
|
Fair
|
September 30, 2020
|
|
Cost
|
|
Credit Losses (1)
|
|
Gains
|
|
Losses
|
|
Value
|
U.S. Treasury
|
|
$
|
55,630
|
|
|
$
|
—
|
|
|
$
|
3,551
|
|
|
$
|
—
|
|
|
$
|
59,181
|
|
Federal agencies
|
|
258
|
|
|
—
|
|
|
5
|
|
|
—
|
|
|
263
|
|
States and political subdivision bonds
|
|
311,092
|
|
|
—
|
|
|
16,653
|
|
|
(92)
|
|
|
327,653
|
|
Foreign government
|
|
1,764
|
|
|
—
|
|
|
98
|
|
|
—
|
|
|
1,862
|
|
Corporate bonds
|
|
2,038,791
|
|
|
(1,085)
|
|
|
131,410
|
|
|
(1,222)
|
|
|
2,167,894
|
|
Residential mortgage-backed securities
|
|
1,078,657
|
|
|
—
|
|
|
47,491
|
|
|
(149)
|
|
|
1,125,999
|
|
Commercial mortgage-backed securities
|
|
572,951
|
|
|
—
|
|
|
57,865
|
|
|
(968)
|
|
|
629,848
|
|
Asset-backed securities
|
|
32,824
|
|
|
—
|
|
|
1,034
|
|
|
(702)
|
|
|
33,156
|
|
Structured securities
|
|
206,707
|
|
|
—
|
|
|
594
|
|
|
(4,024)
|
|
|
203,277
|
|
Total
|
|
$
|
4,298,674
|
|
|
$
|
(1,085)
|
|
|
$
|
258,701
|
|
|
$
|
(7,157)
|
|
|
$
|
4,549,133
|
|
NGHC
|
|
$
|
4,002,360
|
|
|
$
|
(935)
|
|
|
$
|
254,347
|
|
|
$
|
(6,763)
|
|
|
$
|
4,249,009
|
|
Reciprocal Exchanges
|
|
296,314
|
|
|
(150)
|
|
|
4,354
|
|
|
(394)
|
|
|
300,124
|
|
Total
|
|
$
|
4,298,674
|
|
|
$
|
(1,085)
|
|
|
$
|
258,701
|
|
|
$
|
(7,157)
|
|
|
$
|
4,549,133
|
|
(1) Represents the amount of impairment that has resulted from credit-related factors recorded in net gain (loss) on investments.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortized
|
|
Gross Unrealized
|
|
Fair
|
December 31, 2019
|
|
Cost
|
|
Gains
|
|
Losses
|
|
Value
|
U.S. Treasury
|
|
$
|
65,037
|
|
|
$
|
1,992
|
|
|
$
|
(23)
|
|
|
$
|
67,006
|
|
Federal agencies
|
|
3,907
|
|
|
8
|
|
|
—
|
|
|
3,915
|
|
States and political subdivision bonds
|
|
298,345
|
|
|
4,778
|
|
|
(1,441)
|
|
|
301,682
|
|
Foreign government
|
|
1,762
|
|
|
40
|
|
|
—
|
|
|
1,802
|
|
Corporate bonds
|
|
1,859,736
|
|
|
59,184
|
|
|
(2,357)
|
|
|
1,916,563
|
|
Residential mortgage-backed securities
|
|
1,265,830
|
|
|
15,747
|
|
|
(4,117)
|
|
|
1,277,460
|
|
Commercial mortgage-backed securities
|
|
585,044
|
|
|
27,261
|
|
|
(112)
|
|
|
612,193
|
|
Asset-backed securities
|
|
74,465
|
|
|
1,194
|
|
|
(48)
|
|
|
75,611
|
|
Structured securities
|
|
222,565
|
|
|
226
|
|
|
(2,665)
|
|
|
220,126
|
|
Total
|
|
$
|
4,376,691
|
|
|
$
|
110,430
|
|
|
$
|
(10,763)
|
|
|
$
|
4,476,358
|
|
NGHC
|
|
$
|
4,057,501
|
|
|
$
|
104,951
|
|
|
$
|
(10,343)
|
|
|
$
|
4,152,109
|
|
Reciprocal Exchanges
|
|
319,190
|
|
|
5,479
|
|
|
(420)
|
|
|
324,249
|
|
Total
|
|
$
|
4,376,691
|
|
|
$
|
110,430
|
|
|
$
|
(10,763)
|
|
|
$
|
4,476,358
|
|
NATIONAL GENERAL HOLDINGS CORP.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands, Except Shares and Per Share Data)
The amortized cost and fair value of available-for-sale debt securities held as of September 30, 2020, by contractual maturity, are shown in the table below. Actual maturities may differ from contractual maturities because some borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NGHC
|
|
Reciprocal Exchanges
|
|
Total
|
September 30, 2020
|
|
Amortized
Cost
|
|
Fair
Value
|
|
Amortized
Cost
|
|
Fair
Value
|
|
Amortized
Cost
|
|
Fair
Value
|
Due in one year or less
|
|
$
|
59,932
|
|
|
$
|
60,490
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
59,932
|
|
|
$
|
60,490
|
|
Due after one year through five years
|
|
1,070,690
|
|
|
1,136,846
|
|
|
67,247
|
|
|
68,826
|
|
|
1,137,937
|
|
|
1,205,672
|
|
Due after five years through ten years
|
|
1,037,307
|
|
|
1,106,581
|
|
|
63,434
|
|
|
64,359
|
|
|
1,100,741
|
|
|
1,170,940
|
|
Due after ten years
|
|
295,443
|
|
|
302,797
|
|
|
20,189
|
|
|
20,231
|
|
|
315,632
|
|
|
323,028
|
|
Mortgage-backed securities
|
|
1,538,988
|
|
|
1,642,295
|
|
|
145,444
|
|
|
146,708
|
|
|
1,684,432
|
|
|
1,789,003
|
|
Total
|
|
$
|
4,002,360
|
|
|
$
|
4,249,009
|
|
|
$
|
296,314
|
|
|
$
|
300,124
|
|
|
$
|
4,298,674
|
|
|
$
|
4,549,133
|
|
(b) Gross Unrealized Losses
The tables below summarize the gross unrealized losses on debt securities classified as available-for-sale, by length of time the security has continuously been in an unrealized loss position.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less Than 12 Months
|
|
12 Months or More
|
|
Total
|
September 30, 2020
|
|
Fair
Value
|
|
Unrealized
Losses
|
|
Fair
Value
|
|
Unrealized
Losses
|
|
Fair
Value
|
|
Unrealized
Losses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
States and political subdivision bonds
|
|
$
|
16,935
|
|
|
$
|
(92)
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
16,935
|
|
|
$
|
(92)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate bonds
|
|
227,663
|
|
|
(1,222)
|
|
|
—
|
|
|
—
|
|
|
227,663
|
|
|
(1,222)
|
|
Residential mortgage-backed securities
|
|
59,991
|
|
|
(149)
|
|
|
—
|
|
|
—
|
|
|
59,991
|
|
|
(149)
|
|
Commercial mortgage-backed securities
|
|
27,134
|
|
|
(968)
|
|
|
—
|
|
|
—
|
|
|
27,134
|
|
|
(968)
|
|
Asset-backed securities
|
|
6,492
|
|
|
(692)
|
|
|
163
|
|
|
(10)
|
|
|
6,655
|
|
|
(702)
|
|
Structured securities
|
|
81,862
|
|
|
(1,852)
|
|
|
53,520
|
|
|
(2,172)
|
|
|
135,382
|
|
|
(4,024)
|
|
Total
|
|
$
|
420,077
|
|
|
$
|
(4,975)
|
|
|
$
|
53,683
|
|
|
$
|
(2,182)
|
|
|
$
|
473,760
|
|
|
$
|
(7,157)
|
|
NGHC
|
|
$
|
355,598
|
|
|
$
|
(4,669)
|
|
|
$
|
49,771
|
|
|
$
|
(2,094)
|
|
|
$
|
405,369
|
|
|
$
|
(6,763)
|
|
Reciprocal Exchanges
|
|
64,479
|
|
|
(306)
|
|
|
3,912
|
|
|
(88)
|
|
|
68,391
|
|
|
(394)
|
|
Total
|
|
$
|
420,077
|
|
|
$
|
(4,975)
|
|
|
$
|
53,683
|
|
|
$
|
(2,182)
|
|
|
$
|
473,760
|
|
|
$
|
(7,157)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less Than 12 Months
|
|
12 Months or More
|
|
Total
|
December 31, 2019
|
|
Fair
Value
|
|
Unrealized
Losses
|
|
Fair
Value
|
|
Unrealized
Losses
|
|
Fair
Value
|
|
Unrealized
Losses
|
U.S. Treasury
|
|
$
|
19,903
|
|
|
$
|
(23)
|
|
|
$
|
500
|
|
|
$
|
—
|
|
|
$
|
20,403
|
|
|
$
|
(23)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
States and political subdivision bonds
|
|
106,103
|
|
|
(1,415)
|
|
|
2,580
|
|
|
(26)
|
|
|
108,683
|
|
|
(1,441)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate bonds
|
|
586,817
|
|
|
(2,253)
|
|
|
5,976
|
|
|
(104)
|
|
|
592,793
|
|
|
(2,357)
|
|
Residential mortgage-backed securities
|
|
410,484
|
|
|
(4,074)
|
|
|
3,983
|
|
|
(43)
|
|
|
414,467
|
|
|
(4,117)
|
|
Commercial mortgage-backed securities
|
|
18,250
|
|
|
(105)
|
|
|
748
|
|
|
(7)
|
|
|
18,998
|
|
|
(112)
|
|
Asset-backed securities
|
|
5,406
|
|
|
(29)
|
|
|
920
|
|
|
(19)
|
|
|
6,326
|
|
|
(48)
|
|
Structured securities
|
|
40,979
|
|
|
(94)
|
|
|
109,880
|
|
|
(2,571)
|
|
|
150,859
|
|
|
(2,665)
|
|
Total
|
|
$
|
1,187,942
|
|
|
$
|
(7,993)
|
|
|
$
|
124,587
|
|
|
$
|
(2,770)
|
|
|
$
|
1,312,529
|
|
|
$
|
(10,763)
|
|
NGHC
|
|
$
|
1,104,244
|
|
|
$
|
(7,654)
|
|
|
$
|
117,681
|
|
|
$
|
(2,689)
|
|
|
$
|
1,221,925
|
|
|
$
|
(10,343)
|
|
Reciprocal Exchanges
|
|
83,698
|
|
|
(339)
|
|
|
6,906
|
|
|
(81)
|
|
|
90,604
|
|
|
(420)
|
|
Total
|
|
$
|
1,187,942
|
|
|
$
|
(7,993)
|
|
|
$
|
124,587
|
|
|
$
|
(2,770)
|
|
|
$
|
1,312,529
|
|
|
$
|
(10,763)
|
|
NATIONAL GENERAL HOLDINGS CORP.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands, Except Shares and Per Share Data)
The Company’s debt securities portfolio is sensitive to interest rate fluctuations, which impact the fair value of individual securities. There were 276 and 1,337 individual security lots at September 30, 2020, and December 31, 2019, respectively, that accounted for the gross unrealized loss. As of September 30, 2020, and December 31, 2019, the unrealized losses for those securities in unrealized loss positions for a period of twelve or more consecutive months were not greater than or equal to 25% of their amortized cost. The Company recorded a credit loss allowance of $1,203 on seven securities in the energy sector as of June 30, 2020, however, market improvements and subsequent sales have resulted in $118 of the allowance being reversed for the three months ended September 30, 2020. Some of the factors considered in assessing credit loss and impairment of fixed maturities due to credit-related factors include: (1) the magnitude of the unrealized loss in relation to the amortized cost; (2) the credit rating of the issuing entity and market or issuer events that could impact the issuer’s ability to repay the debt security; (3) the likelihood of the recoverability of principal and interest; and (4) whether it is more likely than not that the Company will be required to sell the investment prior to an anticipated recovery in value. The Company did not record any new credit loss during the three months ended September 30, 2020.
The following tables display the roll forward of the allowance for credit losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, 2020
|
|
Corporate bonds
|
|
Total
|
Balance, beginning of the period
|
$
|
1,203
|
|
|
$
|
1,203
|
|
Decreases to the allowance for credit losses (1)
|
(100)
|
|
|
(100)
|
|
Decreases to the allowance for credit losses for securities sold (1)
|
(18)
|
|
|
(18)
|
|
Balance, end of the period
|
$
|
1,085
|
|
|
$
|
1,085
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2020
|
|
Corporate bonds
|
|
Total
|
Balance, beginning of the period
|
$
|
—
|
|
|
$
|
—
|
|
Additions to the allowance for credit losses on securities not previously recorded (1)
|
2,927
|
|
|
2,927
|
|
Decreases to the allowance for credit losses (1)
|
(1,824)
|
|
|
(1,824)
|
|
Decreases to the allowance for credit losses for securities sold (1)
|
(18)
|
|
|
(18)
|
|
Balance, end of the period
|
$
|
1,085
|
|
|
$
|
1,085
|
|
(1) Current period increases or decreases for expected losses are recorded in net gain (loss) on investments.
NATIONAL GENERAL HOLDINGS CORP.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands, Except Shares and Per Share Data)
(c) Net Investment Income
The components of net investment income consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
Cash and short-term investments
|
$
|
110
|
|
|
$
|
1,123
|
|
|
$
|
418
|
|
|
$
|
3,467
|
|
Debt securities, available-for-sale
|
29,526
|
|
|
31,439
|
|
|
92,119
|
|
|
91,631
|
|
Other, net (related parties - three months - $(1,425) and $(10); nine months - $(2,908) and $2,163)
|
497
|
|
|
2,271
|
|
|
1,438
|
|
|
10,512
|
|
Investment income
|
$
|
30,133
|
|
|
$
|
34,833
|
|
|
$
|
93,975
|
|
|
$
|
105,610
|
|
Investment expenses
|
(1,229)
|
|
|
(1,093)
|
|
|
(3,653)
|
|
|
(3,294)
|
|
Net investment income
|
$
|
28,904
|
|
|
$
|
33,740
|
|
|
$
|
90,322
|
|
|
$
|
102,316
|
|
NGHC
|
$
|
26,650
|
|
|
$
|
31,580
|
|
|
$
|
83,873
|
|
|
$
|
95,862
|
|
Reciprocal Exchanges
|
2,254
|
|
|
2,160
|
|
|
6,449
|
|
|
6,454
|
|
Net investment income
|
$
|
28,904
|
|
|
$
|
33,740
|
|
|
$
|
90,322
|
|
|
$
|
102,316
|
|
(d) Net Gain (Loss) on Investments
The table below indicates realized gains and losses on investments. Purchases and sales of investments are recorded on a trade date basis. Realized gains and losses are determined based on the specific identification method.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
Debt securities, available-for-sale:
|
|
|
|
|
|
|
|
Gross gains
|
$
|
19,652
|
|
|
$
|
3,598
|
|
|
$
|
21,698
|
|
|
$
|
3,921
|
|
Gross losses
|
(259)
|
|
|
(1,712)
|
|
|
(348)
|
|
|
(2,086)
|
|
Expected credit losses
|
100
|
|
|
—
|
|
|
(1,103)
|
|
|
—
|
|
Net realized gain on debt securities, available-for-sale
|
19,493
|
|
|
1,886
|
|
|
20,247
|
|
|
1,835
|
|
Other, net (1)
|
346
|
|
|
(305)
|
|
|
(2,111)
|
|
|
(5,462)
|
|
Net realized gain (loss) on investments
|
$
|
19,839
|
|
|
$
|
1,581
|
|
|
$
|
18,136
|
|
|
$
|
(3,627)
|
|
NGHC
|
$
|
6,736
|
|
|
$
|
1,718
|
|
|
$
|
6,179
|
|
|
$
|
(2,790)
|
|
Reciprocal Exchanges
|
13,103
|
|
|
(137)
|
|
|
11,957
|
|
|
(837)
|
|
Net realized gain (loss) on investments
|
$
|
19,839
|
|
|
$
|
1,581
|
|
|
$
|
18,136
|
|
|
$
|
(3,627)
|
|
(1) Includes gains and losses on publicly traded equity securities, other investments, and foreign currency.
NATIONAL GENERAL HOLDINGS CORP.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands, Except Shares and Per Share Data)
(e) Credit Quality of Investments
The tables below summarize the credit quality of debt securities, as rated by Standard & Poor’s (“S&P”). If a security is not rated by S&P, an S&P equivalent is determined based on ratings from similar rating agencies. Securities that are not rated are included in the “BB+ and lower” category.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NGHC
|
|
Reciprocal Exchanges
|
September 30, 2020
|
|
Amortized
Cost
|
|
Fair
Value
|
|
Percentage
|
|
Amortized
Cost
|
|
Fair
Value
|
|
Percentage
|
U.S. Treasury
|
|
$
|
41,164
|
|
|
$
|
44,386
|
|
|
1.0
|
%
|
|
$
|
14,466
|
|
|
$
|
14,795
|
|
|
4.9
|
%
|
AAA
|
|
502,797
|
|
|
544,772
|
|
|
12.8
|
%
|
|
20,970
|
|
|
21,114
|
|
|
7.0
|
%
|
AA, AA+, AA-
|
|
1,463,849
|
|
|
1,547,498
|
|
|
36.6
|
%
|
|
155,194
|
|
|
156,645
|
|
|
52.3
|
%
|
A, A+, A-
|
|
1,109,928
|
|
|
1,166,023
|
|
|
27.4
|
%
|
|
39,081
|
|
|
40,077
|
|
|
13.4
|
%
|
BBB, BBB+, BBB-
|
|
856,831
|
|
|
918,836
|
|
|
21.6
|
%
|
|
65,723
|
|
|
66,758
|
|
|
22.2
|
%
|
BB+ and lower
|
|
27,791
|
|
|
27,494
|
|
|
0.6
|
%
|
|
880
|
|
|
735
|
|
|
0.2
|
%
|
Total
|
|
$
|
4,002,360
|
|
|
$
|
4,249,009
|
|
|
100.0
|
%
|
|
$
|
296,314
|
|
|
$
|
300,124
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NGHC
|
|
Reciprocal Exchanges
|
December 31, 2019
|
|
Amortized
Cost
|
|
Fair
Value
|
|
Percentage
|
|
Amortized
Cost
|
|
Fair
Value
|
|
Percentage
|
U.S. Treasury
|
|
$
|
52,108
|
|
|
$
|
53,599
|
|
|
1.3
|
%
|
|
$
|
12,929
|
|
|
$
|
13,407
|
|
|
4.1
|
%
|
AAA
|
|
515,869
|
|
|
537,508
|
|
|
12.9
|
%
|
|
20,947
|
|
|
21,555
|
|
|
6.6
|
%
|
AA, AA+, AA-
|
|
1,677,787
|
|
|
1,697,220
|
|
|
40.9
|
%
|
|
120,113
|
|
|
121,720
|
|
|
37.5
|
%
|
A, A+, A-
|
|
954,312
|
|
|
976,468
|
|
|
23.5
|
%
|
|
116,747
|
|
|
119,041
|
|
|
36.7
|
%
|
BBB, BBB+, BBB-
|
|
795,594
|
|
|
823,239
|
|
|
19.8
|
%
|
|
48,021
|
|
|
48,093
|
|
|
14.8
|
%
|
BB+ and lower
|
|
61,831
|
|
|
64,075
|
|
|
1.6
|
%
|
|
433
|
|
|
433
|
|
|
0.3
|
%
|
Total
|
|
$
|
4,057,501
|
|
|
$
|
4,152,109
|
|
|
100.0
|
%
|
|
$
|
319,190
|
|
|
$
|
324,249
|
|
|
100.0
|
%
|
The tables below summarize the investment quality of the corporate bond holdings and industry concentrations.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2020
|
|
AAA
|
|
AA+,
AA,
AA-
|
|
A+,A,A-
|
|
BBB+,
BBB,
BBB-
|
|
BB+ or
Lower
|
|
Fair
Value
|
|
% of
Corporate
Bonds
Portfolio
|
Financial Institutions
|
|
—
|
%
|
|
2.4
|
%
|
|
23.0
|
%
|
|
14.1
|
%
|
|
0.1
|
%
|
|
$
|
858,974
|
|
|
39.6
|
%
|
Industrials
|
|
0.3
|
%
|
|
3.3
|
%
|
|
25.5
|
%
|
|
28.1
|
%
|
|
0.4
|
%
|
|
1,247,187
|
|
|
57.6
|
%
|
Utilities/Other
|
|
—
|
%
|
|
—
|
%
|
|
1.6
|
%
|
|
1.2
|
%
|
|
—
|
%
|
|
61,733
|
|
|
2.8
|
%
|
Total
|
|
0.3
|
%
|
|
5.7
|
%
|
|
50.1
|
%
|
|
43.4
|
%
|
|
0.5
|
%
|
|
$
|
2,167,894
|
|
|
100.0
|
%
|
NGHC
|
|
0.3
|
%
|
|
5.7
|
%
|
|
48.3
|
%
|
|
40.3
|
%
|
|
0.5
|
%
|
|
$
|
2,060,258
|
|
|
95.1
|
%
|
Reciprocal Exchanges
|
|
—
|
%
|
|
—
|
%
|
|
1.8
|
%
|
|
3.1
|
%
|
|
—
|
%
|
|
107,636
|
|
|
4.9
|
%
|
Total
|
|
0.3
|
%
|
|
5.7
|
%
|
|
50.1
|
%
|
|
43.4
|
%
|
|
0.5
|
%
|
|
$
|
2,167,894
|
|
|
100.0
|
%
|
NATIONAL GENERAL HOLDINGS CORP.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands, Except Shares and Per Share Data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
AAA
|
|
AA+,
AA,
AA-
|
|
A+,A,A-
|
|
BBB+,
BBB,
BBB-
|
|
BB+ or
Lower
|
|
Fair
Value
|
|
% of
Corporate
Bonds
Portfolio
|
Financial Institutions
|
|
—
|
%
|
|
3.6
|
%
|
|
25.0
|
%
|
|
12.1
|
%
|
|
0.3
|
%
|
|
$
|
785,910
|
|
|
41.0
|
%
|
Industrials
|
|
0.7
|
%
|
|
2.7
|
%
|
|
24.1
|
%
|
|
29.0
|
%
|
|
0.1
|
%
|
|
1,083,959
|
|
|
56.6
|
%
|
Utilities/Other
|
|
—
|
%
|
|
—
|
%
|
|
1.0
|
%
|
|
1.4
|
%
|
|
—
|
%
|
|
46,694
|
|
|
2.4
|
%
|
Total
|
|
0.7
|
%
|
|
6.3
|
%
|
|
50.1
|
%
|
|
42.5
|
%
|
|
0.4
|
%
|
|
$
|
1,916,563
|
|
|
100.0
|
%
|
NGHC
|
|
0.3
|
%
|
|
5.1
|
%
|
|
44.0
|
%
|
|
40.0
|
%
|
|
0.4
|
%
|
|
$
|
1,720,962
|
|
|
89.8
|
%
|
Reciprocal Exchanges
|
|
0.4
|
%
|
|
1.2
|
%
|
|
6.1
|
%
|
|
2.5
|
%
|
|
—
|
%
|
|
195,601
|
|
|
10.2
|
%
|
Total
|
|
0.7
|
%
|
|
6.3
|
%
|
|
50.1
|
%
|
|
42.5
|
%
|
|
0.4
|
%
|
|
$
|
1,916,563
|
|
|
100.0
|
%
|
(f) Cash and Cash Equivalents, Restricted Cash and Restricted Investments
The Company, in order to conduct business in certain states, is required to maintain letters of credit or assets on deposit to support state mandated regulatory requirements and certain third-party agreements. The Company also utilizes trust accounts to collateralize business with its reinsurance counterparties. These assets are held primarily in the form of cash or certain high grade securities.
Cash, cash equivalents, and restricted cash are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2020
|
|
December 31, 2019
|
Cash and cash equivalents
|
|
$
|
188,282
|
|
|
$
|
135,942
|
|
Restricted cash and cash equivalents
|
|
63,061
|
|
|
28,521
|
|
Total cash, cash equivalents and restricted cash
|
|
$
|
251,343
|
|
|
$
|
164,463
|
|
Restricted investments are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2020
|
|
December 31, 2019
|
Securities on deposit with state regulatory authorities
|
|
$
|
83,876
|
|
|
$
|
74,061
|
|
Restricted investments to trusts in certain reinsurance transactions
|
|
36,324
|
|
|
49,502
|
|
Total restricted investments
|
|
$
|
120,200
|
|
|
$
|
123,563
|
|
(g) Short-term and Other Investments
Short-term investments include commercial paper, U.S. Treasury bills and money market funds with maturities between 91 days and less than one year from the date of acquisition.
The table below summarizes the composition of other investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2020
|
|
December 31, 2019
|
Equity method investments (related parties - $100,809 and $109,612)
|
|
$
|
136,935
|
|
|
$
|
143,511
|
|
Notes receivable (related parties - $130,784 and $129,229)(1)
|
|
130,832
|
|
|
129,299
|
|
Long-term Certificates of Deposit (CDs), at cost
|
|
150
|
|
|
20,150
|
|
Investments, at fair value
|
|
5,987
|
|
|
9,365
|
|
Investments, at cost or amortized cost
|
|
8,962
|
|
|
8,962
|
|
Total
|
|
$
|
282,866
|
|
|
$
|
311,287
|
|
(1) See Note 15, “Related Party Transactions” for additional information.
NATIONAL GENERAL HOLDINGS CORP.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands, Except Shares and Per Share Data)
Equity method investments represent limited liability companies and limited partnership investments in real estate. Investments at fair value include publicly traded equity securities and the Company’s right to receive the excess servicing spread related to servicing rights, for which the Company has elected the fair value option with changes in fair value recorded in net investment income. Investments at cost or amortized cost, represent limited partnerships, loans and trusts. The Company believes its exposure to risks associated with these investments is generally limited to the investment carrying amounts.
Other than investments at fair value, the Company’s other investments are assessed for impairment whenever events or changes in circumstances indicate that the carrying amount of the investment might not be recoverable.
Equity Method Investments - Related Parties
The significant shareholder of the Company has an ownership interest in AmTrust Financial Services, Inc. (“AmTrust”) and ACP Re Ltd. (“ACP Re”).
Limited Liability Companies and Limited Partnerships
The Company holds a variable interest in the following entities but is not the primary beneficiary of such VIEs. The Company accounts for these entities using the equity method of accounting. The Company believes its exposure to risk associated with these investments is generally limited to the investment carrying amounts.
LSC Entity
The Company has a 50% ownership interest in an entity (the “LSC Entity”) initially formed to acquire life settlement contracts, with AmTrust owning the remaining 50%. The LSC Entity used the contributed capital to pay premiums and purchase policies. A life settlement contract is a contract between the owner of a life insurance policy and a third party who obtains the ownership and beneficiary rights of the underlying life insurance policy. The LSC Entity has a 30% noncontrolling equity interest in a limited partnership managed by a third party. As of September 30, 2020, the LSC Entity directly held one life settlement contract. The life settlement contract is accounted for using the fair value method.
The Company’s equity interest in the LSC Entity as of September 30, 2020, and December 31, 2019, was $44,541 and $49,477, respectively. The Company recorded equity in losses from the LSC Entity of $(1,507) and $(481), made contributions of $0 and $258, and received distributions of $0 and $2,500 for the three months ended September 30, 2020, and 2019, respectively. For the nine months ended September 30, 2020, and 2019, the Company recorded equity in earnings (losses) from the LSC Entity of $(4,936) and $1,250, made contributions of $0 and $258, and received distributions of $0 and $2,500, respectively.
800 Superior, LLC
The Company holds an investment in 800 Superior, LLC, a limited liability company that owns an office building in Cleveland, Ohio, with AmTrust. AmTrust has been appointed managing member of 800 Superior, LLC. The Company and AmTrust each have a 50% ownership interest in 800 Superior, LLC.
The Company’s equity interest in 800 Superior, LLC as of September 30, 2020, and December 31, 2019, was $9,559 and $9,365, respectively. The Company recorded equity in earnings (losses) from 800 Superior, LLC of $93 and $(103), and made contributions of $0 and $2,287, for the three months ended September 30, 2020, and 2019, respectively. For the nine months ended September 30, 2020, and 2019, the Company recorded equity in earnings (losses) from 800 Superior, LLC of $194 and $(87), and made contributions of $0 and $2,287, respectively.
The Company paid 800 Superior, LLC $761 and $742 in rent for the three months ended September 30, 2020, and 2019, respectively, and $2,284 and $2,226 in rent for the nine months ended September 30, 2020, and 2019, respectively.
NATIONAL GENERAL HOLDINGS CORP.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands, Except Shares and Per Share Data)
North Dearborn Building Company, L.P.
The Company holds an investment in North Dearborn Building Company, L.P. (“North Dearborn”), a limited partnership that owns an office building in Chicago, Illinois. AmTrust is also a limited partner in North Dearborn, and the general partner is NA Advisors GP LLC (“NA Advisors”), a related party, owned by Karfunkel family members which is managed by an unrelated third party. The Company and AmTrust each hold a 45% limited partnership interest in North Dearborn, while NA Advisors holds a 10% general partnership interest and a 10% profit interest, which NA Advisors pays to the unrelated third-party manager. North Dearborn appointed NA Advisors as the general manager to oversee the day-to-day operations of the office building.
The Company’s equity interest in North Dearborn as of September 30, 2020, and December 31, 2019, was $5,704 and $5,317, respectively. For the three months ended September 30, 2020, and 2019, the Company recorded equity in losses from North Dearborn of $(43) and $(84), respectively, and received distributions of $135 in both periods. For the nine months ended September 30, 2020, and 2019, the Company recorded equity in earnings (losses) from North Dearborn of $792 and $(150), respectively, and received distributions of $405 in both periods.
4455 LBJ Freeway, LLC
The Company holds an investment in 4455 LBJ Freeway, LLC, a limited liability company that owns an office building in Dallas, Texas, with AmTrust. AmTrust has been appointed managing member of 4455 LBJ Freeway, LLC. The Company and AmTrust each have a 50% ownership interest in 4455 LBJ Freeway, LLC.
The Company’s equity interest in 4455 LBJ Freeway, LLC as of September 30, 2020, and December 31, 2019, was $1,563 and $1,074, respectively. For the three months ended September 30, 2020, and 2019, the Company recorded equity in earnings from 4455 LBJ Freeway, LLC of $110 and $63, respectively. For the nine months ended September 30, 2020, and 2019, the Company recorded equity in earnings from 4455 LBJ Freeway, LLC of $489 and $191, respectively.
The Company paid 4455 LBJ Freeway, LLC $623 and $607 in rent for the three months ended September 30, 2020, and 2019, respectively, and $1,859 and $1,813 in rent for the nine months ended September 30, 2020, and 2019, respectively.
Illinois Center Building, L.P.
The Company holds an investment in Illinois Center Building, L.P. (“Illinois Center”), a limited partnership that owns an office building in Chicago, Illinois. AmTrust and ACP Re are also limited partners in Illinois Center and the general partner is NA Advisors. The Company and AmTrust each hold a 37.5% limited partnership interest in Illinois Center, while ACP Re holds a 15.0% limited partnership interest. NA Advisors holds a 10.0% general partnership interest and a 10.0% profit interest, which NA Advisors pays to the unrelated third-party manager. Illinois Center appointed NA Advisors as the general manager to oversee the day-to-day operations of the office building.
The Company’s equity interest in Illinois Center as of September 30, 2020, and December 31, 2019, was $39,442 and $44,379, respectively. For the three months ended September 30, 2020, and 2019, the Company recorded equity in losses from Illinois Center of $(1,288) and $(600), and received distributions of $1,875 and $0, respectively. For the nine months ended September 30, 2020, and 2019, the Company recorded equity in losses from Illinois Center of $(3,062) and $(2,612), made contributions of $0 and $1,125, and received distributions of $1,875 and $0, respectively.
NATIONAL GENERAL HOLDINGS CORP.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands, Except Shares and Per Share Data)
5. Fair Value of Financial Instruments
The Company carries certain financial instruments at fair value. Assets and liabilities recorded at fair value in the Condensed Consolidated Balance Sheets are measured and classified in accordance with a fair value hierarchy consisting of three “levels” based on the observability of valuation inputs:
Level 1 - Inputs are quoted prices in active markets for identical assets or liabilities as of the measurement date. Additionally, the entity must have the ability to access the active market and the quoted prices cannot be adjusted by the entity.
Level 2 - Inputs are other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs include quoted prices in active markets for similar assets or liabilities; quoted prices in inactive markets for identical or similar assets or liabilities; or inputs that are observable or can be corroborated by observable market data by correlation or other means for substantially the full term of the assets or liabilities.
Level 3 - Unobservable inputs are supported by little or no market activity. The unobservable inputs represent management’s best assumptions of how market participants would price the assets or liabilities. Generally, Level 3 assets and liabilities are valued using pricing models, discounted cash flow methodologies, or similar techniques that require significant judgment or estimation.
The following describes the valuation techniques used by the Company to determine the fair value measurements on a recurring basis of financial instruments held as of September 30, 2020, and December 31, 2019. The Company utilizes a pricing service (“pricing service”) to estimate fair value measurements for all its debt and equity securities.
Level 1 measurements:
•U.S. Treasury and federal agencies. The fair values of U.S. government securities are based on quoted market prices in active markets. The Company believes the market for U.S. government securities is an actively traded market given the high level of daily trading volume.
•Short-term investments. Comprised of money market funds that are traded in active markets and fair values are based on quoted market prices.
•Other investments, at fair value. Common and preferred equity securities. The pricing service utilizes market quotations for equity securities that have quoted market prices in active markets and their respective quoted prices are provided at fair value.
Level 2 measurements:
•States and political subdivision bonds, and foreign government. The primary inputs to the valuation include quoted prices for identical or similar assets in markets that are not active.
•Corporate bonds. Comprised of bonds issued by corporations, public and privately placed. The fair values of short-term corporate bonds are priced using the spread above the London Interbank Offering Rate (“LIBOR”) yield curve, and the fair value of long-term corporate bonds are priced using the spread above the risk-free yield curve. The spreads are sourced from broker dealers, trade prices and the new issue market. Where pricing is unavailable from pricing services, the Company obtains non-binding quotes from broker-dealers. The primary inputs to the valuation include quoted prices for identical or similar assets in markets that are not active.
•Residential and commercial mortgage-backed securities, asset-backed securities and structured securities. The primary inputs to the valuation include quoted prices for identical or similar assets in markets that are not active, contractual cash flows, benchmark yields, prepayment speeds, collateral performance and credit spreads.
NATIONAL GENERAL HOLDINGS CORP.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands, Except Shares and Per Share Data)
Level 3 measurements:
•States and political subdivision bonds. The Company holds certain municipal bonds that finance economic development, infrastructure and environmental projects which do not have an active market. These bonds are valued based on non-binding broker quotes where the inputs have not been corroborated to be market observable.
•Corporate bonds. The Company holds certain structured notes and term loans that do not have an active market. These bonds are valued based on non-binding broker quotes where the inputs have not been corroborated to be market observable.
•Other investments, at fair value. Comprised of the Company’s right to receive the Excess Servicing Spread (“ESS”) related to servicing rights. The Company uses a discounted cash flow method to estimate the fair value of the ESS. The key inputs used in the estimation of ESS include prepayment speed and discount rate. Changes in the fair value of the ESS are recorded in net investment income.
•Other investments, at cost or amortized cost. From time to time, the Company also holds certain equity securities that are issued by privately-held entities or direct equity investments that do not have an active market. The Company estimates the fair value of these securities primarily based on inputs such as third-party broker quotes, issuers’ book value, market multiples, and other inputs. These bonds are valued based on non-binding broker quotes where the inputs have not been corroborated to be market observable.
Assets measured at fair value on a recurring basis are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2020
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
Debt securities, available-for-sale:
|
|
|
|
|
|
|
|
|
U.S. Treasury
|
|
$
|
59,181
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
59,181
|
|
Federal agencies
|
|
263
|
|
|
—
|
|
|
—
|
|
|
263
|
|
States and political subdivision bonds
|
|
—
|
|
|
325,133
|
|
|
2,520
|
|
|
327,653
|
|
Foreign government
|
|
—
|
|
|
1,862
|
|
|
—
|
|
|
1,862
|
|
Corporate bonds
|
|
—
|
|
|
2,162,525
|
|
|
5,369
|
|
|
2,167,894
|
|
Residential mortgage-backed securities
|
|
—
|
|
|
1,125,999
|
|
|
—
|
|
|
1,125,999
|
|
Commercial mortgage-backed securities
|
|
—
|
|
|
629,848
|
|
|
—
|
|
|
629,848
|
|
Asset-backed securities
|
|
—
|
|
|
33,156
|
|
|
—
|
|
|
33,156
|
|
Structured securities
|
|
—
|
|
|
203,277
|
|
|
—
|
|
|
203,277
|
|
Total debt securities, available-for-sale
|
|
59,444
|
|
|
4,481,800
|
|
|
7,889
|
|
|
4,549,133
|
|
Short-term investments
|
|
490,800
|
|
|
20,000
|
|
|
—
|
|
|
510,800
|
|
Other investments
|
|
2,638
|
|
|
—
|
|
|
3,349
|
|
|
5,987
|
|
Total
|
|
$
|
552,882
|
|
|
$
|
4,501,800
|
|
|
$
|
11,238
|
|
|
$
|
5,065,920
|
|
NGHC
|
|
$
|
507,135
|
|
|
$
|
4,216,471
|
|
|
$
|
11,238
|
|
|
$
|
4,734,844
|
|
Reciprocal Exchanges
|
|
45,747
|
|
|
285,329
|
|
|
—
|
|
|
331,076
|
|
Total
|
|
$
|
552,882
|
|
|
$
|
4,501,800
|
|
|
$
|
11,238
|
|
|
$
|
5,065,920
|
|
NATIONAL GENERAL HOLDINGS CORP.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands, Except Shares and Per Share Data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
Debt securities, available-for-sale:
|
|
|
|
|
|
|
|
|
U.S. Treasury
|
|
$
|
67,006
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
67,006
|
|
Federal agencies
|
|
3,915
|
|
|
—
|
|
|
—
|
|
|
3,915
|
|
States and political subdivision bonds
|
|
—
|
|
|
298,582
|
|
|
3,100
|
|
|
301,682
|
|
Foreign government
|
|
—
|
|
|
1,802
|
|
|
—
|
|
|
1,802
|
|
Corporate bonds
|
|
—
|
|
|
1,908,235
|
|
|
8,328
|
|
|
1,916,563
|
|
Residential mortgage-backed securities
|
|
—
|
|
|
1,277,460
|
|
|
—
|
|
|
1,277,460
|
|
Commercial mortgage-backed securities
|
|
—
|
|
|
612,193
|
|
|
—
|
|
|
612,193
|
|
Asset-backed securities
|
|
—
|
|
|
75,611
|
|
|
—
|
|
|
75,611
|
|
Structured securities
|
|
—
|
|
|
220,126
|
|
|
—
|
|
|
220,126
|
|
Total debt securities, available-for-sale
|
|
70,921
|
|
|
4,394,009
|
|
|
11,428
|
|
|
4,476,358
|
|
Short-term investments
|
|
59,953
|
|
|
7,400
|
|
|
—
|
|
|
67,353
|
|
Other investments
|
|
4,881
|
|
|
—
|
|
|
4,484
|
|
|
9,365
|
|
Total
|
|
$
|
135,755
|
|
|
$
|
4,401,409
|
|
|
$
|
15,912
|
|
|
$
|
4,553,076
|
|
NGHC
|
|
$
|
116,602
|
|
|
$
|
4,091,068
|
|
|
$
|
15,912
|
|
|
$
|
4,223,582
|
|
Reciprocal Exchanges
|
|
19,153
|
|
|
310,341
|
|
|
—
|
|
|
329,494
|
|
Total
|
|
$
|
135,755
|
|
|
$
|
4,401,409
|
|
|
$
|
15,912
|
|
|
$
|
4,553,076
|
|
For the nine months ended September 30, 2020, and 2019, there were no transfers between Level 2 and
Level 3.
The following tables provide a reconciliation of recurring fair value measurements of the Level 3 financial assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
States and
political
subdivision
bonds
|
|
Corporate
bonds
|
|
Other
investments
|
|
Total
|
Balance as of January 1, 2020
|
$
|
3,100
|
|
|
$
|
8,328
|
|
|
$
|
4,484
|
|
|
$
|
15,912
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total gains (losses) for the period:
|
|
|
|
|
|
|
|
Included in net income
|
—
|
|
|
—
|
|
|
(417)
|
|
|
(417)
|
|
Included in other comprehensive income
|
(580)
|
|
|
(2,959)
|
|
|
—
|
|
|
(3,539)
|
|
|
|
|
|
|
|
|
|
Sales
|
—
|
|
|
—
|
|
|
(718)
|
|
|
(718)
|
|
Balance as of September 30, 2020
|
$
|
2,520
|
|
|
$
|
5,369
|
|
|
$
|
3,349
|
|
|
$
|
11,238
|
|
Change in unrealized gains (losses) for the period included in net income for assets held at the end of the reporting period
|
|
|
|
|
$
|
(417)
|
|
|
$
|
(417)
|
|
Change in unrealized gains (losses) for the period included in other comprehensive income for assets held at the end of the reporting period
|
$
|
(580)
|
|
|
$
|
(2,959)
|
|
|
|
|
$
|
(3,539)
|
|
NATIONAL GENERAL HOLDINGS CORP.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands, Except Shares and Per Share Data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
States and
political
subdivision
bonds
|
|
Corporate
bonds
|
|
Other
investments
|
|
Total
|
Balance as of January 1, 2019
|
$
|
3,596
|
|
|
$
|
11,767
|
|
|
$
|
7,593
|
|
|
$
|
22,956
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total gains (losses) for the period:
|
|
|
|
|
|
|
|
Included in net income
|
—
|
|
|
—
|
|
|
(3,012)
|
|
|
(3,012)
|
|
Included in other comprehensive income
|
(496)
|
|
|
(1,987)
|
|
|
—
|
|
|
(2,483)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of September 30, 2019
|
$
|
3,100
|
|
|
$
|
9,780
|
|
|
$
|
4,581
|
|
|
$
|
17,461
|
|
Change in unrealized gains (losses) for the period included in net income for assets held at the end of the reporting period
|
|
|
|
|
$
|
(3,012)
|
|
|
$
|
(3,012)
|
|
Change in unrealized gains (losses) for the period included in other comprehensive income for assets held at the end of the reporting period
|
$
|
(496)
|
|
|
$
|
(1,987)
|
|
|
|
|
$
|
(2,483)
|
|
|
|
|
|
|
|
|
|
At September 30, 2020, and December 31, 2019, the carrying values of the Company’s cash and cash equivalents, premiums and other receivables, and accounts payable approximate the fair value given their short-term nature and were classified as Level 1.
Fair Value Information About Financial Liabilities not Measured at Fair Value
Debt - The amount reported in the accompanying Condensed Consolidated Balance Sheets for these financial instruments represents the carrying value of the debt. See Note 9, “Debt” for additional information.
The following table presents the carrying amount and estimated fair value of debt not carried at fair value, excluding finance lease and other liabilities, as well as the input level used to determine the fair value:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2020
|
|
December 31, 2019
|
|
Input Level
|
|
Carrying amount
|
|
Fair value
|
|
Carrying amount
|
|
Fair value
|
7.625% Notes
|
Level 2
|
|
$
|
96,993
|
|
|
$
|
101,520
|
|
|
$
|
96,928
|
|
|
$
|
103,560
|
|
6.75% Notes
|
Level 3
|
|
347,579
|
|
|
388,866
|
|
|
347,091
|
|
|
371,366
|
|
Subordinated Debentures
|
Level 3
|
|
72,168
|
|
|
72,147
|
|
|
72,168
|
|
|
72,103
|
|
2019 Credit Agreement
|
Level 3
|
|
140,000
|
|
|
144,267
|
|
|
140,000
|
|
|
148,272
|
|
NATIONAL GENERAL HOLDINGS CORP.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands, Except Shares and Per Share Data)
6. Deferred Acquisition Costs
The following table reflects the amounts of policy acquisition costs deferred and amortized:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30,
|
|
2020
|
|
2019
|
|
Property
and
Casualty
|
|
Accident
and
Health
|
|
Total
|
|
Property
and
Casualty
|
|
Accident
and
Health
|
|
Total
|
Balance, beginning of the period
|
$
|
239,293
|
|
|
$
|
24,230
|
|
|
$
|
263,523
|
|
|
$
|
226,188
|
|
|
$
|
25,220
|
|
|
$
|
251,408
|
|
Additions
|
479,934
|
|
|
18,540
|
|
|
498,474
|
|
|
385,570
|
|
|
41,222
|
|
|
426,792
|
|
Amortization
|
(461,933)
|
|
|
(15,101)
|
|
|
(477,034)
|
|
|
(372,741)
|
|
|
(37,800)
|
|
|
(410,541)
|
|
Change in DAC
|
18,001
|
|
|
3,439
|
|
|
21,440
|
|
|
12,829
|
|
|
3,422
|
|
|
16,251
|
|
Balance, end of the period
|
$
|
257,294
|
|
|
$
|
27,669
|
|
|
$
|
284,963
|
|
|
$
|
239,017
|
|
|
$
|
28,642
|
|
|
$
|
267,659
|
|
NGHC
|
$
|
238,787
|
|
|
$
|
27,669
|
|
|
$
|
266,456
|
|
|
$
|
215,904
|
|
|
$
|
28,642
|
|
|
$
|
244,546
|
|
Reciprocal Exchanges
|
18,507
|
|
|
—
|
|
|
18,507
|
|
|
23,113
|
|
|
—
|
|
|
23,113
|
|
Balance, end of the period
|
$
|
257,294
|
|
|
$
|
27,669
|
|
|
$
|
284,963
|
|
|
$
|
239,017
|
|
|
$
|
28,642
|
|
|
$
|
267,659
|
|
7. Unpaid Losses and Loss Adjustment Expense Reserves
The unpaid losses and Loss Adjustment Expense (“LAE”) reserves are an estimate of the Company’s liability from incurred claims at the end of the reporting period. The unpaid losses and LAE reserves are the result of an ongoing analysis of recent loss development trends and emerging historical experience. Original estimates are increased or decreased as additional information becomes known regarding individual claims. In setting its reserves, the Company reviews its loss data to estimate expected loss development. Management believes that its use of standard actuarial methodology applied to its analyses of its historical experience provides a reasonable estimate of future losses. However, actual future losses may differ from the Company’s estimate, and may be affected by future events beyond the control of management, including inflation, which may favorably or unfavorably impact the ultimate settlement of the Company’s losses and LAE, as well as changes in the law and judicial interpretations.
The anticipated effect of inflation is implicitly considered when estimating liabilities for losses and LAE. In addition to inflation, the average severity of claims is affected by a number of factors that may vary by types and features of policies written. Future average severities are projected from historical trends, adjusted for implemented changes in underwriting standards and policy provisions, as well as general economic trends. These estimated trends are monitored and revised as necessary based on actual development.
NATIONAL GENERAL HOLDINGS CORP.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands, Except Shares and Per Share Data)
The following tables present a reconciliation of beginning and ending balances for unpaid losses and LAE:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2020
|
|
Property
and
Casualty
|
|
Accident
and
Health
|
|
NGHC
|
|
Reciprocal
Exchanges
|
|
Total
|
Gross balance at beginning of the period
|
$
|
2,528,754
|
|
|
$
|
151,874
|
|
|
$
|
2,680,628
|
|
|
$
|
205,786
|
|
|
$
|
2,886,414
|
|
Less: Reinsurance recoverable at beginning of the period
|
(1,016,368)
|
|
|
(11,266)
|
|
|
(1,027,634)
|
|
|
(84,174)
|
|
|
(1,111,808)
|
|
Net balance at beginning of the period
|
1,512,386
|
|
|
140,608
|
|
|
1,652,994
|
|
|
121,612
|
|
|
1,774,606
|
|
Incurred losses and LAE related to:
|
|
|
|
|
|
|
|
|
|
Current year
|
1,711,599
|
|
|
248,269
|
|
|
1,959,868
|
|
|
117,486
|
|
|
2,077,354
|
|
Prior year
|
13,989
|
|
|
(22,065)
|
|
|
(8,076)
|
|
|
(2,670)
|
|
|
(10,746)
|
|
Total incurred
|
1,725,588
|
|
|
226,204
|
|
|
1,951,792
|
|
|
114,816
|
|
|
2,066,608
|
|
Paid losses and LAE related to:
|
|
|
|
|
|
|
|
|
|
Current year
|
(959,452)
|
|
|
(126,296)
|
|
|
(1,085,748)
|
|
|
(68,269)
|
|
|
(1,154,017)
|
|
Prior year
|
(749,463)
|
|
|
(81,757)
|
|
|
(831,220)
|
|
|
(44,980)
|
|
|
(876,200)
|
|
Total paid
|
(1,708,915)
|
|
|
(208,053)
|
|
|
(1,916,968)
|
|
|
(113,249)
|
|
|
(2,030,217)
|
|
Net balance at end of the period
|
1,529,059
|
|
|
158,759
|
|
|
1,687,818
|
|
|
123,179
|
|
|
1,810,997
|
|
Plus: Reinsurance recoverable at end of the period
|
982,491
|
|
|
18,660
|
|
|
1,001,151
|
|
|
85,317
|
|
|
1,086,468
|
|
Gross balance at end of the period
|
$
|
2,511,550
|
|
|
$
|
177,419
|
|
|
$
|
2,688,969
|
|
|
$
|
208,496
|
|
|
$
|
2,897,465
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2019
|
|
Property
and
Casualty
|
|
Accident
and
Health
|
|
NGHC
|
|
Reciprocal
Exchanges
|
|
Total
|
Gross balance at beginning of the period
|
$
|
2,507,409
|
|
|
$
|
271,280
|
|
|
$
|
2,778,689
|
|
|
$
|
178,470
|
|
|
$
|
2,957,159
|
|
Less: Reinsurance recoverable at beginning of the period
|
(1,182,588)
|
|
|
(24,575)
|
|
|
(1,207,163)
|
|
|
(77,979)
|
|
|
(1,285,142)
|
|
Net balance at beginning of the period
|
1,324,821
|
|
|
246,705
|
|
|
1,571,526
|
|
|
100,491
|
|
|
1,672,017
|
|
Incurred losses and LAE related to:
|
|
|
|
|
|
|
|
|
|
Current year
|
1,726,618
|
|
|
279,460
|
|
|
2,006,078
|
|
|
125,250
|
|
|
2,131,328
|
|
Prior year
|
19,791
|
|
|
(37,775)
|
|
|
(17,984)
|
|
|
(666)
|
|
|
(18,650)
|
|
Total incurred
|
1,746,409
|
|
|
241,685
|
|
|
1,988,094
|
|
|
124,584
|
|
|
2,112,678
|
|
Paid losses and LAE related to:
|
|
|
|
|
|
|
|
|
|
Current year
|
(661,742)
|
|
|
(136,261)
|
|
|
(798,003)
|
|
|
(76,704)
|
|
|
(874,707)
|
|
Prior year
|
(1,013,023)
|
|
|
(105,076)
|
|
|
(1,118,099)
|
|
|
(39,005)
|
|
|
(1,157,104)
|
|
Total paid
|
(1,674,765)
|
|
|
(241,337)
|
|
|
(1,916,102)
|
|
|
(115,709)
|
|
|
(2,031,811)
|
|
Acquired losses and LAE reserves
|
92,573
|
|
|
—
|
|
|
92,573
|
|
|
—
|
|
|
92,573
|
|
Unrealized foreign exchange gain
|
—
|
|
|
(8,204)
|
|
|
(8,204)
|
|
|
—
|
|
|
(8,204)
|
|
Net balance at end of the period
|
1,489,038
|
|
|
238,849
|
|
|
1,727,887
|
|
|
109,366
|
|
|
1,837,253
|
|
Plus: Reinsurance recoverable at end of the period
|
1,079,560
|
|
|
38,352
|
|
|
1,117,912
|
|
|
84,090
|
|
|
1,202,002
|
|
Gross balance at end of the period
|
$
|
2,568,598
|
|
|
$
|
277,201
|
|
|
$
|
2,845,799
|
|
|
$
|
193,456
|
|
|
$
|
3,039,255
|
|
NATIONAL GENERAL HOLDINGS CORP.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands, Except Shares and Per Share Data)
Prior Year Loss Development, Net of Reinsurance
Prior year development is based upon numerous estimates by line of business and accident year. No additional premiums or return premiums have been accrued as a result of the prior year effects.
2020. Loss and LAE for the nine months ended September 30, 2020, included $10,746 of favorable loss development on prior accident year loss and LAE reserves. The $11,319 of unfavorable loss development in the property and casualty segment (including $2,670 of favorable loss development for the Reciprocal Exchanges) was driven by small business auto, while the $22,065 of favorable loss development in the accident and health segment was driven by the small group self-funded business and short term medical.
2019. Loss and LAE for the nine months ended September 30, 2019, included $18,650 of favorable loss development on prior accident year loss and LAE reserves. The $19,125 of unfavorable loss development in the property and casualty segment (including $666 of favorable loss development for the Reciprocal Exchanges) was driven by small business auto, while the $37,775 of favorable loss development in the accident and health segment was driven by the small group self-funded business and short term medical.
8. Reinsurance
The Company utilizes various excess of loss, quota share, state-based industry pools or facilities, and catastrophe reinsurance programs to limit its exposure. Reinsurance agreements transfer portions of the underlying risk of the business the Company writes. Reinsurance does not discharge or diminish the Company’s obligation to pay claims covered by the insurance policies it issues; however, it does permit the Company to recover certain incurred losses from its reinsurers and the Company’s reinsurance recoveries reduce the maximum loss that it may incur as a result of a covered loss event. The Company’s reinsurers generally carry at least an A.M. Best rating of “A-” (Excellent) or the reinsurance recoverable balances are collateralized. The Company also maintains funds held liabilities under the auto quota share reinsurance agreement. The total amount, cost and limits relating to the reinsurance coverage the Company purchases may vary from year to year based upon a variety of factors, including the availability of quality reinsurance at an acceptable price and the level of risk that the Company chooses to retain for its account.
The Company assumes and cedes insurance risks under various reinsurance agreements, on both a pro-rata basis and excess of loss basis. The Company purchases reinsurance to mitigate the volatility of direct and assumed business, which may be caused by the aggregate value or the concentration of written exposures in a particular geographic area or business segment and may arise from catastrophes or other events. The Company pays a premium as consideration for ceding the risk.
Reinsurance recoverable is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2020
|
|
December 31, 2019
|
Reinsurance recoverable on paid losses
|
|
$
|
201,194
|
|
|
$
|
282,500
|
|
Reinsurance recoverable on unpaid losses
|
|
1,086,468
|
|
|
1,111,808
|
|
Allowance for uncollectible reinsurance
|
|
(810)
|
|
|
—
|
|
Reinsurance recoverable, net
|
|
$
|
1,286,852
|
|
|
$
|
1,394,308
|
|
The following is the effect of reinsurance on unpaid loss and LAE reserves and unearned premiums:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2020
|
|
December 31, 2019
|
|
|
Assumed
|
|
Ceded
|
|
Assumed
|
|
Ceded
|
Unpaid Loss and LAE reserves
|
|
$
|
43,707
|
|
|
$
|
1,086,468
|
|
|
$
|
50,884
|
|
|
$
|
1,111,808
|
|
Unearned premiums
|
|
18,264
|
|
|
458,960
|
|
|
15,278
|
|
|
575,747
|
|
NATIONAL GENERAL HOLDINGS CORP.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands, Except Shares and Per Share Data)
The following is the effect of reinsurance on premiums and loss and LAE:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
Premiums:
|
Written
|
|
Earned
|
|
Written
|
|
Earned
|
|
Written
|
|
Earned
|
|
Written
|
|
Earned
|
Direct
|
$
|
1,457,135
|
|
|
$
|
1,429,247
|
|
|
$
|
1,417,792
|
|
|
$
|
1,407,731
|
|
|
$
|
4,240,217
|
|
|
$
|
4,189,569
|
|
|
$
|
4,200,571
|
|
|
$
|
4,080,131
|
|
Assumed
|
15,992
|
|
|
16,318
|
|
|
17,365
|
|
|
19,029
|
|
|
51,065
|
|
|
48,078
|
|
|
58,272
|
|
|
59,872
|
|
Total Gross Premium
|
1,473,127
|
|
|
1,445,565
|
|
|
1,435,157
|
|
|
1,426,760
|
|
|
4,291,282
|
|
|
4,237,647
|
|
|
4,258,843
|
|
|
4,140,003
|
|
Ceded
|
(207,871)
|
|
|
(266,992)
|
|
|
(400,553)
|
|
|
(373,122)
|
|
|
(801,515)
|
|
|
(918,301)
|
|
|
(1,064,177)
|
|
|
(1,091,557)
|
|
Net Premium
|
$
|
1,265,256
|
|
|
$
|
1,178,573
|
|
|
$
|
1,034,604
|
|
|
$
|
1,053,638
|
|
|
$
|
3,489,767
|
|
|
$
|
3,319,346
|
|
|
$
|
3,194,666
|
|
|
$
|
3,048,446
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
Assumed
|
|
Ceded
|
|
Assumed
|
|
Ceded
|
|
Assumed
|
|
Ceded
|
|
Assumed
|
|
Ceded
|
Loss and LAE
|
$
|
5,888
|
|
|
$
|
192,884
|
|
|
$
|
7,024
|
|
|
$
|
245,095
|
|
|
$
|
19,659
|
|
|
$
|
579,535
|
|
|
$
|
23,670
|
|
|
$
|
605,126
|
|
Industry Pools and Facilities
The Company’s reinsurance programs include premiums written under state-mandated involuntary plans for automobile, motorcycle and commercial vehicles and premiums ceded to state-provided reinsurance facilities such as Michigan Catastrophic Claims Association (“MCCA”) and North Carolina Reinsurance Facility (“NCRF”), for which the Company retains no loss indemnity risk. Prepaid reinsurance premiums are recognized on a pro-rata basis over the period of risk, consistent with premiums written.
The Company believes that it is unlikely to incur any material loss as a result of non-payment of amounts owed to the Company by MCCA and NCRF because (i) the payment obligations are extended over many years, resulting in relatively small current payment obligations, (ii) both MCCA and NCRF are supported by assessments permitted by statute, and (iii) the Company has not historically incurred losses as a result of non-payment. Because MCCA and NCRF are supported by assessments permitted by statute, and there have been no significant and uncollectible balances from MCCA and NCRF, the Company believes that it has no significant exposure to uncollectible reinsurance balances from these entities.
Reinsurance Agreements
In 2017, the Company entered into an Auto Quota Share Agreement (the “Auto Quota Share Agreement”) covering the Company’s auto lines of business. Effective January 1, 2019, the Company ceded 7.0% of net liability. On July 1, 2019, the Company renewed its Auto Quota Share Agreement for a two-year term. Effective July 1, 2019, the Company ceded 10.0% of net liability. The Company receives a 31.2% provisional ceding commission on premiums ceded to the reinsurer during the term of the Auto Quota Share Agreement, subject to a sliding scale adjustment to a maximum of 32.8% if the loss ratio for the reinsured business is 64.7% or less and a minimum of 30.0% if the loss ratio is 67.5% or higher. Effective January 1, 2020, the Company cedes 5.0% of net liability under new and renewal auto policies written.
In 2017, the Company entered into a Homeowners Quota Share Agreement (the “HO Quota Share Agreement”) covering the Company’s homeowners line of business. On July 1, 2019, the Company renewed its HO Quota Share Agreement for a one-year term. Effective July 1, 2019, the Company ceded 40.0% of net liability and received a 36.0% ceding commission on new and renewal business and a portion of the in-force business. A portion of the in-force business is being run-off under the prior agreements. On July 1, 2020, the Company renewed its HO Quota Share Agreement for a one-year term. Effective July 1, 2020, the Company cedes 20.0% of net liability and receives a 37.0% ceding commission on in-force, new and renewal business.
NATIONAL GENERAL HOLDINGS CORP.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands, Except Shares and Per Share Data)
Effective May 1, 2020, with additional purchases made at June 1, 2020, and July 1, 2020, the Company renewed its property catastrophe excess of loss program, protecting the Company against catastrophic events and other large losses. The program provides coverage up to $650,000 with one reinstatement and attaches at $70,000 for the first event and $50,000 for the second event. The Company purchased additional first event coverage for named wind that attaches at $50,000. Effective October 1, 2020, the Company’s casualty program provides $35,000 in coverage in excess of a $5,000 retention.
Reciprocal Exchanges
In 2019, the Reciprocal Exchanges entered into a personal lines quota share agreement for a one-year term. The Reciprocal Exchanges ceded 42.3% of net liability on new and renewal homeowners multiple peril, dwelling fire, and automobile physical damage (comprehensive only) policies written in the states of New Jersey and New York. Effective July 1, 2020, the Reciprocal Exchanges renewed their personal lines quota share agreement for a one-year term, ceding 42.0% combined weighted average of net liability. This includes a 55.0% quota share covering homeowners multiple peril, dwelling fire, and automobile physical damage (comprehensive only) policies written in the states of New Jersey and New York as well as a 25.0% quota share on automobile liability and collision coverages.
Effective July 1, 2020, the Reciprocal Exchanges’ property catastrophe excess of loss program provided coverage up to $475,000 with a $20,000 retention, and one reinstatement.
9. Debt
The following table represents the Company’s debt:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Rate
|
|
Maturity
|
|
September 30, 2020
|
|
December 31, 2019
|
Fixed-rate:
|
|
|
|
|
|
|
|
|
6.75% Notes
|
|
6.75%
|
|
2024
|
|
$
|
350,000
|
|
|
$
|
350,000
|
|
7.625% Notes
|
|
7.625%
|
|
2055
|
|
100,000
|
|
|
100,000
|
|
Floating-rate:
|
|
|
|
|
|
|
|
|
Subordinated Debentures I(1)
|
|
LIBOR + 3.40%
|
|
2035
|
|
41,238
|
|
|
41,238
|
|
Subordinated Debentures II(2)
|
|
LIBOR + 4.25%
|
|
2037
|
|
30,930
|
|
|
30,930
|
|
2019 Credit Agreement(3)
|
|
LIBOR + 1.75%
|
|
2023
|
|
140,000
|
|
|
140,000
|
|
Finance lease liabilities
|
|
Various
|
|
Various
|
|
18,133
|
|
|
20,477
|
|
Other
|
|
3.5%
|
|
Various
|
|
4,563
|
|
|
9,342
|
|
Unamortized debt issuance costs and unamortized discount
|
|
|
|
|
|
(5,428)
|
|
|
(5,981)
|
|
Total carrying amount of debt
|
|
|
|
|
|
$
|
679,436
|
|
|
$
|
686,006
|
|
(1) Interest rate was 3.65% and 5.29%, as of September 30, 2020, and December 31, 2019, respectively.
(2) Interest rate was 4.50% and 6.14%, as of September 30, 2020, and December 31, 2019, respectively.
(3) Weighted-average interest rate was 1.94% and 3.59% as of September 30, 2020, and December 31, 2019, respectively.
NATIONAL GENERAL HOLDINGS CORP.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands, Except Shares and Per Share Data)
The following table presents the Company’s interest expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
|
Interest Payment Frequency
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
6.75% Notes
|
|
Semiannually
|
|
$
|
5,906
|
|
|
$
|
5,906
|
|
|
$
|
17,719
|
|
|
$
|
17,719
|
|
7.625% Notes
|
|
Quarterly
|
|
1,906
|
|
|
1,906
|
|
|
5,719
|
|
|
5,719
|
|
Subordinated Debentures
|
|
Quarterly
|
|
749
|
|
|
1,118
|
|
|
2,556
|
|
|
3,470
|
|
2016 Credit Agreement
|
|
Quarterly
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,211
|
|
2019 Credit Agreement
|
|
Quarterly
|
|
678
|
|
|
1,674
|
|
|
2,712
|
|
|
4,020
|
|
Finance lease liabilities
|
|
Various
|
|
259
|
|
|
302
|
|
|
906
|
|
|
888
|
|
Other(1)
|
|
Various
|
|
1,794
|
|
|
1,992
|
|
|
5,239
|
|
|
5,795
|
|
Total interest expense
|
|
|
|
$
|
11,292
|
|
|
$
|
12,898
|
|
|
$
|
34,851
|
|
|
$
|
38,822
|
|
(1) Includes interest for other liabilities, interest credited on funds held balances and accretion of debt issuance costs.
Notes
The 6.75% Notes are the Company’s general unsecured obligations and rank (i) equally in right of payment with its other existing and future senior unsecured indebtedness and (ii) senior in right of payment to any of its indebtedness that is contractually subordinated to the 6.75% Notes. The 6.75% Notes are also effectively subordinated to any of the Company’s existing and future secured indebtedness to the extent of the value of the collateral securing such indebtedness and are structurally subordinated to the existing and future indebtedness of the Company’s subsidiaries (including trade payables). The 6.75% Notes mature on May 15, 2024, unless earlier redeemed or purchased by the Company.
The 7.625% Notes are the Company’s subordinated unsecured obligations and rank (i) senior in right of payment to any future junior subordinated debt, (ii) equal in right of payment with any unsecured, subordinated debt that the Company incurs in the future that ranks equally with the 7.625% Notes, and (iii) subordinate in right of payment to any of the Company’s existing and future senior debt, including amounts outstanding under the Company’s revolving credit facility, the Company’s 6.75% notes and certain of the Company’s other obligations. In addition, the 7.625% Notes are structurally subordinated to all existing and future indebtedness, liabilities, and other obligations of the Company’s subsidiaries. The 7.625% Notes mature on September 15, 2055, unless earlier redeemed or purchased by the Company.
Subordinated Debentures
The Company, through a subsidiary, is the issuer of junior subordinated debentures (the “Subordinated Debentures”) relating to an issuance of trust preferred securities. The Subordinated Debentures require interest-only payments to be made on a quarterly basis, with principal due at maturity. The Subordinated Debentures’ principal amounts of $41,238 and $30,930 mature on 2035 and 2037, respectively, and bear interest at an annual rate equal to LIBOR plus 3.40% and LIBOR plus 4.25%, respectively. The Subordinated Debentures are redeemable by the Company at a redemption price equal to 100% of their principal amount.
NATIONAL GENERAL HOLDINGS CORP.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands, Except Shares and Per Share Data)
Credit Agreement
In 2019, the Company refinanced its existing credit agreement and entered into a new credit agreement (the “2019 Credit Agreement”), with JPMorgan Chase Bank, N.A., as Administrative Agent, KeyBank National Association and Fifth Third Bank, as Co-Syndication Agents, and the various lending institutions party thereto. The 2019 Credit Agreement is currently a $340,000 base revolving credit facility with a letter of credit sublimit of $150,000 and an expansion feature of up to $50,000. Borrowings under the 2019 Credit Agreement bear interest at either the Alternate Base Rate (“ABR”) or the LIBOR rate. ABR borrowings under the 2019 Credit Agreement will bear interest at the greatest of (a) the prime rate in effect on such day, (b) the federal funds effective rate on such day plus 0.5 percent or (c) the adjusted LIBOR rate for a one-month interest period on such day plus 1 percent. Eurodollar borrowings under the 2019 Credit Agreement will bear interest at the adjusted LIBOR rate plus the Eurodollar spread for the interest period in effect. Fees payable by the Company under the 2019 Credit Agreement include a letter of credit participation fee, a letter of credit fronting fee with respect to each letter of credit (0.125%) and a commitment fee on the available commitments of the lenders (a range of 0.175% to 0.25% based on the Company’s consolidated leverage ratio; and as of September 30, 2020, the rate was 0.225%). The 2019 Credit Agreement has a maturity date of February 25, 2023.
Maturities of the Company’s debt for the years subsequent to September 30, 2020, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020 (remaining three months)
|
|
2021
|
|
2022
|
|
2023
|
|
2024
|
|
2025 and thereafter
|
|
Total
|
6.75% Notes
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
350,000
|
|
|
$
|
—
|
|
|
$
|
350,000
|
|
7.625% Notes
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
100,000
|
|
|
100,000
|
|
Subordinated Debentures I
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
41,238
|
|
|
41,238
|
|
Subordinated Debentures II
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
30,930
|
|
|
30,930
|
|
2019 Credit Agreement
|
—
|
|
|
—
|
|
|
—
|
|
|
140,000
|
|
|
—
|
|
|
—
|
|
|
140,000
|
|
Finance lease liabilities
|
1,665
|
|
|
5,962
|
|
|
3,796
|
|
|
2,349
|
|
|
1,402
|
|
|
2,959
|
|
|
18,133
|
|
Other
|
1,620
|
|
|
2,943
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
4,563
|
|
Total principal amount of debt
|
$
|
3,285
|
|
|
$
|
8,905
|
|
|
$
|
3,796
|
|
|
$
|
142,349
|
|
|
$
|
351,402
|
|
|
$
|
175,127
|
|
|
$
|
684,864
|
|
Unamortized debt issuance costs and unamortized discount
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,428)
|
|
Carrying amount of debt
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
679,436
|
|
Covenants and Compliance
The indenture relating to the 6.75% Notes and 7.625% Notes contains customary covenants, such as reporting of annual and quarterly financial results, and restrictions on certain mergers and consolidations, as well as covenants relating to the incurrence of debt if the Company’s consolidated leverage ratio would exceed 0.35 to 1.00, a limitation on liens, a limitation on the disposition of stock of certain of the Company’s subsidiaries and a limitation on transactions with certain of the Company’s affiliates.
The 2019 Credit Agreement contains certain restrictive covenants customary for facilities of this type (subject to negotiated exceptions and baskets), including restrictions on indebtedness, liens, acquisitions and investments, restricted payments and dispositions. There are also financial covenants that require the Company to maintain a minimum consolidated net worth, a maximum consolidated leverage ratio, a minimum risk-based capital and a minimum rating.
NATIONAL GENERAL HOLDINGS CORP.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands, Except Shares and Per Share Data)
The 2019 Credit Agreement also provides for customary events of default, with grace periods where customary, including failure to pay principal when due, failure to pay interest or fees within three business days after becoming due, failure to comply with covenants, breaches of representations and warranties, default under certain other indebtedness, certain insolvency or receivership events affecting the Company and its subsidiaries, the occurrence of certain material judgments, or a change in control of the Company. Upon the occurrence and during the continuation of an event of default, the administrative agent, upon the request of the requisite percentage of the lenders, may terminate the obligations of the lenders to make loans and to issue letters of credit under the 2019 Credit Agreement, declare the Company’s obligations under the 2019 Credit Agreement to become immediately due and payable and/or exercise any and all remedies and other rights under the 2019 Credit Agreement.
As of September 30, 2020, the Company was in compliance with the covenants contained in the Company’s debt agreements.
10. Contingencies
Litigation
The Company is routinely involved in legal proceedings arising in the ordinary course of business, in particular in connection with claims adjudication with respect to its policies. Management believes it has recorded adequate reserves for these liabilities and that there is no individual case pending that is likely to have a material adverse effect on our financial condition or results of operations.
On July 25, 2019, the City of North Miami Beach Police Officers’ and Firefighters’ Retirement Plan filed a complaint in the U.S. District Court for the Central District of California against the Company and certain of its officers. On November 19, 2019, the U.S. District Court for the Central District of California granted the Company’s Motion to Transfer the case to the Southern District of New York. On January 10, 2020, lead plaintiffs Town of Davie Police Officers Retirement System and Massachusetts Laborers’ Pension Fund filed an amended Complaint asserting claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, as amended, and Rule 10b-5 promulgated thereunder based on allegedly false and misleading statements made by the Company in its SEC filings in relationship to the Company’s involvement in the historical and no longer existing Wells Fargo collateral protection insurance program on behalf of a purported class of individuals and entities who purchased or otherwise acquired shares of the Company’s common stock between July 15, 2015, and August 9, 2017. The amended complaint seeks damages in an amount to be proven at trial. The Company filed a Motion to Dismiss the amended complaint on March 10, 2020. Management believes that the claims set forth in the amended complaint are unfounded and without merit and intends to vigorously contest them. The Company notes, however, that in light of the inherent uncertainty in legal proceedings, the Company can give no assurance as to the ultimate resolution of the matter, and an estimate of the possible loss or range of loss, if any, cannot be made at this time.
11. Income Taxes
The Company files a consolidated Federal income tax return. The Reciprocal Exchanges are not included in the Company’s consolidated tax return as the Company does not have an ownership interest in the Reciprocal Exchanges, and they are not a part of the consolidated tax sharing agreement among the Company and its subsidiaries.
The Company uses the estimated annual effective tax rate method. Certain items, including those deemed to be unusual, infrequent or that cannot be reliably estimated, are excluded from the estimated annual effective tax rate. In these cases, the actual tax expense or benefit is reported in the same period as the related item. Certain tax effects are also not reflected in the estimated annual effective tax rate, primarily certain changes in the realizability of deferred tax assets and uncertain tax positions.
NATIONAL GENERAL HOLDINGS CORP.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands, Except Shares and Per Share Data)
The Company’s consolidated effective tax rate decreased to 19.0% for the three months ended September 30, 2020, from 21.8% for the three months ended September 30, 2019. The Company’s consolidated effective tax rate decreased to 21.3% for the nine months ended September 30, 2020, from 21.6% for the nine months ended September 30, 2019.
All tax liabilities are payable to the Internal Revenue Service (“IRS”) and various state and local taxing agencies. The Company’s subsidiaries are currently under audit by the IRS for the years ended December 31, 2016, 2017 and 2018, and open to audit years thereafter for federal tax purposes. For state and local tax purposes, the Company is open to audit for tax years ended December 31, 2016, and forward, depending on jurisdiction.
On March 27, 2020, the U.S. enacted the Coronavirus Aid, Relief and Economic Security Act (the “CARES” Act) to mitigate the economic impacts of COVID-19. The Company believes that the provisions of the CARES Act will not have a material impact on its U.S. federal tax liabilities.
12. Stockholders’ Equity
Preferred Stock
The Company has four separate series (Series A through D) of preferred stock outstanding. Two of these series (Series B and C) were issued in offerings using depositary shares. Dividends on the Series A, B and C preferred stock are payable on the liquidation preference amount, on a non-cumulative basis, when, as and if declared by the Company’s Board of Directors, quarterly in arrears on the 15th day of January, April, July and October of each year. Dividends on the Series D preferred stock are payable on the liquidation preference amount, on a non-cumulative basis, when, as and if declared by the Company’s Board of Directors, semi-annually in arrears on the 15th day of January and July of each year, commencing on January 15, 2019. On or after July 15, 2023, (or in the event of a fundamental change of the Company, at any time), the Series D preferred stock may be converted at the holder’s option into shares of the Company’s common stock.
The following table summarizes the Company’s preferred stock issued and outstanding as of September 30, 2020, and December 31, 2019.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series
|
|
Dividend rate
per year
|
|
Shares of preferred stock issued and outstanding
|
|
Depositary shares issued and outstanding
|
|
Liquidation preference per share
|
|
Aggregate liquidation preference
|
A
|
|
7.50
|
%
|
|
2,200,000
|
|
|
—
|
|
|
$
|
25
|
|
|
$
|
55,000
|
|
B
|
|
7.50
|
%
|
|
165,000
|
|
|
6,600,000
|
|
|
$
|
1,000
|
|
|
$
|
165,000
|
|
C
|
|
7.50
|
%
|
|
200,000
|
|
|
8,000,000
|
|
|
$
|
1,000
|
|
|
$
|
200,000
|
|
D
|
|
Fixed/ Floating(1)
|
|
120
|
|
|
—
|
|
|
$
|
250,000
|
|
|
$
|
30,000
|
|
|
|
|
|
2,565,120
|
|
|
|
|
|
|
$
|
450,000
|
|
(1) Dividend rate is fixed at 7.00% prior to July 15, 2023, and floating at six-month LIBOR plus 5.4941% thereafter.
NATIONAL GENERAL HOLDINGS CORP.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands, Except Shares and Per Share Data)
Common and Preferred Stock Dividends
Dividends are payable on the Company’s common and preferred stock only when, as and if declared by the Company’s Board of Directors in its discretion, from funds legally available for this purpose. The following tables present the class of stock, declaration date and dividends paid per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class of Stock
|
|
Declaration Date
|
|
Dividend
Per Share
|
|
Dividend Per Depositary Share
|
Common stock
|
|
July 31, 2020
|
|
$
|
0.05
|
|
|
|
Common stock
|
|
April 29, 2020
|
|
$
|
0.05
|
|
|
|
Common stock
|
|
February 20, 2020
|
|
$
|
0.05
|
|
|
|
|
|
|
|
|
|
|
Preferred stock Series A
|
|
July 31, 2020
|
|
$
|
0.46875
|
|
|
|
Preferred stock Series A
|
|
April 29, 2020
|
|
$
|
0.46875
|
|
|
|
Preferred stock Series A
|
|
February 20, 2020
|
|
$
|
0.46875
|
|
|
|
|
|
|
|
|
|
|
Preferred stock Series B and Series C
|
|
July 31, 2020
|
|
$
|
18.75
|
|
|
$
|
0.46875
|
|
Preferred stock Series B and Series C
|
|
April 29, 2020
|
|
$
|
18.75
|
|
|
$
|
0.46875
|
|
Preferred stock Series B and Series C
|
|
February 20, 2020
|
|
$
|
18.75
|
|
|
$
|
0.46875
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock Series D
|
|
April 29, 2020
|
|
$
|
8,750.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class of Stock
|
|
Declaration Date
|
|
Dividend
Per Share
|
|
Dividend Per Depositary Share
|
Common stock
|
|
July 29, 2019
|
|
$
|
0.05
|
|
|
|
Common stock
|
|
May 6, 2019
|
|
$
|
0.04
|
|
|
|
Common stock
|
|
February 25, 2019
|
|
$
|
0.04
|
|
|
|
|
|
|
|
|
|
|
Preferred stock Series A
|
|
July 29, 2019
|
|
$
|
0.46875
|
|
|
|
Preferred stock Series A
|
|
May 6, 2019
|
|
$
|
0.46875
|
|
|
|
Preferred stock Series A
|
|
February 25, 2019
|
|
$
|
0.46875
|
|
|
|
|
|
|
|
|
|
|
Preferred stock Series B and Series C
|
|
July 29, 2019
|
|
$
|
18.75
|
|
|
$
|
0.46875
|
|
Preferred stock Series B and Series C
|
|
May 6, 2019
|
|
$
|
18.75
|
|
|
$
|
0.46875
|
|
Preferred stock Series B and Series C
|
|
February 25, 2019
|
|
$
|
18.75
|
|
|
$
|
0.46875
|
|
|
|
|
|
|
|
|
Preferred stock Series D
|
|
May 6, 2019
|
|
$
|
8,750.00
|
|
|
|
Share Repurchase Program
On April 29, 2020, the Board of Directors authorized and approved a share repurchase program with a 12-month term for up to $50,000 aggregate purchase price of the Company’s outstanding common shares. For the three and nine months ended September 30, 2020, the Company purchased 0 and 459,083 common shares with a cost of $0 and $8,482, respectively. The purchases were made in the open market in accordance with applicable federal securities laws, including Rule 10b-18 and Rule 10b5-1 of the Securities Exchange Act of 1934. Pursuant to the terms of the Merger Agreement with Allstate signed July 7, 2020, the Company is prohibited from making any further common share repurchases prior to the close of the Merger.
NATIONAL GENERAL HOLDINGS CORP.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands, Except Shares and Per Share Data)
Shares Roll forward
The following table presents a roll forward of outstanding common shares.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
Common stock:
|
|
|
|
|
|
|
|
Balance, beginning of the period
|
113,856,628
|
|
|
113,215,632
|
|
|
113,368,811
|
|
|
112,940,595
|
|
Shares issued under employee stock plans and exercises of stock options
|
82,196
|
|
|
117,796
|
|
|
744,161
|
|
|
518,284
|
|
Shares withheld related to net share settlement
|
(4,565)
|
|
|
(20,386)
|
|
|
(178,713)
|
|
|
(145,837)
|
|
Balance, end of the period
|
113,934,259
|
|
|
113,313,042
|
|
|
113,934,259
|
|
|
113,313,042
|
|
Treasury stock:
|
|
|
|
|
|
|
|
Balance, beginning of the period
|
(459,083)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Repurchases of common stock
|
—
|
|
|
—
|
|
|
(459,083)
|
|
|
—
|
|
Balance, end of the period
|
(459,083)
|
|
|
—
|
|
|
(459,083)
|
|
|
—
|
|
Shares outstanding at end of the period
|
113,475,176
|
|
|
113,313,042
|
|
|
113,475,176
|
|
|
113,313,042
|
|
13. Stock-Based Compensation
In 2019, the Company’s stockholders approved the 2019 Omnibus Incentive Plan (the “2019 Plan”). The 2019 Plan authorizes up to 2.5 million shares of the Company’s stock for awards of stock options, stock appreciation rights, restricted stock, restricted stock units (“RSUs”), performance share units, performance units, cash-based awards or other stock-based awards. The number of shares of common stock for which awards may be issued may not exceed 2.5 million shares, subject to the authority of the Company’s Board of Directors to adjust this amount in the event of a consolidation, reorganization, stock dividend, recapitalization or similar transaction affecting the Company’s common stock. The 2019 Plan serves as a successor of the Company’s prior equity incentive plans. Outstanding awards under the prior plans continue to be outstanding and subject to their terms and conditions. As of September 30, 2020, approximately 1.9 million shares of the Company’s common stock remained available for grants under the 2019 Plan.
Stock Options
A summary of the stock option awards granted under the prior plan is shown below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares Subject to Options Outstanding
|
Nine Months Ended September 30, 2020
|
|
Number of Shares
|
|
Weighted-
Average
Exercise Price
|
|
Weighted-Average Remaining Contractual Term (in years)
|
|
Aggregate
Intrinsic
Value (1)
|
Outstanding at beginning of the period
|
|
3,025,587
|
|
|
$
|
9.83
|
|
|
|
|
|
Exercised
|
|
(286,443)
|
|
|
6.88
|
|
|
|
|
|
Outstanding and exercisable at end of the period
|
|
2,739,144
|
|
|
$
|
10.14
|
|
|
2.6
|
|
$
|
64,672
|
|
(1) The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying stock option awards and the closing price of the Company’s common stock of $33.75, as reported on the Nasdaq Global Market on September 30, 2020.
NATIONAL GENERAL HOLDINGS CORP.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands, Except Shares and Per Share Data)
No options were granted, forfeited or expired during the nine months ended September 30, 2020. The total intrinsic value of the options exercised for the three months ended September 30, 2020, and 2019, was $1,121 and $1,035, respectively. The total intrinsic value of the options exercised for the nine months ended September 30, 2020, and 2019, was $4,880 and $2,310, respectively. The total fair value of stock options vested for the three months ended September 30, 2020, and 2019, was $451 and $76, respectively. The total fair value of stock options vested for the nine months ended September 30, 2020, and 2019, was $784 and $175, respectively.
Restricted Stock Units
A summary of the RSUs is shown below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RSUs
|
Nine Months Ended September 30, 2020
|
|
Number of RSUs
|
|
Weighted-Average Grant Date Fair Value
|
Non-vested at beginning of the period
|
|
1,033,631
|
|
|
$
|
23.98
|
|
Granted
|
|
561,497
|
|
|
21.46
|
|
Vested
|
|
(457,718)
|
|
|
23.70
|
|
|
|
|
|
|
Non-vested at end of the period
|
|
1,137,410
|
|
|
$
|
22.85
|
|
The weighted-average grant date fair value of RSUs granted for the nine months ended September 30, 2020, and 2019, was $21.46 and $25.58, respectively. The total fair value of the RSUs vested for the three months ended September 30, 2020, and 2019, was $395 and $1,513, respectively. The total fair value of the RSUs vested for the nine months ended September 30, 2020, and 2019, was $10,850 and $8,932, respectively.
Stock-Based Compensation Expense
Stock-based compensation expense, included in general and administrative expenses, for all stock-based compensation plans was $3,158 and $2,785 for the three months ended September 30, 2020, and 2019, respectively, and $9,336 and $8,277 for the nine months ended September 30, 2020, and 2019, respectively.
As of September 30, 2020, the Company had approximately $18,920 of unrecognized stock-based compensation expense related to RSUs awards. This unrecognized stock-based compensation expense is expected to be recognized over a weighted-average period of approximately 1.4 years based on vesting under the award service conditions.
NATIONAL GENERAL HOLDINGS CORP.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands, Except Shares and Per Share Data)
14. Earnings Per Share
The following is a summary of the elements used in calculating basic and diluted earnings per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
Numerator:
|
|
|
|
|
|
|
|
Net income attributable to NGHC
|
$
|
109,969
|
|
|
$
|
71,154
|
|
|
$
|
377,302
|
|
|
$
|
240,788
|
|
Preferred stock dividends - nonconvertible
|
(7,875)
|
|
|
(7,875)
|
|
|
(23,625)
|
|
|
(23,625)
|
|
Preferred stock dividends - convertible
|
—
|
|
|
—
|
|
|
(1,050)
|
|
|
(1,050)
|
|
Numerator for basic EPS
|
102,094
|
|
|
63,279
|
|
|
352,627
|
|
|
216,113
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
Preferred stock dividends - convertible
|
—
|
|
|
—
|
|
|
1,050
|
|
|
1,050
|
|
Numerator for diluted EPS - after assumed conversions
|
$
|
102,094
|
|
|
$
|
63,279
|
|
|
$
|
353,677
|
|
|
$
|
217,163
|
|
Denominator:
|
|
|
|
|
|
|
|
Denominator for basic EPS - weighted-average shares outstanding
|
113,418,411
|
|
|
113,263,367
|
|
|
113,505,785
|
|
|
113,153,121
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
Employee stock options
|
1,924,602
|
|
|
1,823,012
|
|
|
1,654,114
|
|
|
1,881,295
|
|
RSUs
|
533,888
|
|
|
262,637
|
|
|
282,480
|
|
|
263,635
|
|
Convertible preferred stock
|
789,473
|
|
|
789,473
|
|
|
789,473
|
|
|
789,473
|
|
Dilutive potential common shares
|
3,247,963
|
|
|
2,875,122
|
|
|
2,726,067
|
|
|
2,934,403
|
|
Denominator for diluted EPS - weighted-average shares outstanding and assumed conversions
|
116,666,374
|
|
|
116,138,489
|
|
|
116,231,852
|
|
|
116,087,524
|
|
EPS attributable to NGHC common stockholders:
|
Basic EPS
|
$
|
0.90
|
|
|
$
|
0.56
|
|
|
$
|
3.11
|
|
|
$
|
1.91
|
|
Diluted EPS
|
$
|
0.88
|
|
|
$
|
0.54
|
|
|
$
|
3.04
|
|
|
$
|
1.87
|
|
NATIONAL GENERAL HOLDINGS CORP.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands, Except Shares and Per Share Data)
15. Related Party Transactions
The significant shareholder of the Company has an ownership interest in AmTrust and ACP Re. The Company is a party to the following transactions with these related entities:
Equity Method Investments
The Company has an ownership interest in an LSC Entity, limited liability companies and limited partnerships with related parties. See Note 4, “Investments - Equity Method Investments - Related Parties” for additional information.
Agreements with ACP Re
Credit Agreement
The Company is party to a credit agreement (the “ACP Re Credit Agreement”) by and among AmTrust, as administrative agent, ACP Re Holdings, LLC, a Delaware limited liability company owned by a related party trust, the Michael Karfunkel Family 2005 Trust (the “Trust”), as borrower, and AmTrust and the Company, as lenders of $250,000 ($125,000 each lender). The amounts borrowed are secured by equity interests, cash and, other investments held by ACP Re Holdings, LLC in an amount equal to 115% of the outstanding loan balance. The maturity date of the loan is September 20, 2036. The interest rate on the outstanding principal balance is a fixed annual rate of 3.7%, provided that up to 1.2% thereof may be paid in kind. The Trust is required to cause ACP Re Holdings, LLC to maintain assets having a value greater than 115% of the outstanding loan balance, and if there is a shortfall, the Trust will make a contribution to ACP Re Holdings, LLC of assets having a market value of at least the shortfall (the “Maintenance Covenant”). Commencing on September 20, 2026, and for each year thereafter, two percent of the then outstanding principal balance of the loan (inclusive of any amounts previously paid in kind) is due and payable. A change of control of greater than 50% and an uncured breach of the Maintenance Covenant are included as events of default.
As of September 30, 2020, and December 31, 2019, the Company had a receivable principal amount related to the ACP Re Credit Agreement of $130,784 and $129,229, respectively. The Company recorded interest income of $1,210 and $1,195 for the three months ended September 30, 2020, and 2019, respectively, and $3,615 and $3,571 for the nine months ended September 30, 2020, and 2019, respectively, under the ACP Re Credit Agreement. Management determined no impairment reserve was needed for the carrying value of the loan at September 30, 2020, and December 31, 2019, based on the collateral levels maintained.
Other Related Party Transactions
Lease Agreements
The Company leases office space at 59 Maiden Lane in New York, New York from 59 Maiden Lane Associates LLC, an entity that is wholly-owned by the Karfunkel family. The lease term is through 2022. The Company paid $207 in rent for both the three months ended September 30, 2020, and 2019, respectively, and $622 in rent for both the nine months ended September 30, 2020, and 2019, respectively.
The Company leases office space at 30 North LaSalle Street, Chicago, Illinois from 30 North LaSalle Street Partners LLC, an entity that is wholly-owned by the Karfunkel family. The lease term is through 2025. The Company paid $111 and $78 in rent for the three months ended September 30, 2020, and 2019, respectively, and $329 and $231 in rent for the nine months ended September 30, 2020, and 2019, respectively.
NATIONAL GENERAL HOLDINGS CORP.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands, Except Shares and Per Share Data)
16. Segment Information
The Company currently operates two business segments, “Property and Casualty” and “Accident and Health.” The “Corporate and Other” column represents the activities of the holding company, as well as income from the Company’s investment portfolio. The Company evaluates segment profits attributable to the performance of activities within the segment separately from the results of the Company’s investment portfolio. Other operating expenses allocated to the segments are called “General and administrative expenses” which are allocated on an actual basis except corporate salaries and benefits where management’s judgment is applied. In determining total assets by segment, the Company identifies those assets that are attributable to a particular segment such as premiums receivable, deferred acquisition costs, reinsurance recoverable, prepaid reinsurance premiums, intangible assets and goodwill, while the remaining assets are allocated to Corporate and Other.
The Property and Casualty segment, which includes the Reciprocal Exchanges and the management companies, reports the management fees earned by the Company from the Reciprocal Exchanges for underwriting, investment management and other services as service and fee income. The effects of these transactions between the Company and the Reciprocal Exchanges are eliminated in consolidation to derive consolidated net income. However, the management fee income is reported in net income attributable to NGHC and included in the basic and diluted earnings per share.
The following tables summarize the results of operations of the operating segments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, 2020
|
|
Property
and
Casualty
|
|
Accident
and
Health
|
|
Corporate
and
Other
|
|
Total
|
Underwriting revenues:
|
|
|
|
|
|
|
|
Gross premium written
|
$
|
1,277,190
|
|
|
$
|
195,937
|
|
|
$
|
—
|
|
|
$
|
1,473,127
|
|
Ceded premiums
|
(186,264)
|
|
|
(21,607)
|
|
|
—
|
|
|
(207,871)
|
|
Net premium written
|
1,090,926
|
|
|
174,330
|
|
|
—
|
|
|
1,265,256
|
|
Change in unearned premium
|
(87,757)
|
|
|
1,074
|
|
|
—
|
|
|
(86,683)
|
|
Net earned premium
|
1,003,169
|
|
|
175,404
|
|
|
—
|
|
|
1,178,573
|
|
Ceding commission income
|
30,519
|
|
|
205
|
|
|
—
|
|
|
30,724
|
|
Service and fee income
|
96,372
|
|
|
88,597
|
|
|
—
|
|
|
184,969
|
|
Total underwriting revenues
|
1,130,060
|
|
|
264,206
|
|
|
—
|
|
|
1,394,266
|
|
Underwriting expenses:
|
|
|
|
|
|
|
|
Loss and loss adjustment expense
|
696,216
|
|
|
77,948
|
|
|
—
|
|
|
774,164
|
|
Acquisition costs and other underwriting expenses
|
189,367
|
|
|
79,278
|
|
|
—
|
|
|
268,645
|
|
General and administrative expenses
|
182,146
|
|
|
58,892
|
|
|
3,573
|
|
|
244,611
|
|
Total underwriting expenses
|
1,067,729
|
|
|
216,118
|
|
|
3,573
|
|
|
1,287,420
|
|
Underwriting income
|
62,331
|
|
|
48,088
|
|
|
(3,573)
|
|
|
106,846
|
|
Net investment income
|
—
|
|
|
—
|
|
|
28,904
|
|
|
28,904
|
|
Net gain on investments
|
—
|
|
|
—
|
|
|
19,839
|
|
|
19,839
|
|
Interest expense
|
—
|
|
|
—
|
|
|
(11,292)
|
|
|
(11,292)
|
|
Provision for income taxes
|
—
|
|
|
—
|
|
|
(27,428)
|
|
|
(27,428)
|
|
Net (income) attributable to noncontrolling interest
|
—
|
|
|
—
|
|
|
(6,900)
|
|
|
(6,900)
|
|
Net income attributable to NGHC
|
$
|
62,331
|
|
|
$
|
48,088
|
|
|
$
|
(450)
|
|
|
$
|
109,969
|
|
NATIONAL GENERAL HOLDINGS CORP.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands, Except Shares and Per Share Data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, 2019
|
|
Property
and
Casualty
|
|
Accident
and
Health
|
|
Corporate
and
Other
|
|
Total
|
Underwriting revenues:
|
|
|
|
|
|
|
|
Gross premium written
|
$
|
1,272,602
|
|
|
$
|
162,555
|
|
|
$
|
—
|
|
|
$
|
1,435,157
|
|
Ceded premiums
|
(385,347)
|
|
|
(15,206)
|
|
|
—
|
|
|
(400,553)
|
|
Net premium written
|
887,255
|
|
|
147,349
|
|
|
—
|
|
|
1,034,604
|
|
Change in unearned premium
|
(2,520)
|
|
|
21,554
|
|
|
—
|
|
|
19,034
|
|
Net earned premium
|
884,735
|
|
|
168,903
|
|
|
—
|
|
|
1,053,638
|
|
Ceding commission income
|
55,326
|
|
|
2,261
|
|
|
—
|
|
|
57,587
|
|
Service and fee income
|
97,890
|
|
|
63,736
|
|
|
—
|
|
|
161,626
|
|
Total underwriting revenues
|
1,037,951
|
|
|
234,900
|
|
|
—
|
|
|
1,272,851
|
|
Underwriting expenses:
|
|
|
|
|
|
|
|
Loss and loss adjustment expense
|
674,722
|
|
|
70,612
|
|
|
—
|
|
|
745,334
|
|
Acquisition costs and other underwriting expenses
|
161,876
|
|
|
47,214
|
|
|
—
|
|
|
209,090
|
|
General and administrative expenses
|
195,567
|
|
|
68,297
|
|
|
—
|
|
|
263,864
|
|
Total underwriting expenses
|
1,032,165
|
|
|
186,123
|
|
|
—
|
|
|
1,218,288
|
|
Underwriting income
|
5,786
|
|
|
48,777
|
|
|
—
|
|
|
54,563
|
|
Net investment income
|
—
|
|
|
—
|
|
|
33,740
|
|
|
33,740
|
|
Net gain on investments
|
—
|
|
|
—
|
|
|
1,581
|
|
|
1,581
|
|
Interest expense
|
—
|
|
|
—
|
|
|
(12,898)
|
|
|
(12,898)
|
|
Provision for income taxes
|
—
|
|
|
—
|
|
|
(16,747)
|
|
|
(16,747)
|
|
Net loss attributable to noncontrolling interest
|
—
|
|
|
—
|
|
|
10,915
|
|
|
10,915
|
|
Net income attributable to NGHC
|
$
|
5,786
|
|
|
$
|
48,777
|
|
|
$
|
16,591
|
|
|
$
|
71,154
|
|
NATIONAL GENERAL HOLDINGS CORP.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands, Except Shares and Per Share Data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2020
|
|
Property
and
Casualty
|
|
Accident
and
Health
|
|
Corporate
and
Other
|
|
Total
|
Underwriting revenues:
|
|
|
|
|
|
|
|
Gross premium written
|
$
|
3,718,663
|
|
|
$
|
572,619
|
|
|
$
|
—
|
|
|
$
|
4,291,282
|
|
Ceded premiums
|
(739,654)
|
|
|
(61,861)
|
|
|
—
|
|
|
(801,515)
|
|
Net premium written
|
2,979,009
|
|
|
510,758
|
|
|
—
|
|
|
3,489,767
|
|
Change in unearned premium
|
(168,570)
|
|
|
(1,851)
|
|
|
—
|
|
|
(170,421)
|
|
Net earned premium
|
2,810,439
|
|
|
508,907
|
|
|
—
|
|
|
3,319,346
|
|
Ceding commission income
|
126,433
|
|
|
1,236
|
|
|
—
|
|
|
127,669
|
|
Service and fee income
|
295,813
|
|
|
249,189
|
|
|
—
|
|
|
545,002
|
|
Total underwriting revenues
|
3,232,685
|
|
|
759,332
|
|
|
—
|
|
|
3,992,017
|
|
Underwriting expenses:
|
|
|
|
|
|
|
|
Loss and loss adjustment expense
|
1,840,404
|
|
|
226,204
|
|
|
—
|
|
|
2,066,608
|
|
Acquisition costs and other underwriting expenses
|
511,622
|
|
|
214,643
|
|
|
—
|
|
|
726,265
|
|
General and administrative expenses
|
594,381
|
|
|
176,635
|
|
|
3,573
|
|
|
774,589
|
|
Total underwriting expenses
|
2,946,407
|
|
|
617,482
|
|
|
3,573
|
|
|
3,567,462
|
|
Underwriting income
|
286,278
|
|
|
141,850
|
|
|
(3,573)
|
|
|
424,555
|
|
Net investment income
|
—
|
|
|
—
|
|
|
90,322
|
|
|
90,322
|
|
Net gain on investments
|
—
|
|
|
—
|
|
|
18,136
|
|
|
18,136
|
|
Interest expense
|
—
|
|
|
—
|
|
|
(34,851)
|
|
|
(34,851)
|
|
Provision for income taxes
|
—
|
|
|
—
|
|
|
(106,107)
|
|
|
(106,107)
|
|
Net (income) attributable to noncontrolling interest
|
—
|
|
|
—
|
|
|
(14,753)
|
|
|
(14,753)
|
|
Net income attributable to NGHC
|
$
|
286,278
|
|
|
$
|
141,850
|
|
|
$
|
(50,826)
|
|
|
$
|
377,302
|
|
NATIONAL GENERAL HOLDINGS CORP.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands, Except Shares and Per Share Data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2019
|
|
Property
and
Casualty
|
|
Accident
and
Health
|
|
Corporate
and
Other
|
|
Total
|
Underwriting revenues:
|
|
|
|
|
|
|
|
Gross premium written
|
$
|
3,666,072
|
|
|
$
|
592,771
|
|
|
$
|
—
|
|
|
$
|
4,258,843
|
|
Ceded premiums
|
(971,643)
|
|
|
(92,534)
|
|
|
—
|
|
|
(1,064,177)
|
|
Net premium written
|
2,694,429
|
|
|
500,237
|
|
|
—
|
|
|
3,194,666
|
|
Change in unearned premium
|
(142,515)
|
|
|
(3,705)
|
|
|
—
|
|
|
(146,220)
|
|
Net earned premium
|
2,551,914
|
|
|
496,532
|
|
|
—
|
|
|
3,048,446
|
|
Ceding commission income
|
178,533
|
|
|
8,780
|
|
|
—
|
|
|
187,313
|
|
Service and fee income
|
298,356
|
|
|
177,685
|
|
|
—
|
|
|
476,041
|
|
Total underwriting revenues
|
3,028,803
|
|
|
682,997
|
|
|
—
|
|
|
3,711,800
|
|
Underwriting expenses:
|
|
|
|
|
|
|
|
Loss and loss adjustment expense
|
1,870,993
|
|
|
241,685
|
|
|
—
|
|
|
2,112,678
|
|
Acquisition costs and other underwriting expenses
|
462,071
|
|
|
153,063
|
|
|
—
|
|
|
615,134
|
|
General and administrative expenses
|
571,498
|
|
|
188,227
|
|
|
—
|
|
|
759,725
|
|
Total underwriting expenses
|
2,904,562
|
|
|
582,975
|
|
|
—
|
|
|
3,487,537
|
|
Underwriting income
|
124,241
|
|
|
100,022
|
|
|
—
|
|
|
224,263
|
|
Net investment income
|
—
|
|
|
—
|
|
|
102,316
|
|
|
102,316
|
|
Net loss on investments
|
—
|
|
|
—
|
|
|
(3,627)
|
|
|
(3,627)
|
|
Interest expense
|
—
|
|
|
—
|
|
|
(38,822)
|
|
|
(38,822)
|
|
Provision for income taxes
|
—
|
|
|
—
|
|
|
(61,494)
|
|
|
(61,494)
|
|
Net loss attributable to noncontrolling interest
|
—
|
|
|
—
|
|
|
18,152
|
|
|
18,152
|
|
Net income attributable to NGHC
|
$
|
124,241
|
|
|
$
|
100,022
|
|
|
$
|
16,525
|
|
|
$
|
240,788
|
|
The following tables summarize the financial position of the operating segments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2020
|
|
|
Property
and
Casualty
|
|
Accident
and
Health
|
|
Corporate
and
Other
|
|
Total
|
Premiums and other receivables, net
|
|
$
|
1,379,512
|
|
|
$
|
197,487
|
|
|
$
|
21,317
|
|
|
$
|
1,598,316
|
|
Deferred acquisition costs
|
|
257,294
|
|
|
27,669
|
|
|
—
|
|
|
284,963
|
|
Reinsurance recoverable, net
|
|
1,260,791
|
|
|
26,061
|
|
|
—
|
|
|
1,286,852
|
|
Prepaid reinsurance premiums
|
|
458,578
|
|
|
382
|
|
|
—
|
|
|
458,960
|
|
Goodwill and Intangible assets, net
|
|
420,779
|
|
|
104,523
|
|
|
—
|
|
|
525,302
|
|
Prepaid and other assets
|
|
49,533
|
|
|
12,257
|
|
|
5,100
|
|
|
66,890
|
|
Corporate and other assets
|
|
—
|
|
|
—
|
|
|
6,002,973
|
|
|
6,002,973
|
|
Total assets
|
|
$
|
3,826,487
|
|
|
$
|
368,379
|
|
|
$
|
6,029,390
|
|
|
$
|
10,224,256
|
|
NATIONAL GENERAL HOLDINGS CORP.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands, Except Shares and Per Share Data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
|
Property
and
Casualty
|
|
Accident
and
Health
|
|
Corporate
and
Other
|
|
Total
|
Premiums and other receivables, net
|
|
$
|
1,292,813
|
|
|
$
|
131,877
|
|
|
$
|
4,258
|
|
|
$
|
1,428,948
|
|
Deferred acquisition costs
|
|
239,293
|
|
|
24,230
|
|
|
—
|
|
|
263,523
|
|
Reinsurance recoverable, net
|
|
1,377,284
|
|
|
17,024
|
|
|
—
|
|
|
1,394,308
|
|
Prepaid reinsurance premiums
|
|
575,712
|
|
|
35
|
|
|
—
|
|
|
575,747
|
|
Goodwill and Intangible assets, net
|
|
436,724
|
|
|
108,427
|
|
|
—
|
|
|
545,151
|
|
Prepaid and other assets
|
|
56,960
|
|
|
32,852
|
|
|
4,830
|
|
|
94,642
|
|
Corporate and other assets
|
|
—
|
|
|
—
|
|
|
5,454,215
|
|
|
5,454,215
|
|
Total assets
|
|
$
|
3,978,786
|
|
|
$
|
314,445
|
|
|
$
|
5,463,303
|
|
|
$
|
9,756,534
|
|
The following tables summarize service and fee income by source within each operating segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
|
2020
|
|
2019
|
|
|
Property
and
Casualty
|
|
Accident
and
Health
|
|
Total
|
|
Property
and
Casualty
|
|
Accident
and
Health
|
|
Total
|
Finance and processing fees
|
|
$
|
32,237
|
|
|
$
|
2,546
|
|
|
$
|
34,783
|
|
|
$
|
33,637
|
|
|
$
|
800
|
|
|
$
|
34,437
|
|
Commission revenue
|
|
11,799
|
|
|
21,836
|
|
|
33,635
|
|
|
21,333
|
|
|
16,353
|
|
|
37,686
|
|
Group health administrative fees
|
|
—
|
|
|
31,147
|
|
|
31,147
|
|
|
—
|
|
|
25,808
|
|
|
25,808
|
|
Installment fees
|
|
26,789
|
|
|
—
|
|
|
26,789
|
|
|
23,464
|
|
|
—
|
|
|
23,464
|
|
Late payment fees
|
|
8,324
|
|
|
16
|
|
|
8,340
|
|
|
9,251
|
|
|
72
|
|
|
9,323
|
|
Other service and fee income
|
|
17,223
|
|
|
33,052
|
|
|
50,275
|
|
|
10,205
|
|
|
20,703
|
|
|
30,908
|
|
Total
|
|
$
|
96,372
|
|
|
$
|
88,597
|
|
|
$
|
184,969
|
|
|
$
|
97,890
|
|
|
$
|
63,736
|
|
|
$
|
161,626
|
|
NGHC
|
|
$
|
94,744
|
|
|
$
|
88,597
|
|
|
$
|
183,341
|
|
|
$
|
96,305
|
|
|
$
|
63,736
|
|
|
$
|
160,041
|
|
Reciprocal Exchanges
|
|
1,628
|
|
|
—
|
|
|
1,628
|
|
|
1,585
|
|
|
—
|
|
|
1,585
|
|
Total
|
|
$
|
96,372
|
|
|
$
|
88,597
|
|
|
$
|
184,969
|
|
|
$
|
97,890
|
|
|
$
|
63,736
|
|
|
$
|
161,626
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30,
|
|
|
2020
|
|
2019
|
|
|
Property
and
Casualty
|
|
Accident
and
Health
|
|
Total
|
|
Property
and
Casualty
|
|
Accident
and
Health
|
|
Total
|
Commission revenue
|
|
$
|
48,466
|
|
|
$
|
75,822
|
|
|
$
|
124,288
|
|
|
$
|
68,193
|
|
|
$
|
57,097
|
|
|
$
|
125,290
|
|
Finance and processing fees
|
|
96,212
|
|
|
7,222
|
|
|
103,434
|
|
|
98,218
|
|
|
3,710
|
|
|
101,928
|
|
Group health administrative fees
|
|
—
|
|
|
91,658
|
|
|
91,658
|
|
|
—
|
|
|
73,861
|
|
|
73,861
|
|
Installment fees
|
|
78,282
|
|
|
—
|
|
|
78,282
|
|
|
72,782
|
|
|
—
|
|
|
72,782
|
|
Late payment fees
|
|
23,905
|
|
|
41
|
|
|
23,946
|
|
|
26,061
|
|
|
249
|
|
|
26,310
|
|
Other service and fee income
|
|
48,948
|
|
|
74,446
|
|
|
123,394
|
|
|
33,102
|
|
|
42,768
|
|
|
75,870
|
|
Total
|
|
$
|
295,813
|
|
|
$
|
249,189
|
|
|
$
|
545,002
|
|
|
$
|
298,356
|
|
|
$
|
177,685
|
|
|
$
|
476,041
|
|
NGHC
|
|
$
|
290,692
|
|
|
$
|
249,189
|
|
|
$
|
539,881
|
|
|
$
|
293,885
|
|
|
$
|
177,685
|
|
|
$
|
471,570
|
|
Reciprocal Exchanges
|
|
5,121
|
|
|
—
|
|
|
5,121
|
|
|
4,471
|
|
|
—
|
|
|
4,471
|
|
Total
|
|
$
|
295,813
|
|
|
$
|
249,189
|
|
|
$
|
545,002
|
|
|
$
|
298,356
|
|
|
$
|
177,685
|
|
|
$
|
476,041
|
|
NATIONAL GENERAL HOLDINGS CORP.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands, Except Shares and Per Share Data)
The following tables show an analysis of premiums and fee income by product line:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
Gross Premium Written
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
Property and Casualty
|
|
|
|
|
|
|
|
|
Personal Auto
|
|
$
|
741,306
|
|
|
$
|
705,709
|
|
|
$
|
2,148,730
|
|
|
$
|
2,083,702
|
|
Homeowners
|
|
210,721
|
|
|
201,977
|
|
|
581,185
|
|
|
544,056
|
|
RV/Packaged
|
|
59,191
|
|
|
55,631
|
|
|
170,120
|
|
|
168,796
|
|
Small Business Auto
|
|
62,159
|
|
|
76,987
|
|
|
195,628
|
|
|
246,694
|
|
Lender-placed Insurance
|
|
96,327
|
|
|
97,468
|
|
|
295,693
|
|
|
232,265
|
|
Other
|
|
9,099
|
|
|
16,563
|
|
|
38,631
|
|
|
45,577
|
|
Total Property and Casualty
|
|
1,178,803
|
|
|
1,154,335
|
|
|
3,429,987
|
|
|
3,321,090
|
|
Accident and Health
|
|
|
|
|
|
|
|
|
Group
|
|
89,852
|
|
|
73,223
|
|
|
266,857
|
|
|
213,197
|
|
Individual
|
|
106,085
|
|
|
85,728
|
|
|
305,762
|
|
|
252,719
|
|
International
|
|
—
|
|
|
3,604
|
|
|
—
|
|
|
126,855
|
|
Total Accident and Health
|
|
195,937
|
|
|
162,555
|
|
|
572,619
|
|
|
592,771
|
|
Total NGHC
|
|
$
|
1,374,740
|
|
|
$
|
1,316,890
|
|
|
$
|
4,002,606
|
|
|
$
|
3,913,861
|
|
Reciprocal Exchanges
|
|
|
|
|
|
|
|
|
Personal Auto
|
|
$
|
33,561
|
|
|
$
|
39,166
|
|
|
$
|
102,752
|
|
|
$
|
120,012
|
|
Homeowners
|
|
63,935
|
|
|
78,079
|
|
|
183,331
|
|
|
222,019
|
|
Other
|
|
891
|
|
|
1,022
|
|
|
2,593
|
|
|
2,951
|
|
Total Reciprocal Exchanges
|
|
$
|
98,387
|
|
|
$
|
118,267
|
|
|
$
|
288,676
|
|
|
$
|
344,982
|
|
Total Gross Premium Written
|
|
$
|
1,473,127
|
|
|
$
|
1,435,157
|
|
|
$
|
4,291,282
|
|
|
$
|
4,258,843
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
Net Premium Written
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
Property and Casualty
|
|
|
|
|
|
|
|
|
Personal Auto
|
|
$
|
650,889
|
|
|
$
|
560,032
|
|
|
$
|
1,886,438
|
|
|
$
|
1,730,904
|
|
Homeowners
|
|
217,960
|
|
|
82,601
|
|
|
390,760
|
|
|
276,250
|
|
RV/Packaged
|
|
57,834
|
|
|
52,283
|
|
|
165,694
|
|
|
162,047
|
|
Small Business Auto
|
|
47,556
|
|
|
56,615
|
|
|
152,584
|
|
|
196,221
|
|
Lender-placed Insurance
|
|
82,599
|
|
|
61,579
|
|
|
224,742
|
|
|
140,863
|
|
Other
|
|
4,597
|
|
|
6,860
|
|
|
16,737
|
|
|
15,684
|
|
Total Property and Casualty
|
|
1,061,435
|
|
|
819,970
|
|
|
2,836,955
|
|
|
2,521,969
|
|
Accident and Health
|
|
|
|
|
|
|
|
|
Group
|
|
70,672
|
|
|
59,001
|
|
|
209,360
|
|
|
170,911
|
|
Individual
|
|
103,658
|
|
|
85,541
|
|
|
301,398
|
|
|
252,316
|
|
International
|
|
—
|
|
|
2,807
|
|
|
—
|
|
|
77,010
|
|
Total Accident and Health
|
|
174,330
|
|
|
147,349
|
|
|
510,758
|
|
|
500,237
|
|
Total NGHC
|
|
$
|
1,235,765
|
|
|
$
|
967,319
|
|
|
$
|
3,347,713
|
|
|
$
|
3,022,206
|
|
Reciprocal Exchanges
|
|
|
|
|
|
|
|
|
Personal Auto
|
|
$
|
10,323
|
|
|
$
|
67,154
|
|
|
$
|
73,678
|
|
|
$
|
101,460
|
|
Homeowners
|
|
18,166
|
|
|
(2,047)
|
|
|
66,758
|
|
|
68,180
|
|
Other
|
|
1,002
|
|
|
2,178
|
|
|
1,618
|
|
|
2,820
|
|
Total Reciprocal Exchanges
|
|
$
|
29,491
|
|
|
$
|
67,285
|
|
|
$
|
142,054
|
|
|
$
|
172,460
|
|
Total Net Premium Written
|
|
$
|
1,265,256
|
|
|
$
|
1,034,604
|
|
|
$
|
3,489,767
|
|
|
$
|
3,194,666
|
|
NATIONAL GENERAL HOLDINGS CORP.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands, Except Shares and Per Share Data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
Net Earned Premium
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
Property and Casualty
|
|
|
|
|
|
|
|
|
Personal Auto
|
|
$
|
632,781
|
|
|
$
|
568,346
|
|
|
$
|
1,773,831
|
|
|
$
|
1,621,734
|
|
Homeowners
|
|
130,278
|
|
|
86,525
|
|
|
321,129
|
|
|
272,591
|
|
RV/Packaged
|
|
52,126
|
|
|
51,023
|
|
|
148,374
|
|
|
150,739
|
|
Small Business Auto
|
|
53,158
|
|
|
62,265
|
|
|
166,316
|
|
|
189,957
|
|
Lender-placed Insurance
|
|
77,441
|
|
|
56,599
|
|
|
218,210
|
|
|
158,595
|
|
Other
|
|
3,287
|
|
|
2,860
|
|
|
16,098
|
|
|
8,893
|
|
Total Property and Casualty
|
|
949,071
|
|
|
827,618
|
|
|
2,643,958
|
|
|
2,402,509
|
|
Accident and Health
|
|
|
|
|
|
|
|
|
Group
|
|
70,670
|
|
|
59,009
|
|
|
209,372
|
|
|
170,921
|
|
Individual
|
|
104,734
|
|
|
85,971
|
|
|
299,535
|
|
|
252,122
|
|
International
|
|
—
|
|
|
23,923
|
|
|
—
|
|
|
73,489
|
|
Total Accident and Health
|
|
175,404
|
|
|
168,903
|
|
|
508,907
|
|
|
496,532
|
|
NGHC Total
|
|
$
|
1,124,475
|
|
|
$
|
996,521
|
|
|
$
|
3,152,865
|
|
|
$
|
2,899,041
|
|
Reciprocal Exchanges
|
|
|
|
|
|
|
|
|
Personal Auto
|
|
$
|
24,654
|
|
|
$
|
33,953
|
|
|
$
|
89,291
|
|
|
$
|
65,907
|
|
Homeowners
|
|
28,963
|
|
|
22,759
|
|
|
76,037
|
|
|
82,475
|
|
Other
|
|
481
|
|
|
405
|
|
|
1,153
|
|
|
1,023
|
|
Total Reciprocal Exchanges
|
|
$
|
54,098
|
|
|
$
|
57,117
|
|
|
$
|
166,481
|
|
|
$
|
149,405
|
|
Total Net Earned Premium
|
|
$
|
1,178,573
|
|
|
$
|
1,053,638
|
|
|
$
|
3,319,346
|
|
|
$
|
3,048,446
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
Fee Income
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
Property and Casualty
|
|
|
|
|
|
|
|
|
Service and Fee Income
|
|
$
|
94,744
|
|
|
$
|
96,305
|
|
|
$
|
290,692
|
|
|
$
|
293,885
|
|
Ceding Commission Income
|
|
21,567
|
|
|
40,260
|
|
|
92,657
|
|
|
128,087
|
|
Total Property and Casualty
|
|
116,311
|
|
|
136,565
|
|
|
383,349
|
|
|
421,972
|
|
Accident and Health
|
|
|
|
|
|
|
|
|
Service and Fee Income
|
|
|
|
|
|
|
|
|
Group
|
|
44,306
|
|
|
34,848
|
|
|
128,029
|
|
|
98,084
|
|
Individual
|
|
2,379
|
|
|
2,128
|
|
|
6,861
|
|
|
5,506
|
|
Third-Party Fee
|
|
41,912
|
|
|
26,760
|
|
|
114,299
|
|
|
74,095
|
|
Total Service and Fee Income
|
|
88,597
|
|
|
63,736
|
|
|
249,189
|
|
|
177,685
|
|
Ceding Commission Income
|
|
205
|
|
|
2,261
|
|
|
1,236
|
|
|
8,780
|
|
Total Accident and Health
|
|
88,802
|
|
|
65,997
|
|
|
250,425
|
|
|
186,465
|
|
NGHC Total
|
|
$
|
205,113
|
|
|
$
|
202,562
|
|
|
$
|
633,774
|
|
|
$
|
608,437
|
|
Reciprocal Exchanges
|
|
|
|
|
|
|
|
|
Service and Fee Income
|
|
$
|
1,628
|
|
|
$
|
1,585
|
|
|
$
|
5,121
|
|
|
$
|
4,471
|
|
Ceding Commission Income
|
|
8,952
|
|
|
15,066
|
|
|
33,776
|
|
|
50,446
|
|
Total Reciprocal Exchanges
|
|
$
|
10,580
|
|
|
$
|
16,651
|
|
|
$
|
38,897
|
|
|
$
|
54,917
|
|
Total Fee Income
|
|
$
|
215,693
|
|
|
$
|
219,213
|
|
|
$
|
672,671
|
|
|
$
|
663,354
|
|