NGHC National General Holdings Corporation

National General Holdings Corp. (Nasdaq: NGHC) reported third quarter 2020 net income of $102.1 million or $0.88 per diluted share, compared to net income of $63.3 million or $0.54 per diluted share in the third quarter of 2019. Third quarter 2020 operating earnings (non-GAAP)(1) were $105.2 million or $0.90 per diluted share compared to $68.2 million or $0.59 per diluted share in the third quarter of 2019.

Third Quarter 2020 Highlights versus Third Quarter 2019*

• Gross written premium grew by $57.9 million to $1,374.7 million compared to the prior year’s quarter. Our P&C segment growth of 2.1%, was primarily driven by our personal auto product line; and our A&H domestic segment growth of 23.3%, excluding our previously sold A&H international business.
• The overall combined ratio(11,12) was 89.2% compared to 92.5% in the prior year’s quarter, excluding non-cash amortization of intangible assets.– The P&C segment reported a decrease in the combined ratio to 92.4% from 97.0% in the prior year’s quarter driven by continued strong underwriting and lower claims frequency. The P&C combined ratio includes prior year unfavorable loss development of $0.9 million compared to $14.9 million unfavorable loss development in the prior year’s quarter, and $87.1 million of pre-tax catastrophe losses related to weather-related events compared to $11.5 million of catastrophe losses in the prior year’s quarter.–  The A&H segment reported an increase in the combined ratio to 71.8% from 70.2% in the prior year’s quarter driven by the absence of our international business which was sold in the fourth quarter of 2019. The A&H service and fee income increased 39.0%. The A&H combined ratio includes $5.8 million of favorable loss development compared to $18.8 million of favorable loss development in the prior year’s quarter.
• Stockholders’ equity was $3.1 billion and fully diluted book value per share was $22.74 at September 30, 2020, growth of 17.1% and 19.3%, respectively, from December 31, 2019. Excluding accumulated other comprehensive income, fully diluted book value per share was $21.07 at September 30, 2020, growth of 14.4%, from December 31, 2019. Our trailing twelve-month operating return on average equity (ROE)(13) was 19.0% as of September 30, 2020.
• Third quarter of 2020 operating earnings (non-GAAP)(1) excludes the following, net of tax: $2.1 million or $0.02 per share loss on equity method investments, $5.3 million or $0.05 per share of net gain on investments, $3.5 million or $0.03 per share of non-cash amortization of intangible assets, and $2.8 million or $0.02 per share of other expenses reflecting a M&A advisory cost.
• On September 30, 2020, the Company’s stockholders approved the proposal to merge with The Allstate Corporation. 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.

Barry Karfunkel, National General’s CEO, stated: “I’m proud of the earnings National General was able to generate during a quarter that was highlighted by many catastrophic weather events. We’re excited with how we’ll be able to leverage our platform across a larger entity once our pending transaction closes. ”

*NOTE: Unless specified otherwise, discussion of our third quarter 2020 and 2019 results do not include financial results from the Reciprocal Exchanges, which are presented within our consolidated financial results within this release but are not included in net income available to NGHC common stockholders.

Overview of Third Quarter 2020 as Compared to Third Quarter 2019

• Property & Casualty - Gross written premium grew by 2.1% to $1,178.8 million, net written premium increased by 29.4% to $1,061.4 million, and net earned premium increased by 14.7% to $949.1 million. The P&C net earned premium increase was driven by lower cession to the quota shares, and growth in our personal auto, homeowners, and lender-placed product lines. Service and fee income was $109.8 million compared to $115.6 million in the prior year’s quarter. Excluding non-cash amortization of intangible assets, the combined ratio(11,12) was 92.4% with a loss and LAE ratio of 68.9% and an expense ratio(10,12) of 23.5%, versus a prior year combined ratio of 97.0% with a loss and LAE ratio of 75.8% and an expense ratio of 21.2%. The loss and LAE ratio was impacted by pre-tax catastrophe losses of approximately $87.1 million primarily related to weather-related events in the third quarter of 2020, compared to $11.5 million of losses in the third quarter of 2019. Unfavorable loss development was $0.9 million in the third quarter of 2020 primarily driven by small business auto, compared to unfavorable loss development of $14.9 million in the third quarter of 2019. 
• Accident & Health - Gross written premium grew by $33.4 million compared to the prior year’s quarter due to growth in both our small group self-funded and individual products. Excluding our A&H international business, our A&H domestic segment grew by 23.3% to $195.9 million. Service and fee income grew 39.0% to $88.6 million compared to $63.7 million in the prior year’s quarter. Excluding non-cash amortization of intangible assets, the combined ratio(11,12) was 71.8% with a loss and LAE ratio of 44.4% and an expense ratio(10,12) of 27.4%, versus a prior year combined ratio of 70.2% with a loss and LAE ratio of 41.8% and an expense ratio of 28.4%. The current quarter loss and LAE ratio reflects higher medical claims. Favorable loss development was $5.8 million in the third quarter of 2020, compared to favorable loss development of $18.8 million in the third quarter of 2019. 
• Reciprocal Exchanges - Results for the Reciprocal Exchanges are not included in net income available to NGHC common stockholders. Gross written premium was $98.4 million, net written premium was $29.5 million, and net earned premium was $54.1 million. Reciprocal Exchanges combined ratio(11,12) excluding non-cash amortization of intangible assets was 111.7% with a loss and LAE ratio of 78.5% and an expense ratio(10,12) of 33.2%.

Third quarter of 2020 net investment income decreased to $28.0 million, compared to $33.5 million in the third quarter of 2019. Total investments and cash and cash equivalents (including restricted cash) were $5.4 billion as of September 30, 2020. Unrealized gains on investments, included in accumulated other comprehensive income, increased to a $195.0 million gain at September 30, 2020, from a $74.5 million gain at December 31, 2019, primarily due to market improvement.

Interest expense was $11.3 million, down from $12.9 million in the prior year’s quarter. Debt was $679.4 million at September 30, 2020, compared to $686.0 million at December 31, 2019.

The third quarter of 2020 provision for income taxes was $26.7 million and the effective tax rate for the quarter was 19.5% compared with income taxes of $19.3 million and an effective rate of 21.3% in the third quarter of 2019.

Stockholders’ equity was $3,103.8 million at September 30, 2020, growth of 17.1% from $2,649.5 million at December 31, 2019. Fully diluted book value per share was $22.74 at September 30, 2020, growth of 19.3% from $19.06 at December 31, 2019. Excluding accumulated other comprehensive income, fully diluted book value per share was $21.07 at September 30, 2020, growth of 14.4%, from December 31, 2019. Our trailing twelve-month operating return on average equity (ROE)(13) was 19.0% as of September 30, 2020.

Year-to-Date P&C Segment Notable Large Losses
Year		Quarter		Event		P&C Notable Large Losses and LAE ($ millions)			P&C Loss and LAE Ratio Points*		EPS Impact After Tax
2020		Q3		Weather-related Events		$87.1			9.2%		$0.59
2020		Q2		Weather-related Events		$35.3			4.2%		$0.24
2020		Q1		Weather-related Events		$8.1			0.9%		$0.06
2019		Q3		Weather-related Events		$11.5			1.4%		$0.08
2019		Q2		Weather-related Events		$18.4			2.2%		$0.13
2019		Q1		Winter Weather		$12.1			1.6%		$0.08

* Loss and LAE ratio points related to P&C net earned premium in quarter the loss event was recorded.

About National General Holdings Corp.

National General Holdings Corp. (NASDAQ: NGHC), headquartered in New York City, is a specialty personal lines insurance holding company. National General traces its roots to 1939, has a financial strength rating of A- (excellent) from A.M. Best, and provides personal and commercial automobile, homeowners, umbrella, recreational vehicle, motorcycle, lender-placed, supplemental health and other niche insurance products.

Forward Looking Statements

This news release contains “forward-looking statements” that are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. The forward-looking statements are based on the Company’s current expectations and beliefs concerning future developments and their potential effects on the Company. Forward-looking statements can generally be identified by the use of forward-looking terminology, such as “may,” “will,” “plan,” “expect,” “project,” “intend,” “estimate,” “anticipate” and “believe” or their variations or similar terminology. There can be no assurance that actual developments will be those anticipated by us. Actual results may differ materially from those expressed or implied in these statements as a result of significant risks and uncertainties, including, but not limited to, plans and expectations related to our proposed merger with The Allstate Corporation (“Allstate”), including anticipated timing for closing of the merger, the occurrence of any event, change or other circumstances that could give rise to the termination of the merger agreement with Allstate, the inability to complete the proposed merger due to the failure to obtain regulatory approval for the proposed merger or the failure to satisfy other conditions to completion of the proposed merger, the possibility that competing offers will be made, non-receipt of expected payments from insureds or reinsurers, changes in interest rates, a downgrade in the financial strength ratings of our insurance subsidiaries, the potential effect of changes in LIBOR reporting practices, the effects of pandemics or other widespread health problems such as the ongoing COVID-19 pandemic on our business, including our investment portfolio, and the national and global economy generally, the effect of the performance of financial markets on our investment portfolio, our ability to accurately underwrite and price our products and to maintain and establish accurate loss reserves, estimates of the fair value of investments, development of claims and the effect on loss reserves, large loss activity including hurricanes and wildfires, the cost and availability of reinsurance coverage, the effects of emerging claim and coverage issues, the effect of unpredictable catastrophic losses, changes in the demand for our products, our degree of success in integrating acquired businesses, the effect of general economic conditions, state and federal legislation, the effects of tax reform, regulations and regulatory investigations into industry practices, risks associated with conducting business outside the United States, developments relating to existing agreements, disruptions to our business relationships with third party vendors or agencies, breaches in data security or other disruptions involving our technology, heightened competition, changes in pricing environments, and changes in asset valuations. The forward-looking statements contained in this news release are made only as of the date of this release. The Company undertakes no obligation to publicly update any forward-looking statement except as may be required by law. Additional information about these risks and uncertainties, as well as others that may cause actual results to differ materially from those projected, is contained in the Company’s filings with the Securities and Exchange Commission.

Income Statement - Third Quarter$ in thousands(Unaudited)

		Three Months Ended September 30,
		2020													2019
		NGHC				Reciprocal Exchanges				Consolidated					NGHC				Reciprocal Exchanges					Consolidated
Revenues:
Gross written premium		$	1,374,740			$	98,387			$	1,473,127				$	1,316,890			$	118,267				$	1,435,157
Net written premium		1,235,765				29,491				1,265,256					967,319				67,285					1,034,604
Net earned premium		1,124,475				54,098				1,178,573					996,521				57,117					1,053,638
Ceding commission income		21,772				8,952				30,724					42,521				15,066					57,587
Service and fee income		198,353				1,628				184,969			(A)		179,293				1,585					161,626				(G)
Net investment income		28,019				2,254				28,904			(B)		33,451				2,160					33,740				(H)
Net gain (loss) on investments		6,736				13,103				19,839					1,718				(137		)			1,581
Total revenues		$	1,379,355			$	80,035			$	1,443,009		(C)		$	1,253,504			$	75,791				$	1,308,172			(I)
Expenses:
Loss and loss adjustment expense		$	731,722			$	42,442			$	774,164				$	698,064			$	47,270				$	745,334
Acquisition costs and other underwriting expenses		252,444				16,201				268,645					193,521				15,569					209,090
General and administrative expenses		247,241				12,382				244,611			(D)		258,583				24,533					263,864				(J)
Interest expense		11,292				1,369				11,292			(E)		12,898				1,871					12,898				(K)
Total expenses		$	1,242,699			$	72,394			$	1,298,712		(F)		$	1,163,066			$	89,243				$	1,231,186			(L)
Income (loss) before provision (benefit) for income taxes		$	136,656			$	7,641			$	144,297				$	90,438			$	(13,452	)			$	76,986
Provision (benefit) for income taxes		26,687				741				27,428					19,284				(2,537		)			16,747
Net income (loss) before non-controlling interest and dividends on preferred shares		109,969				6,900				116,869					71,154				(10,915		)			60,239
Less: net income (loss) attributable to noncontrolling interest		—				6,900				6,900					—				(10,915		)			(10,915		)
Net income before dividends on preferred shares		109,969				—				109,969					71,154				—					71,154
Less: dividends on preferred shares		7,875				—				7,875					7,875				—					7,875
Net income available to common stockholders		$	102,094			$	—			$	102,094				$	63,279			$	—				$	63,279

NOTES: Consolidated column includes eliminations as follows: (A) $(15,012), (B) $(1,369), (C) $(16,381), (D) $(15,012), (E) $(1,369), (F) $(16,381), (G) $(19,252), (H) $(1,871), (I) $(21,123), (J) $(19,252), (K) $(1,871) and (L) $(21,123).

Income Statement - Year To Date$ in thousands(Unaudited)

		Nine Months Ended September 30,
		2020													2019
		NGHC				Reciprocal Exchanges				Consolidated					NGHC					Reciprocal Exchanges					Consolidated
Revenues:
Gross written premium		$	4,002,606			$	288,676			$	4,291,282				$	3,913,861				$	344,982				$	4,258,843
Net written premium		3,347,713				142,054				3,489,767					3,022,206					172,460					3,194,666
Net earned premium		3,152,865				166,481				3,319,346					2,899,041					149,405					3,048,446
Ceding commission income		93,893				33,776				127,669					136,867					50,446					187,313
Service and fee income		581,533				5,121				545,002			(A)		525,730					4,471					476,041				(G)
Net investment income		88,289				6,449				90,322			(B)		103,683					6,454					102,316				(H)
Net gain (loss) on investments		6,179				11,957				18,136					(2,790		)			(837		)			(3,627		)
Total revenues		$	3,922,759			$	223,784			$	4,100,475		(C)		$	3,662,531				$	209,939				$	3,810,489			(I)
Expenses:
Loss and loss adjustment expense		$	1,951,792			$	114,816			$	2,066,608				$	1,988,094				$	124,584				$	2,112,678
Acquisition costs and other underwriting expenses		689,467				36,798				726,265					582,805					32,329					615,134
General and administrative expenses		765,438				50,803				774,589			(D)		746,243					67,642					759,725				(J)
Interest expense		34,851				4,416				34,851			(E)		38,822					7,821					38,822				(K)
Total expenses		$	3,441,548			$	206,833			$	3,602,313		(F)		$	3,355,964				$	232,376				$	3,526,359			(L)
Income (loss) before provision (benefit) for income taxes		$	481,211			$	16,951			$	498,162				$	306,567				$	(22,437	)			$	284,130
Provision (benefit) for income taxes		103,909				2,198				106,107					65,779					(4,285		)			61,494
Net income (loss) before non-controlling interest and dividends on preferred shares		377,302				14,753				392,055					240,788					(18,152		)			222,636
Less: net income (loss) attributable to noncontrolling interest		—				14,753				14,753					—					(18,152		)			(18,152		)
Net income before dividends on preferred shares		377,302				—				377,302					240,788					—					240,788
Less: dividends on preferred shares		24,675				—				24,675					24,675					—					24,675
Net income available to common stockholders		$	352,627			$	—			$	352,627				$	216,113				$	—				$	216,113

NOTES: Consolidated column includes eliminations as follows: (A) $(41,652), (B) $(4,416), (C) $(46,068), (D) $(41,652), (E) $(4,416), (F) $(46,068) (G) $(54,160), (H) $(7,821), (I) $(61,981), (J) $(54,160), (K) $(7,821) and (L) $(61,981).

Earnings and Per Share Data$ in thousands, except shares and per share data(Unaudited)

	Three Months Ended September 30,								Nine Months Ended September 30,
	2020				2019				2020				2019
Net income available to common stockholders	$	102,094			$	63,279			$	352,627			$	216,113
Basic net income per common share	$	0.90			$	0.56			$	3.11			$	1.91
Diluted net income per common share	$	0.88			$	0.54			$	3.04			$	1.87
Operating earnings attributable to NGHC (non-GAAP)(1)	$	105,174			$	68,237			$	368,576			$	236,093
Basic operating earnings per common share (non-GAAP)(1)	$	0.93			$	0.60			$	3.25			$	2.09
Diluted operating earnings per common share (non-GAAP)(1)	$	0.90			$	0.59			$	3.17			$	2.03
Dividends declared per common share	$	0.05			$	0.05			$	0.15			$	0.13
Weighted average number of basic shares outstanding	113,418,411				113,263,367				113,505,785				113,153,121
Weighted average number of diluted shares outstanding	116,666,374				116,138,489				116,231,852				116,087,524
Shares outstanding, end of period	113,475,176				113,313,042
Fully diluted shares outstanding, end of period	116,723,139				116,188,164
Book value per share	$	23.39			$	18.62
Fully diluted book value per share	$	22.74			$	18.16

Reconciliation of Net Income to Operating Earnings (Non-GAAP)(1)(13)$ in thousands, except per share data(Unaudited)

	Three Months Ended September 30,								Nine Months Ended September 30,
	2020				2019				2020				2019
Net income available to common stockholders	$	102,094			$	63,279			$	352,627			$	216,113
Add (subtract):
Equity in losses of equity method investments	2,635				1,205				6,523				1,408
Net (gain) loss on investments	(6,736		)		(1,718		)		(6,179		)		2,790
Non-cash amortization of intangible assets	4,427				6,788				16,272				21,093
M&A advisory cost	3,573				—				3,573				—
Income tax benefit	(819		)		(1,317		)		(4,240		)		(5,311		)
Operating earnings attributable to NGHC (non-GAAP)(1)	$	105,174			$	68,237			$	368,576			$	236,093
Operating earnings per common share (non-GAAP)(1):
Basic operating earnings per common share (non-GAAP)(1)	$	0.93			$	0.60			$	3.25			$	2.09
Diluted operating earnings per common share (non-GAAP)(1)	$	0.90			$	0.59			$	3.17			$	2.03

Balance Sheet$ in thousands(Unaudited)

		September 30, 2020																December 31, 2019
ASSETS		NGHC					Reciprocal Exchanges					Consolidated						NGHC				Reciprocal Exchanges					Consolidated
Total investments (2)		$	5,119,295				$	331,076				$	5,342,799			(A)		$	4,632,960			$	329,494				$	4,854,998			(H)
Cash and cash equivalents, including restricted cash		250,602					741					251,343						163,480				983					164,463
Premiums and other receivables, net		1,528,240					70,076					1,598,316						1,373,089				55,859					1,428,948
Reinsurance balances		1,515,120					230,692					1,745,812						1,745,036				225,019					1,970,055
Intangible assets, net		342,884					3,090					345,974						362,598				3,225					365,823
Goodwill		179,328					—					179,328						179,328				—					179,328
Other (3)		775,595					24,216					760,684				(B)		798,675				29,070					792,919				(I)
Total assets		$	9,711,064				$	659,891				$	10,224,256			(C)		$	9,255,166			$	643,650				$	9,756,534			(J)
LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities:
Unpaid loss and loss adjustment expense reserves		$	2,688,969				$	208,496				$	2,897,465					$	2,680,628			$	205,786				$	2,886,414
Unearned premiums and other revenue		2,117,887					219,582					2,337,469						2,059,688				252,553					2,312,241
Reinsurance payable		350,717					51,711					402,428						527,155				35,689					562,844
Accounts payable and accrued expenses		412,540					46,731					420,144				(D)		306,869				43,323					315,366				(K)
Debt		679,436					107,572					679,436				(E)		686,006				107,456					686,006				(L)
Other		357,745					44,004					401,749						345,366				30,803					376,169
Total liabilities		$	6,607,294				$	678,096				$	7,138,691			(F)		$	6,605,712			$	675,610				$	7,139,040			(M)
Stockholders’ equity:
Preferred stock (4)		$	450,000				$	—				$	450,000					$	450,000			$	—				$	450,000
Common stock (5)		1,139					—					1,139						1,134				—					1,134
Treasury stock, at cost (6)		(8,482		)			—					(8,482		)				—				—					—
Additional paid-in capital		1,073,288					—					1,073,288						1,065,634				—					1,065,634
Accumulated other comprehensive income		194,953					—					194,953						74,548				—					74,548
Retained earnings		1,392,872					—					1,392,872						1,058,138				—					1,058,138
Total National General Holdings Corp. stockholders’ equity		3,103,770					—					3,103,770						2,649,454				—					2,649,454
Noncontrolling interest		—					(18,205		)			(18,205		)				—				(31,960		)			(31,960		)
Total stockholders’ equity		$	3,103,770				$	(18,205	)			$	3,085,565					$	2,649,454			$	(31,960	)			$	2,617,494
Total liabilities and stockholders’ equity		$	9,711,064				$	659,891				$	10,224,256			(G)		$	9,255,166			$	643,650				$	9,756,534			(N)

NOTES: Consolidated column includes eliminations as follows: (A) $(107,572), (B) $(39,127), (C) $(146,699), (D) $(39,127), (E) $(107,572), (F) $(146,699), (G) $(146,699) (H) $(107,456), (I) $(34,826), (J) $(142,282), (K) $(34,826), (L) $(107,456), (M) $(142,282) and (N) $(142,282).

Segment Information - Third Quarter$ in thousands(Unaudited)

		Three Months Ended September 30,
		2020																			2019
		P&C				A&H				NGHC					Reciprocal Exchanges						P&C				A&H				NGHC					Reciprocal Exchanges
Gross written premium		$	1,178,803			$	195,937			$	1,374,740				$	98,387					$	1,154,335			$	162,555			$	1,316,890				$	118,267
Net written premium		1,061,435				174,330				1,235,765					29,491						819,970				147,349					967,319				67,285
Net earned premium		949,071				175,404				1,124,475					54,098						827,618				168,903				996,521					57,117
Ceding commission income		21,567				205				21,772					8,952						40,260				2,261				42,521					15,066
Service and fee income		109,756				88,597				198,353					1,628						115,557				63,736				179,293					1,585
Total underwriting revenues		$	1,080,394			$	264,206			$	1,344,600				$	64,678					$	983,435			$	234,900			$	1,218,335				$	73,768
Loss and loss adjustment expense (A)		653,774				77,948				731,722					42,442						627,452				70,612				698,064					47,270
Acquisition costs and other underwriting expenses		173,166				79,278				252,444					16,201						146,307				47,214				193,521					15,569
General and administrative expenses (B)		184,776				58,892				243,668					12,382						190,286				68,297				258,583					24,533
Total underwriting expenses		$	1,011,716			$	216,118			$	1,227,834				$	71,025					$	964,045			$	186,123			$	1,150,168				$	87,372
Underwriting income (loss)		68,678				48,088				116,766					(6,347		)				19,390				48,777				68,167					(13,604		)
Non-cash amortization of intangible assets		3,140				1,287				4,427					33						5,257				1,531				6,788					18
Underwriting income (loss) before amortization and impairment		$	71,818			$	49,375			$	121,193				$	(6,314	)				$	24,647			$	50,308			$	74,955				$	(13,586	)
Underwriting ratios
Loss and loss adjustment expense ratio (7)		68.9		%		44.4		%		65.1		%			78.5			%			75.8		%		41.8		%		70.1		%			82.8			%
Operating expense ratio (Non-GAAP) (8)		23.9		%		28.1		%		24.5		%			33.3			%			21.8		%		29.3		%		23.1		%			41.1			%
Combined ratio (Non-GAAP) (9)		92.8		%		72.5		%		89.6		%			111.8			%			97.6		%		71.1		%		93.2		%			123.9			%
Underwriting ratios (before amortization and impairment)
Loss and loss adjustment expense ratio (7)		68.9		%		44.4		%		65.1		%			78.5			%			75.8		%		41.8		%		70.1		%			82.8			%
Operating expense ratio (Non-GAAP) (10)		23.5		%		27.4		%		24.1		%			33.2			%			21.2		%		28.4		%		22.4		%			41.0			%
Combined ratio before amortization and impairment (Non-GAAP) (11)		92.4		%		71.8		%		89.2		%			111.7			%			97.0		%		70.2		%		92.5		%			123.8			%

(A) Loss and loss adjustment expenses for the three months ended September 30, 2020, included $934 of unfavorable loss development on prior accident year loss and loss adjustment expense reserves in the P&C segment, and $5,827 of favorable loss development in the A&H segment, versus $14,909 of unfavorable loss development in the P&C segment, and $18,788 of favorable loss development in the A&H segment for the three months ended September 30, 2019.

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

Segment Information - Year To Date$ in thousands(Unaudited)

		Nine Months Ended September 30,
		2020																		2019
		P&C				A&H				NGHC					Reciprocal Exchanges					P&C				A&H				NGHC					Reciprocal Exchanges
Gross written premium		$	3,429,987			$	572,619			$	4,002,606				$	288,676				$	3,321,090			$	592,771			$	3,913,861				$	344,982
Net written premium		2,836,955				510,758				3,347,713					142,054					2,521,969				500,237					3,022,206				172,460
Net earned premium		2,643,958				508,907				3,152,865					166,481					2,402,509				496,532				2,899,041					149,405
Ceding commission income		92,657				1,236				93,893					33,776					128,087				8,780				136,867					50,446
Service and fee income		332,344				249,189				581,533					5,121					348,045				177,685				525,730					4,471
Total underwriting revenues		$	3,068,959			$	759,332			$	3,828,291				$	205,378				$	2,878,641			$	682,997			$	3,561,638				$	204,322
Loss and loss adjustment expense (A)		1,725,588				226,204				1,951,792					114,816					1,746,409				241,685				1,988,094					124,584
Acquisition costs and other underwriting expenses		474,824				214,643				689,467					36,798					429,742				153,063				582,805					32,329
General and administrative expenses (B)		585,230				176,635				761,865					50,803					558,016				188,227				746,243					67,642
Total underwriting expenses		$	2,785,642			$	617,482			$	3,403,124				$	202,417				$	2,734,167			$	582,975			$	3,317,142				$	224,555
Underwriting income (loss)		283,317				141,850				425,167					2,961					144,474				100,022				244,496					(20,233		)
Non-cash amortization of intangible assets		12,368				3,904				16,272					93					16,154				4,939				21,093					41
Underwriting income (loss) before amortization and impairment		$	295,685			$	145,754			$	441,439				$	3,054				$	160,628			$	104,961			$	265,589				$	(20,192	)
Underwriting ratios
Loss and loss adjustment expense ratio (7)		65.3		%		44.4		%		61.9		%			69.0		%			72.7		%		48.7		%		68.6		%			83.4			%
Operating expense ratio (Non-GAAP) (8)		24.0		%		27.7		%		24.6		%			29.3		%			21.3		%		31.2		%		23.0		%			30.2			%
Combined ratio (Non-GAAP) (9)		89.3		%		72.1		%		86.5		%			98.3		%			94.0		%		79.9		%		91.6		%			113.6			%
Underwriting ratios (before amortization and impairment)
Loss and loss adjustment expense ratio (7)		65.3		%		44.4		%		61.9		%			69.0		%			72.7		%		48.7		%		68.6		%			83.4			%
Operating expense ratio (Non-GAAP) (10)		23.6		%		26.9		%		24.1		%			29.2		%			20.6		%		30.2		%		22.3		%			30.1			%
Combined ratio before amortization and impairment (Non-GAAP) (11)		88.9		%		71.3		%		86.0		%			98.2		%			93.3		%		78.9		%		90.9		%			113.5			%

(A) Loss and loss adjustment expenses for the nine months ended September 30, 2020, included $13,989 of unfavorable loss development on prior accident year loss and loss adjustment expense reserves in the P&C segment, and $22,065 of favorable loss development in the A&H segment, versus $19,791 of unfavorable loss development in the P&C segment, and $37,775 of favorable loss development in the A&H segment for the nine months ended September 30, 2019.

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

Reconciliation of Operating Expense Ratio (Non-GAAP)(8,10,12)$ in thousands(Unaudited)

		Three Months Ended September 30,
		2020																		2019
		P&C				A&H				NGHC					Reciprocal Exchanges					P&C				A&H				NGHC					Reciprocal Exchanges
Total underwriting expenses		$	1,011,716			$	216,118			$	1,227,834				$	71,025				$	964,045			$	186,123			$	1,150,168				$	87,372
Less: Loss and loss adjustment expense		653,774				77,948				731,722					42,442					627,452				70,612				698,064					47,270
Less: Ceding commission income		21,567				205				21,772					8,952					40,260				2,261				42,521					15,066
Less: Service and fee income		109,756				88,597				198,353					1,628					115,557				63,736				179,293					1,585
Operating expense (Non-GAAP) (8)		226,619				49,368				275,987					18,003					180,776				49,514				230,290					23,451
Net earned premium		$	949,071			$	175,404			$	1,124,475				$	54,098				$	827,618			$	168,903			$	996,521				$	57,117
Operating expense ratio (Non-GAAP) (8)		23.9		%		28.1		%		24.5		%			33.3		%			21.8		%		29.3		%		23.1		%			41.1		%
Total underwriting expenses		$	1,011,716			$	216,118			$	1,227,834				$	71,025				$	964,045			$	186,123			$	1,150,168				$	87,372
Less: Loss and loss adjustment expense		653,774				77,948				731,722					42,442					627,452				70,612				698,064					47,270
Less: Ceding commission income		21,567				205				21,772					8,952					40,260				2,261				42,521					15,066
Less: Service and fee income		109,756				88,597				198,353					1,628					115,557				63,736				179,293					1,585
Less: Non-cash amortization of intangible assets		3,140				1,287				4,427					33					5,257				1,531				6,788					18
Operating expense before amortization and impairment (Non-GAAP) (10)		223,479				48,081				271,560					17,970					175,519				47,983				223,502					23,433
Net earned premium		$	949,071			$	175,404			$	1,124,475				$	54,098				$	827,618			$	168,903			$	996,521				$	57,117
Operating expense ratio before amortization and impairment (Non-GAAP) (10)		23.5		%		27.4		%		24.1		%			33.2		%			21.2		%		28.4		%		22.4		%			41.0		%

Reconciliation of Operating Expense Ratio (Non-GAAP)(8,10,12)$ in thousands(Unaudited)

		Nine Months Ended September 30,
		2020																		2019
		P&C				A&H				NGHC					Reciprocal Exchanges					P&C				A&H				NGHC					Reciprocal Exchanges
Total underwriting expenses		$	2,785,642			$	617,482			$	3,403,124				$	202,417				$	2,734,167			$	582,975			$	3,317,142				$	224,555
Less: Loss and loss adjustment expense		1,725,588				226,204				1,951,792					114,816					1,746,409				241,685				1,988,094					124,584
Less: Ceding commission income		92,657				1,236				93,893					33,776					128,087				8,780				136,867					50,446
Less: Service and fee income		332,344				249,189				581,533					5,121					348,045				177,685				525,730					4,471
Operating expense (Non-GAAP) (8)		635,053				140,853				775,906					48,704					511,626				154,825				666,451					45,054
Net earned premium		$	2,643,958			$	508,907			$	3,152,865				$	166,481				$	2,402,509			$	496,532			$	2,899,041				$	149,405
Operating expense ratio (Non-GAAP) (8)		24.0		%		27.7		%		24.6		%			29.3		%			21.3		%		31.2		%		23.0		%			30.2		%
Total underwriting expenses		$	2,785,642			$	617,482			$	3,403,124				$	202,417				$	2,734,167			$	582,975			$	3,317,142				$	224,555
Less: Loss and loss adjustment expense		1,725,588				226,204				1,951,792					114,816					1,746,409				241,685				1,988,094					124,584
Less: Ceding commission income		92,657				1,236				93,893					33,776					128,087				8,780				136,867					50,446
Less: Service and fee income		332,344				249,189				581,533					5,121					348,045				177,685				525,730					4,471
Less: Non-cash amortization of intangible assets		12,368				3,904				16,272					93					16,154				4,939				21,093					41
Operating expense before amortization and impairment (Non-GAAP) (10)		622,685				136,949				759,634					48,611					495,472				149,886				645,358					45,013
Net earned premium		$	2,643,958			$	508,907			$	3,152,865				$	166,481				$	2,402,509			$	496,532			$	2,899,041				$	149,405
Operating expense ratio before amortization and impairment (Non-GAAP) (10)		23.6		%		26.9		%		24.1		%			29.2		%			20.6		%		30.2		%		22.3		%			30.1		%

Premiums by Product Line$ in thousands(Unaudited)

	Three Months Ended September 30,
	Gross Written Premium												Net Written Premium													Net Earned Premium
	2020				2019				Change				2020				2019					Change				2020				2019				Change
Property & Casualty
Personal Auto	$	741,306			$	705,709			5.0	%			$	650,889			$	560,032				16.2	%			$	632,781			$	568,346			11.3	%
Homeowners	210,721				201,977				4.3	%			217,960				82,601					163.9	%			130,278				86,525				50.6	%
RV/Packaged	59,191				55,631				6.4	%			57,834				52,283					10.6	%			52,126				51,023				2.2	%
Small Business Auto	62,159				76,987				(19.3	)%			47,556				56,615					(16.0	)%			53,158				62,265				(14.6	)%
Lender-placed insurance	96,327				97,468				(1.2	)%			82,599				61,579					34.1	%			77,441				56,599				36.8	%
Other	9,099				16,563				(45.1	)%			4,597				6,860					(33.0	)%			3,287				2,860				14.9	%
Total Premium	$	1,178,803			$	1,154,335			2.1	%			$	1,061,435			$	819,970				29.4	%			$	949,071			$	827,618			14.7	%
Accident & Health
Group	89,852				73,223				22.7	%			70,672				59,001					19.8	%			70,670				59,009				19.8	%
Individual	106,085				85,728				23.7	%			103,658				85,541					21.2	%			104,734				85,971				21.8	%
Total Premium Domestic	$	195,937			$	158,951			23.3	%			$	174,330			$	144,542				20.6	%			$	175,404			$	144,980			21.0	%
International	—				3,604				(100.0	)%			—				2,807					(100.0	)%			—				23,923				(100.0	)%
Total National General	$	1,374,740			$	1,316,890			4.4	%			$	1,235,765			$	967,319				27.8	%			$	1,124,475			$	996,521			12.8	%
Total National General (A)	$	1,374,740			$	1,313,286			4.7	%			$	1,235,765			$	964,512				28.1	%			$	1,124,475			$	972,598			15.6	%
Reciprocal Exchanges
Personal Auto	$	33,561			$	39,166			(14.3	)%			$	10,323			$	67,154				(84.6	)%			$	24,654			$	33,953			(27.4	)%
Homeowners	63,935				78,079				(18.1	)%			18,166				(2,047		)			(987.4	)%			28,963				22,759				27.3	%
Other	891				1,022				(12.8	)%			1,002				2,178					(54.0	)%			481				405				18.8	%
Total Premium	$	98,387			$	118,267			(16.8	)%			$	29,491			$	67,285				(56.2	)%			$	54,098			$	57,117			(5.3	)%
Consolidated Total	$	1,473,127			$	1,435,157			2.6	%			$	1,265,256			$	1,034,604				22.3	%			$	1,178,573			$	1,053,638			11.9	%

(A) Excludes A&H international product line which was sold in the fourth quarter of 2019.

Premiums by Product Line$ in thousands(Unaudited)

	Nine Months Ended September 30,
	Gross Written Premium												Net Written Premium												Net Earned Premium
	2020				2019				Change				2020				2019				Change				2020				2019				Change
Property & Casualty
Personal Auto	$	2,148,730			$	2,083,702			3.1	%			$	1,886,438			$	1,730,904			9.0	%			$	1,773,831			$	1,621,734			9.4	%
Homeowners	581,185				544,056				6.8	%			390,760				276,250				41.5	%			321,129				272,591				17.8	%
RV/Packaged	170,120				168,796				0.8	%			165,694				162,047				2.3	%			148,374				150,739				(1.6	)%
Small Business Auto	195,628				246,694				(20.7	)%			152,584				196,221				(22.2	)%			166,316				189,957				(12.4	)%
Lender-placed insurance	295,693				232,265				27.3	%			224,742				140,863				59.5	%			218,210				158,595				37.6	%
Other	38,631				45,577				(15.2	)%			16,737				15,684				6.7	%			16,098				8,893				81.0	%
Total Premium	$	3,429,987			$	3,321,090			3.3	%			$	2,836,955			$	2,521,969			12.5	%			$	2,643,958			$	2,402,509			10.0	%
Accident & Health
Group	266,857				213,197				25.2	%			209,360				170,911				22.5	%			209,372				170,921				22.5	%
Individual	305,762				252,719				21.0	%			301,398				252,316				19.5	%			299,535				252,122				18.8	%
Total Premium Domestic	$	572,619			$	465,916			22.9	%			$	510,758			$	423,227			20.7	%			$	508,907			$	423,043			20.3	%
International	—				126,855				(100.0	)%			—				77,010				(100.0	)%			—				73,489				(100.0	)%
Total National General	$	4,002,606			$	3,913,861			2.3	%			$	3,347,713			$	3,022,206			10.8	%			$	3,152,865			$	2,899,041			8.8	%
Total National General (A)	$	4,002,606			$	3,787,006			5.7	%			$	3,347,713			$	2,945,196			13.7	%			$	3,152,865			$	2,825,552			11.6	%
Reciprocal Exchanges
Personal Auto	$	102,752			$	120,012			(14.4	)%			$	73,678			$	101,460			(27.4	)%			$	89,291			$	65,907			35.5	%
Homeowners	183,331				222,019				(17.4	)%			66,758				68,180				(2.1	)%			76,037				82,475				(7.8	)%
Other	2,593				2,951				(12.1	)%			1,618				2,820				(42.6	)%			1,153				1,023				12.7	%
Total Premium	$	288,676			$	344,982			(16.3	)%			$	142,054			$	172,460			(17.6	)%			$	166,481			$	149,405			11.4	%
Consolidated Total	$	4,291,282			$	4,258,843			0.8	%			$	3,489,767			$	3,194,666			9.2	%			$	3,319,346			$	3,048,446			8.9	%

(A) Excludes A&H international product line which was sold in the fourth quarter of 2019.

Fee Income$ in thousands(Unaudited)

	Three Months Ended September 30,											Nine Months Ended September 30,
	2020				2019				Change			2020				2019				Change
Property & Casualty
Service and Fee Income	$	109,756			$	115,557			(5.0	)%		$	332,344			$	348,045			(4.5	)%
Ceding Commission Income	21,567				40,260				(46.4	)%		92,657				128,087				(27.7	)%
Property & Casualty	$	131,323			$	155,817			(15.7	)%		$	425,001			$	476,132			(10.7	)%
Accident & Health
Service and Fee Income
Group	$	44,306			$	34,848			27.1	%		$	128,029			$	98,084			30.5	%
Individual	2,379				2,128				11.8	%		6,861				5,506				24.6	%
Medicare Sales	10,032				5,610				78.8	%		32,822				17,870				83.7	%
Third Party Fee	31,881				21,150				50.7	%		81,478				56,225				44.9	%
Total Service and Fee Income	88,598				63,736				39.0	%		249,190				177,685				40.2	%
Ceding Commission Income	205				2,261				(90.9	)%		1,236				8,780				(85.9	)%
Accident and Health	$	88,803			$	65,997			34.6	%		$	250,426			$	186,465			34.3	%
Total National General	$	220,126			$	221,814			(0.8	)%		$	675,427			$	662,597			1.9	%
Reciprocal Exchanges
Service and Fee Income	$	1,628			$	1,585			2.7	%		$	5,121			$	4,471			14.5	%
Ceding Commission Income	8,952				15,066				(40.6	)%		33,776				50,446				(33.0	)%
Reciprocal Exchanges	$	10,580			$	16,651			(36.5	)%		$	38,897			$	54,917			(29.2	)%
Consolidated Total (A)	$	215,694			$	219,213			(1.6	)%		$	672,672			$	663,354			1.4	%

NOTES: (A) Consolidated Total includes eliminations between National General and the Reciprocal Exchanges in Service and Fee Income of $(15,012) and $(19,252) in the three months ended September 30, 2020, and 2019, respectively, and $(41,652) and $(54,160) in the nine months ended September 30, 2020, and 2019, respectively.

Additional Disclosures

(1) References to operating earnings and basic and diluted operating earnings per share (“EPS”) are non-GAAP financial measures defined by the Company as net income/loss and basic and diluted earnings per share excluding after-tax net gain or loss on investments (including credit loss on investments in debt securities and foreign exchange gain or loss), earnings or losses of equity method investments (related parties), deferred tax asset impairment, non-cash impairment of goodwill and non-cash amortization of intangible assets, and any significant non-recurring or infrequent items that may not be indicative of ongoing operations. The Company believes operating earnings and basic and diluted operating EPS are relevant measures of the Company’s profitability because operating earnings and basic and diluted operating EPS contain the components of net income upon which the Company’s management has the most influence and excludes factors outside management’s direct control and non-recurring items. Other companies may calculate these measures differently, and therefore, their measures may not be comparable to those used by National General. Please see the Non-GAAP Financial Measures table within this release for the reconciliation of these non-GAAP financial measures to the most directly comparable GAAP measure.

(2) Total investments includes $231,593 and $238,841 from related parties at September 30, 2020, and December 31, 2019, respectively.

(3) Other includes $1,210 and $2,391 from related parties at September 30, 2020, and December 31, 2019, respectively.

(4) Preferred stock: $0.01 par value - authorized 10,000,000 shares, issued and outstanding 2,565,120 shares - September 30, 2020; authorized 10,000,000 shares, issued and outstanding 2,565,120 shares - December 31, 2019.

(5) Common stock: $0.01 par value - authorized 150,000,000 shares, issued 113,934,259 and outstanding 113,475,176 shares - September 30, 2020; authorized 150,000,000 shares, issued and outstanding 113,368,811 shares - December 31, 2019.

(6) Treasury stock, at cost: 459,083 shares - September 30, 2020.

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

(8) Operating expense ratio is a non-GAAP financial measure defined by the Company, which is commonly used in the insurance industry. The Company calculates the ratio by dividing operating expense by net earned premium. Operating expense consists of the sum of acquisition and other underwriting costs and general and administrative expenses less ceding commission income and service and fee income and other general and administrative expenses (M&A advisory cost). The ratio is used as an indicator of the Company’s efficiency in acquiring and servicing its business.

(9) Combined ratio is a non-GAAP financial measure defined by the Company, which is commonly used in the insurance industry. The Company calculates the ratio by adding the loss and loss adjustment expense ratio(7) and the operating expense ratio (non-GAAP)(8) together. The ratio is used as an indicator of the Company’s underwriting discipline, efficiency in acquiring and servicing its business, and overall underwriting profit. Management uses operating expense ratio (non-GAAP) and combined ratio (non-GAAP) to evaluate financial performance against historical results and establish targets. A combined ratio under 100% generally indicates an underwriting profit, while over 100% an underwriting loss.

(10) Operating expense ratio before amortization and impairment is a non-GAAP financial measure defined by the Company, which is commonly used in the insurance industry. The Company calculates the ratio by dividing the operating expense before amortization and impairment by net earned premium. Operating expense before amortization and impairment consists of the sum of acquisition and other underwriting costs and general and administrative expenses less ceding commission income, service and fee income and other general and administrative expenses (M&A advisory cost) less non-cash amortization of intangible assets and non-cash impairment of goodwill. The ratio is used as an indicator of the Company’s efficiency in acquiring and servicing its business. Management believes that this measure provides a more useful comparison to the operating expense ratio of other insurance companies involved in fewer acquisitions.

(11) Combined ratio before amortization and impairment is a non-GAAP financial measure defined by the Company, which is commonly used in the insurance industry. The Company calculates the ratio by adding the loss and loss adjustment expense ratio(7) and the operating expense ratio before amortization and impairment (non-GAAP)(10) together. The ratio is used as an indicator of the Company’s underwriting discipline, efficiency in acquiring and servicing its business, and overall underwriting profit. Management believes that this measure of underwriting profitability provides a more useful comparison to the combined ratio of other insurance companies involved in fewer acquisitions. A combined ratio under 100% generally indicates an underwriting profit, while over 100% an underwriting loss.

(12) Combined ratio (non-GAAP), operating expense ratio (non-GAAP), combined ratio before amortization and impairment (non-GAAP) and operating expense ratio before amortization and impairment (non-GAAP) are considered non-GAAP financial measures under applicable SEC rules. Other companies may calculate these ratios differently, and therefore, their measures may not be comparable to those used by National General. Please see the Non-GAAP Financial Measures table within this release for the reconciliation of these non-GAAP financial measures to the most directly comparable GAAP measure.

(13) Trailing twelve month operating return on average equity is the ratio of the previous twelve months operating earnings (non-GAAP) to average shareholders’ equity for the same twelve-month period. Average shareholders’ equity is the sum of the shareholders’ equity excluding preferred stock at the beginning and end of the period divided by two. In the opinion of the Company’s management this ratio is an important indicator of how well management creates value for its shareholders through its operating activities and capital management. Other companies may calculate these measures differently, and therefore, their measures may not be comparable to those used by National General. Please see the Non-GAAP Financial Measures table within this release for the reconciliation of net income to operating earnings, which is the Non-GAAP component of the operating return on average equity.

(14) Combined ratio excluding losses from various weather-related events, is calculated by taking the combined ratio as defined in Note 11, and adjusting it to exclude the total net losses of $87.1 million and $11.5 million from these events for the three months ended September 30, 2020, and 2019, respectively. The Company believes this measure enhances investors’ understanding of our results by eliminating what we believe are volatile and unusual events.

Year				Combined Ratio (11)		Impact of Weather-related Events		Combined Ratio Excluding Weather-related Events (14)
2020		P&C Segment		92.4%		9.2%		83.2%
2020		Overall NGHC		89.2%		7.7%		81.5%
2019		P&C Segment		97.0%		1.4%		95.6%
2019		Overall NGHC		92.5%		1.2%		91.3%

(15) Our products in the P&C segment include personal auto, homeowners, RV/Packaged, small business auto, lender-placed insurance and other products. The personal auto product includes policies for standard, preferred and nonstandard automobile insurance. The homeowners product includes multiple-peril policies and personal umbrella coverage to the homeowner. The RV/Packaged product offers policies that include RV automatic personal effects coverage, optional replacement cost coverage, RV storage coverage and full-time liability coverage. The small business auto product offers policies that include liability and physical damage coverage for light-to-medium duty commercial vehicles. The lender-placed insurance product offers fire, home and flood products, as well as collateral protection insurance and guaranteed asset protection products for automobiles. Our products and revenue in the A&H segment include group, individual and third party fees. The group product includes revenue from our small group self-funded product. The individual product line includes revenue from our supplemental products including short-term medical, accident/AD&D, hospital indemnity, cancer/critical illness, dental and term life insurance. Medicare fees include commission and general agent fees for selling Medicare policies issued by third-party insurance companies as well as revenue from our Medicare Supplement product. Third party fees include commission and general agent fees for selling policies issued by third-party insurance companies, fees generated through selling our technology products to third parties.

Investor Contact

Clifford GallantSVP of Capital Strategy and Investor RelationsPhone: 212-380-9462Email: Clifford.Gallant@NGIC.COM