| Segments |
Segments
The Company currently operates three business segments, Diversified Reinsurance, AmTrust Quota Share Reinsurance and the NGHC Quota Share (which is currently in run-off). The Company evaluates segment performance based on segment profit separately from the results of our investment portfolio. Other operating expenses allocated to the segments are called General and Administrative expenses which are allocated on an actual basis except salaries and benefits where management’s judgment is applied; the Company does not allocate general corporate expenses to the segments. In determining total assets by segment, the Company identifies those assets that are attributable to a particular segment such as reinsurance balances receivable, prepaid reinsurance premiums, reinsurance recoverable on unpaid losses, deferred commission and other acquisition expenses, loans, goodwill and intangible assets, and restricted cash and cash equivalents and investments. All remaining assets are allocated to Corporate. 3. Segments (continued)
Fee-generating business, which is included in the Diversified Reinsurance segment, is considered part of the underwriting operations of the Company. To the extent that the fees are generated on underlying insurance contracts sold to third parties that are then ceded under quota share reinsurance contracts with Maiden Insurance Company Ltd. ("Maiden Bermuda"), a proportionate share of the fee is offset against the related acquisition expense. To the extent that fee business is not directly associated with premium revenue generated under the applicable reinsurance contracts, that fee revenue is separately reported on the line captioned “Other insurance revenue” in the Company's unaudited Condensed Consolidated Statements of Income.
The following tables summarize our operating segment's underwriting results and the reconciliation of our operating segments to net income: | | | | | | | | | | | | | | | | | | For the Three Months Ended March 31, 2014 |
| Diversified Reinsurance |
| AmTrust Quota Share Reinsurance |
| NGHC
Quota Share |
| Total | Net premiums written |
| $ | 291,619 |
|
| $ | 419,010 |
|
| $ | (737 | ) |
| $ | 709,892 |
| Net premiums earned |
| $ | 199,316 |
|
| $ | 304,922 |
|
| $ | 14,992 |
|
| $ | 519,230 |
| Other insurance revenue |
| 5,162 |
|
| — |
|
| — |
|
| 5,162 |
| Net loss and loss adjustment expenses |
| (141,364 | ) |
| (199,544 | ) |
| (10,436 | ) |
| (351,344 | ) | Commission and other acquisition expenses |
| (50,841 | ) |
| (90,485 | ) |
| (4,756 | ) |
| (146,082 | ) | General and administrative expenses |
| (10,990 | ) |
| (548 | ) |
| (199 | ) |
| (11,737 | ) | Underwriting income (loss) |
| $ | 1,283 |
|
| $ | 14,345 |
|
| $ | (399 | ) |
| $ | 15,229 |
| Reconciliation to net income |
|
|
|
|
|
|
|
|
|
|
|
| Net investment income and realized gains on investment |
|
|
|
|
|
|
|
|
|
| 27,930 |
| Amortization of intangible assets |
|
|
|
|
|
|
|
|
|
| (819 | ) | Foreign exchange and other gains |
|
|
|
|
|
|
|
|
|
| 138 |
| Interest and amortization expenses |
|
|
|
|
|
|
|
|
|
| (8,064 | ) | Accelerated amortization of junior subordinated debt discount and issuance cost | | | | | | | | (28,240 | ) | Other general and administrative expenses |
|
|
|
|
|
|
|
|
|
| (3,187 | ) | Income tax expense |
|
|
|
|
|
|
|
|
|
| (926 | ) | Net income |
|
|
|
|
|
|
|
|
|
| $ | 2,061 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Net loss and loss adjustment expense ratio* |
| 69.1 | % |
| 65.4 | % |
| 69.6 | % |
| 67.0 | % | Commission and other acquisition expense ratio** |
| 24.9 | % |
| 29.7 | % |
| 31.7 | % |
| 27.9 | % | General and administrative expense ratio*** |
| 5.4 | % |
| 0.2 | % |
| 1.4 | % |
| 2.8 | % | Combined ratio**** |
| 99.4 | % |
| 95.3 | % |
| 102.7 | % |
| 97.7 | % |
3. Segments (continued)
| | | | | | | | | | | | | | | | | | For the Three Months Ended March 31, 2013 | | Diversified Reinsurance | | AmTrust Quota Share Reinsurance | | NGHC
Quota Share | | Total | Net premiums written | | $ | 267,610 |
| | $ | 344,818 |
| | $ | 76,631 |
| | $ | 689,059 |
| Net premiums earned | | $ | 196,249 |
| | $ | 220,288 |
| | $ | 71,905 |
| | $ | 488,442 |
| Other insurance revenue | | 5,215 |
| | — |
| | — |
| | 5,215 |
| Net loss and loss adjustment expenses | | (140,763 | ) | | (145,645 | ) | | (48,487 | ) | | (334,895 | ) | Commission and other acquisition expenses | | (44,782 | ) | | (65,132 | ) | | (22,416 | ) | | (132,330 | ) | General and administrative expenses | | (10,798 | ) | | (489 | ) | | (174 | ) | | (11,461 | ) | Underwriting income | | $ | 5,121 |
| | $ | 9,022 |
| | $ | 828 |
| | $ | 14,971 |
| Reconciliation to net income | | | | | | | | | Net investment income and realized gains on investment | | | | | | | | 25,262 |
| Amortization of intangible assets | | | | | | | | (945 | ) | Foreign exchange and other gains | | | | | | | | 1,547 |
| Interest and amortization expenses | | | | | | | | (9,570 | ) | Other general and administrative expenses | | | | | | | | (2,634 | ) | Income tax expense | | | | | | | | (524 | ) | Net income | | | | | | | | $ | 28,107 |
| | | | | | | | | | Net loss and loss adjustment expense ratio* | | 69.9 | % | | 66.1 | % | | 67.4 | % | | 67.8 | % | Commission and other acquisition expense ratio** | | 22.2 | % | | 29.6 | % | | 31.2 | % | | 26.8 | % | General and administrative expense ratio*** | | 5.4 | % | | 0.2 | % | | 0.2 | % | | 2.9 | % | Combined ratio**** | | 97.5 | % | | 95.9 | % | | 98.8 | % | | 97.5 | % |
| | * | Calculated by dividing net loss and loss adjustment expenses by the sum of net premiums earned and other insurance revenue. |
| | ** | Calculated by dividing commission and other acquisition expenses by the sum of net premiums earned and other insurance revenue. |
| | *** | Calculated by dividing general and administrative expenses by the sum of net premiums earned and other insurance revenue. |
| | **** | Calculated by adding together net loss and loss adjustment expense ratio, commission and other acquisition expense ratio and general and administrative expense ratio. |
3. Segments (continued)
The following table summarizes the financial position of our operating segments as of March 31, 2014 and December 31, 2013: | | | | | | | | | | | | | | | | | | March 31, 2014 | | Diversified
Reinsurance | | AmTrust
Quota Share Reinsurance | | NGHC Quota Share | | Total | Reinsurance balances receivable, net | | $ | 336,807 |
| | $ | 338,412 |
| | $ | — |
| | $ | 675,219 |
| Prepaid reinsurance premiums | | 31,870 |
| | — |
| | — |
| | 31,870 |
| Reinsurance recoverable on unpaid losses | | 83,350 |
| | — |
| | — |
| | 83,350 |
| Deferred commission and other acquisition expenses | | 102,342 |
| | 244,322 |
| | 2,052 |
| | 348,716 |
| Loan to related party | | — |
| | 167,975 |
| | — |
| | 167,975 |
| Goodwill and intangible assets, net | | 89,794 |
| | — |
| | — |
| | 89,794 |
| Restricted cash and cash equivalents and investments | | 1,032,818 |
| | 1,221,365 |
| | 106,328 |
| | 2,360,511 |
| Other assets | | 28,617 |
| | — |
| | — |
| | 28,617 |
| Total assets - operating segments | | 1,705,598 |
| | 1,972,074 |
| | 108,380 |
| | 3,786,052 |
| Corporate assets | | — |
| | — |
| | — |
| | 1,082,504 |
| Total Assets | | $ | 1,705,598 |
| | $ | 1,972,074 |
| | $ | 108,380 |
| | $ | 4,868,556 |
|
| | | | | | | | | | | | | | | | | | December 31, 2013 | | Diversified
Reinsurance | | AmTrust
Quota Share Reinsurance | | NGHC
Quota Share | | Total | Reinsurance balances receivable, net | | $ | 260,882 |
| | $ | 278,573 |
| | $ | 20,690 |
| | $ | 560,145 |
| Prepaid reinsurance premiums | | 39,186 |
| | — |
| | — |
| | 39,186 |
| Reinsurance recoverable on unpaid losses | | 84,036 |
| | — |
| | — |
| | 84,036 |
| Deferred commission and other acquisition expenses | | 88,482 |
| | 209,439 |
| | 6,987 |
| | 304,908 |
| Loan to related party | | — |
| | 167,975 |
| | — |
| | 167,975 |
| Goodwill and intangible assets, net | | 90,613 |
| | — |
| | — |
| | 90,613 |
| Restricted cash and cash equivalents and investments | | 1,029,537 |
| | 1,098,409 |
| | 103,752 |
| | 2,231,698 |
| Other assets | | 32,358 |
| | — |
| | — |
| | 32,358 |
| Total assets - operating segments | | 1,625,094 |
| | 1,754,396 |
| | 131,429 |
| | 3,510,919 |
| Corporate assets | | — |
| | — |
| | — |
| | 1,202,460 |
| Total Assets | | $ | 1,625,094 |
| | $ | 1,754,396 |
| | $ | 131,429 |
| | $ | 4,713,379 |
|
3. Segments (continued)
The following tables set forth financial information relating to net premiums written and earned by major line of business for the three months ended March 31, 2014 and 2013:
| | | | | | | | | | | | | | | | For the Three Months Ended March 31, | | 2014 |
| 2013 | Net premiums written | | Total | | % of Total | | Total | | % of Total | Diversified Reinsurance | | | | | | | | | Property | | $ | 62,581 |
| | 8.8 | % | | $ | 69,522 |
| | 10.1 | % | Casualty | | 171,754 |
| | 24.2 | % | | 148,423 |
| | 21.5 | % | Accident and Health | | 17,222 |
| | 2.4 | % | | 15,529 |
| | 2.2 | % | International | | 40,062 |
| | 5.7 | % | | 34,136 |
| | 5.0 | % | Total Diversified Reinsurance | | 291,619 |
| | 41.1 | % | | 267,610 |
| | 38.8 | % | AmTrust Quota Share Reinsurance | | | | | | | | | Small Commercial Business | | 253,757 |
| | 35.7 | % | | 162,018 |
| | 23.5 | % | Specialty Program | | 31,798 |
| | 4.5 | % | | 34,946 |
| | 5.1 | % | Specialty Risk and Extended Warranty | | 133,455 |
| | 18.8 | % | | 147,854 |
| | 21.5 | % | Total AmTrust Quota Share Reinsurance | | 419,010 |
| | 59.0 | % | | 344,818 |
| | 50.1 | % | NGHC Quota Share | | | | | | | | | Automobile Liability | | (534 | ) | | (0.1 | )% | | 44,339 |
| | 6.4 | % | Automobile Physical Damage | | (203 | ) | | — | % | | 32,292 |
| | 4.7 | % | Total NGHC Quota Share | | (737 | ) | | (0.1 | )% | | 76,631 |
| | 11.1 | % | | | $ | 709,892 |
| | 100.0 | % | | $ | 689,059 |
| | 100.0 | % |
| | | | | | | | | | | | | | | | For the Three Months Ended March 31, | | 2014 | | 2013 | Net premiums earned | | Total | | % of Total | | Total | | % of Total | Diversified Reinsurance | | | | | | | | | Property | | $ | 40,595 |
| | 7.8 | % | | $ | 47,547 |
| | 9.7 | % | Casualty | | 121,887 |
| | 23.5 | % | | 117,059 |
| | 24.0 | % | Accident and Health | | 8,886 |
| | 1.7 | % | | 8,633 |
| | 1.8 | % | International | | 27,948 |
| | 5.4 | % | | 23,010 |
| | 4.7 | % | Total Diversified Reinsurance | | 199,316 |
| | 38.4 | % | | 196,249 |
| | 40.2 | % | AmTrust Quota Share Reinsurance | | | | | | | | | Small Commercial Business | | 158,605 |
| | 30.5 | % | | 102,257 |
| | 20.9 | % | Specialty Program | | 32,853 |
| | 6.3 | % | | 33,346 |
| | 6.8 | % | Specialty Risk and Extended Warranty | | 113,464 |
| | 21.9 | % | | 84,685 |
| | 17.3 | % | Total AmTrust Quota Share Reinsurance | | 304,922 |
| | 58.7 | % | | 220,288 |
| | 45.0 | % | NGHC Quota Share | | | | | | | | | Automobile Liability | | 9,096 |
| | 1.8 | % | | 41,630 |
| | 8.6 | % | Automobile Physical Damage | | 5,896 |
| | 1.1 | % | | 30,275 |
| | 6.2 | % | Total NGHC Quota Share | | 14,992 |
| | 2.9 | % | | 71,905 |
| | 14.8 | % | | | $ | 519,230 |
| | 100.0 | % | | $ | 488,442 |
| | 100.0 | % |
|