NGHC 2014 1Q 10-Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
 
 
FORM 10-Q
 

(Mark One)
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 2014

OR
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from to 
Commission File Number: 001-36311 
 

NATIONAL GENERAL HOLDINGS CORP.
(Exact Name of Registrant as Specified in Its Charter)
Delaware
 
27-1046208
(State or Other Jurisdiction of
Incorporation or Organization)
 
(IRS Employer
Identification No.)
59 Maiden Lane, 38th Floor
New York, New York
 
10038
(Address of Principal Executive Offices)
 
(Zip Code)
(212) 380-9500
(Registrant’s Telephone Number, Including Area Code)
 
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes o No x
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).Yes x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large Accelerated Filer o
 
Accelerated Filer o
 
Non-Accelerated Filer x
(Do not check if a smaller
reporting company)
 
Smaller Reporting Company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).Yes o No x
As of May 5, 2014, the number of common shares of the registrant outstanding was 93,344,400.




NATIONAL GENERAL HOLDINGS CORP.

TABLE OF CONTENTS

 
 
Page
PART I
Item 1.
 
 
 
 
 
 
Item 2.
Item 3.
Item 4.
PART II
Item 1.
Item 1A.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.
 
 
 
 


i


PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
NATIONAL GENERAL HOLDINGS CORP.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Shares and Par Value per Share)
 
March 31, 2014
 
December 31, 2013
ASSETS
(unaudited)
 
(audited)
Investments:
 
 
  

Fixed maturities, available-for-sale, at fair value (amortized cost $1,080,464 and $757,188)
$
1,105,404

 
$
766,589

Equity securities, available-for-sale, at fair value (cost $6,939 and $6,939)
6,241

 
6,287

Equity investment in unconsolidated subsidiaries
135,827

 
133,193

Other investments
3,242

 
2,893

Securities pledged (amortized cost $71,067 and $133,013)
70,740

 
133,922

Total investments
1,321,454

 
1,042,884

Cash and cash equivalents
108,352

 
73,823

Accrued investment income
9,693

 
9,263

Premiums and other receivables, net
684,064

 
449,252

Deferred acquisition costs
99,093

 
60,112

Reinsurance recoverable on unpaid losses (includes $152,212 and $176,241 from related parties at March 31, 2014 and December 31, 2013, respectively)
927,475

 
950,828

Prepaid reinsurance premiums
57,570

 
50,878

Due from affiliate
10,400

 
4,785

Premises and equipment, net
29,562

 
29,535

Intangible assets, net
83,096

 
86,564

Goodwill
82,652

 
70,351

Prepaid and other assets
8,663

 
9,240

Total assets
$
3,422,074

 
$
2,837,515

LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
  

Liabilities:
 
 
  

Unpaid loss and loss adjustment expense reserves
$
1,315,479

 
$
1,259,241

Unearned premiums
692,557

 
476,232

Unearned service contract and other revenue
8,958

 
7,319

Reinsurance payable (includes $71,366 and $76,360 to related parties at March 31, 2014 and December 31, 2013, respectively)
117,733

 
93,534

Accounts payable and accrued expenses
183,407

 
91,143

Securities sold under agreements to repurchase, at contract value
66,993

 
109,629

Deferred tax liability
36,970

 
24,476

Income tax payable
19,015

 
1,987

Notes payable
79,874

 
81,142

Other liabilities
45,498

 
49,945

Total liabilities
2,566,484

 
2,194,648

Stockholders’ equity:
 
 
 
Common stock, $0.01 par value - authorized 150,000,000 shares, issued and outstanding 93,344,400 shares - 2014; authorized 150,000,000 shares, issued and outstanding 79,731,800 shares - 2013
933

 
797

Preferred stock, $0.01 par value - authorized 10,000,000 shares, issued and outstanding 0 shares
—

 
—

Additional paid-in capital
615,927

 
437,006

Accumulated other comprehensive income
15,599

 
7,425

Retained earnings
223,012

 
197,552

Total National General Holdings Corp. Stockholders' Equity
855,471

 
642,780

Non-controlling interest
119

 
87

Total stockholders’ equity
855,590

 
642,867

Total liabilities and stockholders' equity
$
3,422,074

 
$
2,837,515


See accompanying notes to unaudited condensed consolidated financial statements.
1




NATONAL GENERAL HOLDINGS CORP.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In Thousands, Except Shares and Per Share Data)
(Unaudited)
 
Three Months Ended March 31,
  
2014
 
2013
Revenues:
  

 
  

Premium income:
  

 
  

Gross premiums written
$
646,142

 
$
357,613

Ceded premiums (includes $30,277 and $144,100 to related parties in 2014 and 2013, respectively)
(78,657
)
 
(185,097
)
Net written premium
567,485

 
172,516

Change in unearned premium
(209,633
)
 
(20,360
)
Net earned premium
357,852

 
152,156

Ceding commission income (primarily related parties)
5,370

 
25,257

Service and fee income
36,706

 
27,262

Net investment income
9,214

 
6,473

Net realized gain on investments
—

 
1,698

Other revenue
7

 
16

Total revenues
409,149

 
212,862

Expenses:
  

 
  

Loss and loss adjustment expense
225,347

 
103,202

Acquisition costs and other underwriting expenses
74,373

 
30,210

General and administrative
76,199

 
66,809

Interest expense
593

 
343

Total expenses
376,512

 
200,564

Income before provision for income taxes and equity in earnings (losses) of unconsolidated subsidiaries
32,637

 
12,298

Provision for income taxes
7,336

 
3,771

Income before equity in earnings (losses) of unconsolidated subsidiaries
25,301

 
8,527

Equity in earnings (losses) of unconsolidated subsidiaries
1,123

 
(811
)
Net income
26,424

 
7,716

Net income attributable to non-controlling interest
(32
)
 
(44
)
Net income attributable to National General Holdings Corp. ("NGHC")
$
26,392

 
$
7,672

Dividends on preferred stock
—

 
(1,262
)
Net income attributable to NGHC common stockholders
$
26,392

 
$
6,410

Earnings per common share:
  

 
  

Basic earnings per share
$
0.31

 
$
0.14

Diluted earnings per share
$
0.30

 
$
0.13

Dividends declared per common share
$
0.01

 
$
—

Weighted average common shares outstanding:
  

 
  

Basic
85,774,057

 
45,554,570

Diluted
86,884,898

 
58,779,309


See accompanying notes to unaudited condensed consolidated financial statements.
2


NATIONAL GENERAL HOLDINGS CORP.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In Thousands)
(Unaudited)

 
Three Months Ended March 31,
 
2014
 
2013
Net income
$
26,424

 
$
7,716

Other comprehensive income, net of tax:
 
 
 
Foreign currency translation adjustment, net of tax expense of $(304)
(597
)
 
—

Unrealized holding (loss) gain on securities, net of tax expense of $4,478 and $(598) in 2014 and 2013, respectively
8,771

 
(1,111
)
Reclassification adjustment for securities sold during the period, net of tax expense of $0 and $690 in 2014 and 2013, respectively
—

 
1,282

Other comprehensive income, net of tax
8,174

 
171

Comprehensive income
34,598

 
7,887

Comprehensive income attributable to non-controlling interest
(32
)
 
(44
)
Comprehensive income attributable to NGHC
$
34,566

 
$
7,843






See accompanying notes to unaudited condensed consolidated financial statements.
3


  
NATIONAL GENERAL HOLDINGS CORP.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(In Thousands, Except Shares)
(Unaudited)


Three Months Ended March 31, 2014
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Common Stock
 
Preferred Stock
 
 
 
 
 
 
 
 
 
 
 
Shares
 
$
 
Shares
 
$
 
Additional Paid-in Capital
 
Retained Earnings
 
Accumulated Other Comprehensive Income
 
Non-controlling Interest in Subsidiary
 
Total
Balance January 1, 2014
79,731,800

 
$
797

 
—

 
$
—

 
$
437,006

 
$
197,552

 
$
7,425

 
$
87

 
$
642,867

Net income
—

 
—

 
—

 
—

 
—

 
26,392

 
—

 
32

 
26,424

Change in unrealized gains (loss) on investments, net of tax
—

 
—

 
—

 
—

 
—

 
—

 
8,771

 
—

 
8,771

Foreign currency translation, net of tax
—

 
—

 
—

 
—

 
—

 
—

 
(597
)
 
—

 
(597
)
Common stock dividends
—

 
—

 
—

 
—

 
—

 
(932
)
 
—

 
—

 
(932
)
Issuance of common stock
13,612,600

 
136

 
—

 
—

 
178,503

 
—

 
—

 
—

 
178,639

Stock option compensation
—

 
—

 
—

 
—

 
418

 
—

 
—

 
—

 
418

Balance March 31, 2014
93,344,400

 
$
933

 
—

 
$
—


$
615,927

 
$
223,012

 
$
15,599

 
$
119

 
$
855,590



Three Months Ended March 31, 2013
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Common Stock
 
Preferred Stock
 
 
 
 
 
 
 
 
 
 
 
Shares
 
$
 
Shares
 
$
 
Additional Paid-in Capital
 
Retained Earnings
 
Accumulated Other Comprehensive Income
 
Non-controlling Interest in Subsidiary
 
Total
Balance January 1, 2013
45,554,570

 
$
455

 
53,054

 
$
53,054

 
$
158,015

 
$
169,039

 
$
32,474

 
$
5

 
$
413,042

Net income
—

 
—

 
—

 
—

 
—

 
7,672

 
—

 
44

 
7,716

Change in unrealized gains (loss) on investments, net of tax
—

 
—

 
—

 
—

 
—

 
—

 
171

 
—

 
171

Capital contributions
—

 
—

 
—

 
—

 
10,274

 
—

 
—

 
—

 
10,274

Stock option compensation
—

 
—

 
—

 
—

 
367

 
—

 
—

 
—

 
367

Balance March 31, 2013
45,554,570

 
$
455

 
53,054

 
$
53,054

 
$
168,656

 
$
176,711

 
$
32,645

 
$
49

 
$
431,570



See accompanying notes to unaudited condensed consolidated financial statements.
4


NATIONAL GENERAL HOLDINGS CORP.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
 
Three Months Ended March 31,
 
2014
 
2013
Cash flows from operating activities:
 
 
  

Net income
$
26,424

 
$
7,716

Reconciliation of net income to net cash provided by (used in) operating activities:
 
 
 
Depreciation, amortization and goodwill impairment
6,775

 
5,091

Net amortization of premium on investments
740

 
1,050

Stock compensation expense
418

 
367

Equity in (earnings) losses of unconsolidated subsidiaries
(1,123
)
 
811

Net realized gain on investments
—

 
(1,698
)
Realized loss on premise and equipment disposals
—

 
86

Bad debt expense
7,086

 
3,557

Foreign currency translation, net of tax
(597
)
 
—

Changes in assets and liabilities:
 
 
 
Accrued investment income
(430
)
 
1,569

Premiums and other receivables
(247,513
)
 
(36,438
)
Deferred acquisition costs, net
(38,981
)
 
(3,338
)
Reinsurance recoverable on unpaid losses
23,354

 
4,004

Prepaid reinsurance premiums
(6,692
)
 
(2,619
)
Prepaid expenses and other assets
576

 
(1,573
)
Unpaid loss and loss adjustment expense reserves
56,238

 
(5,273
)
Unearned premiums
216,325

 
22,979

Unearned service contract and other revenue
1,639

 
3,253

Reinsurance payable
24,199

 
7,787

Accounts payable
93,033

 
(5,212
)
Income tax payable
17,028

 
(9,810
)
Deferred tax liability
(12,199
)
 
6,012

Other liabilities
(4,447
)
 
(380
)
Net cash provided by (used in) operating activities
161,853

 
(2,059
)
Cash flows from investing activities:
 
 
 
Investment in unconsolidated subsidiaries
(1,576
)
 
(3,068
)
Purchases of other investments
(349
)
 
—

Acquisition of consolidated subsidiaries, net of cash obtained
6,393

 
—

Purchases of short term investments
(124,000
)
 
(68,306
)
Proceeds from sale of short-term investments
124,000

 
72,911

Purchases of premises and equipment
(3,525
)
 
(1,788
)
Disposals of premises and equipment
—

 
49

Purchases of fixed maturities
(324,903
)
 
(85,802
)
Proceeds from sale and maturity of fixed maturities
62,834

 
110,024

Net cash provided by (used in) investing activities
(261,126
)
 
24,020

 
 
 
 

See accompanying notes to unaudited condensed consolidated financial statements.
5


NATIONAL GENERAL HOLDINGS CORP.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)

Cash flows from financing activities:
 
 
 

Securities sold under agreements to repurchase, net
(42,636
)
 
—

Securities sold but not yet purchased, net
—

 
(22,881
)
Notes payable repayments
(1,394
)
 
(30,988
)
Proceeds from notes payable
125

 
21,760

Issuance of common stock
178,639

 
—

Dividends paid
(932
)
 
—

Net cash provided by (used in) financing activities
133,802

 
(32,109
)
Net increase (decrease) in cash and cash equivalents
34,529

 
(10,148
)
Cash and cash equivalents, beginning of the period
73,823

 
39,937

Cash and cash equivalents, end of the period
$
108,352

 
$
29,789

Supplemental disclosures of cash flow information:
 
 
 
Cash paid for income taxes
$
1,700

 
$
7,500

Cash paid for interest
728

 
570


See accompanying notes to unaudited condensed consolidated financial statements.
6
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” or “U.S. 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 (“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, 2013, previously filed with the SEC on March 28, 2014. The balance sheet at December 31, 2013 has been derived from the audited consolidated financial statements at that date but does not include all of the information and footnotes required by GAAP for complete financial statements.

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.

A detailed description of the Company’s significant accounting policies and management judgments is located in the audited consolidated financial statements, included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2013 filed with the SEC.

All significant inter-company transactions and accounts have been eliminated in the condensed consolidated financial statements.

To facilitate period-to-period comparisons, certain reclassifications have been made to prior period consolidated financial statement amounts to conform to current period presentation.

2. Recent Accounting Pronouncements

There have been no recent accounting pronouncements or changes in accounting pronouncements during the three months ended March 31, 2014, as compared to those described in our Annual Report on Form 10-K for the year ended December 31, 2013, that are of significance, or potential significance, to the Company.

3. Investments

(a) Available-for-Sale Securities

The cost, fair value, and gross unrealized gains and losses on available-for-sale securities were as follows:


7
NATIONAL GENERAL HOLDINGS CORP.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands, Except Shares and Per Share Data)

March 31, 2014
 
Cost or
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Fair
Value
Equity securities:
 
 
 
 
 
 
 
 
   Common stock
 
$
1,939

 
$
—

 
$
(390
)
 
$
1,549

   Preferred stock
 
5,000

 
—

 
(308
)
 
4,692

Fixed maturities:
 
 
 
 
 
 
 
 
   U.S. Treasury and Federal agencies
 
28,022

 
1,053

 
(34
)
 
29,041

   States and political subdivisions bonds
 
104,300

 
2,269

 
(2,175
)
 
104,394

   Residential mortgage-backed securities
 
379,763

 
4,575

 
(5,152
)
 
379,186

   Corporate bonds
 
617,880

 
27,478

 
(3,526
)
 
641,832

   Commercial mortgage-backed securities
 
21,566

 
125

 
—

 
21,691

Subtotal
 
$
1,158,470

 
$
35,500

 
$
(11,585
)
 
$
1,182,385

Less: Securities pledged
 
71,067

 
492

 
(819
)
 
70,740

Total
 
$
1,087,403

 
$
35,008

 
$
(10,766
)
 
$
1,111,645

December 31, 2013
 
Cost or
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Fair
Value
Equity securities:
 
 
 
 
 
 
 
 
   Common stock
 
$
1,939

 
$
—

 
$
—

 
$
1,939

   Preferred stock
 
5,000

 
—

 
(652
)
 
4,348

Fixed maturities:
 
 
 
 
 
 
 
 
   U.S. Treasury and Federal agencies
 
30,655

 
920

 
—

 
31,575

   States and political subdivisions bonds
 
101,105

 
1,681

 
(3,202
)
 
99,584

   Residential mortgage-backed securities
 
272,820

 
4,136

 
(7,527
)
 
269,429

   Corporate bonds
 
477,442

 
21,397

 
(7,044
)
 
491,795

   Commercial mortgage-backed securities
 
8,179

 
—

 
(51
)
 
8,128

Subtotal
 
$
897,140

 
$
28,134

 
$
(18,476
)
 
$
906,798

Less: Securities pledged
 
133,013

 
3,884

 
(2,975
)
 
133,922

Total
 
$
764,127

 
$
24,250

 
$
(15,501
)
 
$
772,876


The amortized cost and fair value of available-for-sale debt securities held as of March 31, 2014, 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.
March 31, 2014
 
Cost or Amortized
Cost
 
Fair
Value
Due in one year or less
 
$
4,862

 
$
4,881

Due after one year through five years
 
91,046

 
96,702

Due after five years through ten years
 
557,661

 
577,436

Due after ten years
 
96,633

 
96,248

Mortgage-backed securities
 
401,329

 
400,877

Total
 
$
1,151,531

 
$
1,176,144



8
NATIONAL GENERAL HOLDINGS CORP.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands, Except Shares and Per Share Data)

(b) Investment Income

The components of net investment income consisted of the following:
 
 
Three Months Ended March 31,
 
 
2014
 
2013
Interest
 
 
 
 
Cash and short term investments
 
$
10

 
$
2

Fixed maturities
 
9,753

 
7,443

Investment Income
 
9,763

 
7,445

Investment expense
 
(469
)
 
(923
)
Repurchase Agreements interest expense
 
(80
)
 
(49
)
Net Investment Income
 
$
9,214

 
$
6,473


(c) Realized Gains and Losses

Proceeds from sales of fixed maturity securities during the three months ended March 31, 2014 and 2013 were $0 and $109,951, respectively.

The tables below indicate the gross realized gains and losses for the three months ended March 31, 2014 and 2013.

Three Months Ended March 31, 2014
 
Gross Gains
 
Gross Losses
 
Net Gains (Losses)
Fixed maturity securities
 
$
—

 
$
—

 
$
—


Three Months Ended March 31, 2013
 
Gross Gains
 
Gross Losses
 
Net Gains (Losses)
Fixed maturity securities
 
$
1,724

 
$
(26
)
 
$
1,698



(d) Unrealized Gains and Losses

Unrealized gains (losses) on fixed maturity securities, equity securities and securities sold but not yet purchased consisted of the following:

March 31, 2014
 
 
Net unrealized loss on common stock
 
$
(390
)
Net unrealized loss on preferred stock
 
(308
)
Net unrealized gain on fixed maturity securities
 
24,613

Deferred income tax expense
 
(8,084
)
Net unrealized gain, net of deferred income tax expense
 
$
15,831

 
 
 
Change in net unrealized gains, net of deferred income tax expense
 
$
8,771


9
NATIONAL GENERAL HOLDINGS CORP.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands, Except Shares and Per Share Data)


December 31, 2013
 
 
Net unrealized loss on preferred stock
 
$
(652
)
Net unrealized gain on fixed maturity securities
 
10,310

Deferred income tax expense
 
(2,598
)
Net unrealized gain, net of deferred income tax expense
 
$
7,060


(e) Gross Unrealized Losses

The tables below summarize the gross unrealized losses of fixed maturity and equity securities by length of time the security has continuously been in an unrealized loss position as of March 31, 2014 and December 31, 2013:

 
 
Less Than 12 Months
 
12 Months or More
 
Total
March 31, 2014
 
Fair
Market
Value
 
Unrealized
Losses
 
No. of
Positions
Held
 
Fair
Market
Value
 
Unrealized
Losses
 
No. of
Positions
Held
 
Fair
Market
Value
 
Unrealized
Losses
Common stock
 
$
1,549

 
$
(390
)
 
1

 
$
—

 
$
—

 
—

 
$
1,549

 
$
(390
)
Preferred stock
 
4,692

 
(308
)
 
1

 
—

 
—

 
—

 
4,692

 
(308
)
U.S. Government
 
8,253

 
(34
)
 
1

 
—

 
—

 
—

 
8,253

 
(34
)
States and political subdivisions
 
42,592

 
(1,108
)
 
16

 
7,208

 
(1,067
)
 
3

 
49,800

 
(2,175
)
Residential Mortgage-backed
 
245,704

 
(5,152
)
 
7

 
—

 
—

 
—

 
245,704

 
(5,152
)
Corporate bonds
 
81,191

 
(1,765
)
 
25

 
30,791

 
(1,761
)
 
8

 
111,982

 
(3,526
)
Total
 
$
383,981

 
$
(8,757
)
 
51

 
$
37,999

 
$
(2,828
)
 
11

 
$
421,980

 
$
(11,585
)
 
 
Less Than 12 Months
 
12 Months or More
 
Total
December 31, 2013
 
Fair
Market
Value
 
Unrealized
Losses
 
No. of
Positions
Held
 
Fair
Market
Value
 
Unrealized
Losses
 
No. of
Positions
Held
 
Fair
Market
Value
 
Unrealized
Losses
Preferred stock
 
$
4,348

 
$
(652
)
 
1

 
$
—

 
$
—

 
—

 
$
4,348

 
$
(652
)
States and political subdivisions
 
32,770

 
(2,622
)
 
18

 
2,600

 
(580
)
 
2

 
35,370

 
(3,202
)
Residential Mortgage-backed
 
176,491

 
(7,527
)
 
6

 
—

 
—

 
—

 
176,491

 
(7,527
)
Commercial Mortgage-backed
 
8,128

 
(51
)
 
2

 
—

 
—

 
—

 
8,128

 
(51
)
Corporate bonds
 
128,362

 
(4,051
)
 
39

 
41,673

 
(2,993
)
 
9

 
170,035

 
(7,044
)
Total
 
$
350,099

 
$
(14,903
)
 
66

 
$
44,273

 
$
(3,573
)
 
11

 
$
394,372

 
$
(18,476
)

There were 62 and 77 securities at March 31, 2014 and December 31, 2013, respectively that account for the gross unrealized loss, none of which are deemed by the Company to be an other-than-temporary impairment (“OTTI”). Significant factors influencing the Company’s determination that none of the securities are OTTI included the magnitude of unrealized losses in relation to cost, the nature of the investment and management’s intent not to sell these securities and it being more likely than not that the Company will not be required to sell these investments before anticipated recovery of fair value to the Company’s cost basis.

(f) Restricted Cash and 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

10
NATIONAL GENERAL HOLDINGS CORP.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands, Except Shares and Per Share Data)

collateralize business with its reinsurance counterparties. These assets held are primarily in the form of cash or certain high grade securities. The fair values of our restricted assets as of March 31, 2014 and December 31, 2013 are as follows:
 
 
March 31, 2014
 
December 31, 2013
Restricted cash
 
$
8,920

 
$
1,155

Restricted investments - fixed maturities at fair value
 
33,120

 
42,092

Total restricted cash and investments
 
$
42,040

 
$
43,247


(g) Other

The Company enters into reverse repurchase and repurchase agreements, which are accounted for as either collateralized lending or borrowing transactions and are recorded at contract amounts which approximate fair value. For the collateralized borrowing transactions (i.e., repurchase agreements), the Company receives cash or securities that it invests or holds in short-term or fixed income securities. As of March 31, 2014, the Company had collateralized borrowing transaction principal outstanding of $66,993 at interest rates between and 0.22% and 0.28%. As of December 31, 2013, the Company had collateralized borrowing transaction principal outstanding of $109,629 at interest rates between 0.37% and 0.44%. Interest expense associated with the repurchase borrowing agreements for the three months ended March 31, 2014 and 2013 was $80 and $49, respectively. The Company has approximately $70,740 and $133,922 of collateral pledged in support for these agreements as of March 31, 2014 and December 31, 2013, respectively.

4. Fair Value of Financial Instruments

ASC 820, “Fair Value Measurements and Disclosures”, provides a definition of fair value, establishes a framework for measuring fair value, and requires expanded disclosures about fair value measurements. The standard applies when GAAP requires or allows assets or liabilities to be measured at fair value; therefore, it does not expand the use of fair value in any new circumstance.
The Company utilized a pricing service to estimate fair value measurements for approximately 100.0% of its fixed maturities. For investments that have quoted market prices in active markets, the Company uses the quoted market prices as fair value and includes these prices in the amounts disclosed in Level 1 of the fair value hierarchy. The Company receives the quoted market prices from nationally recognized third-party pricing services (“pricing services”). When quoted market prices are unavailable, the Company utilizes a pricing service to determine an estimate of fair value. This pricing method is used, primarily, for fixed maturities. The fair value estimates provided by the pricing service are included in Level 2 of the fair value hierarchy. If the Company determines that the fair value estimate provided by the pricing service does not represent fair value or if quoted market prices and an estimate from pricing services are unavailable, the Company produces an estimate of fair value based on dealer quotations of the bid price for recent activity in positions with the same or similar characteristics to that being valued or through consensus pricing of a pricing service. Depending on the level of observable inputs, the Company will then determine if the estimate is in Level 2 or Level 3 of the fair value hierarchy.
The following describes the valuation techniques used by the Company to determine the fair value of financial instruments held as of March 31, 2014.
Equity Securities ‑ For public common and preferred stocks, the Company receives prices from a nationally recognized pricing service that are based on observable market transactions and includes these estimates in the amount disclosed in Level 1. When current market quotes in active markets are unavailable for certain non-redeemable preferred stocks held by the Company, the Company receives an estimate of fair value from the pricing service that provides fair value estimates for the Company’s fixed maturities. The service utilizes some of the same methodologies to price the non-redeemable preferred stocks as it does for the fixed maturities. The Company includes the estimate in the amount disclosed in Level 2.
U.S. Treasury and Federal Agencies ‑ Comprised of primarily bonds issued by the U.S. Treasury, the Federal Home Loan Bank, the Federal Home Loan Mortgage Corporation, Government National Mortgage Association and the Federal National Mortgage Association. The fair values of U.S. government securities are based on quoted market prices in active markets, and are included in the Level 1 fair value hierarchy. The Company believes the market for U.S. Treasury securities is an actively traded market given the high level of daily trading volume. The fair values of U.S. government agency securities are priced using the spread above the risk-free yield curve. As the yields for the risk-free yield curve and the spreads for these securities are observable market inputs, the fair values of U.S. government agency securities are included in the Level 2 fair value hierarchy.
State and Political Subdivision Bonds ‑ Comprised of bonds and auction rate securities issued by U.S. state and municipality entities or agencies. The fair values of municipal bonds are generally priced by pricing services. The pricing services typically use

11
NATIONAL GENERAL HOLDINGS CORP.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands, Except Shares and Per Share Data)

spreads obtained from broker-dealers, trade prices and the new issue market. As the significant inputs used to price the municipal bonds are observable market inputs, these are classified within Level 2. Municipal auction rate securities are reported in the consolidated balance sheets at cost which approximates their fair value.
Corporate Bonds ‑ Comprised of bonds issued by corporations and are generally priced by pricing services. The fair values of corporate bonds that are short term are priced, by the pricing services, using the spread above the London Interbank Offering Rate ("LIBOR") yield curve and the fair value of corporate bonds that are long term 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. As the significant inputs used to price corporate bonds are observable market inputs, the fair values of corporate bonds are included in the Level 2 fair value hierarchy.
Mortgage-backed Securities ‑ Comprised of commercial and residential mortgage-backed securities. These securities are priced by independent pricing services and brokers. The pricing provider applies dealer quotes and other available trade information, prepayment speeds, yield curves and credit spreads to the valuation. As the significant inputs used to price are observable market inputs, the fair value of these securities are included in the Level 2 fair value hierarchy.
Premiums and other receivable - The carrying values reported in the accompanying balance sheets for these financial instruments approximate their fair values due to the short term nature of these assets.
Notes Payable - The amount reported in the accompanying balance sheets for this financial instrument represents the carrying value of the debt.
In accordance with ASC 820, assets and liabilities measured at fair value on a recurring basis are as follows:

 
 
 
 
 
 
 
 
 
March 31, 2014
 
Recurring Fair Value Measures
 
 
Level 1
 
Level 2
 
Level 3
 
Total
Assets
 
 
 
 
 
 
 
 
Equity securities:
 
 
 
 
 
 
 
 
Common stock
 
$
1,549

 
$
—

 
$
—

 
$
1,549

Preferred stock
 
—

 
4,692

 
—

 
4,692

Fixed maturities:
 
 
 
 
 
 
 
—

U.S. Treasury and Federal agencies
 
29,041

 
—

 
—

 
29,041

State and political subdivision bonds
 
—

 
104,394

 
—

 
104,394

Residential mortgage-backed securities
 
—

 
379,186

 
—

 
379,186

Corporate bonds
 
—

 
641,832

 
—

 
641,832

Commercial mortgage-backed securities
 
—

 
21,691

 
—

 
21,691

Other investments
 
—

 
—

 
3,242

 
3,242

Total assets
 
$
30,590

 
$
1,151,795

 
$
3,242

 
$
1,185,627

 
 
 
 
 
 
 
 
 
Liabilities
 
 
 
 
 
 
 
 
Securities sold under agreements to repurchase
 
$
—

 
$
66,993

 
$
—

 
$
66,993

Total liabilities
 
$
—

 
$
66,993

 
$
—

 
$
66,993




12
NATIONAL GENERAL HOLDINGS CORP.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands, Except Shares and Per Share Data)

 
 
 
 
 
 
 
 
 
December 31, 2013
 
Recurring Fair Value Measures
 
 
Level 1
 
Level 2
 
Level 3
 
Total
Assets
 
 
 
 
 
 
 
 
Common stock
 
$
1,939

 
$
—

 
$
—

 
$
1,939

Preferred stock
 
—

 
4,348

 
—

 
4,348

Fixed maturities:
 
 
 
 
 
 
 
—

U.S. Treasury and Federal agencies
 
31,575

 
—

 
—

 
31,575

State and political subdivision bonds
 
—

 
99,584

 
—

 
99,584

Residential mortgage-backed securities
 
—

 
269,429

 
—

 
269,429

Corporate bonds
 
—

 
491,795

 
—

 
491,795

Commercial mortgage-backed securities
 
—

 
8,128

 
—

 
8,128

Other investments
 
—

 
—

 
2,893

 
2,893

Total assets
 
$
33,514

 
$
873,284

 
$
2,893

 
$
909,691

 
 
 
 
 
 
 
 
 
Liabilities
 
 
 
 
 
 
 
 
Securities sold under agreements to repurchase
 
$
—

 
$
109,629

 
$
—

 
$
109,629

Total liabilities
 
$
—

 
$
109,629

 
$
—

 
$
109,629


There have not been any transfers between Level 1 and Level 2, or Level 2 and Level 3, respectively, during the periods represented by these condensed consolidated financial statements.

The Company does not measure any assets or liabilities at fair value on a nonrecurring basis at March 31, 2014. The carrying value of the Company’s cash and cash equivalents, premiums and other receivables, accrued interest, accounts payable and accrued expenses approximates fair value given the short-term nature of such items.


5. Equity Investments in Unconsolidated Subsidiaries

In July 2010, the Company and AmTrust Financial Services, Inc. (“AmTrust”) formed Tiger Capital LLC (“Tiger”) for the purposes of acquiring certain life settlement contracts whereby each company initially contributed approximately $11,000 for the respective fifty percent ownership interests in Tiger. In 2011, the Company, through its wholly-owned subsidiary, American Capital Acquisition Investments, Inc. (“ACAI”), formed AMT Capital Alpha, LLC (“AMT Alpha”) with AmTrust for the purposes of acquiring additional life settlement contracts.

On March 28, 2013, the Company entered into a Stock Purchase Agreement with ACP Re Ltd. ("ACP Re") to acquire 50% of the issued and outstanding shares of AMT Capital Holdings S.A. (“AMTCH”), a Luxembourg Societe Anonyme, for a cash contribution in the amount of $12,136. ACP Re Ltd. and the Company are majority owned and controlled by a common parent and the transaction is accounted for as between entities under common control. AMTCH’s primary purpose is to acquire certain life settlement contracts. AmTrust owns the remaining 50% of AMTCH. The Company accounts for AMTCH using the equity method of accounting. The Company’s 50% equity interest in AMTCH at the acquisition date was approximately $22,411. The difference between the equity interest and consideration paid was recorded as additional paid-in capital of $10,275.

In December 2013, ACAI and AmTrust formed AMT Capital Holdings II S.A (“AMTCH II”). The company is equally owned by both parties and was established for the purpose of acquiring additional life settlement contracts.

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 Company, along with AmTrust, is obligated to pay premiums on these life insurance policies as they come due. A third party serves as the administrator for two of the life settlement contract portfolios, for which it receives an administrative fee. The third-party administrator is eligible to receive a percentage of profits after certain time and performance thresholds have been met.


13
NATIONAL GENERAL HOLDINGS CORP.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands, Except Shares and Per Share Data)

Tiger, AMT Alpha, AMTCH and AMTCH II are considered to be variable interest entities (“VIE”), for which the Company is not a primary beneficiary. In determining whether it is the primary beneficiary of a VIE, the Company considered qualitative and quantitative factors, including, but not limited to, activities that most significantly impact the VIE's economic performance and which party controls such activities. The Company does not have the ability to direct the activities of Tiger, AMT Alpha, AMTCH and AMTCH II that most significantly impact its economic performance. The Company’s maximum exposure to a loss as a result of its involvement with the unconsolidated VIE is limited to its recorded investment plus additional capital commitments. The Company uses the equity method of accounting to account for its investments in Tiger, AMT Alpha, AMTCH and AMTCH II (collectively, “LSC Entities”).

The Company currently has a fifty percent ownership interest in the LSC Entities that acquire life settlement contracts. AmTrust owns the remaining fifty percent interest in the LSC Entities.

The following tables present the investment activity in the LSC Entities.
Three Months Ended March 31, 2014
 
 
 
 
 
 
 
 
 
 
 
 
Tiger
 
AMT Alpha
 
AMTCH
 
AMTCH II
 
Total
Balance at beginning of period
 
$
73,186

 
$
6,537

 
$
32,966

 
$
13,497

 
$
126,186

Contributions
 
400

 
475

 
687

 
—

 
1,562

Equity in earnings (losses) of unconsolidated subsidiaries
 
(3,045
)
 
27

 
(2,063
)
 
6,481

 
1,400

Change in equity method investments
 
(2,645
)
 
502

 
(1,376
)
 
6,481

 
2,962

Balance at end of period
 
$
70,541

 
$
7,039

 
$
31,590

 
$
19,978

 
$
129,148


Three Months Ended March 31, 2013
 
 
 
 
 
 
 
 
 
 
Tiger
 
AMT Alpha
 
AMTCH
 
Total
Balance at beginning of period
 
$
58,273

 
$
8,211

 
$
—

 
$
66,484

Contributions
 
2,890

 
100

 
—

 
2,990

Acquisition of interest
 
—

 
—

 
22,411

 
22,411

Equity in earnings (losses) of unconsolidated subsidiaries
 
1,269

 
(2,056
)
 
—

 
(787
)
Change in equity method investments
 
4,159

 
(1,956
)
 
22,411

 
24,614

Balance at end of period
 
$
62,432

 
$
6,255

 
$
22,411

 
$
91,098


The following tables summarize total assets and total liabilities as of March 31, 2014 and December 31, 2013 for the Company’s unconsolidated equity method investment in the LSC Entities.
March 31, 2014
 
 
 
 
 
 
 
 
 
 
Condensed balance sheet data
 
Tiger
 
AMT Alpha
 
AMTCH
 
AMTCH II
 
Total
Investments in life settlement contracts at fair value
 
$
151,691

 
$
14,709

 
$
62,262

 
$
39,537

 
$
268,199

Total assets
 
157,511

 
15,428

 
63,507

 
41,847

 
278,293

Total liabilities
 
16,429

 
1,350

 
327

 
1,892

 
19,998

Members' equity
 
141,082

 
14,078

 
63,180

 
39,955

 
258,295

NGHC's 50% ownership interest
 
$
70,541

 
$
7,039

 
$
31,590

 
$
19,978

 
$
129,148



14
NATIONAL GENERAL HOLDINGS CORP.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands, Except Shares and Per Share Data)

December 31, 2013
 
 
 
 
 
 
 
 
 
 
Condensed balance sheet data
 
Tiger
 
AMT Alpha
 
AMTCH
 
AMTCH II
 
Total
Investments in life settlement contracts at fair value
 
$
153,684

 
$
14,366

 
$
64,974

 
$
—

 
$
233,024

Total assets
 
163,169

 
14,416

 
66,168

 
27,005

 
270,758

Total liabilities
 
16,797

 
1,342

 
236

 
12

 
18,387

Members' equity
 
146,372

 
13,074

 
65,932

 
26,993

 
252,371

NGHC's 50% ownership interest
 
$
73,186

 
$
6,537

 
$
32,966

 
$
13,497

 
$
126,186



The following tables summarize the results of operations for the Company's unconsolidated equity method investment in the LSC Entities for the three months ended March 31, 2014 and 2013.

Three Months Ended March 31, 2014
 
 
 
 
 
 
 
 
 
 
Condensed results of operations
 
Tiger
 
AMT Alpha
 
AMTCH
 
AMTCH II
 
Total
Revenue, net of commission
 
$
(5,579
)
 
$
59

 
$
(3,958
)
 
$
13,668

 
$
4,190

Total expenses
 
512

 
4

 
168

 
706

 
1,390

Net income (loss)
 
$
(6,091
)
 
$
55

 
$
(4,126
)
 
$
12,962

 
$
2,800

NGHC's 50% ownership interest
 
$
(3,045
)
 
$
27

 
$
(2,063
)
 
$
6,481

 
$
1,400


Three Months Ended March 31, 2013
 
 
 
 
 
 
Condensed results of operations
 
Tiger
 
AMT Alpha
 
Total
Revenue, net of commission
 
$
3,073

 
$
(4,097
)
 
$
(1,024
)
Total expenses
 
535

 
14

 
549

Net income (loss)
 
$
2,538

 
$
(4,111
)
 
$
(1,573
)
NGHC's 50% ownership interest
 
$
1,269

 
$
(2,056
)
 
$
(787
)

The LSC Entities account for investments in life settlements in accordance with ASC 325-30, Investments in Insurance Contracts, which states that an investor shall elect to account for its investments in life settlement contracts by using either the investment method or the fair value method. The election is made on an instrument-by-instrument basis and is irrevocable. The LSC Entities have elected to account for these policies using the fair value method. The LSC Entities determine fair value based upon their estimate of the discounted cash flow related to policies (net of the reserves for improvements in mortality, the possibility that the high net worth individuals represented in their portfolios may have access to better health care, the volatility inherent in determining the life expectancy of insureds with significant reported health impairments, the possibility that the issuer of the policy or a third party will contest the payment of the death benefit payable to the LSC Entities, and the future expenses related to the administration of the portfolio), which incorporates current life expectancy assumptions, premium payments, the credit exposure to the insurance company that issued the life settlement contracts and the rate of return that a buyer would require on the contracts as no comparable market pricing is available.

The fair value of life settlement contracts as well as life settlement profit commission liability is based on information available to the LSC Entities at the end of the reporting period. The LSC Entities consider the following factors in their fair value estimates: cost at date of purchase, recent purchases and sales of similar investments (if available and applicable), financial standing of the issuer, changes in economic conditions affecting the issuer, maintenance cost, premiums, benefits, standard actuarially developed mortality tables and life expectancy reports prepared by nationally recognized and independent third party medical underwriters. The LSC Entities estimate the fair value of a life insurance policy by applying an investment discount rate based on the cost of funding their life settlement contracts as compared to returns on investments in asset classes with comparable credit quality, which the LSC Entities have determined to be 7.5%, to the expected cash flow generated by the policies in the life settlement portfolio

15
NATIONAL GENERAL HOLDINGS CORP.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands, Except Shares and Per Share Data)

(death benefits less premium payments), net of policy specific adjustments and reserves. In order to confirm the integrity of their calculation of fair value, the LSC Entities, quarterly, retain an independent third-party actuary to verify that the actuarial modeling used by the LSC Entities to determine fair value was performed correctly and that the valuation, as determined through the LSC Entities’ actuarial modeling, is consistent with other methodologies. The LSC Entities consider this information in their assessment of the reasonableness of the life expectancy and discount rate inputs used in the valuation of these investments.

The LSC Entities adjust the standard mortality for each insured for the insured’s life expectancy based on reviews of the insured’s medical records. The LSC Entities establish policy specific reserves for the following uncertainties: improvements in mortality, the possibility that the high net worth individuals represented in their portfolio may have access to better health care, the volatility inherent in determining the life expectancy of insureds with significant reported health impairments, the possibility that the issuer of the policy or a third party will contest the payment of the death benefit payable to the LSC Entities, and the future expenses related to the administration of the portfolio. The application of the investment discount rate to the expected cash flow generated by the portfolio, net of the policy specific reserves, yields the fair value of the portfolio. The effective discount rate reflects the relationship between the fair value and the expected cash flow gross of these reserves.

The following summarizes data utilized in estimating the fair value of the portfolio of life insurance policies as of March 31, 2014 and December 31, 2013 and, only includes data for policies to which the LSC Entities assigned value at those dates:

 
 
March 31, 2014
 
December 31, 2013
Average age of insured
 
80.4 years

 
80.1 years

Average life expectancy, months(1)
 
127

 
131

Average face amount per policy
 
$
6,692

 
$
6,611

Effective discount rate(2)
 
14.4
%
 
14.2
%

(1)  Standard life expectancy as adjusted for specific circumstances.
(2)  Effective Discount Rate ("EDR") is the LSC Entities' estimated internal rate of return on its life settlement contract portfolio and is determined from the gross expected cash flows and valuation of the portfolio. The valuation of the portfolio is calculated net of all reserves using a 7.5% discount rate. The EDR is implicit of the reserves and the gross expected cash flows of the portfolio. The LSC Entities anticipate that the EDR's range is between 12.5% and 17.5% and reflects the uncertainty that exists surrounding the information available as of the reporting date. As the accuracy and reliability of information improves (declines), the EDR will decrease (increase). The increase in the EDR from December 31, 2013 to March 31, 2014 resulted from routine updating of life expectancies and other factors relating to operational risk.
The LSC Entities' assumptions are, by their nature, inherently uncertain and the effect of changes in estimates may be significant. The fair value measurements used in estimating the present value calculation are derived from valuation techniques generally used in the industry that include inputs for the asset that are not based on observable market data. The extent to which the fair value could reasonably vary in the near term has been quantified by evaluating the effect of changes in significant underlying assumptions used to estimate the fair value amount. If the life expectancies were increased or decreased by 4 months and the discount factors were increased or decreased by 1% while all other variables were held constant, the carrying value of the investment in life insurance policies would increase or (decrease) by the unaudited amounts summarized below as of March 31, 2014 and December 31, 2013:

 
 
Change in life expectancy
 
 
Plus 4 Months
 
Minus 4 Months
Investment in life policies:
 
 
 
 
March 31, 2014
 
$
(33,032
)
 
$
34,621

December 31, 2013
 
$
(29,537
)
 
$
31,313



16
NATIONAL GENERAL HOLDINGS CORP.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands, Except Shares and Per Share Data)

 
 
Change in discount rate(1)
 
 
Plus 1%
 
Minus 1%
Investment in life policies:
 
 
 
 
March 31, 2014
 
$
(22,413
)
 
$
25,228

December 31, 2013
 
$
(20,055
)
 
$
22,605


(1)  Discount rate is a present value calculation that considers legal risk, credit risk and liquidity risk and is a component of EDR.

The Company and AmTrust are committed to providing additional capital support to the LSC Entities to keep the life settlement policies in-force. The Company and AmTrust, each, are committed to provide 50% of the additional required capital. Below is a summary of premiums to be paid by the LSC Entities for each of the five succeeding fiscal years to keep the existing life insurance policies in force as of March 31, 2014. The actual capital commitment may differ from the amounts shown based on policy lapses and terminations, death benefits received and other operating cash flows of the LSC Entities:

 
 
Premiums Due on Life Settlement Contracts
2014
 
$
39,790

2015
 
42,339

2016
 
62,240

2017
 
40,309

2018
 
38,319

Thereafter
 
583,031

Total
 
$
806,028


In August 2011, the Company formed 800 Superior, LLC with AmTrust, for the purposes of acquiring an office building in Cleveland, Ohio. The cost of the building was approximately $7,500. AmTrust has been appointed managing member of 800 Superior LLC. The Company and AmTrust each have a 50% ownership interest in 800 Superior, LLC for which the Company is not the primary beneficiary. Additionally, in 2012, the Company entered into an office lease with 800 Superior, LLC for approximately 134,000 square feet. The lease period is for 15 years and the Company paid 800 Superior, LLC $561 and $536 for three months ended March 31, 2014 and 2013.

In September 2012, the Company formed East Ninth & Superior, LLC and 800 Superior NMTC Investment Fund II, LLC with AmTrust (collectively “East Ninth & Superior”) (see Note 14, "Related Party Transactions"). The Company and AmTrust each have a 50% ownership interest in East Ninth and Superior, LLC and a 24.5% in 800 Superior NMTC investment Fund II for which the Company is not a primary beneficiary.

The following tables present the investment activity in 800 Superior, LLC and East Ninth & Superior.

Three Months Ended March 31, 2014
 
800 Superior, LLC

 
East Ninth & Superior

 
Total

Balance at beginning of period
 
$
2,863

 
$
4,009

 
$
6,872

Contributions
 
14

 
—

 
14

Distributions
 
—

 
—

 
—

Equity in earnings of unconsolidated subsidiaries
 
(305
)
 
29

 
(276
)
Change in equity method investments
 
(291
)
 
29

 
(262
)
Balance at end of period
 
$
2,572

 
$
4,038

 
$
6,610



17
NATIONAL GENERAL HOLDINGS CORP.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands, Except Shares and Per Share Data)

Three Months Ended March 31, 2013
 
800 Superior, LLC

 
East Ninth & Superior

 
Total

Balance at beginning of period
 
$
2,671

 
$
4,066

 
$
6,737

Contributions
 
—

 
—

 
—

Distributions
 
—

 
—

 
—

Equity in earnings of unconsolidated subsidiaries
 
(44
)
 
21

 
(23
)
Change in equity method investments
 
(44
)
 
21

 
(23
)
Balance at end of period
 
$
2,627

 
$
4,087

 
$
6,714


The following tables summarize total assets and total liabilities as of March 31, 2014 and December 31, 2013 for the Company’s unconsolidated equity method investment in 800 Superior, LLC and East Ninth & Superior.

March 31, 2014
 
 
 
 
 
 
Condensed balance sheet data
 
800 Superior, LLC

 
East Ninth & Superior

 
Total

Total Assets
 
$
25,775

 
$
20,919

 
$
46,694

Total Liabilities
 
20,631

 
12,843

 
33,474

Members Equity
 
5,144

 
8,076

 
13,220

NGHC's 50% ownership interest
 
$
2,572

 
$
4,038

 
$
6,610


December 31, 2013
 
 
 
 
 
 
Condensed balance sheet data
 
800 Superior, LLC

 
East Ninth & Superior

 
Total

Total Assets
 
$
26,528

 
$
20,860

 
$
47,388

Total Liabilities
 
20,801

 
12,841

 
33,642

Members Equity
 
5,727

 
8,019

 
13,746

NGHC's 50% ownership interest
 
$
2,863

 
$
4,009

 
$
6,872


The following tables summarize the results of operations for the Company's unconsolidated equity method investment in 800 Superior, LLC and East Ninth & Superior for three months ended March 31, 2014 and 2013.

Three Months Ended March 31, 2014
 
 
 
 
 
 
Condensed results of operations
 
800 Superior, LLC

 
East Ninth & Superior

 
Total

Revenue
 
$
1,243

 
$
—

 
$
1,243

Expenses
 
1,853

 
(57
)
 
1,796

Net Loss
 
$
(610
)
 
$
57

 
$
(553
)
NGHC's 50% ownership interest
 
$
(305
)
 
$
29

 
$
(276
)

Three Months Ended March 31, 2013
 
 
 
 
 
 
Condensed results of operations
 
800 Superior, LLC

 
East Ninth & Superior

 
Total

Revenue
 
$
1,187

 
$
—

 
$
1,187

Expenses
 
1,276

 
(42
)
 
1,234

Net Loss
 
$
(89
)
 
$
42

 
$