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Nov 3, 2016

AmTrust Financial Services, Inc. Reports Third Quarter 2016 Net Income Per Diluted Share(2) of $0.60 and Operating Earnings Per Diluted Share(1)(2) of $0.73  

Book Value Per Common Share(2) of $15.30, Up 18.5% Since September 30, 2015
Annualized Return on Common Equity of 15.9% and Annualized Operating Return on Common Equity(1) of 19.4%

Financial Highlights

Third Quarter 2016

•         Gross written premium of $2.03 billion, up 14.2% compared to $1.78 billion in the third quarter 2015
•         Net earned premium of $1.20 billion, up 14.4% from $1.05 billion in the third quarter 2015
•         Net income attributable to common stockholders of $103.6 million compared to $182.7 million in the third quarter 2015
•         Operating earnings(1) of $126.3 million compared to $150.9 million in the third quarter 2015
•         Diluted EPS(2) of $0.60 compared to $1.09 in the third quarter 2015
•         Operating diluted EPS(1)(2) of $0.73 compared to $0.89 in the third quarter 2015
•         Service and fee income of $146.6 million, up 16% from $126.1 million in the third quarter 2015
•         Combined ratio of 91.5% compared to 92.6% in the third quarter 2015
•         Weighted average diluted shares outstanding(2) of 173.1 million, up 3% compared to 168.3 million in the third quarter 2015

NEW YORK, Nov. 03, 2016 (GLOBE NEWSWIRE) -- AmTrust Financial Services, Inc. (Nasdaq:AFSI) ("the Company" or "AmTrust") today announced third quarter 2016 net income attributable to common stockholders of $103.6 million, or $0.60 per diluted share(2), compared to $182.7 million, or $1.09 per diluted share(2) in the third quarter 2015. For the third quarter 2016, operating earnings(1) was $126.3 million, or $0.73 per diluted share(2), compared to $150.9 million, or $0.89 per diluted share(2), in the third quarter 2015. Annualized return on common equity was 15.9% for the third quarter 2016 compared to 35.4% for the third quarter 2015. Third quarter 2016 annualized operating return on common equity(1) was 19.4% compared to 29.2% in the third quarter 2015.

"We delivered a solid performance in the third quarter, with strong investment results, higher service and fee income, and growth in gross written premiums, compared with the same period a year ago," said Barry Zyskind, Chairman, President and Chief Executive Officer, AmTrust. "Our performance reflects a full quarter's contribution from Republic Companies, as well as continued strong policy retention and disciplined underwriting of new business in our small commercial business segment, as demonstrated by our stable loss ratio. The top-line results of our specialty risk and extended warranty segment reflect the impact of the decline in the British pound relative to the third quarter a year ago, and we are pleased with the underlying performance of this segment."

Mr. Zyskind also stated, "We are optimistic about our organic growth prospects, given our differentiated model in workers' compensation and commercial lines products in the U.S., as well as opportunities in our warranty insurance offering globally. We remain focused on building a portfolio of business that leverages our proprietary technology and our efficient operating structure to enhance shareholder returns."

Third Quarter 2016 Results

Total revenue was $1.41 billion, an increase of $181.3 million, or 15%, from $1.23 billion in the third quarter 2015. Gross written premium was $2.03 billion, an increase of $253.3 million, or 14%, from $1.78 billion in the third quarter 2015. Net written premium was $1.22 billion, an increase of $73.1 million, or 6%, compared to $1.14 billion in the third quarter 2015. Net earned premium was $1.20 billion, an increase of $150.8 million, or 14%, from $1.05 billion in the third quarter 2015. The combined ratio was 91.5% compared to 92.6% in third quarter 2015.

Total service and fee income of $146.6 million increased $20.5 million, or 16%, from $126.1 million in the third quarter 2015 and included $19.4 million from related parties in the third quarter 2016 compared to $19.3 million in the third quarter 2015.

Net investment income, excluding net realized gains and losses, totaled $59.9 million, an increase of 48% from $40.4 million in the third quarter 2015. The significant growth in investment income during the third quarter was primarily due to the increase in invested assets. Total cash and invested assets increased 38% to $9.07 billion as of September 30, 2016 compared to $6.55 billion as of September 30, 2015. In addition, third quarter 2016 results included net realized investment gains of $8.2 million, or $5.3 million after-tax, on fixed income and equity investments compared with net realized investment gains of $17.7 million, or $11.5 million after-tax, in the third quarter of 2015.

Loss and loss adjustment expense totaled $811.0 million in the third quarter 2016, compared to $709.6 million in the third quarter 2015, and resulted in a loss ratio of 67.8% compared with 67.9% for the third quarter 2015.

Acquisition costs and other underwriting expense of $284.0 million increased $25.9 million from $258.0 million for the third quarter 2015. The expense ratio was 23.7% compared to 24.7% for the third quarter 2015. Ceding commissions, primarily related to the reinsurance agreements with Maiden Holdings, Ltd. ("Maiden"), totaled $161.3 million, up 14% from $141.1 million in the third quarter 2015.

Other expense of $137.5 million increased $20.6 million, or 18%, from $116.9 million in the third quarter 2015.

The effective tax rate was 23.4%, compared to (7.6)% in the third quarter 2015.

During the third quarter 2016, the Company issued an aggregate of 287,500 shares of 6.95% Series F preferred stock, resultingin net proceeds of approximately $278 million.

Year-to-Date 2016 Results

Total revenue was $4.07 billion, an increase of $620.2 million, or 18%, from $3.45 billion YTD 2015. Gross written premium was $6.04 billion, an increase of $849.9 million, or 16%, from $5.19 billion YTD 2015. Net written premium was $3.71 billion, an increase of $510.3 million, or 16%, from $3.19 billion YTD 2015. Net earned premium of $3.45 billion increased $488.5 million, or 16%, from $2.96 billion YTD 2015. The combined ratio was 91.5% compared to 90.8% YTD 2015.

Total service and fee income of $429.1 million increased $82.3 million, or 24%, from $346.8 million YTD 2015 and included $61.1 million from related parties in the first nine months 2016 compared with $57.9 million YTD 2015.

Investment income, excluding net realized gains and losses, totaled $160.1 million, an increase of 44% from $111.3 million YTD 2015. The significant growth in investment income during the first nine months was primarily due to the increase in invested assets. Total cash and invested assets increased 38% to $9.07 billion as of September 30, 2016 compared to $6.55 billion as of September 30, 2015. In addition, YTD 2016 results included net realized investment gains of $31.3 million, or $20.3 million after-tax, on certain fixed income and equity investments compared with net realized investment gains of $30.7 million, or $20.0 million after-tax, in the same period in 2015.

Loss and loss adjustment expense totaled $2.31 billion YTD 2016, compared to $1.96 billion YTD 2015, and resulted in a loss ratio of 66.9% compared with 66.2% for the same period in 2015.

Acquisition costs and other underwriting expense of $847.4 million increased $119.0 million from $728.4 million YTD 2015. The expense ratio was 24.6%, in line with YTD 2015. Ceding commissions, primarily related to the reinsurance agreements with Maiden, totaled $447.8 million, up 15% from $389.0 million in YTD 2015.

Other expense of $398.7 million increased $85.2 million, or 27%, from $313.5 million YTD 2015.

The effective tax rate was 19.7%, compared to 8.5% from YTD 2015.

During 2016, the Company issued 143,750 shares of 7.75% Series E preferred stock and 287,500 shares of 6.95% Series F preferred stock, resulting in aggregate net proceeds of approximately $417.3 million.

During 2016, the Company repurchased 6.2 million of its common shares at a weighted average price of $24.69 per share.

Total assets of approximately $22 billion as of September 30, 2016 increased approximately $4 billion, or 26%, from approximately $17 billion at December 31, 2015. Total cash, cash equivalents and investments of $9.22 billion increased $2.02 billion, or 28%, from $7.20 billion as of December 31, 2015. AmTrust's stockholder's equity of $3.52 billion increased 21% from $2.91 billion at December 31, 2015.

As of September 30, 2016, the Company's debt-to-capitalization ratio was 26.2%, compared with 25.8% as of December 31, 2015.

During the three months ended September 30, 2016, the Board of Directors declared cash dividends totaling $0.17 per share on the Company's common stock and cash dividends on the following series of non-cumulative preferred stock:

Series Rate Dividend
A  6.750% $0.421875 
B  7.250% $0.453125 
C  7.625% $0.476563 
D  7.500% $0.468750 
E  7.750% $0.484375 

Conference Call:

On November 3, 2016 at 10:00 AM ET, Chairman, President & CEO Barry Zyskind and CFO Ron Pipoly will review these results and discuss business conditions via a conference call and webcast that may be accessed as follows:

Toll-Free Dial-in:   (877) 755-7421

Toll Dial-in (Outside the U.S):   (973) 200-3087

Conference ID: 97791660

Webcast registration: http://ir.amtrustgroup.com/events.cfm 

A replay of the conference call will be available at approximately 1:00 PM ET Thursday, November 3, 2016 through Thursday, November 10, 2016 at 11:59 PM ET. To listen to the replay, please dial (855) 859-2056 (within the U.S.) or (404) 537-3406 (outside the U.S.) and enter replay passcode 97791660, or access http://ir.amtrustgroup.com/events.cfm.

About AmTrust Financial Services, Inc.

AmTrust Financial Services, Inc., a multinational insurance holding company headquartered in New York City, offers specialty property and casualty insurance products, including workers' compensation, commercial automobile, general liability and extended service and warranty coverage through its primary insurance subsidiaries rated "A" (Excellent) by A.M. Best. For more information about AmTrust, visit www.amtrustgroup.com, or call AmTrust toll-free at (855) 327-2223.

Forward Looking Statements

This news release contains certain forward-looking statements that are intended to be covered by the safe harbors created by the Private Securities Litigation Reform Act of 1995. When we use words such as "anticipate," "intend," "plan," "believe," "estimate," "expect," or similar expressions, we do so to identify forward-looking statements. Examples of forward-looking statements include the plans and objectives of management for future operations, including those relating to future growth of our business activities and availability of funds, and are based on current expectations that involve assumptions that are difficult or impossible to predict accurately and many of which are beyond our control. 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, 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 effect of the performance of financial markets on our investment portfolio, the amounts, timing and prices of any share repurchases made by us under our share repurchase program, development of claims and the effect on loss reserves, accuracy in projecting loss reserves, the cost and availability of reinsurance coverage, the effects of emerging claim and coverage issues, 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, regulations and regulatory investigations into industry practices, risks associated with conducting business outside the United States, the impact of Brexit, developments relating to existing agreements, disruptions to our business relationships with Maiden Holdings, Ltd., National General Holdings Corp., or ACP Re, Ltd., breaches in data security or other disruptions with our technology, heightened competition, changes in pricing environments, and changes in asset valuations. 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 our filings with the SEC, including our Annual Report on Form 10-K and our quarterly reports on Form 10-Q. The projections and statements in this news release speak only as of the date of this release and we undertake no obligation to update or revise any forward-looking statement, whether as a result of new information, future developments or otherwise, except as may be required by law.

AFSI-F

AmTrust Financial Services, Inc.
Income Statement
(in thousands, except per share data)
(Unaudited)
     
  Three Months Ended September 30, Nine Months Ended September 30,
  2016 2015 2016 2015
Gross written premium $2,034,098  $1,780,813  $6,040,284  $5,190,338 
         
Net written premium $1,216,050  $1,142,983  $3,705,165  $3,194,893 
Change in unearned premium (19,814) (97,575) (252,895) (231,138)
Net earned premium 1,196,236  1,045,408  3,452,270  2,963,755 
         
Service and fee income 146,611  126,143  429,082  346,766 
Net investment income 59,919  40,425  160,079  111,281 
Net realized gain on investments 8,230  17,682  31,304  30,693 
Other revenue 214,760  184,250  620,465  488,740 
Total revenue 1,410,996  1,229,658  4,072,735  3,452,495 
Loss and loss adjustment expense 811,048  709,604  2,310,514  1,961,362 
Acquisition costs and other underwriting expense 283,958  258,016  847,395  728,402 
Other expense 137,542  116,900  398,698  313,487 
Total expense 1,232,548  1,084,520  3,556,607  3,003,251 
Income before other income (expense), provision for income taxes, equity in earnings of unconsolidated subsidiaries and non-controlling interest 178,448  145,138  516,128  449,244 
Other income (loss):        
Interest expense (23,950) (12,862) (61,388) (32,763)
Loss on extinguishment of debt   (557)   (5,271)
Gain on life settlement contracts net of profit commission 5,485  4,616  28,891  19,085 
Foreign currency (loss) gain (8,320) 24,721  (70,428) 17,355 
Gain on acquisition   5,826  48,775  5,826 
Total other income (loss) (26,785) 21,744  (54,150) 4,232 
Income before provision for income taxes, equity in earnings of unconsolidated subsidiaries and non-controlling interest 151,663  166,882  461,978  453,476 
Provision (benefit) for income taxes 35,516  (12,649) 91,160  38,635 
Equity in earnings of unconsolidated subsidiaries (related parties) 1,954  13,477  12,532  23,048 
Net income 118,101  193,008  383,350  437,889 
Redeemable non-controlling interest and non-controlling interest (2,975) (1,511) (12,809) (6,940)
Net income attributable to AmTrust stockholders $115,126  $191,497  $370,541  $430,949 
Dividends on preferred stock (11,576) (8,789) (31,943) (22,797)
Net income attributable to AmTrust common stockholders $103,550  $182,708  $338,598  $408,152 
Operating earnings(1) attributable to AmTrust common stockholders $126,341  $150,903  $403,280  $402,847 
         
         
         
         
         
AmTrust Financial Services, Inc.
Income Statement
(in thousands, except per share data)
(Unaudited)
     
  Three Months Ended September 30, Nine Months Ended September 30,
  2016 2015 2016 2015
Earnings per common share:        
Basic earnings per share (2) $0.61  $1.11  $1.96  $2.48 
Diluted earnings per share (2) $0.60  $1.09  $1.93  $2.43 
Operating diluted earnings per share (1)(2) $0.73  $0.89  $2.30  $2.40 
Weighted average number of basic shares outstanding (2) 170,928  165,182  173,173  164,038 
Weighted average number of diluted shares outstanding (2) 173,121  168,272  175,151  167,492 
Combined ratio 91.5% 92.6% 91.5% 90.8%
Return on equity 15.9% 35.4% 17.9% 28.1%
Operating return on equity (1) 19.4% 29.2% 21.4% 27.7%
Reconciliation of net realized gain (loss):        
Other-than-temporary investment impairments (9,461) (7,636) (26,417) (10,118)
Impairments recognized in other comprehensive income        
  (9,461) (7,636) (26,417) (10,118)
Net realized gain on sale of investments 17,691  25,318  57,721  40,811 
Net realized gain $8,230  $17,682  $31,304  $30,693 


AmTrust Financial Services, Inc.
Balance Sheet Highlights
(in thousands, except book value per common share)
     
  September 30, 2016 December 31, 2015
  (Unaudited) (Audited)
Cash, cash equivalents and investments $9,221,241  $7,199,535 
Premium receivables 2,405,638  2,115,653 
Goodwill and intangible assets 1,084,561  800,045 
Loss and loss adjustment expense reserves 9,427,770  7,208,367 
Unearned premium 4,900,926  4,014,728 
Trust preferred securities 214,792  118,226 
Convertible senior notes 170,018  165,361 
6.125% Senior notes 248,116  247,911 
7.25% Subordinated notes due 2055 145,171  145,078 
7.50% Subordinated notes due 2055 130,656  130,572 
5.75% Note payable 104,685   
Preferred stock 913,750  482,500 
AmTrust's stockholders' equity 3,521,490  2,909,060 
Book value per common share (2) $15.30  $13.79 


AmTrust Financial Services, Inc.
Non-GAAP Financial Measures
(in thousands, except per share data)
(Unaudited)
         
  Three Months Ended September 30, Nine Months Ended September 30,
  2016 2015 2016 2015
Reconciliation of net income attributable to AmTrust common stockholders to operating earnings (1):        
Net income attributable to AmTrust common stockholders $103,550  $182,708  $338,598  $408,152 
Less: Net realized gain on investments net of tax 5,350  11,493  20,348  19,950 
Non-cash amortization of intangible assets (18,229) (12,294) (41,639) (32,166)
Non-cash interest on convertible senior notes net of tax (1,592) (1,371) (4,667) (4,376)
Loss on extinguishment of debt   (557)   (5,271)
Foreign currency transaction (loss) gain (8,320) 24,721  (70,428) 17,355 
Gain resulting from decrease in ownership percentage of equity investment in unconsolidated subsidiary (related party) net of tax   6,026    6,026 
Acquisition gain net of tax   3,787  31,704  3,787 
Operating earnings (1) attributable to AmTrust common stockholders $126,341  $150,903  $403,280  $402,847 
Reconciliation of diluted earnings per share to diluted operating earnings per share (1)(2):        
Diluted earnings per share $0.60  $1.09  $1.93  $2.43 
Less: Net realized gain on investments net of tax 0.03  0.07  0.12  0.11 
Non-cash amortization of intangible assets (0.10) (0.08) (0.24) (0.18)
Non-cash interest on convertible senior notes net of tax (0.01) (0.01) (0.03) (0.02)
Loss on extinguishment of debt       (0.03)
Foreign currency transaction (loss) gain (0.05) 0.16  (0.40) 0.10 
Gain resulting from decrease in ownership percentage of equity investment in unconsolidated subsidiary (related party) net of tax   0.04    0.03 
Acquisition gain net of tax   0.02  0.18  0.02 
Operating diluted earnings per share (1)(2) $0.73  $0.89  $2.30  $2.40 
Reconciliation of return on common equity to operating return on common equity: (1)        
Return on common equity 15.9% 35.4% 17.9% 28.1%
Less: Net realized gain on investments net of tax 0.8% 2.2% 1.1% 1.5%
Non-cash amortization of intangible assets (2.8)% (2.4)% (2.2)% (2.4)%
Non-cash interest on convertible senior notes net of tax (0.2)% (0.3)% (0.3)% (0.3)%
Loss on extinguishment of debt net of tax % (0.1)% % (0.4)%
Foreign currency transaction (loss) gain (1.3)% 4.9% (3.8)% 1.2%
Gain resulting from decrease in ownership percentage of equity investment in unconsolidated subsidiary (related party) net of tax % 1.2% % 0.5%
Acquisition gain net of tax % 0.7% 1.7% 0.3%
Operating return on common equity (1) 19.4% 29.2% 21.4% 27.7%
             

(1)     References to operating earnings, operating diluted EPS, and operating return on common equity are non-GAAP financial measures. Operating earnings ("Operating Earnings") is defined by the Company as net income attributable to AmTrust common stockholders less after-tax realized gain (loss) on investments, non-cash amortization of intangible assets, non-cash interest on convertible senior notes, net of tax, loss on extinguishment of debt, foreign currency transaction gain (loss), gain resulting from decrease in ownership percentage of equity investment in unconsolidated subsidiary (related party), net of tax and acquisition gain, net of tax. Operating Earnings should not be considered an alternative to net income. Operating diluted earnings per share is defined by the Company as Operating Earnings divided by the weighted average diluted shares outstanding for the period and should not be considered an alternative to diluted earnings per share. Operating return on common equity is defined by the Company as Operating Earnings divided by the average common equity for the period and should not be considered an alternative to return on common equity. The Company believes Operating Earnings, operating diluted earnings per share, and operating return on common equity are more relevant measures of the Company's profitability because Operating Earnings, operating diluted earnings per share, and operating return on common equity 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. The Company's measure of Operating Earnings, operating diluted earnings per share, and operating return on common equity may not be comparable to similarly titled measures used by other companies.
(2)     On February 2, 2016, the Company's stock split on a two-for-one basis. As a result, the Company retrospectively adjusted all share and per share amounts in 2015 to reflect the impact of the stock split.


AmTrust Financial Services, Inc.
Segment Information
(in thousands, except percentages)
(Unaudited)
         
  Three Months Ended September 30, Nine Months Ended September 30,
  2016 2015 2016 2015
Gross written premium        
Small Commercial Business $998,071  $797,654  $3,124,761  $2,574,602 
Specialty Risk and Extended Warranty 598,977  577,284  1,779,984  1,528,017 
Specialty Program 437,050  405,875  1,135,539  1,087,719 
  $2,034,098  $1,780,813  $6,040,284  $5,190,338 
Net written premium        
Small Commercial Business $457,869  $459,290  $1,684,035  $1,499,922 
Specialty Risk and Extended Warranty 448,847  380,600  1,233,741  975,073 
Specialty Program 309,334  303,093  787,389  719,898 
  $1,216,050  $1,142,983  $3,705,165  $3,194,893 
Net earned premium        
Small Commercial Business $516,996  $493,654  $1,594,068  $1,400,704 
Specialty Risk and Extended Warranty 427,321  350,382  1,107,046  963,481 
Specialty Program 251,919  201,372  751,156  599,570 
  $1,196,236  $1,045,408  $3,452,270  $2,963,755 
Loss Ratio:        
Small Commercial Business 66.6% 64.9% 66.5% 64.9%
Specialty Risk and Extended Warranty 68.8% 72.2% 66.5% 67.2%
Specialty Program 68.5% 67.6% 68.4% 67.6%
Total 67.8% 67.9% 66.9% 66.2%
Expense Ratio:        
Small Commercial Business 24.3% 26.5% 25.5% 26.1%
Specialty Risk and Extended Warranty 21.0% 20.0% 21.5% 20.5%
Specialty Program 27.3% 28.5% 27.1% 27.6%
Total 23.7% 24.7% 24.6% 24.6%
Combined Ratio:        
Small Commercial Business 90.9% 91.4% 92.0% 91.0%
Specialty Risk and Extended Warranty 89.8% 92.2% 88.0% 87.7%
Specialty Program 95.8% 96.1% 95.5% 95.2%
Total 91.5% 92.6% 91.5% 90.8%
             

CONTACT:

AmTrust Financial Services, Inc.

SVP Investor Relations
Elizabeth Malone, CFA
beth.malone@amtrustgroup.com
(646) 458-7924

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