AmTrust Financial Services
Aug 2, 2016

AmTrust Financial Services, Inc. Reports Second Quarter 2016 Net Income Per Diluted Share(2) of $0.78 and Operating Earnings Per Diluted Share(1)(2) of $0.81

Book Value Per Common Share(2) of $15.10, Up 26% Since June 30, 2015

Financial Highlights

Second Quarter 2016

Year-to-Date 2016

NEW YORK, Aug. 02, 2016 (GLOBE NEWSWIRE) -- AmTrust Financial Services, Inc. (Nasdaq:AFSI) (" the Company" or "AmTrust") today announced second quarter 2016 net income attributable to common stockholders was $134.8 million, or $0.78 per diluted share(2), compared to $70.7 million, or $0.42 per diluted share(2), in the second quarter 2015. For the second quarter 2016, operating earnings(1) was $140.3 million, or $0.81 per diluted share(2), compared to $130.5 million, or $0.78 per diluted share(2), in the second quarter of 2015. Annualized return on common equity was 21.1% for the second quarter of 2016 compared to 14.3% for the second quarter of 2015. Second quarter 2016 annualized operating return on common equity(1) was 21.9% compared to 26.3% in the second quarter 2015.

Second Quarter 2016 Results

Total revenue was $1.39 billion, an increase of $0.28 billion, or 25%, from $1.11 billion in the second quarter 2015. Gross written premium was $2.07 billion, an increase of $0.39 billion, or 24%, from $1.68 billion in the second quarter of 2015. Net written premium was $1.27 billion, an increase of $0.26 billion, or 26%, compared to $1.01 billion in the second quarter 2015. Net earned premium was $1.18 billion, an increase of $0.21 billion, or 22%, from $0.97 billion in the second quarter 2015. The combined ratio was 91.7% compared to 90.5% in second quarter 2015.

Total service and fee income of $138.3 million increased $30.5 million, or 28%, from $107.7 million in the second quarter of 2015 and included $21.6 million from related parties in the second quarter 2016 compared to $21.3 million in the second quarter 2015.

Net investment income, excluding net realized gains and losses, totaled $50.7 million, an increase of 40% from $36.3 million in the second quarter of 2015. In addition, second quarter 2016 results included net realized investment gains of $15.1 million, or $9.8 million after-tax, on certain fixed income and equity investments compared with net realized investment loss of $2.6 million, or $1.7 million after-tax, in the second quarter of 2015.

Loss and loss adjustment expense totaled $784.4 million in the second quarter 2016, compared to $638.5 million in the second quarter 2015, and resulted in a loss ratio of 66.4% compared with 65.9% for the second quarter 2015.

Acquisition costs and other underwriting expense of $298.8 million increased $60.1 million from $238.7 million for the second quarter 2015. The expense ratio was 25.3% compared to 24.6% for the second quarter 2015. Ceding commissions, primarily related to the reinsurance agreements with Maiden Holdings, Ltd. ("Maiden"), totaled $146.9 million, up 14% from $129.2 million in the second quarter 2015.

Other expense of $133.0 million increased $34.8 million, or 36%, from $98.1 million in the second quarter 2015.

The effective tax rate was 15.9%, compared to 5.5% in the second quarter of 2015.

During the second quarter of 2016, the Company repurchased 3.58 million of its common shares at a weighted average price of $24.82 per share.

Year-to-Date 2016 Results

Total revenue was $2.66 billion, an increase of $0.44 billion, or 19.7%, from $2.22 billion YTD 2015. Gross written premium was $4.01 billion, an increase of $0.60 billion, or 17.5%, from $3.41 billion YTD 2015. Net written premium was $2.5 billion, an increase of $0.44 billion, or 21.3%, from $2.05 billion from YTD 2015. Net earned premium of $2.26 billion increased $337.7 million, or 17.6%, from $1.92 billion YTD 2015. The combined ratio was 91.4% compared to 89.8% YTD 2015.

Total service and fee income of $282.5 million increased $61.85 million, or 28.0%, from $220.6 million YTD 2015 and included $41.8 million from related parties in the first six months 2016 compared with $38.7 million YTD 2015.

Investment income, excluding net realized gains and losses, totaled $100.2 million, an increase of 41.4% from $70.9 million YTD 2015. In addition, YTD 2016 results included net realized investment gains of $23.1 million, or $15.0 million after-tax, on certain fixed income and equity investments compared with net realized investment gains of $13.0 million, or $8.5 million after-tax, in the same period in 2015.

Loss and loss adjustment expense totaled $1.50 billion YTD 2016, compared to $1.25 billion YTD 2015, and resulted in a loss ratio of 66.5% compared with 65.3% for the same period in 2015.

Acquisition costs and other underwriting expense of $563.4 million increased $93.1 million from $470.4 million YTD 2015. The expense ratio was 24.9%, an increase from 24.5% YTD 2015. Ceding commissions, primarily related to the reinsurance agreements with Maiden, totaled $286.5 million, up 16% from $247.9 million in YTD 2015.

Other expense of $261.2 million increased $64.6 million, or 33%, from $196.6 million YTD 2015.

The effective tax rate was 17.9%, compared to 17.9% from YTD 2015.

Total assets of approximately $21 billion as of June 30, 2016 increased approximately $4 billion, or 23%, from approximately $17 billion at December 31, 2015. Total cash, cash equivalents and investments of $9.04 billion increased $1.84 billion, or 26%, from $7.20 billion as of December 31, 2015. AmTrust's stockholder's equity of $3.23 billion increased 11% from $2.91 billion at December 31, 2015.

Through July 27, 2016, the Company has repurchased 5.85 million of its common shares  at a weighted average price of $24.72 per share.

As of June 30, 2016, the Company's debt-to-capitalization ratio was 27.8%, compared with 25.8% as of December 31, 2015.

During the three months ended June 30, 2016, the Board of Directors declared cash dividends totaling $0.15 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% $0.484380 

Conference Call:

On August 2, 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: 48118214

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

A replay of the conference call will be available at approximately 1:00 PM ET Tuesday, August 2, 2016 through Tuesday, August 9, 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 48118214, 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 "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. 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, 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. 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 statements 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, including its annual report on Form 10-K and its quarterly reports on Form 10-Q.

AFSI-F

AmTrust Financial Services, Inc.
Income Statement
(in thousands, except per share data)
(Unaudited)
     
  Three Months Ended June 30, Six Months Ended June 30,
  2016 2015 2016 2015
Gross written premium $2,073,112  $1,678,389  $4,006,186  $3,409,525 
         
Net written premium $1,268,436  $1,008,721  $2,489,115  $2,051,910 
Change in unearned premium (86,684) (39,751) (233,081) (133,563)
Net earned premium 1,181,752  968,970  2,256,034  1,918,347 
         
Service and fee income 138,270  107,737  282,471  220,623 
Net investment income 50,745  36,283  100,160  70,856 
Net realized and unrealized gain (loss) on investments 15,099  (2,642) 23,074  13,011 
Other revenue 204,114  141,378  405,705  304,490 
Total revenue 1,385,866  1,110,348  2,661,739  2,222,837 
Loss and loss adjustment expense 784,393  638,475  1,499,466  1,251,758 
Acquisition costs and other underwriting expense 298,803  238,710  563,437  470,386 
Other expense 132,970  98,130  261,156  196,587 
Total expense 1,216,166  975,315  2,324,059  1,918,731 
Income before other income (expense), provision for income taxes, equity in earnings of unconsolidated subsidiaries and non-controlling interest 169,700  135,033  337,680  304,106 
Other income (loss):        
Interest expense (19,738) (9,646) (37,438) (19,901)
Loss on extinguishment of debt       (4,714)
Gain on life settlement contracts net of profit commission 12,676  3,096  23,406  14,469 
Foreign currency loss (26,435) (47,320) (62,108) (7,366)
Gain on acquisition 39,097    48,775   
Total other income (loss) 5,600  (53,870) (27,365) (17,512)
Income before provision for income taxes, equity in earnings of unconsolidated subsidiaries and non-controlling interest 175,300  81,163  310,315  286,594 
Provision for income taxes 27,918  4,472  55,644  51,284 
Equity in earnings of unconsolidated subsidiaries (related parties) 4,802  4,042  10,578  9,571 
Net income 152,184  80,733  265,249  244,881 
Redeemable non-controlling interest and non-controlling interest (5,817) (1,346) (9,834) (5,429)
Net income attributable to AmTrust stockholders $146,367  $79,387  $255,415  $239,452 
Dividends on preferred stock (11,576) (8,639) (20,367) (14,008)
Net income attributable to AmTrust common stockholders $134,791  $70,748  $235,048  $225,444 
Operating earnings(1) attributable to AmTrust common stockholders $140,335  $130,518  $276,939  $251,944 
         
AmTrust Financial Services, Inc.
Income Statement
(in thousands, except per share data)
(Unaudited)
     
  Three Months Ended June 30, Six Months Ended June 30,
  2016 2015 2016 2015
Earnings per common share:        
Basic earnings per share (2) $0.79  $0.43  $1.36  $1.38 
Diluted earnings per share (2) $0.78  $0.42  $1.34  $1.35 
Operating diluted earnings per share (1)(2) $0.81  $0.78  $1.58  $1.50 
Weighted average number of basic shares outstanding (2) 171,160  164,716  173,334  163,494 
Weighted average number of diluted shares outstanding (2) 173,025  168,068  175,215  167,116 
Combined ratio 91.7% 90.5% 91.4% 89.8%
Return on equity 21.1% 14.3% 18.7% 24.2%
Operating return on equity (1) 21.9% 26.3% 22.0% 27.1%
Reconciliation of net realized gain (loss):        
Other-than-temporary investment impairments $(16,956) $(1,466) $(16,956) $(2,482)
Impairments recognized in other comprehensive income        
  (16,956) (1,466) (16,956) (2,482)
Net realized gain (loss) on sale of investments 32,055  (1,176) 40,030  15,493 
Net realized gain (loss) $15,099  $(2,642) $23,074  $13,011 


AmTrust Financial Services, Inc.
Balance Sheet Highlights
(in thousands, except book value per common share)
(Unaudited)
     
  June 30, 2016 December 31, 2015
Cash, cash equivalents and investments $9,036,080  $7,199,535 
Premium receivables 2,562,165  2,115,653 
Goodwill and intangible assets 999,251  800,045 
Loss and loss adjustment expense reserves 9,097,408  7,208,367 
Unearned premium 4,819,255  4,014,728 
Trust preferred securities 214,748  118,226 
Convertible senior notes 168,435  165,361 
6.125% Senior notes 248,048  247,911 
7.25% Subordinated Notes due 2055 145,140  145,078 
7.50% Subordinated Notes due 2055 130,628  130,572 
5.75% Note Payable 104,685   
Preferred stock 626,250  482,500 
AmTrust's stockholders' equity 3,230,685  2,909,060 
Book value per common share (2) $15.10  $13.79 


AmTrust Financial Services, Inc.
Non-GAAP Financial Measures
(in thousands, except per share data)
(Unaudited)
         
  Three Months Ended June 30, Six Months Ended June 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 $134,791  $70,748  $235,048  $225,444 
Less: Net realized gain (loss) on investments net of tax 9,814  (1,717) 14,998  8,457 
Non-cash amortization of intangible assets (12,798) (9,282) (23,410) (19,872)
Non-cash interest on convertible senior notes net of tax (1,538) (1,451) (3,075) (3,005)
Loss on extinguishment of debt       (4,714)
Foreign currency transaction loss (26,435) (47,320) (62,108) (7,366)
Acquisition gain net of tax 25,413    31,704   
Operating earnings (1) attributable to AmTrust common stockholders $140,335  $130,518  $276,939  $251,944 
Reconciliation of diluted earnings per share to diluted operating earnings per share (1)(2):        
Diluted earnings per share $0.78  $0.42  $1.34  $1.35 
Less: Net realized gain (loss) on investments net of tax 0.05  (0.01) 0.09  0.05 
Non-cash amortization of intangible assets (0.07) (0.06) (0.13) (0.11)
Non-cash interest on convertible senior notes net of tax (0.01) (0.01) (0.02) (0.02)
Loss on extinguishment of debt       (0.03)
Foreign currency transaction loss (0.14) (0.28) (0.36) (0.04)
Acquisition gain net of tax 0.14    0.18   
Operating diluted earnings per share (1)(2) $0.81  $0.78  $1.58  $1.50 
Reconciliation of return on common equity to operating return on common equity: (1)        
Return on common equity 21.1% 14.3% 18.7% 24.2%
Less: Net realized gain (loss) on investments net of tax 1.4% (0.3)% 1.2% 0.9%
Non-cash amortization of intangible assets (1.9)% (1.9)% (1.9)% (2.3)%
Non-cash interest on convertible senior notes net of tax (0.2)% (0.3)% (0.2)% (0.3)%
Loss on extinguishment of debt net of tax % % % (0.5)%
Foreign currency transaction loss (3.8)% (9.5)% (4.9)% (0.7)%
Acquisition gain net of tax 3.7% % 2.5% %
Operating return on common equity (1) 21.9% 26.3% 22.0% 27.1%

(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), 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 June 30, Six Months Ended June 30,
  2016 2015 2016 2015
Gross written premium        
Small Commercial Business $1,060,558  $875,829  $2,126,690  $1,776,948 
Specialty Risk and Extended Warranty 651,561  479,863  1,181,007  950,733 
Specialty Program 360,993  322,697  698,489  681,844 
  $2,073,112  $1,678,389  $4,006,186  $3,409,525 
Net written premium        
Small Commercial Business $601,638  $517,392  $1,226,166  $1,040,632 
Specialty Risk and Extended Warranty 447,061  306,784  784,894  594,473 
Specialty Program 219,737  184,545  478,055  416,805 
  $1,268,436  $1,008,721  $2,489,115  $2,051,910 
Net earned premium        
Small Commercial Business $572,978  $483,059  $1,077,072  $907,050 
Specialty Risk and Extended Warranty 357,884  283,968  679,725  613,099 
Specialty Program 250,890  201,943  499,237  398,198 
  $1,181,752  $968,970  $2,256,034  $1,918,347 
Loss Ratio:        
Small Commercial Business 66.8% 65.1% 66.4% 64.9%
Specialty Risk and Extended Warranty 64.6% 65.3% 65.1% 64.3%
Specialty Program 67.8% 68.7% 68.4% 67.6%
Total 66.4% 65.9% 66.5% 65.3%
Expense Ratio:        
Small Commercial Business 26.2% 25.8% 26.1% 25.8%
Specialty Risk and Extended Warranty 22.1% 20.2% 21.8% 20.8%
Specialty Program 27.9% 28.1% 27.0% 27.2%
Total 25.3% 24.6% 24.9% 24.5%
Combined Ratio:        
Small Commercial Business 93.0% 90.9% 92.5% 90.7%
Specialty Risk and Extended Warranty 86.7% 85.5% 86.9% 85.1%
Specialty Program 95.7% 96.8% 95.4% 94.8%
Total 91.7% 90.5% 91.4% 89.8%

 

CONTACT:
AmTrust Financial Services, Inc.

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