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 RelationsElizabeth Malone, CFAbeth.malone@amtrustgroup.com(646) 458-7924

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