Attached files
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| 8-K - Amtrust Financial Services, Inc. | v230153_8-k.htm |
Exhibit 99.1
July 28, 2011
AmTrust Financial Services, Inc. Reports Second Quarter Operating Earnings (1) of
$51.2 Million and Net Income of $50.2 Million
Book Value per Share of $13.78, Up 14.5% since Year-end 2010
Second Quarter 2011 Financial Highlights
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·
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Annualized return on equity of 25.2% and operating return on equity (1) of 25.7% for the quarter
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·
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Gross written premium of $558.5 million, up 36.7%, and net earned premium of $248.3 million, up 26.5% from second quarter 2010
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·
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Commission and other revenues of $73.7 million up 46.8% from second quarter 2010
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·
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Operating earnings (1) of $51.2 million up 42.7% from second quarter 2010
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·
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Operating diluted EPS (1) of $0.83 ($0.18 attributable to gain on life settlement contracts) compared to $0.59 in the second quarter 2010
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Net income of $50.2 million up 62.7% from second quarter 2010
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Diluted EPS of $0.81 compared to $0.51 in the second quarter 2010
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·
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Combined ratio of 90.3% compared to 85.7% in the second quarter 2010
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·
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YTD annualized return on equity of 24.7% and operating return on equity of 25.3%(1)
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YTD gross written premium of $1.0 billion, up 34.2%, and net earned premium of $448.6 million, up 30.3% over the first half of 2010
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YTD operating earnings(1) of $97.4 million up 44.6% from first half of 2010
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YTD operating diluted EPS(1) of $1.58 ($0.34 attributable to gain on life settlement contracts) compared with $1.12 in the first half of 2010
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YTD net income of $95.3 million up 37.1% from first half of 2010
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YTD diluted EPS of $1.55 compared with $1.15 in the first half of 2010
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YTD combined ratio of 88.8% compared to 83.4% in the first half of 2010
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Book value per share of $13.78, up from $12.03 at year-end 2010
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(New York) – AmTrust Financial Services, Inc. (Nasdaq: AFSI) today reported net income of $50.2 million for the second quarter of 2011, an increase of 62.7% from $30.8 million in the second quarter of 2010. Earnings per diluted share totaled $0.81 in the second quarter, an increase of 58.8% from $0.51 in the same period last year. Operating earnings (1) totaled $51.2 million, or $0.83 per diluted share, an increase of 42.7% from $35.8 million, or $0.59 per diluted share, in the second quarter of 2010.
(more)
Page 2 of 6
During the first six months of 2011, net income totaled $95.3 million, up 37.1% from the first half of 2010. Earnings per diluted share totaled $1.55 in the first half of 2011, an increase of 34.8% from $1.15 in the same period last year. Operating earnings (1) totaled $97.4 million, or $1.58 per diluted share, an increase of 44.6% from $67.3 million, or $1.12 per diluted share, in the first half of 2010.
During the quarter, the Company closed on a Loss Portfolio Transfer and Quota Share Reinsurance Agreement with Majestic Insurance Company (“Majestic”). The Company received cash and invested assets in July from Majestic in an amount equal to Majestic’s loss and loss adjustment expense reserves and unearned premium reserves plus an additional $26 million related to a reserve deficiency.
Second Quarter 2011 Results
Total revenue of $322.0 million increased $75.5 million, or 30.6%, from $246.5 million in the second quarter of 2010. Gross written premium of $558.5 million rose $149.8 million, or 36.7%, from second quarter 2010. Net written premium of $375.7 million increased $179.3 million, or 91.3%, from $196.4 million in the second quarter of 2010. Net earned premium of $248.3 million increased $52.0 million, or 26.5%, from $196.3 million in the second quarter of 2010.
Commission and other revenues of $73.7 million increased $23.5 million, or 46.8%, from second quarter 2010, and represented 22.9% of total revenue. The combined ratio totaled 90.3% compared with 85.7% in the second quarter of 2010.
Ceding commissions, primarily related to the quota-share agreements with Maiden Holdings, Ltd. (“Maiden”), totaled $35.4 million, up 7.5% from $33.0 million a year ago. During the quarter, AmTrust ceded $213.9 million of gross written premium and $136.7 million of earned premium to Maiden compared to $112.5 million of gross written premium and $106.3 million of earned premium ceded in the second quarter of 2010.
Total service and fee income of $24.5 million increased 169% from $9.1 million in the second quarter of 2010 and included $4.5 million from related parties compared with $2.9 million in the second quarter of 2010.
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Page 3 of 6
Investment income, excluding net realized gains and losses, totaled $13.2 million, a decrease of 10.3% from $14.7 million in the second quarter of 2010. 2011 second quarter results also include net realized investment gains of $0.6 million, or $0.4 million after-tax, on certain fixed income and equity investments compared with losses of $6.6 million, or $4.3 million after tax, in the second quarter of 2010. Additionally, operating earnings (1) included $11.3 million, net of non-controlling interest, related to gains on life settlement contracts.
Loss and loss adjustment expense totaled $170.0 million, an increase of $48.5 million from $121.5 million in the second quarter of 2010, and resulted in a loss ratio of 68.5% compared with 61.9% for the second quarter of 2010.
Acquisition costs and other underwriting expense of $89.6 million increased $10.0 million from the second quarter of 2010. Acquisition costs and other underwriting expenses less ceding commissions totaled $54.2 million compared with $46.6 million in the year ago quarter. The expense ratio was 21.8%, down from 23.8% in the second quarter of 2010.
Other expense of $18.6 million increased $9.3 million from $9.3 million in the second quarter of 2010, largely reflecting the effect of the Warrantech and Risk Services acquisitions during the second half of 2010.
Year-to-Date 2011 Results
Total revenue of $597.8 million increased $147.6 million, or 32.8%, from $450.2 million in the first half of 2010. Gross written premium of $1.0 billion rose $255.6 million, or 34.2%. Net written premium of $609.7 million increased $223.9 million, or 58.0%, from $385.8 million in the first half of 2010. Net earned premium of $448.6 million increased $104.3 million, or 30.3%, from $344.4 million in the first half of 2010.
Commission and other revenues of $149.2 million increased $43.4 million, or 41.0%, and represented 25.0% of total revenue. The combined ratio totaled 88.8% compared with 83.4% in the first half of 2010.
(more)
Page 4 of 6
Ceding commissions, primarily related to the quota-share agreements with Maiden, totaled $71.1 million, up 9.0% from $65.2 million a year ago. During the first six months of 2011, AmTrust ceded $340.6 million of gross written premium and $250.6 million of earned premium to Maiden compared to $226.6 million of gross written premium and $208.7 million of earned premium ceded in the same period in 2010.
Total service and fee income of $49.7 million increased 191% from $17.1 million in the first half of 2010 and included $7.9 million from related parties compared with $5.5 million in the first half of 2010.
Investment income, excluding net realized gains and losses, totaled $27.4 million, a decrease of 3.3% from $28.3 million in the first half of 2010. 2011 year-to-date results also include net realized investment gains of $1.0 million, or $0.7 million after-tax, on certain fixed income and equity investments compared with losses of $4.8 million, or $3.1 million after tax, in the first half of 2010. Additionally, operating earnings (1) included $20.8 million, net of non-controlling interest, related to gains on life settlement contracts.
Loss and loss adjustment expense totaled $298.7 million, an increase of $87.4 million from $211.3 million in the first half of 2010, and resulted in a loss ratio of 66.6% compared with 61.4% for the first half of 2010.
Acquisition costs and other underwriting expense of $170.8 million increased $29.9 million in the first half of 2010. Acquisition costs and other underwriting expenses less ceding commissions totaled $99.7 million compared with $75.7 million in the first half of 2010. The expense ratio was 22.2%, up from 22.0% in the first half of 2010.
Other expense of $38.8 million increased $23.2 million from $15.6 million in the second quarter of 2010, largely reflecting the effect of the Warrantech and Risk Services acquisitions during the second half of 2010.
Total assets of $5.2 billion increased 25.1% from $4.2 billion at December 31, 2010 and included a 9.4% increase in cash, cash equivalents and investments to $1.7 billion. AmTrust Financial shareholders’ equity of $825.4 million increased 15.2% from $716.5 million at year-end 2010.
(more)
Page 5 of 6
During the first six months of 2011, the Board of Directors declared two quarterly dividends of $0.08 per share. As of June 30, 2011, the Company’s long-term debt-to-capitalization ratio was 22.5% compared with 16.8% at year end 2010.
(1) References to operating earnings, operating diluted EPS, and operating return on equity are non-GAAP financial measures defined by the Company as results excluding after-tax net realized investment gains and losses on securities, non-cash amortization of certain intangible assets and gain on investments in unconsolidated subsidiary. Please see the Non-GAAP Financial Measures table at the end of this release for important information about the use of these non-GAAP measures and their reconciliation to GAAP.
Conference Call:
On July 29, 2011 at 9 a.m. ET, CEO Barry Zyskind and CFO Ron Pipoly will review these results via a conference call and webcast that may be accessed as follows:
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Toll-Free Dial-in:
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877.755.7421
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Toll Dial-in (Outside the U.S):
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973.200.3087
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Webcast registration: http://ir.amtrustgroup.com/events.cfm
A replay of the conference call will be available at approximately 12:00 p.m. ET Friday, July 29, 2011 through August 5, 2011. To listen to the replay, please dial 800.642.1687 (within the U.S.) or 706.645.9291 (outside the U.S.) and enter replay passcode 82231587, or access http://ir.amtrustgroup.com/events.cfm.
For more information, please contact:
AmTrust Financial Services, Inc.
Ron Pipoly
Cleveland, Ohio
216.328.6116
rpipoly@amtrustgroup.com
Hilly Gross
New York, New York
212.220.7023
hgross@amtrustgroup.com
(more)
Page 6 of 6
About AmTrust Financial Services, Inc.
AmTrust Financial Services, Inc., headquartered in New York City, is a multinational insurance holding company, which, through its insurance carriers, offers specialty property and casualty insurance products, including workers’ compensation, commercial automobile and general liability; extended service and warranty coverage. For more information about AmTrust, visit www.amtrustgroup.com, or call AmTrust toll-free at 866.203.3037.
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. There can be no assurance that actual developments will be those anticipated by 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, 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, successful integration of acquired businesses, the effect of general economic conditions, adverse 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., American Capital Acquisition Corporation, or third party agencies and warranty administrators, difficulties with 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
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AmTrust Financial Services, Inc.
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Income Statement
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(in thousands, except per share data)
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(Unaudited)
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Three Months Ended June 30,
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Six Months Ended June 30,
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2011
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2010
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2011
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2010
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Gross written premium
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$ | 558,462 | $ | 408,641 | $ | 1,002,489 | 746,872 | |||||||||
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Premium income
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Net written premium
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$ | 375,681 | $ | 196,393 | $ | 609,700 | $ | 385,807 | ||||||||
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Change in unearned premium
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(127,399 | ) | (132 | ) | (161,080 | ) | (41,446 | ) | ||||||||
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Net earned premium
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248,282 | 196,261 | 448,620 | 344,361 | ||||||||||||
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Ceding commission (primarily related party)
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35,414 | 32,958 | 71,098 | 65,206 | ||||||||||||
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Service and fee income
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24,542 | 9,121 | 49,731 | 17,087 | ||||||||||||
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Investment income, net
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13,167 | 14,686 | 27,359 | 28,285 | ||||||||||||
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Net realized gains (loss)
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616 | (6,544 | ) | 1,031 | (4,759 | ) | ||||||||||
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Commission and other revenues
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73,739 | 50,221 | 149,219 | 105,819 | ||||||||||||
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Total revenue
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322,021 | 246,482 | 597,839 | 450,180 | ||||||||||||
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Loss and loss adjustment expense
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170,008 | 121,510 | 298,704 | 211,331 | ||||||||||||
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Acquisition costs and other underwriting expense
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89,580 | 79,579 | 170,814 | 140,925 | ||||||||||||
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Other expense
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18,564 | 9,336 | 38,760 | 15,570 | ||||||||||||
| 278,152 | 210,425 | 508,278 | 367,826 | |||||||||||||
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Income before other, provision for income taxes, equity in earnings
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of unconsolidated subsidiaries and non-controlling interest
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43,869 | 36,057 | 89,561 | 82,354 | ||||||||||||
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Other income (expense):
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Foreign currency gain (loss)
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2,520 | 755 | 2,236 | 38 | ||||||||||||
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Interest expense
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(4,334 | ) | (3,063 | ) | (8,088 | ) | (6,635 | ) | ||||||||
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Income from life settlement contracts
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22,638 | - | 41,524 | - | ||||||||||||
| 20,824 | (2,308 | ) | 35,672 | (6,597 | ) | |||||||||||
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Income before provision for income taxes, equity in earnings
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64,693 | 33,749 | 125,233 | 75,757 | ||||||||||||
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of unconsolidated subsidiaries and non-controlling interest
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Provision for income taxes
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12,126 | (8,839 | ) | 24,468 | (24,007 | ) | ||||||||||
| Equity in earnings of unconsolidated subsidiaries (related parties) (1) | 4,077 | 5,913 | 7,200 | 17,773 | ||||||||||||
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Non-controlling interest
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(6,482 | ) | - | (12,620 | ) | - | ||||||||||
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Net income
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$ | 50,162 | $ | 30,823 | $ | 95,345 | $ | 69,523 | ||||||||
| Operating earnings (2) | $ | 51,158 | $ | 35,848 | $ | 97,351 | $ | 67,336 | ||||||||
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Earnings per common share:
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Basic earnings per share
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$ | 0.84 | $ | 0.52 | $ | 1.60 | $ | 1.17 | ||||||||
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Diluted earnings per share
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$ | 0.81 | $ | 0.51 | $ | 1.55 | $ | 1.15 | ||||||||
| Operating diluted earnings per share (3) | $ | 0.83 | $ | 0.59 | $ | 1.58 | $ | 1.12 | ||||||||
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Weighted average number of basic shares outstanding
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59,844 | 59,436 | 59,724 | 59,385 | ||||||||||||
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Weighted average number of diluted shares outstanding
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61,622 | 60,356 | 61,394 | 60,272 | ||||||||||||
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Combined ratio
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90.3 | % | 85.7 | % | 88.8 | % | 83.4 | % | ||||||||
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Return on equity
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25.2 | % | 19.7 | % | 24.7 | % | 23.0 | % | ||||||||
| Operating return on equity (4) | 25.7 | % | 22.9 | % | 25.3 | % | 22.3 | % | ||||||||
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Reconciliation of net realized losses:
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Other-than-temporary investment impairments
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$ | (345 | ) | $ | (12,007 | ) | $ | (345 | ) | $ | (17,145 | ) | ||||
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Impairments recognized in other comprehensive income
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- | - | - | - | ||||||||||||
| (345 | ) | (12,007 | ) | (345 | ) | (17,145 | ) | |||||||||
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Net realized gains on sale of investments
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961 | 5,463 | 1,376 | 12,386 | ||||||||||||
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Net realized gains
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$ | 616 | $ | (6,544 | ) | $ | 1,031 | $ | (4,759 | ) | ||||||
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AmTrust Financial Services, Inc.
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Balance Sheet Highlights
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(in thousands)
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(Unaudited)
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June 30,
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December 31,
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2011
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2010
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Cash, cash equivalents and investments
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$ | 1,705,353 | $ | 1,558,961 | ||||
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Premiums receivables
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971,858 | 727,561 | ||||||
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Goodwill and intangible assets
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228,097 | 197,826 | ||||||
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Total assets
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5,230,408 | 4,182,453 | ||||||
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Loss and loss expense reserves
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1,688,737 | 1,263,537 | ||||||
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Unearned premium
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1,212,703 | 1,024,965 | ||||||
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Trust preferred securities
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123,714 | 123,714 | ||||||
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AmTrust's stockholders' equity
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$ | 825,358 | $ | 716,514 | ||||
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AmTrust Financial Services, Inc.
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Non-GAAP Financial Measures
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(in thousands, except per share data)
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(Unaudited)
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Three Months Ended June 30,
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Six Months Ended June 30,
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2011
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2010
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2011
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2010
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Reconciliation of net income to operating earnings:
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Net income
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$ | 50,162 | $ | 30,823 | $ | 95,345 | $ | 69,523 | |||||||||
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Less:
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Net realized gains (loss) net of tax | 400 | (4,254 | ) | 670 | (3,093 | ) | ||||||||||
| Gain on investment in unconsolidated subsidiary net of tax (1) | - | - | 6,792 | ||||||||||||||
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Non cash amortization of certain intangible assets net of tax
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(1,396 | ) | (771 | ) | (2,676 | ) | (1,512 | ) | |||||||||
| Operating earnings (2) | $ | 51,158 | $ | 35,848 | $ | 97,351 | $ | 67,336 | |||||||||
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Reconciliation of diluted earnings per share to diluted operating earnings per share:
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Diluted earnings per share
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$ | 0.81 | $ | 0.51 | $ | 1.55 | $ | 1.15 | |||||||||
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Less:
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Net realized gains (loss) net of tax | 0.01 | (0.07 | ) | 0.01 | (0.04 | ) | ||||||||||
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Gain on investment in unconsolidated subsidiary net of tax
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- | - | - | 0.09 | |||||||||||||
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Non cash amortization of certain intangible assets net of tax
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(0.03 | ) | (0.01 | ) | (0.04 | ) | (0.02 | ) | |||||||||
| Operating diluted earnings per share (3) | $ | 0.83 | $ | 0.59 | $ | 1.58 | $ | 1.12 | |||||||||
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Reconciliation of return on equity to operating return on equity:
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Return on equity
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25.2 | % | 19.7 | % | 24.7 | % | 23.0 | % | |||||||||
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Less:
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Net realized gains (loss) net of tax | 0.2 | % | (2.7 | ) | 0.2 | % | (1.0 | ) | ||||||||
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Gain on investment in unconsolidated subsidiary net of tax
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0.0 | % | - | 0.0 | % | 2.2 | |||||||||||
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Non cash amortization of certain intangible assets net of tax
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-0.7 | % | (0.5 | ) | -0.8 | % | (0.5 | ) | |||||||||
| Operating return on equity (4) | 25.7 | % | 22.9 | % | 25.3 | % | 22.3 | % | |||||||||
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(1)
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Equity in earnings of unconsolidated subsidiaries (related parties) includes a retrospective gain on investment related to ACAC of $10,450 and an after tax gain of $6,792 for the three months ended March 31, 2010.
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(2)
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Operating earnings is a non-GAAP financial measure defined by the Company as net income less after-tax realized investment gains and losses, gain on investment in unconsolidated subsidiary net of tax and certain amortization expense net of tax and should not be considered an alternative to net income. The Company's management believes that operating earnings is a useful indicator of trends in the Company's underlying operations because it provides a more meaningful representation of the Company's earnings power. The Company's measure of operating earnings may not be comparable to similarly titled measures used by other companies.
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(3)
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Diluted operating earnings per share is a non-GAAP financial measure defined by the Company as net income less after-tax net realized investment gains and losses, gain on investment in unconsolidated subsidiary net of tax and certain amortization expense net of tax divided by the weighted average diluted shares outstanding for the period and should not be considered an alternative to diluted earnings per share. The Company's management believes that diluted operating earnings per share is a useful indicator of trends in the Company's underlying operations because it provides a more meaningful representation of the Company’s earnings power. The Company's measure of diluted operating earnings per share may not be comparable to similarly titled measures used by other companies.
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(4)
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Operating return on equity is a non-GAAP financial measure defined by the Company as net income less net after-tax realized investment gains and losses, gain on investment in unconsolidated subsidiary net of tax and certain amortization expense net of tax divided by the average shareholders' equity for the period and should not be considered an alternative to return on equity. The Company's management believes that operating return on equity is a useful indicator of trends in the Company's underlying operations because it provides a more meaningful representation of the Company’s earnings power. The Company's measure of operating return on equity may not be comparable to similarly titled measures used by other companies.
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AmTrust Financial Services, Inc.
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Segment Information
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(in thousands, except percentages)
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(Unaudited)
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Three Months Ended June 30,
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Six Months Ended June 30,
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2011
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2010
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2011
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2010
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Gross written premium
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Small Commercial Business
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$ | 174,607 | $ | 107,600 | $ | 315,323 | $ | 230,302 | ||||||||
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Specialty Risk and Extended Warranty
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265,502 | 197,470 | 493,250 | 349,644 | ||||||||||||
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Specialty Program
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93,354 | 77,712 | 143,330 | 132,367 | ||||||||||||
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Personal Lines Reinsurance
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24,999 | 25,860 | 50,586 | 34,560 | ||||||||||||
| $ | 558,462 | $ | 408,642 | $ | 1,002,489 | $ | 746,873 | |||||||||
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Net written premium
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Small Commercial Business
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$ | 113,221 | $ | 56,052 | $ | 190,872 | $ | 117,490 | ||||||||
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Specialty Risk and Extended Warranty
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185,178 | 74,216 | 289,725 | 160,265 | ||||||||||||
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Specialty Program
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52,283 | 40,266 | 78,517 | 73,493 | ||||||||||||
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Personal Lines Reinsurance
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24,999 | 25,860 | 50,586 | 34,560 | ||||||||||||
| $ | 375,681 | $ | 196,394 | $ | 609,700 | $ | 385,808 | |||||||||
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Net earned premium
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Small Commercial Business
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$ | 74,034 | $ | 65,260 | $ | 135,895 | $ | 124,864 | ||||||||
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Specialty Risk and Extended Warranty
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109,631 | 86,587 | 194,208 | 138,351 | ||||||||||||
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Specialty Program
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40,138 | 35,061 | 70,908 | 71,793 | ||||||||||||
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Personal Lines Reinsurance
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24,479 | 9,353 | 47,609 | 9,353 | ||||||||||||
| $ | 248,282 | $ | 196,261 | $ | 448,620 | $ | 344,361 | |||||||||
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Loss Ratio
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||||||||||||||||
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Small Commercial Business
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67.4 | % | 60.3 | % | 63.8 | % | 59.6 | % | ||||||||
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Specialty Risk and Extended Warranty
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69.4 | % | 62.4 | % | 68.7 | % | 61.6 | % | ||||||||
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Specialty Program
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70.7 | % | 63.5 | % | 67.8 | % | 63.8 | % | ||||||||
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Personal Lines Reinsurance
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64.0 | % | 62.5 | % | 64.0 | % | 62.5 | % | ||||||||
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Total
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68.5 | % | 61.9 | % | 66.6 | % | 61.4 | % | ||||||||
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Expense Ratio
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||||||||||||||||
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Small Commercial Business
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24.4 | % | 26.9 | % | 25.4 | % | 24.5 | % | ||||||||
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Specialty Risk and Extended Warranty
|
16.3 | % | 19.0 | % | 16.3 | % | 16.8 | % | ||||||||
|
Specialty Program
|
25.6 | % | 27.3 | % | 25.5 | % | 26.4 | % | ||||||||
|
Personal Lines Reinsurance
|
32.5 | % | 32.5 | % | 32.5 | % | 32.5 | % | ||||||||
|
Total
|
21.8 | % | 23.8 | % | 22.2 | % | 22.0 | % | ||||||||
|
Combined Ratio
|
||||||||||||||||
|
Small Commercial Business
|
91.9 | % | 87.2 | % | 89.2 | % | 84.1 | % | ||||||||
|
Specialty Risk and Extended Warranty
|
85.7 | % | 81.4 | % | 85.0 | % | 78.4 | % | ||||||||
|
Specialty Program
|
96.2 | % | 90.8 | % | 93.3 | % | 90.2 | % | ||||||||
|
Personal Lines Reinsurance
|
96.5 | % | 95.0 | % | 96.5 | % | 95.0 | % | ||||||||
|
Total
|
90.3 | % | 85.7 | % | 88.8 | % | 83.4 | % | ||||||||