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AmTrust Financial (AFSI) Q2 Earnings Miss, Revenues Beat


AmTrust Financial Services, Inc. (AFSI) reported second-quarter 2017 operating net earnings of 40 cents per share, which missed the Zacks Consensus Estimate of 41 cents by 2.44%. Also, the bottom line plunged 48.1% from the year-ago quarter.

Higher catastrophe losses of $16.1 million largely contributed to the downside.

Nonetheless, the quarterly results reflect disciplined sales execution and high policy retention levels. Premiums also exhibited improvement.

Behind the Second-Quarter Headlines

AmTrust Financial’s total operating revenue of nearly $1.6 billion increased 17.7% from the year-ago quarter. Higher net earned premium (up 6.1%) as well as service and fee income (up 35.5%) drove the upside. Moreover, the top line beat the Zacks Consensus Estimate by 8.7%.

Net investment income declined 3% from the prior-year quarter to $49.2 million. Total expenses increased 31.7% year over year to $1.6 billion. Higher loss and loss adjusted expenses (LAE), acquisition costs and underwriting expenses as well as other expenses resulted in the increase.

Combined ratio deteriorated 990 basis points (bps) from the year-ago quarter to 101.2%. Expense ratio also deteriorated 210 bps to 26.9%.

Segment Update

Small Commercial Business: Net earned premiums improved 10.3% year over year to $631.8 million. Combined ratio deteriorated 780 bps to 26.9%.

Specialty Risk and Extended Warranty : Net earned premiums rose 50.6% year over year to $539 million. Combined ratio deteriorated 820 bps to 94.8%.

Specialty Program : Net premiums earned declined 16.4% year over year to 209.8 million. Combined ratio deteriorated 2500 bps to 118.9%.

Financial Update

At the end of the second quarter, Am Trust Financial had cash, cash equivalents and investments of $9.9 billion, up 7% from $9.2 billion at year-end 2016. Total assets grew 12% to $25.3 billion from $22.6 billion at year-end 2016. Shareholder equity inched up 12.1% to $3.7 billion from the 2016-end level.

The long-term debt-to-capitalization ratio of Am Trust Financial was 26.2%, reflecting an improvement of 150 bps from Dec 31, 2016.

Additionally, book value per share grew to $14.04 as of Jun 30, 2017 from $13.81 as of Dec 31, 2016. Operating return on equity deteriorated to 11.4% from 22.9% from the prior-year quarter.

Dividend Update

The board of directors approved a cash dividend of 17 cents per share.

Business Update

During the quarter, the insurance business of Am Trust Financial received $300 million equity funding from Karfunkel family for its organic growth.

AmTrust Financial sold 86% of its equity holding in National General.

The company also entered into a reinsurance agreement that will provide coverage for $400 million adverse net loss reserve development.

Zacks Rank

AmTrust Financial carries a Zacks Rank #5 (Strong Sell).

You can see the complete list of today’s Zacks #1 Rank stocks here.

Performance of Other Insurers

Among the other players from the insurance industry that have reported their second-quarter earnings so far, the bottom line at The Travelers Companies TRV and Progressive Corporation PGR missed their respective Zacks Consensus Estimate, while RLI Corp. RLI beat the same.

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