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AmTrust Financial (AFSI) Loss Narrower Than Expected in Q3

Zacks

AmTrust Financial Services, Inc. AFSI reported third-quarter 2017 operating net loss of 4 cents per share, significantly narrower than the Zacks Consensus Estimate of a loss of 98 cents. Also, operating net loss compared unfavorably with operating earnings of 61 cents in the year-ago quarter.

AmTrust Financial Services, Inc. Price, Consensus and EPS Surprise


AmTrust Financial Services, Inc. Price, Consensus and EPS Surprise | AmTrust Financial Services, Inc. Quote

Higher net catastrophe loss of $54 million largely contributed to this downside.

Nonetheless, the quarterly results reflect improvement in premiums across the company’s largest operating segments, namely Small Commercial Business, and Specialty Risk and Extended Warranty.

Behind Third-Quarter Headlines

AmTrust Financial’s total operating revenues of nearly $1.4 billion increased 3.2% from the year-ago quarter. Higher net investment income (up 2%) as well as service and fee income (up 34.8%) drove this upside. However, the top line missed the Zacks Consensus Estimate by 5.2%.

Net investment income improved nearly 2% from the prior-year quarter to $61.1 million. Total expenses increased 42% year over year to $1.8 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 4120 basis points (bps) from the year-ago quarter to 134.4%. Expense ratio also deteriorated 290 bps to 28.3%.

Segment Update

Small Commercial Business: Net earned premiums grew 2.3% year over year to $529.1 million. Combined ratio deteriorated 3980 bps to 132.5%.

Specialty Risk and Extended Warranty: Net earned premiums climbed nearly 13% year over year to $482.8 million. Combined ratio deteriorated 3210 bps to 121.1%.

Specialty Program: Net premiums earned declined 28.2% year over year to $180.9 million. Combined ratio deteriorated 7400 bps to 175.5%.

Financial Update

At the end of the third quarter, Am Trust Financial had cash, cash equivalents and investments of $9.6 billion, up 4.3% from $9.2 billion at year-end 2016. Total assets grew 14.2% to $25.8 billion from $22.6 billion at year-end 2016. Shareholder equity rose 6.6% to $3.7 billion from the level at 2016-end.

The long-term debt-to-capitalization ratio of Am Trust Financial was 27.1%, reflecting an improvement of 60 bps from Dec 31, 2016.

Additionally, book value per share declined nearly 4% to $13.26 as of Sep 30, 2017 from $13.81 as of Dec 31, 2016. Operating return on equity deteriorated to (1.1)% from 17.7% in the year-ago quarter.

Dividend Update

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

Business Update

On Nov 7, 2017, AmTrust Financial entered into a strategic transaction with Madison Dearborn Partners to transfer 51% equity stake of its U.S.-based fee businesses to the latter. The business is valued at $1.15 billion and the company expects to get gross cash proceeds of about $950 million upon the completion of the transaction.

The company projects that this particular amount will add about $6.00 per share in net tangible book value and nearly $3.50 per share in net book value. The company expects the transaction to close by the first half of 2018. Notably, this transaction is anticipated to create the strongest capital base in AmTrust Financial’s history and strengthen its position as a premier multinational property and casualty insurer.

Zacks Rank

AmTrust Financial carries a Zacks Rank #4 (Sell).

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

Performance of Other Insurers

Among other firms from the insurance industry that have reported third-quarter earnings so far, the bottom line of The Progressive Corporation PGR, The Travelers Companies, Inc. TRV and RLI Corp. RLI surpassed the respective Zacks Consensus Estimate.

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