AmTrust Financial Beats on Q3 Earnings as Revenues Rise

Zacks

AmTrust Financial Services Inc. (AFSI) posted operating net earnings of $1.70 per share, surpassing the Zacks Consensus Estimate by 46% and being more than double the year-ago number. Meanwhile, the insurer kept its positive surprise streak alive with the quarter’s performance.

The improvement was primarily driven by a significant improvement in the top line.

Including extraordinary items, reported net income was $1.97 per share, significantly higher than 74 cents earned in the year-ago quarter.

AmTrust’s total revenue surged 47% year over year to $1.01 billion, crossing the $1 billion mark for the second time. The upside can be largely attributed to a 49% increase in net earned premiums, a 30% increase in service and fee income and a 48% improvement in investment income. The top line also surpassed the Zacks Consensus Estimate of $900 million.

For the sixth straight quarter, AmTrust surpassed the $1 billion in gross written premium. The reported quarter’s gross written premium came in at $1.52 billion, translating into a healthy 41% year-over-year improvement.

However, total expenses increased 47% year over year to $938 million on higher loss and loss adjusted expenses (LAE) along with raised acquisition, underwriting and other expenses.

Meanwhile, the combined ratio deteriorated 210 basis points to 91.3% from 89.2% in the year-ago quarter. The expense ratio also deteriorated 240 basis points to 24.7%.

Financial Update

At the end of the third quarter, AmTrust held cash and cash equivalents of $5.2 billion, up from $4.6 billion at 2013 end. Total assets grew to $13.2 billion from $11.3 billion at the end of 2013, whereas shareholder equity rose to $1.98 billion from $1.44 billion at the end of Dec 2013.

The long-term debt-to-capitalization ratio of AmTrust was 22.9%, reflecting a deterioration of 510 basis points from Dec 31, 2013.

Additionally, the book value per share grew 27.2% to $22.56 as of Sep 30, 2014 from $17.74 as of Dec 31, 2013. Operating return on equity also improved to 34.2% from 21.1% in the year-ago quarter.

Zacks Rank

AmTrust Financial carries a Zacks Rank #2 (Buy).

Performance of Other Property and Casualty Insurers

The bottom line at RLI Corporation (RLI), The Travelers Companies Inc. (TRV) and ACE Limited (ACE) has outperformed each of their Zacks Consensus Estimate in the third quarter.

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