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Analyst Blog

On Tuesday, AmTrust Financial Services Inc. (AFSI - Snapshot Report) reported operating earnings per share of 86 centsfor the second quarter of 2013. The results were significantly better thanthe Zacks Consensus Estimate of 76 cents and the year-ago figure of 64 cents. Consequently, operating net income surged 33% year over year to $60.4 million.

Excluding extraordinary items, reported net income escalated to $80.1 million or $1.14 per share as compared with $40.4 million or 59 cents a sharein the year-ago quarter. Growth was primarily driven by significant improvement in top line and agency acquisitions implemented in the past one year. The positives were partially offset by higher-than-expected expenses.

AmTrust’s total revenue jumped 66.4% to $716.5 million from $430.6 billion in the year-ago quarter. It substantially topped the Zacks Consensus Estimate of $476 million as well. The upside was attributable to net earned premiums that increased 60.6% year over year to $536.5 million. Additionally, commission and other revenues escalated 86.3% to $180 million, owing to higher ceding commission, investment income as well as service and fee revenues.

However, total expenses spiked 70.6% year over year to $637.6 million. The upsurge was led by higher loss and loss adjusted expenses (LAE) along with raised acquisition, underwriting and other expenses. Consequently, combined ratio deteriorated to 91.3% against 88.9% in the year-ago quarter.

Financial Update

At the end of Jun 2013, AmTrust held cash and equivalents of $3.5 billion, up from $2.7 billion at 2012-end. Total assets surged to $9.08 billion from $7.42 billion at 2012-end, whereas shareholder equity rose to $1.32 billion from $1.14 billion at the end of Dec 2012.

Additionally, book value per share grew 4.4% from 2012-end to $17.78 during the reported quarter. Annualized operating return on equity (ROE) also improved to 19.2% from 18.5% in the year-ago period.

Dividend Update

Concurrently, the board announced a quarterly cash dividend of 14 cents per share, payable on Oct 15, 2013, to shareholders of record as on Oct 1, 2013.

Furthermore, AmTrust approved a stock dividend of 10%, which equates to 10 cents per share. The stock dividend will be paid on Sep 4, 2013 to shareholders of record as on Aug 20, 2013.

Others

AmTrust carries a Zacks Rank #3 (Hold). Other strong performers in the insurance sector include Chubb Corp. (CB - Analyst Report), Hilltop Holdings Inc. (HTH - Analyst Report) and Everest Re Ltd. (RE - Analyst Report), all of which carry a Zacks Rank #2 (Buy).

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