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Analyst Blog

Shares of AmTrust Financial Services, Inc. (AFSI - Snapshot Report) are on the rise since the property and casualty insurer posted solid second-quarter earnings results on Aug 7. Shares gained about 2.2% over the last three trading sessions to close at $44.14 yesterday.

AmTrust Financial posted operating net earnings of $1.34, surpassing the Zacks Consensus Estimate by 33% and the year-ago earnings by 79%. Meanwhile, the insurer kept its positive surprise streak alive with the quarterly performance.

The improvement was primarily driven by significant improvement in the top line (on both organic and inorganic routes).
 

 

Including extraordinary items, reported net income escalated 43% year over year to $1.33 per share.

AmTrust’s total revenue surged 56% year over year to $1.01 billion, crossing the $1 billion mark for the first time. The upside can be largely attributed to net earned premiums (up 58% year over year), a 13% increase in service and fee income, and a 44% improvement in investment income. The top line also surpassed the Zacks Consensus Estimate of $867 million.

For the fifth straight quarter, AmTrust surpassed the $1 billion in gross written premium. The reported quarter’s gross written premium stood at $1.44 billion, translating into a healthy 38.7% year-over-year improvement.

While service and fee income benefitted from growth across core businesses, a significant level of invested assets supported the improvement in investment income.

However, total expenses increased 54% year over year to $882.9 million on higher loss and loss adjusted expenses (LAE) along with raised acquisition, underwriting and other expenses.

Meanwhile, the combined ratio improved 120 basis points to 90.9% against 92.1% in the year-ago quarter. The expense ratio also improved 40 basis points to 23.8%.

Financial Update

At the end of the second quarter, AmTrust held cash and cash equivalents of $5.1 billion, up from $4.6 billion at 2013-end. Total assets grew to $12.8 billion from $11.3 billion at the end of 2013, whereas shareholder equity rose to $1.7 billion from $1.4 billion at the end of Dec 2013.

The long-term debt-to-capitalization ratio of AmTrust stood at 24.7%, reflecting an improvement of 330 basis points from Dec 31, 2013.

Additionally, the book value per share grew 19.1% to $21.13 as of Jun 30, 2014 from $17.85 as on Dec 31, 2013. Operating return on equity also improved to 28.0% from 19.2% in the year-ago quarter.

Zacks Rank

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

Performance of Other Property and Casualty Insurers

While ACE Limited’s (ACE - Analyst Report) earnings outperformed the Zacks Consensus Estimate on solid underwriting performance coupled with improved investment results, RLI Corporation’s (RLI - Analyst Report) earnings were in line with the Zacks Consensus Estimate. However, The Travelers Companies Inc. (TRV - Analyst Report) missed the Zacks Consensus Estimate on higher-than-expected catastrophe losses.

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