AmTrust Financial Services Inc. Reports Operating Results (10-Q)
AMTRUST is a multinational property and casualty insurer specializing in coverage for small businesses. They offer workers' compensation insurance extended warranty coverage specialty middle market property and casualty insurance and a host of related products and services.They have built a reputation as an innovative technology driven insurance company. Their commitment to excellence is the common thread connecting each of our businesses. AmTrust Financial Services Inc. has a market cap of $579.3 million; its shares were traded at around $9.65 with a P/E ratio of 4.5 and P/S ratio of 1. The dividend yield of AmTrust Financial Services Inc. stocks is 2.1%. Highlight of Business Operations:In June 2008, the Company completed a stock and asset purchase agreement with a subsidiary of Unitrin, Inc. whereby the Company acquired its commercial package business (“UBI”) including its distribution networks, renewal rights and four insurance companies through which Unitrin wrote its UBI business. The acquired insurance companies are located in Kansas, Texas and Wisconsin and are collectively licensed in 33 states. Consideration paid for the transaction was approximately $88.5 million and consisted of cash of $61.2 million, a note payable of $26.8 million, assumed liabilities of $0.3 million and direct transaction costs of $0.2 million. The Company has recorded approximately $35.0 million of goodwill and $15.0 million of intangible assets related to customer relationships and licenses. The results of operations have been included in the Company s consolidated financial statements since the acquisition date.
Gross Premium Written. Gross premium written increased $32.8 million or 14.0% from $234.8 million to $267.5 million for the three months ended March 31, 2008 and 2009, respectively. The increase of $32.8 million was attributable to a $38.2 million increase in our small commercial business, a $5.0 million decrease in our specialty risk and extended warranty business and a $0.4 million decrease in our specialty middle-market property and casualty business. The increase in small commercial business resulted primarily from gross written premium attributable to the UBI acquisition in the second quarter of 2008 and entering into a managing general agency agreement with Cardinal Comp in the third quarter of 2008. The decrease in specialty risk and extended warranty business resulted primarily from the currency effect on its premium writings in Europe. The specialty middle-market gross premiums were flat period over period.
Net Premium Written. Net premium written increased $18.8 million or 16.0% from $117.4 million to $136.2 million for the three months ended March 31, 2008 and 2009, respectively. Net premium written reflected cessions of $82.9 million and $87.5 million to Maiden Insurance for the three months ended March 31, 2008 and 2009, respectively, under the terms of their Maiden Quota Share. Before the cessions to Maiden Insurance, net premium written increased by $23.4 million in the first quarter of 2009 compared to the first quarter of 2008. The increase (decrease) before the cessions, by segment, was: small commercial business - $30.8 million, specialty risk and extended warranty - $(9.1) million and specialty middle market - $1.7 million.
Net Premium Earned. Net premium earned increased $35.0 million or 35.9% from $97.4 million to $132.4 million for the three months ended March 31, 2008 and 2009. Net premium earned for the first quarter of 2008 and 2009, respectively, reflected the cessions of $63.8 million and $94.5 million to Maiden Insurance under the terms of the Maiden Quota Share. Before the cessions to Maiden Insurance, net premium earned increased by $65.7 million in the first quarter of 2009 compared to the first quarter of 2008. The increase before the cessions, by segment, was: small commercial business - $42.8 million; specialty risk and extended warranty - $13.7 million; and specialty middle market - $9.2 million.
Net Investment Income. Net investment income increased $0.1 million or 0.4% from $13.5 million to $13.6 million for the three months ended March 31, 2008 and 2009, respectively. The increase was relatively flat as invested assets (excluding equity securities) over the three months ended March 31, 2008 and 2009 was approximately $1.4 billion and $1.3 billion, respectively. Yields on the Company s fixed maturities for the three months ended March 31, 2008 and 2009 were approximately 4.2% and 4.1%, respectively.
Interest Expense. Interest expense for the three months ended March 31, 2009 was $4.2 million, compared to $2.6 million for the same period in 2008. The increase was attributable to interest expense on the Company s promissory note with Maiden, the $40 million term loan the Company entered into with J.P. Morgan Chase and $30 million promissory note related to the acquisition of UBI. The term loan and promissory note were entered into the second quarter of 2008.
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