Friday, August 9, 2013

AmTrust Financial Services Q2 Results

AmTrust Financial Services Inc. reported strong second quarter earnings. This past quarter we surpassed our price target early in July and continued to soar. This increase was a direct result of the original thesis playing out and having a great turn around on their recent acquisitions. AmTrust has made it clear in their Earnings Call that they intend to continue their model of organic growth in addition to target acquisitions. AmTrust Financial has recently acquired Sagicor of London & Lloyd’s which gives them more exposure in Europe. This acquisition in addition to the increased exposure in Asia and Latin America from acquiring Car Care Plan last year alludes that they are diversifying into foreign markets as a safety net. I foresee AmTrust Financial Services having continued success in the near term future however due to the expectation of a violent hurricane season and the potential interest rate risk back-lash from pulling QE3 I will continue to explore other options.

Overall AmTrust had an excellent quarter. Every sector in AmTrust saw substantial growth and as a result Gross Written Premium increased 63.2% year over year beating consensus. Growth was primarily driven by significant improvement in top line and agency acquisitions of Sequoia and First non-profit from this past year. Net earned premiums were up over 60% from last year with the two largest contributors being their Specialty Risk & Extended Warranty segment and their Small Commercial Business segment. Specialty Risk & Extended Warranty contributed 39% of the total net earned premium and as a segment increased 64.3% from last year due to two large one-time premium events. Small Commercial Business segments made up 35% of the total net earned premium and as a sector increased 82.1% year over year from increases in Workers Compensation Premium.

Going forward I would like to potentially switch over to a larger more diversified company with less interest rate risk. I believe there is still upside in AmTrust Financial Services however there is currently too much uncertainty in my mind to be holding a small cap insurance company.  There are still many new opportunities emerging from AmTrust’s recent foreign expansion and their continued domination in niche markets so I will always keep them on my radar. I intend to actively explore all available options and look forward to revisiting this stock after Hurricane season.

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