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Form 8-K Amtrust Financial Servic For: Nov 03

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November 3, 2016 7:14 AM EDT


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 8-K
 
CURRENT REPORT
Pursuant to Section 13 OR 15(d) of the Securities Exchange Act of 1934
 

Date of Report (Date of Earliest Event Reported)
November 3, 2016
  
AmTrust Financial Services, Inc.
(Exact name of registrant as specified in its charter)
 
Delaware
 
001-33143
 
04-3106389
(State or other jurisdiction
 
(Commission
 
(IRS Employer
of incorporation)
 
File Number)
 
Identification No.)
 
59 Maiden Lane, 43rd Floor, New York, New York
10038
(Address of principal executive offices)
 
(Zip Code)
 

Registrant’s telephone number, including area code
(212) 220-7120

 

 
(Former name or former address, if changed since last report.)
 
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
 
 
¨
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
 
 
¨
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
 
 
¨
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
 
 
¨
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.133-4 (c))
 






 
 
Item 2.02
RESULTS OF OPERATIONS AND FINANCIAL CONDITION.

On November 3, 2016, AmTrust Financial Services, Inc.issued a press release announcing its results of operations for the third quarter ended September 30, 2016 and the scheduling of a conference call on November 3, 2016 with respect thereto. A copy of the press release is attached as Exhibit 99.1 to this Form 8-K and is furnished as Exhibit 99.1 to this report.

 
Item 9.01
FINANCIAL STATEMENTS AND EXHIBITS.
 
(a)
Not applicable.
(b)
Not applicable.
(c)
Not applicable.
(d)
Exhibits.
Exhibit Number
 
Description
99.1

 
Press release dated November 3, 2016.
 




SIGNATURES
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. 
 
 
AmTrust Financial Services, Inc.
 
(Registrant)
 
Date
November 3, 2016
 
 
/s/ Stephen Ungar
 
Stephen Ungar
 
Senior Vice President, General Counsel and Secretary
 




  
amtrustlogo1a01a01a01a02.jpg
AmTrust Financial Services, Inc. Reports Third Quarter 2016 Net Income Per Diluted Share(2) of $0.60 and Operating Earnings Per Diluted Share(1)(2) of $0.73
Book Value Per Common Share(2) of $15.30, Up 18.5% Since September 30, 2015
Annualized Return on Common Equity of 15.9% and Annualized Operating Return on Common Equity(1) of 19.4%

Financial Highlights
Third Quarter 2016

•
Gross written premium of $2.03 billion, up 14.2% compared to $1.78 billion in the third quarter 2015
•
Net earned premium of $1.20 billion, up 14.4% from $1.05 billion in the third quarter 2015
•
Net income attributable to common stockholders of $103.6 million compared to $182.7 million in the third quarter 2015
•
Operating earnings(1) of $126.3 million compared to $150.9 million in the third quarter 2015
•
Diluted EPS(2) of $0.60 compared to $1.09 in the third quarter 2015
•
Operating diluted EPS(1)(2) of $0.73 compared to $0.89 in the third quarter 2015
•
Service and fee income of $146.6 million, up 16% from $126.1 million in the third quarter 2015
•
Combined ratio of 91.5% compared to 92.6% in the third quarter 2015
•
Weighted average diluted shares outstanding(2) of 173.1 million, up 3% compared to 168.3 million in the third quarter 2015

NEW YORK, November 3, 2016 (GLOBE NEWSWIRE) -- AmTrust Financial Services, Inc. (Nasdaq: AFSI) ("the Company" or "AmTrust") today announced third quarter 2016 net income attributable to common stockholders of $103.6 million, or $0.60 per diluted share(2), compared to $182.7 million, or $1.09 per diluted share(2) in the third quarter 2015. For the third quarter 2016, operating earnings(1) was $126.3 million, or $0.73 per diluted share(2), compared to $150.9 million, or $0.89 per diluted share(2), in the third quarter 2015. Annualized return on common equity was 15.9% for the third quarter 2016 compared to 35.4% for the third quarter 2015. Third quarter 2016 annualized operating return on common equity(1) was 19.4% compared to 29.2% in the third quarter 2015.

1


“We delivered a solid performance in the third quarter, with strong investment results, higher service and fee income, and growth in gross written premiums, compared with the same period a year ago,” said Barry Zyskind, Chairman, President and Chief Executive Officer, AmTrust. “Our performance reflects a full quarter’s contribution from Republic Companies, as well as continued strong policy retention and disciplined underwriting of new business in our small commercial business segment, as demonstrated by our stable loss ratio. The top-line results of our specialty risk and extended warranty segment reflect the impact of the decline in the British pound relative to the third quarter a year ago, and we are pleased with the underlying performance of this segment."

Mr. Zyskind also stated, "We are optimistic about our organic growth prospects, given our differentiated model in workers’ compensation and commercial lines products in the U.S., as well as opportunities in our warranty insurance offering globally. We remain focused on building a portfolio of business that leverages our proprietary technology and our efficient operating structure to enhance shareholder returns.”

2


Third Quarter 2016 Results
Total revenue was $1.41 billion, an increase of $181.3 million, or 15%, from $1.23 billion in the third quarter 2015. Gross written premium was $2.03 billion, an increase of $253.3 million, or 14%, from $1.78 billion in the third quarter 2015. Net written premium was $1.22 billion, an increase of $73.1 million, or 6%, compared to $1.14 billion in the third quarter 2015. Net earned premium was $1.20 billion, an increase of $150.8 million, or 14%, from $1.05 billion in the third quarter 2015. The combined ratio was 91.5% compared to 92.6% in third quarter 2015.
Total service and fee income of $146.6 million increased $20.5 million, or 16%, from $126.1 million in the third quarter 2015 and included $19.4 million from related parties in the third quarter 2016 compared to $19.3 million in the third quarter 2015.
Net investment income, excluding net realized gains and losses, totaled $59.9 million, an increase of 48% from $40.4 million in the third quarter 2015. The significant growth in investment income during the third quarter was primarily due to the increase in invested assets. Total cash and invested assets increased 38% to $9.07 billion as of September 30, 2016 compared to $6.55 billion as of September 30, 2015. In addition, third quarter 2016 results included net realized investment gains of $8.2 million, or $5.3 million after-tax, on fixed income and equity investments compared with net realized investment gains of $17.7 million, or $11.5 million after-tax, in the third quarter of 2015.
Loss and loss adjustment expense totaled $811.0 million in the third quarter 2016, compared to $709.6 million in the third quarter 2015, and resulted in a loss ratio of 67.8% compared with 67.9% for the third quarter 2015.
Acquisition costs and other underwriting expense of $284.0 million increased $25.9 million from $258.0 million for the third quarter 2015. The expense ratio was 23.7% compared to 24.7% for the third quarter 2015. Ceding commissions, primarily related to the reinsurance agreements with Maiden Holdings, Ltd. ("Maiden"), totaled $161.3 million, up 14% from $141.1 million in the third quarter 2015.
Other expense of $137.5 million increased $20.6 million, or 18%, from $116.9 million in the third quarter 2015.
The effective tax rate was 23.4%, compared to (7.6)% in the third quarter 2015.
During the third quarter 2016, the Company issued an aggregate of 287,500 shares of 6.95% Series F preferred stock, resultingin net proceeds of approximately $278 million.

Year-to-Date 2016 Results
Total revenue was $4.07 billion, an increase of $620.2 million, or 18%, from $3.45 billion YTD 2015. Gross written premium was $6.04 billion, an increase of $849.9 million, or 16%, from $5.19 billion YTD 2015. Net written premium was $3.71 billion, an increase of $510.3 million, or 16%, from $3.19 billion YTD 2015. Net earned premium of $3.45 billion increased $488.5 million, or 16%, from $2.96 billion YTD 2015. The combined ratio was 91.5% compared to 90.8% YTD 2015.
Total service and fee income of $429.1 million increased $82.3 million, or 24%, from $346.8 million YTD 2015 and included $61.1 million from related parties in the first nine months 2016 compared with $57.9 million YTD 2015.
Investment income, excluding net realized gains and losses, totaled $160.1 million, an increase of 44% from $111.3 million YTD 2015. The significant growth in investment income during the first nine months was primarily due to the increase in invested assets. Total cash and invested assets increased 38% to $9.07 billion as of September 30, 2016 compared to $6.55 billion as of September 30, 2015. In addition, YTD 2016 results included net realized investment gains of $31.3 million, or $20.3 million after-tax, on certain fixed income and equity investments compared with net realized investment gains of $30.7 million, or $20.0 million after-tax, in the same period in 2015.
Loss and loss adjustment expense totaled $2.31 billion YTD 2016, compared to $1.96 billion YTD 2015, and resulted in a loss ratio of 66.9% compared with 66.2% for the same period in 2015.
Acquisition costs and other underwriting expense of $847.4 million increased $119.0 million from $728.4 million YTD 2015. The expense ratio was 24.6%, in line with YTD 2015. Ceding commissions, primarily related to the reinsurance agreements with Maiden, totaled $447.8 million, up 15% from $389.0 million in YTD 2015.
Other expense of $398.7 million increased $85.2 million, or 27%, from $313.5 million YTD 2015.
The effective tax rate was 19.7%, compared to 8.5% from YTD 2015.

3


During 2016, the Company issued 143,750 shares of 7.75% Series E preferred stock and 287,500 shares of 6.95% Series F preferred stock, resulting in aggregate net proceeds of approximately $417.3 million.

During 2016, the Company repurchased 6.2 million of its common shares at a weighted average price of $24.69 per share.
Total assets of approximately $22 billion as of September 30, 2016 increased approximately $4 billion, or 26%, from approximately $17 billion at December 31, 2015. Total cash, cash equivalents and investments of $9.22 billion increased $2.02 billion, or 28%, from $7.20 billion as of December 31, 2015. AmTrust's stockholder's equity of $3.52 billion increased 21% from $2.91 billion at December 31, 2015.
As of September 30, 2016, the Company's debt-to-capitalization ratio was 26.2%, compared with 25.8% as of December 31, 2015.
During the three months ended September 30, 2016, the Board of Directors declared cash dividends totaling $0.17 per share on the Company's common stock and cash dividends on the following series of non-cumulative preferred stock:
Series
 
Rate
 
Dividend
A
 
6.750%
 
$0.421875
B
 
7.250%
 
$0.453125
C
 
7.625%
 
$0.476563
D
 
7.500%
 
$0.468750
E
 
7.750%
 
$0.484375
Conference Call:
On November 3, 2016 at 10:00 AM ET, Chairman, President & CEO Barry Zyskind and CFO Ron Pipoly will review these results and discuss business conditions via a conference call and webcast that may be accessed as follows:
Toll-Free Dial-in:   (877) 755-7421
Toll Dial-in (Outside the U.S):   (973) 200-3087
Conference ID: 97791660
Webcast registration: http://ir.amtrustgroup.com/events.cfm
A replay of the conference call will be available at approximately 1:00 PM ET Thursday, November 3, 2016 through Thursday, November 10, 2016 at 11:59 PM ET. To listen to the replay, please dial (855) 859-2056 (within the U.S.) or (404) 537-3406 (outside the U.S.) and enter replay passcode 97791660, or access http://ir.amtrustgroup.com/events.cfm.

4


About AmTrust Financial Services, Inc.
AmTrust Financial Services, Inc., a multinational insurance holding company headquartered in New York City, offers specialty property and casualty insurance products, including workers' compensation, commercial automobile, general liability and extended service and warranty coverage through its primary insurance subsidiaries rated “A” (Excellent) by A.M. Best. For more information about AmTrust, visit www.amtrustgroup.com, or call AmTrust toll-free at (855) 327-2223.
Forward Looking Statements
This news release contains certain forward-looking statements that are intended to be covered by the safe harbors created by the Private Securities Litigation Reform Act of 1995. When we use words such as “anticipate,” “intend,” “plan,” “believe,” “estimate,” “expect,” or similar expressions, we do so to identify forward-looking statements. Examples of forward-looking statements include the plans and objectives of management for future operations, including those relating to future growth of our business activities and availability of funds, and are based on current expectations that involve assumptions that are difficult or impossible to predict accurately and many of which are beyond our control. Actual results may differ materially from those expressed or implied in these statements as a result of significant risks and uncertainties, including, but not limited to, non-receipt of expected payments from insureds or reinsurers, changes in interest rates, a downgrade in the financial strength ratings of our insurance subsidiaries, the effect of the performance of financial markets on our investment portfolio, the amounts, timing and prices of any share repurchases made by us under our share repurchase program, development of claims and the effect on loss reserves, accuracy in projecting loss reserves, the cost and availability of reinsurance coverage, the effects of emerging claim and coverage issues, changes in the demand for our products, our degree of success in integrating acquired businesses, the effect of general economic conditions, state and federal legislation, regulations and regulatory investigations into industry practices, risks associated with conducting business outside the United States, the impact of Brexit, developments relating to existing agreements, disruptions to our business relationships with Maiden Holdings, Ltd., National General Holdings Corp., or ACP Re, Ltd., breaches in data security or other disruptions with our technology, heightened competition, changes in pricing environments, and changes in asset valuations. Additional information about these risks and uncertainties, as well as others that may cause actual results to differ materially from those projected, is contained in our filings with the SEC, including our Annual Report on Form 10-K and our quarterly reports on Form 10-Q. The projections and statements in this news release speak only as of the date of this release and we undertake no obligation to update or revise any forward-looking statement, whether as a result of new information, future developments or otherwise, except as may be required by law.

AFSI-F

CONTACT:
AmTrust Financial Services, Inc.
        
 
        
SVP Investor Relations
        
Elizabeth Malone, CFA
        
        
(646) 458-7924




5


 
AmTrust Financial Services, Inc.
Income Statement
(in thousands, except per share data)
(Unaudited)
 
 
 
 
 
 
 
Three Months Ended September 30,

Nine Months Ended September 30,
 
 
2016

2015

2016

2015
Gross written premium
 
$
2,034,098

 
$
1,780,813

 
$
6,040,284

 
$
5,190,338

 
 
 

 
 

 
 

 
 

Net written premium
 
$
1,216,050

 
$
1,142,983

 
$
3,705,165

 
$
3,194,893

Change in unearned premium
 
(19,814
)
 
(97,575
)
 
(252,895
)
 
(231,138
)
Net earned premium
 
1,196,236

 
1,045,408

 
3,452,270

 
2,963,755

 
 
 
 
 
 
 
 
 
Service and fee income
 
146,611

 
126,143

 
429,082

 
346,766

Net investment income
 
59,919

 
40,425

 
160,079

 
111,281

Net realized gain on investments
 
8,230

 
17,682

 
31,304

 
30,693

Other revenue
 
214,760

 
184,250

 
620,465

 
488,740

Total revenue
 
1,410,996

 
1,229,658

 
4,072,735

 
3,452,495

Loss and loss adjustment expense
 
811,048

 
709,604

 
2,310,514

 
1,961,362

Acquisition costs and other underwriting expense
 
283,958

 
258,016

 
847,395

 
728,402

Other expense
 
137,542

 
116,900

 
398,698

 
313,487

Total expense
 
1,232,548

 
1,084,520

 
3,556,607

 
3,003,251

Income before other income (expense), provision for income taxes, equity in earnings of unconsolidated subsidiaries and non-controlling interest
 
178,448

 
145,138

 
516,128

 
449,244

Other income (loss):
 
 

 
 

 
 

 
 

Interest expense
 
(23,950
)
 
(12,862
)
 
(61,388
)
 
(32,763
)
Loss on extinguishment of debt
 
—

 
(557
)
 
—

 
(5,271
)
Gain on life settlement contracts net of profit commission
 
5,485

 
4,616

 
28,891

 
19,085

Foreign currency (loss) gain
 
(8,320
)
 
24,721

 
(70,428
)
 
17,355

Gain on acquisition
 
—

 
5,826

 
48,775

 
5,826

Total other income (loss)
 
(26,785
)

21,744

 
(54,150
)
 
4,232

Income before provision for income taxes, equity in earnings of unconsolidated subsidiaries and non-controlling interest
 
151,663

 
166,882

 
461,978

 
453,476

Provision (benefit) for income taxes
 
35,516

 
(12,649
)
 
91,160

 
38,635

Equity in earnings of unconsolidated subsidiaries (related parties)
 
1,954

 
13,477

 
12,532

 
23,048

Net income
 
118,101

 
193,008

 
383,350

 
437,889

Redeemable non-controlling interest and non-controlling interest
 
(2,975
)
 
(1,511
)
 
(12,809
)
 
(6,940
)
Net income attributable to AmTrust stockholders
 
$
115,126


$
191,497


$
370,541


$
430,949

Dividends on preferred stock
 
(11,576
)
 
(8,789
)
 
(31,943
)
 
(22,797
)
Net income attributable to AmTrust common stockholders
 
$
103,550


$
182,708


$
338,598


$
408,152

Operating earnings(1) attributable to AmTrust common stockholders
 
$
126,341

 
$
150,903

 
$
403,280

 
$
402,847

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

6


AmTrust Financial Services, Inc.
Income Statement
(in thousands, except per share data)
(Unaudited)
 
 
 
 
 
 
 
Three Months Ended September 30,

Nine Months Ended September 30,
 
 
2016

2015

2016

2015
Earnings per common share:
 
 

 
 

 
 

 
 

Basic earnings per share (2)
 
$
0.61

 
$
1.11

 
$
1.96

 
$
2.48

Diluted earnings per share (2)
 
$
0.60

 
$
1.09

 
$
1.93

 
$
2.43

Operating diluted earnings per share (1)(2)
 
$
0.73

 
$
0.89

 
$
2.30

 
$
2.40

Weighted average number of basic shares outstanding (2)
 
170,928

 
165,182

 
173,173

 
164,038

Weighted average number of diluted shares outstanding (2)
 
173,121

 
168,272

 
175,151

 
167,492

Combined ratio
 
91.5
%
 
92.6
%
 
91.5
%
 
90.8
%
Return on equity
 
15.9
%
 
35.4
%
 
17.9
%
 
28.1
%
Operating return on equity (1)
 
19.4
%
 
29.2
%
 
21.4
%
 
27.7
%
Reconciliation of net realized gain (loss):
 
 

 
 

 
 

 
 

Other-than-temporary investment impairments
 
(9,461
)
 
(7,636
)
 
(26,417
)
 
(10,118
)
Impairments recognized in other comprehensive income
 
—

 
—

 
—

 
—

 
 
(9,461
)
 
(7,636
)
 
(26,417
)
 
(10,118
)
Net realized gain on sale of investments
 
17,691

 
25,318

 
57,721

 
40,811

Net realized gain
 
$
8,230

 
$
17,682

 
$
31,304

 
$
30,693


  
AmTrust Financial Services, Inc.
Balance Sheet Highlights
(in thousands, except book value per common share)
 
 
 
 
 
 
 
September 30, 2016
 
December 31, 2015
 
 
(Unaudited)
 
(Audited)
Cash, cash equivalents and investments
 
$
9,221,241

 
$
7,199,535

Premium receivables
 
2,405,638

 
2,115,653

Goodwill and intangible assets
 
1,084,561

 
800,045

Loss and loss adjustment expense reserves
 
9,427,770

 
7,208,367

Unearned premium
 
4,900,926

 
4,014,728

Trust preferred securities
 
214,792

 
118,226

Convertible senior notes
 
170,018

 
165,361

6.125% Senior notes
 
248,116

 
247,911

7.25% Subordinated notes due 2055
 
145,171

 
145,078

7.50% Subordinated notes due 2055
 
130,656

 
130,572

5.75% Note payable
 
104,685

 
—

Preferred stock
 
913,750

 
482,500

AmTrust's stockholders' equity
 
3,521,490

 
2,909,060

Book value per common share (2)
 
$
15.30

 
$
13.79

 






7


AmTrust Financial Services, Inc.
Non-GAAP Financial Measures
(in thousands, except per share data)
(Unaudited)  
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended September 30,

Nine Months Ended September 30,
 
 
2016

2015

2016
 
2015
Reconciliation of net income attributable to AmTrust common stockholders to operating earnings (1):
 
 

 
 

 
 

 
 

Net income attributable to AmTrust common stockholders
 
$
103,550

 
$
182,708

 
$
338,598

 
$
408,152

Less: Net realized gain on investments net of tax
 
5,350

 
11,493

 
20,348

 
19,950

Non-cash amortization of intangible assets
 
(18,229
)
 
(12,294
)
 
(41,639
)
 
(32,166
)
Non-cash interest on convertible senior notes net of tax
 
(1,592
)
 
(1,371
)
 
(4,667
)
 
(4,376
)
Loss on extinguishment of debt
 
—

 
(557
)
 
—

 
(5,271
)
Foreign currency transaction (loss) gain
 
(8,320
)
 
24,721

 
(70,428
)
 
17,355

Gain resulting from decrease in ownership percentage of equity investment in unconsolidated subsidiary (related party) net of tax
 
—

 
6,026

 
—

 
6,026

Acquisition gain net of tax
 
—

 
3,787

 
31,704

 
3,787

Operating earnings (1) attributable to AmTrust common stockholders
 
$
126,341

 
$
150,903

 
$
403,280

 
$
402,847

Reconciliation of diluted earnings per share to diluted operating earnings per share (1)(2):
 
 

 
 

 
 

 
 

Diluted earnings per share
 
$
0.60

 
$
1.09

 
$
1.93

 
$
2.43

Less: Net realized gain on investments net of tax
 
0.03

 
0.07

 
0.12

 
0.11

Non-cash amortization of intangible assets
 
(0.10
)
 
(0.08
)
 
(0.24
)
 
(0.18
)
Non-cash interest on convertible senior notes net of tax
 
(0.01
)
 
(0.01
)
 
(0.03
)
 
(0.02
)
Loss on extinguishment of debt
 
—

 
—

 
—

 
(0.03
)
Foreign currency transaction (loss) gain
 
(0.05
)
 
0.16

 
(0.40
)
 
0.10

Gain resulting from decrease in ownership percentage of equity investment in unconsolidated subsidiary (related party) net of tax
 
—

 
0.04

 
—

 
0.03

Acquisition gain net of tax
 
—

 
0.02

 
0.18

 
0.02

Operating diluted earnings per share (1)(2)
 
$
0.73

 
$
0.89

 
$
2.30

 
$
2.40

Reconciliation of return on common equity to operating return on common equity: (1)
 
 

 
 

 
 

 
 

Return on common equity
 
15.9
 %
 
35.4
 %
 
17.9
 %
 
28.1
 %
Less: Net realized gain on investments net of tax
 
0.8
 %
 
2.2
 %
 
1.1
 %
 
1.5
 %
Non-cash amortization of intangible assets
 
(2.8
)%
 
(2.4
)%
 
(2.2
)%
 
(2.4
)%
Non-cash interest on convertible senior notes net of tax
 
(0.2
)%
 
(0.3
)%
 
(0.3
)%
 
(0.3
)%
Loss on extinguishment of debt net of tax
 
—
 %
 
(0.1
)%
 
—
 %
 
(0.4
)%
Foreign currency transaction (loss) gain
 
(1.3
)%
 
4.9
 %
 
(3.8
)%
 
1.2
 %
Gain resulting from decrease in ownership percentage of equity investment in unconsolidated subsidiary (related party) net of tax
 
—
 %
 
1.2
 %
 
—
 %
 
0.5
 %
Acquisition gain net of tax
 
—
 %
 
0.7
 %
 
1.7
 %
 
0.3
 %
Operating return on common equity (1)
 
19.4
 %
 
29.2
 %
 
21.4
 %
 
27.7
 %
 






8


(1)
References to operating earnings, operating diluted EPS, and operating return on common equity are non-GAAP financial measures. Operating earnings ("Operating Earnings") is defined by the Company as net income attributable to AmTrust common stockholders less after-tax realized gain (loss) on investments, non-cash amortization of intangible assets, non-cash interest on convertible senior notes, net of tax, loss on extinguishment of debt, foreign currency transaction gain (loss), gain resulting from decrease in ownership percentage of equity investment in unconsolidated subsidiary (related party), net of tax and acquisition gain, net of tax. Operating Earnings should not be considered an alternative to net income. Operating diluted earnings per share is defined by the Company as Operating Earnings divided by the weighted average diluted shares outstanding for the period and should not be considered an alternative to diluted earnings per share. Operating return on common equity is defined by the Company as Operating Earnings divided by the average common equity for the period and should not be considered an alternative to return on common equity. The Company believes Operating Earnings, operating diluted earnings per share, and operating return on common equity are more relevant measures of the Company's profitability because Operating Earnings, operating diluted earnings per share, and operating return on common equity contain the components of net income upon which the Company's management has the most influence and excludes factors outside management's direct control and non-recurring items. The Company's measure of Operating Earnings, operating diluted earnings per share, and operating return on common equity may not be comparable to similarly titled measures used by other companies.
(2)
On February 2, 2016, the Company's stock split on a two-for-one basis. As a result, the Company retrospectively adjusted all share and per share amounts in 2015 to reflect the impact of the stock split.

AmTrust Financial Services, Inc.
Segment Information
(in thousands, except percentages)
(Unaudited)
 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
2016
 
2015
 
2016
 
2015
Gross written premium
 
 

 
 

 
 

 
 

Small Commercial Business
 
$
998,071

 
$
797,654

 
$
3,124,761

 
$
2,574,602

Specialty Risk and Extended Warranty
 
598,977

 
577,284

 
1,779,984

 
1,528,017

Specialty Program
 
437,050

 
405,875

 
1,135,539

 
1,087,719

 
 
$
2,034,098

 
$
1,780,813

 
$
6,040,284

 
$
5,190,338

Net written premium
 
 

 
 

 
 

 
 

Small Commercial Business
 
$
457,869

 
$
459,290

 
$
1,684,035

 
$
1,499,922

Specialty Risk and Extended Warranty
 
448,847

 
380,600

 
1,233,741

 
975,073

Specialty Program
 
309,334

 
303,093

 
787,389

 
719,898

 
 
$
1,216,050

 
$
1,142,983

 
$
3,705,165

 
$
3,194,893

Net earned premium
 
 

 
 

 
 

 
 

Small Commercial Business
 
$
516,996

 
$
493,654

 
$
1,594,068

 
$
1,400,704

Specialty Risk and Extended Warranty
 
427,321

 
350,382

 
1,107,046

 
963,481

Specialty Program
 
251,919

 
201,372

 
751,156

 
599,570

 
 
$
1,196,236

 
$
1,045,408

 
$
3,452,270

 
$
2,963,755

Loss Ratio:
 
 

 
 

 
 

 
 

Small Commercial Business
 
66.6
%
 
64.9
%
 
66.5
%
 
64.9
%
Specialty Risk and Extended Warranty
 
68.8
%
 
72.2
%
 
66.5
%
 
67.2
%
Specialty Program
 
68.5
%
 
67.6
%
 
68.4
%
 
67.6
%
Total
 
67.8
%
 
67.9
%
 
66.9
%
 
66.2
%
Expense Ratio:
 
 

 
 

 
 

 
 

Small Commercial Business
 
24.3
%
 
26.5
%
 
25.5
%
 
26.1
%
Specialty Risk and Extended Warranty
 
21.0
%
 
20.0
%
 
21.5
%
 
20.5
%
Specialty Program
 
27.3
%
 
28.5
%
 
27.1
%
 
27.6
%
Total
 
23.7
%
 
24.7
%
 
24.6
%
 
24.6
%
Combined Ratio:
 
 

 
 

 
 

 
 

Small Commercial Business
 
90.9
%
 
91.4
%
 
92.0
%
 
91.0
%
Specialty Risk and Extended Warranty
 
89.8
%
 
92.2
%
 
88.0
%
 
87.7
%
Specialty Program
 
95.8
%
 
96.1
%
 
95.5
%
 
95.2
%
Total
 
91.5
%
 
92.6
%
 
91.5
%
 
90.8
%


9

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