AmTrust Financial Services, Inc. - Corporate Solutions

AmTrust Financial Services,
Inc.
(AFSI-NASDAQ)
Investor Presentation
Third Quarter 2013

Forward Looking Statements
This presentation 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. All statements other than statements of historical fact included in this presentation
are forward-looking statements, including statements accompanied by words such as
“believe,” “expect,” “anticipate,” “intend,” “estimate,” “plan,” “project” and “continue” or
future or conditional verbs such as “will,” “would,” “should,” “could” or “may.” These
statements include the plans and objectives of management for future operations,
including those relating to future growth of the Company’s business activities and
availability of funds, and are based on current expectations that involve assumptions
that are difficult or impossible to predict accurately, many of which are beyond the
control of the Company. There can be no assurance that actual developments will be
consistent with the Company’s assumptions. Actual results may differ materially from
those expressed or implied in these statements as a result of significant risks and
uncertainties, including the factors set forth in the Company’s filings with the Securities
and Exchange Commission, including its Annual Report on Form 10-K and its quarterly
reports on Form 10-Q. The projections and statements in this presentation speak only
as of the date of this presentation and the Company undertakes 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.
2

History of AmTrust
• Founded in 1998 by Chairman Michael Karfunkel, Director George
Karfunkel and CEO and President Barry Zyskind
• 1998, acquired Wang Laboratory Inc.’s computer warranty
business, writing $10 million in premiums the first year
• 2000, the workers’ compensation insurance market experiences
significant market dislocations providing an opportunity for AmTrust
to enter the market
• 2013, a combination of organic growth and acquisitions lead to
$3.8 billion in gross written premiums for the past 12 months
ending 9/30/13
3

AmTrust Overview
4
$3.8 billion* multinational, specialty property
and casualty insurance company
• Low hazard and predictable, non-catastrophic policyholder base
– Strong risk management and pricing discipline
– Target underserved, niche markets
• Highly efficient operating platform
– Vertically-integrated proprietary technology drives costs lower and
service levels higher
– Effective economies of scale
• Record of intelligent growth
– Disciplined organic expansion
– Low-risk, high-return acquisitions, renewal rights transactions, strategic
agreements and key hires
• Strong balance sheet/efficient capital structure
– AmTrust Group rated “A” with a stable outlook and a Financial Size of X by
A.M. Best
– Conservative investment philosophy
* LTM Gross Written Premiums

Strong Premiums & Earnings Growth
$ in millions
Gross Written Premiums
Net Operating Earnings¹
$3,059
$2,749
$179
$192
$183
$2,150
$1,976
$126 $127
$138
$138
$1,111 $1,199 $1,561
2008 2009 2010 2011 2012 YTD12 YTD13
2008 2009 2010 2011 2012 YTD12 YTD13
¹ Net Income less after-tax realized investment gain (loss), non-cash amortization of certain intangible assets, non-cash interest on
convertible senior notes net of tax, foreign currency transaction gain (loss), sale of equity investment, gain resulting from a decrease in the
ownership percentage of an equity investment in an unconsolidated subsidiary (related party) net of tax and acquisition gain, net of tax.
Please see the Non-GAAP Reconciliations at the end of this presentation for important information on this Non-GAAP measure.
5

Shareholders’ Equity
Producing investor value is a core focus that drives every
aspect of the business
$ in millions
$1,388
$1,144
$1,074
$891
$717
$569
$393
2008 2009 2010 2011 2012 YTD12 YTD13
6

Growth in Operating Revenues*
Rising insurance premiums, and service and fee income contribute to
strong revenue growth
$ in millions
$1,856
$2,060
$1,355
$1,344
$641
$773
$997
2008 2009 2010 2011 2012 YTD12 YTD13
*Excludes net realized gain or loss
7

Technology is Core
• A software development company that happens to do insurance
• Employ a large team of experienced in-house programmers, providing
customized software solutions
• Allows quick processing of heavy volume of transactions. Support 55 million
active warranty policies and manage 250,000 insurance quotes per month
• Technology serves as our competitive advantage by driving down the expense
ratio (22.7% in 3Q13) while still providing high quality customer service through
efficient claim processing, policy administration and servicing
• Information systems are streamlined and an integral part of the acquisitions
process, providing easy scalability to new products and acquisitions
• IT costs well below industry average
8

Segment Overview
Small Commercial
Business
Specialty Risk and
Extended Warranty
Specialty
Program
Largest
Markets*
California, New York,
Florida, Pennsylvania
United States, Italy, UK,
France, Norway
California, New York,
New Jersey, Florida
Primary
Products
• Workers’ comp insurance in
low and medium hazard
classes, 87% of Division’s
GWP.
• Commercial package and
other low hazard P&C
products, 13% of Division’s
GWP
• Low hazard and noncatastrophic
accidental
damage and mechanical
breakdown coverage for
consumer and commercial
goods in U.S. and E.U.
• Specialty commercial and
consumer coverage in E.U.
• 77* programs in Worker’s
compensation, GL,
commercial auto and
property coverage to
specialized niche sectors or
geographic regions through
risk sharing agreements
with over 44 MGAs
Gross
Written
Premium
($s in millions)
Combined
Ratio
YTD13: $1,189 YTD13: $1,129 YTD13: $674
YTD12: $690 YTD12: $767 YTD12: $429
% Chg: 72.3% % Chg: 47.2% % Chg: 57.1%
YTD13: 90.8% YTD13: 85.3% YTD13: 95.2%
YTD12: 91.8% YTD12: 81.1% YTD12: 97.1%
YTD11: 89.8% YTD11: 84.9% YTD11: 94.1%
*year end 2012 data
9

Product Mix
Operates in Diverse, Lower Volatility Businesses
Balanced mix of higher frequency,
low hazard business lines
• More predictable loss experience
• Lower pricing pressures
• Higher retention rates
• Differentiated workers’ comp. franchise
in small business market
• Attractive warranty insurance franchise
Auto
Commercial
Auto
Other
Liability
Product Mix YTD13
3%
5%
20%
Warranty
Other
12%
21%
39%
$3.1 billion GWP YTD13
Workers’
Comp.
10

Geographically Diverse
Geographically diversified business protects against country specific volatility
and enables efficient allocation of capital
Global geographic diversity
with a focus on U.S. markets
• Positioned for improving
prices in key products in U.S.
• Growth opportunities in
Europe following dislocation
in local markets
United
Kingdom
Italy
Geographic Mix 2012
France
10%
2%
11%
Other
6%
71%
United
States
2012 Gross Written Premium $2.7 billion
11

Consistent & Strong Underwriting Performance
95.3%
74.4%
20.1%
93.1% 93.5%
85.3%
79.8%
22.1%
22.7%
97.7%
99%
93.1%
89.0% 89.5% 90.2%
23.6% 24.4% 23.0%
54.3% 57.1%
63.2% 65.4% 65.0% 67.2%
20081
2009 2010 2011 2012 YTD13
AmTrust Expense Ratio AmTrust Loss Ratio P&C Peers
2
Note: P&C Peers include CNA Financial, The Hanover Group, Markel Corp, Meadowbrook
Insurance Group, RLI Corp, Selective Insurance, W.R. Berkley, and HCC Insurance Holdings.
¹ 2008 Loss Ratio excludes effect of $15.0 million pre-tax loss reserve release.
² Average GAAP combined ratio of P&C peers.
12

Stable Pricing
Disciplined, consistent pricing is valued by customers and distributors
1.50
AmTrust Workers’ Compensation Average LCM*
2001 - 2012
1.40
1.30
1.20
1.10
1.00
0.90
0.80
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
AmTrust ex. California
*(LCM) Loss Cost Multiplier : price over state approved rate
13

Workers’ Compensation Experience
Focus on small business and advantageous pricing has assured
excellent claims experience.
• Small business focus aids underwriting profitability Workers’ comp customers have an
average of eight employees, providing a greater incentive to assure the claimant returns to
work
• Stable loss ratio Driven by disciplined pricing throughout the underwriting cycle. Low
hazard risks limits severity risk
• High rate of closed claims More than 95% of all workers’ compensation insurance
indemnity claims from 2008 are closed, 91% from 2009 and 87% from 2010
• Low hazard risks are a key differentiator Our focus on low hazard risks results in a
significantly lower claims severity experience than the industry average.
• Small, low hazard, employer market offers manageable claims mix 76%
of all workers’ compensation claims are medical-only
14

Growing Service and Fee Revenue
Attractive margins, unencumbered cash flow and requires limited capital
• Warranty and Consumer Services
• Assigned Risk
$ in millions
Service and Fee Revenue
• Policy Issuance Fees
• Workers’ Compensation Fund
Management
• Insurance Brokerage Fees
• Unemployment Insurance Services
• IT Systems Management and
Support
$239
$172
$108
$118
$62
$29 $31
2008 2009 2010 2011 2012 YTD12 YTD13
• Asset Management
15

Components of Service and Fee Revenue
$ in millions
Third Quarter
2012 2013
AMT Warranty $17.7 $21.7
NCCI Assigned Risk 5.5 8.8
CNH 4.4 7.6
NGHC Technology 3.9 7.1
Other Service and Fees 13.1 12.0
AmTrust Consumer Services - 17.0
Car Care - 9.9
First Nonprofit - 5.9
Total Fee and Service $44.6 $90.0
16

Value Creation Through Acquisitions
• M&A a core competency
- Strong expertise in consolidating books of business and operating companies
- Executive management and segment leaders active participants
• Entrepreneurial approach to strategic opportunities
− Invest time and effort into creating a sale
− Internally source most transactions
Target assets with size and scope to be easily absorbed
− Focus on transactions that are low-risk to the balance sheet
− Buy healthy balance sheets with upside
• Capitalize on factors that may deter others
− Provide AmTrust’s strength in technology, claims and expense management to
companies challenged in those aspects of the business
17

Recent Significant Transactions
1
2
1
Transaction expected to be completed by 4Q13
2 Transaction expected to be completed by 1Q14
18

Insco Dico Group
• September 18, 2013, AmTrust announces its intent to
acquire The Insco Dico Group
• Purchase price is approximately $85 million, or
approximately $7 million above the tangible book value
• The Insco Dico Group is headquartered in California with
licenses in all 50 states.
• The Insco Dico Group provides surety and general
liability insurance to building contractors and is licensed
in 50 states
• In 2012 Insco Dico produced $50 million in premium
• Expected to close in the first quarter of 2014
19

Conservative Investment Portfolio
• $3.1 billion fixed income
• 98% investment grade or better
• 73% of fixed maturities A- rated
or better
• 13% of fixed maturities AAA- rated
or U.S. Treasuries
• Average fixed maturities portfolio
duration of 5.8 years
• Tax adjusted average fixed
maturities portfolio yield of 3.3
• Equity securities includes an
investment in National General
Holdings Corp. of $89 million (fair
value of approximately $130 million)
$3.8 Billion Invested Assets 9/30/13
US
Treasuries
3%
RMBS
18%
Municipal
Bonds
12%
Foreign
Govt
1%
Equities &
Other
4%
Cash & ST
16%
Corporate
Bonds
46%
20

Strengthened Capital and Dividends
• January 2012 completed issuance
of $200 million 5.5% convertible
note
• August 2012 increased revolving
credit facility to $200 million
• September 2012 paid 10% stock
dividend
• April 2013 40% increase in
stockholder cash dividend
• June 2013 priced $115 million
6.75% non-cumulative preferred
stock offering
• August 2013 priced $250 million
6.125% private placement of senior
notes
• September 2013 paid a 10% stock
dividend
Capital Position As of 9/30/13
Trust Preferred Securities $123,714
Convertible Senior Notes 163,444
Senior Notes 250,000
Other Debt 22,504
Total Debt $559,662
Preferred Shares 115,000
Shareholder's Equity 1,273,439
Total Equity $1,388,439
Total Capital $1,948,101
Debt to Capital Ratio 28.7%
21

22
Appendix A: Segment Information

$in millions
Small Commercial Business
Lower hazard, small business, workers’ compensation and packaged products
• Target lower risk, underserved businesses,
such as restaurants, retailers and
professional offices
– Average WC policy premium of $9,1050
– 8 to 10 employees
• Less price sensitive than traditional
products
– Strong client retention with renewal rates
consistently 83%
• Proprietary technology provides ease-ofuse
and strong operating efficiencies
• Distributed through over 8,000 active retail
and wholesale agents
– Geographically diversified primarily in Mid-
Atlantic, Southeast, Midwest and California
Combined
Ratio
Gross Written Premium
$1,189
$934
$610
$690
$459 $470 $466
2008 2009 2010 2011 2012 YTD12 YTD13
Earned Premium
$517
$417
$320 $310
$239 $252
$173
2008 2009 2010 2011 2012 YTD12 YTD13
74.5% 82.8% 85.7% 89.9% 91.6% 91.8% 90.8%
23

$ in millions
Specialty Program
Partner with MGAs to provide lower risk workers’ compensation, general
liability, commercial auto and property coverage in specialized sectors
• Target lower risk/specialty businesses
– Multi-family housing operations
– Artisan contractors
– Restaurants
– Public entity
• Proprietary technology provides ease-ofuse
to agents and paperless 24-hour
underwriting response
– Customized coverage, loss control and
claims
• Distributed through wholesalers with
sector or geographic expertise in 50 states
– MGAs generally share in risk with
conservative underwriting guidelines
Combined
Ratio
Gross Written Premium
$579
$674
$382
$429
$236 $268 $264
2008 2009 2010 2011 2012 YTD12 YTD13
Earned Premium
$349 $361
$250
$171
$145 $145
$112
2008 2009 2010 2011 2012 YTD12 YTD13
87.6% 91.1% 93.0% 94.6% 96.6% 97.1% 95.2%
25

Appendix B: Financial Information
and Non-GAAP Reconciliation
26

Summary Income Statement
Nine Months
%
$ in millions 2008 2009 2010 2011 2012 2012 2013 Change
Gross Written Premium $1,110.6 $1,198.9 $1,560.8 $2,150.5 $2,749.3 $1,975.7 $3,058.7 54.8%
Net Written Premium 554.9 643.4 827.2 1,276.6 1,648.0 1,235.0 1,900.9 53.9%
Net Earned Premium 439.1 573.9 745.7 1,036.9 1,418.9 1,035.5 1,558.4 50.5%
Ceding Commission 115.5 113.9 138.3 154.0 197.0 140.7 199.3 41.6%
Service and Fee Income 28.0 30.7 62.1 108.7 172.2 118.1 238.6 102.1%
Net Investment Income & Realized Gains (4.1) 21.7 56.5 58.3 77.1 53.1 84.5 59.1%
Loss and LAE Expense 238.3 327.8 471.5 678.3 922.7 667.4 1,046.9 56.9%
Acquisition Cost and Other
Underwriting Expense 203.7 244.3 302.8 398.4 543.7 397.5 557.2 40.2%
Income before Other Income (Expense),
Equity Earnings, interest expense & tax 117.2 145.9 171.8 194.4 237.4 172.2 264.6 53.7%
Income gains from Life Settlements - - 11.9 46.9 13.8 5.3 0.10 N/M
Equity In Earnings (Loss) of
Unconsolidated Subsidiary (1.0) (0.8) 23.2 4.9 9.3 8.7 10.5 20.7%
Non-Controlling Interest (loss) 2.9 - (5.1) (20.7) (6.9) (3.1) 1.5 N/M
Foreign Currency Gain (Loss) 2.7 2.5 0.7 (2.4) (0.2) (3.0) 2.4 N/M
Acquisition Gain on Purchase - - - 5.9 - - 55.8 N/M
Net Income attributable to AFSI 82.9 103.2 142.5 170.4 178.0 122.7 220.9 80.0%
Operating Earnings (1,2) 126.3 126.6 138.3 179.5 191.6 138.2 182.7 32.2%
Operating EPS (2) N/A N/A $1.89 $2.41 $2.52 $1.82 $2.35 29.1%
Annualized Operating ROE (2) 32.3% 26.3% 21.5% 22.3% 18.9% 18.8% 20.2%
Net Loss Ratio 54.3% 57.1% 63.2% 65.4% 65.0% 64.5% 67.2%
Net Expense Ratio 20.1% 22.7% 22.1% 23.6% 24.4% 24.8% 23.0%
Net Combined Ratio 74.1% 79.8% 85.3% 89.0% 89.5% 89.2% 90.2%
1
Net operating earnings reflects net income as adjusted by the items detailed in footnote (1) to the Non-GAAP
Reconciliation on Slide 29
² Please see the Non-GAAP reconciliation slide at the end of this presentation for important information about
these Non-GAAP measures.
27

Balance Statement Highlights
$s in millions 2008 2009 2010 2011 2012 9/30/13
Cash and Investments $1,361.4 $1,414.8 $1,559.1 $2,086.6 $2,696.4 $3,817.4
Reinsurance Recoverable 584.8 643.3 775.4 1,098.6 1,318.4 1,857.6
Premiums Receivable, Net 419.6 495.9 727.6 933.0 1,251.3 1,431.3
Prepaid Reinsurance Premium 372.0 410.6 485.0 584.9 754.8 957.1
Deferred Policy Acquisition Costs and
Other Assets 406.1 435.8 627.4 1,029.4 1,396.3 1,835.7
Total Assets $3,143.9 $3,400.4 $4,182.5 $5,732.5 $7,417.2 $9,899.1
Loss and LAE Reserve 1,014.1 1,091.9 1,263.5 1,879.2 2,426.4 3,615.5
Unearned Premiums 759.9 871.8 1,025.0 1,366.2 1,773.6 2,537.4
Debt 157.0 143.7 144.8 279.6 302.0 559.7
Reinsurance Payables, Accrued
Expenses and Other Liabilities 820.4 723.6 1,008.2 1,247.3 1,667.2 1,679.5
Total Liabilities $2,751.4 $2,831.0 $3,441.5 $4,772.3 $6,169.2 $8,392.1
Redeemable Non-Controlling Interest 0.0 - 0.6 0.6 0.6 0.6
AmTrust Financial Shareholders' Equity 392.5 569.4 716.5 890.6 1,144.1 1,388.4
Non-Controlling Interest - - 24.5 69.6 103.3 118.0
Total Shareholders' Equity 392.5 569.4 741.0* 960.2 1,248.0 1,506.4
Total Liabilities and Shareholder's Equity $3,143.9 $3,400.4 $4,182.5 $5,732.5 $7,417.2 $9,899.1
Book Value Per Share $5.39 $7.89 $9.90 $12.21 $15.48 $17.08
28

Non-GAAP Reconciliation
Nine Months
$s in millions 2011 2012 2012 2013
Net income $170.4 $178.0 $122.7 $220.9
Less:
Net after-tax realized securities gains/(losses) 1.8 13.7 2.5 13.3
Net after-tax gain on investment in unconsolidated sub (2.3) - - -
Foreign currency transaction gains/(loss) (2.4) (0.2) (3.0) 2.4
Non-cash interest on convertible senior notes net of tax - (2.1) (3.2) (1.4)
Non-cash amortization of certain intangible assets (9.9) (17.2) (11.8) (20.8)
Gain resulting from decrease in ownership percentage
of equity investment in unconsolidated subsidiary
(related party) net of tax - - - 5.6
Acqusition gain net of tax 3.5 - - 39.1
Net operating earnings (1) $179.4 $183.8 $138.2 $182.7
Operating earnings per diluted common share (1) $2.41 $2.34 $1.82 $2.35
Average equity $803.5 $1,017.3 $982.4 $1,209.8
Operating ROE (1) 22.3% 18.8% 18.8% 20.2%
1) Operating earnings is a non-GAAP financial measure defined by the Company as net income less after-tax realized investment gain (loss), non-cash
amortization of certain intangible assets, non-cash interest on convertible senior notes net of tax, foreign currency transaction gain (loss), gain resulting
from a decrease in the ownership percentage of an equity investment in an unconsolidated subsidiary (related party) net of tax and acquisition gain, net
of tax and should not be considered an alternative to net income. The Company believes operating earnings are a more relevant measure of the
Company's profitability because operating earnings 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 may not be
comparable to similarly titled measures used by other companies.
2) In September 2013, the Company paid a ten percent stock dividend. As a result, prior year's weighted average common shares outstanding, diluted
shares outstanding, earnings per share, diluted earnings per share and operating diluted earnings per share have been adjusted.
29