| Segments |
Segments The Company currently operates four business segments, Small Commercial Business; Specialty Risk and Extended Warranty; Specialty Program and Personal Lines Reinsurance. The “Corporate & Other” segment represents the activities of the holding company as well as a portion of service and fee revenue. In determining total assets (excluding cash and invested assets) by segment, the Company identifies those assets that are attributable to a particular segment such as deferred acquisition cost, reinsurance recoverable, goodwill, intangible assets and prepaid reinsurance while the remaining assets are allocated based on gross written premium by segment. In determining cash and invested assets by segment, the Company matches certain identifiable liabilities such as unearned premium and loss and loss adjustment expense reserves by segment. The remaining cash and invested assets are then allocated based on gross written premium by segment. Investment income and realized gains (losses) are determined by calculating an overall annual return on cash and invested assets and applying that overall return to the cash and invested assets by segment. Ceding commission revenue is allocated to each segment based on that segment’s proportionate share of the Company’s overall acquisition costs. Interest expense is allocated based on gross written premium by segment. Income taxes are allocated on a pro-rata basis based on the Company’s effective tax rate. Additionally, management reviews the performance of underwriting income in assessing the performance of and making decisions regarding the allocation of resources to the segments. Underwriting income excludes, primarily, service and fee revenue, investment income and other revenues, other expenses, interest expense and income taxes. Management believes that providing this information in this manner is essential to providing Company’s shareholders with an understanding of the Company’s business and operating performance. During the nine months ended September 30, 2012, the Company derived over ten percent of its gross written premium from one broker in its Specialty Risk and Extended Warranty segment, which was approximately $125,900. Additionally, the Company derived over ten percent of its gross written premium from one broker in its Specialty Program segment, which was approximately $87,150 during the nine months ended September 30, 2012.
The following tables summarize the results of operations of the business segments for the three and nine months ended September 30, 2012 and 2011: | | | | | | | | | | | | | | | | | | | | | | | | | (Amounts in Thousands) | Small Commercial Business | | Specialty Risk and Extended Warranty | | Specialty Program | | Personal Lines Reinsurance | | Corporate and Other | | Total | Three months ended September 30, 2012: | | | | | | | | | | | | Gross written premium | $ | 243,603 |
| | $ | 260,415 |
| | $ | 202,280 |
| | $ | 30,258 |
| | $ | — |
| | $ | 736,556 |
| Net written premium | 133,492 |
| | 137,106 |
| | 182,803 |
| | 30,258 |
| | — |
| | 483,659 |
| Change in unearned premium | (9,686 | ) | | (21,371 | ) | | (63,560 | ) | | (1,595 | ) | | — |
| | (96,212 | ) | Net earned premium | 123,806 |
| | 115,735 |
| | 119,243 |
| | 28,663 |
| | — |
| | 387,447 |
| Ceding commission - primarily related party | 17,845 |
| | 13,226 |
| | 18,789 |
| | — |
| | — |
| | 49,860 |
| Loss and loss adjustment expense | (81,727 | ) | | (72,812 | ) | | (82,619 | ) | | (18,488 | ) | | — |
| | (255,646 | ) | Acquisition costs and other underwriting expenses | (48,317 | ) | | (36,126 | ) | | (50,551 | ) | | (8,742 | ) | | — |
| | (143,736 | ) | | (130,044 | ) | | (108,938 | ) | | (133,170 | ) | | (27,230 | ) | | — |
| | (399,382 | ) | Underwriting income | 11,607 |
| | 20,023 |
| | 4,862 |
| | 1,433 |
| | — |
| | 37,925 |
| Service and fee income | 12,403 |
| | 23,605 |
| | 1,294 |
| | — |
| | 7,259 |
| | 44,561 |
| Investment income and realized gain (loss) | 6,803 |
| | 7,519 |
| | 5,624 |
| | 696 |
| | — |
| | 20,642 |
| Other expenses | (13,660 | ) | | (14,713 | ) | | (11,771 | ) | | (2,193 | ) | | — |
| | (42,337 | ) | Interest expense | (2,288 | ) | | (2,444 | ) | | (2,102 | ) | | (384 | ) | | — |
| | (7,218 | ) | Foreign currency loss | — |
| | (951 | ) | | — |
| | — |
| | — |
| | (951 | ) | Gain on life settlement contracts | 1,100 |
| | 1,211 |
| | 784 |
| | 156 |
| | — |
| | 3,251 |
| Provision for income taxes | (3,563 | ) | | (7,646 | ) | | 292 |
| | 66 |
| | (2,336 | ) | | (13,187 | ) | Equity in earnings of unconsolidated subsidiary – related party | — |
| | — |
| | — |
| | — |
| | 3,207 |
| | 3,207 |
| Non-controlling interest | (922 | ) | | (1,024 | ) | | (594 | ) | | (123 | ) | | — |
| | (2,663 | ) | Net income attributable to AmTrust Financial Services, Inc. | $ | 11,480 |
| | $ | 25,580 |
| | $ | (1,611 | ) | | $ | (349 | ) | | $ | 8,130 |
| | $ | 43,230 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | (Amounts in Thousands) | Small Commercial Business | | Specialty Risk and Extended Warranty | | Specialty Program | | Personal Lines Reinsurance | | Corporate and Other | | Total | Three Months Ended September 30, 2011: | | | | | | | | | | | | Gross written premium | $ | 145,418 |
| | $ | 256,493 |
| | $ | 132,621 |
| | $ | 26,690 |
| | $ | — |
| | $ | 561,222 |
| Net written premium | 79,070 |
| | 149,238 |
| | 66,905 |
| | 26,690 |
| | — |
| | 321,903 |
| Change in unearned premium | 10,807 |
| | (22,454 | ) | | (19,958 | ) | | (1,450 | ) | | — |
| | (33,055 | ) | Net earned premium | 89,877 |
|
| 126,784 |
| | 46,947 |
| | 25,240 |
| | — |
| | 288,848 |
| Ceding commission - primarily related party | 16,312 |
| | 14,928 |
| | 9,492 |
| | — |
| | — |
| | 40,732 |
| Loss and loss adjustment expense | (55,721 | ) | | (83,102 | ) | | (30,376 | ) | | (16,153 | ) | | — |
| | (185,352 | ) | Acquisition costs and other underwriting expenses | (42,074 | ) | | (39,187 | ) | | (23,806 | ) | | (8,203 | ) | | — |
| | (113,270 | ) | | (97,795 | ) | | (122,289 | ) | | (54,182 | ) | | (24,356 | ) | | — |
|
| (298,622 | ) | Underwriting income | 8,394 |
| | 19,423 |
| | 2,257 |
| | 884 |
| | — |
| | 30,958 |
| Service and fee income | 6,347 |
| | 18,413 |
| | 5 |
| | — |
| | 4,050 |
| | 28,815 |
| Investment income and realized gain (loss) | 6,590 |
| | 4,956 |
| | 2,997 |
| | 463 |
| | — |
| | 15,006 |
| Other expenses | (7,432 | ) | | (9,857 | ) | | (6,386 | ) | | (370 | ) | | — |
| | (24,045 | ) | Interest expense | (1,219 | ) | | (1,556 | ) | | (1,136 | ) | | (35 | ) | | — |
| | (3,946 | ) | Foreign currency loss | — |
| | (4,063 | ) | | — |
| | — |
| | — |
| | (4,063 | ) | Gain on life settlement contracts | 2,096 |
| | 1,705 |
| | 3,358 |
| | (337 | ) | | — |
| | 6,822 |
| Bargain purchase on Majestic transaction | 5,850 |
| | — |
| | — |
| | — |
| | — |
| | 5,850 |
| Provision for income taxes | (4,918 | ) | | (7,666 | ) | | (519 | ) | | (198 | ) | | (996 | ) | | (14,297 | ) | Equity in earnings of unconsolidated subsidiary – related party | — |
| | — |
| | — |
| | — |
| | (918 | ) | | (918 | ) | Non-controlling interest | (928 | ) | | (770 | ) | | (1,461 | ) | | 143 |
| | — |
| | (3,016 | ) | Net income attributable to AmTrust Financial Services, Inc. | $ | 14,780 |
| | $ | 20,585 |
| | $ | (885 | ) | | $ | 550 |
| | $ | 2,136 |
| | $ | 37,166 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | (Amounts in Thousands) | Small Commercial Business | | Specialty Risk and Extended Warranty | | Specialty Program | | Personal Lines Reinsurance | | Corporate and Other | | Total | Nine months ended September 30, 2012: | | | | | | | | | | | | Gross written premium | $ | 690,081 |
| | $ | 767,114 |
| | $ | 428,796 |
| | $ | 89,690 |
| | $ | — |
| | $ | 1,975,681 |
| Net written premium | 356,652 |
| | 450,526 |
| | 338,157 |
| | 89,690 |
| | — |
| | 1,235,025 |
| Change in unearned premium | (46,950 | ) | | (57,611 | ) | | (88,385 | ) | | (6,614 | ) | | — |
| | (199,560 | ) | Net earned premium | 309,702 |
| | 392,915 |
| | 249,772 |
| | 83,076 |
| | — |
| | 1,035,465 |
| Ceding commission - primarily related party | 50,435 |
| | 46,594 |
| | 43,655 |
| | — |
| | — |
| | 140,684 |
| Loss and loss adjustment expense | (201,256 | ) | | (241,883 | ) | | (170,639 | ) | | (53,584 | ) | | — |
| | (667,362 | ) | Acquisition costs and other underwriting expenses | (133,412 | ) | | (123,249 | ) | | (115,475 | ) | | (25,338 | ) | | — |
| | (397,474 | ) | | (334,668 | ) | | (365,132 | ) | | (286,114 | ) | | (78,922 | ) | | — |
| | (1,064,836 | ) | Underwriting income | 25,469 |
| | 74,377 |
| | 7,313 |
| | 4,154 |
| | — |
| | 111,313 |
| Service and fee income | 38,383 |
| | 57,252 |
| | 1,313 |
| | — |
| | 21,162 |
| | 118,110 |
| Investment income and realized gain (loss) | 19,055 |
| | 20,683 |
| | 11,432 |
| | 1,889 |
| | — |
| | 53,059 |
| Other expenses | (38,525 | ) | | (42,826 | ) | | (23,938 | ) | | (5,007 | ) | | — |
| | (110,296 | ) | Interest expense | (7,441 | ) | | (8,271 | ) | | (4,624 | ) | | (967 | ) | | — |
| | (21,303 | ) | Foreign currency loss | — |
| | (2,985 | ) | | — |
| | — |
| | — |
| | (2,985 | ) | Gain on life settlement contracts | 1,851 |
| | 2,059 |
| | 1,151 |
| | 241 |
| | — |
| | 5,302 |
| Provision for income taxes | (8,653 | ) | | (22,372 | ) | | 1,640 |
| | (69 | ) | | (6,652 | ) | | (36,106 | ) | Equity in earnings of unconsolidated subsidiary – related party | — |
| | — |
| | — |
| | — |
| | 8,659 |
| | 8,659 |
| Non-controlling interest | (1,075 | ) | | (1,196 | ) | | (668 | ) | | (140 | ) | | — |
| | (3,079 | ) | Net income attributable to AmTrust Financial Services, Inc. | $ | 29,064 |
| | $ | 76,721 |
| | $ | (6,381 | ) | | $ | 101 |
| | $ | 23,169 |
| | $ | 122,674 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | (Amounts in Thousands) | Small Commercial Business | | Specialty Risk and Extended Warranty | | Specialty Program | | Personal Lines Reinsurance | | Corporate and Other | | Total | Nine months ended September 30, 2011: | | | | | | | | | | | | Gross written premium | $ | 460,741 |
| | $ | 749,743 |
| | $ | 275,951 |
| | $ | 77,276 |
| | $ | — |
| | $ | 1,563,711 |
| Net written premium | 269,942 |
| | 438,963 |
| | 145,422 |
| | 77,276 |
| | — |
| | 931,603 |
| Change in unearned premium | (44,170 | ) | | (117,971 | ) | | (27,567 | ) | | (4,427 | ) | | — |
| | (194,135 | ) | Net earned premium | 225,772 |
| | 320,992 |
| | 117,855 |
| | 72,849 |
| | — |
| | 737,468 |
| Ceding commission - primarily related party | 48,207 |
| | 41,614 |
| | 22,009 |
| | — |
| | — |
| | 111,830 |
| Loss and loss adjustment expense | (142,411 | ) | | (216,579 | ) | | (78,443 | ) | | (46,623 | ) | | — |
| | (484,056 | ) | Acquisition costs and other underwriting expenses | (108,483 | ) | | (97,493 | ) | | (54,432 | ) | | (23,676 | ) | | — |
| | (284,084 | ) | | (250,894 | ) | | (314,072 | ) | | (132,875 | ) | | (70,299 | ) | | — |
| | (768,140 | ) | Underwriting income | 23,085 |
| | 48,534 |
| | 6,989 |
| | 2,550 |
| | — |
| | 81,158 |
| Service and fee income | 16,765 |
| | 49,823 |
| | 10 |
| | — |
| | 11,948 |
| | 78,546 |
| Investment income and realized gain (loss) | 19,399 |
| | 14,962 |
| | 7,502 |
| | 1,533 |
| | — |
| | 43,396 |
| Other expenses | (19,457 | ) | | (29,366 | ) | | (11,549 | ) | | (2,433 | ) | | — |
| | (62,805 | ) | Interest expense | (3,728 | ) | | (5,627 | ) | | (2,213 | ) | | (466 | ) | | — |
| | (12,034 | ) | Foreign currency loss | — |
| | (1,827 | ) | | — |
| | — |
| | — |
| | (1,827 | ) | Gain on life settlement contracts | 14,978 |
| | 22,605 |
| | 8,890 |
| | 1,873 |
| | — |
| | 48,346 |
| Bargain purchase on Majestic transaction | 5,850 |
| | — |
| | — |
| | — |
| | — |
| | 5,850 |
| Provision for income taxes | (9,645 | ) | | (16,802 | ) | | (1,632 | ) | | (518 | ) | | (2,026 | ) | | (30,623 | ) | Equity in earnings of unconsolidated subsidiary – related party | — |
| | — |
| | — |
| | — |
| | 3,415 |
| | 3,415 |
| Non-controlling interest | (6,479 | ) | | (9,777 | ) | | (3,845 | ) | | (810 | ) | | — |
| | (20,911 | ) | Net income | $ | 40,768 |
| | $ | 72,525 |
| | $ | 4,152 |
| | $ | 1,729 |
| | $ | 13,337 |
| | $ | 132,511 |
|
The following tables summarize long lived assets and total assets of the business segments as of September 30, 2012 and December 31, 2011: | | | | | | | | | | | | | | | | | | | | | | | | | (Amounts in Thousands) | Small Commercial Business | | Specialty Risk and Extended Warranty | | Specialty Program | | Personal Lines Reinsurance | | Corporate and other | | Total | As of September 30, 2012: | |
| | |
| | |
| | |
| | |
| | |
| Property and equipment, net | $ | 25,397 |
| | $ | 28,232 |
| | $ | 15,781 |
| | $ | 3,301 |
| | $ | — |
| | $ | 72,711 |
| Goodwill and intangible assets | 179,775 |
| | 214,886 |
| | 22,452 |
| | — |
| | — |
| | 417,113 |
| Total assets | 2,577,354 |
| | 2,778,836 |
| | 1,234,582 |
| | 175,262 |
| | — |
| | 6,766,034 |
| As of December 31, 2011: | |
| | |
| | |
| | |
| | |
| | |
| Property and equipment, net | $ | 17,767 |
| | $ | 30,811 |
| | $ | 10,762 |
| | $ | 2,213 |
| | $ | — |
| | $ | 61,553 |
| Goodwill and intangible assets | 123,976 |
| | 167,782 |
| | 22,858 |
| | — |
| | — |
| | 314,616 |
| Total assets | 2,150,824 |
| | 2,482,018 |
| | 912,476 |
| | 133,429 |
| | — |
| | 5,678,747 |
|
|