AmTrust Financial Services disclosed it will once again need extra time before filing its annual report, due to an ongoing internal audit that requires a longer timeframe.
A.M. Best is being patient about the unusual situation. The ratings agency said that the financial strength rating of “A (Excellent)” and long-term issuer credit rating of “a” for the AmTrust Group members and the financial strength rating of “A- (Excellent)” and long-term issuer credit rating of “a-” for AmTrust Title Insurance Company are unchanged by the company’s announcement.
Also unaffected are A.M. Best’s long-term issuer credit rating of “bbb” for AmTrust Financial Services Inc. and all long-term issue credit ratings assigned to company-issued securities, A.M. Best said.
A negative outlook remains, however, because of the potential for a negative rating action if AmTrust’s restated financial results cause A.M. Best to reassess its financial condition.
AmTrust’s March 16 announcement about further 10-K delay comes about two weeks after disclosure of the initial postponement of the report for the fiscal year ending Dec. 31, 2016. Plans now call for the release of the 2016 10-K “as soon as practicable,” the New York City-based insurance holding company said.
“The 10-K delay and restatement largely relate to the timing of recognition of revenue, as previously announced, in the company’s service and fee business, which we expect will remain profitable in each of the fiscal years 2014, 2015 and 2016,” AmTrust Chairman and CEO Barry Zyskind said in the company’s announcement. “We believe the corrections will have no material impact on [AmTrust’s] ongoing insurance operations, statutory entities or statutory surplus. We believe that AmTrust remains financially strong, and we continue to see opportunities for organic growth within our existing operations, as demonstrated by the gross written and net earned premiums that we recently reported.”
Zyskind added that AmTrust is “proud” of the company’s pending, restated results for 2014, 2015 and 2016 and is taking steps to prevent future problems.
“We are also making the necessary improvements in our finance and accounting resources to address the issues identified and better match AmTrust’s increased global reach,” Zyskind said. “We appreciate the hard work of the AmTrust team and the support of (auditor) KPMG in these efforts.”
Why the Audit Is Needed
AmTrust said that the audit is needed because its previously issued consolidated financial statements for 2014 and 2015, the first three quarters of 2016, the 2016 fourth quarter and fiscal 2016 earnings statements and related press materials “should no longer be relied upon.”
Also at issue: the reports of BDO USA, the company’s former independent auditor, particularly its opinion on the company’s consolidated financial statements for 2014 and 2015 and its opinions “on the effectiveness of internal controls over financial reporting for such periods,” AmTrust said.
Still, AmTrust insisted that, pending financial review by its independent auditors and the company, its gross written premium, net earned premium, loss and loss adjustment expense, and loss ratio for fiscal years 2014 and 2015 should remain unchanged. AmTrust said that its gross written premium, net earned premium, loss and loss adjustment expense, and loss ratio for the fourth quarter and full year 2016, and loss and loss adjustment expense reserves as of December 31, 2016, should also stay unchanged from amounts disclosed in its Feb. 27, 2017 earnings release
AmTrust reported Q4 2016 net written premium of $1.91 billion and net earned premium of $1.22 billion, up 19 percent and 15 percent, respectively, from the same period in 2015. It said that Q4 net income came to $98.7 million, or $0.57 per diluted share, versus $59.7 million, or $0.35 per diluted share in the 2015 fourth quarter.
The Q4 combined ratio reached 95.5, AmTrust said, up from 91.9 over the same period a year ago.
Sources: AmTrust Financial Services, A.M. Best