x
|
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
¨
|
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
Delaware
|
04-3106389
|
|
(State or other jurisdiction of
|
(IRS Employer Identification No.)
|
|
incorporation or organization)
|
||
59 Maiden Lane, 6th Floor, New York, New York
|
10038
|
|
(Address of principal executive offices)
|
(Zip Code)
|
Large accelerated filer ¨
|
Accelerated filer x
|
|
Non-accelerated filer ¨
|
Smaller reporting company ¨
|
|
(Do not check if a smaller reporting company)
|
Page
|
|||
PART I
|
FINANCIAL INFORMATION
|
3 | |
Item 1.
|
Unaudited Financial Statements:
|
3 | |
Condensed Consolidated Balance Sheets as of September 30, 2011 and December 31, 2010 (audited)
|
3 | ||
Condensed Consolidated Statements of Income — Three and nine months ended September 30, 2011 and 2010
|
4 | ||
Condensed Consolidated Statements of Cash Flows — Three and nine months ended September 30, 2011 and 2010
|
5 | ||
Notes to Condensed Consolidated Financial Statements
|
6 | ||
Item 2.
|
Management’s Discussion and Analysis of Financial Condition and Results of Operations
|
32 | |
Item 3.
|
Quantitative and Qualitative Disclosures About Market Risk
|
56 | |
Item 4.
|
Controls and Procedures
|
58 | |
PART II
|
OTHER INFORMATION
|
58 | |
Item 1.
|
Legal Proceedings
|
58 | |
Item 1A.
|
Risk Factors
|
59 | |
Item 2.
|
Unregistered Sales of Equity Securities and Use of Proceeds
|
59 | |
Item 3.
|
Defaults Upon Senior Securities
|
59 | |
Item 4.
|
(Removed and Reserved)
|
59 | |
Item 5.
|
Other Information
|
59 | |
Item 6.
|
Exhibits
|
60 | |
Signatures
|
61 |
September 30,
2011
|
December 31,
2010
|
|||||||
(Amounts in Thousands)
|
(Unaudited)
|
(Audited)
|
||||||
ASSETS
|
||||||||
Investments:
|
||||||||
Fixed maturities, available-for-sale, at market value (amortized cost $1,391,104; $1,192,844)
|
$ | 1,412,164 | $ | 1,208,813 | ||||
Equity securities, available-for-sale, at market value (cost $38,409; $18,577)
|
32,119 | 17,412 | ||||||
Short-term investments
|
164,815 | 32,137 | ||||||
Equity investment in unconsolidated subsidiary – related party
|
86,165 | 77,136 | ||||||
Other investments
|
21,204 | 21,514 | ||||||
Total investments
|
1,716,467 | 1,357,012 | ||||||
Cash and cash equivalents
|
320,863 | 201,949 | ||||||
Accrued interest and dividends
|
10,997 | 7,979 | ||||||
Premiums receivable, net
|
847,410 | 727,561 | ||||||
Reinsurance recoverable (related party $458,855; $386,932)
|
1,043,065 | 775,432 | ||||||
Prepaid reinsurance premium (related party $346,586; $283,899)
|
541,125 | 484,960 | ||||||
Prepaid expenses and other assets
|
289,707 | 163,905 | ||||||
Federal income tax receivable
|
22,394 | 10,269 | ||||||
Deferred policy acquisition costs
|
277,520 | 224,671 | ||||||
Property and equipment, net
|
57,071 | 30,889 | ||||||
Goodwill
|
142,547 | 106,220 | ||||||
Intangible assets
|
150,183 | 91,606 | ||||||
$ | 5,419,349 | $ | 4,182,453 | |||||
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
||||||||
Liabilities:
|
||||||||
Loss and loss expense reserves
|
$ | 1,782,953 | $ | 1,263,537 | ||||
Unearned premiums
|
1,274,562 | 1,024,965 | ||||||
Ceded reinsurance premiums payable (related party $147,171; $95,629)
|
296,593 | 266,314 | ||||||
Reinsurance payable on paid losses
|
16,145 | 11,343 | ||||||
Funds held under reinsurance treaties
|
50,149 | 3,217 | ||||||
Securities sold but not yet purchased, at market
|
55,620 | 8,847 | ||||||
Securities sold under agreements to repurchase, at contract value
|
343,905 | 347,617 | ||||||
Accrued expenses and other current liabilities
|
263,563 | 195,060 | ||||||
Deferred income taxes
|
85,106 | 9,883 | ||||||
Note payable on collateral loan – related party
|
167,975 | 167,975 | ||||||
Revolving credit facility
|
33,200 | — | ||||||
Secured term loan
|
10,256 | — | ||||||
Non-interest bearing note payable – net of unamortized discount of $221; $600
|
7,279 | 14,400 | ||||||
Term loan
|
— | 6,667 | ||||||
Junior subordinated debt
|
123,714 | 123,714 | ||||||
Total liabilities
|
4,511,020 | 3,443,539 | ||||||
Commitments and contingencies
|
||||||||
Redeemable non-controlling interest
|
600 | 600 | ||||||
Stockholders’ equity:
|
||||||||
Common stock, $.01 par value; 100,000 shares authorized, 84,768 and 84,381 issued in 2011 and 2010, respectively; 59,968 and 59,565 outstanding in 2011 and 2010, respectively
|
848 | 844 | ||||||
Preferred stock, $.01 par value; 10,000 shares authorized
|
— | — | ||||||
Additional paid-in capital
|
556,465 | 548,731 | ||||||
Treasury stock at cost; 24,800 and 24,816 shares in 2011 and 2010, respectively
|
(300,365 | ) | (300,489 | ) | ||||
Accumulated other comprehensive income (loss)
|
(2,207 | ) | (266 | ) | ||||
Retained earnings
|
583,175 | 467,694 | ||||||
Total AmTrust Financial Services, Inc. equity
|
837,916 | 716,514 | ||||||
Non-controlling interest
|
69,813 | 21,800 | ||||||
Total stockholders’ equity
|
907,729 | 738,314 | ||||||
$ | 5,419,349 | $ | 4,182,453 |
Three Months Ended September 30,
|
Nine Months Ended September 30,
|
|||||||||||||||
2011
|
2010
|
2011
|
2010
|
|||||||||||||
Revenues:
|
||||||||||||||||
Premium income:
|
||||||||||||||||
Net written premium
|
$ | 321,903 | $ | 182,837 | $ | 931,603 | $ | 568,644 | ||||||||
Change in unearned premium
|
(33,055 | ) | 8,048 | (194,135 | ) | (33,398 | ) | |||||||||
Net earned premium
|
288,848 | 190,885 | 737,468 | 535,246 | ||||||||||||
Ceding commission – primarily related party
|
40,732 | 37,903 | 111,830 | 103,109 | ||||||||||||
Service and fee income (related parties – three months $4,189; $3,323 and nine months $12,089; $8,871)
|
28,815 | 22,418 | 78,546 | 39,505 | ||||||||||||
Net investment income
|
14,456 | 10,952 | 41,815 | 39,237 | ||||||||||||
Net realized gain (loss) on investments
|
550 | 7,460 | 1,581 | 2,701 | ||||||||||||
Total revenues
|
373,401 | 269,618 | 971,240 | 719,798 | ||||||||||||
Expenses:
|
||||||||||||||||
Loss and loss adjustment expense
|
185,352 | 120,432 | 484,056 | 331,763 | ||||||||||||
Acquisition costs and other underwriting expenses
|
113,270 | 82,152 | 284,084 | 223,077 | ||||||||||||
Other
|
24,045 | 20,210 | 62,805 | 35,780 | ||||||||||||
Total expenses
|
322,667 | 222,794 | 830,945 | 590,620 | ||||||||||||
Income before other income (expense), income taxes and equity in earnings of unconsolidated subsidiaries
|
50,734 | 46,824 | 140,295 | 129,178 | ||||||||||||
Other income (expense):
|
||||||||||||||||
Foreign currency loss
|
(4,063 | ) | (141 | ) | (1,827 | ) | (103 | ) | ||||||||
Interest expense
|
(3,946 | ) | (3,410 | ) | (12,034 | ) | (10,045 | ) | ||||||||
Bargain purchase on Majestic transaction
|
2,665 | — | 2,665 | — | ||||||||||||
Net gain on investment in life settlement contracts
|
6,822 | 11,855 | 48,346 | 11,855 | ||||||||||||
Total other income (expense)
|
1,478 | 8,304 | 37,150 | 1,707 | ||||||||||||
Income before income taxes and equity in earnings of unconsolidated subsidiaries
|
52,212 | 55,128 | 177,445 | 130,885 | ||||||||||||
Provision for income taxes
|
13,182 | 13,935 | 29,508 | 37,942 | ||||||||||||
Income before equity earnings of unconsolidated subsidiaries and non-controlling interest
|
39,030 | 41,193 | 147,937 | 92,943 | ||||||||||||
Equity in earnings (loss) of unconsolidated subsidiaries – related parties
|
(447 | ) | 4,030 | 6,753 | 21,803 | |||||||||||
Net income
|
38,583 | 45,223 | 154,690 | 114,746 | ||||||||||||
Net income attributable to non-controlling interest of subsidiaries
|
3,487 | (5,927 | ) | 24,249 | 5,927 | |||||||||||
Net income attributable to AmTrust Financial Services, Inc.
|
35,096 | 39,296 | 130,441 | 108,819 | ||||||||||||
Earnings per common share:
|
||||||||||||||||
Basic earnings per common share
|
$ | 0.59 | $ | 0.65 | $ | 2.18 | $ | 1.82 | ||||||||
Diluted earnings per common share
|
$ | 0.57 | $ | 0.64 | $ | 2.12 | $ | 1.80 | ||||||||
Dividends declared per common share
|
$ | 0.09 | $ | 0.07 | $ | 0.25 | $ | 0.21 | ||||||||
Net realized gain (loss) on investments:
|
||||||||||||||||
Total other-than-temporary impairment loss
|
$ | — | $ | (4,051 | ) | $ | (345 | ) | $ | (21,196 | ) | |||||
Portion of loss recognized in other comprehensive income
|
— | — | — | — | ||||||||||||
Net impairment losses recognized in earnings
|
— | (4,051 | ) | (345 | ) | (21,196 | ) | |||||||||
Other net realized gain on investments
|
550 | 11,511 | 1,926 | 23,897 | ||||||||||||
Net realized investment gain (loss)
|
$ | 550 | $ | 7,460 | $ | 1,581 | $ | 2,701 |
Nine Months Ended September 30,
|
||||||||
(in thousands)
|
2011
|
2010
|
||||||
Cash flows from operating activities:
|
||||||||
Net income
|
$ | 154,690 | $ | 114,746 | ||||
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
|
||||||||
Depreciation and amortization
|
40,151 | 12,632 | ||||||
Equity earnings and gain on investment in unconsolidated subsidiaries
|
(6,753 | ) | (21,803 | ) | ||||
Gain on investment in life settlement contracts
|
(48,346 | ) | (11,855 | ) | ||||
Realized gain marketable securities
|
(1,926 | ) | (23,897 | ) | ||||
Acquisition gain on Majestic renewal rights transaction
|
(2,665 | ) | — | |||||
Non-cash write-down of marketable securities
|
345 | 21,196 | ||||||
Discount on notes payable
|
379 | 610 | ||||||
Stock compensation expense
|
4,182 | 2,682 | ||||||
Bad debt expense
|
4,717 | 4,532 | ||||||
Foreign currency (gain) loss
|
1,827 | 103 | ||||||
Changes in assets - (increase) decrease:
|
||||||||
Premiums and note receivables
|
(98,569 | ) | (98,621 | ) | ||||
Reinsurance recoverable
|
(120,897 | ) | (123,012 | ) | ||||
Deferred policy acquisition costs, net
|
(52,849 | ) | (32,710 | ) | ||||
Prepaid reinsurance premiums
|
(56,165 | ) | (18,268 | ) | ||||
Prepaid expenses and other assets
|
(64,722 | ) | (32,712 | ) | ||||
Deferred tax asset
|
— | 6,631 | ||||||
Changes in liabilities - increase (decrease):
|
||||||||
Reinsurance premium payable
|
30,279 | 85,165 | ||||||
Loss and loss expense reserve
|
204,265 | 118,672 | ||||||
Unearned premiums
|
223,600 | 68,211 | ||||||
Funds held under reinsurance treaties
|
(4,783 | ) | 799 | |||||
Deferred tax liability, net
|
(42,207 | ) | — | |||||
Accrued expenses and other current liabilities
|
67,770 | (76,767 | ) | |||||
Net cash provided by(used in) in operating activities
|
232,323 | (3,666 | ) | |||||
Cash flows from investing activities:
|
||||||||
Net (purchases) sales of securities with fixed maturities and short term investments
|
(88,449 | ) | 96,429 | |||||
Net (purchases) sales of equity securities
|
(18,852 | ) | 23,654 | |||||
Net (purchases) sales of other investments
|
(544 | ) | (1,646 | ) | ||||
Acquisition of Majestic, net of cash obtained
|
27,314 | — | ||||||
Investment in ACAC
|
— | (53,055 | ) | |||||
Acquisition of and capitalized premiums for life settlement contracts
|
(43,847 | ) | (12,510 | ) | ||||
Acquisition of intangible assets and subsidiaries, net of cash obtained
|
(4,535 | ) | (11,125 | ) | ||||
Receipt of life settlement contract proceeds
|
10,530 | — | ||||||
Purchase of property and equipment
|
(33,055 | ) | (9,315 | ) | ||||
Net cash (used in) provided by investing activities
|
(151,438 | ) | 32,432 | |||||
Cash flows from financing activities:
|
||||||||
Repurchase agreements, net
|
(3,712 | ) | 65,682 | |||||
Revolving credit facility borrowings
|
123,200 | — | ||||||
Revolving credit facility payment
|
(90,000 | ) | — | |||||
Secured loan agreement borrowings
|
10,800 | — | ||||||
Secured loan agreement payment
|
(544 | ) | — | |||||
Term loan payment
|
(6,667 | ) | (10,000 | ) | ||||
Capital contributions to subsidiaries
|
23,764 | 6,255 | ||||||
Stock option exercise and other
|
3,680 | 1,124 | ||||||
Dividends distributed on common stock
|
(14,327 | ) | (11,879 | ) | ||||
Non-interest bearing note payment
|
(7,500 | ) | (7,500 | ) | ||||
Debt financing fees
|
(1,368 | ) | — | |||||
Net cash provided by financing activities
|
37,326 | 43,682 | ||||||
Effect of exchange rate changes on cash
|
703 | (2,730 | ) | |||||
Net increase in cash and cash equivalents
|
118,914 | 69,718 | ||||||
Cash and cash equivalents, beginning of the period
|
201,949 | 233,810 | ||||||
Cash and cash equivalents, end of the period
|
$ | 320,863 | $ | 303,528 | ||||
Supplemental Cash Flow Information
|
||||||||
Income tax payments
|
$ | 13,792 | $ | 24,457 | ||||
Interest payments on debt
|
10,098 | 8,672 |
1.
|
Basis of Reporting
|
|
a)
|
The non-controlling interest related to income on life settlement contracts is now presented on a pre-tax basis and the provision for income taxes has been reduced by an equivalent amount;
|
|
b)
|
The Company made a purchase price adjustment to goodwill in the amount of approximately $36,000 related to its purchase accounting for Warrantech, which was acquired during the three months ended September 30, 2010. The adjustment related to an increase in deferred tax and other liabilities due to non-deductibility of certain goodwill and intangible assets.
|
2.
|
Recent Accounting Pronouncements
|
(Amounts in Thousands)
|
Original or
amortized
cost
|
Gross
unrealized
gains
|
Gross
unrealized
losses
|
Market
value
|
||||||||||||
Preferred stock
|
$ | 6,029 | $ | - | $ | (1,605 | ) | $ | 4,424 | |||||||
Common stock
|
32,380 | 1,019 | (5,704 | ) | 27,695 | |||||||||||
U.S. treasury securities
|
37,828 | 2,586 | - | 40,414 | ||||||||||||
U.S. government agencies
|
27,695 | 2,146 | (1 | ) | 29,840 | |||||||||||
Municipal bonds
|
272,883 | 6,219 | (743 | ) | 278,359 | |||||||||||
Corporate bonds:
|
||||||||||||||||
Finance
|
493,020 | 8,901 | (25,423 | ) | 476,498 | |||||||||||
Industrial
|
99,132 | 3,971 | (2,284 | ) | 100,819 | |||||||||||
Utilities
|
38,537 | 1,732 | (1,142 | ) | 39,127 | |||||||||||
Commercial mortgage backed securities
|
1,541 | 98 | - | 1,639 | ||||||||||||
Residential mortgage backed securities:
|
||||||||||||||||
Agency backed
|
408,124 | 24,603 | (48 | ) | 432,679 | |||||||||||
Non-agency backed
|
11,633 | 463 | (34 | ) | 12,062 | |||||||||||
Asset-backed securities
|
711 | 16 | - | 727 | ||||||||||||
$ | 1,429,513 | $ | 51,754 | $ | (36,984 | ) | $ | 1,444,283 |
(Amounts in Thousands)
|
Amortized
Cost
|
Fair Value
|
||||||
Due in one year or less
|
$ | 18,763 | $ | 18,767 | ||||
Due after one through five years
|
251,196 | 243,955 | ||||||
Due after five through ten years
|
467,721 | 470,272 | ||||||
Due after ten years
|
231,415 | 232,064 | ||||||
Mortgage backed securities
|
422,009 | 447,106 | ||||||
Total fixed maturities
|
$ | 1,391,104 | $ | 1,412,164 |
Three Months Ended September 30,
|
Nine Months Ended September 30,
|
|||||||||||||||
(Amounts in Thousands)
|
2011
|
2010
|
2011
|
2010
|
||||||||||||
Fixed maturities
|
$ | 13,601 | $ | 9,462 | $ | 39,577 | $ | 32,832 | ||||||||
Equity maturities
|
141 | 51 | 427 | 410 | ||||||||||||
Cash and cash equivalents
|
1,075 | 1,102 | 2,647 | 3,857 | ||||||||||||
Note receivable – related party
|
- | 563 | - | 2,612 | ||||||||||||
14,817 | 11,178 | 42,651 | 39,711 | |||||||||||||
Less: Investment expenses and interest expense on securities sold under agreements to repurchase
|
361 | 226 | 836 | 474 | ||||||||||||
$ | 14,456 | $ | 10,952 | $ | 41,815 | $ | 39,237 |
Three Months Ended September 30,
|
Nine Months Ended September 30,
|
|||||||||||||||
(Amounts in Thousands)
|
2011
|
2010
|
2011
|
2010
|
||||||||||||
Equity securities
|
$ | — | $ | 4,051 | $ | 345 | $ | 10,656 | ||||||||
Fixed maturities
|
— | — | — | 10,540 | ||||||||||||
$ | — | $ | 4,051 | $ | 345 | $ | 21,196 |
Less Than 12 Months
|
12 Months or More
|
Total
|
||||||||||||||||||||||||||||||
(Amounts in Thousands)
|
Fair
Market
Value
|
Unrealized
Losses
|
No. of
Positions
Held
|
Fair
Market
Value
|
Unrealized
Losses
|
No. of
Positions
Held
|
Fair
Market
Value
|
Unrealized
Losses
|
||||||||||||||||||||||||
Common and preferred stock
|
$ | 20,971 | $ | (4,831 | ) | 41 | $ | 6,714 | $ | (2,478 | ) | 6 | $ | 27,685 | $ | (7,309 | ) | |||||||||||||||
U.S. treasury securities
|
805 | (1 | ) | 2 | - | - | - | 805 | (1 | ) | ||||||||||||||||||||||
Municipal bonds
|
100,313 | (743 | ) | 25 | - | - | - | 100,313 | (743 | ) | ||||||||||||||||||||||
Corporate bonds:
|
||||||||||||||||||||||||||||||||
Finance
|
230,145 | (11,606 | ) | 86 | 86,720 | (13,817 | ) | 11 | 316,865 | (25,423 | ) | |||||||||||||||||||||
Industrial
|
35,146 | (2,284 | ) | 16 | - | - | - | 35,146 | (2,284 | ) | ||||||||||||||||||||||
Utilities
|
27,893 | (1,142 | ) | 4 | - | - | - | 27,893 | (1,142 | ) | ||||||||||||||||||||||
Residential mortgage backed securities:
|
||||||||||||||||||||||||||||||||
Agency backed
|
25,889 | (48 | ) | 10 | - | - | - | 25,889 | (48 | ) | ||||||||||||||||||||||
Non-agency backed
|
$ | 3,749 | $ | (28 | ) | 2 | $ | 22 | $ | (6 | ) | 1 | $ | 3,771 | $ | (34 | ) | |||||||||||||||
Total temporarily impaired securities
|
$ | 444,911 | $ | (20,683 | ) | 186 | $ | 93,456 | $ | (16,301 | ) | 18 | $ | 538,367 | $ | (36,984 | ) |
Remaining Life of Notional Amount (1)
|
||||||||||||||||||||
(Amounts in Thousands)
|
One
Year
|
Two Through
Five Years
|
Six Through
Ten Years
|
After Ten
years
|
Total
|
|||||||||||||||
Interest rate swaps
|
$ | — | $ | 30,000 | $ | 40,000 | $ | — | $ | 70,000 |
(Amounts in Thousands)
|
Total
|
Level 1
|
Level 2
|
Level 3
|
||||||||||||
Assets:
|
||||||||||||||||
U.S. treasury securities
|
$ | 40,414 | $ | 40,414 | $ | — | $ | — | ||||||||
U.S. government agencies
|
29,840 | — | 29,840 | — | ||||||||||||
Municipal bonds
|
278,359 | — | 278,359 | — | ||||||||||||
Corporate bonds:
|
||||||||||||||||
Finance
|
476,498 | — | 476,498 | — | ||||||||||||
Industrial
|
100,819 | — | 100,819 | — | ||||||||||||
Utilities
|
39,127 | — | 39,127 | — | ||||||||||||
Commercial mortgage backed securities
|
1,639 | — | 1,639 | — | ||||||||||||
Residential mortgage backed securities:
|
||||||||||||||||
Agency backed
|
432,679 | — | 432,679 | — | ||||||||||||
Non-agency backed
|
12,062 | — | 12,062 | — | ||||||||||||
Asset-backed securities
|
727 | — | 727 | — | ||||||||||||
Equity securities
|
32,119 | 32,119 | — | — | ||||||||||||
Short term investments
|
164,815 | 164,815 | — | — | ||||||||||||
Other investments
|
21,204 | — | — | 21,204 | ||||||||||||
Life settlement contracts
|
121,666 | — | — | 121,666 | ||||||||||||
$ | 1,715,968 | $ | 237,348 | $ | 1,371,750 | $ | 142,870 | |||||||||
Liabilities:
|
||||||||||||||||
Equity securities sold but not yet purchased, market
|
$ | 124 | $ | 124 | $ | — | $ | — | ||||||||
U.S. treasury securities sold but not yet purchased , market
|
55,496 | 55,496 | — | — | ||||||||||||
Securities sold under agreements to repurchase, at contract value
|
343,905 | — | 343,905 | — | ||||||||||||
Life settlement contract profit commission
|
12,636 | — | — | 12,636 | ||||||||||||
412,161 | 55,620 | 343,905 | 12,636 |
(Amounts in
Thousands)
|
Balance as of
June 30,
2011
|
Net income
|
Other
comprehensive
income
|
Purchases
and
issuances
|
Sales and
settlements
|
Net
transfers
into (out of)
Level 3
|
Balance as of
September 30,
2011
|
|||||||||||||||||||||
Other investments
|
$ | 22,008 | $ | — | $ | (1,348 | ) | $ | 5,672 | $ | (5,128 | ) | $ | — | $ | 21,204 | ||||||||||||
Life settlement contracts
|
108,710 | 17,188 | — | 6,298 | (10,530 | ) | — | 121,666 | ||||||||||||||||||||
Life settlement contract profit commission
|
(9,267 | ) | (3,369 | ) | — | — | — | — | (12,636 | ) | ||||||||||||||||||
Total
|
$ | 121,451 | $ | 13,819 | $ | (1,348 | ) | $ | 11,970 | $ | (15,658 | ) | $ | — | $ | 130,234 |
(Amounts in
Thousands)
|
Balance as of
December 31,
2010
|
Net income
|
Other
comprehensive
income
|
Purchases
and
issuances
|
Sales and
settlements
|
Net
transfers
into (out of)
Level 3
|
Balance as of
September 30,
2011
|
|||||||||||||||||||||
Other investments
|
$ | 21,514 | $ | 661 | $ | (1,725 | ) | $ | 6,538 | $ | (5,784 | ) | $ | — | $ | 21,204 | ||||||||||||
Life settlement contracts
|
22,155 | 75,209 | — | 34,832 | (10,530 | ) | — | 121,666 | ||||||||||||||||||||
Life settlement contract profit commission
|
(4,711 | ) | (7,925 | ) | — | — | — | — | (12,636 | ) | ||||||||||||||||||
Total
|
$ | 38,958 | $ | 67,945 | $ | (1,725 | ) | $ | 41,370 | $ | (16,314 | ) | $ | — | $ | 130,234 |
(Amounts in
Thousands)
|
Balance as of
June 30,
2010
|
Net income
|
Other
comprehensive
income
|
Purchases
and
issuances
|
Sales and
settlements
|
Net
transfers
into (out of)
Level 3
|
Balance as of
September 30,
2010
|
|||||||||||||||||||||
Other investments
|
$ | 13,323 | $ | 6 | $ | — | $ | 2,432 | $ | (81 | ) | $ | — | $ | 15,680 | |||||||||||||
Life settlement contracts
|
— | 10,592 | — | 6,433 | — | — | 17,025 | |||||||||||||||||||||
Life settlement contract profit commission
|
— | — | — | — | — | — | — | |||||||||||||||||||||
Derivatives
|
(220 | ) | (64 | ) | — | — | — | — | (284 | ) | ||||||||||||||||||
Total
|
$ | 13,103 | $ | 10,534 | $ | — | $ | 14,941 | $ | (81 | ) | $ | — | $ | 38,497 |
(Amounts in
Thousands)
|
Balance as of
December 31,
2009
|
Net income
|
Other
comprehensive
income
|
Purchases
and
issuances
|
Sales and
settlements
|
Net
transfers
into (out of)
Level 3
|
Balance as of
September 30,
2010
|
|||||||||||||||||||||
Other investments
|
$ | 12,746 | $ | 283 | $ | 296 | $ | 2,555 | $ | (200 | ) | $ | — | $ | 15,680 | |||||||||||||
Life settlement contracts
|
— | 10,592 | — | 6,433 | — | — | 17,025 | |||||||||||||||||||||
Life settlement contract profit commission
|
— | (4,711 | ) | — | — | — | — | (4,711 | ) | |||||||||||||||||||
Derivatives
|
(1,893 | ) | 1,609 | — | — | — | — | (284 | ) | |||||||||||||||||||
Total
|
$ | 10,853 | $ | 12,484 | $ | 296 | $ | 15,064 | $ | (200 | ) | $ | — | $ | 27,710 |
|
•
|
Equity and Fixed Income Investments: Fair value disclosures for these investments are disclosed above in this note. The carrying values of cash, short term investments and investment income accrued approximate their fair values;
|
|
•
|
Premiums Receivable: The carrying values reported in the accompanying balance sheets for these financial instruments approximate their fair values due to the short term nature of the asset;
|
|
•
|
Subordinated Debentures and Debt: The carrying values reported in the accompanying balance sheets for these financial instruments approximate fair value. Fair value was estimated using projected cash flows, discounted at rates currently being offered for similar notes.
|
Aggregate
|
|||||||||||||||||
Liquidation
|
Aggregate
|
Per
|
|||||||||||||||
Amount of
|
Liquidation
|
Aggregate
|
Annum
|
||||||||||||||
(Amounts in Thousands)
|
Trust
|
Amount of
|
Principal
|
Stated
|
Interest
|
||||||||||||
Preferred
|
Common
|
Amount
|
Maturity
|
Rate of
|
|||||||||||||
Name of Trust
|
Securities
|
Securities
|
of Notes
|
of Notes
|
Notes
|
||||||||||||
AmTrust Capital Financing Trust I
|
$ | 25,000 | $ | 774 | $ | 25,774 |
3/17/2035
|
8.275 | %(1) | ||||||||
AmTrust Capital Financing Trust II
|
25,000 | 774 | 25,774 |
6/15/2035
|
7.710 | (1) | |||||||||||
AmTrust Capital Financing Trust III
|
30,000 | 928 | 30,928 |
9/15/2036
|
3.647 | (2) | |||||||||||
AmTrust Capital Financing Trust IV
|
40,000 | 1,238 | 41,238 |
3/15/2037
|
7.930 | (3) | |||||||||||
Total trust preferred securities
|
$ | 120,000 | $ | 3,714 | $ | 123,714 |
|
(1)
|
The interest rate will change to three-month LIBOR plus 3.40% after the tenth anniversary in 2015.
|
|
(2)
|
The interest rate will change to LIBOR plus 3.30% after the fifth anniversary in 2011.
|
|
(3)
|
The interest rate will change to LIBOR plus 3.00% after the fifth anniversary in 2012.
|
(Amounts in Thousands)
|
2011
|
2012
|
2013
|
2014
|
2015
|
Thereafter
|
||||||||||||||||||
Junior subordinated debt
|
$ | — | $ | — | $ | — | $ | — | $ | — | $ | 123,714 | ||||||||||||
Revolving credit facility
|
— | — | — | 33,200 | — | — | ||||||||||||||||||
Secured loan
|
238 | 977 | 1,021 | 1,068 | 1,116 | 5,836 | ||||||||||||||||||
Promissory note
|
— | 7,279 | — | — | — | — | ||||||||||||||||||
Total
|
$ | 238 | $ | 8,256 | $ | 1,021 | $ | 34,268 | $ | 1,116 | $ | 129,550 |
6.
|
Acquisition Costs and Other Underwriting Expenses
|
Three Months Ended
September 30,
|
Nine Months Ended
September 30,
|
|||||||||||||||
(Amounts in Thousands)
|
2011
|
2010
|
2011
|
2010
|
||||||||||||
Policy acquisition expenses
|
$ | 76,944 | $ | 52,761 | $ | 180,260 | $ | 128,174 | ||||||||
Salaries and benefits
|
27,418 | 24,956 | 87,309 | 73,371 | ||||||||||||
Other insurance general and administrative expenses
|
8,908 | 4,435 | 16,515 | 21,532 | ||||||||||||
$ | 113,270 | $ | 82,152 | $ | 284,084 | $ | 223,077 |
7.
|
Earnings Per Share
|
Three Months Ended September 30,
|
Nine Months Ended September 30,
|
|||||||||||||||
(Amounts in Thousands except per share)
|
2011
|
2010
|
2011
|
2010
|
||||||||||||
Basic earnings per share:
|
||||||||||||||||
Net income attributable to AmTrust Financial Services, Inc. shareholders
|
$ | 35,096 | $ | 39,296 | $ | 130,441 | $ | 108,819 | ||||||||
Less: Net income allocated to participating securities and redeemable non-controlling interest
|
16 | 427 | 80 | 454 | ||||||||||||
Net income allocated to AmTrust Financial Services, Inc. common shareholders
|
$ | 35,080 | $ | 38,869 | $ | 130,361 | $ | 108,365 | ||||||||
Weighted average common shares outstanding – basic
|
59,987 | 59,540 | 59,842 | 59,455 | ||||||||||||
Less: Weighted average participating shares outstanding
|
32 | 50 | 40 | 35 | ||||||||||||
Weighted average common shares outstanding - basic
|
59,955 | 59,490 | 59,802 | 59,420 | ||||||||||||
Net income per AmTrust Financial Services, Inc. common share - basic
|
$ | 0.59 | $ | 0.65 | $ | 2.18 | $ | 1.82 | ||||||||
Diluted earnings per share:
|
||||||||||||||||
Net income attributable to AmTrust Financial Services, Inc. shareholders
|
$ | 35,096 | $ | 39,296 | $ | 130,441 | $ | 108,819 | ||||||||
Less: Net income allocated to participating securities and redeemable non-controlling interest
|
16 | 427 | 80 | 454 | ||||||||||||
Net income allocated to AmTrust Financial Services, Inc. common shareholders
|
$ | 35,080 | $ | 38,869 | $ | 130,361 | $ | 108,365 | ||||||||
Weighted average common shares outstanding – basic
|
59,955 | 59,490 | 59,802 | 59,420 | ||||||||||||
Plus: Dilutive effect of stock options, other
|
1,929 | 885 | 1,703 | 850 | ||||||||||||
Weighted average common shares outstanding – dilutive
|
61,884 | 60,375 | 61,505 | 60,270 | ||||||||||||
Net income per AmTrust Financial Services, Inc. common shares – diluted
|
$ | 0.57 | $ | 0.64 | $ | 2.12 | $ | 1.80 |
8.
|
Share Based Compensation
|
2011
|
2010
|
|||||||||||||||
(Amounts in thousands except per share)
|
Shares
|
Weighted
Average
Exercise Price
|
Shares
|
Weighted
Average
Exercise Price
|
||||||||||||
Outstanding at beginning of period
|
4,127 | $ | 10.46 | 4,168 | $ | 10.12 | ||||||||||
Granted
|
235 | 16.84 | 241 | 13.76 | ||||||||||||
Exercised
|
(388 | ) | 9.61 | (135 | ) | 7.71 | ||||||||||
Cancelled or terminated
|
(65 | ) | 16.48 | (96 | ) | 10.45 | ||||||||||
Outstanding end of period
|
3,909 | $ | 10.86 | 4,178 | $ | 10.40 |
9.
|
Comprehensive Income and Shareholder Equity
|
Three Months Ended
September 30,
|
Nine Months Ended
September 30,
|
|||||||||||||||
(Amounts in thousands)
|
2011
|
2010
|
2011
|
2010
|
||||||||||||
Net income attributable to AmTrust
|
$ | 35,096 | $ | 39,296 | $ | 130,441 | $ | 108,819 | ||||||||
Unrealized holding gain (loss)
|
(7,917 | ) | 7,649 | 2,483 | 9,882 | |||||||||||
Reclassification adjustment
|
(5,667 | ) | 7,521 | (3,916 | ) | 19,439 | ||||||||||
Foreign currency translation
|
(5,027 | ) | 7,348 | (508 | ) | (1,499 | ) | |||||||||
Comprehensive income
|
$ | 16,485 | $ | 61,404 | $ | 128,500 | $ | 136,231 |
(Amounts in thousands)
|
AmTrust
|
Non-Controlling
Interests
|
Total
|
|||||||||
Beginning Balance, January 1, 2011
|
$ | 716,514 | $ | 21,800 | $ | 738,314 | ||||||
Net income
|
130,441 | 24,249 | 154,690 | |||||||||
Unrealized holding gains and reclassification
|
(1,433 | ) | - | (1,433 | ) | |||||||
Foreign currency translation
|
(508 | ) | - | (508 | ) | |||||||
Comprehensive income
|
128,500 | 24,249 | 152,749 | |||||||||
Capital contribution
|
- | 23,764 | 23,764 | |||||||||
Dividends
|
(14,960 | ) | - | (14,960 | ) | |||||||
Share exercises and compensation, other
|
7,862 | - | 7,862 | |||||||||
Ending Balance, September 30, 2011
|
$ | 837,916 | $ | 69,813 | $ | 907,729 |
10.
|
Income Taxes
|
Three Months Ended
September 30,
|
Nine Months Ended
September 30,
|
|||||||||||||||
(Amounts in Thousands)
|
2011
|
2010
|
2011
|
2010
|
||||||||||||
Income before provision for income taxes, equity in earnings of unconsolidated subsidiaries
|
$ | 52,212 | $ | 55,128 | $ | 177,445 | $ | 130,885 | ||||||||
Equity in earnings (loss) of unconsolidated subsidiaries
|
(447 | ) | 4,030 | 6,753 | 21,803 | |||||||||||
Non-controlling interest
|
(3,487 | ) | (5,927 | ) | (24,249 | ) | (5,927 | ) | ||||||||
$ | 48,278 | $ | 53,231 | $ | 159,949 | $ | 146,761 | |||||||||
Income taxes at statutory rates
|
$ | 16,897 | $ | 18,631 | $ | 55,982 | $ | 51,366 | ||||||||
Effect of income not subject to U.S. taxation
|
(5,471 | ) | (3,703 | ) | (28,100 | ) | (12,672 | ) | ||||||||
Other, net
|
1,756 | (993 | ) | 1,626 | (752 | ) | ||||||||||
Provision for income taxes as shown on the Condensed Consolidated Statements of Income
|
$ | 13,182 | $ | 13,935 | $ | 29,508 | $ | 37,942 | ||||||||
GAAP effective tax rate
|
27.3 | % | 26.2 | % | 18.4 | % | 26.1 | % |
11.
|
Related Party Transactions
|
(Amounts in Thousands)
|
September 30,
2011
|
December 31,
2010
|
||||||
Assets and liabilities:
|
||||||||
Reinsurance recoverable
|
$ | 458,855 | $ | 386,932 | ||||
Prepaid reinsurance premium
|
346,586 | 283,899 | ||||||
Ceded reinsurance premiums payable
|
(147,171 | ) | (95,629 | ) | ||||
Note payable
|
(167,975 | ) | (167,975 | ) |
Three Months Ended
September 30,
|
Nine Months Ended
September 30,
|
|||||||||||||||
(Amounts in Thousands)
|
2011
|
2010
|
2011
|
2010
|
||||||||||||
Results of operations:
|
||||||||||||||||
Premium written – ceded
|
$ | (173,218 | ) | $ | (109,457 | ) | $ | (513,859 | ) | $ | (336,014 | ) | ||||
Change in unearned premium – ceded
|
13,008 | (11,122 | ) | 103,022 | 6,733 | |||||||||||
Earned premium - ceded
|
$ | (160,210 | ) | $ | (120,579 | ) | $ | (410,838 | ) | $ | (329,281 | ) | ||||
Ceding commission on premium written
|
$ | 48,339 | $ | 33,855 | $ | 132,224 | $ | 104,959 | ||||||||
Ceding commission – deferred
|
(6,557 | ) | 4,048 | (20,269 | ) | (1,851 | ) | |||||||||
Ceding commission – earned
|
$ | 41,782 | $ | 37,903 | $ | 111,955 | $ | 103,108 | ||||||||
Incurred loss and loss adjustment expense – ceded
|
$ | 94,371 | $ | 78,694 | $ | 275,434 | $ | 214,140 | ||||||||
Interest expense on collateral loan
|
473 | 475 | 1,431 | 982 |
|
12.
|
Acquisitions
|
|
13.
|
Investment in Life Settlements
|
(Amounts in thousands, except Life Settlement Contracts)
Remaining life expectancy as of September 30, 2011
|
Number of Life
Settlement
Contracts
|
Fair Value
|
Face Value
|
|||||||||
0-1
|
— | $ | — | $ | — | |||||||
1-2
|
— | — | — | |||||||||
2-3
|
1 | 6,487 | 10,000 | |||||||||
3-4
|
1 | 2,579 | 5,000 | |||||||||
4-5
|
4 | 14,431 | 30,000 | |||||||||
Thereafter
|
217 | 98,170 | 1,396,933 | |||||||||
Total
|
223 | $ | 121,667 | $ | 1,441,933 |
(Amounts in thousands)
(Premiums due are between October 1 and September 30)
|
Premiums Due on
Life Settlement
Contracts
|
Premiums
Due
on Premium
Finance
Loans
|
Total
|
|||||||||
2011
|
$ | 19,525 | $ | 2,478 | $ | 22,003 | ||||||
2012
|
23,554 | 3,251 | 26,805 | |||||||||
2013
|
24,942 | 3,421 | 28,363 | |||||||||
2014
|
25,794 | 3,777 | 29,571 | |||||||||
2015
|
29,006 | 4,584 | 33,590 | |||||||||
Thereafter
|
519,561 | 132,121 | 651,682 | |||||||||
Total
|
$ | 642,382 | $ | 149,632 | $ | 792,014 |
|
14.
|
Contingent Liabilities
|
|
15.
|
Segments
|
(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
|
2,665 | - | - | - | - | 2,665 | ||||||||||||||||||
Provision for income taxes
|
(4,205 | ) | (7,344 | ) | (488 | ) | (188 | ) | (957 | ) | (13,182 | ) | ||||||||||||
Equity in earnings (loss) of unconsolidated subsidiaries – related party
|
- | - | - | - | (447 | ) | (447 | ) | ||||||||||||||||
Non-controlling interest
|
(1,072 | ) | (888 | ) | (1,693 | ) | 166 | - | (3,487 | ) | ||||||||||||||
Net income attributable to AmTrust Financial Services, Inc.
|
$ | 12,164 | $ | 20,789 | $ | (1,086 | ) | $ | 583 | $ | 2,646 | $ | 35,096 |
(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, 2010:
|
||||||||||||||||||||||||
Gross written premium
|
$ | 107,838 | $ | 146,155 | $ | 60,568 | $ | 24,523 | $ | — | $ | 339,084 | ||||||||||||
Net written premium
|
56,386 | 78,377 | 23,551 | 24,523 | — | 182,837 | ||||||||||||||||||
Change in unearned premium
|
8,029 | 2,524 | 3,828 | (6,333 | ) | — | 8,048 | |||||||||||||||||
Net earned premium
|
64,415 | 80,901 | 27,379 | 18,190 | — | 190,885 | ||||||||||||||||||
Ceding commission - primarily related party
|
16,400 | 14,578 | 6,925 | — | — | 37,903 | ||||||||||||||||||
Loss and loss adjustment expense
|
(39,245 | ) | (50,584 | ) | (19,235 | ) | (11,368 | ) | — | (120,432 | ) | |||||||||||||
Acquisition costs and other underwriting expenses
|
(32,899 | ) | (29,482 | ) | (13,860 | ) | (5,911 | ) | — | (82,152 | ) | |||||||||||||
(72,144 | ) | (80,066 | ) | (33,095 | ) | (17,279 | ) | — | (202,584 | ) | ||||||||||||||
Underwriting income
|
8,671 | 15,413 | 1,209 | 911 | — | 26,204 | ||||||||||||||||||
Service and fee income
|
9,124 | 9,971 | — | — | 3,323 | 22,418 | ||||||||||||||||||
Investment income and realized gain (loss)
|
7,390 | 6,356 | 3,645 | 1,021 | — | 18,412 | ||||||||||||||||||
Other expenses
|
(6,515 | ) | (8,456 | ) | (3,781 | ) | (1,458 | ) | — | (20,210 | ) | |||||||||||||
Interest expense
|
(1,083 | ) | (1,417 | ) | (628 | ) | (282 | ) | — | (3,410 | ) | |||||||||||||
Foreign currency loss
|
— | (141 | ) | — | — | — | (141 | ) | ||||||||||||||||
Gain on life settlement contracts
|
3,857 | 4,983 | 2,241 | 774 | — | 11,855 | ||||||||||||||||||
Provision for income taxes
|
(5,463 | ) | (6,813 | ) | (565 | ) | (280 | ) | (814 | ) | (13,935 | ) | ||||||||||||
Equity in earnings of unconsolidated subsidiaries – related party
|
— | — | — | — | 4,030 | 4,030 | ||||||||||||||||||
Non-controlling interest
|
(1,928 | ) | (2,491 | ) | (1,121 | ) | (387 | ) | — | (5,927 | ) | |||||||||||||
Net income attributable to AmTrust Financial Services, Inc.
|
$ | 14,053 | $ | 17,405 | $ | 1,000 | $ | 299 | $ | 6,539 | $ | 39,296 |
(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
|
2,665 | - | - | - | - | 2,665 | ||||||||||||||||||
Provision for income taxes
|
(8,932 | ) | (16,480 | ) | (1,601 | ) | (508 | ) | (1,987 | ) | (29,508 | ) | ||||||||||||
Equity in earnings of unconsolidated investment – related party
|
6,753 | 6,753 | ||||||||||||||||||||||
Non-controlling interest
|
(7,513 | ) | (11,338 | ) | (4,459 | ) | (939 | ) | - | (24,249 | ) | |||||||||||||
Net income attributable to AmTrust Financial Services, Inc.
|
$ | 37,262 | $ | 71,286 | $ | 3,569 | $ | 1,610 | $ | 16,714 | $ | 130,441 |
(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, 2010:
|
||||||||||||||||||||||||
Gross written premium
|
$ | 338,140 | $ | 495,799 | $ | 192,935 | $ | 59,083 | $ | — | $ | 1,085,957 | ||||||||||||
Net written premium
|
173,875 | 238,642 | 97,044 | 59,083 | — | 568,644 | ||||||||||||||||||
Change in unearned premium
|
15,404 | (19,390 | ) | 2,128 | (31,540 | ) | — | (33,398 | ) | |||||||||||||||
Net earned premium
|
189,279 | 219,252 | 99,172 | 27,543 | — | 535,246 | ||||||||||||||||||
Ceding commission - primarily related party
|
50,580 | 35,408 | 17,121 | — | — | 103,109 | ||||||||||||||||||
Loss and loss adjustment expense
|
(113,680 | ) | (135,808 | ) | (65,061 | ) | (17,214 | ) | — | (331,763 | ) | |||||||||||||
Acquisition costs and other underwriting expenses
|
(97,621 | ) | (73,531 | ) | (42,974 | ) | (8,951 | ) | — | (223,077 | ) | |||||||||||||
(211,301 | ) | (209,339 | ) | (108,035 | ) | (26,165 | ) | — | (554,840 | ) | ||||||||||||||
Underwriting income
|
28,558 | 45,321 | 8,258 | 1,378 | — | 83,515 | ||||||||||||||||||
Service and fee income
|
14,676 | 15,958 | — | — | 8,871 | 39,505 | ||||||||||||||||||
Investment income and realized gain (loss)
|
17,142 | 14,223 | 8,747 | 1,826 | — | 41,938 | ||||||||||||||||||
Other expenses
|
(11,640 | ) | (15,039 | ) | (6,764 | ) | (2,337 | ) | — | (35,780 | ) | |||||||||||||
Interest expense
|
(3,268 | ) | (4,222 | ) | (1,899 | ) | (656 | ) | — | (10,045 | ) | |||||||||||||
Foreign currency loss
|
— | (103 | ) | — | — | — | (103 | ) | ||||||||||||||||
Gain on life settlement contracts
|
3,857 | 4,983 | 2,241 | 774 | — | 11,855 | ||||||||||||||||||
Provision for income taxes
|
(14,298 | ) | (17,718 | ) | (3,068 | ) | (286 | ) | (2,572 | ) | (37,942 | ) | ||||||||||||
Equity in earnings of unconsolidated investment – related party
|
— | — | — | — | 21,803 | 21,803 | ||||||||||||||||||
Non-controlling interest
|
(1,928 | ) | (2,491 | ) | (1,121 | ) | (387 | ) | — | (5,927 | ) | |||||||||||||
Net income attributable to AmTrust Financial Services, Inc.
|
$ | 33,099 | $ | 40,912 | $ | 6,394 | $ | 312 | $ | 28,102 | $ | 108,819 |
(Amounts in Thousands)
|
Small
Commercial
Business
|
Specialty Risk
and Extended
Warranty
|
Specialty
Program
|
Personal
Lines
Reinsurance
|
Corporate
and other
|
Total
|
||||||||||||||||||
As of September 30, 2011:
|
||||||||||||||||||||||||
Fixed assets
|
$ | 17,681 | $ | 26,685 | $ | 10,494 | $ | 2,211 | $ | — | $ | 57,071 | ||||||||||||
Goodwill and intangible assets
|
118,363 | 159,676 | 14,691 | - | — | 292,730 | ||||||||||||||||||
Total assets
|
2,131,828 | 2,286,620 | 868,081 | 132,820 | — | 5,419,349 | ||||||||||||||||||
As of December 31, 2010:
|
||||||||||||||||||||||||
Fixed assets
|
$ | 9,839 | $ | 13,386 | $ | 5,694 | $ | 1,970 | $ | — | $ | 30,889 | ||||||||||||
Goodwill and intangible assets
|
87,001 | 95,737 | 15,088 | — | — | 197,826 | ||||||||||||||||||
Total assets
|
1,581,946 | 1,716,980 | 741,835 | 141,692 | — | 4,182,453 |
|
·
|
Small Commercial Business. We provide workers’ compensation, commercial package and other commercial insurance lines produced by wholesale agents, retail agents and brokers in the United States.
|
|
·
|
Specialty Risk and Extended Warranty. We provide coverage for consumer and commercial goods and custom designed coverages, such as accidental damage plans and payment protection plans offered in connection with the sale of consumer and commercial goods, in the United States, United Kingdom and Europe, and certain property, casualty and specialty liability risks in the United States and Europe, including general liability, employers’ liability and professional and medical liability.
|
|
·
|
Specialty Program. We write commercial insurance for homogeneous, narrowly defined classes of insureds, requiring an in-depth knowledge of the insured’s industry segment, through general and other wholesale agents.
|
|
·
|
Personal Lines Reinsurance. We reinsure 10% of the net premiums of the GMACI personal lines business, pursuant to a quota share reinsurance agreement (“Personal Lines Quota Share”) with the GMACI personal lines insurance companies.
|
Company
|
A.M.
Best Rated
|
Coverage Type Offered
|
Coverage
Market
|
Domiciled
|
||||
Technology Insurance Company, Inc. (“TIC”)
|
A (Excellent)
|
Small commercial, middle market property & casualty, specialty risk & extended warranty and reinsurance for GMACI
|
United States
|
New Hampshire
|
||||
Rochdale Insurance Company (“RIC”)
|
A (Excellent)
|
Small commercial, middle market property & casualty and specialty risk & extended warranty
|
United States
|
New York
|
||||
Wesco Insurance Company (“WIC”)
|
A (Excellent)
|
Small commercial, middle market property & casualty and specialty risk & extended warranty
|
United States
|
Delaware
|
||||
Associated Industries Insurance Company, Inc. (“AIIC”)
|
A (Excellent)
|
Workers’ compensation
|
United States
|
Florida
|
||||
Milwaukee Casualty Insurance Company (“MCIC”)
|
A (Excellent)
|
Small Commercial Business
|
United States
|
Wisconsin
|
||||
Security National Insurance Company (“SNIC”)
|
A (Excellent)
|
Small Commercial Business
|
United States
|
Texas
|
||||
AmTrust Insurance Company of Kansas, Inc. (“AICK”)
|
A (Excellent)
|
Small Commercial Business
|
United States
|
Kansas
|
||||
AmTrust Lloyd’s Insurance Company (“ALIC”)
|
A (Excellent)
|
Small Commercial Business
|
United States
|
Texas
|
||||
AmTrust International Underwriters Limited (“AIU”)
|
A (Excellent)
|
Specialty Risk and Extended Warranty
|
European Union
|
Ireland
|
||||
AmTrust Europe, Ltd. (“AEL”)
|
A (Excellent)
|
Specialty Risk and Extended Warranty
|
European Union
|
England
|
||||
AmTrust International Insurance Ltd. (“AII”)
|
A (Excellent)
|
Reinsurance for consolidated subsidiaries
|
United States and European Union
|
Bermuda
|
|
•
|
Product warranty registration and service — Our Specialty Risk and Extended Warranty business generates fee revenue for product warranty registration and claims handling services provided to unaffiliated third parties.
|
|
•
|
Servicing carrier — We act as a servicing carrier for the Alabama, Arkansas, Illinois, Indiana, Georgia and Kansas workers’ compensation assigned risk plans. In addition, we also offer claims adjusting and loss control services for fees to unaffiliated third parties.
|
|
•
|
Management services — We provide services to insurance consumers, traditional insurers and insurance producers by offering flexible and cost effective alternatives to traditional insurance tools in the form of various risk retention groups and captive management companies, as well as management of workers’ compensation and commercial property programs.
|
|
•
|
Installment and reinstatement fees — We recognize fee income associated with the issuance of workers’ compensation policies for which premium is payable in installments, in jurisdictions where it is permitted and approved, and reinstatement fees, which are fees charged to reinstate a policy after it has been cancelled for non-payment, in jurisdictions where it is permitted and approved.
|
|
•
|
Broker services — We provide brokerage services to Maiden in connection with our reinsurance agreements for which we receive a fee.
|
|
•
|
Asset management services — We currently manage the investment portfolios of Maiden and ACAC for which we receive a management fee.
|
|
•
|
Information technology services — We provide information technology services to ACAC and its affiliates for a fee.
|
|
•
|
Policy acquisition expenses comprise commissions directly attributable to those agents, wholesalers or brokers that produce premiums written on our behalf. In most instances, we pay commissions based on collected premium, which reduces our credit risk exposure associated with producers in case a policyholder does not pay a premium. We pay state and local taxes, licenses and fees, assessments and contributions to various state guaranty funds based on our premiums or losses in each state. Surcharges that we may be required to charge and collect from insureds in certain jurisdictions are recorded as accrued liabilities, rather than expense.
|
|
•
|
Salaries and benefits expenses are those salaries and benefits expenses for employees that are directly involved in the origination, issuance and maintenance of policies, claims adjustment and accounting for insurance transactions. We classify salaries and benefits associated with employees that are involved in fee generating activities as other expenses.
|
|
•
|
General and administrative expenses are comprised of other costs associated with our insurance activities, such as federal excise tax, postage, telephones and internet access charges, as well as legal and auditing fees and board and bureau charges.
|
Three Months Ended
September 30,
|
Nine Months Ended
September 30,
|
|||||||||||||||
(Amounts in Thousands)
|
2011
|
2010
|
2011
|
2010
|
||||||||||||
Gross written premium
|
$ | 561,222 | $ | 339,084 | $ | 1,563,711 | $ | 1,085,957 | ||||||||
Net written premium
|
$ | 321,903 | $ | 182,837 | $ | 931,603 | $ | 568,644 | ||||||||
Change in unearned premium
|
(33,055 | ) | 8,048 | (194,135 | ) | (33,398 | ) | |||||||||
Net earned premium
|
288,848 | 190,885 | 737,468 | 535,246 | ||||||||||||
Ceding commission – primarily related party
|
40,732 | 37,903 | 111,830 | 103,109 | ||||||||||||
Service and fee income (related parties – three months $4,191; $3,323 and nine months $12,809; $8,871)
|
28,815 | 22,418 | 78,546 | 39,505 | ||||||||||||
Net investment income
|
14,456 | 10,952 | 41,815 | 39,237 | ||||||||||||
Net realized gain (loss) on investments
|
550 | 7,460 | 1,581 | 2,701 | ||||||||||||
Total revenues
|
373,401 | 269,618 | 971,240 | 719,798 | ||||||||||||
Loss and loss adjustment expense
|
185,352 | 120,432 | 484,056 | 331,763 | ||||||||||||
Acquisition costs and other underwriting expenses
|
113,270 | 82,152 | 284,084 | 223,077 | ||||||||||||
Other
|
24,045 | 20,210 | 62,805 | 35,780 | ||||||||||||
Total expenses
|
322,667 | 222,794 | 830,945 | 590,620 | ||||||||||||
Income before other income (expense), income taxes and equity in earnings of unconsolidated subsidiaries
|
50,734 | 46,824 | 140,295 | 129,178 | ||||||||||||
Other income (expense):
|
||||||||||||||||
Foreign currency (loss) gain
|
(4,063 | ) | (141 | ) | (1,827 | ) | (103 | ) | ||||||||
Interest expense
|
(3,946 | ) | (3,410 | ) | (12,034 | ) | (10,045 | ) | ||||||||
Bargain purchase on Majestic transaction
|
2,665 | — | 2,665 | — | ||||||||||||
Gain on investment in life settlement contracts
|
6,822 | 11,855 | 48,346 | 11,855 | ||||||||||||
Total other income (expense)
|
1,487 | 8,304 | 37,150 | 1,707 | ||||||||||||
Income before income taxes and equity in earnings of unconsolidated subsidiaries
|
52,212 | 55,128 | 177,445 | 130,885 | ||||||||||||
Provision for income taxes
|
13,182 | 13,935 | 29,508 | 37,942 | ||||||||||||
Income before equity earnings of unconsolidated subsidiaries and non-controlling interest
|
39,030 | 41,193 | 147,937 | 92,943 | ||||||||||||
Equity in earnings of unconsolidated subsidiaries – related parties
|
(447 | ) | 4,030 | 6,753 | 21,803 | |||||||||||
Net income
|
38,583 | 45,223 | 154,690 | 114,746 | ||||||||||||
Non-controlling interest
|
(3,487 | ) | (5,927 | ) | (24,249 | ) | (5,927 | ) | ||||||||
Net income attributable to AmTrust Financial Services, Inc.
|
$ | 35,096 | $ | 39,296 | $ | 130,441 | $ | 108,819 | ||||||||
Key measures:
|
||||||||||||||||
Net loss ratio
|
64.2 | % | 63.1 | % | 65.6 | % | 62.0 | % | ||||||||
Net expense ratio
|
25.1 | % | 23.2 | % | 23.4 | % | 22.4 | % | ||||||||
Net combined ratio
|
89.3 | % | 86.3 | % | 89.0 | % | 84.4 | % | ||||||||
Net realized loss on investments:
|
||||||||||||||||
Total other-than-temporary impairment loss
|
$ | — | $ | (4,051 | ) | $ | (345 | ) | $ | (21,196 | ) | |||||
Portion of loss recognized in other comprehensive income
|
— | — | — | — | ||||||||||||
Net impairment losses recognized in earnings
|
— | (4,051 | ) | (345 | ) | (21,196 | ) | |||||||||
Other net realized gain on investments
|
550 | 11,511 | 1,926 | 23,897 | ||||||||||||
Net realized investment gain (loss)
|
$ | 550 | $ | 7,460 | $ | 1,581 | $ | 2,701 |
Three Months Ended
September 30,
|
Nine Months Ended
September 30,
|
|||||||||||||||
(Amounts in Thousands)
|
2011
|
2010
|
2011
|
2010
|
||||||||||||
Gross written premium
|
$ | 145,418 | $ | 107,838 | $ | 460,741 | $ | 338,140 | ||||||||
Net written premium
|
79,070 | 56,386 | 269,942 | 173,875 | ||||||||||||
Change in unearned premium
|
10,808 | 8,029 | (44,170 | ) | 15,404 | |||||||||||
Net earned premium
|
89,877 | 64,415 | 225,772 | 189,279 | ||||||||||||
Ceding commission – primarily related party
|
16,312 | 16,400 | 48,207 | 50,580 | ||||||||||||
Loss and loss adjustment expense
|
55,721 | 39,245 | 142,411 | 113,680 | ||||||||||||
Acquisition costs and other underwriting expenses
|
42,074 | 32,899 | 108,483 | 97,621 | ||||||||||||
Total expenses
|
97,795 | 72,144 | 250,894 | 211,301 | ||||||||||||
Underwriting income
|
$ | 8,394 | $ | 8,671 | $ | 23,085 | $ | 28,558 | ||||||||
Key measures:
|
||||||||||||||||
Net loss ratio
|
62.0 | % | 60.9 | % | 63.1 | % | 60.1 | % | ||||||||
Net expense ratio
|
28.7 | % | 25.6 | % | 26.7 | % | 24.9 | % | ||||||||
Net combined ratio
|
90.7 | % | 86.5 | % | 89.8 | % | 85.0 | % | ||||||||
Reconciliation of net expense ratio:
|
||||||||||||||||
Acquisition costs and other underwriting expenses
|
$ | 42,074 | $ | 32,899 | $ | 108,483 | $ | 97,621 | ||||||||
Less: ceding commission revenue – primarily related party
|
16,312 | 16,400 | 48,207 | 50,580 | ||||||||||||
25,762 | 16,499 | 60,276 | 47,041 | |||||||||||||
Net earned premium
|
$ | 89,879 | $ | 64,415 | $ | 225,772 | $ | 189,279 | ||||||||
Net expense ratio
|
28.7 | % | 25.6 | % | 26.7 | % | 24.9 | % |
Three Months Ended
September 30,
|
Nine Months Ended
September 30,
|
|||||||||||||||
(Amounts in Thousands)
|
2011
|
2010
|
2011
|
2010
|
||||||||||||
Gross written premium
|
$ | 256,493 | $ | 146,155 | $ | 749,743 | $ | 495,799 | ||||||||
Net written premium
|
149,238 | 78,377 | 438,963 | 238,642 | ||||||||||||
Change in unearned premium
|
(22,454 | ) | 2,524 | (117,971 | ) | (19,390 | ) | |||||||||
Net earned premium
|
126,784 | 80,901 | 320,992 | 219,252 | ||||||||||||
Ceding commission – primarily related party
|
14,928 | 14,578 | 41,614 | 35,408 | ||||||||||||
Loss and loss adjustment expense
|
83,102 | 50,584 | 216,579 | 135,808 | ||||||||||||
Acquisition costs and other underwriting expenses
|
39,187 | 29,482 | 97,493 | 73,531 | ||||||||||||
Total expenses
|
122,289 | 80,066 | 314,072 | 209,339 | ||||||||||||
Underwriting income
|
$ | 19,423 | $ | 15,413 | $ | 48,534 | $ | 45,321 | ||||||||
Key measures:
|
||||||||||||||||
Net loss ratio
|
65.5 | % | 62.5 | % | 67.5 | % | 61.9 | % | ||||||||
Net expense ratio
|
19.1 | % | 18.4 | % | 17.4 | % | 17.4 | % | ||||||||
Net combined ratio
|
84.7 | % | 80.9 | % | 84.9 | % | 79.3 | % | ||||||||
Reconciliation of net expense ratio:
|
||||||||||||||||
Acquisition costs and other underwriting expenses
|
$ | 39,187 | $ | 29,482 | $ | 97,493 | $ | 73,531 | ||||||||
Less: ceding commission revenue – primarily related party
|
14,928 | 14,578 | 41,614 | 35,408 | ||||||||||||
24,259 | 14,904 | 55,879 | 38,123 | |||||||||||||
Net earned premium
|
$ | 126,784 | $ | 80,901 | $ | 320,992 | $ | 219,252 | ||||||||
Net expense ratio
|
19.1 | % | 18.4 | % | 17.4 | % | 17.4 | % |
Three Months Ended
September 30,
|
Nine Months Ended
September 30,
|
|||||||||||||||
(Amounts in Thousands)
|
2011
|
2010
|
2011
|
2010
|
||||||||||||
Gross written premium
|
$ | 132,621 | $ | 60,568 | $ | 275,951 | $ | 192,935 | ||||||||
Net written premium
|
66,905 | 23,551 | 145,422 | 97,044 | ||||||||||||
Change in unearned premium
|
(19,958 | ) | 3,828 | (27,567 | ) | 2,128 | ||||||||||
Net earned premium
|
46,947 | 27,379 | 117,855 | 99,172 | ||||||||||||
Ceding commission – primarily related party
|
9,492 | 6,925 | 22,009 | 17,121 | ||||||||||||
Loss and loss adjustment expense
|
30,376 | 19,235 | 78,443 | 65,061 | ||||||||||||
Acquisition costs and other underwriting expenses
|
23,806 | 13,860 | 54,432 | 42,974 | ||||||||||||
Total expenses
|
54,182 | 33,095 | 132,875 | 108,035 | ||||||||||||
Underwriting income
|
$ | 2,257 | $ | 1,209 | $ | 6,989 | $ | 8,258 | ||||||||
Key measures:
|
||||||||||||||||
Net loss ratio
|
64.7 | % | 70.3 | % | 66.6 | % | 65.6 | % | ||||||||
Net expense ratio
|
30.5 | % | 25.3 | % | 27.5 | % | 26.1 | % | ||||||||
Net combined ratio
|
95.2 | % | 95.6 | % | 94.1 | % | 91.7 | % | ||||||||
Reconciliation of net expense ratio:
|
||||||||||||||||
Acquisition costs and other underwriting expenses
|
$ | 23,806 | $ | 13,860 | $ | 54,432 | $ | 42,974 | ||||||||
Less: ceding commission revenue – primarily related party
|
9,492 | 6,925 | 22,009 | 17,121 | ||||||||||||
14,314 | 6,935 | 32,023 | 25,853 | |||||||||||||
Net earned premium
|
$ | 46,947 | $ | 27,379 | $ | 117,855 | $ | 99,172 | ||||||||
Net expense ratio
|
30.5 | % | 25.3 | % | 27.5 | % | 26.1 | % |
Three Months Ended
September 30,
|
Nine Months Ended
September 30,
|
|||||||||||||||
(Amounts in Thousands)
|
2011
|
2010
|
2011
|
2010
|
||||||||||||
Gross written premium
|
$ | 26,690 | $ | 24,523 | $ | 77,276 | $ | 59,083 | ||||||||
Net written premium
|
26,690 | 24,523 | 77,276 | 59,083 | ||||||||||||
Change in unearned premium
|
(1,450 | ) | (6,333 | ) | (4,427 | ) | (31,540 | ) | ||||||||
Net earned premium
|
25,240 | 18,190 | 72,849 | 27,543 | ||||||||||||
Loss and loss adjustment expense
|
16,153 | 11,368 | 46,623 | 17,214 | ||||||||||||
Acquisition costs and other underwriting expenses
|
8,203 | 5,911 | 23,676 | 8,951 | ||||||||||||
Total expenses
|
24,356 | 17,279 | 70,299 | 26,165 | ||||||||||||
Underwriting income
|
$ | 884 | $ | 911 | $ | 2,550 | $ | 1,378 | ||||||||
Key measures:
|
||||||||||||||||
Net loss ratio
|
64.0 | % | 62.5 | % | 64.0 | % | 62.5 | % | ||||||||
Net expense ratio
|
32.5 | % | 32.5 | % | 32.5 | % | 32.5 | % | ||||||||
Net combined ratio
|
96.5 | % | 95.0 | % | 96.5 | % | 95.0 | % |
Nine Months Ended September 30,
|
||||||||
(Amounts in Thousands)
|
2011
|
2010
|
||||||
Cash and cash equivalents provided by (used in):
|
||||||||
Operating activities
|
$ | 232,323 | $ | (3,666 | ) | |||
Investing activities
|
(151,438 | ) | 32,432 | |||||
Financing activities
|
37,326 | 43,682 |
September 30,
|
December 31,
|
|||||||
2011
|
2010
|
|||||||
(Amounts in Thousands)
|
||||||||
Selected Assets:
|
||||||||
Cash
|
$ | 320,863 | $ | 201,949 | ||||
Investments
|
1,716,467 | 1,357,012 | ||||||
Prepaid and other assets
|
289,707 | 163,905 | ||||||
Goodwill and intangible assets
|
292,730 | 197,826 | ||||||
Selected Liabilities:
|
||||||||
Loss and loss expense reserves
|
$ | 1,782,953 | $ | 1,263,537 | ||||
Deferred income taxes
|
85,106 | 9,883 |
September 30, 2011
|
December 31, 2010
|
|||||||||||||||
(Amounts in Thousands)
|
Carrying
Value
|
Percentage of
Portfolio
|
Carrying
Value
|
Percentage of
Portfolio
|
||||||||||||
Cash and cash equivalents
|
$ | 320,863 | 16.6 | % | $ | 201,949 | 13.8 | % | ||||||||
Time and short-term deposits
|
164,815 | 8.5 | 32,137 | 2.2 | ||||||||||||
U.S. treasury securities
|
40,414 | 2.1 | 82,447 | 5.6 | ||||||||||||
U.S. government agencies
|
29,840 | 1.5 | 7,162 | 0.5 | ||||||||||||
Municipals
|
278,359 | 14.4 | 66,676 | 4.6 | ||||||||||||
Commercial mortgage back securities
|
1,639 | 0.1 | 2,076 | 0.1 | ||||||||||||
Residential mortgage backed securities:
|
||||||||||||||||
Agency backed
|
432,679 | 22.4 | 546,098 | 37.4 | ||||||||||||
Non-agency backed
|
12,062 | 0.6 | 8,591 | 0.6 | ||||||||||||
Asset backed securities
|
727 | 0.1 | 2,687 | 0.2 | ||||||||||||
Corporate bonds
|
616,444 | 32.0 | 493,076 | 33.8 | ||||||||||||
Preferred stocks
|
4,424 | 0.2 | 7,037 | 0.5 | ||||||||||||
Common stocks
|
27,695 | 1.5 | 10,375 | 0.7 | ||||||||||||
$ | 1,929,961 | 100.0 | % | $ | 1,460,311 | 100.0 | % |
|
•
|
the current fair value compared to amortized cost;
|
|
•
|
the length of time the security’s fair value has been below its amortized cost;
|
|
•
|
specific credit issues related to the issuer such as changes in credit rating, reduction or elimination of dividends or non-payment of scheduled interest payments;
|
|
•
|
whether management intends to sell the security and, if not, whether it is not more than likely than not that the Company will be required to sell the security before recovery of its amortized cost basis;
|
|
•
|
the financial condition and near-term prospects of the issuer of the security, including any specific events that may affect its operations or earnings;
|
|
•
|
the occurrence of a discrete credit event resulting in the issuer defaulting on material outstanding obligations or the issuer seeking protection under bankruptcy laws; and
|
|
•
|
other items, including company management, media exposure, sponsors, marketing and advertising agreements, debt restructurings, regulatory changes, acquisitions and dispositions, pending litigation, distribution agreements and general industry trends.
|
(Amounts in thousands)
|
2011
|
2010
|
||||||
Equity securities
|
$ | 345 | $ | 10,656 | ||||
Fixed maturity securities
|
- | 10,540 | ||||||
$ | 345 | $ | 21,196 |
Hypothetical Change in Interest Rates
|
Fair Value
|
Estimated
Change in
Fair Value
|
Hypothetical Percentage
Increase (Decrease) in
Shareholders’ Equity
|
|||||||||
(Amounts in Thousands)
|
||||||||||||
200 basis point increase
|
$ | 1,279,369 | $ | (132,795 | ) | (10.3 | )% | |||||
100 basis point increase
|
1,344,873 | (67,291 | ) | (5.2 | ) | |||||||
No change
|
1,412,164 | — | — | |||||||||
100 basis point decrease
|
1,476,072 | 63,908 | 7.6 | |||||||||
200 basis point decrease
|
1,544,279 | 132,115 | 10.2 |
Hypothetical Change in Interest Rates
|
Fair Value
|
Estimated
Change in
Fair Value
|
Hypothetical
Percentage
Increase
( Decrease) in
Shareholders’
Equity
|
|||||||||
(Amounts in Thousands)
|
||||||||||||
5% increase
|
$ | 33,725 | $ | 1,606 | 0.1 | % | ||||||
No change
|
32,119 | — | — | |||||||||
5 % decrease
|
30,513 | (1,606 | ) | (0.1 | ) |
Exhibit
Number
|
Description
|
|
10.1
|
Form of Incentive Stock Option Agreement, amended and restated effective November 1, 2011.
|
|
10.2
|
Form of Non-qualified Stock Option Agreement for Non-Employee Directors, amended and restated effective November 1, 2011.
|
|
10.3
|
Form of Restricted Stock Agreement, amended and restated effective November 1, 2011.
|
|
10.4
|
Form of Restricted Stock Unit Agreement, amended and restated effective November 1, 2011.
|
|
31.1
|
Certification of the Chief Executive Officer, pursuant to Rule 13a-14(a) or 15d-14(a), for the quarter ended September 30, 2011.
|
|
31.2
|
Certification of the Chief Financial Officer, pursuant to Rule 13a-14(a) or 15d-14(a), for the quarter ended September 30, 2011.
|
|
32.1
|
Certification of the Chief Executive Officer, pursuant to 18 U.S.C. Section 1350, for the quarter ended September 30, 2011.
|
|
32.2
|
Certification of the Chief Financial Officer, pursuant to 18 U.S.C. Section 1350, for the quarter ended September 30, 2011.
|
|
101.1
|
The following materials from the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2011, formatted in XBRL (Extensible Business Reporting Language): (i) the Condensed Consolidated Balance Sheets at September 30, 2011 and December 31, 2010; (ii) the Condensed Consolidated Statements of Income for the three and nine months ended September 30, 2011 and 2010; (iii) the Consolidated Statements of Cash Flows for the nine months ended September 30, 2011 and 2010; and (iv) the Notes to Unaudited Condensed Consolidated Financial Statements, tagged as blocks of text (submitted electronically herewith).
|
|
In accordance with Rule 406T of Regulation S-T, the XBRL related information in Exhibit 101.1 to this Quarterly Report on Form 10-Q shall not be deemed to be “filed” for purposes of Section 18 of the Exchange Act, or otherwise subject to the liability of that section, and shall not be part of any registration statement or other document filed under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference in such filing.
|
AmTrust Financial Services, Inc.
|
||
(Registrant)
|
||
Date: November 9, 2011
|
/s/ Barry D. Zyskind
|
|
Barry D. Zyskind
|
||
President and Chief Executive Officer
|
||
/s/ Ronald E. Pipoly, Jr.
|
||
Ronald E. Pipoly, Jr.
|
||
Chief Financial Officer
|
Award of Stock Options
|
You have been granted an Option (the “Option”), subject to the terms and conditions of this Agreement and the Plan, to purchase ____________ shares of the Company’s Stock.
|
|
Exercise Price
|
The exercise price with respect to your Option is $xx.xx per share, such exercise price payable on terms and conditions and in a form as determined by the Compensation Committee in its sole discretion consistent with the terms of the Plan and this Award Agreement.
|
|
Grant Date
|
The effective date of this grant is ________ ____, 20__.
|
|
Term
|
The term of your Option will expire at the close of business on the 10th anniversary of the Grant Date. Your Option will expire earlier if your Employment with the Company terminates, as described below.
|
|
Vesting
|
Your Option shall vest as follows: (i) 25% on the first anniversary of the Grant Date, and (ii) the remaining 75% will vest in 12 equal quarterly installments of 6.25% each every 3 months thereafter, until fully vested 48 months after the Grant Date.
This Option is only exercisable before it expires and then only with respect to the vested portion of the Option. You may exercise this Option, in whole or in part, to purchase a whole number of vested shares in accordance with the Plan and this Agreement.
Except as provided in this Agreement, or in any other agreement between you and the Company, no additional Options will vest after your Employment has terminated.
|
|
Tax Matters (Incentive Stock Option)
|
The Option granted hereby is intended to qualify as an “incentive stock option” under Section 422 of the Internal Revenue Code of 1986, as amended (the “Code”). Notwithstanding the foregoing, the Option will not qualify as an “incentive stock option,” among other events, (i) if you dispose of the Stock acquired pursuant to the Option at any time during either of the two year period following the date of this Agreement or the one year period following the date on which the Option is exercised; (ii) except in the event of the Participant’s death or disability, as defined in Section 22(e)(3) of the Code, if the Participant is not employed by the Company (or any affiliate) at all times during the period beginning on the date of this Agreement and ending on the day three (3) months before the date of exercise of the Option; or (iii) to the extent the aggregate fair market value (determined as of the time the Option is granted) of the Common Stock subject to “incentive stock options” which become exercisable for the first time in any calendar year exceeds $100,000. To the extent that the Option does not qualify as an “incentive stock option,” it shall not affect the validity of the Option and shall constitute a separate non-qualified stock option.
|
Termination of Employment
|
If your Employment (as defined below) terminates for any reason, other than retirement, death, Disability or Cause, then your Option will expire at the close of business at Company headquarters on the 90th day after your termination date (or the next business day if the 90th day after your termination date falls on a weekend or holiday).
“Employment” means that you are currently (i) an employee of the Company, (ii) are a member of the Company’s Board of Directors, or (iii) are otherwise providing services to the Company.
|
|
Termination for
Cause
|
If your Employment is terminated for Cause (as defined below), then you shall immediately forfeit all rights to your Option and the Option shall expire immediately upon your termination.
For purposes of this Agreement, “Cause” shall mean
(a) willful misconduct or gross negligence;
(b) conviction of a felony or conviction of a crime involving moral turpitude;
(c) any act constituting fraud or the misappropriation or embezzlement of money or other property of the Company; and
(d) any willful act or course of conduct constituting an abuse of office or authority which has a material adverse impact on the Company’s reputation or financial condition.
|
|
Retirement
|
If you have been employed by the Company for at least five years and your Employment terminates due to your: (i) retirement on or after your sixty-fifth birthday; or (ii) retirement on or after your fifty-fifth birthday with the consent of the Company, your Option will automatically vest as to the number of Options that would have vested had you remained in Employment for the 12-month period immediately following your retirement and your Option will expire at the close of business at Company headquarters on the date 12 months after the date of your retirement (or the next business day if the date 12 months after the date of your retirement falls on a weekend or holiday).
|
|
Death
|
If your Employment terminates because of your death, your Option will automatically vest as to the number of Options that would have vested had you remained in Employment for the 12-month period immediately following your death and your Option will expire at the close of business at Company headquarters on the date 12 months after the date of death (or the next business day if the date 12 months after the date of death falls on a weekend or holiday).
If you die during the 90-day period in connection with a regular termination of Employment described above, and a vested portion of your Option has not yet been exercised, then your Option will instead expire on the date 12 months after your termination date.
During the 12-month period above, your estate or heirs may exercise the vested portion of your Option.
|
Disability
|
If your Employment terminates because of your Disability (defined below), your Option will automatically vest as to the number of Options that would have vested had you remained in Employment for the 12-month period immediately following your Disability and your Option will expire at the close of business at Company headquarters on the date 12 months after the date of termination (or the next business day if the date 12 months after the date of termination falls on a weekend or holiday).
For purposes of this Agreement, “Disability” shall mean the award holder is unable to perform the duties of their service (or other services) (i) for a period of 90 consecutive days, or (ii) any 120 days during any consecutive 12-month period.
|
|
Termination without Cause within 12 Months of Change in Control
|
Notwithstanding anything contained in this Agreement to the contrary, if your Employment with the Company (or any affiliate) is terminated by the Company without Cause within 12 months following the effective date of a “Change of Control,” the Board of Directors may accelerate the vesting of all or any portion of your Option that is unvested.
For purposes of this Agreement: “Change in Control” shall mean:
(i) any “person” (as such term is used in Section 13(d) and 14(d)(2) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), including any syndicate or group deemed to be a “person” under Section 13(d)(3) of the Exchange Act) other than Barry Zyskind, George Karfunkel, Michael Karfunkel, any of their lineal descendants, any trust or charitable foundation controlled by any of them or their lineal descendants, any subsidiary or any employee benefit plan of the Company or a subsidiary or former subsidiary, is or becomes a beneficial owner, directly or indirectly, of stock of the Company representing 50% of more of the total voting power of the Company’s then outstanding stock;
(ii) a tender offer (for which a filing has been made with the Securities and Exchange Commission (the “SEC”) that purports to comply with the requirements of Section 14(d) of the Exchange Act, and the corresponding SEC rules) is made for the stock of the Company. In case of a tender offer described in this paragraph (ii), the “Change of Control” will be deemed to have occurred any time during the offer when the person (using the definition in (i) above) making the offer owns or has accepted for payment stock of the Company with 50% or more of the total voting power of the Company's outstanding stock; or
(iii) individuals who were the Board’s nominees for election as directors of the Company immediately prior to a meeting of the stockholders of the Company involving a contest for the election of directors shall not constitute a majority of the Board following the election.
|
Notice of Exercise
|
When you wish to exercise this Option, you must notify the Company in writing. Such exercise will only become effective upon the Company’s receipt of such written instructions.
|
|
Recapture Rights
|
In the event that you violate any of your obligations pursuant to the Confidentiality, Non-Competition, or Non-Solicitation provisions of this Agreement, you agree to return, within five days of receipt of written demand from the Company, any gains you realize from the exercise of all or any portion of the Option within the 12 months immediately preceding such violation, and any remaining portion of your Option shall be immediately forfeited, whether vested or unvested.
|
|
Confidentiality
|
During your Employment, you will have access to confidential or proprietary data or information of the Company (and its affiliates) and its operations. You agree that you will not at any time divulge or communicate the Confidential Information (defined below) to any person, nor shall you direct any employee to divulge or communicate to any person (other than to a person bound by confidentiality obligations similar to those contained herein and other than as necessary in performing your duties hereunder), or use to the detriment of the Company (or any of its affiliates) or for the benefit of any other person, any Confidential Information. This restriction shall survive your Employment hereunder, whether by the normal expiration thereof or otherwise.
The term “Confidential Information” shall mean all information, whether or not reduced to written or recorded form, that is related to the Company and that is not generally known or accessible to members of the public and/or competitors of the Company nor intended for general dissemination, whether furnished by the Company or compiled by the employee, including, without limitation, relating to the Company’s (or any affiliate’s) financial performance, customers, existing or proposed future projects, prospects, or business strategies, personnel information, financial information, customer lists, supplier lists, trade secrets, information regarding operations, systems, services, know-how, computer and any other processed or collated data, computer programs, pricing, marketing and advertising data.
You understand the Company intends to maintain the confidentiality of the Confidential Information notwithstanding that employees of the Company may have free access to the information for the purpose of performing their duties with the Company, and notwithstanding that employees not expressly bound by agreements similar to this agreement may have access to such information for job purposes. You acknowledge that Confidential Information need not be marked as such to preserve the confidential nature of the information.
|
Non-Competition
|
You acknowledge that (a) in the course of your Employment with the Company and its affiliates, you have, and will continue to, become familiar with the Company’s and its affiliates’ trade secrets, methods of doing business, business plans and other valuable confidential and proprietary information concerning the Company, its affiliates, their customers and business partners and that your services have been and will be of special, unique and extraordinary value to the Company and its affiliates. In consideration thereof and of this Award, during your Employment with the Company or an affiliate and for a period of one (1) year thereafter, you shall not, without the Company’s prior written approval, become engaged, directly or indirectly, as a director, officer, employee or 5% or more stockholder or equity interest owner in, partner in, or consultant to, any business that is directly competitive with the business of the Company (or any affiliate) in any area or region where the Company (or any affiliate) conducts business (“Competition”). Notwithstanding the foregoing, you shall not be deemed to be in Competition with the Company if you provide evidence satisfactory to the Company, in its sole and absolute discretion, that you: (i) work in a separate division, department or unit that does not compete with the business of the Company (or any affiliate); and (ii) will not have contact with the division, department or unit that does compete with the business of the Company (or any affiliate). If you received your Option grant as a non-employee member of the Company’s Board of Directors, this provision will not apply to you unless your Employment is terminated for Cause (as defined above) or for cause pursuant to the Company’s Certificate of Incorporation.
|
|
Non-Solicitation
|
During Employment and for a period of two (2) years thereafter, you shall not, without the prior written consent of the Company, directly or indirectly, on your own behalf or on behalf of any other person, firm, corporation or business entity: (a) induce or attempt to induce any agent, broker, affinity group or policyholder of the Company (or any affiliate), or any prior agent, affinity group or policyholder that was an agent, affinity group or policyholder within twelve (12) months of such contact, to withdraw, decrease or cancel its business with the Company (or any affiliate) or otherwise terminate any written or oral agreement or understanding or other relationship with the Company (or any affiliate); (b) solicit or attempt to solicit, service or attempt to service, or for the purpose of obtaining the business of any agent, broker, affinity group or policyholder of the Company (or any affiliate), or any prior agent, affinity group or policyholder that was an agent, broker, affinity group or policyholder within twelve (12) months of such contact, to the extent the business solicited is similar to, or competitive with, the business of the Company (or any affiliate), engage in discussions or other communications with (regardless of who initiates such discussions or communications) any person, firm or entity that was an actual or prospective agent, broker, affinity group or policyholder of the Company during any part of the twelve (12) month period immediately preceding termination of Employment if you participated, directly or indirectly, in the solicitation or servicing of that agent, broker, affinity group or policyholder or prospective agent, broker, affinity group or policyholder, or supervised or managed those who did, during your Employment with the Company at any time during such twelve (12) month period immediately preceding your termination of Employment; (c) solicit or attempt to solicit, hire or attempt to hire, or communicate with, any person who is an employee, individual consultant or independent contractor of the Company (or any affiliate), or any prior employee, individual consultant or independent contractor that was an employee, consultant or independent contractor within twelve (12) months of such contact, with the purpose or intent of attracting such person from the employ of the Company (or any affiliate); or (d) induce or attempt to induce any person who is an employee, individual consultant or independent contractor of the Company (or any affiliate) to terminate or limit his or her Employment or other relationship with the Company (or any affiliate), or any prior employee, individual consultant or independent contractor that was an employee, individual consultant or independent contractor within twelve (12) months of such contact.
|
Form of Payment
|
Upon exercise of your Option, you must submit payment of the Option price for the shares you are purchasing. Payment may be made via (i) cash; (ii) a “cashless” exercise, by which you deliver an irrevocable direction to a licensed securities broker to sell Stock and to deliver all or part of the sale proceeds to the Company in payment of the aggregate Option price and any applicable withholding taxes; or (iii) as otherwise permitted by the Administrator.
“Administrator” shall mean one or more officers or employees of the Company to whom the Committee may delegate the authority execute and distribute Award Agreements or other documents evidencing or relating to Awards granted by the Committee under the Plan, to maintain records relating to Awards, to process or oversee the issuance of Stock under Awards, to interpret and administer the terms of Awards and to take such other actions as may be necessary or appropriate for the administration of the Plan and of Awards under the Plan, other that those specified in Section 3(b)(i) – (iii) of the Plan.
|
|
Withholding Taxes
|
In the event that the Company determines that any federal, state, local or foreign tax or withholding payment is required relating to the exercise or sale of shares arising from this grant, the Company shall have the right to require such payments from you, or withhold such minimum statutory amounts from other payments due to you from the Company. Payment of your withholding or other taxes may be made via one of the forms of payment for exercise set forth above, or as otherwise determined by the Administrator.
|
|
Transfer of Option
|
The Option is non-transferable by you. Any attempt by you to transfer this Option will result in the Option becoming invalid, except upon your death by the laws of descent and distribution.
|
|
No Employment Rights
|
Neither your Option nor this Agreement give you the right to be retained by the Company in any capacity and your Employment may be terminated at any time and for any reason.
|
|
Shareholder Rights
|
You have no rights as a shareholder of the Company unless and until the Stock relating to your exercise has been issued (or an appropriate book entry has been made). Except as described in the Plan, no adjustments are made for dividends or other rights if the applicable record date occurs before your Stock is issued (or an appropriate book entry has been made).
|
|
Applicable Law
|
This Agreement shall be governed by the laws of the State of Delaware, with consent to jurisdiction by you in the State of New York.
|
|
Data Privacy
|
To administer the Plan, the Company may process personal data about you. Such data includes the information provided in this Agreement, other appropriate personal and financial data about you such as home address and business addresses and other contact information, payroll information and any other information deemed appropriate by the Company to facilitate the administration of the Plan.
By accepting this award, you consent to the Company’s processing of such personal data and the transfer of such data outside the country in which you work or are employed, including, with respect to non-U.S. residents, to the United States, to transferees who shall include the Company and other persons designated by the Company to administer the Plan.
|
|
Consent to Electronic Delivery
|
Certain statutory materials relating to the Plan may be delivered to you in electronic form. By accepting this grant, you consent to electronic delivery and acknowledge receipt of these materials, including the Plan and the Plan prospectus.
|
Award of Stock Options
|
You have been granted an Option (the “Option”), subject to the terms and conditions of this Agreement and the Plan, to purchase ____________ shares of the Company’s Stock.
|
|
Exercise Price
|
The exercise price with respect to your Option is $xx.xx per share, such exercise price payable on terms and conditions and in a form as determined by the Compensation Committee in its sole discretion consistent with the terms of the Plan and this Award Agreement.
|
|
Grant Date
|
The effective date of this grant is ________ ____, 20__.
|
|
Term
|
The term of your Option will expire at the close of business on the 10th anniversary of the Grant Date. Your Option will expire earlier if your Employment with the Company terminates, as described below.
|
|
Vesting
|
Your Option shall vest 100% on the first anniversary of the Grant Date.
This Option is only exercisable before it expires and then only with respect to the vested portion of the Option. You may exercise this Option, in whole or in part, to purchase a whole number of vested shares in accordance with the Plan and this Agreement.
Except as provided in this Agreement, or in any other agreement between you and the Company, no additional Options will vest after your Employment has terminated.
|
|
Termination of Employment
|
If your Employment (as defined below) terminates for any reason, other than retirement, death, Disability or Cause, then your Option will expire at the close of business at Company headquarters on the 90th day after your termination date (or the next business day if the 90th day after your termination date falls on a weekend or holiday).
“Employment” means that you are currently (i) an employee of the Company, (ii) are a member of the Company’s Board of Directors, or (iii) are otherwise providing services to the Company.
|
Termination for
Cause
|
If your Employment is terminated for Cause (as defined below), then you shall immediately forfeit all rights to your Option and the Option shall expire immediately upon your termination.
For purposes of this Agreement, “Cause” shall mean
(a) willful misconduct or gross negligence;
(b) conviction of a felony or conviction of a crime involving moral turpitude;
(c) any act constituting fraud or the misappropriation or embezzlement of money or other property of the Company; and
(d) any willful act or course of conduct constituting an abuse of office or authority which has a material adverse impact on the Company’s reputation or financial condition.
|
|
Retirement
|
If you have been a member of the Company’s Board of Directors for at least five years and your Employment terminates due to your: (i) retirement on or after your sixty-fifth birthday; or (ii) retirement on or after your fifty-fifth birthday with the consent of the Company, your Option will automatically vest as to the number of Options that would have vested had you remained in Employment for the 12-month period immediately following your retirement and your Option will expire at the close of business at Company headquarters on the date 12 months after the date of your retirement (or the next business day if the date 12 months after the date of your retirement falls on a weekend or holiday).
|
|
Death
|
If your Employment terminates because of your death, your Option will automatically vest as to the number of Options that would have vested had you remained in Employment for the 12-month period immediately following your death and your Option will expire at the close of business at Company headquarters on the date 12 months after the date of death (or the next business day if the date 12 months after the date of death falls on a weekend or holiday).
If you die during the 90-day period in connection with a regular termination of Employment described above, and a vested portion of your Option has not yet been exercised, then your Option will instead expire on the date 12 months after your termination date.
During the 12 month period above, your estate or heirs may exercise the vested portion of your Option.
|
|
Disability
|
If your Employment terminates because of your Disability (defined below), your Option will automatically vest as to the number of Options that would have vested had you remained in Employment for the 12 month period immediately following your Disability and your Option will expire at the close of business at Company headquarters on the date 12 months after the date of termination (or the next business day if the date 12 months after the date of termination falls on a weekend or holiday).
For purposes of this Agreement, “Disability” shall mean the award holder is unable to perform the duties of their service (or other services) (i) for a period of 90 consecutive days, or (ii) any 120 days during any consecutive 12 month period.
|
Termination without Cause within 12 Months of Change in Control
|
If your Employment with the Company (or any affiliate) is terminated by the Company without Cause within 12 months following the effective date of a “Change of Control”, the Board of Directors may accelerate the vesting all or any portion of your Option.
For purposes of this Agreement: “Change in Control” shall mean:
(i) any “person” (as such term is used in Section 13(d) and 14(d)(2) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), including any syndicate or group deemed to be a “person” under Section 13(d)(3) of the Exchange Act) other than Barry Zyskind, George Karfunkel, Michael Karfunkel, any of their lineal descendants, any trust or charitable foundation controlled by any of them or their lineal descendants, any subsidiary or any employee benefit plan of the Company or a subsidiary or former subsidiary, is or becomes a beneficial owner, directly or indirectly, of stock of the Company representing 50% of more of the total voting power of the Company’s then outstanding stock;
(ii) a tender offer (for which a filing has been made with the Securities and Exchange Commission (the “SEC”) that purports to comply with the requirements of Section 14(d) of the Exchange Act, and the corresponding SEC rules) is made for the stock of the Company. In case of a tender offer described in this paragraph (ii), the “Change of Control” will be deemed to have occurred any time during the offer when the person (using the definition in (i) above) making the offer owns or has accepted for payment stock of the Company with 50% or more of the total voting power of the Company's outstanding stock; or
(iii) individuals who were the Board’s nominees for election as directors of the Company immediately prior to a meeting of the stockholders of the Company involving a contest for the election of directors shall not constitute a majority of the Board following the election.
|
|
Notice of Exercise
|
When you wish to exercise this Option, you must notify the Company in writing. Such exercise will only become effective upon the Company’s receipt of such written instructions.
|
|
Recapture Rights
|
In the event that you violate any of your obligations pursuant to the Confidentiality, Non-Competition, or Non-Solicitation provisions of this Agreement, you agree to return, within five days of receipt of written demand from the Company, any gains you realize from the exercise of all or any portion of the Option within the 12 months immediately preceding such violation, and any remaining portion of your Option shall be immediately forfeited, whether vested or unvested.
|
Confidentiality
|
During your Employment, you will have access to confidential or proprietary data or information of the Company (and its affiliates) and its operations. You agree that you will not at any time divulge or communicate the Confidential Information (defined below) to any person, nor shall you direct any employee to divulge or communicate to any person (other than to a person bound by confidentiality obligations similar to those contained herein and other than as necessary in performing your duties hereunder), or use to the detriment of the Company (or any of its affiliates) or for the benefit of any other person, any Confidential Information. This restriction shall survive your Employment hereunder, whether by the normal expiration thereof or otherwise.
The term “Confidential Information” shall mean all information, whether or not reduced to written or recorded form, that is related to the Company and that is not generally known or accessible to members of the public and/or competitors of the Company nor intended for general dissemination, whether furnished by the Company or compiled by the employee, including, without limitation, relating to the Company’s (or any affiliate’s) financial performance, customers, existing or proposed future projects, prospects, or business strategies, personnel information, financial information, customer lists, supplier lists, trade secrets, information regarding operations, systems, services, know-how, computer and any other processed or collated data, computer programs, pricing, marketing and advertising data.
You understand the Company intends to maintain the confidentiality of the Confidential Information notwithstanding that employees of the Company may have free access to the information for the purpose of performing their duties with the Company, and notwithstanding that employees not expressly bound by agreements similar to this agreement may have access to such information for job purposes. You acknowledge that Confidential Information need not be marked as such to preserve the confidential nature of the information.
|
|
Non-Competition
|
You acknowledge that (a) in the course of your Employment with the Company and its affiliates, you have, and will continue to, become familiar with the Company’s and its affiliates’ trade secrets, methods of doing business, business plans and other valuable confidential and proprietary information concerning the Company, its affiliates, their customers and business partners and that your services have been and will be of special, unique and extraordinary value to the Company and its affiliates. In consideration thereof and of this Award, during your Employment with the Company or an affiliate and for a period of one (1) year thereafter, you shall not, without the Company’s prior written approval, become engaged, directly or indirectly, as a director, officer, employee or 5% or more stockholder or equity interest owner in, partner in, or consultant to, any business that is directly competitive with the business of the Company (or any affiliate) in any area or region where the Company (or any affiliate) conducts business (“Competition”). Notwithstanding the foregoing, you shall not be deemed to be in Competition with the Company if you provide evidence satisfactory to the Company, in its sole and absolute discretion, that you: (i) work in a separate division, department or unit that does not compete with the business of the Company (or any affiliate); and (ii) will not have contact with the division, department or unit that does compete with the business of the Company (or any affiliate). If you received your Option grant as a non-employee member of the Company’s Board of Directors, this provision will not apply to you unless your Employment is terminated for Cause (as defined above) or for cause pursuant to the Company’s Certificate of Incorporation.
|
Non-Solicitation
|
During Employment and for a period of two (2) years thereafter, you shall not, directly or indirectly, on your own behalf or on behalf of any other person: (a) induce or attempt to induce any agent, broker, affinity group or policyholder of the Company (or any affiliate), or any prior agent, affinity group or policyholder that was an agent, affinity group or policyholder within twelve (12) months of such contact, to withdraw, decrease or cancel its business with the Company (or any affiliate) or otherwise terminate any written or oral agreement or understanding or other relationship with the Company (or any affiliate); (b) solicit the business of any agent, broker, affinity group or policyholder of the Company (or any affiliate), or any prior agent, affinity group or policyholder that was an agent, affinity group or policyholder within twelve (12) months of such contact, to the extent the business solicited is similar to, or competitive with, the business of the Company (or any affiliate); (c) solicit or attempt to solicit, or hire or attempt to hire, or communicate with any person who is an employee, individual consultant or independent contractor of the Company (or any affiliate), or any prior employee, individual consultant or independent contractor that was an employee, consultant or independent contractor within twelve (12) months of such contact; or (d) induce or attempt to induce any person who is an employee, individual consultant or independent contractor of the Company (or any affiliate) to terminate or limit his or her employment or other relationship with the Company (or any affiliate), or any prior employee, individual consultant or independent contractor that was an employee, individual consultant or independent contractor within twelve (12) months of such contact.
|
|
Form of Payment
|
Upon exercise of your Option, you must submit payment of the Option price for the shares you are purchasing. Payment may be made via (i) cash; (ii) a “cashless” exercise, by which you deliver an irrevocable direction to a licensed securities broker to sell Stock and to deliver all or part of the sale proceeds to the Company in payment of the aggregate Option price and any applicable withholding taxes; or (iii) as otherwise permitted by the Administrator.
“Administrator” shall mean one or more officers or employees of the Company to whom the Committee may delegate the authority execute and distribute Award Agreements or other documents evidencing or relating to Awards granted by the Committee under the Plan, to maintain records relating to Awards, to process or oversee the issuance of Stock under Awards, to interpret and administer the terms of Awards and to take such other actions as may be necessary or appropriate for the administration of the Plan and of Awards under the Plan, other that those specified in Section 3(b)(i) – (iii) of the Plan.
|
|
Withholding Taxes
|
In the event that the Company determines that any federal, state, local or foreign tax or withholding payment is required relating to the exercise or sale of shares arising from this grant, the Company shall have the right to require such payments from you, or withhold such minimum statutory amounts from other payments due to you from the Company. Payment of your withholding or other taxes may be made via one of the forms of payment for exercise set forth above, or as otherwise determined by the Administrator.
|
|
Transfer of Option
|
The Option is non-transferable by you. Any attempt by you to transfer this Option will result in the Option becoming invalid, except upon your death by the laws of descent and distribution.
|
No Employment Rights
|
Neither your Option nor this Agreement give you the right to be retained by the Company in any capacity and your Employment may be terminated at any time and for any reason.
|
|
Shareholder Rights
|
You have no rights as a shareholder of the Company unless and until the Stock relating to your exercise has been issued (or an appropriate book entry has been made). Except as described in the Plan, no adjustments are made for dividends or other rights if the applicable record date occurs before your Stock is issued (or an appropriate book entry has been made).
|
|
Applicable Law
Data Privacy
|
This Agreement shall be governed by the laws of the State of Delaware, with consent to jurisdiction by you in the State of New York.
To administer the Plan, the Company may process personal data about you. Such data includes the information provided in this Agreement, other appropriate personal and financial data about you such as home address and business addresses and other contact information, payroll information and any other information deemed appropriate by the Company to facilitate the administration of the Plan.
By accepting this award, you consent to the Company’s processing of such personal data and the transfer of such data outside the country in which you work or are employed, including, with respect to non-U.S. residents, to the United States, to transferees who shall include the Company and other persons designated by the Company to administer the Plan.
|
|
Consent to Electronic Delivery
|
Certain statutory materials relating to the Plan may be delivered to you in electronic form. By accepting this grant, you consent to electronic delivery and acknowledge receipt of these materials, including the Plan and the Plan prospectus.
|
|
Non-Qualified Stock Option
|
This Option is not intended to be an “incentive stock option” under Section 422 of the Internal Revenue Code of 1986, as amended, and will be interpreted accordingly.
|
Award of Restricted Stock
|
You have been granted ________ shares of Restricted Stock, subject to the terms and conditions of this Agreement and the Plan.
|
||
Grant Date
|
The effective date of this grant of Restricted Stock is _______ ____, 20__ (“Grant Date”).
|
||
Vesting
|
Your award of Restricted Stock shall vest in four equal installments of 25% on each of the first, second, third and fourth anniversaries of the Grant Date, provided you remain in Service (as defined below) on the vesting date.
“Service” means that you are currently an employee of the Company, are a member of the Company’s Board of Directors, or are otherwise providing services to the Company.
|
||
Restricted Stock Ownership and Transferability
|
Subject to the restrictions set forth in the Plan and this Agreement, the Award holder shall possess all incidents of ownership of the Restricted Stock granted hereunder, including the right to receive dividends with respect to such Restricted Stock and the right to vote such Restricted Stock.
Restricted Stock may not be transferred, assigned, pledged or hypothecated, whether by operation of law or otherwise (except by the laws of descent and distribution) nor may shares of Restricted Stock be made subject to execution, attachment or similar process.
|
||
Forfeiture of Unvested
Restricted Stock
|
Except as specifically provided in this Agreement or as may be provided in other agreements between you and the Company, no additional shares of Restricted Stock will vest after your Service has terminated for any reason and you will forfeit to the Company all of the Restricted Stock not yet vested or with respect to which all applicable restrictions and conditions have not lapsed.
|
||
Retirement
|
If you have been employed by the Company for at least five years and your Service terminates due to your: (i) retirement on or after your sixty-fifth birthday; or (ii) retirement on or after your fifty-fifth birthday with the consent of the Company, the Restricted Stock granted under this Agreement will automatically vest as to the number of Restricted Stock that would have vested had you remained in Service for the 12 month period immediately following your retirement.
|
Death
|
If your Service terminates because of your death, the Restricted Stock granted under this Agreement will automatically vest as to the number of Restricted Stock that would have vested had you remained in Service for the 12 month period immediately following your death.
|
||
Disability
|
If your Service terminates because of your Disability (as defined below), the Restricted Stock granted under this Agreement will automatically vest as to the number of Restricted Stock that would have vested had you remained in Service for the 12 month period immediately following your termination for Disability.
For purposes of this Agreement, “Disability” shall mean the Award holder is unable to perform the duties of their Service (or other services) (i) for a period of 90 consecutive days, or (ii) any 120 days during any consecutive 12 month period.
|
||
Termination For Cause
|
If your Service is terminated for Cause (as defined below), then you shall immediately forfeit all rights to your vested (but undelivered) and unvested Restricted Stock and this award shall immediately terminate.
For purposes of this Agreement, “Cause” shall mean (a) willful misconduct or gross negligence; (b) conviction of a felony or conviction of a crime involving moral turpitude; (c) any act constituting fraud or the misappropriation or embezzlement of money or other property of the Company; and (d) any willful act or course of conduct constituting an abuse of office or authority which has a material adverse impact on the Company’s reputation or financial condition.
|
||
Termination without Cause within 12 Months of Change in Control
|
If your Service with the Company (or any affiliate) is terminated by the Company without Cause within 12 months following the effective date of a “Change of Control,” the Board of Directors may accelerate the vesting of any award of Restricted Stock held by you.
For purposes of this Agreement: “Change in Control” shall mean:
(i) any “person” (as such term is used in Section 13(d) and 14(d)(2) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), including any syndicate or group deemed to be a “person” under Section 13(d)(3) of the Exchange Act) other than Barry Zyskind, George Karfunkel, Michael Karfunkel, any lineal descendants, any trust or charitable foundation controlled by any of them or their lineal descendants, any subsidiary or any employee benefit plan of the Company or a subsidiary or former subsidiary, is or becomes a beneficial owner, directly or indirectly, of stock of the Company representing 50% of more of the total voting power of the Company’s then outstanding stock;
(ii) a tender offer (for which a filing has been made with the Securities and Exchange Commission (the “SEC”) that purports to comply with the requirements of Section 14(d) of the Exchange Act, and the corresponding SEC rules) is made for the stock of the Company. In case of a tender offer described in this paragraph (ii), the “Change of Control” will be deemed to have occurred any time during the offer when the person (using the definition in (i) above) making the offer owns or has accepted for payment stock of the Company with 50% or more of the total voting power of the Company's outstanding stock; or
(iii) individuals who were the Board’s nominees for election as directors of the Company immediately prior to a meeting of the stockholders of the Company involving a contest for the election of directors shall not constitute a majority of the Board following the election.
|
Certificate; Book Entry Form; Legend
|
The Company shall issue the shares of Restricted Stock either (i) in certificate form or (ii) in book entry form, registered in the name of the Award holder, with legends, or notations, as applicable, referring to the terms, conditions, and restrictions applicable to the Award. Any certificate issued for Restricted Stock prior to vesting will be inscribed with the following legend:
“The transferability of this certificate and the shares of stock represented hereby are subject to the terms and conditions (including forfeiture) relating to Restricted Stock contained in the AmTrust Financial Services, Inc. 2010 Omnibus Incentive Plan and an Agreement entered into between the registered owner and AmTrust Financial Services, Inc. Copies of such Plan and Agreement are on file at the principal office of AmTrust Financial Services, Inc.”
|
||
Escrow
|
Any Restricted Stock issued pursuant to this Award shall be held by the Company in escrow for the benefit of the Award recipient. Upon vesting, a certificate for the vested shares shall be issued to the Award holder free of the restrictive legend.
|
||
Vesting: Delivery of Shares
|
Upon vesting, restrictions related to the vested shares of Restricted stock shall lapse and the Company shall, as applicable, either remove the notations on such vested shares issued in book-entry form or deliver to the Award holder or their personal representative a stock certificate representing the number of shares of Stock, free of any restrictive legend, equal to the number of vested shares. If certificates representing such Restricted Stock had previously been delivered to you, you shall return such certificates to the Company, complete with any necessary signatures or instruments of transfer prior to the issuance by the Company of shares of Stock without the restrictive legend.
|
Income Taxes
|
(a) You shall pay to the Company promptly upon request, and in any event at the time you recognize taxable income in respect of the Restricted Stock (whether in connection with the grant or vesting of the Restricted Stock, the making of an election under Section 83(b) of the Code in connection with the Award as described below or otherwise), an amount equal to the taxes the Company determines it is required to withhold under applicable tax laws with respect to the Restricted Stock. Such payment may be made by any of, or a combination of, the following methods: (i) cash or check; (ii) out of your current compensation; (iii) in the sole discretion of the Company, by surrender of other shares of Common Stock of the Company that (a) in the case of shares initially acquired from the Company (upon exercise of a stock option or otherwise), have been owned by you for such period, if any, as may be required to avoid a charge to the Company’s earnings and (b) have a Fair Market Value on the date of surrender equal to the amount required to be withheld; or (iv) in the sole discretion of the Company, by electing to have the Company withhold or otherwise reacquire from you shares of Restricted Stock that vest pursuant to the terms hereof having a Fair Market Value equal to the minimum statutory amount required to be withheld in connection with the vesting of such shares. For these purposes, the Fair Market Value of the shares to be withheld or repurchased, as applicable, shall be determined on the date that the amount of the tax to be withheld is to be determined (the “Tax Date”).
All elections by you to have the shares withheld or repurchased to satisfy tax obligations shall be made in writing in a form acceptable to the Company and shall be subject to the following restrictions:
(i) the election must be made on or prior to the applicable Tax Date;
(ii) once made, the election shall be irrevocable as to the particular shares as to which the election is made and you acknowledge that this irrevocable written instruction is intended to constitute an instruction pursuant to Rule 10b5-1 of the Exchange Act;
(iii) all elections shall be subject to the consent or disapproval of the Company; and
(iv) If you are subject to Section 16 of the Exchange Act, the election must comply with the applicable provisions of Rule 16(b)-3 promulgated under the Exchange Act and shall be subject to such additional conditions or restrictions as may be required thereunder to qualify for the maximum exemption from Section 16 of the Exchange Act with respect to Plan transactions.
|
||
(b) Section 83(b) Election. You hereby acknowledge that you may file an election pursuant to Section 83(b) of the Code to be taxed currently on the fair market value of the shares of Restricted Stock (less any purchase price paid for the shares), provided that such election must be filed with the Internal Revenue Service no later than thirty (30) days after the date of the Award. You will seek the advice of your own tax advisors as to the advisability of making such a Section 83(b) election, the potential consequences of making such an election, and the other tax consequences of the Award under federal, state, and any other laws that may be applicable. The Company and its affiliates and agents have not and are not providing any tax advice to you.
|
Recapture Rights
|
In the event that you violate any of your obligations pursuant to the Confidentiality, Non-Competition, or Non-Solicitation provisions of this Agreement, you agree to return to the Company, within five days of receipt of written demand from the Company, any gains you realize from the sale of all or any portion of the Restricted Stock during the 12 months immediately preceding such violation, and any remaining unsold portion of your Restricted Stock shall be immediately and totally forfeited.
|
||
Confidentiality
|
During your Service, you will have access to confidential or proprietary data or information of the Company (and its affiliates) and its operations. You agree not to at any time divulge or communicate the Confidential Information (defined below) to any person, nor shall you direct any employee to divulge or communicate to any person (other than to a person bound by confidentiality obligations similar to those contained herein and other than as necessary in performing your duties hereunder), or use to the detriment of the Company (or any of its affiliates) or for the benefit of any other person, any Confidential Information. This restriction shall survive your Service hereunder, whether by the normal expiration thereof or otherwise.
The term “Confidential Information” shall mean all information, whether or not reduced to written or recorded form, that is related to the Company and that is not generally known or accessible to members of the public and/or competitors of the Company nor intended for general dissemination, whether furnished by the Company or compiled by the employee, including, without limitation, relating to the Company’s (or any affiliate’s) financial performance, customers, existing or proposed future projects, prospects, or business strategies, personnel information, financial information, customer lists, supplier lists, trade secrets, information regarding operations, systems, services, know-how, computer and any other processed or collated data, computer programs, pricing, marketing and advertising data.
You understand the Company intends to maintain the confidentiality of the Confidential Information notwithstanding that employees of the Company may have free access to the information for the purpose of performing their duties with the Company, and notwithstanding that employees not expressly bound by agreements similar to this agreement may have access to such information for job purposes. You acknowledge that Confidential Information need not be marked as such to preserve the confidential nature of the information.
|
Non-Competition
|
You acknowledge that (a) in the course of your Service with the Company and its affiliates, you have, and will continue to, become familiar with the Company’s and its affiliates’ trade secrets, methods of doing business, business plans and other valuable confidential and proprietary information concerning the Company, its affiliates, their customers and business partners and that your services have been and will be of special, unique and extraordinary value to the Company and its affiliates. In consideration thereof and of this Award, during your Service with the Company or an affiliate and for a period of one (1) year thereafter, you shall not, without the Company’s prior written approval, become engaged, directly or indirectly, as a director, officer, employee or 5% or more stockholder or equity interest owner in, partner in, or consultant to, any business that is directly competitive with the business of the Company (or any affiliate) in any area or region where the Company (or any affiliate) conducts business (“Competition”). Notwithstanding the foregoing, you shall not be deemed to be in Competition with the Company if you provide evidence satisfactory to the Company, in its sole and absolute discretion, that you: (i) work in a separate division, department or unit that does not compete with the business of the Company (or any affiliate); and (ii) will not have contact with the division, department or unit that does compete with the business of the Company (or any affiliate). If you received your Restricted Stock grant as a non-employee member of the Company’s Board of Directors, this provision will not apply to you unless your Service is terminated for Cause (as defined above) or for cause pursuant to the Company’s Certificate of Incorporation.
|
||
Non-Solicitation
|
During Service and for a period of two (2) years thereafter, you shall not, without the prior written consent of the Company, directly or indirectly, on your own behalf or on behalf of any other person, firm, corporation or business entity: (a) induce or attempt to induce any agent, affinity group or policyholder of the Company (or any affiliate), or any prior agent, affinity group or policyholder that was an agent, broker, affinity group or policyholder within twelve (12) months of such contact, to withdraw, decrease or cancel its business with the Company (or any affiliate) or otherwise terminate any written or oral agreement or understanding or other relationship with the Company (or any affiliate); (b) solicit or attempt to solicit, service or attempt to service, or for the purpose of obtaining the business of any customer of the Company (or any affiliate), or any prior agent, affinity group or policyholder that was an agent, broker, affinity group or policyholder within twelve (12) months of such contact, to the extent the business solicited is similar to, or competitive with, the business of the Company (or any affiliate), engage in discussions or other communications with (regardless of who initiates such discussions or communications) any person, firm or entity that was an actual or prospective agent, broker, affinity group or policyholder of the Company during any part of the twelve (12) month period immediately preceding termination of Service if you participated, directly or indirectly, in the solicitation or servicing of that agent, broker, affinity group or policyholder or prospective agent, broker, affinity group or policyholder, or supervised or managed those who did, during your Service with the Company at any time during such twelve (12) month period immediately preceding your termination of Service; (c) solicit or attempt to solicit, hire or attempt to hire, or communicate with, any person who is an employee, individual consultant or independent contractor of the Company (or any affiliate), or any prior employee, individual consultant or independent contractor that was an employee, consultant or independent contractor within twelve (12) months of such contact, with the purpose or intent of attracting such person from the employ of the Company (or any affiliate); or (d) induce or attempt to induce any person who is an employee, individual consultant or independent contractor of the Company (or any affiliate) to terminate or limit his or her Service or other relationship with the Company (or any affiliate), or any prior employee, individual consultant or independent contractor that was an employee, individual consultant or independent contractor within twelve (12) months of such contact.
|
No Right to Employment
|
Neither your Restricted Stock nor this Agreement give you the right to be retained by the Company in any capacity and your Service may be terminated at any time and for any reason.
|
||
Shareholder Rights
|
You have no rights as a shareholder unless and until the Stock relating to the Restricted Stock has been issued to you (or an appropriate book entry has been made). Except as described in the Plan or herein, no adjustments are made for dividends or other rights if the applicable record date occurs before your Stock is issued (or an appropriate book entry has been made). If the Company pays a dividend on its Stock, you will, however, be entitled to receive a cash payment equal to the per-share dividend paid on the Stock times the number of Restricted Stock that you hold as of the record date for the dividend.
|
||
Applicable Law
|
This Agreement shall be governed by the laws of the State of Delaware, with consent to jurisdiction by you in the State of New York.
|
||
Data Privacy
|
To administer the Plan, the Company may process personal data about you. Such data includes the information provided in this Agreement, other appropriate personal and financial data about you such as home address and business addresses and other contact information, payroll information and any other information deemed appropriate by the Company to facilitate the administration of the Plan.
By accepting this award, you consent to the Company’s processing of such personal data and the transfer of such data outside the country in which you work or are employed, including, with respect to non-U.S. residents, to the United States, to transferees who shall include the Company and other persons designated by the Company to administer the Plan.
|
||
Consent to Electronic Delivery
|
Certain statutory materials relating to the Plan may be delivered to you in electronic form. By accepting this grant, you consent to electronic delivery and acknowledge receipt of these materials, including the Plan and the Plan prospectus.
|
||
Award of RSUs
|
You have been granted ________ RSUs, subject to the terms and conditions of this Agreement and the Plan.
|
||
Grant Date
|
The effective date of this grant of RSUs is _______ ____, 20__ (“Grant Date”).
|
||
Vesting
|
RSUs shall vest in four equal installments of 25% on each of the first, second, third and fourth anniversaries of the Grant Date, provided you remain in Service (as defined below) on the vesting date.
“Service” means that you are currently an employee of the Company, are a member of the Company’s Board of Directors, or are otherwise providing services to the Company.
|
||
RSU Transferability
|
RSUs may not be transferred, assigned, pledged or hypothecated, whether by operation of law or otherwise, nor may the RSUs be made subject to execution, attachment or similar process.
|
||
Forfeiture of Unvested
RSUS
|
Except as specifically provided in this Agreement or as may be provided in other agreements between you and the Company, no additional RSUs will vest after your Service has terminated for any reason and you will forfeit to the Company all of the RSUs that have not yet vested or with respect to which all applicable restrictions and conditions have not lapsed.
|
||
Retirement
|
If you have been employed by the Company for at least five years and your Service terminates due to your: (i) retirement on or after your sixty-fifth birthday; or (ii) retirement on or after your fifty-fifth birthday with the consent of the Company, the RSUs granted under this Agreement will automatically vest as to the number of RSUs that would have vested had you remained in Service for the 12 month period immediately following your retirement.
|
||
Death
|
If your Service terminates because of your death, the RSUs granted under this Agreement will automatically vest as to the number of RSUs that would have vested had you remained in Service for the 12 month period immediately following your death.
|
Disability
|
If your Service terminates because of your Disability (as defined below), the RSUs granted under this Agreement will automatically vest as to the number of RSUs that would have vested had you remained in Service for the 12 month period immediately following your termination for Disability.
For purposes of this Agreement, “Disability” shall mean the Award holder is unable to perform the duties of their Service (or other services) (i) for a period of 90 consecutive days, or (ii) any 120 days during any consecutive 12 month period.
|
||
Termination For Cause
|
If your Service is terminated for Cause (as defined below), then you shall immediately forfeit all rights to your vested (but undelivered) and unvested RSUs and this award shall immediately terminate.
For purposes of this Agreement, “Cause” shall mean (a) willful misconduct or gross negligence; (b) conviction of a felony or conviction of a crime involving moral turpitude; (c) any act constituting fraud or the misappropriation or embezzlement of money or other property of the Company; and (d) any willful act or course of conduct constituting an abuse of office or authority which has a material adverse impact on the Company’s reputation or financial condition.
|
||
Termination without
Cause within 12 Months of
Change in Control
|
If your Service with the Company (or any affiliate) is terminated by the Company without Cause within 12 months following the effective date of a “Change of Control,” the Board of Directors may accelerate the vesting of all or any portion of this RSUs award.
For purposes of this Agreement: “Change in Control” shall mean:
(i) any “person” (as such term is used in Section 13(d) and 14(d)(2) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), including any syndicate or group deemed to be a “person” under Section 13(d)(3) of the Exchange Act) other than Barry Zyskind, George Karfunkel, Michael Karfunkel, any of their lineal descendants, any trust or charitable foundation controlled by any of them or their lineal descendants, any subsidiary or any employee benefit plan of the Company or a subsidiary or former subsidiary, is or becomes a beneficial owner, directly or indirectly, of stock of the Company representing 50% of more of the total voting power of the Company’s then outstanding stock;
(ii) a tender offer (for which a filing has been made with the Securities and Exchange Commission (the “SEC”) that purports to comply with the requirements of Section 14(d) of the Exchange Act, and the corresponding SEC rules) is made for the stock of the Company. In case of a tender offer described in this paragraph (ii), the “Change of Control” will be deemed to have occurred any time during the offer when the person (using the definition in (i) above) making the offer owns or has accepted for payment stock of the Company with 50% or more of the total voting power of the Company's outstanding stock; or
(iii) individuals who were the Board’s nominees for election as directors of the Company immediately prior to a meeting of the stockholders of the Company involving a contest for the election of directors shall not constitute a majority of the Board following the election.
|
Share Delivery Pursuant to Vested Units; Withholding Tax
|
On the vesting date (or as soon as practicable thereafter but in no event beyond 2½ months after the end of the calendar year in which the shares vest), at the Company’s option, (i) a brokerage account in your name will be credited with Stock representing the number of shares that vested under this grant (the “Vesting Shares”), or (ii) the Company shall physically deliver the Vesting Shares. If the vesting date is not a trading day, the Stock will be delivered on the next trading day. The Company will determine the number of the Vesting Shares necessary to cover the statutory minimum amount of federal, state, local, and foreign taxes that the Company is required to withhold with respect to the RSU vesting, rounding up to the nearest whole Share of Stock (the “Withholding Shares”).
|
||
By accepting this award of RSUs, you irrevocably (i) instruct the Company to deliver the Vesting Shares to your account; and (ii) authorize and direct the Company to withhold or otherwise reacquire from you the Withholding Shares at the time of vesting to be used to fund the payment of the withholding taxes. You further acknowledge that this irrevocable written instruction is intended to constitute an instruction pursuant to Rule 10b5-1 of the Exchange Act.
|
|||
The purchase price for the vested Stock is deemed paid by your prior services to the Company.
Withholding shall only be applicable to employees of the Company.
|
|||
Recapture Rights
|
In the event that you violate any of your obligations pursuant to the Confidentiality, Non-Competition, or Non-Solicitation provisions of this Agreement, you agree to return to the Company, within five days of receipt of written demand from the Company, any gains you realize from the sale of all or any portion of the RSUs during the 12 months immediately preceding such violation, and any remaining unsold portion of your RSUs shall be immediately and totally forfeited.
|
Confidentiality
|
During your Service, you will have access to confidential or proprietary data or information of the Company (and its affiliates) and its operations. You agree that you will not at any time divulge or communicate the Confidential Information (defined below) to any person, nor shall you direct any employee to divulge or communicate to any person (other than to a person bound by confidentiality obligations similar to those contained herein and other than as necessary in performing your duties hereunder), or use to the detriment of the Company (or any of its affiliates) or for the benefit of any other person, any Confidential Information. This restriction shall survive your Service hereunder, whether by the normal expiration thereof or otherwise.
The term “Confidential Information” shall mean all information, whether or not reduced to written or recorded form, that is related to the Company and that is not generally known or accessible to members of the public and/or competitors of the Company nor intended for general dissemination, whether furnished by the Company or compiled by the employee, including, without limitation, relating to the Company’s (or any affiliate’s) financial performance, customers, existing or proposed future projects, prospects, or business strategies, personnel information, financial information, customer lists, supplier lists, trade secrets, information regarding operations, systems, services, know-how, computer and any other processed or collated data, computer programs, pricing, marketing and advertising data.
You understand the Company intends to maintain the confidentiality of the Confidential Information notwithstanding that employees of the Company may have free access to the information for the purpose of performing their duties with the Company, and notwithstanding that employees not expressly bound by agreements similar to this agreement may have access to such information for job purposes. You acknowledge that Confidential Information need not be marked as such to preserve the confidential nature of the information.
|
||
Non-Competition
|
You acknowledge that (a) in the course of your Service with the Company and its affiliates, you have, and will continue to, become familiar with the Company’s and its affiliates’ trade secrets, methods of doing business, business plans and other valuable confidential and proprietary information concerning the Company, its affiliates, their customers and business partners and that your services have been and will be of special, unique and extraordinary value to the Company and its affiliates. In consideration thereof and of this Award, during your Service with the Company or an affiliate and for a period of one (1) year thereafter, you shall not, without the Company’s prior written approval, become engaged, directly or indirectly, as a director, officer, employee or 5% or more stockholder or equity interest owner in, partner in, or consultant to, any business that is directly competitive with the business of the Company (or any affiliate) in any area or region where the Company (or any affiliate) conducts business (“Competition”). Notwithstanding the foregoing, you shall not be deemed to be in Competition with the Company if you provide evidence satisfactory to the Company, in its sole and absolute discretion, that you: (i) work in a separate division, department or unit that does not compete with the business of the Company (or any affiliate); and (ii) will not have contact with the division, department or unit that does compete with the business of the Company (or any affiliate). If you received your RSU grant as a non-employee member of the Company’s Board of Directors, this provision will not apply to you unless your Service is terminated for Cause (as defined above) or for cause pursuant to the Company’s Certificate of Incorporation.
|
Non-Solicitation
|
During Service and for a period of two (2) years thereafter, you shall not, without the prior written consent of the Company, directly or indirectly, on your own behalf or on behalf of any other person, firm, corporation or business entity: (a) induce or attempt to induce any agent, affinity group or policyholder of the Company (or any affiliate), or any prior agent, broker, affinity group or policyholder that was an agent, affinity group or policyholder within twelve (12) months of such contact, to withdraw, decrease or cancel its business with the Company (or any affiliate) or otherwise terminate any written or oral agreement or understanding or other relationship with the Company (or any affiliate); (b) solicit or attempt to solicit, service or attempt to service, or for the purpose of obtaining the business of any agent, broker, affinity group or policyholder of the Company (or any affiliate), or any prior agent, affinity group or policyholder that was an agent, affinity group or policyholder within twelve (12) months of such contact, to the extent the business solicited is similar to, or competitive with, the business of the Company (or any affiliate), engage in discussions or other communications with (regardless of who initiates such discussions or communications) any person, firm or entity that was an actual or prospective agent, broker, affinity group or policyholder of the Company during any part of the twelve (12) month period immediately preceding termination of Service if you participated, directly or indirectly, in the solicitation or servicing of that agent, broker, affinity group or policyholder or prospective agent, broker, affinity group or policyholder, or supervised or managed those who did, during your Service with the Company at any time during such twelve (12) month period immediately preceding your termination of Service; (c) solicit or attempt to solicit, hire or attempt to hire, or communicate with, any person who is an employee, individual consultant or independent contractor of the Company (or any affiliate), or any prior employee, individual consultant or independent contractor that was an employee, consultant or independent contractor within twelve (12) months of such contact, with the purpose or intent of attracting such person from the employ of the Company (or any affiliate); or (d) induce or attempt to induce any person who is an employee, individual consultant or independent contractor of the Company (or any affiliate) to terminate or limit his or her Service or other relationship with the Company (or any affiliate), or any prior employee, individual consultant or independent contractor that was an employee, individual consultant or independent contractor within twelve (12) months of such contact.
|
||
No Right to Employment
|
Neither your RSUs nor this Agreement give you the right to be retained by the Company in any capacity and your Service may be terminated at any time and for any reason.
|
Shareholder Rights
|
You have no rights as a shareholder unless and until the Stock relating to the RSUs has been issued to you (or an appropriate book entry has been made). Except as described in the Plan or herein, no adjustments are made for dividends or other rights if the applicable record date occurs before your Stock is issued (or an appropriate book entry has been made).
You will not be entitled to any dividends on any unvested RSUs.
|
||
Applicable Law
|
This Agreement shall be governed by the laws of the State of Delaware, with consent to jurisdiction by you in the State of New York.
|
||
Data Privacy
|
To administer the Plan, the Company may process personal data about you. Such data includes the information provided in this Agreement, other appropriate personal and financial data about you such as home address and business addresses and other contact information, payroll information and any other information deemed appropriate by the Company to facilitate the administration of the Plan.
By accepting this award, you consent to the Company’s processing of such personal data and the transfer of such data outside the country in which you work or are employed, including, with respect to non-U.S. residents, to the United States, to transferees who shall include the Company and other persons designated by the Company to administer the Plan and the Plan prospectus.
|
||
Consent to Electronic Delivery
|
Certain statutory materials relating to the Plan may be delivered to you in electronic form. By accepting this grant, you consent to electronic delivery and acknowledge receipt of these materials, including the Plan.
|
|
1.
|
I have reviewed this Quarterly Report on Form 10-Q of AmTrust Financial Services, Inc.;
|
|
2.
|
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
|
|
3.
|
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
|
|
4.
|
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
|
|
(a)
|
designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
|
|
(b)
|
designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
|
|
(c)
|
evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
|
|
(d)
|
disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
|
|
5.
|
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
|
|
(a)
|
all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
|
|
(b)
|
any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
|
Dated: November 9, 2011
|
By:
|
/s/ Barry Zyskind
|
Barry Zyskind
|
||
President and Chief Executive Officer
|
||
(Principal Executive Officer)
|
|
1.
|
I have reviewed this Quarterly Report on Form 10-Q of AmTrust Financial Services, Inc.;
|
|
2.
|
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
|
|
3.
|
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
|
|
4.
|
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
|
|
(a)
|
designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
|
|
(b)
|
designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
|
|
(c)
|
evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
|
|
(d)
|
disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of the annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
|
|
5.
|
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
|
|
(a)
|
all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
|
|
(b)
|
any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
|
Dated: November 9, 2011
|
By:
|
/s/ Ronald Pipoly
|
Ronald Pipoly
|
||
Chief Financial Officer
|
||
(Principal Financial and Accounting Officer)
|
|
1.
|
The Quarterly Report on Form 10-Q for the quarter ended September 30, 2011 (the “Report”) fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
|
|
2.
|
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
|
Date: November 9, 2011
|
By:
|
/s/ Barry Zyskind
|
Barry Zyskind
|
||
President and Chief Executive Officer
|
||
(Principal Executive Officer)
|
|
1.
|
The Quarterly Report on Form 10-Q for the quarter ended September 30, 2011 (the “Report”) fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
|
|
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
|
Date: November 9, 2011
|
By:
|
/s/ Ronald Pipoly
|
Ronald Pipoly
|
||
Chief Financial Officer
|
||
(Principal Financial and Accounting Officer)
|
Condensed Consolidated Balance Sheets (Parenthetical) (USD $) In Thousands, except Per Share data | Sep. 30, 2011 | Dec. 31, 2010 |
---|---|---|
Fixed maturities, available-for-sale, amortized cost | $ 1,391,104 | $ 1,192,844 |
Equity securities, available-for-sale, cost | 38,409 | 18,577 |
Non interest bearing note payable, unamortized discount | 221 | 600 |
Common stock, par value | $ 0.01 | $ 0.01 |
Common stock, shares authorized | 100,000 | 100,000 |
Common stock, issued | 84,768 | 84,381 |
Common stock, outstanding | 59,968 | 59,565 |
Preferred stock, par value | $ 0.01 | $ 0.01 |
Preferred stock, shares authorized | 10,000 | 10,000 |
Treasury stock at cost, shares | 24,800 | 24,816 |
Reinsurance recoverable | 1,043,065 | 775,432 |
Prepaid reinsurance premium | 541,125 | 484,960 |
Ceded reinsurance premiums payable | 296,593 | 266,314 |
Related Party Transactions | ||
Reinsurance recoverable | 458,855 | 386,932 |
Prepaid reinsurance premium | 346,586 | 283,899 |
Ceded reinsurance premiums payable | $ 147,171 | $ 95,629 |
Document and Entity Information | 9 Months Ended | |
---|---|---|
Sep. 30, 2011 | Nov. 01, 2011 | |
Document Type | 10-Q | |
Amendment Flag | false | |
Document Period End Date | Sep. 30, 2011 | |
Document Fiscal Year Focus | 2011 | |
Document Fiscal Period Focus | Q3 | |
Trading Symbol | AFSI | |
Entity Registrant Name | AMTRUST FINANCIAL SERVICES, INC. | |
Entity Central Index Key | 0001365555 | |
Current Fiscal Year End Date | --12-31 | |
Entity Filer Category | Accelerated Filer | |
Entity Common Stock, Shares Outstanding | 59,990,443 |
"+ text.join( "
\n" ) +"
" + text[p] + "
\n"; } } }else{ formatted = '' + raw + '
'; } html = ''+ "\n"+''+ "\n"+''+ "\n"+' formatted: '+ ( this.Default == 'raw' ? 'as Filed' : 'with Text Wrapped' ) +''+ "\n"+' | '+ "\n"+'
'+ "\n"+' | '+ "\n"+' '+ "\n"+'
'+ "\n"+' | '+ "\n"+' '+ "\n"+'
Acquisition Costs and Other Underwriting Expenses | 9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Sep. 30, 2011 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Acquisition Costs and Other Underwriting Expenses |
The
following table summarizes the components of acquisition costs and
other underwriting expenses for the three and nine months ended
September 30, 2011 and 2010:
|
Related Party Transactions | 9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Sep. 30, 2011 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Related Party Transactions |
Maiden
The
Company has various reinsurance and service agreements with Maiden
Holdings, Ltd. (“Maiden”). Maiden is a
publicly-held Bermuda insurance holding company (Nasdaq: MHLD)
formed by Michael Karfunkel, George Karfunkel and Barry Zyskind,
the principal shareholders, and, respectively, the chairman of the
board of directors, a director, and the chief executive officer and
director of the Company. As of September 30, 2011, Michael
Karfunkel owns or controls approximately 13.9% of the issued and
outstanding capital stock of Maiden, George Karfunkel owns or
controls approximately 9.4% of the issued and outstanding capital
stock of Maiden and Mr. Zyskind owns or controls approximately 5.1%
of the issued and outstanding stock of Maiden. Mr. Zyskind serves
as the non-executive chairman of the board of Maiden’s board
of directors. Maiden Insurance Company, Ltd (“Maiden
Insurance”), a wholly-owned subsidiary of Maiden, is a
Bermuda reinsurer. The following section describes the
agreements in place between the Company and its subsidiaries and
Maiden and its subsidiaries.
Reinsurance Agreements
During
the third quarter of 2007, the Company and Maiden entered into a
master agreement, as amended, by which the parties caused the
Company’s Bermuda subsidiary, AmTrust International
Insurance, Ltd. (“AII”) and Maiden Insurance to enter
into a quota share reinsurance agreement (the “Maiden Quota
Share”), as amended, by which AII retrocedes to Maiden
Insurance an amount equal to 40% of the premium written by the
Company’s U.S., Irish and U.K. insurance companies (the
“AmTrust Ceding Insurers”), net of the cost of
unaffiliated inuring reinsurance (and in the case of the
Company’s U.K. insurance subsidiary, AmTrust Europe Ltd., net
of commissions) and 40% of losses, excluding certain specialty risk
programs that the Company commenced writing after the effective
date and risks, other than workers’ compensation risks and
certain business written by the Company’s Irish subsidiary,
AmTrust International Underwriters Limited (“AIU”), for
which the AmTrust Ceding Insurers’ net retention exceeds
$5,000 (“Covered Business”).
The
Maiden Quota Share, which had an initial term of three years, was
renewed through June 30, 2014 and will automatically renew for
successive three-year terms unless either AII or Maiden Insurance
notifies the other of its election not to renew not less than nine
months prior to the end of any such three-year term. In addition,
either party is entitled to terminate on thirty days’ notice
or less upon the occurrence of certain early termination events,
which include a default in payment, insolvency, change in control
of AII or Maiden Insurance, run-off, or a reduction of 50% or more
of the shareholders’ equity of Maiden Insurance or the
combined shareholders’ equity of AII and the AmTrust Ceding
Insurers.
Effective
April 1, 2011, the Maiden Quota Share, as amended, further provides
that AII receives a ceding commission of 30% of ceded written
premiums with respect to all Covered Business, except retail
commercial package business, for which the ceding commission
remains 34.375%. Commencing January 1, 2012, the ceding commission,
excluding the retail package business ceding commission (which
remains at 34.375%), will be adjusted to (a) 30% of ceded premium,
if the Specialty Risk and Extended Warranty subject premium,
excluding ceded premium related to our medical liability business
discussed below, is greater than or equal to 42% of the total
subject premium, (b) 30.5% of ceded premium, if the Specialty Risk
and Extended Warranty subject premium is less than 42% but greater
than or equal to 38%, or (c) 31% of ceded premium, if the Specialty
Risk and Extended Warranty subject premium is less than 38% of the
total subject premium. Prior to April 1, 2011, AII received a
ceding commission of 31% of ceded premiums with respect to all
Covered Business, except retail commercial package business, for
which the ceding commission was 34.375%.
Effective
April 1, 2011, the Company, through its subsidiaries AEL and AIU,
entered into a reinsurance agreement with Maiden Insurance by which
the Company cedes to Maiden Insurance 40% of its European medical
liability business, including business in force at April 1, 2011.
The quota share has an initial term of one year and can be
terminated at April 1, 2012 or any April 1 thereafter by either
party on four months’ notice. Maiden Insurance pays the
Company a 5% ceding commission, and the Company will earn a profit
commission of 50% of the amount by which the ceded loss ratio is
lower than 65%.
The
following is the effect on the Company’s balance sheet as of
September 30, 2011 and December 31, 2010 and the results of
operations for the three and nine months ended September 30, 2011
and 2010 related to the above reinsurance agreements:
In
conjunction with the Maiden Quota Share, AII entered into a loan
agreement with Maiden Insurance during the fourth quarter of 2007,
whereby Maiden Insurance loaned to AII the amount equal to its
quota share of the obligations of the AmTrust Ceding Insurers that
AII was then obligated to secure. The loan agreement provides for
interest at a rate of LIBOR plus 90 basis points and is payable on
a quarterly basis. Advances under the loan are secured by a
promissory note and totaled $167,975 as of September 30, 2011. The
Company recorded $1,431 and $982 of interest expense during the
nine months ended September 30, 2011 and 2010, respectively.
Effective December 1, 2008, AII and Maiden Insurance entered into a
Reinsurer Trust Assets Collateral agreement whereby Maiden
Insurance is required to provide AII the assets required to secure
Maiden’s proportionate share of the Company’s
obligations to its U.S. subsidiaries. The amount of this collateral
as of September 30, 2011 was approximately $434,000. Maiden retains
ownership of the collateral in the trust account.
Effective
September 1, 2010, the Company, through its subsidiary Technology
Insurance Company, Inc. (“TIC”), entered into a
quota share reinsurance agreement with Maiden Specialty Insurance
Company (“Maiden Specialty”) by which TIC assumes a
portion (generally 90%) of premiums and losses with respect to
certain surplus lines programs written by Maiden Specialty on
behalf of the Company (the “Surplus Lines Facility”).
The Surplus Lines Facility enables the Company to write business on
a surplus lines basis throughout the United States in states in
which it is otherwise unauthorized to write such business through
its own insurance company subsidiaries. Currently, the Company is
utilizing the Surplus Lines Facility for two programs for which
Maiden Specialty receives a five percent ceding commission on all
premiums ceded by Maiden Specialty to TIC. The Surplus Lines
Facility shall remain continuously in force until terminated.
The Company is actively pursuing surplus lines authority for two of
its insurance company subsidiaries, which would remove the need for
the Surplus Lines Facility. As a result of this agreement,
the Company assumed approximately $12,800 of written premium for
which it earned approximately $6,300 and incurred losses of
approximately $3,900 for the nine months ended September 30,
2011.
Effective
September 1, 2010, the Company, through its subsidiary, Security
National Insurance Company (“SNIC”), entered into a
reinsurance agreement with Maiden Reinsurance Company and an
unrelated third party. Under the agreement, which has a term of one
year, SNIC cedes 80% of the gross liabilities produced under the
Southern General Agency program to Maiden Reinsurance Company and
20% of the gross liabilities produced to the unrelated third party.
SNIC receives a five percent commission on ceded written
premiums. The Company ceded written premium of $333 and $448
for the three and nine months ended September 30, 2011 related to
this agreement for which the Company earned ceding commission of
$72 and $97 for the three and nine months ended September 30, 2011.
Reinsurance Brokerage Agreement
Effective
July 1, 2007, the Company, through a subsidiary, entered into a
reinsurance brokerage agreement with Maiden. Pursuant to the
brokerage agreement, the Company provides brokerage services
relating to the Maiden Quota Share for a fee equal to 1.25% of
reinsured premium. Effective April 1, 2011, the Company also
provides brokerage services to Maiden Insurance relating to the
reinsurance agreement on the European medical liability business
for a fee equal to 1.25% of reinsured premium. The Company
recorded $2,037 and $1,398 of brokerage commission (recorded as a
component of service and fee income) during the three months ended
September 30, 2011 and 2010, respectively and $6,295 and $4,253
during the nine months ended September 30, 2011 and 2010,
respectively.
Asset Management Agreement
Effective
July 1, 2007, the Company, through a subsidiary, entered into an
asset management agreement with Maiden, pursuant to which the
Company provides investment management services to Maiden and its
affiliates. The investment management services fee is 0.20% per
annum for periods in which average invested assets are $1,000,000
or less and 0.15% per annum for periods in which the average
invested assets exceed $1,000,000. As a result of this agreement,
the Company earned approximately $750 and $677 of investment
management fees (recorded as a component of service and fee income)
for the three months ended September 30, 2011 and 2010,
respectively and $2,251 and $2,018 for the nine months ended
September 30, 2011 and 2010, respectively.
Senior Notes
In
June 2011, the Company, through a subsidiary, participated as a
purchaser in a registered public offering by Maiden Holdings North
America, Ltd., a subsidiary of Maiden, for $12,500 of an aggregate
$107,500 principal amount of 8.25% Senior Notes due 2041 (the
“Notes”) that are fully and unconditionally guaranteed
by Maiden. The Notes are redeemable for cash, in whole or in
part, on or after June 15, 2016, at 100% of the principal amount of
the Notes to be redeemed plus accrued and unpaid interest to, but
not including, the redemption date. Maiden Holdings North
America, Ltd. issued the Notes to use the proceeds, together with
cash on hand, to repurchase, at 114% of the principal amount,
$107,500 of Maiden’s $260,000 outstanding trust preferred
securities, on a pro rata basis, to all of its trust preferred
securities holders. ACP Re, Ltd., an entity owned by a trust
controlled by Michael Karfunkel, the Company's Chairman of the
Board, accepted the offer to repurchase its $79,066 in principal
amount of trust preferred securities. The Company’s Audit
Committee reviewed and approved the Company’s participation
in this offering.
American Capital Acquisition Corporation
During
the three months ended March 31, 2010, the Company completed its
strategic investment in American Capital Acquisition Corporation
(“ACAC”). ACAC was formed by The Michael Karfunkel 2005
Grantor Retained Annuity Trust (the “Trust”) and the
Company for the purpose of acquiring from GMAC Insurance Holdings,
Inc. and Motor Insurance Corporation (“MIC”, together
with GMAC Insurance Holdings, Inc., “GMACI”),
GMACI’s U.S. consumer property and casualty insurance
business (the “GMACI Business”), a writer of automobile
coverages through independent agents in the United States. Its
coverages include standard/preferred auto, RVs, non-standard auto
and commercial auto. The acquisition included ten statutory
insurance companies (the “GMACI Insurers”). Michael
Karfunkel, individually, and the Trust, which is controlled by
Michael Karfunkel, own 100% of ACAC’s common stock (subject
to the Company’s conversion rights described below). Michael
Karfunkel is the chairman of the board of directors of the Company
and the father-in-law of Barry D. Zyskind, the chief executive
officer of the Company. The ultimate beneficiaries of the Trust
include Michael Karfunkel’s children, one of whom is married
to Mr. Zyskind. In addition, Michael Karfunkel is the Chairman of
the Board of Directors of ACAC.
Pursuant to the Amended Stock Purchase
Agreement, ACAC issued and sold to the Company for an initial
purchase price of approximately $53,000, which was equal to 25% of
the capital initially required by ACAC, 53,054 shares of Series A
Preferred Stock, which provides an 8% cumulative dividend, is
non-redeemable and is convertible, at the Company’s option,
into 21.25% of the issued and outstanding common stock of ACAC (the
“Preferred Stock”). The Company has pre-emptive rights
with respect to any future issuances of securities by ACAC and the
Company’s conversion rights are subject to customary
anti-dilution protections. The Company has the right to appoint two
members of ACAC’s board of directors, which consists of six
members. Subject to certain limitations, the board of directors of
ACAC may not take any action in the absence of the Company’s
appointees and ACAC may not take certain corporate actions without
the unanimous prior approval of its board of directors (including
the Company’s appointees).
The
Company, the Trust and Michael Karfunkel, individually, each shall
be required to make its or his proportionate share of deferred
payments payable by ACAC to GMACI pursuant to the GMACI Securities
Purchase Agreement, which are payable, annually on March 1 through
March 1, 2013, to the extent that ACAC is unable to otherwise
provide for such payments. The Company’s proportionate share
of such deferred payments will not exceed $15,000. In
addition, in connection with the Company’s investment, ACAC
will grant the Company a right of first refusal to purchase or to
reinsure commercial auto insurance business acquired from
GMACI.
In
accordance with ASC 323-10-15, Investments-Equity Method and
Joint Ventures, the Company accounts for its investment in
ACAC under the equity method. The Company recorded $(447) and
$4,172 of income (loss) during the three months ended September 30,
2011 and 2010, respectively and $6,753 and $12,641 during the nine
months ended September 30, 2011 and 2010, respectively related to
its equity investment in ACAC.
Personal Lines Quota Share
The
Company, effective March 1, 2010, reinsures 10% of the net premiums
of the GMACI Business, pursuant to a 50% quota share reinsurance
agreement (“Personal Lines Quota Share”) among the
GMACI Insurers, as cedents, and the Company, ACP Re, Ltd., a
Bermuda reinsurer that is a wholly-owned indirect subsidiary of the
Trust, and Maiden Insurance Company, Ltd., as reinsurers. The
Personal Lines Quota Share provides that the reinsurers, severally,
in accordance with their participation percentages, receive 50% of
the net premium of the GMACI Insurers and assume 50% of the related
net losses. The Company has a 20% participation in the
Personal Lines Quota Share, by which it receives 10% of the net
premiums of the personal lines business and assumes 10% of the
related net losses. The Personal Lines Quota Share has an initial
term of three years and will renew automatically for successive
three-year terms unless terminated by written notice not less than
nine months prior to the expiration of the current term. In
addition, either party is entitled to terminate on 60 days’
written notice or less upon the occurrence of certain early
termination events, which include a default in payment, insolvency,
change in control of the Company or the GMACI Insurers, run-off, or
a reduction of 50% or more of the shareholders’ equity.
The GMACI Insurers also may terminate on nine months’ written
notice following the effective date of an initial public offering
or private placement of stock by ACAC or a subsidiary. The Personal
Lines Quota Share provides that the reinsurers pay a provisional
ceding commission equal to 32.5% of ceded earned premium, net of
premiums ceded by the personal lines companies for inuring
reinsurance, subject to adjustment to a maximum of 34.5% if the
loss ratio for the reinsured business is 60.5% or less and a
minimum of 30.5% if the loss ratio is 64.5% or higher. The Personal
Lines Quota Share is subject to a premium cap that limits the
premium that could be ceded by the GMACI Insurers to TIC to
$121,000 during calendar year 2011 to the extent TIC was to
determine, in good faith, that it could not assume additional
premium. The premium cap increases by 10% per annum thereafter. As
a result of this agreement, the Company assumed $26,690 and
$24,523 of business from the GMACI Insurers during the
three months ended September 30, 2011 and 2010, respectively, and
$77,276 and $59,083 of business from the GMACI Insurers during the
nine months ended September 30, 2011 and 2010,
respectively.
Information Technology Services Agreement
The
Company provides ACAC and its affiliates information technology
development services at a price of cost plus 20%. In addition, as a
new system developed by the Company is implemented and ACAC or its
affiliates begin using the system in its operations, the Company is
receiving a license fee for use of the systems in the amount of
1.25% of gross premiums of ACAC and its affiliates plus our costs
for support services. The Company recorded approximately $1,007 and
$685 of fee income for the three months ended September 30, 2011
and 2010, respectively, and $2,364 and $1,307 of fee income for the
nine months ended September 30, 2011 and 2010, respectively,
related to this agreement. The terms and conditions of this
agreement are subject to regulatory approval.
Asset Management Agreement
The
Company manages the assets of ACAC and its subsidiaries for an
annual fee equal to 0.20% of the average aggregate value of the
assets under management for the preceding quarter if the average
aggregate value for the preceding quarter is $1,000,000 or less and
0.15% of the average aggregate value of the assets under management
for the preceding quarter if the average aggregate value for that
quarter is more than $1,000,000. As a result of this agreement, the
Company earned approximately $389 and $438 of investment management
fees for the three months ended September 30, 2011 and 2010,
respectively, and $1,170 and $1,021 of investment management fees
for the nine months ended September 30, 2011 and 2010,
respectively.
As
a result of the above service agreements with ACAC, the Company
recorded fees totaling approximately $1,396 and $1,123 for the
three months ended September 30, 2011 and 2010, and $3,534 and
$2,328 for the nine months ended September 30, 2011 and 2010,
respectively. As of September 30, 2011, the outstanding
balance payable by ACAC related to these service fees and
reimbursable costs was approximately $1,406.
800 Superior LLC
During
the third quarter of 2011, the Company formed 800 Superior, LLC
with a subsidiary of ACAC for the purposes of acquiring an office
building in Cleveland, Ohio. The Company and ACAC each have a fifty
percent ownership interest in 800 Superior, LLC. The cost of
the building was approximately $7,500. The Company has been
appointed managing member of the LLC. The Company’s
Audit Committee reviewed and approved this joint purchase with
ACAC. Additionally in conjunction with the Company’s
21.25% ownership percentage of ACAC, the Company ultimately
receives 60.6% of the profits and losses of the LLC. As such,
in accordance with ASC 810-10, Consolidation, the
Company has been deemed the primary beneficiary and, therefore,
consolidates this entity. The results of operations of the
LLC did not have a material impact on the Company’s results
of operations for the three months ended September 30,
2011.
Diversified
Diversified
Construction Management, LLC (“Diversified”) provided
construction management and general contractor services for a
Company subsidiary in 2011 and 2010. The Company recorded a total
of $52 and $0 for the three months ended September 30, 2011 and
2010, respectively and $195 and $345 for the nine months ended
September 30, 2011, for Diversified’s services in connection
with the construction project. Robert A. Saxon, Jr., a principal of
Diversified, is the brother of Michael J. Saxon, the
Company’s Chief Operating Officer. During several prior
years, Diversified provided similar services to the Company. In
March 2010, the Audit Committee ratified our existing contractual
relationship and approved the ongoing contractual relationship with
Diversified, including a determination that the contracts were not
less favorable to the Company than similar services provided at
arm's length.
Office Lease Agreements
In
January 2008, the Company entered into an amended agreement for its
office space at 59 Maiden Lane in New York, New York from 59 Maiden
Lane Associates, LLC, an entity that is wholly-owned by Michael
Karfunkel and George Karfunkel. The lease was amended such
that it increased the leased space to 14,807 square feet and
extended the lease through December 31, 2017. The
Company’s Audit Committee reviewed and approved the extension
of the lease. The Company paid approximately $184 and $226
for the lease for the three months ended September 30, 2011 and
2010, respectively and $529 and $554 for the nine months ended
September 30, 2011 and 2010, respectively.
In
January 2011, the Company entered into an amended agreement to
lease office space in Chicago, Illinois from 33 West Monroe
Associates, LLC, an entity that is wholly-owned by entities
controlled by Michael Karfunkel and George Karfunkel.
The lease was amended to increase the leased space to 9,030
square feet and extend the lease through October 31, 2017.
The Company’s Audit Committee reviewed and approved this
amended lease agreement. The Company paid approximately $65
and $54 for the three months ended September 30, 2011 and 2010,
respectively and $213 and $179 for the nine months ended September
30, 2011 and 2010, respectively.
Use of Company Aircraft
The
Company’s wholly-owned subsidiary, AmTrust Underwriters, Inc.
(“AUI”), is a party to an aircraft time share agreement
with each of Maiden and ACAC. The agreements provide for
payment to AUI for usage of its company-owned aircraft and covers
actual expenses incurred and permissible under federal aviation
regulations, including travel and lodging expenses of the crew,
in-flight catering, flight planning and weather contract services,
ground transportation, fuel, landing and hanger fees, airport
taxes, among others. AUI does not charge Maiden or ACAC for the
fixed costs that would be incurred in any event to operate the
aircraft (for example, aircraft purchase costs, insurance and
flight crew salaries). During the nine months ended September
30, 2011, Maiden and ACAC paid AUI $42 and $51, respectively, for
the use of AUI’s aircraft under these
agreements.
In
addition, for personal travel, Mr. Zyskind, the Company’s
President and Chief Executive Officer, entered into an aircraft
reimbursement agreement with AUI and, since entering into such
agreement, has fully reimbursed AUI for the incremental cost billed
by AUI for his personal use of AUI’s aircraft, which for the
nine months ended September 30, 2011 was $69. The
Company’s Audit Committee reviewed and approved the time
share and reimbursement agreements.
|
Recent Accounting Pronouncements | 9 Months Ended | |||
---|---|---|---|---|
Sep. 30, 2011 | ||||
Recent Accounting Pronouncements |
With
the exception of those discussed below, there have been no recent
accounting pronouncements or changes in accounting pronouncements
during the nine months ended September 30, 2011, as compared to
those described in our Annual Report on Form 10-K for the fiscal
year ended December 31, 2010, that are of significance, or
potential significance, to the Company.
In
September 2011, the Financial Accounting Standards Board
(“FASB”) issued Accounting Standards Update
(“ASU”) No. 2011-08 Intangibles-Goodwill and
Other (Topic 350). The updated guidance is intended to
reduce complexity and costs by allowing an entity the option to
make a qualitative evaluation about the likelihood of goodwill
impairment, using factors such as changes in management, key
personnel, business strategy, technology or customers, to determine
whether it should calculate the fair value of a reporting
unit. Previous accounting literature required an entity to
test goodwill for impairment by comparing the fair value of a
reporting unit with its carrying amount, including goodwill.
If the fair value of a reporting unit is less than its carrying
amount, then the second step of the test must be performed to
measure the amount of the impairment loss, if any. In the
second step, the implied fair value of the reporting unit’s
goodwill is determined in the same manner as goodwill is measured
in a business combination (by measuring the fair value of the
reporting unit’s assets, liabilities and unrecognized
intangible assets and determining the remaining amount ascribed to
goodwill) and comparing the amount of the implied goodwill to the
carrying amount of the goodwill. Under the updated guidance,
an entity is not required to calculate the fair value of a
reporting unit unless the entity determines that is more likely
than not that its fair value is less than its carrying
amount. This update is effective for annual and interim
goodwill impairment tests performed for fiscal years beginning
after December 31, 2011. Early adoption is permitted,
including for annual and interim goodwill impairment tests
performed for fiscal years beginning after September 15, 2011 if an
entity’s financial statements for the most recent annual or
interim period have not yet been issued. The Company is
currently assessing the impact of the adoption of this guidance,
but does not anticipate any material impact on its results of
operations, financial position or liquidity.
In
June 2011, the FASB issued ASU No. 2011-05 Comprehensive Income (Topic
220). This update requires that all non-owner charges
in stockholders’ equity be presented either in a single
continuous statement of comprehensive income or in two separate but
consecutive statements. In the two-step approach, the first
statement should present total net income and its components
followed consecutively by a second statement that should present
total other comprehensive income, the components of other
comprehensive income, and the total of comprehensive income.
The updated guidance is effective for fiscal years and interim
periods beginning on or after December 15, 2011 and is to be
applied on a retrospective basis to the beginning of the annual
period of adoption. Early adoption is permitted and the amendment
does not require any transition disclosure. The Company is
currently assessing the impact of the adoption of this guidance,
but does not anticipate any material impact on its results of
operations, financial position or liquidity.
In
May 2011, the FASB issued ASU No. 2011-04, Fair Value Measurement (Topic
820). The ASU generally aligns the principles for fair
value measurements and the related disclosure requirements under
GAAP and International Financial Reporting Standards
(“IFRS”). ASU 2011-04 changes certain fair value
measurement principles and enhances the disclosure requirements,
particularly for Level 3 fair value measurements. The
amendment is effective on a prospective basis for interim and
annual reporting periods beginning after December 15, 2011 and
early adoption is not permitted. The Company is currently
assessing the impact of the adoption of this guidance, but does not
anticipate any material impact on its results of operations,
financial position or liquidity.
On April 29, 2011, the FASB amended its
guidance on accounting for repurchase agreements. The amendments
eliminate the criteria to assess whether a transferor must have the
ability to repurchase or redeem the financial assets in order to
demonstrate effective control over the transferred asset. Under the
amended guidance, a transferor maintains effective control over
transferred financial assets (and thus accounts for the transfer as
a secured borrowing) if there is an agreement that both entitles
and obligates the transferor to repurchase the financial assets
before maturity and if all of the following conditions previously
required are met: (i) financial assets to be repurchased or
redeemed are the same or substantially the same as those
transferred; (ii) repurchase or redemption date before maturity at
a fixed or determinable price; and (iii) the agreement is entered
into contemporaneously with, or in contemplation of, the
transfer. As a result, more arrangements could be accounted
for as secured borrowings rather than sales. The updated
guidance is effective on a prospective basis for interim and annual
reporting periods beginning on or after December 15, 2011, and
early adoption is prohibited. The Company is currently evaluating
the impact of the adoption of this new guidance on its consolidated
results of operations and financial condition.
In
April 2011, the FASB issued updated guidance to clarify whether a
modification or restructuring of a receivable is considered a
troubled debt restructuring, i.e., whether the creditor has granted
a concession and whether the debtor is experiencing financial
difficulties. A modification or restructuring that is considered a
troubled debt restructuring will result in the creditor having to
account for the receivable as being impaired and will also result
in additional disclosure of the creditors’ troubled debt
restructuring activities. The updated guidance is effective for the
first interim period beginning on or after June 15, 2011 and is to
be applied on a retrospective basis to the beginning of the annual
period of adoption. The adoption of this guidance did not have a
material impact on the Company’s results of operations,
financial position or liquidity.
In
December 2010, the FASB issued authoritative guidance on disclosure
of supplementary pro forma information for business combinations.
The new guidance specifies that if a public entity presents
comparative financial statements, the entity should disclose
revenue and earnings of the combined entity as though the business
combination that occurred during the current year had occurred as
of the beginning of the comparable prior annual reporting period.
The new guidance became effective for the Company on January 1,
2011. The adoption of this guidance did not have a material impact
on the Company’s results of operations, financial position or
liquidity.
In
October 2010, the FASB issued updated guidance to address the
diversity in practice for the accounting for costs associated with
acquiring or renewing insurance contracts. This guidance modifies
the definition of acquisition costs to specify that a cost must be
directly related to the successful acquisition of a new or renewal
insurance contract in order to be deferred. If application of this
guidance would result in the capitalization of acquisition costs
that had not previously been capitalized by a reporting entity, the
entity may elect not to capitalize those costs. The updated
guidance is effective on either a retrospective or prospective
basis for interim and annual reporting periods beginning after
December 15, 2011, with early adoption permitted as of the
beginning of a company’s annual period. The Company is
currently evaluating the impact of the adoption of this new
guidance on its consolidated results of operations and financial
condition.
|
Share Based Compensation | 9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Sep. 30, 2011 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Share Based Compensation |
During
2010, the Company adopted the 2010 Omnibus Incentive Plan (the
“Plan”), which permits the Company to grant to
officers, employees and non-employee directors of the Company
incentive compensation directly linked to the price of the
Company’s stock. The Plan authorizes up to an aggregate of
6,045,511 shares of Company stock for awards of options to purchase
shares of the Company’s common stock, restricted stock,
restricted stock units (“RSU”) or appreciation rights.
Shares used may be either newly issued shares or treasury shares or
both. The aggregate number of shares of common stock for which
awards may be issued may not exceed 6,045,511 shares, subject to
the authority of the Company’s board of directors
(“Board”) to adjust this amount in the event of a
consolidation, reorganization, stock dividend, stock split,
recapitalization or similar transaction affecting the
Company’s common stock. All remaining unissued shares related
to the Company’s previously existing 2005 Equity Incentive
Plan were absorbed into the Plan. As of September 30, 2011,
approximately 5,500,000 shares of Company common stock remained
available for grants under the Plan.
The
Company recognizes compensation expense under FASB ASC 718-10-25
for its share-based payments based on the fair value of the awards.
The Company grants stock options at prices equal to the closing
stock price of the Company’s stock on the dates the options
are granted. The options have a term of ten years from the date of
grant and vest primarily in equal annual installments over the
four-year period following the date of grant for employee options.
Employees have three months after the employment relationship ends
to exercise all vested options. The fair value of each option grant
is separately estimated for each vesting date. The fair value of
each option is amortized into compensation expense on a
straight-line basis between the grant date for the award and each
vesting date. The Company has estimated the fair value of all stock
option awards as of the date of the grant by applying the
Black-Scholes-Merton multiple-option pricing valuation model. The
application of this valuation model involves assumptions that are
judgmental and highly sensitive in the determination of
compensation expense.
The
following schedule shows all options granted, exercised, and
expired under the Plan for the nine months ended September 30, 2011
and 2010:
The
weighted average grant date fair value of options granted during
the nine months ended September 30, 2011 and 2010 was approximately
$6.97 and $3.69, respectively.
The
Company issued 50,000 shares of restricted stock with a market
value of approximately $700 during the nine months ended September
30, 2010. The Board set a four-year vesting period for the
outstanding restricted shares. The fair value of each restricted
share grant is equal to the market price of the Company’s
common stock at the date of grant. Expense relating to restricted
shares is amortized ratably over the vesting period. The Company
recorded compensation expense of approximately $44 and $44 during
the three months ended September 30, 2011 and 2010,
respectively, and approximately $133 and $93 during the
nine months ended September 30, 2011 and 2010, respectively,
related to this grant.
The
Company issued 203,096 and 90,828 restricted stock units
(“RSUs”) with a market value of approximately $4,139
and $1,250 during the nine months ended September 30, 2011 and
2010, respectively. The Board set a four-year vesting period for
RSUs. The fair value of each RSU is equal to the market price of
the Company’s common stock at the date of grant. Expense
relating to all RSU grants is amortized ratably over the vesting
period. The Company recorded compensation expense of approximately
$336 and $78 during the three months ended September 30,
2011 and 2010, respectively, and approximately $696 and $117 during
the nine months ended September 30, 2011 and 2010, respectively,
related to all existing RSU grants.
Compensation
expense for all share-based payments under ASC 718-10-30 was
approximately $906 and $822 for the three months ended September
30, 2011 and 2010, respectively, and $4,182 and $2,682 for the nine
months ended September 30, 2011 and 2010.
As
of September 30, 2011, there was approximately $7,042 of total
unrecognized compensation cost related to non-vested share-based
compensation arrangements.
|
Investment in Life Settlements | 9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Sep. 30, 2011 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Investment in Life Settlements |
During
the third quarter of 2010, the Company formed Tiger Capital LLC
(“Tiger”) with a subsidiary of ACAC for the purposes of
acquiring certain life settlement contracts. A life settlement
contract is a contract between the policy owner of a life insurance
policy and a third-party investor who obtains the ownership and
beneficiary rights of the underlying life insurance policy. Tiger
also acquired premium finance loans made in connection with the
borrower’s purchase of a life insurance policy that are
secured by the policy. The premium finance loans are in default and
Tiger is in the process of acquiring the underlying policies
through the borrower’s agreement to surrender the policy in
satisfaction of the loan or foreclosure. The Company and ACAC each
have a fifty percent ownership interest in Tiger. Upon formation,
the Company and ACAC each contributed approximately $6,000 to
purchase a portfolio of life insurance policies and premium finance
loans with a follow on contribution each of approximately $5,000
during the fourth quarter of 2010. Additionally, during the nine
months ended September 30, 2011 each party contributed
approximately $19,000 to Tiger. A third party serves as the
administrator of the life settlement contract portfolio, for which
it receives an annual fee. Under the terms of the agreement,
the third party administrator is eligible to receive a percentage
of profits after certain time and performance thresholds have been
met.
During
2011, the Company formed AMT Capital Alpha, LLC (formerly called
AMT Capital Holdings, LLC, “AMT Alpha”) with a
subsidiary of ACAC for the purposes of acquiring additional life
settlement contracts. The Company and ACAC each have a fifty
percent ownership interest in AMT Alpha. During 2011, each
party contributed approximately $1,000 to AMT Alpha.
The
Company provides for certain actuarial and finance functions
related to Tiger and AMT Alpha. Additionally, in conjunction
with the Company’s 21.25% ownership percentage of ACAC, the
Company ultimately receives 60.6% of the profits and losses of
Tiger and AMT Alpha. As such, in accordance with ASC 810-10,
Consolidation, the
Company has been deemed the primary beneficiary and, therefore,
consolidates both entities.
During
the three and nine months ended September 30, 2011, Tiger and AMT
Alpha acquired certain life insurance policies for approximately
$4,568 and $28,211 respectively. Additionally
the Company converted $1,730 and $6,621 of premium finance loans to
life insurance policies for the three and nine months ended
September 30, 2011 respectively. The
Company accounts for investments in life settlements in accordance
with ASC 325-30, Investments in Insurance
Contracts, which states that an investor shall elect to
account for its investments in life settlement contracts by using
either the investment method or the fair value method. The
election is made on an instrument-by-instrument basis and is
irrevocable. The Company has elected to account for these
policies using the fair value method. The Company determines
fair value on a discounted cash flow basis of anticipated death
benefits, incorporating current life expectancy assumptions,
premium payments, the credit exposure to the insurance company that
issued the life settlement contracts and the rate of return that a
buyer would require on the contracts as no comparable market
pricing is available. The Company recorded other income for
the three and nine months ended September 30, 2011 of approximately
$6,882 and $48,346, respectively, related to the life insurance
policies. The Company’s investments in life settlements
and cash value loans were approximately $128,001 as of September
30, 2011 and are included in Prepaid expenses and other assets on
the Consolidated Balance Sheet.
In
addition to the 223 policies disclosed in the table
below, Tiger owns 53 premium finance loans, which are secured
by life insurance policies and are carried at a value of $6,334.
The face value amount of the related 223 life insurance policies
and 53 premium finance loans is approximately $1,441,993 and
$305,700, respectively. All
of the premium finance loans are in default and Tiger is enforcing
its rights in the collateral. Upon the voluntary
surrender of the underlying life insurance policy in satisfaction
of the loan or foreclosure, Tiger will become the owner of and
beneficiary under the underlying life insurance policy and will
have the option to continue to make premium payments on the
policies or allow the policies to lapse. If a
policyholder wishes to cure his or her default and repay the loan,
Tiger will be repaid the total amount due under the premium finance
loans, including all premium payments made by Tiger to maintain the
policy in force since its acquisition of the loan.
The
following table describes the Company’s investment in life
settlements as of September 30, 2011:
Premiums
to be paid for each of the five succeeding fiscal years to keep the
life insurance policies in force as of September 30, 2011, are as
follows:
|
Comprehensive Income and Shareholder Equity | 9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Sep. 30, 2011 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Comprehensive Income and Shareholder Equity |
The
following table summarizes the components of comprehensive income
for the three and nine months ended September 30, 2011 and
2010:
The
following table summarizes the ownership components of total equity
for the nine months ended September 30, 2011:
There
were no distributions to non-controlling interests or changes in
ownership percentages during the nine months ended September 30,
2011.
|
Earnings Per Share | 9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Sep. 30, 2011 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Earnings Per Share |
Effective
January 1, 2009, the Company adopted ASC subtopic 260-10,
Determining
Whether Instruments Granted in Share-Based Payments Transactions
Are Participating Securities. ASC 260-10 provides that
unvested share-based payment awards that contain nonforfeitable
rights to dividends or dividend equivalents, whether paid or
unpaid, are participating securities and are to be included in the
computation of earnings per share under the two-class method. The
Company’s unvested restricted shares contain rights to
receive nonforfeitable dividends and are participating securities,
requiring the two-class method of computing earnings per share.
The
following table is a summary of the elements used in calculating
basic and diluted earnings per share for the three and nine months
ended September 30, 2011 and 2010:
As
of September 30, 2011, there were less than 100,000 anti-dilutive
securities excluded from diluted earnings per share.
|
Investments | 9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Sep. 30, 2011 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Investments |
3. Investments
(a) Available-for-Sale Securities
The
original cost, estimated market value and gross unrealized
appreciation and depreciation of available-for-sale securities as
of September 30, 2011, are presented in the table
below:
In
June 2011, the Company, through a subsidiary, purchased $12,500 of
an aggregate $107,500 principal amount of 8.25% Senior Notes issued
by Maiden Holdings North America, Ltd. that are fully guaranteed by
Maiden Holdings, Ltd. (“Maiden”), both related parties.
The Company has classified this fixed security in corporate finance
bonds and its market value at September 30, 2011 was $12,500.
For a further description of this transaction see Note 11.
“Related Party Transactions”.
Proceeds
from the sale of investments in available-for-sale securities
during the nine months ended September 30, 2011 and 2010 were
approximately $1,827,485 and $2,826,479, respectively.
A
summary of the Company’s available-for-sale fixed securities
as of September 30, 2011, by contractual maturity, is shown below.
Expected maturities may differ from contractual maturities because
borrowers may have the right to call or prepay obligations with or
without call or prepayment penalties.
(b) Investment Income
Net
investment income for the three and nine months ended September 30,
2011 and 2010 was derived from the following sources:
(c) Other-Than-Temporary Impairment
Other-than-temporary
impairment (“OTTI”) charges of our fixed-maturities and
equity securities for the three and nine months ended September 30,
2011 and 2010 are presented in the table below:
The
table below summarizes the gross unrealized losses of our fixed
maturity and equity securities by length of time the securities
have continuously been in an unrealized position as of September
30, 2011:
There
are 204 securities at September 30, 2011 that account for the gross
unrealized loss, none of which is deemed by the Company to be OTTI.
Significant factors influencing the Company’s determination
that unrealized losses were temporary included the magnitude of the
unrealized losses in relation to each security’s cost, the
nature of the investment and management’s intent not to sell
these securities and it being not more likely than not that the
Company will be required to sell these investments before
anticipated recovery of fair value to the Company’s cost
basis.
(d) Derivatives
The
Company from time to time invests in a limited amount of
derivatives and other financial instruments as part of its
investment portfolio to manage interest rate changes or other
exposures to a particular financial market. The Company records
changes in valuation on its derivative positions not designated as
a hedge as a component of net realized gains and losses. The
Company records changes in valuation on its hedge positions as a
component of other comprehensive income. As of September 30, 2011,
the Company has two interest rate swaps designated as a hedge that
were entered into in June 2011 related to the Company’s trust
preferred securities, one of which became effective in September
2011 and the second that will take effect in June
2012.
The
following table presents
the notional amounts by remaining maturity of the Company’s
interest rate swaps as of September 30, 2011:
(1) Notional amount is not
representative of either market risk or credit risk and is not
recorded in the consolidated balance sheet.
(e) Other
Securities
sold but not yet purchased represent obligations of the Company to
deliver the specified security at the contracted price and,
thereby, create a liability to purchase the security in the market
at prevailing prices. The Company’s liability for securities
to be delivered is measured at their fair value and as of September
30, 2011 was $55,496 for U.S. treasury securities and $124 related
to equity securities. These transactions result in off-balance
sheet risk, as the Company’s ultimate cost to satisfy the
delivery of securities sold but not yet purchased may exceed the
amount reflected at September 30, 2011. Subject to certain
limitations, all securities owned, to the extent required to cover
the Company’s obligations to sell or repledge the securities
to others, are pledged to the clearing broker.
The
Company enters into repurchase agreements, which are accounted for
as collateralized borrowing transactions and are recorded at
contract amounts. The Company receives cash or securities that it
invests or holds in short term or fixed income securities. As of
September 30, 2011, there were $343,905 principal amount
outstanding at interest rates between .30% and .35%. Interest
expense associated with these repurchase agreements for the three
months ended September 30, 2011 and 2010 was $361 and $226,
respectively, of which $0 was accrued as of September 30, 2011.
Interest expense associated with the repurchase agreements for the
nine months ended September 30, 2011 and 2010 was $836 and $474,
respectively. The Company has approximately $356,008 of collateral
pledged in support of these agreements.
|
Fair Value of Financial Instruments | 9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Sep. 30, 2011 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Fair Value of Financial Instruments |
4. Fair Value of Financial
Instruments
The
following table presents the level within the fair value hierarchy
at which the Company’s financial assets and financial
liabilities are measured on a recurring basis as of September 30,
2011:
The
Company classifies its financial assets and liabilities in the fair
value hierarchy based on the lowest level input that is significant
to the fair value measurement. This classification requires
judgment in assessing the market and pricing methodologies for a
particular security. The fair value hierarchy includes the
following three levels:
Level
1 – Valuations are based on unadjusted quoted market prices
in active markets for identical financial assets or
liabilities;
Level
2 – Valuations of financial assets and liabilities are based
on prices obtained from third party pricing services, dealer
quotations of the bid price using observable inputs, or through
consensus pricing of a pricing service; and
Level
3 – Valuations are based on unobservable inputs for assets
and liabilities where there is little or no market activity.
Management’s assumptions are used in internal valuation
pricing models to determine the fair value of financial assets or
liabilities.
For
additional discussion regarding techniques used to value the
Company’s investment portfolio, refer to Note 2.
“Significant Accounting Policies” in Item 8.
“Financial Statements and Supplementary Data” in its
2010 Form 10-K.
The
following table provides a summary of changes in fair value of the
Company’s Level 3 financial assets for the three and nine
months ended September 30, 2011 and 2010:
The
Company had no transfers between levels during the three and nine
months ended September 30, 2011 and 2010.
The Company uses the following methods and
assumptions in estimating its fair value disclosures for financial
instruments:
|
=].;.X9DTY:9,]+Y3JU^/)%/^@,K^X_LSJ.^Z-<\%53Y,,
MR9?)AQJU;_Y8+5KN#LZJ5X#W\AM5,)G*NXC))S]37/KDA
M,[HJ%=5WK2ANDRL/?JF^O]4RLOZ_]:N%8IH;R>5EG`]N?V4VQ)G+UDF5:OE7
M&]Z4D]O'SX_&[TU7,+5763V=KO-JP9PG]8@66+6XM_B>$\AD27;[KZJ/FOYY
M=B^+B?'-W][JE^X^8'*S?C1^:\P2538]7>5-1YO46;))@.KQUA\Q_ A7WY/'
M_9(L%(ZQM+]'Z+6Y`(1G(60W7[DKHE87ZT$V9#=?N2WL5D_S(!NRFZ\\"#BU
M!*[UXYK$$X!K#;AE5>O(-K=9H2/3=P3O8YY]28HD2_?W/F>Y,6L27L;?Z,Z$
M;2S-5WO"]=N\2*=(!*(?]AL++8B&:'V(]OPV3^S@&9X?[JC3>'L&/'>.Y]!J
M<](4GN'Y00V3(R)'XRD'94R/0W;\]S@I;^KSY0P9YVF27A9&]MD8I_TL+;)A
M,HA+6=WR\461#)(X3V1Q#^^'/]FFY531R.5P\EO7<5[>D(?" ES,O6Y
MZY]U=N9YNNH(HL'TT?R#])K?:'&6ERV']1+:B4);7/![1DN(UD]\&"W9-U(4
MRD/:D0N11%
M_PF9\"N5"[2Y#(0KE-Y7@LM-[4=?EI<28PHHM_,G\N):6HE%3_@2'W3E16G5
M!W/E9GFQ<_;";"Z;3BW9M3M5]#LF3IW.=6!F1CDZR8I$-E`SN@>D+VB;G`\N
MA\T&?'Q,^ZY2>$>C/.KHAUKMW?M+JH@AJ,!$UVKTVV44#J525`/_&,9B5^=E
M^TWK1:"7+PL[(;3'BR&JB3:4$O$T?IH)W7BUDG..8-=O@8S!.H==!&Z='0;A
M'7/!:MBD_XCA"$1^F^['0' S?=<7?\B?S__BYM??@)%C,;,8B)^$*[C6N$S
MON#J^NH:GRG?,8W#:2#PI,NHW;*D3R33*CR,+$"6!\AB8@8L.4'(V>.272W^
MLMW*?LM<`6^=_?3`HZ^<^\G[9(S,@J]^TELK> KWW'VXLIG,\: 9A
MNV6&D`#>-H`3>1.VFXKMEI$W;<.LR^Y7/[KYA4(88HKG1ZY-944=MX`C"-IM
M@W;+C"`!O&T`)^XF:#<4VBWC[NINPYRUPF6QX&YXD^7"Z;_P0WJ
MFTP\LEN23QYIE.(C9#+2RB_T4"Z&&BJ/!I3[HZPW3QLMRQW1P!O&\")O`G;3<5VR\B[JALOYXQC
M/CEVCU$L0Y2QZRD$5>Z/U!:0!4&[;=!NF34D@+<-X,3=!.V&0KMEW%W=/9DS
M'B*[\CSN]\(@IMNABAABCEU&/J:*4<)U`W'=,HM(`&\;P(FX"==-Q'7+B+NJ
MFS)G#&3>_QF8_A.%,,08._:]466%&G<2M`G:!&V"=EV@W3(_CP!.`&\TP&E/
MID!XMW/'];L=G[L+>,HC]_P%MWV*9X@X-IU3&`WDB3)L`6<0M@G;A.WS#Y2P
M30X?`9P`3@"GK9F-HOOLS[G;[5`H0XRQT\A515;[@Q9P!4&[;=!NF3$D@!/`
M">`$\`8!O#7.R7Y;,]'X;JZNKS]^^JGW]O/=W>=?_BZIR^_/3KEI8<[/YHSC
M^3/?MSA&.9(.SW>9OG>X C;E.B7=08*!_Z<6IO]*1J7.T;NM-R[?,@N,(!@YAM%B
M)92]"6+]=X".`W@()-$C210]K2-09\4/SAV96LE0D*$XDOY]XCZZ@[JS*&AF
M0FI(:DAJ>`HU_(PY6W(JCB1-8+.ER^?<]LS'O6B-I+I!JF0ER$J0E3BG!MY$
MG>@\XK0C2;1PKYMD>9A]\+P`DTY[H9-,!)D(,A''4\);9O'P8`CQVI%$FG9!
M(F8C9B-F.U^FDBCM2++T769[,^Y2('&\Y(CO=#L73N!+SFROPP`DU@UBC8_+
MDN$EPTN&E\Z2-$BLR8E3.E!"!TK.PJ]'N0OS@*.XO1V.JI^A^7%N+Q8/1<3E
M#`5>\H'7O)0SX'KU3X]'7 <,]LEH42V+&8JM[28=^_SZ4]4415*B=;-DW>HAB"E19'7U]]6EJR]T
M*-5&=S:TG47#I'0H%3D*TLZ7#](MKR.@^O$O[L]5-
\XM%!D>0Q$KNS85NV>/=WA&+#@
M%HAV*_
B+EQ
MR^V-`Q%4M+WYG*19%^R`R>6^F9V)IW.V.PY<5P37-C=0#P.`+@^@&S9.R`&<
M2P-GT^"MM#R0TB$Z?U5=[3=!B&ZB.B:U3KH
MI=N$:$)T$=%NVW+L0]Y"AB!-D"Y"VG&M9NN0<_(-K@[:S:X:>Y72F`/IK6HE
M%+2)!JUYW-,UCX[5:I0,NFQW-NFK+GE\O0GPG
MMNT-VQRKZ9*7(]X1[U[9R[4:)?GP$=%NW8QY*SM1UM?*F??KE+'K]%BQ:F7Z
M7#'&-=,#^3UD,F206[,/,NR)4(L>_I7MRG\3P7]#8<[&EGV63(%\W0R