10-K/A

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549

 

FORM 10-K/A
(Amendment No. 1)

 

x	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Fiscal Year Ended December 31, 2011

OR

o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Transition Period from  to .

Commission File Number: 001-33143

 

AMTRUST FINANCIAL SERVICES, INC.

(Exact Name of Registrant as Specified in Its Charter)

Delaware	04-3106389
(State or Other Jurisdiction of Incorporation or Organization)	(IRS Employer Identification No.)

59 Maiden Lane, 6th Floor New York, New York	10038
(Address of Principal Executive Offices)	(Zip Code)

(212) 220-7120

(Registrant’s Telephone Number, Including Area Code)

 

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class	Name of Each Exchange on Which Registered
Common Shares, $0.01 par value per share	The NASDAQ Stock Market LLC

Securities registered pursuant to Section 12(g) of the Act: None

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No x

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days.Yes x No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).Yes x No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large Accelerated Filer o	Accelerated Filer x	Non-Accelerated Filer o (Do not check if a smaller reporting company)	Smaller Reporting Company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).Yes o No x

As of June 30, 2011, the last business day of the registrant’s most recently completed second quarter, the aggregate market value of the common stock held by non-affiliates was $557,035,285.

As of March 1, 2012, the number of common shares of the registrant outstanding was 60,177,912.

Documents incorporated by reference: Portions of the Proxy Statement for the 2012 Annual Meeting of Shareholders of the Registrant to be filed subsequently with the SEC are incorporated by reference into Part III of this report.

EXPLANATORY NOTE

This Amendment No. 1 on Form 10-K/A to our Annual Report on Form 10-K for the fiscal year ended December 31, 2011 is being filed solely to furnish the interactive data files, Exhibits 101.INS, 101.SCH, 101.CAL, 101.DEF, 101.LAB and 101.PRE, that were omitted from our original Form 10-K due to an error by our financial printer.

No other change or amendment is being made to the original Form 10-K, which was filed with the Securities and Exchange Commission on March 15, 2012.

PART IV

Item 15. Exhibits, Financial Statement Schedules

(a) Documents filed as part of this report: The financial statements and financial schedules required by this item are incorporated herein by reference to the financial statements and financial schedules filed under Part II, Item 8 of our Form 10-K. The exhibits listed in the accompanying Index to Exhibits are filed as part of this report.

(b) Exhibits: See Item 15(a).

(c) Schedules: See Item 15(a).

All other schedules for which provision is made in the applicable accounting regulation of the Securities and Exchange Commission are not required under the related instructions or are inapplicable and, therefore, have been omitted.

1

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	AMTRUST FINANCIAL SERVICES, INC.
March 15, 2012	By: /s/ Ronald E. Pipoly, Jr. Name: Ronald E. Pipoly, Jr. Title: Chief Financial Officer

2

INDEX TO EXHIBITS

The following documents are filed as exhibits to this report:

Exhibit No.	Description
3.1	Amended and Restated Certificate of Incorporation of the Company (incorporated by reference to Exhibit 3.1 to the Company’s Registration Statement on Form S-1 (No. 333-134960) filed on June 12, 2006)
3.2	Amended and Restated By-Laws of the Company (incorporated by reference to Exhibit 3.2 to the Company’s Registration Statement on Form S-1 (No. 333-134960) filed on June 12, 2006)
4.1	Form of Common Stock Certificate (incorporated by reference to Exhibit 4.1 to the Company’s Registration Statement on Form S-1 (No. 333-134960) filed on June 12, 2006)
4.2	Form of 5.50% Convertible Senior Notes due 2021 (incorporated by reference to Exhibit 4.3 to the Company’s Form 8-K (No. 001-33143) filed on December 21, 2011)
4.3	Indenture, dated as of December 21, 2011, by and between the Company and The Bank of New York Mellon Trust Company, N.A., as trustee (incorporated by reference to Exhibit 4.1 to the Company’s Form 8-K (No. 001-33143) filed on December 21, 2011)
4.4	First Supplemental Indenture, dated as of December 21, 2011, by and between the Company and The Bank of New York Mellon Trust Company, N.A., as trustee (incorporated by reference to Exhibit 4.2 to the Company’s Form 8-K (No. 001-33143) filed on December 21, 2011)
4.5	The Company will file with the SEC upon request, pursuant to the requirements of Item 601(b)(4) of Regulation S-K, documents (other than Exhibits 4.3 and 4.4) defining rights of holders of the Company’s long-term indebtedness
10.1*	2005 Equity Incentive Plan (incorporated by reference to Exhibit 10.1 to the Company’s Registration Statement on Form S-1 (No. 333-134960) filed on June 12, 2006)
10.2*	AmTrust Financial Services, Inc. 2010 Omnibus Incentive Plan (incorporated by reference to Appendix B to the Company’s definitive proxy statement on Schedule 14A filed on April 1, 2010)
10.3*	Employment Agreement, dated as of January 1, 2005, by and between the Company and Barry D. Zyskind (incorporated by reference to Exhibit 10.7 to the Company’s Registration Statement on Form S-1 (No. 333-134960) filed on June 12, 2006)
10.4*	Amendment to Employment Agreement, dated October 6, 2010, by and between the Company and Barry D. Zyskind (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K (No. 001-33143) filed on October 7, 2010)
10.5*	Employment Agreement, dated November 22, 2010, by and between the Company and Max G. Caviet (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K (No. 001-33143) filed on November 23, 2010)
10.6*	Employment Agreement, dated as of March 1, 2010, by and between the Company and Christopher M. Longo (incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K (No. 001-33143) filed on March 5, 2010)
10.7*	Amendment No. 1 to Employment Agreement, dated November 3, 2010, by and between the Company and Christopher M. Longo (incorporated by reference to Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q (No. 001-33143) filed on November 9, 2010)
10.8*	Amendment No. 2 to Employment Agreement, dated March 1, 2012, by and between the Company and Christopher M. Longo (incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K (No. 001-33143) filed on March 5, 2012)
10.9*	Employment Agreement, dated as of March 1, 2010, by and between the Company and Ronald E. Pipoly, Jr. (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K (No. 001-33143) filed on March 5, 2010)*
10.10*	Amendment No. 1 to Employment Agreement, dated March 1, 2012, by and between the Company and Ronald E. Pipoly, Jr. (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K (No. 001-33143) filed on March 5, 2012

Exhibit No.	Description
10.11*	Employment Agreement, dated as of March 1, 2010, by and between the Company and Michael J. Saxon. (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K (No. 001-33143) filed on March 5, 2010)
10.12*	Amendment No. 1 to Employment Agreement, dated November 3, 2010, by and between the Company and Michael J. Saxon (incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q (No. 001-33143) filed on November 9, 2010)
10.13*	Amendment No. 2 to Employment Agreement, dated March 1, 2012, by and between the Company and Michael J. Saxon (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K (No. 001-33143) filed on March 5, 2012)
10.14	Form of Indemnification Agreement between the Company and its officers and directors (incorporated by reference to Exhibit 10.12 to the Company’s Registration Statement on Form S-1 (No. 333-134960) filed on June 12, 2006)
10.15	Tax Assurance from the Bermuda Minister of Finance, under the Exempted Undertakings Tax Protection Act 1966, as amended, of Bermuda, issued to AmTrust International Insurance, Ltd., AmTrust Equity Solutions Ltd., Agent Alliance Reinsurance Company, Ltd., AII Investment Holdings Ltd., AII Insurance Management Limited and AII Reinsurance Broker Limited (incorporated by reference to Exhibit 10.15 to the Company’s Annual Report on Form 10-K (No. 001-33143) filed March 15, 2012)
10.16	Lease dated June 28, 2002, between 59 Maiden Lane Associates, LLC and the Company (incorporated by reference to Exhibit 10.19 to the Company’s Registration Statement on Form S-1 (Amendment No. 1) (No. 333-134960) filed on July 25, 2006)
10.17	First Lease Modification Agreement, dated as of February 1, 2005, by and between 59 Maiden Lane Associates, LLC and the Company (incorporated by reference to Exhibit 10.20 to the Company’s Registration Statement on Form S-1 (Amendment No. 1) (No. 333-134960) filed on July 25, 2006)
10.18	Second Lease Modification Agreement, dated as of December 2007, by and between 59 Maiden Lane Associates, LLC and the Company (incorporated by reference to Exhibit 10.20 to the Company’s Annual Report on Form 10-K (No. 001-33143) filed on March 14, 2008)
10.19	Form of Letter Agreement between AmTrust North America and Diversified Construction Management, LLC (incorporated by reference to Exhibit 10.21 to the Company’s Registration Statement on Form S-1 (Amendment No. 1) (No. 333-134960) filed on July 25, 2006)
10.20	Master Agreement dated July 3, 2007 between AmTrust Financial Services, Inc. and Maiden Holdings, Ltd. (incorporated by reference to Exhibit 2.2 to the Company’s Quarterly Report on Form 10-Q (No. 001-33143) filed on August 14, 2007)
10.21	First Amendment to Master Agreement dated September 17, 2007 between AmTrust Financial Services, Inc. and Maiden Holdings, Ltd. (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K (No. 001-33143) filed on September 19, 2007)
10.22	Quota Share Reinsurance Agreement between AmTrust International Insurance, Ltd. and Maiden Insurance Company, Ltd. (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K (No. 001-33143) filed on September 19, 2007)
10.23	Amended and Restated Quota Share Reinsurance Agreement between AmTrust International Insurance, Ltd. and Maiden Insurance Company Ltd. (incorporated by reference to Exhibit 10.27 to the Company’s Annual Report on Form 10-K (No. 001-33143) filed on March 16, 2009)
10.24	Endorsement No. 1 to the Amended and Restated Quota Share Reinsurance Agreement, dated July 26, 2011, between AmTrust International Insurance, Ltd. and Maiden Insurance Company Ltd. (incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q (No. 001-33143) filed on August 4, 2011)

Exhibit No.	Description
10.25	Quota Share Reinsurance Agreement, dated April 1, 2011, among AmTrust Europe Ltd., AmTrust International Underwriters Limited, and Maiden Insurance Company Ltd., as amended by Endorsement No.1 to the Quota Share Reinsurance Agreement, dated July 26, 2011, among AmTrust Europe Ltd., AmTrust International Underwriters Limited, and Maiden Insurance Company Ltd. (incorporated by reference to Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q (No. 001-33143) filed on August 4, 2011)
10.26	Stock Purchase Agreement dated as of October 16, 2009 by and among, the Company, American Capital Acquisition Corporation (“ACAC”) and The Michael Karfunkel 2005 Grantor Retained Annuity Trust (incorporated by reference to Exhibit 10.29.1 to the Company’s Annual Report on Form 10-K (No. 001-33143) filed on March 16, 2010)
10.27	Joinder & Amendment No. 1 to Stock Purchase Agreement dated October 16, 2009 with ACAC, Michael Karfunkel and The Michael Karfunkel 2005 Grantor Retained Annuity Trust (incorporated by reference to Exhibit 10.29.2 to the Company’s Annual Report on Form 10-K (No. 001-33143) filed on March 16, 2010)
10.28	Stockholders Agreement dated as of October 16, 2009 by and among the Company, ACAC and The Michael Karfunkel 2005 Grantor Retained Annuity Trust (incorporated by reference to Exhibit 10.30.1 to the Company’s Annual Report on Form 10-K (No. 001-33143) filed on March 16, 2010)
10.29	Joinder Agreement dated as of February 26, 2010 to Stockholder Agreement by and among, the Company, ACAC, Michael Karfunkel and The Michael Karfunkel 2005 Grantor Retained Annuity Trust (incorporated by reference to Exhibit 10.30.2 to the Company’s Annual Report on Form 10-K (No. 001-33143) filed on March 16, 2010)
10.30	Amendment No. 1 to the Stockholders Agreement, dated August 4, 2010, by and among the Company, ACAC, The Michael Karfunkel 2005 Grantor Retained Annuity Trust and Michael Karfunkel (incorporated by reference to Exhibit 10.6 to the Company’s Quarterly Report on Form 10-Q (No. 001-33143) filed on August 9, 2010)
10.31*	Amended and Restated AmTrust Financial Services, Inc. 2007 Executive Performance Plan (incorporated by reference to Appendix A to the Company’s definitive proxy statement on Schedule 14A filed on April 1, 2010)
10.32*	Form of Incentive Stock Option Agreement, amended and restated effective November 1, 2011 (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q (No. 001-33143) filed on November 9, 2011)
10.33*	Form of Non-qualified Stock Option Agreement for Non-Employee Directors, amended and restated effective November 1, 2011 (incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q (No. 001-33143) filed on November 9, 2011)
10.34*	Form of Restricted Stock Agreement, amended and restated effective November 1, 2011 (incorporated by reference to Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q (No. 001-33143) filed on November 9, 2011)
10.35*	Form of Restricted Stock Unit Agreement, amended and restated effective November 1, 2011 (incorporated by reference to Exhibit 10.4 to the Company’s Quarterly Report on Form 10-Q (No. 001-33143) filed on November 9, 2011)
10.36	Credit Agreement, dated January 28, 2011, among the Company, JPMorgan Chase Bank, N.A., as Administrative Agent, The Bank of Nova Scotia, as Syndication Agent, SunTrust Bank, as Documentation Agent, and the lending institutions party thereto (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K (No. 001-33143) filed on January 31, 2011)
10.37	Waiver and Amendment No. 1 to Credit Agreement, dated June 30, 2011, among the Company, JPMorgan Chase Bank, N.A., as Administrative Agent, and the lending institutions party thereto (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K (No. 001-33143) filed on July 5, 2011)

Exhibit No.	Description
10.38	Amendment No. 2 to the Credit Agreement, dated as of December 12, 2011, among the Company, JPMorgan Chase Bank, N.A., as Administrative Agent, and the various lending institutions party thereto (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K (No. 001-33143) filed on December 15, 2011)
10.39	Personal and Commercial Automobile Quota Share Reinsurance Agreement between Integon National Insurance Company and Technology Insurance Company, Inc., Maiden Insurance Company Ltd., and American Capital Partners Re, Ltd., effective March 1, 2010 (incorporated by reference to Exhibit 10.33 to the Company’s Annual Report on Form 10-K (No. 001-33143) filed on March 15, 2011)
10.40	Master Services Agreement between AmTrust North America, Inc. and GMAC Insurance Management Corporation, dated February 22, 2012 (incorporated by reference to Exhibit 10.40 to the Company’s Annual Report on Form 10-K (No. 001-33143) filed March 15, 2012)
12.1	Computation of Ratio of Earnings to Fixed Charges (incorporated by reference to Exhibit 12.1 to the Company’s Annual Report on Form 10-K (No. 001-33143) filed March 15, 2012)
21.1	List of subsidiaries of the Company (incorporated by reference to Exhibit 21.1 to the Company’s Annual Report on Form 10-K (No. 001-33143) filed March 15, 2012)
23.1	Consent of BDO USA, LLP, Independent Registered Public Accounting Firm relating to the Financial Statements of the Company (filed herewith)
31.1	Certification of Chief Executive Officer required by Rule 13a-14(a)/15d-14(a) under the Exchange Act, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith)
31.2	Certification of Chief Financial Officer required by Rule 13a-14(a)/15d-14(a) under the Exchange Act, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith)
32.1	Certification of Chief Executive Officer pursuant to 18 U.SC. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith)
32.2	Certification of Chief Financial Officer pursuant to 18 U.SC. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith)
101.1	The following materials from the Company’s Annual Report on Form 10-K for the year ended December 31, 2011, formatted in XBRL (Extensible Business Reporting Language): (i) the Consolidated Balance Sheets as of December 31, 2011 and 2010; (ii) the Consolidated Statements of Income for the years ended December 31, 2011, 2010 and 2009; (iii) the Consolidated Statements of Changes in Stockholders’ Equity for the years ended December 31, 2011, 2010 and 2009; (iv) the Consolidated Statements of Cash Flows for the years ended December 31, 2011, 2010 and 2009; and (v) the Notes to the 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 Annual Report on Form 10-K 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.

* Indicates management contract or compensatory plan, contract or arrangement in which one or more directors or executive officers of the Company may be participants.

EX-23.1

EXHIBIT 23.1

Consent of Independent Registered Public Accounting Firm

AmTrust Financial Services, Inc.
New York, New York

We hereby consent to the incorporation by reference in the Registration Statements on Form S-1 (No. 333-134960), Form S-8 (No. 333-147867), Form S-8 (No. 333-166943) and Form S-3 (No. 333-169520) of AmTrust Financial Services, Inc. of our report dated March 15, 2012, relating to the consolidated financial statements, the effectiveness of AmTrust Financial Services, Inc.’s internal control over financial reporting and financial statement schedules, which appears in this Form 10-K/A.

/s/ BDO USA, LLP

New York, New York
March 15, 2012

EX-31.1

EXHIBIT 31.1

CERTIFICATION

I, Barry Zyskind, certify that:

1. I have reviewed this Amendment No. 1 to the Annual Report on Form 10-K/A 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: March 15, 2012	By: /s/ Barry Zyskind Barry Zyskind President and Chief Executive Officer (Principal Executive Officer)

EX-31.2

EXHIBIT 31.2

CERTIFICATION

I, Ronald Pipoly, certify that:

1. I have reviewed this Amendment No. 1 to the Annual Report on Form 10-K/A 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: March 15, 2012	By: /s/ Ronald Pipoly Ronald Pipoly Chief Financial Officer (Principal Financial and Accounting Officer)

EX-32.1

EXHIBIT 32.1

CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, I Barry Zyskind, President and Chief Executive Officer (Principal Executive Officer) of AmTrust Financial Services, Inc. (the “Company”), hereby certify, that, to my knowledge:

1. The Amendment No. 1 to the Annual Report on Form 10-K/A for the year ended December 31, 2011 (the “Report”) of the Company 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: March 15, 2012	By: /s/ Barry Zyskind Barry Zyskind President and Chief Executive Officer (Principal Executive Officer)

EX-32.2

EXHIBIT 32.2

CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER
PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, I Ronald Pipoly, Chief Financial Officer (Principal Financial and Accounting Officer) of AmTrust Financial Services, Inc. (the “Company”), hereby certify, that, to my knowledge:

1. The Amendment No. 1 to the Annual Report on Form 10-K/A for the year ended December 31, 2011 (the “Report”) of the Company 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: March 15, 2012	By: /s/ Ronald Pipoly Ronald Pipoly Chief Financial Officer (Principal Financial and Accounting Officer)

XML

AMTRUST FINANCIAL SERVICES, INC. CONSOLIDATED SUPPLEMENTARY PROPERTY AND CASUALTY INSURANCE INFORMATION

12 Months Ended

Dec. 31, 2011

AMTRUST FINANCIAL SERVICES, INC. CONSOLIDATED SUPPLEMENTARY PROPERTY AND CASUALTY INSURANCE INFORMATION

Schedule V

AMTRUST FINANCIAL SERVICES, INC.
CONSOLIDATED SUPPLEMENTARY PROPERTY
AND CASUALTY INSURANCE INFORMATION
(In Thousands)

	Losses and Loss Adjustment Expenses Incurred Related to					Paid Losses and Loss Adjustment Expenses
Years Ended December 31,	Current Year		Prior Years
2011	$	665,812	$	12,521		$	569,988
2010	$	463,535	$	7,946		$	409,605
2009	$	332,598	$	(4,827	)	$	313,082

XML

Quarterly Financial Data (Unaudited)

12 Months Ended

Dec. 31, 2011

Quarterly Financial Data (Unaudited)

26. Quarterly Financial Data (Unaudited)

The following is a summary of the unaudited quarterly results of operations:

	2011
(Amounts in Thousands)	March 31,		June 30,		September 30,		December 31,
Earned premium	$	200,338	$	248,282	$	288,848	$	299,393
Investment income		14,192		13,167		14,456		13,700
Net income		51,321		56,644		40,653		37,393
Income attributable to Common Shareholders		45,183		50,162		37,166		37,923
Basic EPS		0.76		0.84		0.62		0.63
Diluted EPS		0.74		0.81		0.60		0.61

	2010
	March 31,		June 30,		September 30,		December 31,
Earned premium	$	148,100	$	196,261	$	190,885	$	210,413
Investment income		13,599		14,686		10,952		11,280
Net income		38,700		30,823		43,149		33,688
Income attributable to Common Shareholders		38,700		30,823		39,296		33,646
Basic EPS		0.65		0.52		0.65		0.57
Diluted EPS		0.64		0.51		0.65		0.56

	2009
	March 31,		June 30,		September 30,		December 31,
Earned premium	$	132,423	$	136,803	$	145,292	$	159,364
Investment income		13,589		13,582		14,079		13,215
Net income		24,162		26,771		24,221		28,069
Basic EPS		0.40		0.45		0.41		0.47
Diluted EPS		0.40		0.45		0.40		0.47

During the three months ended March 31, 2010 and December 31, 2010, the Company recorded a retrospective gain of $10,450 and $1,263, respectively, related to an acquisition gain on ACAC for the three months ended March 31, 2010 and related to a gain on the purchase of life settlement contracts in the three months ended September 30, 2010. The impact of the retrospective gain on net income and earnings per share was $6,792 and $0.11 for the three months ended March 31, 2010. The impact of the retrospective gain on net income and income attributable to common shareholders was $821 and $410, respectively.

During the three months ended September 30, 2011, the Company in conjunction with the completion of its purchase price accounting related to the Majestic transaction recorded a retrospective gain of $3,185. The impact of the retrospective gain on net income and earnings per share was $2,070 and $0.03 for the three months ended September 30, 2011.

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Earnings per Share

12 Months Ended

Dec. 31, 2011

Earnings per Share

18. 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. There were no participating securities issued in 2009.

The following, is a summary of the elements used in calculating basic and diluted earnings per share for the years ended December 31, 2011, 2010 and 2009:

(Amounts in Thousands, except for earnings per share)	2011		2010		2009
Basics earnings per share:
Net income attributable to AmTrust Financial Services, Inc. shareholders	$	170,434	$	142,465	$	103,223
Less: Net income allocated to participating securities and redeemable non-controlling interest		111		81		—
Net income allocated to AmTrust Financial Services, Inc. common shareholders	$	170,323	$	142,384	$	103,223
Weighted average shares outstanding – basic		59,875		59,491		59,433
Less: Weighted average participating shares outstanding		39		38		—
Weighted average common shares outstanding – basic		59,836		59,453		59,433
Net income per AmTrust Financial Services, Inc. common shares – basic	$	2.85	$	2.39	$	1.74
Diluted earnings per share:
Net income attributable to AmTrust Financial Services, Inc. shareholders	$	170,434	$	142,465	$	103,223
Less: Net income allocated to participating securities and redeemable non-controlling interest		111		81		—
Net income allocated to AmTrust Financial Services, Inc. common shareholders	$	170,323	$	142,384	$	103,223
Weighted average common shares outstanding – basic		59,836		59,453		59,433
Plus: Dilutive effect of stock options, other		1,746		893		521
Weighted average common shares outstanding – dilutive		61,582		60,346		59,954
Net income per AmTrust Financial Services, Inc. common shares – diluted	$	2.77	$	2.36	$	1.72

As of December 31, 2011, there were less than 100,000 anti-dilutive securities excluded from diluted earnings per share.

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AMTRUST FINANCIAL SERVICES, INC. AND SUBSIDIARIES SUPPLEMENTARY INSURANCE INFORMATION

12 Months Ended

Dec. 31, 2011

AMTRUST FINANCIAL SERVICES, INC. AND SUBSIDIARIES SUPPLEMENTARY INSURANCE INFORMATION

Schedule III

AMTRUST FINANCIAL SERVICES, INC.
AND SUBSIDIARIES SUPPLEMENTARY INSURANCE INFORMATION

At December 31, 2011, 2010 and 2009 and for the years then ended:

Segment	Deferred Policy Acquisition Costs		Reserves for Losses and Loss Expenses, Future Policy Benefits		Reserves for Unearned Premiums		Premium Revenue		Net Investment Income		Losses and Loss Expenses Incurred, Benefits		Amortization of Deferred Policy Acquisition Costs		Other Operating Expenses		Net Premiums Written
	(In Thousands)
2011:
Small Commercial Business	$	43,605	$	1,163,618	$	281,863	$	320,266	$	22,274	$	201,921	$	40,281	$	107,760	$	355,721
Specialty Risk and Extended Warranty		193,401		323,900		880,586		446,765		21,630		297,501		84,371		53,071		615,563
Specialty Program		32,449		368,358		166,665		171,375		9,624		114,685		25,820		55,748		202,715
Personal Lines Reinsurance		11,536		23,299		37,056		98,455		1,987		64,226		10,920		20,433		102,598
Total	$	280,991	$	1,879,175	$	1,366,170	$	1,036,861	$	55,515	$	678,333	$	161,392	$	237,012	$	1,276,597
2010:
Small Commercial Business	$	40,281	$	766,998	$	224,490	$	252,442	$	19,636	$	154,442	$	43,097	$	85,045	$	243,146
Specialty Risk and Extended Warranty		147,650		167,517		653,138		303,583		18,195		191,149		36,404		62,143		362,100
Specialty Program		25,820		318,187		114,423		140,253		10,392		94,261		22,584		37,487		139,685
Personal Lines Reinsurance		10,920		10,835		32,914		49,381		2,294		31,629		—		16,049		82,295
Total	$	224,671	$	1,263,537	$	1,024,965	$	745,659	$	50,517	$	471,481	$	102,085	$	200,724	$	827,226
2009:
Small Commercial Business	$	41,473	$	763,143	$	226,927	$	238,971	$	25,163	$	137,525	$	43,780	$	75,954	$	255,496
Specialty Risk and Extended Warranty		23,425		121,869		326,203		190,226		17,143		98,797		13,804		41,747		245,604
Specialty Program		115,281		206,932		318,649		144,685		12,981		91,449		15,947		53,047		142,326
Total	$	180,179	$	1,091,944	$	871,779	$	573,882	$	55,287	$	327,771	$	73,531	$	170,748	$	643,426

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Significant Accounting Policies

12 Months Ended

Dec. 31, 2011

Significant Accounting Policies

2. Significant Accounting Policies

Basis of Reporting — The consolidated financial statements of the Company have been prepared in conformity with accounting principles generally accepted in the United States of America. The consolidated financial statements include the accounts of the Company and its domestic and foreign subsidiaries. The Company uses the equity method of accounting for its investment in American Capital Acquisition Corporation (“ACAC”) in which it owns a 21.25% ownership interest. All significant intercompany transactions and accounts have been eliminated in the consolidated financial statements.

Premiums — Insurance premiums, other than specialty risk and extended warranty, are recognized as earned on the straight-line basis over the contract period. Insurance premiums on specialty risk and extended warranty are earned based on an estimated program coverage period. These estimates are based on the expected distribution of coverage periods by contract at inception, because a single contract may contain multiple coverage period options, these estimates are revised based on the actual coverage period selected by the insured. Unearned premiums represent the portion of premiums written which is applicable to the unexpired term of the contract or policy in force. Premium adjustments on contracts and audit premiums are based on estimates made over the contract period. Premiums earned but not yet billed to insureds are estimated and accrued, net of related costs. These estimates are subject to the effects of trends in payroll audit adjustments. Although considerable variability is inherent in such estimates, management believes that the accrual for earned but unbilled premiums is reasonable. The estimates are continually reviewed and adjusted as necessary as experience develops or new information becomes known; such adjustments are included in current operations. The Company historically has used a percentage of premium for establishing its allowance for doubtful accounts. The Company reviews its bad debt write-offs at least annually and adjusts its premium percentage as required. Allowance for doubtful accounts were approximately $11,682 and $10,420 at December 31, 2011 and 2010, respectively.

Ceding Commission Revenue — Commissions on reinsurance premiums ceded are earned in a manner consistent with the recognition of the direct acquisition costs of underlying insurance policies, generally on a pro-rata basis over the terms of the policies reinsured. Certain reinsurance agreements contain provisions whereby the ceding commission rates vary based on the loss experience under the agreements. The Company records ceding commission revenue based on its current estimate of subject losses. The Company records adjustments to the ceding commission revenue in the period that changes in the estimated losses are determined.

Loss and Loss Adjustment Expenses — Loss and loss adjustment expenses (“LAE”) represent the estimated ultimate net costs of all reported and unreported losses incurred through December 31, 2011. The reserves for unpaid losses and LAE are estimated using individual case-basis valuations and statistical analyses and are not discounted. Although considerable variability is inherent in the estimates of reserves for losses and LAE, management believes that the reserves for losses and LAE are adequate. The estimates are continually reviewed and adjusted as necessary as experience develops or new information becomes known. Such adjustments are included in current operations.

Investments — The Company accounts for its investments in accordance with the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 320 Investments — Debt and Equity Securities, which requires that fixed-maturity and equity securities that have readily determined fair values be segregated into categories based upon the Company’s intention for those securities. In accordance with ASC 320, the Company has classified its fixed-maturities and equity securities as available-for-sale. The Company may sell its available-for-sale securities in response to changes in interest rates, risk/reward characteristics, liquidity needs or other factors. Available for sale fixed-maturity securities and equity securities are reported at their estimated fair values based on quoted market prices or a recognized pricing service, with unrealized gains and losses, net of tax effects, reported as a separate component of comprehensive income in stockholders’ equity. Realized gains and losses are determined on the specific identification method.

Quarterly, the Company’s Investment Committee (“Committee”) evaluates each security that has an unrealized loss as of the end of the subject reporting period for other-than-temporary-impairment (“OTTI”). The Company generally considers an investment to be impaired when it has been in a significant unrealized loss position (in excess of 35% of cost if the issuer has a market capitalization of under $1 billion and in excess of 25% of cost if the issuer has a market capitalization of $1 billion or more) for over 24 months. In addition, the Committee uses a set of quantitative and qualitative criteria to review our investment portfolio to evaluate the necessity of recording impairment losses for other-than-temporary declines in the fair value of our investments. The criteria the Committee primarily considers include:

• 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 obligation 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.

Impairment of investment securities results in a charge to operations when a market decline below cost is deemed to be other-than-temporary. We write down investments immediately that we consider to be impaired based on the above criteria collectively.

Based on guidance in ASC 320-10-65, in the event of the decline in fair value of a debt security, a holder of that security that does not intend to sell the debt security and for whom it is not more than likely than not that such holder will be required to sell the debt security before recovery of its amortized cost basis, is required to separate the decline in fair value into (a) the amount representing the credit loss and (b) the amount related to other factors. The amount of total decline in fair value related to the credit loss shall be recognized in earnings as an OTTI with the amount related to other factors recognized in accumulated other comprehensive loss net loss, net of tax. OTTI credit losses result in a permanent reduction of the cost basis of the underlying investment. The determination of OTTI is a subjective process, and different judgments and assumptions could affect the timing of the loss realization.

The Company has the following types of investments:

(a) Short-term investments — Short term investments are carried at cost, which approximates fair value, and include investments with maturities between 91 days and less than one year at date of acquisition. As of December 31, 2011 and 2010, short term investments consisted primarily of money market investments.

(b) Fixed maturities and equity securities — Fixed maturities and equity securities (common stocks, mutual funds and non-redeemable preferred stock) are classified as available-for-sale and carried at fair value. Unrealized gains or losses on available-for-sale securities are reported as a component of accumulated other comprehensive income.

(c) Mortgage and asset backed securities — For mortgage and asset backed securities, the Company recognizes income using the retrospective adjustment method based on prepayments and the estimated economic life of the securities. The effective yield reflects actual payments to date plus anticipated future payments.

(d) Limited partnerships — The Company uses the equity method of accounting for investments in limited partnerships in which its ownership interest of the limited partnership enables the Company to influence the operating or financial decisions of the investee company, but the Company’s interest in the limited partnership does not require consolidation. The Company’s proportionate share of equity in net income of these unconsolidated affiliates is reported in net investment income.

(e) Derivatives and hedging activities — The Company from time to time invests in a limited amount of derivatives and other financial instruments as part of its investment portfolio. Derivatives are financial arrangements among two or more parties with returns linked to an underlying equity, debt, commodity, asset, liability, foreign exchange rate or other index. Unless subject to a scope exclusion, the Company carries all derivatives on the consolidated balance sheet at fair value. For derivatives that do not qualify for hedge accounting, the changes in fair value of the derivative are presented as a component of operating income. The Company primarily utilizes the following types of derivatives:

• Credit default swap contracts (“CDS”), which, are valued in accordance with the terms of each contract based on the current interest rate spreads and credit risk of the referenced obligation of the underlying issuer and interest accrual through valuation date. Fair values are based on the price of the underlying bond on the valuation date. The Company may be required to deposit collateral with the counterparty if the market values of the contract fall below a stipulated amount in the contract. Such amounts are limited to the total equity of the account;

• Interest rate swaps (“IS”), which are valued in terms of the contract between the Company and the issuer of the swaps, are based on the difference between the stated floating rate of the underlying indebtedness, and a predetermined fixed rate for such indebtedness with the result that the indebtedness carries a net fixed interest rate; and

• Contracts for difference contracts (“CFD”), which, are valued based on the market price of the underlying stock. The Company may be required to deposit collateral with the counterparty if the market values of the contract fall below a stipulated amount in the contract.

(f) Securities sold under agreements to repurchase, at contract value — Securities sold under agreements to repurchase are accounted for as collateralized borrowing transactions and are recorded at their contracted repurchase amounts, plus accrued interest. The Company minimizes the credit risk that counterparties to transactions might be unable to fulfill their contractual obligations by monitoring exposure and collateral value and generally requiring additional collateral to be deposited with the Company when necessary.

Net investment income consists primarily of interest and dividends less expenses. Interest on fixed maturities, adjusted for any amortization of premium or discount, is recorded as income when earned. Investment expenses are accrued as incurred. Realized investment gains or losses are computed using the specific costs of securities sold, and, if applicable, include write-downs on investments having other-than-temporary decline in value.

Fair Value of Financial Instruments — The Company’s estimates of fair value for financial assets and financial liabilities are based on the framework established in ASC 820 Fair Value Measurements and Disclosures. The framework is based on the inputs used in valuation and gives the highest priority to quoted prices in active markets and requires that observable inputs be used in the valuations when available. The disclosure of fair value estimates in the ASC 820 hierarchy is based on whether the significant inputs into the valuation are observable. In determining the level of the hierarchy in which the estimate is disclosed, the highest priority is given to unadjusted quoted prices in active markets and the lowest priority to unobservable inputs that reflect the Company’s significant market assumptions. Additionally, valuation of fixed maturity investments is more subjective when markets are less liquid due to lack of market based inputs, which may increase the potential that the estimated fair value of an investment is not reflective of the price at which an actual transaction could occur. Fair values of other financial instruments approximate their carrying values.

For investments that have quoted market prices in active markets, the Company uses the quoted market prices as fair value and includes these prices in the amounts disclosed in the Level 1 hierarchy. The Company receives the quoted market prices from nationally recognized third-party pricing services (“pricing service”). When quoted market prices are unavailable, the Company utilizes a pricing service to determine an estimate of fair value. This pricing method is used, primarily, for fixed maturities. The fair value estimates provided by the pricing service are included in the Level 2 hierarchy. If the Company determines that the fair value estimate provided by the pricing service does not represent fair value or if quoted market prices and an estimate from pricing services are unavailable, the Company produces an estimate of fair value based on dealer quotations of the bid price for recent activity in positions with the same or similar characteristics to that being valued or through consensus pricing of a pricing service. Depending on the level of observable inputs, the Company will then determine if the estimate is Level 2 or Level 3 hierarchy.

Fixed Maturities.  The Company utilized a pricing service to estimate fair value measurements for all of its fixed maturities. The pricing service utilizes market quotations for fixed maturity securities that have quoted market prices in active markets. Since fixed maturities other than U.S. treasury securities generally do not trade on a daily basis, the pricing service prepares estimates of fair value measurements using relevant market data, benchmark curves, sector groupings and matrix pricing. The pricing service utilized by the Company has indicated it will produce an estimate of fair value only if there is verifiable information to produce a valuation. As the fair value estimates of most fixed maturity investments are based on observable market information rather than market quotes, the estimates of fair value other than U.S. Treasury securities are included in Level 2 of the hierarchy. U.S. Treasury securities are included in the amount disclosed in Level 1 as the estimates are based on unadjusted prices. The Company’s Level 2 investments include obligations of U.S. government agencies, municipal bonds, corporate debt securities and other mortgage backed securities.

Equity Securities.  For public common and preferred stocks, the Company receives estimates from a pricing service that are based on observable market transactions and includes these estimates in Level 1 hierarchy.

Other Investments.  The Company has approximately 1% of its investment portfolio, in limited partnerships or hedge funds where the fair value estimate is determined by a fund manager based on recent filings, operating results, balance sheet stability, growth and other business and market sector fundamentals. Due to the significant unobservable inputs in these valuations, the Company includes the estimate in the amount disclosed in Level 3 hierarchy. The Company has determined that its investments in Level 3 securities are not material to its financial position or results of operations.

Derivatives.  The Company estimates fair value using information provided by the portfolio manager for IS and CDS and the counterparty for CFD and classifies derivatives as Level 3 hierarchy.

Life Settlements — When the Company becomes the owner of a life insurance policy either by direct purchase or following a default on a premium finance loan, the life insurance premium for such policy is accounted for as an investment in life settlements. Investments in life settlements are accounted for 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 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 investments using the fair value method. Fair value of the investment in policies is determined using unobservable Level 3 inputs and is calculated by performing a net present value calculation of the face amount of the life policies less premiums for the total portfolio. The unobservable Level 3 inputs use new or updated information that affects our assumptions about remaining life expectancy, credit worthiness of the policy issuer, funds needed to maintain the asset until maturity, and discount rates.

Premium Finance Loans — The Company owns certain premium finance loans, in association with the acquisition of life settlement contracts. The Company records the premium finance loans initially at cost. These loans are collateralized by underlying life insurance policies and the Company is obligated to pay premiums on these policies. Interest income is not accrued on loans where management has determined that the borrowers may be unable to meet contractual obligations. Cash receipts on these loans (if any) are generally applied to the principal balance until the remaining balance is considered collectible, at which time interest income may be recognized when received. Upon default of a loan, the Company has the option to acquire the underlying collateral, if the Company believes it has the required economic value.

Warranty Fee Revenue — The Company promotes and markets extended service plans (“ESP”) to consumers through retailers and certain other marketing organizations usually with terms of coverage ranging from one to three years, commencing at the expiration of the manufacturers’ warranty, if applicable. The Company generally insures the obligations under ESPs through contractual liability insurance issued by one of its insurance company subsidiaries. Under the terms of service agreements with various retailers, the Company provides for marketing and administrative services related to ESP. These agreements are generally for one-year terms and can be cancelled by either party with thirty days advance notice. The Company recognizes revenue related to promotion, marketing and administration services at the time of the sale of ESP. However, the Company defers a portion of service revenue based upon an estimate of administrative services to be provided in future periods.

Deferred Policy Acquisition Costs — The Company defers commission expenses, premium taxes and assessments as well as certain sales, underwriting and safety costs that vary with and are primarily related to the acquisition of insurance policies. These acquisition costs are capitalized and charged to expense ratably as premiums are earned. The Company may realize deferred policy acquisition costs only if the ratio of loss and loss adjustment expense reserves (calculated on a discounted basis) to the premiums to be earned is less than 100%, as it historically has been. If, hypothetically, that ratio were to be above 100%, the Company could not continue to record deferred policy acquisition costs as an asset and may be required to establish a liability for a premium deficiency reserve. The Company considers anticipated investment income in determining whether a premium deficiency relating to short duration contracts exists. The change in net deferred acquisition costs was $56,320, $44,492 and $76,214 for the years ended December 31, 2011, 2010 and 2009, respectively. The amortization for deferred acquisition costs was $161,392, $102,085 and $73,531 in 2011, 2010 and 2009, respectively.

Reinsurance — Reinsurance premiums, losses and LAE are accounted for on a basis consistent with those used in accounting for the original policies issued and the terms of the reinsurance contracts. Premiums earned and losses incurred ceded to other companies have been recorded as a reduction of premium revenue and losses and LAE. Commissions allowed by reinsurers on business ceded have been recorded as ceding commission revenue. Reinsurance recoverables are reported based on the portion of reserves and paid losses and LAE that are ceded to other companies. The Company remains liable for all loss payments, notwithstanding the failure to collect from the reinsurer.

Assessments — Insurance related assessments are accrued in the period in which they have been incurred. A typical obligating event would be the issuance of an insurance policy or the occurrence of a claim. The Company is subject to a variety of assessments, such as assessments by state guaranty funds and workers’ compensation second injury funds. State guaranty funds assessments are used by state insurance regulators to cover losses of policyholders of insolvent insurance companies and for the operating expenses of such agencies. The Company uses estimated assessment rates in determining the appropriate assessment expense and accrual. The Company uses estimates derived from state regulators and/or National Association of Insurance Commissioners (“NAIC”) Tax and Assessments Guidelines. Assessment expense for the years ended December 31, 2011, 2010 and 2009 was approximately $8,504, $9,220 and $8,304, respectively.

Property and Equipment — Property and equipment are recorded at cost. Maintenance and repairs are charged to operations as incurred. Depreciation is computed on a straight-line basis over the estimated useful lives of the assets, as follows:

Building	40 years
Equipment	5 to 7 years
Computer equipment and software	3 to 20 years (primarily three years)
Leasehold improvements	Lesser of lease term or 15 years

The Company accounts for its internal use software under ASC 350 Intangibles — Goodwill and Other. Accordingly, the Company capitalizes costs of computer software developed or obtained for internal use that is specifically identifiable, has determinable lives and relates to future use.

Goodwill and Intangible Assets — The Company accounts for goodwill and intangible assets in accordance with ASC 350 Intangibles — Goodwill and Other. Upon the completion of an acquisition, the Company completes purchase price accounting in accordance with ASC 805, Business Combinations, which requires an acquirer to assign values to the acquired assets and liabilities based on their fair value. In the event that a purchase price paid is in excess of the net assets acquired, any unidentified excess is deemed to be goodwill. Goodwill is not amortized. Additionally as a result of an acquisition, the Company may obtain identifiable intangible assets. Indefinite lived intangible assets are not amortized. Intangible assets with a finite life are amortized over the estimated useful life of the asset. Intangible assets with an indefinite useful life are not amortized. Goodwill and intangible assets are tested for impairment on an annual basis or more frequently if changes in circumstances indicate that the carrying amount may not be recoverable. If the goodwill or intangible asset is impaired, it is written down to its realizable value with a corresponding expense reflected in the consolidated statement of operations. Goodwill and intangible assets with an indefinite useful life were carried at $165,427 and $123,994 as of December 31, 2011 and 2010, respectively. As of December 31, 2011 and 2010, intangible assets with a finite life were valued at $149,189 and $73,832, respectively. For the years ended December 31, 2011, 2010 and 2009, the Company amortized approximately $40,194, $14,305 and $4,023, respectively related to its intangible assets with a finite life.

Income Taxes — The Company joins its domestic subsidiaries in the filing of a consolidated federal income tax return and is party to federal income tax allocation agreements. Under the tax allocation agreements, the Company pays to or receives from its subsidiaries the amount, if any, by which the group’s federal income tax liability was affected by virtue of inclusion of the subsidiary in the consolidated federal return.

Deferred income taxes reflect the impact of “temporary differences” between the amount of assets and liabilities for financial reporting purposes and such amounts as measured by tax laws and regulations. The deferred tax asset primarily consists of book versus tax differences for premiums earned, loss and loss adjustment expense reserve discounting, policy acquisition costs, earned but unbilled premiums, and unrealized holding gains and losses on marketable equity securities. Changes in deferred income tax assets and liabilities that are associated with components of other comprehensive income, primarily unrealized investment gains and losses and foreign currency translation gains and losses, are recorded directly to other comprehensive income. Otherwise, changes in deferred income tax assets and liabilities are included as a component of income tax expense.

In assessing the recoverability of deferred tax assets, management considers whether it is more likely than not that we will generate future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, tax planning strategies and projected future taxable income in making this assessment. If necessary, the Company establishes a valuation allowance to reduce the deferred tax assets to the amounts that are more likely than not to be realized.

The Company recognizes tax benefits only for tax positions that are more likely than not to be sustained upon examination by taxing authorities. The Company’s policy is to prospectively classify accrued interest and penalties related to any unrecognized tax benefits in its income tax provision. The Company files its tax returns as prescribed by the tax laws of the jurisdictions in which it operates. Tax years 2007 through 2011 are still subject to examination. The Company does not anticipate any significant changes to its total unrecognized tax benefits within the next 12 months.

Foreign Currency — The Company assigns functional currencies to its foreign operations, which are generally the currencies of the local operating environment. Foreign currency amounts are remeasured to the functional currency and the resulting foreign exchange gains and losses are reflected in earnings. Functional currency amounts from the Company’s foreign operations are then translated into U.S. dollars. The change in unrealized foreign currency translation gain or loss during the year, net of tax, is a component of accumulated other changes in equity from nonowner sources. The foreign currency remeasurement and translation are calculated using current exchange rates for the items reported on the balance sheets and average exchange rates for items recorded in earnings.

Stock Compensation Expense — The Company follows ASC 720 Compensation — Stock Compensation and recognizes compensation expense for its share-based payments based on the fair value of the awards. Share-based payments include restricted stock, restricted stock units and stock option grants under the Company’s 2005 Equity Incentive Plan and 2010 Omnibus Incentive Plan. ASC 720 requires share-based compensation expense recognized to be based on estimated grant date fair value.

Earnings Per Share — The Company accounts for earnings per share under the two-class method, as described in ASC 260, Earnings Per Share. Under the two-class method, earnings for the period are allocated between common stockholders and other stockholders based on their respective rights to receive dividends. Restricted stock awards granted to employees under the Company’s 2005 Equity Incentive Plan are considered participating securities as they receive dividends on this stock.

Treasury Stock — The Company accounts for the treasury stock at the repurchase price as a reduction to stockholders’ equity.

Concentration and Credit Risk — Financial instruments that potentially subject the Company to concentration of credit risk are primarily cash and cash equivalents, investments and premium receivable. Investments are diversified through the types of investments, industry sectors and geographic regions. The Company limits the amount of credit exposure with any one financial institution and believes that no significant concentration of credit risk exists with respect to cash and investments. At December 31, 2011 and 2010, the outstanding premium receivable balance is generally diversified due to the number of entities composing the Company’s customer base. To reduce credit risk, the Company performs ongoing evaluations of its customers’ financial condition. The Company also has receivables from its reinsurers. Reinsurance contracts do not relieve the Company from its obligations to policyholders. Failure of reinsurers to honor their obligations could result in losses to the Company. The Company periodically evaluates the financial condition of its reinsurers to minimize its exposure to significant losses from reinsurer insolvencies. It is the policy of management to review all outstanding receivables at period end as well as the bad debt write-offs experienced in the past and establish an allowance for doubtful accounts, if deemed necessary.

Non-controlling Interest — The ownership interest in consolidated subsidiaries of non-controlling interests is reflected as non-controlling interest. The Company’s consolidation principles would also consolidate any entity in which the Company would be deemed a primary beneficiary. Non-controlling interest expense represents such non-controlling interests’ in the earnings of that entity. All significant transactions and account balances between the Company and its subsidiaries were eliminated during consolidation.

Use of Estimates — The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Such estimates and assumptions, which include the reserves for losses and loss adjustment expenses, are subject to considerable estimation error due to the inherent uncertainty in projecting ultimate claim amounts that will be reported and settled over a period of many years. In addition, estimates and assumptions associated with the recognition and amortization of deferred policy acquisition costs, the determination of fair value of invested assets and related impairments, and the determination of goodwill and intangible impairments require considerable judgment by management. On an on-going basis, management reevaluates its assumptions and the methods of calculating its estimates. Actual results may differ from the estimates and assumptions used in preparing the consolidated financial statements.

Reclassifications — Certain accounts in the prior years’ consolidated financial statements have been reclassified for comparative purposes to conform to the current year’s presentation. This did not have any impact on the net income of the Company.

Recent Accounting Literature

In December 2011, the Financial Accounting Standards Board (“FASB”) issued a new standard which indefinitely defers certain provisions of a previously issued standard, Accounting Standards Update (“ASU”) No. 2011-05 Comprehensive Income (Topic 220) that revised the manner in which companies present comprehensive income in financial statements. One of the ASU provisions required companies to present reclassification adjustments out of accumulated other comprehensive income by component in both the statement in which net income is presented and the statement in which other comprehensive income is presented. Accordingly, this requirement is indefinitely deferred and will be further deliberated by the FASB at a future date. The amendment will be effective for fiscal years and interim periods within those years that begin after December 15, 2011.

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. The new standard does not change the items that must be reported in other comprehensive income and will be effective for fiscal years and interim periods within those years that begin after December 15, 2011. The adoption of the new standard will not have a material impact on the Company’s results of operations, financial position or liquidity.

In September 2011, the FASB issued 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. 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 adoption of the standard will not have a material impact on the Company’s consolidated financial statements.

In April 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. The Company does not believe the impact of the adoption of this new guidance will have a material impact on the Company’s results of operations, financial position or liquidity.

In October 2010, the FASB issued ASU No. 2010-26, Accounting for Costs Associated with Acquiring or Renewing Insurance Contracts (“ASU 2010-26”). ASU 2010-26 modifies the types of costs that may be deferred, allowing insurance companies to only defer costs directly related to a successful contract acquisition or renewal. These costs include incremental direct costs of successful contracts, the portion of employees’ salaries and benefits related to time spent on acquisition activities for successful contracts and other costs incurred in the acquisition of a contract. Additional disclosure of the type of acquisition costs capitalized is also required. ASU 2010-26 is effective on prospective basis for interim and annual reporting periods beginning after December 15, 2011. The Company has completed its assessment using the prospective method and believes the adoption of the new standard will have an impact of additional expenses of approximately $8,000 on an annual basis on the Company’s consolidated financial statements.

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Statutory Financial Data

12 Months Ended

Dec. 31, 2011

Statutory Financial Data

22. Statutory Financial Data

The Company’s insurance subsidiaries file financial statements in accordance with statutory accounting practices (“SAP”) prescribed or permitted by domestic or foreign insurance regulatory authorities. The differences between statutory financial statements and financial statements prepared in accordance with GAAP vary between domestic and foreign jurisdictions. The principal differences relate to (1) acquisition costs incurred in connection with acquiring new business which are charged to expense under SAP but under GAAP are deferred and amortized as the related premiums are earned; (2) limitation on net deferred tax assets created by the tax effects of temporary differences; (3) unpaid losses and loss expense, and unearned premium reserves are presented gross of reinsurance with a corresponding asset recorded; and (4) fixed maturity portfolios that are carried at fair value and changes in fair value are reflected directly in unassigned surplus, net of related deferred taxes.

Statutory surplus and net income for insurance operations as reported to regulatory authorities were approximately as follows:

(Amounts in Thousands) December 31, 2011	Statutory Surplus		GAAP Equity		Statutory Net Income		GAAP Net Income
TIC (domestic)	$	193,036	$	215,664	$	1,721	$	13,849
RIC (domestic)		46,107		52,313		903		1,524
WIC (domestic)		82,580		84,260		5,590		7,386
AIIC (domestic)		72,034		76,513		13,546		12,348
SNIC (domestic)		31,493		32,772		3,338		4,050
MCIC (domestic)		12,512		13,000		936		984
ALIC (domestic)		2,128		2,128		—		—
AICK (domestic)		12,852		13,324		22		(26	)
AEL (United Kingdom)		160,724		169,932		51,240		54,721
AIU (Ireland)		106,574		119,692		39,927		39,509
AII (Bermuda)		369,336		518,206		120,904		120,904

(Amounts in Thousands) December 31, 2010	Statutory Surplus		GAAP Equity		Statutory Net Income		GAAP Net Income
TIC (domestic)	$	186,470	$	203,052	$	11,473	$	13,104
RIC (domestic)		43,957		50,023		4,445		6,197
WIC (domestic)		60,943		62,538		5,234		7,401
AIIC (domestic)		58,391		63,508		10,988		10,660
SNIC (domestic)		16,921		17,665		1,372		1,158
MCIC (domestic)		11,599		12,032		793		655
ALIC (domestic)		2,081		2,146		8		8
AICK (domestic)		12,718		13,372		836		817
AEL (United Kingdom)		89,710		89,710		14,161		14,223
AIU (Ireland)		128,028		135,880		22,117		17,589
AII (Bermuda)		286,714		406,088		52,312		52,312

(Amounts in Thousands) December 31, 2009	Statutory Surplus		GAAP Equity		Statutory Net Income			GAAP Net Income
TIC (domestic)	$	167,316	$	178,467	$	15,259		$	16,338
RIC (domestic)		36,782		40,460		8,772			9,413
WIC (domestic)		52,875		53,511		6,806			7,402
AIIC (domestic)		51,636		58,646		10,973			11,425
SNIC (domestic)		15,641		16,252		231			149
MCIC (domestic)		10,967		11,258		514			422
ALIC (domestic)		2,116		2,121		11			—
AICK (domestic)		9,648		10,035		(263	)		(207	)
AEL (United Kingdom)		37,785		37,785		2,015			2,266
AIU (Ireland)		96,329		111,156		15,387			13,999
AII (Bermuda)		224,823		327,681		17,891			17,891

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Dividend Restriction and Risk Based Capital

12 Months Ended

Dec. 31, 2011

Dividend Restriction and Risk Based Capital

21. Dividend Restriction and Risk Based Capital

The Company’s insurance subsidiaries are subject to statutory and regulatory restrictions, applicable to insurance companies, imposed by the states of domicile, which limit the amount of cash dividends or distributions that they may pay and was approximately $306,100 and $253,000 as of December 31, 2011 and 2010, respectively. During 2011, 2010 and 2009, the Company received a dividend of approximately $5,800, $5,000 and $4,500, respectively, from one of its subsidiaries.

Property and casualty insurance companies in the United States are subject to certain Risk-Based Capital (“RBC”) requirements as specified by the National Association of Insurance Commissioners. Under such requirements, the amount of capital and surplus maintained by a property and casualty insurance company is to be determined on various risk factors. As of December 31, 2011 and 2010, the capital and surplus of the Company’s eight insurance subsidiaries domiciled in the United States exceeded the RBC requirements.

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Geographic Information

12 Months Ended

Dec. 31, 2011

Geographic Information

23. Geographic Information

Three of the Company’s insurance subsidiaries (AII, AIU and AEL) operate outside the United States. Their assets and liabilities are located principally in the countries where the insurance risks are written or assumed. For both 2011 and 2010, 34% of the Company’s gross written premiums related to foreign risks, of which 37% were written from the United Kingdom. For 2009, 21% of the Company’s gross written premiums related to foreign risks, of which 47% were written from the United Kingdom. As of December 31, 2011 and 2010, approximately 46% and 47%, respectively, of the consolidated assets were located outside the United States. For the years ended 2011, 2010 and 2009, approximately 77%, 70% and 66%, respectively, of the consolidated revenues earned were located in or derived from foreign countries.

The domestic and foreign components of Income before equity in earnings (loss) of unconsolidated subsidiaries for the years ended December 31, 2011, 2010 and 2009 are as follows:

(Amounts in Thousands)	2011		2010		2009
Domestic	$	24,328	$	65,882	$	73,542
Foreign		204,326		105,519		57,962
	$	228,654	$	171,401	$	131,504

The following table summarizes the Company’s operations by major geographic segment:

(Amounts in Thousands)	Domestic		Bermuda		Other Foreign
December 31, 2011:
Revenue	$	306,915	$	865,262	$	169,406
Property and equipment		58,682		—		2,871
December 31, 2010:
Revenue	$	299,340	$	603,827	$	99,291
Property and equipment		30,340		—		549
December 31, 2009:
Revenue	$	249,934	$	429,042	$	61,235
Property and equipment		15,428		—		430

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Segments

12 Months Ended

Dec. 31, 2011

Segments

24. Segments

The Company currently operates four business segments, Small Commercial Business; Specialty Risk and Extended Warranty; Specialty Program and Personal Lines Reinsurance (began in 2010 with the investment in ACAC). The “Corporate & Other” segment represents the activities of the holding company as well as a portion of service and fee revenue. In determining total assets (excluding cash and invested assets) by segment, the Company identifies those assets that are attributable to a particular segment such as deferred acquisition cost, reinsurance recoverable, goodwill, intangible assets and prepaid reinsurance while the remaining assets are allocated based on net written premium by segment. In determining cash and invested assets by segment, the Company matches certain identifiable liabilities such as unearned premium and loss and loss adjustment expense reserves by segment. The remaining cash and invested assets are then allocated based on net written premium by segment. Investment income and realized gains (losses) are determined by calculating an overall annual return on cash and invested assets and applying that overall return to the cash and invested assets by segment. Ceding commission revenue is allocated to each segment based on that segment’s proportionate share of the Company’s overall acquisition costs. Interest expense is allocated based on net written premium by segment. Income taxes are allocated on a pro rata basis based on the Company’s effective tax rate. Additionally, management reviews the performance of underwriting income in assessing the performance of and making decisions regarding the allocation of resources to the segments. Underwriting income excludes, primarily, service and fee revenue, investment income and other revenues, other expenses, interest expense and income taxes. Management believes that providing this information in this manner is essential to providing Company’s shareholders with an understanding of the Company’s business and operating performance.

The Company’s Specialty Risk and Extended Warranty segment derived over ten percent of gross written premium from one broker in 2011 and was approximately $237,000. In both 2011 and 2010, the Specialty Program segment derived over ten percent of gross written premium from one program and was approximately $66,000 and $59,000, respectively.

The following tables summarize business segments as follows for 2011, 2010 and 2009:

(Amounts in Thousands)	Small Commercial Business			Specialty Risk and Extended Warranty			Specialty Program			Personal Lines Reinsurance			Corporate and Other			Total
Year ended December 31, 2011:
Gross premium written	$	609,822		$	1,056,511		$	381,541		$	102,598			—		$	2,150,472
Net premium written		355,721			615,563			202,715			102,598			—			1,276,597
Change in unearned premium		(35,455	)		(168,798	)		(31,340	)		(4,143	)		—			(239,736	)
Net earned premium		320,266			446,765			171,375			98,455			—			1,036,861
Ceding commission – primarily related party		62,093			57,648			34,212			—			—			153,953
Loss and loss adjustment expense		(201,921	)		(297,501	)		(114,685	)		(64,226	)		—			(678,333	)
Acquisition costs and other underwriting expenses		(148,041	)		(137,442	)		(81,568	)		(31,353	)		—			(398,404	)
		(349,962	)		(434,943	)		(196,253	)		(95,579	)		—			(1,076,737	)
Underwriting income		32,397			69,470			9,334			2,876			—			114,077
Service, fee and other revenues		20,887			67,312			17			—			20,444			108,660
Investment income and realized gain (loss)		23,385			22,708			10,104			2,086			—			58,283
Other expenses		(25,000	)		(43,354	)		(15,143	)		(3,114	)		—			(86,611	)
Interest expense		(4,641	)		(8,049	)		(2,811	)		(578	)		—			(16,079	)
Foreign currency loss		—			(2,418	)		—			—			—			(2,418	)
Gain on life settlement contracts		13,535			23,472			8,199			1,686			—			46,892
Acquisition gain on purchase		5,850			—			—			—			—			5,850
Provision for income taxes		(11,897	)		(23,135	)		(1,738	)		(530	)		(5,072	)		(42,372	)
Equity in earnings of unconsolidated subsidiaries –  related party		—			—			—			—			7,871			7,871
Non-controlling interest		(6,846	)		(11,873	)		(4,147	)		(853	)		—			(23,719	)
Net income attributable to AmTrust Financial Services, Inc.	$	47,670		$	94,133		$	3,815		$	1,573		$	23,243		$	170,434

(Amounts in Thousands)	Small Commercial Business			Specialty Risk and Extended Warranty			Specialty Program			Personal Lines Reinsurance			Corporate and Other			Total
Year ended December 31, 2010:
Gross premium written	$	465,951		$	748,525		$	264,051		$	82,295			—		$	1,560,822
Net premium written		243,146			362,100			139,685			82,295			—			827,226
Change in unearned premium		9,296			(58,517	)		568			(32,914	)		—			(81,567	)
Net earned premium		252,442			303,583			140,253			49,381			—			745,659
Ceding commission – primarily related party		66,282			48,015			23,964			—			—			138,261
Loss and loss adjustment expense		(154,442	)		(191,149	)		(94,261	)		(31,629	)		—			(471,481	)
Acquisition costs and other underwriting expenses		(128,142	)		(98,547	)		(60,071	)		(16,049	)		—			(302,809	)
		(282,584	)		(289,696	)		(154,332	)		(47,678	)		—			(774,290	)
Underwriting income		36,140			61,902			9,885			1,703			—			109,630
Service, fee and other revenues		19,696			29,729			—			—			12,642			62,067
Investment income and realized gain (loss)		21,951			20,339			11,616			2,564			—			56,470
Other expenses		(17,966	)		(24,443	)		(10,397	)		(3,597	)		—			(56,403	)
Interest expense		(4,110	)		(5,591	)		(2,378	)		(823	)		—			(12,902	)
Foreign currency gain		—			684			—			—			—			684
Gain on life settlement contracts		3,776			5,138			2,185			756			—			11,855
Provision for income taxes		(16,331	)		(24,091	)		(2995	)		(166	)		(3,470	)		(47,053	)
Equity in earnings of unconsolidated subsidiaries –  related party		—			—			—			—			24,044			24,044
Non-controlling interest		(1,887	)		(2,569	)		(1,093	)		(378	)		—			(5,927	)
Net income attributable to AmTrust Financial Services, Inc.	$	41,269		$	61,098		$	6,823		$	59		$	33,216		$	142,465

(Amounts in Thousands)	Small Commercial Business			Specialty Risk and Extended Warranty			Specialty Program			Corporate and Other			Total
Year ended December 31, 2009:
Gross premium written	$	469,627		$	461,338		$	267,981		$	—		$	1,198,946
Net premium written		255,496			245,604			142,326			—			643,426
Change in unearned premium		(16,525	)		(55,378	)		2,359			—			(69,544	)
Net earned premium		238,971			190,226			144,685			—			573,882
Ceding commission – primarily related party		59,415			25,909			28,607			—			113,931
Loss and loss adjustment expense		(137,525	)		(98,797	)		(91,449	)		—			(327,771	)
Acquisition costs and other underwriting expenses		(119,734	)		(55,551	)		(68,994	)		—			(244,279	)
		(257,259	)		(154,348	)		(160,443	)		—			(572,050	)
Underwriting income		41,127			61,787			12,849			—			115,763
Service and fee revenues		12,323			9,841			—			8,526			30,690
Investment income, realized gain (loss) and loss on managed assets		9,880			6,731			5,097			—			21,708
Other expenses		(9,073	)		(8,114	)		(5,045	)		—			(22,232	)
Interest expense		(6,890	)		(6,162	)		(3,832	)		—			(16,884	)
Foreign currency gain		—			2,459			—			—			2,459
Provision for income taxes		(9,891	)		(13,894	)		(1,894	)		(1,780	)		(27,459	)
Equity in earnings of unconsolidated subsidiaries – related party		—			—			—			(822	)		(822	)
Net income	$	37,476		$	52,648		$	7,175		$	5,924		$	103,223

(Amounts in Thousands)	Small Commercial Business		Specialty Risk and Extended Warranty		Specialty Program		Personal Lines Reinsurance		Corporate and other		Total
As of December 31, 2011:
Fixed assets	$	17,767	$	30,811	$	10,762	$	2,213	$	—	$	61,553
Goodwill and intangible assets		123,976		167,782		22,858		—		—		314,616
Total assets		2,151,924		2,483,923		913,141		133,566		—		5,682,554
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

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Nature of Operations

12 Months Ended

Dec. 31, 2011

Nature of Operations

1. Nature of Operations

AmTrust Financial Services, Inc. (the “Company”) is an insurance holding company formed under the laws of Delaware. Through its wholly-owned subsidiaries, the Company provides specialty property and casualty insurance focusing on workers’ compensation and commercial package coverage for small business, specialty risk and extended warranty coverage, and property and casualty coverage for middle market business. The Company also provides reinsurance, primarily on personal and commercial automotive business.

The Company transacts business through eleven insurance company subsidiaries: Technology Insurance Company, Inc. (“TIC”), Rochdale Insurance Company (“RIC”), Wesco Insurance Company (“WIC”), Associated Industries Insurance Company, Inc. (“AIIC”), Milwaukee Casualty Insurance Company (“MCIC”), Security National Insurance Company (“SNIC”), AmTrust Insurance Company of Kansas, Inc. (“AICK”) and AmTrust Lloyd’s Insurance Company of Texas (“ALIC”), which are domiciled in New Hampshire, New York, Delaware, Florida, Wisconsin, Texas, Kansas and Texas, respectively; and AmTrust International Insurance Ltd. (“AII”), AmTrust International Underwriters Limited (“AIU”) and AmTrust Europe, Ltd. (“AEL”), which are domiciled in Bermuda, Ireland and England, respectively.

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Equity Investment in Unconsolidated Subsidiary

12 Months Ended

Dec. 31, 2011

Equity Investment in Unconsolidated Subsidiary

25. Equity Investment in Unconsolidated Subsidiary

The following table summarizes total assets and total liabilities as of December 31, 2011 and 2010, and the results of operations for the Company’s unconsolidated equity method investment in ACAC for the years ended December 31, 2011 and 2010:

	As of December 31,
(Amounts in Thousands)	2011		2010
Balance sheet data:
Investments	$	782,711	$	840,504
Premiums and other receivables		441,817		363,505
Reinsurance recoverable – unpaid loss		775,444		695,023
Total assets		2,403,477		2,229,662
Reserve for insurance loss and loss adjustment expenses		1,053,137		1,081,630
Unearned insurance premiums and revenue		449,598		443,910
Total liabilities		2,026,179		1,903,984

	2011		2010
Results of operations:
Gross written premium	$	1,172,686	$	904,553
Net earned premium		498,205		560,917
Income from continuing operations		54,046		70,034
Net income		54,046		119,211

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CONSOLIDATED BALANCE SHEETS (USD $) In Thousands, unless otherwise specified	Dec. 31, 2011	Dec. 31, 2010
Investments:
Fixed maturities, available-for-sale, at market value (amortized cost $1,382,863; $1,192,844)	$ 1,394,243	$ 1,208,813
Equity securities, available-for-sale, at market value (cost $34,041; $18,577)	35,600	17,412
Short-term investments	128,565	32,137
Equity investments in unconsolidated subsidiaries - related parties	87,498	77,136
Other investments	14,588	21,514
Total investments	1,660,494	1,357,012
Cash and cash equivalents	406,847	192,925
Restricted cash and cash equivalents	23,104	17,130
Accrued interest and dividends	12,644	7,979
Premiums receivable, net	932,992	727,561
Reinsurance recoverable (related party $597,525; $386,932)	1,098,569	775,432
Prepaid reinsurance premium (related party $429,124; $283,899)	584,871	484,960
Prepaid expenses and other assets (recorded at fair value $131,387; $22,155)	292,849	155,799
Federal income tax receivable	13,024	10,269
Deferred policy acquisition costs	280,991	224,671
Property and equipment, net	61,553	30,889
Goodwill	147,654	106,220
Intangible assets, net	166,962	91,606
Assets, Total	5,682,554	4,182,453
Liabilities:
Loss and loss expense reserves	1,879,175	1,263,537
Unearned premiums	1,366,170	1,024,965
Ceded reinsurance premiums payable (related party $222,408; $95,629)	337,508	266,314
Reinsurance payable on paid losses	14,731	11,343
Funds held under reinsurance treaties	49,249	3,217
Note payable on collateral loan - related party	167,975	167,975
Securities sold but not yet purchased, at market	55,942	8,847
Securities sold under agreements to repurchase, at contract value	191,718	347,617
Accrued expenses and other current liabilities (recorded at fair value $7,311; $4,711)	267,643	193,008
Deferred income taxes	108,775	9,883
Debt	279,600	144,781
Total liabilities	4,718,486	3,441,487
Commitments and contingencies
Redeemable non-controlling interest	600	600
Stockholders' equity:
Common stock, $.01 par value; 100,000 shares authorized, 84,906 and 84,314 issued in 2011 and 2010, respectively; 60,106 and 59,565 outstanding in 2011 and 2010, respectively	849	844
Preferred stock, $.01 par value; 10,000 shares authorized
Additional paid - in capital	582,321	548,731
Treasury stock at cost; 24,800 and 24,816 shares in 2011 and 2010, respectively	(300,365)	(300,489)
Accumulated other comprehensive loss	(9,999)	(266)
Retained earnings	617,757	467,694
Total AmTrust Financial Services, Inc. equity	890,563	716,514
Non-controlling interest	72,905	23,852
Total stockholders' equity	963,468	740,366
Liabilities and Equity, Total	$ 5,682,554	$ 4,182,453

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CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (USD $) In Thousands, unless otherwise specified	Total	Common Stock	Additional Paid-in Capital	Treasury Stock	Accumulated Other Comprehensive Income (Loss)	Retained Earnings	Non-controlling interest
Beginning Balance at Dec. 31, 2008	$ 392,548	$ 842	$ 539,421	$ (294,803)	$ (105,815)	$ 252,903
Comprehensive income, net of tax:
Net income	103,223					103,223
Foreign currency translation	4,863				4,863
Unrealized holding gain (loss) on investments	63,370				63,370
Reclassification adjustment for securities sold during the year	20,562				20,562
Total comprehensive income	192,018
Stock option compensation	4,241		4,241
Stock repurchase	(6,086)			(6,086)
Exercise of stock options	315		315
Common stock dividend	(13,644)					(13,644)
Ending Balance at Dec. 31, 2009	569,392	842	543,977	(300,889)	(17,020)	342,482
Comprehensive income, net of tax:
Net income	148,392					148,392
Foreign currency translation	(4,820)				(4,820)
Unrealized holding gain (loss) on investments	8,414				8,414
Reclassification adjustment for securities sold during the year	13,160				13,160
Total comprehensive income	165,146
Non-controlling interest in subsidiaries	(5,927)					(5,927)
Comprehensive income attributable to AmTrust	159,219
Capital contribution to subsidiaries							17,925
Income attributable to non-controlling interests	(5,927)						5,927
Issuance of restricted stock			(400)	400
Stock option compensation	3,386		3,386
Exercise of stock options	1,770	2	1,768
Common stock dividend	(17,253)					(17,253)
Ending Balance at Dec. 31, 2010	716,514	844	548,731	(300,489)	(266)	467,694	23,852
Comprehensive income, net of tax:
Net income	194,153					194,153
Foreign currency translation	(4,815)				(4,815)
Change in fair value of derivative	(2,280)				(2,280)
Unrealized holding gain (loss) on investments	4,518				4,518
Reclassification adjustment for securities sold during the year	(7,156)				(7,156)
Total comprehensive income	184,420
Non-controlling interest in subsidiaries	(23,719)					(23,719)
Comprehensive income attributable to AmTrust	160,701
Capital contribution to subsidiaries							25,334
Equity component of convertible senior notes, net of income tax and issue costs	22,723		22,723
Income attributable to non-controlling interests	(23,719)						23,719
Issuance of restricted stock			(124)	124
Stock option compensation	5,571		5,571
Exercise of stock options	5,425	5	5,420
Common stock dividend	(20,371)					(20,371)
Ending Balance at Dec. 31, 2011	$ 890,563	$ 849	$ 582,321	$ (300,365)	$ (9,999)	$ 617,757	$ 72,905

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SUMMARY OF INVESTMENTS OTHER THAN INVESTMENTS IN RELATED PARTIES

12 Months Ended

Dec. 31, 2011

SUMMARY OF INVESTMENTS OTHER THAN INVESTMENTS IN RELATED PARTIES

Schedule I

SUMMARY OF INVESTMENTS
OTHER THAN INVESTMENTS IN RELATED PARTIES

At December 31, 2011 Type of Investment	Cost(1)		Value		Amount at which Shown in the Balance Sheet
	(In Thousands)
Fixed Maturities:
Bonds:
United States government and government agencies & authorities	$	392,327	$	414,537	$	414,537
States, municipalities and political subdivisions		268,240		275,018		275,018
Foreign governments		9,527		9,527		9,527
Public utilities		38,434		38,506		38,506
Convertibles and bonds with warrants attached		—		—		—
All other corporate bonds		674,335		656,655		656,655
Certificates of deposit		—		—		—
Redeemable preferred stock		—		—		—
Total fixed maturities		1,382,863		1,394,243		1,394,243
Equity securities:
Common stocks:
Public utilities Banks, trust and insurance companies		20,232		22,624		22,624
Industrial, miscellaneous and all other Nonredeemable preferred stocks		13,809		12,976		12,976
Total equity securities		34,041		35,600		35,600
Short-term investments, at cost (approximates market value)		128,565		128,565		128,565
Other invested assets (approximates market value)		14,588		14,588		14,588
Total investments	$	1,560,057	$	1,572,996	$	1,572,996

(1) Original cost of equity securities and, as to fixed maturities, original cost reduced by repayments and adjusted for amortization of premiums or accrual of discounts.

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Share Based Compensation

12 Months Ended

Dec. 31, 2011

Share Based Compensation

15. 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. This plan replaced the 2005 Equity Incentive Plan. 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 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 and Equity and Incentive Plan were absorbed into the Plan. As of December 31, 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.

A summary of the Company’s stock option activity for the years ended December 31, 2011, 2010 and 2009 is shown below:

	2011					2010					2009
	Shares			Weighted Average Exercise Price		Shares			Weighted Average Exercise Price		Shares			Weighted Average Exercise Price
Outstanding at beginning of year		4,126,926		$	10.46		4,168,089		$	10.12		3,728,500		$	9.88
Granted		235,000			16.83		276,250			14.24		565,539			10.95
Forfeited		(64,533	)		14.96		(116,500	)		11.16		(92,250	)		9.26
Exercised		(525,605	)		9.20		(200,913	)		8.10		(33,700	)		7.50
Outstanding at end of year		3,771,788		$	10.96		4,126,926		$	10.46		4,168,089		$	10.12

The fair value was estimated at the date of grant with the following weighted average assumptions for the years ended December 31, 2011, 2010 and 2009:

	2011			2010			2009
Volatility		32.75	%		31.43	%		31.04	%
Risk-free interest rate		2.11	%		1.92	%		2.50	%
Weighted average expected lives in years		6.25			6.25			6.25
Dividend rate		1.65	%		1.98	%		1.98	%
Forfeiture rate		0.50	%		0.50	%		1.45	%

The weighted average grant date fair value of options granted was $6.97, $3.94 and $3.04 during 2011, 2010 and 2009, respectively. As of December 31, 2011 and 2010, all option grants outstanding had an approximate weighted average remaining life of 5.8 and 6.7 years, respectively. As of December 31, 2011 and 2010, there were approximately 3,166,000 shares and 3,118,000 shares, respectively, with a weighted average exercise price of $10.26 and $9.62, respectively, which were exercisable.

A summary of the Company’s restricted stock and restricted stock unit activity for the years ended December 31, 2011 and 2010 is shown below:

	2011					2010
	Shares or Units			Weighted Average Grant Date Fair Value		Shares or Units			Weighted Average Grant Date Fair Value
Non-vested at beginning of year		139,388		$	14.04		—		$	—
Granted		204,260			20.39		140,828			14.04
Vested		(44,225	)		14.08		—			—
Forfeited		(8,193	)		19.99		(1,440	)		13.92
Non-vested at end of year		291,230		$	22.24		139,388		$	14.04

Compensation expense for all share-based payments under ASC 718-10-30 was approximately $5,571, $3,386 and $4,241 for the years ended December 31, 2011, 2010 and 2009, respectively. The Company had approximately $5,346, $4,189 and $5,144 of unrecognized compensation cost related to all share based compensation as of December 31, 2011, 2010 and 2009, respectively.

The intrinsic value of stock options exercised during 2011, 2010 and 2009 was $6,957, $1,286 and $152, respectively. The intrinsic value of stock options that were outstanding as December 31, 2011 and 2010 was $48,247 and $29,044, respectively.

Cash received from options exercised was $5,425, $1,700 and $315 during 2011, 2010 and 2009 respectively.

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AMTRUST FINANCIAL SERVICES CONDENSED FINANCIAL INFORMATION OF REGISTRANT

12 Months Ended

Dec. 31, 2011

AMTRUST FINANCIAL SERVICES CONDENSED FINANCIAL INFORMATION OF REGISTRANT

Schedule II

AMTRUST FINANCIAL SERVICES
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
  
BALANCE SHEET — PARENT COMPANY ONLY

	December 31,
	2011			2010
	(In Thousands)
Assets:
Cash	$	—		$	—
Invested assets		9			5,009
Carrying value of subsidiaries, at equity		1,107,857			912,027
Other assets		142,090			113,844
Total Assets		1,249,956			1,030,880
Liabilities:
Due to affiliates – net		42,654			150,202
Notes payable		7,362			21,066
Convertible senior notes		138,506			—
Junior subordinated debt		123,714			123,714
Other liabilities		47,157			19,384
Total Liabilities		359,393			314,366
Stockholders’ Equity
Common stock		849			844
Paid-in and contributed capital		582,321			548,731
Treasury shares		(300,365	)		(300,489	)
Accumulated other comprehensive income		(9,999	)		(266	)
Retained earnings		617,757			467,694
Total Shareholders’ Equity		890,563			716,514
Total Liabilities and Shareholders’ Equity	$	1,249,956		$	1,030,880

STATEMENT OF INCOME — PARENT COMPANY ONLY

	Year Ended December 31,
	2011		2010		2009
	(In Thousands)
Income:
Investment income	$	294	$	2,900	$	4,154
Equity in undistributed net income of consolidated subsidiaries and partially-owned companies		212,926		162,202		117,473
Miscellaneous income (expense)		63		120		661
Total Income		213,283		165,222		122,288
Expenses:
Interest expense		3,861		1,725		3,422
Federal tax expense		—		4,746		5,547
Other expenses from operations		15,269		10,359		10,096
Total Expenses		19,130		16,830		19,065
Net Income	$	194,153	$	148,392	$	103,223

Schedule II

AMTRUST FINANCIAL SERVICES
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
  
STATEMENT OF CASH FLOWS — PARENT COMPANY ONLY

	December 31,
	2011			2010			2009
	(In Thousands)
Cash flows from operating activities:
Net income	$	194,153		$	146,340		$	103,223
Depreciation and amortization		948			1,197			1,104
Stock option compensation		5,571			3,386			4,241
Discount on note		462			771			1,067
Adjustments to reconcile net income to net cash changes in assets (increase) decrease:
Carrying value of equity interest in subsidiaries		(221,166	)		(71,492	)		(117,224	)
Equity (earnings) losses and gain on investments in unconsolidated subsidiaries		(7,871	)		(24,044	)		822
Other assets		(28,246	)		20,589			(5,300	)
Changes in liabilities increase (decrease):
Due to affiliates		(107,548	)		13,536			58,994
Other liabilities		27,772			8,449			(2,476	)
Net cash provided by (used in) operating activities		(135,925	)		98,732			44,451
Cash flows from investing activities:
Capital expenditures		(20	)		(299	)		(36	)
Investment in subsidiary		(4,027	)		—			—
Investment in unconsolidated subsidiary		—			(53,055	)		—
Acquisition of intangible assets		—			—			(7,610	)
Acquisition of subsidiary companies, net of cash acquired		—			(11,295	)		—
Net cash used in investing activities		(4,047	)		(64,649	)		(7,646	)
Cash flows from financing activities:
Issuance of debt		298,200			—			—
Payment of debt		(137,367	)		(20,833	)		(20,833	)
Financing fees		(6,574	)		—			—
Net, issuance (repurchase) of common stock		5,425			1,770			(5,771	)
Dividends paid		(19,712	)		(16,647	)		(13,088	)
Net cash (used in) provided by financing activities		139,972			(35,710	)		(39,692	)
Net decrease in cash and cash equivalents		—			(1,627	)		(2,887	)
Cash and cash equivalents, beginning of the year		—			1,627			4,514
Cash and cash equivalents, end of period	$	—		$	—		$	1,627

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Employee Benefit Plans

12 Months Ended

Dec. 31, 2011

Employee Benefit Plans

17. Employee Benefit Plans

The Company sponsors a defined contribution pension plan. Participation in this plan is available to a majority of employees. Contributions to this plan were based on a percentage of employee contributions. The cost of this plan for the Company was approximately $1,397, $1,172 and $1,021 for the years ended December 31, 2011, 2010 and 2009, respectively.

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CONSOLIDATED STATEMENTS OF CASH FLOWS (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2011	Dec. 31, 2010	Dec. 31, 2009
Cash flows from operating activities:
Net income	$ 194,153	$ 148,392	$ 103,223
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	50,000	18,429	8,791
Equity (earnings) losses and gain on investment in unconsolidated subsidiaries	(7,871)	(24,044)	822
Gain on investment in life settlement contracts	(46,892)	(11,855)
Realized (gain) loss on marketable securities	(7,179)	(27,149)	8,801
Acquisition gain on purchase	(5,850)
Non-cash write-down of marketable securities	4,411	21,196	24,778
Discount on notes payable	462	772	1,067
Stock based compensation	5,571	3,386	4,241
Bad debt expense	7,287	6,037	4,843
Foreign currency (gain) loss	2,418	(684)	(2,459)
Changes in assets - (increase) decrease:
Premiums and notes receivable	(186,721)	(208,677)	(81,137)
Reinsurance recoverable	(174,988)	(132,111)	(58,499)
Deferred policy acquisition costs, net	(56,320)	(44,492)	(76,214)
Prepaid reinsurance premiums	(99,911)	(74,407)	(38,523)
Prepaid expenses and other assets	(40,229)	(48,210)	(8,696)
Changes in liabilities - increase (decrease):
Reinsurance premium payable	71,194	132,238	(1,700)
Loss and loss expense reserves	283,978	171,593	77,885
Unearned premiums	315,208	153,186	111,864
Funds held under reinsurance treaties	(5,683)	2,527	462
Accrued expenses and other current liabilities	44,071	(63,402)	27,191
Deferred tax asset (liability)	(52,551)	3,626	57,673
Net cash provided by operating activities	294,558	26,351	164,413
Cash flows from investing activities:
Purchases of available for sale fixed maturities	(2,065,393)	(3,711,080)	(498,035)
Purchases of equity securities	(37,410)	(28,321)	(26,893)
Purchases of other investments	(611)	(5,284)	(1,398)
Sales of held to maturity fixed maturities			48,881
Sales of available for sale fixed maturities	2,122,923	3,573,660	350,837
Sales of equity securities	17,634	65,531	21,637
Sales of other investments	6,776	200
Net (purchases) sales of short term investments	(96,428)	(872)	136,580
Acquisition of and capitalized premiums for life settlement contracts	(53,363)	(14,574)
Receipt of life settlement contract proceeds	10,530
Acquisition of renewal rights and goodwill	(30,388)		(7,904)
Loss portfolio transfer, net of cash obtained	28,969
Acquisition of subsidiaries, net of cash obtained	43,950	6,929	6,545
Investment in ACAC		(53,055)
Increase in restricted cash and cash equivalents	(5,974)	(8,180)	(2,588)
Purchase of property and equipment	(38,601)	(14,722)	(5,519)
Net cash (used in) provided by investing activities	(97,386)	(209,670)	22,143
Cash flows from financing activities:
Repurchase agreements, net	(155,899)	174,843	(111,718)
Revolving credit facility borrowings	123,200
Revolving credit facility payments	(123,200)
Convertible senior notes proceeds	175,000
Secured loan agreement borrowings	10,800
Secured loan agreements payments	(782)
Term loan payment	(6,667)	(13,333)	(13,333)
Non-interest bearing note payment	(7,500)	(7,500)	(7,500)
Financing fees	(6,644)
Repurchase of common stock			(6,086)
Capital contribution to subsidiaries	25,334	11,025
Stock option exercise and other	5,425	1,770	315
Dividends distributed in common stock	(19,712)	(16,647)	(13,088)
Net cash provided by (used in) financing activities	19,355	150,158	(151,410)
Effect of exchange rate changes on cash	(2,605)	1,226	4,023
Net increase (decrease) in cash and cash equivalents	213,922	(31,935)	39,169
Cash and cash equivalents, beginning year	192,925	224,860	185,691
Cash and cash equivalents, end of year	406,847	192,925	224,860
Supplemental Cash Flow Information
Interest	12,931	13,405	14,601
Income tax payments	14,158	33,480	18,802
Warrantech
Cash flows from investing activities:
Acquisition of subsidiaries, net of cash obtained		(9,056)
Risk Services
Cash flows from investing activities:
Acquisition of subsidiaries, net of cash obtained		$ (10,846)

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CONSOLIDATED BALANCE SHEETS (Parenthetical) (USD $) In Thousands, except Per Share data, unless otherwise specified	Dec. 31, 2011	Dec. 31, 2010
Fixed maturities, available-for-sale, amortized cost	$ 1,382,863	$ 1,192,844
Equity securities, available-for-sale, cost	34,041	18,577
Prepaid expenses and other assets, fair value	131,387	22,155
Accrued expenses and other current liabilities, fair value	7,311	4,711
Common stock, par value	$ 0.01	$ 0.01
Common stock, shares authorized	100,000	100,000
Common stock, issued	84,906	84,314
Common stock, outstanding	60,106	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	1,098,569	775,432
Prepaid reinsurance premium	584,871	484,960
Ceded reinsurance premiums payable	337,508	266,314
Related Party Transactions
Reinsurance recoverable	597,525	386,932
Prepaid reinsurance premium	429,124	283,899
Ceded reinsurance premiums payable	$ 222,408	$ 95,629

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Accrued Expenses and Other Liabilities

12 Months Ended

Dec. 31, 2011

Accrued Expenses and Other Liabilities

10. Accrued Expenses and Other Liabilities

(Amounts in Thousands) As of December 31,	2011		2010
Premium taxes, assessments and surcharges payable	$	67,138	$	63,557
Deferred warranty revenue		51,011		32,410
Commissions payable		43,923		23,114
Premiums collected in advance		18,279		19,343
Claims payable		18,005		14,655
Deposits from customers		17,396		—
Due to sellers		16,309		9,119
Other accrued expenses		15,339		16,968
Accounts payable		8,464		7,338
Dividends payable		6,048		4,768
Derivative liability		3,508		—
Accrued interest		2,223		1,736
	$	267,643	$	193,008

XML

Document and Entity Information (USD $)	12 Months Ended
	Dec. 31, 2011	Mar. 01, 2012	Jun. 30, 2011
Document Type	10-K
Amendment Flag	false
Document Period End Date	Dec. 31, 2011
Document Fiscal Year Focus	2011
Document Fiscal Period Focus	FY
Trading Symbol	AFSI
Entity Registrant Name	AMTRUST FINANCIAL SERVICES, INC.
Entity Central Index Key	0001365555
Current Fiscal Year End Date	--12-31
Entity Well-known Seasoned Issuer	No
Entity Current Reporting Status	Yes
Entity Voluntary Filers	No
Entity Filer Category	Accelerated Filer
Entity Common Stock, Shares Outstanding		60,177,912
Entity Public Float			$ 557,035,285

XML

Debt

12 Months Ended

Dec. 31, 2011

Debt

11. Debt

The Company’s borrowings consisted of the following at December 31, 2011 and 2010:

(Amounts in Thousands) As of December 31,	2011		2010
Revolving credit facility	$	—	$	—
Subordinated debentures		123,714		123,714
Convertible senior notes		138,506		—
Secured loan agreement		10,018		—
Promissory note		7,362		14,400
Term loan		—		6,667
	$	279,600	$	144,781

Aggregate scheduled maturities of the Company’s borrowings at December 31, 2011 are:

(Amounts in Thousands)
2012	$	8,339	(1)
2013		1,021
2014		1,068
2015		1,116
2016		1,167
Thereafter		266,889	(2)

(1) Amount reflected in balance sheet for promissory note is net of unamortized original issue discount of $138.

(2) Amount reflected in balance sheet for convertible senior notes is net of unamortized original issue discount of $36,494.

Revolving Credit Agreement

On January 28, 2011, the Company entered into a three-year, $150,000 credit agreement (the “Credit Agreement”), among JPMorgan Chase Bank, N.A., as Administrative Agent, The Bank of Nova Scotia, as Syndication Agent, SunTrust Bank, as Documentation Agent, and the various lending institutions party thereto. The credit facility is a revolving credit facility with a letter of credit sublimit of $50,000 and an expansion feature not to exceed $50,000. Proceeds of borrowings under the Credit Agreement may be used for working capital, acquisitions and general corporate purposes. In connection with entering into the Credit Agreement, the Company terminated the then existing Term Loan and Uncommitted Line of Credit Letter Agreement with JPMorgan Chase Bank, N.A (“Term Loan”). The Company did not record a gain or loss on the extinguishment of its previous term loan.

ABR borrowings (which are borrowings bearing interest at a rate determined by reference to the Alternate Base Rate) under the Credit Agreement will bear interest at (x) the greatest of (a) the Administrative Agent’s prime rate, (b) the federal funds effective rate plus 0.5 percent or (c) the adjusted LIBO rate for a one month interest period on such day plus 1 percent, plus (y) a margin that is adjusted on the basis of the Company’s consolidated leverage ratio. Eurodollar borrowings under the credit agreement will bear interest at the adjusted LIBO rate for the interest period in effect plus a margin that is adjusted on the basis of the Company’s consolidated leverage ratio.

The Credit Agreement contains certain restrictive covenants customary for facilities of this type (subject to negotiated exceptions and baskets), including restrictions on indebtedness, liens, acquisitions and investments, restricted payments and dispositions. There are also financial covenants that require the Company to maintain a minimum consolidated net worth, a maximum consolidated leverage ratio, a minimum fixed charge coverage ratio, a minimum risk-based capital and a minimum statutory surplus. The Company was in compliance with all covenants as of December 31, 2011.

As of December 31, 2011, the Company had no outstanding borrowings under this Credit Agreement. The Company had outstanding letters of credit in place under this Credit Agreement at December 31, 2011 for $49,771, which reduced the availability on the line of credit to $229 as of December 31, 2011 and the availability under the facility to $100,229 as of December 31, 2011. The Company did not record a gain or loss on the extinguishment of its previous term loan.

The Company recorded approximately $1,324 of deferred financing costs related to the Credit Agreement. Fees payable by the Company under the Credit Agreement include a letter of credit participation fee (which is the margin applicable to Eurodollar borrowings and was 2.25% at December 31, 2011), a letter of credit fronting fee with respect to each letter of credit (.125%) and a commitment fee on the available commitments of the lenders (a range of .35% to ..45% based on the Company’s consolidated leverage ratio and was 0.40% at December 31, 2011).

The interest rate on the credit facility as of December 31, 2011 was 2.50%. The Company recorded interest expense of approximately $2,697 year ended December 31, 2011, under the Credit Agreement. The Company recorded interest expense of approximately $72 and $752 for the years ended December 31, 2011 and 2010, respectively, related to the terminated term loan.

Junior Subordinated Debt

The Company has established four special purpose trusts for the purpose of issuing trust preferred securities. The proceeds from such issuances, together with the proceeds of the related issuances of common securities of the trusts, were invested by the trusts in junior subordinated debentures issued by the Company. In accordance with FASB ASC 810-10-25, the Company does not consolidate such special purpose trusts, as the Company is not considered to be the primary beneficiary. The equity investment, totaling $3,714 as of December 31, 2011 on the Company’s consolidated balance sheet, represents the Company’s ownership of common securities issued by the trusts. The debentures require interest-only payments to be made on a quarterly basis, with principal due at maturity. The debentures contain covenants that restrict declaration of dividends on the Company’s common stock under certain circumstances, including default of payment. The Company incurred $2,605 of placement fees in connection with these issuances which is being amortized over thirty years. The Company recorded $9,871, $10,209 and $10,209 of interest expense for the years ended December 31, 2011, 2010 and 2009, respectively, related to these trust preferred securities.

The table below summarizes the Company’s trust preferred securities as of December 31, 2011:

(Amounts in Thousands) Name of Trust	Aggregate Liquidation Amount of Trust Preferred Securities		Aggregate Liquidation Amount of Common Securities		Aggregate Principal Amount of Notes		Stated Maturity of Notes		Per Annum Interest Rate of 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 was LIBOR plus 3.30% as of December 31, 2011.

(3) The interest rate will change to LIBOR plus 3.00% after the fifth anniversary in 2012.

The Company entered into two interest rate swap agreements related to these junior subordinated debentures, which effectively convert the interest rate on the trust preferred securities from a variable rate to a fixed rate. Each agreement is for a period of five years and commenced on September 15, 2011 for tranche III and will commence for tranche IV on its fifth anniversary in 2012.

Convertible Senior Notes

In December 2011, the Company issued $175,000 aggregate principal amount of the Company’s 5.5% convertible senior notes due 2021 (the “Notes”) to certain initial purchasers in a private placement. The Notes will bear interest at a rate equal to 5.50% per year, payable semiannually in arrears on June 15^th and December 15^th of each year, beginning on June 15, 2012.

The Notes will mature on December 15, 2021 (the “Maturity Date”), unless earlier purchased by the Company or converted into shares of the Company’s common stock, par value $0.01 per share (the “Common Stock”). Prior to September 15, 2021, the Notes will be convertible only upon satisfaction of certain conditions, and thereafter, at any time prior to the close of business on the second scheduled trading day immediately preceding the Maturity Date. The conversion rate will initially equal 31.4218 shares of Common Stock per $1,000 principal amount of Notes, which corresponds to an initial conversion price of approximately $31.83 per share of Common Stock, representing a conversion premium of 25.0% over $25.46 per share, which was the last reported sale price of the Common Stock on the NASDAQ on December 15, 2011. The conversion rate will be subject to adjustment upon the occurrence of certain events as set forth in the indenture governing the notes. Upon conversion of the Notes, the Company will, at its election, pay or deliver, as the case may be, cash, shares of Common Stock, or a combination of cash and shares of Common Stock.

Upon the occurrence of a fundamental change (as defined in the indenture governing the notes) involving the Company, holders of the Notes will have the right to require the Company to repurchase their Notes for cash, in whole or in part, at 100% of the principal amount of the Notes to be repurchased, plus any accrued and unpaid interest, if any, to, but excluding, the fundamental change purchase date.

The Company separately allocated the proceeds for the issuance of the Notes to a liability component and an equity compenent, which is the embedded conversion option. The equity component was reported as an adjustment to paid-in-capital, net of tax, and is reflected as an original issue discount (“OID”). The OID of $36,593 and deferred origination costs relating to the liability component of $4,152 will be amortized into interest expense over the term of the loan of the Notes. After considering the contractual interest payments and amortization of the original discount, the Notes effective interest rate was 8.57%. Transaction costs of $1,098 associated with the equity component were netted in paid-in-capital. Interest expense, including amortization of deferred origination costs, recognized on the Notes was $524 for the year ended December 31, 2011.

The following table shows the amounts recorded for the Notes as of December 31, 2011:

(Amounts in Thousands)
Liability component
Outstanding principal	$	175,000
Unamortized OID		(36,494	)
Liability component		138,506
Equity component, net of tax	$	23,785

Secured Loan Agreement

During February 2011, the Company entered into a seven-year secured loan agreement with Bank of America Leasing & Capital, LLC in the aggregate amount of $10,800 to finance the purchase of an aircraft. The loan bears interest at a fixed rate of 4.45%, requires monthly installment payments of approximately $117 commencing on March 25, 2011 and ending on February 25, 2018, and a balloon payment of $3,240 at the maturity date. The Company recorded approximately $70 of deferred financing costs related to this agreement. The Company recorded interest expense of approximately $402 for the year ended December 31, 2011, respectively, related to this agreement. The loan is secured by an aircraft that a Company subsidiary acquired in February 2011.

The agreement contains certain covenants that are similar to the Company’s revolving credit facility. Additionally, subsequent to February 25, 2012, but prior to payment in full, if the outstanding balance of this loan exceeds 90% of the fair value of the aircraft, the Company is required to pay the lender the entire amount necessary to reduce the outstanding principal balance to be equal to or less than 90% of the fair value of the aircraft. The agreement allows the Company, under certain conditions, to repay the entire outstanding principal balance of this loan without penalty.

Promissory Note

In connection with the stock and asset purchase agreement with a subsidiary of Unitrin, Inc. (now called Kemper Corporation), the Company, on June 1, 2008, issued a promissory note to Unitrin, Inc. in the amount of $30,000. The note is non-interest bearing and requires four annual principal payments of $7,500. The first three annual principal payments were paid between 2009 and 2011, and the remaining principal payment is due on June 1, 2012. Upon entering into the promissory note, the Company calculated imputed interest of $3,155 based on interest rates available to the Company, which was 4.5%. Accordingly, the note’s carrying balance was adjusted to $26,845 at the acquisition. The note is required to be paid in full, immediately, under certain circumstances including a default of payment or change of control of the Company. The Company included $462 and $771 of amortized discount on the note in its results of operations for the years ended December 31, 2011 and 2010, respectively. The note’s carrying value was $7,362 and $14,400 as of December 31, 2011 and 2010, respectively.

Comerica Letter of Credit Facility

The Company, through one of its subsidiaries, entered into a secured letter of credit facility with Comerica Bank during the three months ended September 30, 2011. The credit limit is for $75,000 and was utilized for $49,801 as of December 31, 2011. The Company is required to pay a letter of credit participation fee for each letter of credit in the amount of 0.40%.

Other Letters of Credit

The Company, through certain subsidiaries, has additional existing stand-by letters of credit as of December 31, 2011 in the amount of $1,271.

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CONSOLIDATED STATEMENTS OF INCOME (USD $) In Thousands, except Per Share data, unless otherwise specified	12 Months Ended
	Dec. 31, 2011	Dec. 31, 2010	Dec. 31, 2009
Premium income:
Net premium written	$ 1,276,597	$ 827,226	$ 643,426
Change in unearned premium	(239,736)	(81,567)	(69,544)
Net earned premium	1,036,861	745,659	573,882
Ceding commission - primarily related party	153,953	138,261	113,931
Service and fee income (related parties $16,700; $12,322; $8,622)	108,660	62,067	30,690
Net investment income	55,515	50,517	55,287
Net realized gain (loss) on investments	2,768	5,953	(33,579)
Total revenues	1,357,757	1,002,457	740,211
Expenses:
Loss and loss adjustment expense	678,333	471,481	327,771
Acquisition costs and other underwriting expenses	398,404	302,809	244,279
Other	86,611	56,403	22,232
Total expenses	1,163,348	830,693	594,282
Income before other income (expense), income taxes and equity in earnings (loss) of unconsolidated subsidiaries	194,409	171,764	145,929
Other income (expenses):
Foreign currency gain (loss)	(2,418)	684	2,459
Interest expense	(16,079)	(12,902)	(16,884)
Acquisition gain on purchase	5,850
Gain on investment in life settlement contracts net of profit commission	46,892	11,855
Total other income (expenses)	34,245	(363)	(14,425)
Income before income taxes and equity in earnings (loss) of unconsolidated subsidiaries	228,654	171,401	131,504
Provision for income taxes	42,372	47,053	27,459
Income before equity in earnings (loss) of unconsolidated subsidiaries	186,282	124,348	104,045
Equity in earnings (loss) of unconsolidated subsidiaries - related party	7,871	24,044	(822)
Net income	194,153	148,392	103,223
Net income attributable to non-controlling interests of subsidiaries	(23,719)	(5,927)
Net income attributable to AmTrust Financial Services, Inc.	170,434	142,465	103,223
Earnings per common share:
Basic earnings per share	$ 2.85	$ 2.39	$ 1.74
Diluted earnings per share	$ 2.77	$ 2.36	$ 1.72
Dividends declared per common share	$ 0.34	$ 0.29	$ 0.23
Weighted average common shares outstanding:
Basic	59,836	59,453	59,433
Diluted	61,582	60,346	59,954
Net realized gain (loss) on investments:
Total other-than-temporary impairment losses	(4,411)	(21,196)	(24,778)
Portion of loss recognized in other comprehensive income
Net impairment losses recognized in earnings	(4,411)	(21,196)	(24,778)
Other net realized gain (loss) on investments	7,179	27,149	(8,801)
Net realized investment gain (loss)	$ 2,768	$ 5,953	$ (33,579)

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Acquisitions

12 Months Ended

Dec. 31, 2011

Acquisitions

5. Acquisitions

AHL

During 2011 and 2010, AmTrust Holdings Luxembourg S.A.R.L (“AHL”) (formerly called AmTrust Captive Holdings Limited) completed a series of acquisitions described below. AHL is a holding company that purchases Luxembourg captive insurance entities that allows the Company to obtain the benefit of the captives’ capital and utilization of their existing and future loss reserves through a series of reinsurance arrangements with a subsidiary of the Company. AHL is included in the Company’s Specialty Risk and Extended Warranty segment.

In December 2011, AHL acquired all the issued and outstanding stock of Reaal Reassurantie S.A., a Luxembourg domiciled captive insurance company, from SNS REAAL N.V. and REAAL N.V. The purchase price of Reaal Reassurantie S.A. was approximately $71,900. The Company recorded approximately $78,700 of cash, intangible assets of $15,500 and a deferred tax liability of $22,300. Reaal Reassurantie S.A. subsequently changed its name to AmTrust Re Kappa.

In December 2011, AHL acquired all the issued and outstanding stock of Vandermoortele International Reinsurance Company SA, a Luxembourg domiciled captive insurance company, from NV Vandermoortele, Vandemoortele International Finance SA and NV Safinco. The purchase price of Vandermoortele International Reinsurance Company SA was approximately $66,000. The Company recorded approximately $71,400 of cash, intangible assets of $10,600 and a deferred tax liability of $16,000. Vandermoortele International Reinsurance Company SA subsequently changed its name to AmTrust Re Zeta.

In June 2011, AHL acquired all the issued and outstanding stock of International Crédit Mutuel Reinsurance SA (“ICM Re”), a Luxembourg domiciled captive insurance company, from Assurance du Credit Mutuel IARD SA. The purchase price of ICM Re was approximately $315,000. The Company recorded approximately $347,000 of cash, intangible assets of $55,900 and a deferred tax liability of $87,800. ICM Re subsequently changed its name to AmTrust Re Alpha.

In May 2010, AHL acquired all the issued and outstanding stock of Euro International Reinsurance S.A., a Luxembourg domiciled captive insurance company, from TALANX AG. The purchase price of Euro International Reinsurance S.A. was approximately $58,300. The Company recorded approximately $65,700 of cash, intangible assets of $8,600 and a deferred tax liability of $16,000. Euro International Reinsurance S.A. subsequently was merged into AmTrust Re 2007.

The Company has classified the intangible assets as contractual use rights and they will be amortized based on the actual use of the related loss reserves. As a result of these acquisitions in 2011 and 2010, the Company reduced its acquisition costs and other underwriting expenses by approximately $23,000 in 2011.

Cardinal Comp

In September 2008, the Company entered into a managing general agency agreement with Cardinal Comp, LLC (“Cardinal Comp”), a workers’ compensation managing general agent for which the Company paid the agency a commission for the placement of insurance policies. The agency operated in eight states and primarily in the state of New York. In September 2011, the Company, through one of its subsidiaries, entered into a renewal rights and asset purchase agreement with Cardinal Comp and Cook Inlet Alternative Risk LLC. The purchase price was approximately $30,388. The existing managing general agency agreement entered into in 2008 was terminated as part of the new agreement and will enable the Company to reduce commissions on written premium generated from the renewal rights agreement. In accordance with FASB ASC 805-10 Business Combinations, the Company recorded a purchase price of $30,388, which consisted primarily of goodwill and intangible assets of $5,250 and $24,750, respectively. The intangible assets consist of distribution networks, renewal rights and a trademark and have asset lives of between 2 and 16 years. The goodwill and intangibles are included as a component of the Small Commercial Business segment.

Majestic

The Company, through certain of its subsidiaries and the Insurance Commissioner of the State of California acting solely in the capacity as the statutory conservator (the “Conservator”) of Majestic Insurance Company (“Majestic”), entered into a Rehabilitation Agreement that set forth a plan for the rehabilitation of Majestic (the “Rehabilitation Plan”) by which the Company acquired the business of Majestic through a Renewal Rights and Asset Purchase Agreement (the “Purchase Agreement”), and a Loss Portfolio Transfer and Quota Share Reinsurance Agreement (the “Reinsurance Agreement”). On July 1, 2011, the Company, through one of its subsidiaries, entered into the Reinsurance Agreement, which was effective June 1, 2011, and assumed all of Majestic’s liability for losses and loss adjustment expenses under workers’ compensation insurance policies of approximately $331,660 on a gross basis (approximately $183,511 on a net basis), without any aggregate limit, and certain contracts related to Majestic’s workers” compensation business, including leases for Majestic’s California office space. In addition, the Company assumed 100% of the unearned premium reserve of approximately $25,997 on all in-force Majestic policies. In connection with this transaction, the Company received approximately $224,532 of cash and investments, which included $26,000 for a reserve deficiency and also included the assignment of Majestic’s reinsurance recoverables of approximately $51,715. The Reinsurance Agreement also contains a profit sharing provision whereby the Company pays Majestic up to 3% of net earned premium related to current Majestic policies that are renewed by the Company in the three year period commencing on the closing date should the loss ratio on such policies for the three year period be 65% or less. The insurance premiums, which are included in the Company’s Small Commercial Business segment, have been recorded since the acquisition date and were approximately $42,881 for the year ended December 31, 2011.

The Company completed its purchase price accounting related to the Reinsurance Agreement. In accordance with ASC 944-805 Business Combinations, the Company is required to adjust to fair value Majestic’s loss and LAE reserves by taking the acquired loss reserves recorded and discounting them based on expected reserve payout patterns using a current risk-free rate of interest. This risk free interest rate is then adjusted based on different cash flow scenarios that use different payout and ultimate reserve assumptions deemed to be reasonably possible based upon the inherent uncertainties present in determining the amount and timing of payment of such reserves. The difference between the acquired loss and LAE reserves and the Company’s best estimate of the fair value of such reserves at acquisition date is amortized ratably over the payout period of the acquired loss and LAE reserves. The Company determined the fair value of the loss reserves to be $328,905. Accordingly, the amortization will be recorded as an expense on the Company’s income statement until fully amortized.

In consideration for the Company’s assumption of (i) Majestic’s losses and loss adjustment expenses under its workers’ compensation insurance policies pursuant to the Reinsurance Agreement and (ii) Majestic’s leases for its California offices, a Company subsidiary, pursuant to the Purchase Agreement, acquired the right to offer, quote and solicit the renewals of in-force workers’ compensation policies written by Majestic, certain assets required to conduct such business, including intellectual property and information technology, certain fixed assets, and the right to offer employment to Majestic’s California-based employees.

As a result of entering into the Purchase Agreement, the Company, in accordance with FASB ASC 805 Business Combinations recorded $3,870 of intangible assets related to distribution networks and trademarks. The distribution networks have a life of 13 years and the trademarks have a life of two years. Additionally, the Company recorded a liability for approximately $390 related to an unfavorable lease assumed in the transaction and a liability for approximately $815 related to the above mentioned profit sharing provision.

As a result, the Company recorded an acquisition gain of $5,850 related to the entire Majestic purchase during the year ended December 31, 2011. The finalized purchase price allocation as of the date of the acquisition is as follows:

(Amounts in Thousands)
Assets
Cash and investments	$	224,532
Premium receivables		25,997
Reinsurance recoverables		148,149
Other assets		11,124
Intangible assets		6,625
Total assets	$	416,427
Liabilities
Loss and loss expense reserves	$	331,660
Funds held under reinsurance treaties		51,715
Unearned premium		25,997
Accrued expenses and other current liabilities		1,205
Total liabilities	$	410,577
Acquisition gain	$	5,850

BTIS

In December 2011, the Company acquired the California-based Builders & Tradesmen’s Insurance Services, Inc. (“BTIS”), an insurance wholesaler and general agent specializing in insurance policies and bonds for small artisan contractors. The Company’s initial purchase price was $5,000, which does not include potential incentives to the sellers based on future profitability of the business. The transaction did not have a material impact on the Company’s results of operations or financial condition in 2011.

Warrantech

In August 2010, the Company, through its wholly-owned subsidiary AMT Warranty Corp., acquired 100% of the issued and outstanding capital stock of Warrantech Corporation and its subsidiaries (“Warrantech”) from WT Acquisition Holdings, LLC for approximately $7,500 in cash and an earnout payment to the sellers of a minimum of $2,000 and a maximum and $3,000 based on AMT Warranty Corp.’s EBITDA over the three-year period from January 1, 2011 through December 31, 2013. Prior to the acquisition, the Company had a 27% equity interest (in the form of preferred units) in WT Acquisition Holdings, LLC and a $20,000 senior secured note due January 31, 2012 issued to it by Warrantech. Interest on the note was payable monthly at a rate of 15% per annum and consisted of a cash component at 11% per annum and 4% per annum for the issuance of additional notes in principal amount equal to the interest not paid in cash on such date.

Immediately prior to the consummation of this transaction, WT Acquisition Holdings, LLC redeemed the Company’s preferred units that had represented the Company’s 27% equity interest in that entity. In addition, immediately following the transaction, AMT Warranty Corp. was recapitalized and the Company contributed its note receivable from Warrantech in the approximate amount of $24,100 to AMT Warranty Corp. in exchange for Series A preferred stock, par value $0.01 per share (the “Series A Preferred Stock”), of AMT Warranty Corp. valued at $24,100. The Company also received additional shares of Series A Preferred Stock such that the total value of its 100% preferred share ownership in AMT Warranty Corp. is equivalent to $50,700. Lastly, AMT Warranty Corp. issued 20% of its issued and outstanding common stock to the Chairman of Warrantech, which had a fair value of $6,900 as determined using both a market and an income approach. Given its preference position, absent the Company’s waiver, the Company will be paid distributions on its Series A Preferred Stock before any common shareholder would be entitled to a distribution on the common stock.

As a result, the ultimate acquisition price of Warrantech was $48,928 and the Company recorded goodwill and intangible assets of approximately $69,739 and $29,600, respectively. Acquisition related costs related to the deal were less then $100. The intangible assets consisted of trademarks, agency relationships and non-compete agreements, which had estimated lives of between 3 and 18 years. The change in the preliminary amount of goodwill recorded during the third quarter of 2010 resulted primarily from the determination of the fair value of Warrantech’s deferred tax liabilities and accrued liabilities. The results of operations from Warrantech, which are included in the Company’s Specialty Risk and Extended Warranty segment as a component of service and fee income, have been recorded since the acquisition date and were approximately $52,800 and $17,400 for the years ended December 31, 2011 and 2010, respectively.

The finalized purchase price allocation as of the date of acquisition is as follows:

(Amounts in Thousands)
Assets
Accounts receivable	$	15,232
Deferred tax asset		7,619
Property and equipment		2,123
Other assets		10,752
Goodwill		69,739
Intangible assets		29,600
Total assets	$	135,065
Liabilities
Premium payable	$	35,717
Deferred revenue		11,293
Deferred tax liability		9,652
Accrued expenses and other current liabilities		29,475
Total liabilities	$	86,137
Total purchase price	$	48,928

Risk Services

During June 2010, the Company completed the acquisition of eight direct and indirect subsidiaries of RS Acquisition Holdings Corp., including Risk Services, LLC and PBOA, Inc. (collectively, “Risk Services”). The entities acquired include various risk retention and captive management companies, brokering entities and workers’ compensation servicing entities. The acquired companies are held in a newly created entity, RS Acquisition Holdco, LLC. The Risk Services entities have offices in Florida, Vermont and the District of Columbia and are broadly licensed.

The Company has a majority ownership interest (80%) in Risk Acquisition Holdco, LLC, for which the Company’s total consideration was $11,700. Acquisition costs associated with the acquisition were approximately $200. As part of the purchase agreement, the non-controlling interest has the option under certain circumstances to require the Company to purchase the remaining ownership interest (20%) of Risk Services. In accordance with FASB ASC Topic 480, Distinguishing Liabilities from Equity, and FASB ASC Topic 815, Derivatives and Hedging, the Company has classified the remaining 20% ownership interest of Risk Services as mezzanine equity on the Consolidated Balance Sheet.

In accordance with FASB ASC 805, Business Combinations, the Company’s total consideration paid for Risk Services was $11,700, which included cash of $11,100 and a value of $600 that was assigned for the redeemable non-controlling interest as determined using both a market and an income approach. The Company assigned a value of approximately $5,000 to intangible assets and $5,029 to goodwill. The intangible assets consisted of tradenames, customer relationships, renewal rights and non-compete agreements and have finite lives ranging from 4 years to 17 years. The results of operations from Risk Services, which are included in our Small Commercial Business segment as a component of service and fee income, have been included since the acquisition date and were approximately $7,300 and $7,400 for the years ended December 31, 2011 and 2010, respectively.

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Fair Value of Financial Instruments

12 Months Ended

Dec. 31, 2011

Fair Value of Financial Instruments

4. Fair Value of Financial Instruments

Fair Value Hierarchy

The following tables present 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 December 31, 2011 and 2010:

(Amounts in Thousands)	Total		Level 1		Level 2		Level 3
As of December 31, 2011
Assets:
U.S. treasury securities	$	53,274	$	53,274	$	—	$	—
U.S. government securities		6,790		—		6,790		—
Municipal bonds		275,017		—		275,017		—
Corporate bonds and other bonds:
Finance		515,951		—		515,951		—
Industrial		132,891		—		132,891		—
Utilities		38,506		—		38,506		—
Commercial mortgage backed securities		150		—		150		—
Residential mortgage backed securities:
Agency backed		364,000		—		364,000		—
Non-agency backed		7,664		—		7,664		—
Equity securities		35,600		35,600		—		—
Short term investments		128,565		128,565		—		—
Other investments		14,588		—		—		14,588
Life settlement contracts		131,387		—		—		131,387
	$	1,704,383	$	217,439	$	1,340,969	$	145,975
Liabilities:
Equity securities sold but not yet purchased, market	$	112	$	112	$	—	$	—
Fixed maturity securities sold but not yet purchased, market		55,830		—		55,830		—
Securities sold under agreements to repurchase, at contract value		191,718		—		191,718		—
Life settlement contract profit commission		7,311		—		—		7,311
Derivatives		3,508		—		—		3,508
	$	258,479	$	112	$	247,548	$	10,819

(Amounts in Thousands)	Total		Level 1		Level 2		Level 3
As of December 31, 2010
Assets:
U.S treasury securities	$	82,447	$	82,447	$	—	$	—
U.S. government securities		7,162		—		7,162		—
Municipal bonds		66,676		—		66,676		—
Corporate bonds and other bonds:
Finance		406,012		—		406,012		—
Industrial		49,753		—		49,753		—
Utilities		37,311		—		37,311		—
Commercial mortgage backed securities		2,076		—		2,076		—
Residential mortgage backed securities:
Agency backed		546,098		—		546,098		—
Non-agency backed		8,591		—		8,591		—
Asset-backed securities		2,687		—		2,687		—
Equity securities		17,412		17,412		—		—
Short term investments		32,137		32,137		—		—
Other investments		21,514		—		—		21,514
Life settlement contracts		22,155		—		—		22,155
	$	1,302,031	$	131,996	$	1,126,366	$	43,669
Liabilities:
Equity securities sold but not yet purchased, market	$	364	$	364	$	—	$	—
Fixed maturity securities sold but not yet purchased, market		8,483		—		8,483		—
Securities sold under agreements to repurchase, at contract value		347,617		—		347,617		—
Life settlement contract profit commission		4,711		—		—		4,711
	$	361,175	$	364	$	356,100	$	4,711

The Company had no transfers between levels during 2011 and 2010.

The following table provides a summary of changes in fair value of the Company’s Level 3 financial assets for the years ended December 31, 2011 and 2010:

(Amounts in Thousands)	Balance as of January 1, 2011			Net income (loss)			Other comprehensive income			Purchases and issuances		Sales and settlements			Net transfers into (out of) Level 3		Balance as of December 31, 2011
Other investments	$	21,514		$	883		$	(1,644	)	$	611	$	(6,776	)	$	—	$	14,588
Life settlement contracts		22,155			80,523			—			39,239		(10,530	)		—		131,387
Life settlement contract profit commission		(4,711	)		(2,600	)		—			—		—			—		(7,311	)
Derivatives		—			—			(3,508	)		—		—			—		(3,508	)
Total	$	38,958		$	78,806		$	(5,152	)	$	39,850	$	(17,306	)	$	—	$	135,156

(Amounts in Thousands)	Balance as of January 1, 2010			Net income (loss)			Other comprehensive income		Purchases and issuances		Sales and settlements			Net transfers into (out of) Level 3		Balance as of December 31, 2010
Other investments	$	14,034		$	283		$	2,113	$	5,284	$	(200	)	$	—	$	21,514
Life settlement contracts		—			16,853			—		5,302		—			—		22,155
Life settlement contract profit commission		—			(4,711	)		—		—		—			—		(4,711	)
Derivatives		(1,893	)		33			—		—		1,860			—		—
Total	$	12,141		$	12,458		$	2,113	$	10,586	$	1,660		$	—	$	38,958

The Company uses the following methods and assumptions in estimating its fair value disclosures for financial instruments:

• Equity and Fixed Income Investments:  Fair value disclosures for these investments are disclosed elsewhere in Note 2. “Significant Accounting Policies”;

• 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.

The fair value of life settlement contracts is based on information available to the Company at the end of the reporting period. The Company considers the following factors in its fair value estimates: cost at date of purchase, recent purchases and sales of similar investments, financial standing of the issuer, changes in economic conditions affecting the issuer, maintenance cost, premiums, benefits, standard actuarially developed mortality tables and industry life expectancy reports. The fair value of a life insurance policy is estimated using present value calculations based on the data specific to each individual life insurance policy. The following summarizes data utilized in estimating the fair value of the portfolio of life insurance policies for the years ended December 31, 2011 and 2010:

	2011			2010
Average age of insured		77			75
Average life expectancy, months(1)		155			193
Average face amount per policy	$	6,703,000		$	6,084,000
Fair value discount rate		7.5	%		7.3	%

(1) Mortality rates: standard life expectancy as adjusted for insured’s specific circumstances

These assumptions are, by their nature, inherently uncertain and the effect of changes in estimates may be significant. The fair value measurements used in estimating the present value calculation are derived from valuation techniques generally used in the industry that include inputs for the asset that are not based on observable market data. The extent to which the fair value could reasonable vary in the near term has been quantified by evaluating the effect of changes in significant underlying assumptions used to estimate the fair value amount. If the life expectancies were increased or decreased by 4 months and the discount factors were increased or decreased by 1% while all other variables are held constant, the carrying value of the investment in life insurance policies would increase or (decrease) by the unaudited amounts summarized below for the years ended December 31, 2011 and 2010:

	Change in life expectancy
	Plus 4 Months			Minus 4 Months
Investment in life policies:
December 31, 2011	$	(18,778	)	$	20,785
December 31, 2010	$	(4,163	)	$	4,912

	Change in discount rate
	Plus 1%			Minus 1%
Investment in life policies:
December 31, 2011	$	(13,802	)	$	15,804
December 31, 2010	$	(2,996	)	$	2,537

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Income Taxes

12 Months Ended

Dec. 31, 2011

Income Taxes

16. Income Taxes

The provision for income taxes consists of the following for the years ended December 31, 2011, 2010 and 2009:

(Amounts in Thousands) Income Tax Provision (Benefit)	2011			2010			2009
Current expense (benefit)
Federal	$	11,147		$	20,693		$	11,856
Foreign		21,345			9,165			3,321
Total current tax expense		32,492			29,858			15,177
Deferred expense (benefit)
Federal	$	40,462		$	35,623		$	19,683
Foreign		(30,582	)		(18,428	)		(7,401	)
Total deferred tax expense		9,880			17,195			12,282
Total income tax expense	$	42,372		$	47,053		$	27,459

The following table is a reconciliation of the Company’s statutory income tax expense to its effective tax rate for the years ended December 31, 2011, 2010 and 2009:

(Amounts in Thousands)	2011			2010			2009
Effective tax rate
Income before equity in earnings (loss) of unconsolidated subsidiaries	$	228,654		$	171,401		$	131,504
Tax at federal statutory rate of 35%	$	80,029		$	59,990		$	46,026
Tax effects resulting from:
Net income of non-includible foreign subsidiaries		(29,063	)		(19,483	)		(12,905	)
Foreign currency gain		861			(247	)		(864	)
Other, net		(9,455	)		6,793			(4,798	)
	$	42,372		$	47,053		$	27,459
Effective tax rate		18.5	%		27.5	%		20.9	%

The tax effects of temporary differences that give rise to significant portions of deferred tax assets and liabilities as of December 31, 2011 and 2010 are shown below:

(Amounts in Thousands)	2011			2010
Deferred tax assets:
Unearned premiums	$	55,140		$	37,930
Ceding commission		49,882			31,749
Other		15,164			12,195
Carryforward loss		14,579			20,990
Bad debt		4,904			4,628
Deferred compensation		4,837			4,132
Losses and LAE reserves		—			6,718
	$	144,506		$	118,342
Deferred tax liabilities:
Deferred acquisition costs	$	(147,819	)	$	(110,384	)
Losses and LAE reserves		(56,869	)		—
Intangible assets		(17,175	)		—
Depreciation		(12,379	)		(5,501	)
Equity results which cannot be liquidated tax free		(8,796	)		(4,179	)
Other		(6,299	)		(4,610	)
Accrual market discount		(2,062	)		(1,674	)
Cash surrender value on insurance		(1,882	)		(1,877	)
		(253,281	)		(128,225	)
Deferred tax liability, net	$	(108,775	)	$	(9,883	)

The Company’s management believes that it will realize the benefits of its deferred tax asset and, accordingly, no valuation allowance has been recorded for the periods presented. A provision has not been made for the U.S. or additional foreign taxes on undistributed earnings of foreign subsidiaries, which have been, and will continue to be reinvested. These earnings could become subject to additional tax if they were remitted as dividends, if foreign earnings were loaned to the parent entity or a U.S. affiliate, or if the Company should sell its stock in its foreign subsidiaries. It is not practicable to determine the amount of additional tax, if any, that might be payable on foreign earnings. The deferred tax liability related to loss and LAE reserves of $56,869 includes a deferred tax liability of $88,576 for equalization reserves that were acquired as part of the AmTrust Re 2007, AmTrust Re Alpha, AmTrust Re Kappa, and AmTrust Re Zeta acquisitions.

The Company’s major taxing jurisdictions include the U.S. (federal and state), the United Kingdom and Ireland. The years subject to potential audit vary depending on the tax jurisdiction. Generally, the Company’s statute of limitation is open for tax years ended December 31, 2007 and forward. As permitted by FASB ASC 740-10, the Company adopted an accounting policy to prospectively classify accrued interest and penalties related to any unrecognized tax benefits in its income tax provision. Previously, the Company’s policy was to classify interest and penalties as an operating expense in arriving at pre-tax income. At December 31, 2011, the Company does not have any accrued interest and penalties related to unrecognized tax benefits in accordance with FASB ASC 740-10.

The earnings of certain of the Company’s foreign subsidiaries have been indefinitely reinvested in foreign operations. Therefore, no provision has been made for any U.S. taxes or foreign withholding taxes that may be applicable upon any repatriation or sale. The determination of any unrecognized deferred tax liability for temporary differences related to investments in certain of the Company’s foreign subsidiaries is not practicable. At December 31, 2011 and 2010, the financial reporting basis in excess of the tax basis for which no deferred taxes have been recognized was approximately $223,000 and $163,400, respectively.

A reconciliation of the total amounts of gross unrecognized tax benefits is as follows:

(Amounts in Thousands)	2011			2010
Gross unrecognized tax benefit as of January 1	$	1,017		$	5,293
Decreases in tax positions for prior years		(1,017	)		(4,325	)
Increases in tax positions for prior years		—			49
Decreases in tax positions for current year		—			—
Increases in tax positions for current year		—			—
Lapse in statute of limitations		—			—
Settlements		—			—
Gross unrecognized tax benefits as of December 31	$	—		$	1,017

Listed below are the tax years that remain subject to examination by major tax jurisdictions:

	Open Tax Years
Major tax jurisdictions:
United States		2008 – 2011
United Kingdom		2009 – 2011
Ireland		2007 – 2011

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Reinsurance

12 Months Ended

Dec. 31, 2011

Reinsurance

12. Reinsurance

The Company utilizes reinsurance agreements to reduce its exposure to large claims and catastrophic loss occurrences and to increase its capacity to write profitable business. These agreements provide for recovery from reinsurers of a portion of losses and LAE under certain circumstances without relieving the insurer of its obligation to the policyholder. Losses and LAE incurred and premiums earned are reflected after deduction for reinsurance. In the event reinsurers are unable to meet their obligations under reinsurance agreements, the Company would not be able to realize the full value of the reinsurance recoverable balances. The Company periodically evaluates the financial condition of its reinsurers in order to minimize its exposure to significant losses from reinsurer insolvencies. Reinsurance does not discharge or diminish the primary liability of the Company; however, it does permit recovery of losses on such risks from the reinsurers.

The Company has coverage for its workers’ compensation line of business under excess of loss reinsurance agreements. As the scale of the Company’s workers’ compensation business has increased, the Company has also increased the amount of risk retained. The agreements cover, per occurrence, losses in excess of $500 through December 31, 2004, $600 effective January 1, 2005, $1,000 effective July 1, 2006 through July 1, 2009, $1,000 plus 55% of $9,000 in excess of $1,000 effective July 1, 2009 through January 1, 2010, and $10,000 effective January 1, 2010 up to a maximum $130,000 ($50,000 prior to December 1, 2003) in losses. For losses occurring on or after January 1, 2010, the Company has purchased a “third and fourth event cover” that covers losses between $5,000 and $10,000 per occurrence, after a deductible equal to the first $10,000 per annum on such losses. For losses occurring on or after January 1, 2011, we replaced this “third and fourth event cover” with a “second and third event cover” that applies after an aggregate deductible equal to the first $5,000 per annum on such losses. Effective August 19, 2011, we purchased a new layer of coverage providing $100,000 in excess of $130,000 per occurrence, providing us with total protection of $220,000 for losses in excess of $10,000. The Company’s reinsurance for worker’s compensation losses caused by acts of terrorism is more limited than its reinsurance for other types of workers’ compensation losses and, through December 31, 2011, provided coverage, per contract year, of $220,000 in the aggregate in excess of an aggregate retention of $10,000, but excludes acts of nuclear, biological or chemical terrorism (which are covered by the Terrorism Risk Insurance Act, as amended).

The Company has coverage for its U.S. casualty lines of business under an excess of loss reinsurance agreement. The agreement covers losses in excess of $2,000 per occurrence (in certain cases the retention can rise to $2,500) up to a maximum $30,000. The Company purchases quota share reinsurance for its non-program umbrella business, whereby we cede 70% of the first $5,000 of loss per policy and 100% of the next $5,000 loss per policy. In addition, we also purchase various pro-rata and excess reinsurance relating to specific insurance programs and/or specialty lines of business, including casualty, public entity, and professional errors and omissions insurance.

The Company has coverage for its U.S. property lines of business under an excess of loss reinsurance agreement. The agreement covers losses in excess of $2,000 per location up to a maximum $20,000, subject to per occurrence and annual limits that vary by layer. In addition the Company has a property catastrophe excess of loss agreement, which covers losses in excess of $5,000 per occurrence up to a maximum $65,000, subject to annual limits that vary by layer.

The Company has coverage for its U.K. property lines of business under an excess of loss reinsurance agreement. The agreement covers losses in excess of £500 per risk up to a maximum £2,000 per risk. In addition, the Company has a property catastrophe excess of loss agreement, which covers losses in excess of £5,000 per occurrence up to a maximum £45,000. The Company also has excess of loss reinsurance coverage for international general liability and non-medical professional business underwritten by our English and Irish insurers. The agreements cover losses in excess of £1,000 per occurrence up to a maximum of £10,000 per occurrence, subject to annual aggregate limits that vary by layer. Through December 31, 2010, we had excess of loss reinsurance under the same terms for our European medical liability business. In 2010, we purchased an 80% quota share reinsurance agreement from National Indemnity Company for our European medical liability business. This contract was effective for claims made through March 31, 2011. Effective April 1, 2011, we replaced this quota share reinsurance agreement with a 40% cession to Maiden Insurance, as more fully described below in Note 13 “Related Party Transactions.” In addition, we purchase various pro-rata and excess reinsurance relating to specific foreign insurance programs and/or specialty lines of business.

TIC acts as servicing carrier on behalf of Workers’ Compensation Assigned Risk Plans in eight states. TIC issues and services certain workers compensation policies issued to assigned risk insureds. Those policies issued are subject to a 100% quota-share reinsurance agreement offered by the National Workers Compensation Reinsurance Pool or a state-based equivalent, which is administered by the National Council on Compensation Insurance, Inc. TIC, wrote approximately $46,000, $37,000 and $35,400 of premium in 2011, 2010 and 2009, respectively, as a servicing carrier.

As part of the agreement to purchase WIC from Household Insurance Group Holding Company (“Household”), the Company agreed to write certain business on behalf of Household for a three-year period through June 2009. The premium written under this arrangement is 100% reinsured by HSBC Insurance Company of Delaware, a subsidiary of Household. The reinsurance recoverable associated with this business is guaranteed by Household. This business is now in run-off. WIC wrote approximately $7,300, $8,800 and $17,100 of premium in 2011, 2010 and 2009, respectively, subject to this reinsurance treaty.

As part of its acquisition of AIIC, the Company acquired reinsurance recoverable as of the date of closing. The most significant reinsurance recoverable is from American Home Assurance Company (“American Home”). AIIC’s reinsurance relationship with American Home incepted January 1, 1998 on a loss occurring basis. From January 1, 1998 through March 31, 1999 the American Home reinsurance covered losses in excess of $250 per occurrence up to statutory coverage limits. Effective April 1, 1999, American Home provided coverage in the amount of $150 in excess of $100. This additional coverage terminated on December 31, 2001 on a run-off basis. Therefore, for losses occurring in 2002 that attached to a 2001 policy, the retention was $100 per occurrence. Effective January 1, 2002 American Home increased its attachment was $250 per occurrence. The XOL treaty that had an attachment of $250 was terminated on a run-off basis on December 31, 2002. Therefore, losses occurring in 2003 that attached to a 2002 policy were ceded to American Home at an attachment point of $250 per occurrence. As of December 31, 2011, the Company had $66,370 of reinsurance recoverables with American Home.

During the third quarter of 2007, the Company entered into a master agreement with Maiden, as amended, by which its Bermuda subsidiary, AII, and Maiden Insurance entered into a quota share reinsurance agreement (the “Maiden Quota Share”). For a description of this agreement see Note 13. “Related Party Transactions.”

The effect of reinsurance with unrelated companies on premiums and losses for 2011, 2010 and 2009 are as follows:

	Year Ended December 31,
	2011						2010						2009
(Amounts in Thousands)	Written			Earned			Written			Earned			Written			Earned
Premiums:
Direct	$	1,843,185		$	1,553,878		$	1,375,993		$	1,220,164		$	1,117,090		$	1,038,470
Assumed		307,287			265,258			184,829			160,285			81,856			49,626
Ceded		(873,875	)		(782,275	)		(733,596	)		(634,790	)		(555,520	)		(514,214	)
	$	1,276,597		$	1,036,861		$	827,226		$	745,659		$	643,426		$	573,882

	As of December 31,
	2011					2010					2009
(Amounts in Thousands)	Assumed		Ceded			Assumed		Ceded			Assumed		Ceded
Loss and LAE reserves	$	547,127	$	(972,392	)	$	129,066	$	(670,877	)	$	71,859	$	(561,963	)
Unearned premiums		124,207		(584,871	)		77,548		(484,960	)		53,003		(410,553	)
Loss and LAE expense incurred		222,859		(575,794	)		105,501		(441,106	)		24,511		(374,192	)

The Company continuously updates the reserves on these lines of business based on information available from the ceding insurers. During 2011, the Company had no commutations related to workers’ compensation that were included in ceded reinsurance treaties. During 2010, the Company commuted certain loss reserves of $1,350 related to workers’ compensation that were included in ceded reinsurance treaties. This commutation had no material effect on net earnings in either year.

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Property and Equipment, Net

12 Months Ended

Dec. 31, 2011

Property and Equipment, Net

8. Property and Equipment, Net

(Amounts in Thousands) As of December 31,	2011			2010
Land	$	7,593		$	2,604
Building		21,516			14,658
Software		26,428			18,002
Computer equipment		15,471			10,114
Other equipment		17,239			3,829
Leasehold improvements		1,335			1,339
		89,582			50,546
Less: Accumulated depreciation and amortization		(28,029	)		(19,657	)
	$	61,553		$	30,889

Depreciation expense was $9,806, $6,039 and $4,768 for the years ended December 31, 2011, 2010 and 2009.

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Investment in Life Settlements

12 Months Ended

Dec. 31, 2011

Investment in Life Settlements

6. Investment in Life Settlements

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. During 2010, the Company formed Tiger Capital LLC (“Tiger”) with a subsidiary of ACAC for the purposes of acquiring life settlement contracts. In 2011, the Company formed AMT Capital Alpha, LLC (“AMT Alpha”) with a subsidiary of ACAC and AMT Capital Holdings, S.A. (“AMTCH”) with ACP Re, LTD., an entity controlled by Michael Karfunkel, for the purposes of acquiring additional life settlement contracts. The Company has a fifty percent ownership interest in each of Tiger, AMT Alpha and AMTCH (collectively, the “LSC entities”). Tiger may also acquire premium finance loans made in connection with the borrowers’ purchase of life insurance policies that are secured by the policies, which are in default at the time of purchase. The LSC entities acquire the underlying policies through the borrowers’ voluntary surrender of the policy in satisfaction of the loan or foreclosure. A third party serves as the administrator of the Tiger life settlement contract portfolio, for which it receives an annual fee. Under the terms of an agreement for Tiger, the third party administrator is eligible to receive a percentage of profits after certain time and performance thresholds have been met. The Company provides for certain actuarial and finance functions related to the LSC entities. 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, we have been deemed the primary beneficiary and, therefore, consolidate the LSC entities.

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.

Total capital contributions of $43,000 and $22,000 were made to the LSC entities during the years ended December 31, 2011 and 2010, respectively, for which the Company contributed their fifty percent ownership share of approximately $21,500 and $11,000 in those same periods. The LSC entities used a majority of the contributed capital to acquire certain life insurance policies of approximately $31,000 and $4,600 for the years ended December 31, 2011 and 2010, respectively. The Company’s investments in life settlements and cash value loans were approximately $136,800 and $31,500 as of December 31, 2011 and 2010, respectively and are included in Prepaid expenses and other assets on the Consolidated Balance Sheet. The Company recorded other income for the years ended December 31, 2011 and 2010 of approximately $46,900 and $11,900, respectively, related to the life settlement contracts.

In addition to the 237 and 79 policies disclosed in the table below as of December 31, 2011 and 2010, respectively, Tiger owned 36 and 143 premium finance loans as of December 31, 2011 and 2010, respectively, which were secured by life insurance policies and were carried at a value of $5,391 and $9,302 as of December 31, 2011 and 2010, respectively. As of December 31, 2011, the face value amount of the related 237 life insurance policies and 36 premium finance loans were approximately $1,518,183 and $217,950, 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 tables describe the Company’s investment in life settlements as of December 31, 2011 and 2010:

(Amounts in thousands, except Life Settlement Contracts) Expected Maturity Term in Years	Number of Life Settlement Contracts		Fair Value		Face Value
As of December 31, 2011:
0 – 1		—	$	—	$	—
1 – 2		—		—		—
2 – 3		1		6,665		10,000
3 – 4		1		2,703		5,000
4 – 5		2		9,630		20,000
Thereafter		233		112,389		1,483,183
Total		237	$	131,387	$	1,518,183
As of December 31, 2010:
0 – 1		—	$	—	$	—
1 – 2		—		—		—
2 – 3		—		—		—
3 – 4		—		—		—
4 – 5		—		—		—
Thereafter		79		22,155		495,183
Total		79	$	22,155	$	495,183

Premiums to be paid for each of the five succeeding fiscal years to keep the life insurance policies in force as of December 31, 2011, are as follows:

(Amounts in Thousands)	Premiums Due on Life Settlement Contracts		Premiums Due on Premium Finance Loans		Total
2012	$	20,077	$	2,367	$	22,444
2013		23,386		2,671		26,057
2014		24,413		2,738		27,151
2015		25,209		2,957		28,166
2016		33,029		4,241		37,270
Thereafter		439,038		81,907		520,945
	$	565,152	$	96,881	$	662,033

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Intangible Assets and Goodwill

12 Months Ended

Dec. 31, 2011

Intangible Assets and Goodwill

7. Intangible Assets and Goodwill

The composition of the intangible assets is summarized as follows:

(Amounts in Thousands) As of December 31, 2011	Gross Balance		Accumulated Amortization		Net Value		Useful Life
Goodwill	$	147,654	$	—	$	147,654		Indefinite Life
Renewal rights		14,680		3,150		11,530		7 – 17 years
Covenant not to compete		7,756		4,569		3,187		3 – 9 years
Distribution networks		63,542		14,754		48,788		10 – 20 years
Software		2,305		2,028		277		20 years
Customer relationships		23,263		4,595		18,668		5 – 10 years
Trademarks		5,124		2,105		3,019		2 – 15 years
Trademarks		3,433		—		3,433		Indefinite Life
License		408		27		381		50 years
Licenses		14,340		—		14,340		Indefinite Life
Contractual use rights		98,306		37,405		60,901		Specific use
Other		2,755		317		2,438		4 years
Total	$	383,566	$	68,950	$	314,616		9 years average

(Amounts in Thousands) As of December 31, 2010	Gross Balance		Accumulated Amortization		Net Value		Useful Life
Goodwill	$	106,220	$	—	$	106,220		Indefinite Life
Renewal rights		7,780		2,373		5,407		7 – 17 years
Covenant not to compete		7,756		2,545		5,211		3 – 9 years
Distribution networks		57,817		10,138		47,679		10 – 20 years
Software		2,304		2,006		298		20 years
Customer relationships		6,395		3,439		2,956		5 – 10 years
Trademarks		3,820		1,176		2,644		2 – 15 years
Trademarks		3,433		—		3,433		Indefinite Life
License		408		16		392		50 years
Licenses		14,340		—		14,340		Indefinite Life
Contractual use rights		16,309		7,063		9,246		2 – 3 years
Total	$	226,582	$	28,756	$	197,826		12 years average

The changes in the carrying amount of goodwill by segment for the years ended December 31, 2011 and 2010 are as follows:

(Amounts in Thousands)	Small Commercial Business		Specialty Risk and Extended Warranty			Specialty Program		Total
Balance as of January 1, 2010	$	42,816	$	5,020		$	5,320	$	53,156
Goodwill additions		4,872		48,342			—		53,214
Foreign currency translation		—		(150	)		—		(150	)
Balance as of January 1, 2011	$	47,688	$	53,212		$	5,320	$	106,220
Goodwill additions		9,854		23,288			8,300		41,442
Foreign currency translation		—		(9	)		—		(9	)
Balance as of December 31, 2011	$	57,542	$	76,491		$	13,620	$	147,653

Goodwill added during 2011 resulted primarily from the acquisition of Cardinal Comp and other adjustments for deferred tax liabilities in the Small Commercial Business segment, the finalization of purchase adjustments for Warrantech in the Specialty Risk and Extended Warranty segment and contingent consideration related to a Specialty Program business. Goodwill added during 2010 resulted primarily from the acquisitions of Risk Services and Warrantech.

Goodwill and intangible assets are subject to annual impairment testing. No impairment was recorded during the years ended December 31, 2011, 2010 and 2009. Finite lived intangible assets are amortized under the straight-line method, except for renewal rights, which the Company amortizes using a 125% accelerated method, and contractual use rights, which are amortized based on actual use. Amortization expense for 2011, 2010 and 2009 was $40,194, $14,305 and $4,023, respectively. The estimated aggregate amortization expense for each of the next five years is:

(Amounts in Thousands)
2012	$	32,073
2013		30,588
2014		27,921
2015		7,638
2016		5,741

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Liability for Unpaid Loss and LAE

12 Months Ended

Dec. 31, 2011

Liability for Unpaid Loss and LAE

9. Liability for Unpaid Loss and LAE

The following table provides a reconciliation of the beginning and ending balances for unpaid losses and LAE, reported in the accompanying consolidated balance sheets as of December 31, 2011 and 2010:

(Amounts in Thousands)	2011			2010			2009
Unpaid losses and LAE, gross of related reinsurance recoverables at beginning of year	$	1,263,537		$	1,091,944		$	1,014,059
Less: Reinsurance recoverables at beginning of year		670,877			561,874			504,404
Net balance, beginning of year		592,660			530,070			509,655
Incurred related to:
Current year		665,812			463,535			332,598
Prior year		12,521			7,946			(4,827	)
Total incurred losses during the year		678,333			471,481			327,771
Paid losses and LAE related to:
Current year		(390,267	)		(222,593	)		(203,210	)
Prior year		(179,721	)		(187,012	)		(109,872	)
Total payments for losses and LAE		(569,988	)		(409,605	)		(313,082	)
Commuted loss reserves		—			1,350			4,612
Net balance, December 31		701,005			593,296			528,956
Acquired outstanding loss and loss adjustment reserve		209,651			—			—
Effect of foreign exchange rates		(3,873	)		(636	)		1,114
Plus reinsurance recoverables at end of year		972,392			670,877			561,874
Unpaid losses and LAE, gross of related reinsurance recoverables at end of year	$	1,879,175		$	1,263,537		$	1,091,944

In 2011, the Company’s liabilities for unpaid losses and LAE attributable to prior years increased by $12,521 primarily as result of unfavorable loss development, in its Specialty Program segment due to higher actuarial estimates based on actual losses. In 2010, the Company’s liabilities for unpaid losses and LAE attributable to prior years increased by $7,946 primarily as result of unfavorable loss development, in its Specialty Program segment due to higher actuarial estimates based on actual losses. In 2009, the Company’s liabilities for unpaid losses and LAE attributable to prior years decreased by $4,827 primarily as result of favorable development in both the Small Commercial Business segment and Specialty Risk and Extended Warranty segment partially offset by unfavorable development in our Specialty Program Business segment as well as the Company’s involuntary participation in NCCI pools. In setting its reserves, the Company utilizes a combination of Company loss development factors and industry-wide loss development factors. In the event that the Company’s losses develop more favorably than the industry, as a whole, the Company’s liabilities for unpaid losses and LAE should decrease. Management believes that its use of both its historical experience and industry-wide loss development factors provide a reasonable basis for estimating future losses. As the Company has written more business and developed more credible data, the Company has assigned more weight to its historical experience than to industry-wide results. In either case, future events beyond the control of management, such as changes in law, judicial interpretations of law, and inflation may favorably or unfavorably impact the ultimate settlement of the Company’s loss and LAE.

The anticipated effect of inflation is implicitly considered when estimating liabilities for losses and LAE. While anticipated changes in claim costs due to inflation are considered in estimating the ultimate claim costs, the increase in average severity of claims is caused by a number of factors that vary with the individual type of policy written. Future average severities are projected based on historical trends adjusted for implemented changes in underwriting standards, policy provisions, and general economic trends. Those anticipated trends are monitored based on actual development and are modified if necessary.

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Subsequent Event

12 Months Ended

Dec. 31, 2011

Subsequent Event

27. Subsequent Event

On January 13, 2012, the initial purchasers of the Company’s convertible senior notes (the “Notes”) exercised their $25,000 overallotment option on the previously completed offering of Notes (See Note 11. “Debt”). On January 19, 2012, the Company closed the sale of this overallotment, bringing the aggregate amount of Notes issued to $200,000.

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Acquisition Costs and Other Underwriting Expenses

12 Months Ended

Dec. 31, 2011

Acquisition Costs and Other Underwriting Expenses

14. Acquisition Costs and Other Underwriting Expenses

The following table summarizes the components of acquisition costs and other underwriting expenses:

(Amounts in Thousands)	2011		2010		2009
Policy acquisition expenses	$	256,464	$	180,757	$	120,182
Salaries and benefits		119,171		97,934		80,179
Other insurance general and administrative expense		22,769		24,118		43,918
	$	398,404	$	302,809	$	244,279

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Accumulated Other Comprehensive Income (Loss)

12 Months Ended

Dec. 31, 2011

Accumulated Other Comprehensive Income (Loss)

19. Accumulated Other Comprehensive Income (Loss)

(Amounts in Thousands)	Foreign Currency Items			Unrealized Gains (Losses) on Investments			Interest Rate Swap Hedge			Accumulated Other Comprehensive Income
Balance, December 31, 2008	$	(12,319	)	$	(93,496	)	$	—		$	(105,815	)
Current period changes, net of tax		4,863			83,932			—			88,795
Balance, December 31, 2009		(7,456	)		(9,564	)		—			(17,020	)
Current period changes, net of tax		(4,820	)		21,574			—			16,754
Balance, December 31, 2010		(12,276	)		12,010			—			(266	)
Current period changes, net of tax		(4,815	)		(2,638	)		(2,280	)		(9,733	)
Balance, December 31, 2011	$	(17,091	)	$	9,372		$	(2,280	)	$	(9,999	)

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CONSOLIDATED STATEMENTS OF INCOME (Parenthetical) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2011	Dec. 31, 2010	Dec. 31, 2009
Service and fee income, related parties	$ 16,700	$ 12,322	$ 8,622

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Investments

12 Months Ended

Dec. 31, 2011

Investments

3. Investments

(a) Available-for-Sale Securities

The amortized cost, estimated fair value and gross unrealized appreciation and depreciation of fixed and equity securities are presented in the tables below:

(Amounts in Thousands) As of December 31, 2011	Original or Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Preferred stock	$	5,091	$	—	$	(777	)	$	4,314
Common stock		28,950		5,228		(2,892	)		31,286
U.S. treasury securities		50,474		3,057		(257	)		53,274
U.S. government agencies		6,268		522		—			6,790
Municipal bonds		268,240		7,290		(513	)		275,017
Corporate bonds:
Finance		534,810		13,059		(31,918	)		515,951
Industrial		131,489		4,392		(2,990	)		132,891
Utilities		38,434		1,790		(1,718	)		38,506
Commercial mortgage backed securities		150		—		—			150
Residential mortgage backed securities:
Agency backed		345,112		18,946		(58	)		364,000
Non-agency backed		7,886		—		(222	)		7,664
	$	1,416,904	$	54,284	$	(41,345	)	$	1,429,843

(Amounts in Thousands) As of December 31, 2010	Original or Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Preferred stock	$	7,175	$	107	$	(245	)	$	7,037
Common stock		11,402		1,224		(2,251	)		10,375
U.S. treasury securities		82,279		1,634		(1,466	)		82,447
U.S. government agencies		6,483		679		—			7,162
Municipal bonds		67,396		438		(1,158	)		66,676
Corporate bonds:
Finance		411,532		9,756		(15,276	)		406,012
Industrial		47,828		1,970		(45	)		49,753
Utilities		36,375		1,204		(268	)		37,311
Commercial mortgage backed securities		1,970		106		—			2,076
Residential mortgage backed securities:
Agency backed		528,683		18,653		(1,238	)		546,098
Non-agency backed		7,779		817		(5	)		8,591
Asset-backed securities		2,519		168		—			2,687
	$	1,211,421	$	36,756	$	(21,952	)	$	1,226,225

Proceeds from the sale of investments in available-for-sale securities during the years ended December 31, 2011, 2010, and 2009 were approximately $2,140,557, $3,639,191, and $421,355, respectively.

A summary of the Company’s available-for-sale fixed securities as of December 31, 2011 and 2010, 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.

	December 31, 2011
(Amounts in Thousands)	Amortized Cost		Fair Value
Due in one year or less	$	10,044	$	18,661
Due after one through five years		286,007		277,959
Due after five through ten years		501,490		494,290
Due after ten years		228,695		231,519
Mortgage backed securities		356,627		371,814
Total fixed maturities	$	1,382,863	$	1,394,243

	December 31, 2010
(Amounts in Thousands)	Amortized Cost		Fair Value
Due in one year or less	$	5,153	$	5,241
Due after one through five years		102,536		103,222
Due after five through ten years		451,481		450,164
Due after ten years		92,723		90,734
Mortgage backed securities		540,951		559,452
Total fixed maturities	$	1,192,844	$	1,208,813

(b) Investment Income

Net investment income for the years ended December 31, 2011, 2010 and 2009 was derived from the following sources:

(Amounts in Thousands)	2011			2010			2009
Fixed maturity securities	$	53,595		$	43,789		$	47,675
Equity securities		981			702			2,084
Cash and short term investments		1,966			4,042			4,173
Interest on note receivable – related party		—			2,612			2,967
		56,542			51,145			56,899
Less: Investment expenses and interest expense on securities sold under agreement to repurchase		(1,027	)		(628	)		(1,612	)
	$	55,515			50,517		$	55,287

(c) Other Than Temporary Impairment

OTTI charges of our fixed-maturities and equity securities for the years ended December 31, 2011, 2010 and 2009 are presented in the table below:

(Amounts in Thousands)	2011		2010		2009
Equity securities recognized in earnings	$	937	$	10,656	$	20,639
Fixed maturity securities recognized in earnings		3,474		10,540		4,139
	$	4,411	$	21,196	$	24,778

The tables below summarize the gross unrealized losses of our fixed maturity and equity securities by length of time the security has continuously been in an unrealized loss position as of December 31, 2011 and 2010:

	Less Than 12 Months							12 Months or More							Total
(Amounts in Thousands) December 31, 2011	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	$	4,211	$	(648	)		7	$	4,573	$	(3,021	)		17	$	8,784	$	(3,669	)
U.S. treasury securities		7,523		(257	)		4		773		—			1		8,296		(257	)
Municipal bonds		43,452		(452	)		10		4,098		(61	)		1		47,550		(513	)
Corporate bonds:
Finance		221,950		(13,250	)		81		104,461		(18,668	)		17		326,411		(31,918	)
Industrial		35,105		(2,125	)		11		2,500		(865	)		1		37,605		(2,990	)
Utilities		21,483		(1,261	)		9		5,766		(457	)		1		27,249		(1,718	)
Commercial mortgage backed securities		150		—			2		—		—			—		150		—
Residential mortgage backed securities:
Agency backed		31,986		(58	)		9		—		—			—		31,986		(58	)
Non-agency backed		7,641		(216	)		1		22		(6	)		1		7,663		(222	)
Total temporarily impaired	$	373,501	$	(18,267	)		134	$	122,193	$	(23,078	)		39	$	495,694	$	(41,345	)

	Less Than 12 Months							12 Months or More							Total
(Amounts in Thousands) December 31, 2010	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	$	1,291	$	(208	)		1	$	7,148	$	(2,288	)		54	$	8,439	$	(2,496	)
U.S. treasury securities		49,390		(1,466	)		6		—		—			—		49,390		(1,466	)
Municipal bonds		50,301		(1,147	)		14		1,204		(11	)		1		51,505		(1,158	)
Corporate bonds:
Finance		79,451		(1,700	)		16		160,126		(13,576	)		31		239,577		(15,276	)
Industrial		6,319		(45	)		1		—		—			—		6,319		(45	)
Utilities		1,981		(106	)		1		11,635		(162	)		2		13,616		(268	)
Residential mortgage backed securities:
Agency backed		150,575		(1,238	)		3		—		—			—		150,575		(1,238	)
Non-agency backed		—		—			—		26		(5	)		1		26		(5	)
Total temporarily impaired	$	339,308	$	(5,910	)		42	$	180,139	$	(16,042	)		89	$	519,447	$	(21,952	)

There are 173 and 131 securities at December 31, 2011 and 2010, respectively 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) Realized Gains and Losses

The tables below indicate the gross realized gains and losses for the years ended December 31, 2011, 2010 and 2009.

(Amounts in Thousands) Year Ended December 31, 2011	Gross Gains		Gross Losses			Net Gains and Losses
Fixed maturity securities	$	7,631	$	(266	)	$	7,365
Equity securities		569		(755	)		(186	)
Write-down of fixed maturity securities		—		(3,474	)		(3,474	)
Write-down of equity securities		—		(937	)		(937	)
	$	8,200	$	(5,432	)	$	2,768

(Amounts in Thousands) Year Ended December 31, 2010	Gross Gains		Gross Losses			Net Gains and Losses
Fixed maturity securities	$	17,860	$	(4,353	)	$	13,507
Equity securities		19,656		(6,047	)		13,609
Derivatives		33		—			33
Write-down of fixed maturity securities		—		(10,540	)		(10,540	)
Write-down of equity securities		—		(10,656	)		(10,656	)
	$	37,549	$	(31,596	)	$	5,953

(Amounts in Thousands) Year Ended December 31, 2009	Gross Gains		Gross Losses			Net Gains and Losses
Fixed maturity securities	$	6,421	$	(5,536	)	$	885
Equity securities		5,617		(10,734	)		(5,117	)
Derivatives		—		(4,569	)		(4,569	)
Write-down of fixed maturity securities		—		(4,429	)		(4,429	)
Write-down of equity securities		—		(20,349	)		(20,349	)
	$	12,038	$	(45,617	)	$	(33,579	)

(e) Unrealized Gains and Losses

The net unrealized gain (loss) on available-for-sale securities were as follows:

(Amounts in Thousands) Year Ended December 31,	2011			2010			2009
Fixed maturity securities	$	11,380		$	15,969		$	4,444
Equity securities		1,559			(1,165	)		(10,283	)
Total net unrealized gain (loss)		12,939			14,804			(5,839	)
Deferred income tax benefit (expense)		(4,529	)		(5,181	)		2,044
Net unrealized gains (loss), net of deferred income tax		8,410			9,623			(3,795	)
(Decrease) increase in net unrealized gains, net of deferred income tax	$	(1,213	)	$	13,418		$	83,087

(f) 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 hedged positions as a component of other comprehensive income. As of December 31, 2011, the Company had two interest rate swap agreements designated as a hedge and were recorded as a liability in the amount of $3,508 and were included as a component of accrued expenses and other liabilities.

The following table presents the notional amounts by remaining maturity of the Company’s Interest Rate Swaps as of December 31, 2011:

	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

(1) Notional amount is not representative of either market risk or credit risk and is not recorded in the consolidated balance sheet.

(g) Restricted Cash and Investments

The Company, in order to conduct business in certain states, is required to maintain letters of credit or assets on deposit to support state mandated regulatory requirements and certain third party agreements. The Company also utilizes trust accounts to collateralize business with its reinsurance counterparties. These assets held are primarily in the form of cash or certain high grade securities. The fair values of our restricted assets are as follows:

(Amounts in Thousands) As of December 31,	2011		2010
Restricted cash	$	23,104	$	17,130
Restricted investments		187,227		35,682
Total restricted cash and investments	$	210,331	$	52,812

(h) 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 December 31, 2011 and 2010 was $55,830 and $8,483 for corporate bonds, respectively, and $112 and $364 for equity securities, respectively. These transactions result in off-balance sheet risk, as the Company’s ultimate cost to satisfy the delivery of securities sold, not yet purchased, may exceed the amount reflected at December 31, 2011. Substantially all securities owned are pledged to the clearing broker to sell or repledge the securities to others subject to certain limitations.

The Company entered 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 December 31, 2011 there were $191,718 principal amount outstanding at interest rates between 0.4% and 0.45%. Interest expense associated with these repurchase agreements for the year ended December 31, 2011 was $1,028 of which $0 was accrued as of December 31, 2011. The Company has $210,890 of collateral pledged in support of these agreements. As of December 31, 2010 there were $347,617 principal amount outstanding at interest rates between 0.32% and 0.4%. Interest expense associated with these repurchase agreements for the year ended December 31, 2010 was $610 of which $63 was accrued as of December 31, 2010. The Company had $351,211 of collateral pledged in support of these agreements. Interest expense related to repurchase agreements is recorded as a component of investment income.

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Commitments and Contingencies

12 Months Ended

Dec. 31, 2011

Commitments and Contingencies

20. Commitments and Contingencies

Litigation

The Company’s insurance subsidiaries are named as defendants in various legal actions arising principally from claims made under insurance policies and contracts. Those actions are considered by the Company in estimating the loss and LAE reserves. The Company’s management believes the resolution of those actions will not have a material adverse effect on the Company’s financial position or results of operations.

Vehicle service contract industry inquiry and related proceedings

As disclosed in Part I, Item 3 of this Annual Report on Form 10-K, the states of Texas, Washington and Ohio, by and through the offices of their respective Attorneys General, are acting as the Executive Committee of a multi-state Attorneys General task force (the “Multi-State Task Force”) that is making inquiries into the vehicle service contract industry focusing on former third party administrators of U.S. Fidelis, a direct marketer of vehicle service contracts that filed a petition for Chapter 11 bankruptcy protection in February 2010 in the United States Bankruptcy Court for the Eastern District of Missouri (the “Bankruptcy Proceeding”). The inquiries relate to the handling of payment of customer refunds in the absence of U.S. Fidelis fulfilling such obligations and violation by U.S. Fidelis of consumer protection statutes in the course of marketing and selling vehicle service contracts to consumers across the country. In connection with such inquiry, on or about January 14, 2011, the Company’s subsidiary, Warrantech Corporation (“Warrantech”), received an inquiry from the Texas Attorney General’s office because Warrantech was a non-exclusive third party administrator of U.S. Fidelis between 2006 and 2009. Warrantech is working with the Executive Committee to resolve the matter as part of the Bankruptcy Proceeding, as discussed below.

On March 10, 2011, Warrantech received a demand letter from Mepco Finance Corporation (“Mepco”) related to certain damages Mepco allegedly incurred in connection with vehicle service contracts marketed and sold by U.S. Fidelis, financed by Mepco, and administered by Warrantech. Mepco claims that under the terms of an agreement between Warrantech and Mepco, Warrantech is obligated to indemnify Mepco for damages incurred resulting from the failure of U.S. Fidelis to repay certain amounts to Mepco on cancelled vehicle service contracts that were marketed and sold by U.S. Fidelis, financed by Mepco, and administered by Warrantech.

Warrantech disputes that it owes Mepco any amounts resulting from the failure of U.S. Fidelis to repay Mepco for certain cancelled vehicle service contracts. On September 13, 2011, Warrantech commenced an adversary proceeding against Mepco in the Bankruptcy Proceeding, Case Number 11-04313 (the “Adversary Proceeding”). In the Adversary Proceeding, Warrantech is seeking a judicial determination that Mepco breached the agreement between the parties and, as result, Warrantech has incurred damages in connection with the marketing and sales of vehicle service contracts by U.S. Fidelis and Mepco’s financing of those vehicle service contracts. In addition, Warrantech is seeking a declaratory judgment that any contractual obligation it may have had to indemnify or reimburse Mepco for unpaid amounts due from U.S. Fidelis is unenforceable due to Mepco’s own conduct.

In a related proceeding, the Official Committee of the Unsecured Creditors (the “Creditors Committee”) also commenced an adversary proceeding against Mepco in the Bankruptcy Proceeding, Case Number 10-41902-705. In that proceeding, the Creditors Committee asserts, among other things, that Mepco’s pre- and post-petition bankruptcy claims should be subordinated due to Mepco’s inequitable conduct.

On September 28, 2011, the Multi-State Task Force, acting through its Executive Committee, filed a motion in the Bankruptcy Proceeding requesting that the Bankruptcy Court issue an order compelling Mepco, Warrantech, the Creditors Committee and the Executive Committee to mediate the claims asserted in the Adversary Proceeding and the issues raised by the Multi-State Task Force. On December 19 and December 20, 2011, Mepco, Warrantech, the Creditors Committee, the Executive Committee and counsel representing WARN Act claimants participated in the mediation conducted in Austin, Texas. As a result of this mediation, the parties are currently negotiating a potential settlement of the Adversary Proceeding and the Multi-State Task Force inquiry.

Lease Commitments

The Company is obligated under approximately 49 leases for office space expiring at various dates through 2032. Future minimum lease payments as of December 31, 2011 under non-cancellable operating leases for each of the next five years are approximately as follows:

(Amounts in Thousands)
2012	$	8,403
2013		7,871
2014		7,564
2015		6,931
2016		6,487
2017 and Thereafter		25,096
	$	62,352

Rent expense for the years ended December 31, 2011, 2010 and 2009 was $10,451, $8,490 and $6,869, respectively.

Employment Agreements

The Company has employment agreements with approximately 26 of its key executives and employees. The agreements terminate on varying dates through 2020, contain annual minimum levels of compensation, and contain bonuses based on the Company’s achieving certain financial targets. The annual future minimums in the aggregate are as follows through 2020:

(Amounts in Thousands)
2012	$	9,474
2013		4,508
2014		2,102
2015		2,102
2016		2,102
2017 and Thereafter		2,207
	$	22,495

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AMTRUST FINANCIAL SERVICES, INC. AND SUBSIDIARIES REINSURANCE

12 Months Ended

Dec. 31, 2011

AMTRUST FINANCIAL SERVICES, INC. AND SUBSIDIARIES REINSURANCE

Schedule IV

AMTRUST FINANCIAL SERVICES, INC.
AND SUBSIDIARIES REINSURANCE

At December 31, 2011, 2010 and 2009 and for the years then ended:

	Gross Amount		Ceded to Other Companies		Amount from Other Companies		Net Amount		Percent of Amount Assumed to Net
	(Amounts in Thousands)
2011
Premiums:
General Insurance	$	1,843,185	$	873,875	$	307,287	$	1,276,597		24.1	%
2010
Premiums:
General Insurance	$	1,375,993	$	733,596	$	184,829	$	827,226		22.3	%
2009
Premiums:
General Insurance	$	1,117,090	$	555,520	$	81,856	$	643,426		12.7	%

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Related Party Transactions

12 Months Ended

Dec. 31, 2011

Related Party Transactions

13. 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 December 31, 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.

Quota Share Agreement

In 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 results of operations for the years ended December 31, 2011, 2010 and 2009 related to the Maiden Quota Share agreement:

(Amounts in Thousands)	2011			2010			2009
Results of operations:
Premium written – ceded(1)	$	(703,175	)	$	(463,042	)	$	(379,744	)
Change in unearned premium – ceded		143,553			21,771			21,747
Earned premium – ceded	$	(559,622	)	$	(441,271	)	$	(357,997	)
Ceding commission on premium written	$	182,316		$	144,598		$	118,991
Ceding commission – deferred		(28,363	)		(6,487	)		(6,140	)
Ceding commission – earned	$	153,953		$	138,111		$	112,851
Incurred loss and loss adjustment expense – ceded	$	401,822		$	295,469		$	259,780
Interest expense on collateral loan		1,925			982			2,958

Other Reinsurance Agreements

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 had an initial term of one year and has been extended to August 31, 2012, 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 $857 for the year ended December 31, 2011 related to this agreement for which the Company earned ceding commission of $192 for the year ended December 31, 2011. The Company did not enter into any material transactions related to this agreement during the year ended December 31, 2010.

Between January 1, 2009 and January 1, 2010, Maiden was a 45% participating reinsurer in the first layer of the Company’s workers’ compensation excess of loss program, which provided coverage in the amount of $9,000 per occurrence in excess of $1,000, subject to an annual aggregate deductible of $1,250. From January 1, 2009 through June 30, 2009, Maiden was one of two participating reinsurers in the layer and participated on the same market terms and conditions as the other participant. Effective July 1, 2009, the other participant’s participation in the layer was terminated, but Maiden continued to assume 45% of the layer on the existing terms and conditions through the end of the term on January 1, 2010.

As of January 1, 2009, Maiden Insurance had a participation in a $4,000 in excess of $1,000 specialty transportation program written by the Company. For calendar year 2009, Maiden Insurance’s participation was 30%. This program provided primarily, commercial auto coverage and, to a lesser extent, general liability coverage to private non-emergency para-transit and school bus service operators. The participations were sourced through a reinsurance intermediary via open market placement in which competitive bids were solicited by an independent broker. Several other broker market reinsurers hold the other 70% participation for 2009. The agreement terminated January 1, 2010.

Note Payable to Maiden — Collateral for Proportionate Share of Reinsurance Obligation

In conjunction with the Maiden Quota Share, as described above, 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 December 31, 2011 and 2010. The Company recorded $1,925 and $982 of interest expense during the years ended December 31, 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 December 31, 2011 was approximately $465,000. Maiden retains ownership of the collateral in the trust account.

Fronting Arrangement with Maiden Specialty Insurance Company

Effective September 1, 2010, we, through our wholly-owned subsidiary, 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 our behalf (the “Surplus Lines Facility”). The Surplus Lines Facility enables us to write business on a surplus lines basis throughout the United States in states in which we are unauthorized to write such business through our own insurance subsidiaries. During 2011, we utilized 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. We are actively pursuing surplus lines authority for two of our insurance company subsidiaries, which would remove the need for the Surplus Lines Facility. As a result of this agreement, we assumed approximately $18,000 of written premium for which we earned approximately $10,400 and incurred losses of approximately $6,500 for the year ended December 31, 2011. The Company did not enter into any material transactions related to this agreement during the year ended December 31, 2010.

Reinsurance Brokerage Agreement

Effective July 1, 2007, AmTrust, through a subsidiary, entered into a reinsurance brokerage agreement with Maiden. Pursuant to the brokerage agreement, AmTrust provides brokerage services relating to the Maiden Quota Share for a fee equal to 1.25% of reinsured premium. The brokerage fee is payable in consideration of AII Reinsurance Broker Ltd.’s brokerage services. The Company recorded $8,082, $5,841 and $5,135 of brokerage commission (recorded as a component of Service and fee income) during the years ended December 31, 2011, 2010 and 2009, respectively.

Asset Management Agreement

Effective July 1, 2007, AmTrust, through a subsidiary, entered into an asset management agreement with Maiden, pursuant to which it provides investment management services to Maiden and its affiliates. The Company currently manages approximately $2,200,000 of assets as of December 31, 2011 related to this agreement. Effective April 1, 2008, the investment management services fee was 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 $3,046, $2,693 and $2,459 of investment management fees (recorded as a component of service and fee income) for the years ended December 31, 2011, 2010 and 2009, respectively.

Services Agreement

AmTrust, through its subsidiaries, entered into services agreements in 2008, pursuant to which it provides certain marketing and back office services to Maiden. Pursuant to the services agreements, AmTrust earns a fee equal to the amount required to reimburse AmTrust for its costs plus 8%. As a result of this agreement, the Company recorded fee income of approximately $0, $38 and $432 for the years ended December 31, 2011, 2010 and 2009, 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 as of December 31, 2011 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 $7,871 and $25,332 of income during the years ended December 31, 2011 and 2010, respectively related to its equity investment in ACAC. The decrease in equity income in 2011 primarily related to the initial acquisition gain on ACAC of $10,450 the Company recognized during 2010 that was adjusted downward during 2011 by $3,614. Absent this adjustment for purchase price accounting, the earnings related to ACAC decreased to $11,485 in 2011 from $14,882 in 2010.

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 Integon National Insurance Company, lead insurance company on behalf of 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 $102,598 and $82,295 of business from the GMACI Insurers during the years ended December 31, 2011 and 2010, respectively.

Information Technology Services Agreement

The Company provides ACAC and its affiliates information technology development services in connection with the development of a policy management system at a price of cost plus 20% pursuant to a Master Services Agreement with GMAC Insurance Management Corporation, a wholly-owned subsidiary of ACAC. In addition, as consideration for a license for ACAC and its affiliates to use that system, the Company receives a license fee in the amount of 1.25% of gross premiums of ACAC and its affiliates plus the Company’s costs for support services. The Company recorded approximately $4,022 and $2,022 of fee income for the years ended December 31, 2011 and 2010, respectively, related to this agreement.

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. The Company currently manages approximately $750,000 of assets as of December 31, 2011 related to this agreement. As a result of this agreement, the Company earned approximately $1,550 and $1,456 of investment management fees for the years ended December 31, 2011 and 2010, respectively.

As a result of the above service agreements with ACAC, the Company recorded fees totaling approximately $5,572 and $3,478 for the years ended December 31, 2011 and 2010, respectively. As of December 31, 2011, the outstanding balance payable by ACAC related to these service fees and reimbursable costs was approximately $1,089.

800 Superior LLC

In August 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 year ended December 31, 2011.

Diversified

Diversified Construction Management, LLC (“Diversified”) provided construction management and general contractor services for a Company subsidiary between 2009 and 2011. The Company recorded a total of $201, $423 and $260 for the years ended December 31, 2011, 2010 and 2009, respectively, 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. While the initial arrangements were not pre-approved by the Audit Committee, upon subsequent review, the Audit Committee determined that the contracts were not less favorable to the Company than similar services provided at arms-length and approved future contracts.

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 $665 and $689 for the lease for the years ended December 31, 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 $285 and $257 for the years ended December 31, 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 year ended December 31, 2011, Maiden and ACAC paid AUI $74 and $185, 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 and Michael Karfunkel, the Chairman of the Board, each 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 their personal use of AUI’s aircraft, which for the year ended December 31, 2011 was $200 and $30, respectively. The Company’s Audit Committee reviewed and approved the time share and reimbursement agreements.