Property and casualty insurance company Amtrust Financial (AFSI 23.67, -3.99 -14.4%) trades to more than two-year lows today after the company reported Q4 results and updated investors on the timing of its 10-K filing.
In terms of the results, AFSI reported Q4 earnings per share (EPS) of $0.38 on strong revenues which grew 14.9% compared to last year to about $1.22 billion.
By segment, total service and fee income of $151.0 million was up 26% compared to a year ago and included $26.8 million from related parties in the Q4 compared to $18.5 million in the same period last year. Furthermore, net income for Q4 was $98.7 million compared to $59.7 million last year; the net income attributable to common stockholders and operating earnings reflects a reserve charge of $65.0 million, or about $0.24 per diluted share, mostly related to strengthening of prior year loss and loss adjustment reserves in our Specialty Program segment.
Net investment income, excluding net realized gains and losses, totaled $48 million, an increase of 7% from $45 million in last year’s Q4. The growth in investment income was mostly due to the increase in invested assets. Total cash and invested assets increased 29.2% to $9.3 billion as of December 31, 2016 compared to $7.2 billion as of December 31, 2015. In addition, Q4 results included net realized investment gains of $5.2 million, or $3.4 million after-tax, on fixed income and equity investments compared with net realized investment losses of $22.6 million, or $14.7 million after-tax, in the fourth quarter of 2015.
Additionally, acquisition costs and other underwriting expenses were $329.3 million, an increase of $77.4 million compared to last year. The company’s expense ratio was 27.1% compared to 23.8% in 4Q15. Ceding commissions, primarily related to the reinsurance agreements with Maiden Holdings, Ltd., totaled $139.8 million, up 1% from $137.8 million compared to last year.
Further, AFSI updated investors on the anticipated filing of its Form 10-K. The company noted that, on or before March 1, 2017, it intends to file a Form 12b-25 with the SEC providing the company an automatic 15-day extension to file its Form 10-K for the year ended December 31, 2016. As previously disclosed, AFSI appointed a new independent registered public accounting firm on April 1, 2016. Additional time is needed for AFSI to complete its consolidated financial statements and assessment of internal controls over financial reporting for the fiscal year ended December 31, 2016, and, as a consequence, for the company's auditor, KPMG LLP, to complete its audit procedures and audit of the consolidated financial statements included in the Form 10-K. AFSI expects to file the Annual Report on Form 10-K within the 15-day extension period provided by Rule 12b-25.
AFSI also expects to make immaterial corrections to errors in its financial statements for fiscal years ended December 31, 2015 and 2014 and certain financial information for fiscal years ended December 31, 2013 and 2012 for inclusion in the Form 10-K and these processes have not been completed. The company is still evaluating corrections to its historical quarterly financial statements within these fiscal years.
In connection with the foregoing, AFSI expects to disclose in the Form 10-K that, as part of its evaluation of its internal controls over financial reporting as required by Section 404 of the Sarbanes-Oxley Act of 2002, it identified material weaknesses in its internal control over financial reporting that existed as of December 31, 2016, specifically related to ineffective assessment of the risks associated with the financial reporting, and an insufficient complement of corporate accounting and corporate financial reporting resources within the organization.
In closing, while AFSI already has disclosed that the specialty program segment has had issues in casualty lines, the reserve charge could be what takes the stock lower today. Further dragging the stock, the delay in the 10-K filing, while expected due to the accounting change, weighs on shareholders’ minds.