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«AMTRUST FINANCIAL 2014 ANNUAL REPORT We are a niche specialty property and casualty insurance company, with more than 5,000 employees operating ...»

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We are a niche specialty property and casualty

insurance company, with more than 5,000 employees

operating throughout the world. We focus on

underserved markets in areas of small commercial

business, specialty risk and extended warranty, and

specialty programs. We are rated “A” (Excellent) with

a Financial Size of “XII” by AM Best Company.



4% 20% 8% 14% 79% 40% 45% 17% 7% 9% 6% 23% 1% 2% Invested Assets Geographic Mix Product Mix $5,665 Million $6,088 Million GWP $ 6,088 Million GWP $ in Millions $ in Millions $ in Millions United States 4,809 Workers’ Compensation 2,448 Corporate 2,563 United Kingdom 546 Warranty 971 Cash and Short-Term 1,153 Italy 262 Other Liability 853 Agency RMBS 976 Other 471 Municipal 482 Commercial Auto 426 Equities and Other 334 Other

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Our top-line and bottom-line growth soared. Our shareholders’ equity reached new heights. Our premiums rose by 48%, exceeding $6.0 billion, our investment income grew 55%, to $132 million, from $85 million a year ago, our revenues increased by 51%, to over $4.0 billion, and our operating diluted EPS rose by 61%, to $5.75.

Our 5,100 employees operate in 50 countries. We have shareholders’ equity of over $2 billion and $13.8 billion in assets. Our conservative investment portfolio, which rose to $5.7 billion, featured $1.1 billion in cash and shortterm investments and $4.3 billion in fixed income securities of which 98% were rated investment grade. We raised over $1.0 billion of capital in the last 24 months, and by the end of 2014, our book value stood at a record $22.34 per share; our operating return on equity was 29.9%.

Those are the numbers, and we’re proud of them.

Truth is, we take much more pride in the way that business, at AmTrust, gets done.

We’ve come to think of ourselves as an evolving work of art—as a composition of carefully curated parts. We built this company by paying attention to the light within the shadows, the glimmer in the margins, and the gems still in the rough. Dislocated markets. Organizations that have been unable to overcome disparate challenges. Risks others have deemed, upon first glance, overly complex.

We don’t think anything is overly complex.

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become highly profitable and accretive.

Adam Karkowsky, Senior Vice President, Strategic Development Mergers and Acquisitions 3 2014 Annual Report

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With hundreds of thousands of workers’ compensation insurance policies, 20 million warranty contracts, and thousands of insured relationships, we at AmTrust have made risk our responsibility. We’ve broadened our footprint through organic growth. We’ve undertaken creative acquisitions Operating Earnings Per Share1 that expand our distribution networks, align with our conservative underwriting philosophies, deepen our specialty subject matter expertise, and 90.1% 90.5%

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25.1 23.5

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65.0 67.0

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The benefits of the deal were clear to us from the start. Tower’s expertise as a commercial package writer would, for example, enable AmTrust, which has historically specialized in workers’ compensation, to support a growing cadre of clients with a broader range of services and expertise.

At the same time, the deal would broaden our relationship with established agents and thereby strengthen our distribution network. Finally, by

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Non-GAAP Reconciliation The following measures as referenced by footnote 1 in the table above and throughout this report are non-GAAP financial measures that the Company believes are a relevant measure of the Company’s profitability because they contain the components of the net income upon which the Company’s management has the most influence and exclude factors outside management’s direct control and non-recurring items.

Operating earnings: Net Income attributable to AmTrust common stockholders ($434.3 million, $278.2 million, and $178.0 million for 2014, 2013, and 2012, respectively) less after-tax realized investment gain ($10.7 million, $10.1 million and $5.8 million in 2014, 2013 and 2012 respectively), non-cash amortization of intangible assets ($33.5 million, $31.7 million and $17.2 million in 2014, 2013 and 2012, respectively), non-cash impairment of goodwill ($62.9 million, $10.2 million and $16.4 million in 2014, 2013 and 2012, respectively), loss on extinguishment of debt ($9.8 million in 2014), foreign currency transaction gain/(loss) ($60.2 million, ($6.5) million and ($0.2) million in 2014, 2013 and 2012, respectively), after-tax gain resulting from a decrease in the ownership percentage of an equity investment in an unconsolidated subsidiary (related party) ($9.6 million and $5.6 million in 2014 and 2013, respectively), after-tax non-cash interest on convertible senior notes ($2.6 million, $2.0 million and $2.1 million in 2014, 2013 and 2012, respectively), gain on sale of a subsidiary net of tax ($4.3 million in 2014), after-tax gain on acquisition ($34.7 million in 2013). Operating return on equity: Operating earnings divided by average shareholders’ equity of $1,531.5 million, $1,235.1 million and $1,017.3 million in 2014, 2013 and 2012, respectively.



Washington, DC 20549

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

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):

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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).Yes No As of June 30, 2014, 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 $1,305,118,675.

As of February 17, 2015, the number of common shares of the registrant outstanding was 81,917,831.

Documents incorporated by reference: Portions of the Proxy Statement for the 2015 Annual Meeting of Shareholders of the registrant to be filed subsequently with the SEC are incorporated by reference into Part III of this report.


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Note on Forward-Looking Statements This Form 10-K contains certain forward-looking statements that are intended to be covered by the safe harbors created by The Private Securities Litigation Reform Act of 1995. When we use words such as “anticipate,” “intend,” “plan,” “believe,” “estimate,” “expect,” or similar expressions, we do so to identify forward-looking statements. Examples of forward-looking statements include the plans and objectives of management for future operations, including those relating to future growth of our business activities and availability of funds, and are based on current expectations that involve assumptions that are difficult or impossible to predict accurately and many of which are beyond our control. Actual results may differ materially from those expressed or implied in these statements as a result of significant risks and uncertainties, including, but not limited to, non-receipt of expected payments from insureds or reinsurers, changes in interest rates, a downgrade in the financial strength ratings of our insurance subsidiaries, the effect of the performance of financial markets on our investment portfolio, the amounts, timing and prices of any share repurchases made by us under our share repurchase program, our estimates of the fair value of our life settlement contracts, development of claims and the effect on loss reserves, accuracy in projecting loss reserves, the cost and availability of reinsurance coverage, the effects of emerging claim and coverage issues, changes in the demand for our products, our degree of success in integrating acquired businesses, the effect of general economic conditions, state and federal legislation, regulations and regulatory investigations into industry practices, risks associated with conducting business outside the United States, developments relating to existing agreements, disruptions to our business relationships with Maiden Holdings, Ltd., National General Holdings Corp., ACP Re, Ltd., or third party agencies and warranty administrators, breaches in data security or other disruptions with our technology, heightened competition, changes in pricing environments, and changes in asset valuations.

Additional information about these risks and uncertainties, as well as others that may cause actual results to differ materially from those projected, is contained in “Item 1A. Risk Factors” in this Annual Report on Form 10-K. The projections and statements in this report speak only as of the date of this report and we undertake no obligation to update or revise any forward-looking statement, whether as a result of new information, future developments or otherwise, except as may be required by law.

Item 1. Business Legal Organization AmTrust Financial Services, Inc.

is a Delaware corporation that was acquired by its principal stockholders in 1998 and began trading on the NASDAQ Global Select Market on November 13, 2006. References to “AmTrust,” the “Company,” “we,” “our,” or “us” in this Annual Report on Form 10-K and in other statements and information publicly disseminated by AmTrust Financial Services, Inc., refer to the consolidated operations of the holding company.

Business Overview

AmTrust underwrites and provides property and casualty insurance products, including workers' compensation, commercial automobile, general liability and extended service and warranty coverage, in the United States and internationally to niche customer groups that we believe are generally under served within the broader insurance market.

Our business model focuses on achieving superior returns and profit growth with the careful management of risk. We pursue these goals through geographic and product diversification, as well as an in-depth understanding of our insured exposures. Our product mix includes, primarily, workers’ compensation, extended warranty and other commercial property/casualty insurance products. Our workers’ compensation and property/casualty insurance policyholders in the United States are generally small and middle market businesses. Our extended warranty customers are manufacturers, distributors and retailers of commercial and consumer products. We have also built a strong and growing distribution of extended warranty and specialty risk products, including liability and other property/casualty products, in Europe. The majority of our products are sold through independent third-party brokers, agents, retailers or administrators. Our strategy is to target small to middle size customer markets throughout the U.S.

and Europe where our proprietary technology platform enables us to efficiently manage the high volume of policies and claims that result from serving large numbers of small policyholders and warranty contract holders. The technology we have developed offers a level of service that is a competitive advantage in these high volume, lower risk markets by enhancing our ability to service, underwrite and adjudicate claims. Additionally, our ability to maintain and analyze high volumes of loss data over a long historical period allows us to better manage and forecast the underlying risk inherent in the portfolio. Since our inception in 1998, we have grown both organically and through an opportunistic acquisition strategy. We believe we approach acquisitions conservatively, and our strategy is to take relatively modest integration and balance sheet risk. Our acquisition activity has involved the purchase of companies, renewal rights to established books of insurance portfolios, access to distribution networks and the hiring of established teams of underwriters with expertise in our specialty lines.

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