Amtrust Financial Services' CEO Discusses Q1 2013 Results - Earnings Call Transcript

May. 1.13 | About: AmTrust Financial (AFSI)

Amtrust Financial Services, Inc. (NASDAQ:AFSI)

Q1 2013 Earnings Conference Call

May 1, 2013 09:00 ET

Executives

Hilly Gross - Vice President, Investor Relations

Barry Zyskind - President and Chief Executive Officer

Ron Pipoly - Chief Financial Officer

Beth Malone - Senior Vice President, Investor Relations and Corporate Development

Analysts

Randy Binner - FBR Capital Markets

Adam Klauber - William Blair

Matt Carletti - JMP Securities

Doug Mewhirter - SunTrust Robinson Humphrey

Operator

Good day, ladies and gentlemen, and welcome to the AmTrust Financial First Quarter 2013 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session with instructions to follow at that time. (Operator Instructions) As a reminder, this conference is being recorded.

I would like to introduce your host for today’s conference, Hilly Gross, Vice President of Investor Relations for AmTrust. You may begin.

Hilly Gross - Vice President, Investor Relations

Thank you. And thank you everyone for taking the time out to join us with us our first quarter earnings conference call 2013. With me this morning are Mr. Barry Zyskind, President and CEO of AmTrust; and Mr. Ron Pipoly, Chief Financial Officer of AmTrust. And as always it’s a pleasure to acknowledge the presence of Ms. Beth Malone, Senior Vice President of Investor Relations and Corporate Development.

Before I call on Mr. Zyskind and Mr. Pipoly to give you their review and the analysis of these first quarter 2013 results, I would with your indulgence read into the record the obligatory paragraph on forward-looking statements. Since members of our management team may include in today’s presentation statements other than historical facts. These statements include the plans and objectives of management for future operations, including those relating to future growth of the company’s business activities and availabilities of funds, and are based on current expectations and involve assumptions that are difficult or impossible to predict accurately, many of which are beyond our control. There can be no assurance that actual developments will be consistent with these assumptions.

Actual results may differ materially from those expressed or implied in these statements as a result of significant risks and uncertainties, including the factors set forth in our filings with the Securities and Exchange Commission. The projections and statements in this presentation speak only as of date of this presentation 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.

Finally, in the prepared remarks and responses to questions in today’s presentation, our management will refer to financial measures that are not derived from Generally Accepted Accounting Principles or as it is known GAAP. Reconciliations of these non-GAAP financial measures to the most directly comparable GAAP measures and related information is provided in the press release for the first quarter 2013 recently available on the Investor Relations section of our website at www.amtrustgroup.com, I repeat, www.amtrustgroup.com.

Having dispensed with the legal niceties, it is now my pleasure to introduce to you Mr. Barry Zyskind, President and CEO of AmTrust Financial. Barry?

Barry Zyskind - President and Chief Executive Officer

Thank you, Hilly. Good morning. Thank you everyone for joining us on this call. I am very pleased to report that AmTrust had a very strong quarter. We continue to see positive trends in all segments of our business. We feel very strong about this quarter and we believe that this is an indication that the year, the remainder of 2013 will be a very strong year.

As we mentioned in previous calls, we continue to see a lot of momentum in our small commercial, especially in our small comp division. We continue to see tremendous amount of business flowing back into the marketplace from package writers who were aggressive over the years and throw into a package, and now we are seeing that business come back into the marketplace. Some larger carriers, we historically, well the comp business are rates that were not acceptable have now started to change their underwriting guidelines and pricing and that is causing a lot of business back into the marketplace.

AmTrust, because we have been such a stable disciplined writer with their yield focused on small, niche workers’ comp business we are benefiting. We have been in the market now for 13 years writing the same business with the same underwriting guidelines and we are having a lot of success. So, a lot of the growth is coming from there, and I am also very pleased to say that the loss trends that we are seeing are very, very positive, our 2012 workers’ comp year. If you look at the trends that we are seeing is the best one in the last three years. It’s trending similar to our 2009 year, which was a very strong year, and our 2013 year with continued increase in pricing is either going to be better. So, we feel very good about the workers’ comp market. We feel very good about the niches we are expanding into.

In addition, our Specialty Risk and Extended Warranty, that’s a business that’s very, very stable that doesn’t have the ups and downs of a hardest tough market, but that’s something with time more and more as we continue growing, as we continue being a disciplined player in that arena with the acquisitions of Warrantech over the last several years and the acquisitions of Car Care Plan, we are more and more being seen as the global player. We are seeing opportunities, we are seeing global, multi-national accounts come to us and not only that we had an opportunity to under write this accounts, but we are also having opportunity to be the administrator on these accounts which further increases our fee business and our returns on equity.

On our specialty program division which for many years as you know we kept flat we do not see the opportunity to grow it in the softening market, that’s growing very strongly now. And that is a real indication of a hardening market when programs which are sort of niche different business start coming to you. We are able to get tremendous price increasing on the programs that we have in the house for years as well as new programs that we are able to be very picky and at the same time continued growing it and we believe we will start seeing very high returns in that business for next several years.

As you have seen in the press we have done several acquisitions in the last 12 months. We believe these acquisitions are all highly accretive. We are pleased to announce that we – during the first quarter of this year we closed Car Care Plan, which again is a specialty risk and extended warranty administrator and underwriter in England, in the UK, in Europe it has operations in China and in Brazil. We believe this will be a great addition to what we are currently doing and will be able to grow that business very strongly and gives us access to these key markets.

In addition, we’ve recently closed Sequoia, which we believe is a great niche player. We believe that Sequoia is underwriting if you look historically it has been very strong. They have had an issue on expense side and will be able to reduce the expenses in line similar to the Amtrust expense and turned this company into a highly profitable, high return business with nice niches in the West Coast.

On First Nonprofit, we hope to have to close in the next few weeks and again that’s another niche that we are excited about. We’ve recently announced an acquisition of CPPNA Holdings, that’s a company that’s again a fee business, it has some underwriting as well which focuses on identity theft protection and consumer protection markets as well as some warranty business. Again we think that will be a very nice fit for our overall fee business.

I would just like to comment if you look at our current run rate in our fee business and you add what we publicly announced about the CPPNA Holding Company, we believe that our run rate this year over the next as once we closed that transaction in the third quarter, we should be on a run rate of over $300 million of fee business a year generating EBITDA margins somewhere between 25% and 30%. So, that will generate very strong cash somewhere between $75 million to $90 million in cash flow that will be able to use for all different things. So, we think our revenue is very strong, our profits are strong. We believe we will able to continue having very high return on equity and continuing to grow the business looking for niche opportunities and continuing to have a return – high return on equity for our share holders. And with this I would like to turn it over to Ron Pipoly.

Ron Pipoly - Chief Financial Officer

Thank you, Barry. Good morning. Gross written premium for the quarter was a record $944 million. This is the first quarter in Amtrust’s history that we surpassed $900 million in gross written premium in a quarter. The fact, it is the first quarter in which surpassed $800 million of gross written premium. Amtrust gross written premium over the last four quarters was $3.1 billion. For the quarter, all four of our operating segments showed growth. Gross written premium increased by 56.9% for the first quarter compared to the – when compared to the first quarter of 2012. The growth in premium coupled with increasing free revenue has enabled us to continue to generate strong bottom line results and operating earnings, net income and earnings per share.

Net income was $64.2 million or $0.91 cents per diluted share in the quarter. Our net income from the quarter not only benefited from continued momentum in our book of business. It also reflects continued growth within our fee revenue operations. Operating income was $57.2 million or $0.81 cents per diluted share in the quarter. Annualized operating return on equity was 19.7%. Included in the diluted share count are approximately $936,000 of additional shares relating to our convertible notes. The additional shares were based on the average share price for the first quarter.

In terms of gross written premium by segment, on small commercial business segments, gross written premium increased by $143.5 million or 61.8% to $375.8 million. Growth within our workers’ compensation came from virtually all the states that we hold business in led by California, Florida, New York, and New Jersey. Growth was driven by both increases in policy counts of 24% as well as an increase in average policy size of 21.4%.

Specialty Risk and Extended Warranty produced gross written premium of $328.3 million, up $94.2 million, or 40.3% from the first quarter of 2012. Growth in this segment was driven by an increase in production from the United States of $36.6 million and an increase in the international production of $51 million. We continue to gain recognition as a global leader in providing insurance solutions to the liberated clients. Approximately, 64.8% of the gross written premium in this segment was written outside of the United States.

Specialty Program produced gross written premiums of $209.1 million, which was a $104.4 million increase from the first quarter of 2012. $64.5 million of this growth was driven by workers’ compensation programs. We continue to focus on writing programs in which pricing program structure allow for the greatest opportunity to meet profitability expectations. We recorded $30.7 million in premium in our Personal Lines Reinsurance segment, which represents our 10% quota share with ACAC. Regardless of reporting segments, we hold approximately $435 million of workers’ compensation in the first quarter of 2013. This compares to $249 million in the first quarter of 2012. This is an increase of 75%. During the 12 preceding months, we have written $1.1 billion of workers’ compensation premium.

Net written premium for the quarter rose to $532.1 million compared to $359.8 million for the first quarter of 2012. We retained 56.4% of our gross written premium for the quarter compared to 59.9% in the first quarter of 2012. For the quarter, we ceded $305.8 million of premiums to Maiden. Net earned premium was $408 million for the quarter, up 29.9% from the first quarter of last year. Our Specialty Risk and Extended Warranty segment was the largest driver of earned premium growth.

Specialty Risk and Extended Warranty accounted for 34.6% of the earned premium. Small commercial business was 31%. Specialty Program was 27.3%, and Personal Lines Reinsurance was 7.1%. During the quarter, we ceded approximately $227.1 million of earned premium to Maiden. Our service fee revenue totaled $60.5 million, an increase of approximately $20 million or 50% from the first quarter of 2012. The increase was driven in part by our December 2012 acquisition of First Nonprofit Company, which contributed fee revenue of $5.5 million in the quarter.

Additionally, our July 2012 acquisition of Case New Holland's insurance agencies produced fee revenue of $4.7 million also contributing a fee revenue growth with our February 2013 acquisition of Car Care, which resulted in $3 million of fee revenue for the quarter. We generated $90.7 million in investment income for the quarter and recognized $11.2 million of after-tax realized gains. Included in investment income was approximately $1.6 million related to our preferred equity investment in ACAC.

The yield on our fixed maturity investment portfolio at March 31 was 3.62 and the duration of the portfolio remains relatively short at 4.8 years. Total revenue was $567.9 million for the quarter compared to $414.2 million for the first quarter of 2012. This represents growth of 37.1%. The combined ratio was 89.5% for the first quarter compared to 88.5% last year. The loss ratio was 66.7% this quarter compared to 63.7% for the same period last year.

In the med mal perspective, the loss ratio of the small commercial business is 56.6% compared to 64.1% for the first quarter of 2012. The increase is the result of having California workers’ compensation business represents 20% of the segmental earned premium this quarter compared to 15% for the first quarter of last year. We are currently recording California, a higher ultimate loss selection than the average of our remaining stakes. The increase in the loss ratio on our Specialty Risk and Extended Warranty segment was an increase of 51.5% to 65.9%. This was primarily driven by business mix. Expense ratio for the quarter was 22.8%, compared to 24.8% for the first quarter of 2012. The decrease in expense ratio was attributable to certain timings of scale as well as overall business mix.

Total shareholders’ equity increased to $1.17 billion from $1.14 billion at year end. Book value at March 31, 2013 was $17.45 per share. During the quarter, we declared a dividend of $0.14 per share. Total assets as of March 31 were approximately $8 billion, included total invested assets of $2.9 billion.

Fixed maturities comprised 76% of the portfolio, cash and short-term investments 20%, equity securities 1%, and other investments 3%. Additionally, there is different confusion in the marketplace surrounding our life settlement portfolio. I would like to take this opportunity to clarify and explain how we account for and how we value our life settlement portfolio. We utilized a very conservative approach in determining the fair value of the portfolio. There are many factors that go into determining the value of the portfolio and that seemed to be a discount rate.

To be clear, our effective discount rate on our life settlement portfolio for 2012 is 17.7%. If you are to reference our 2012 10-K, you would note that we disclosed a discount rate of 7.5% and an internal rate of return of 17.7%. That internal rate of return is our effective discount rate on our life settlement portfolio. To illustrate, the total future positive cash flows – positive cash flows in our life settlement portfolio are expected to be $795 million. Those cash flows are reduced by adding additional reserves that we apply. Among those reserves, there is a life expectancy reserve. Life expectancies are updated every year by two of the most viably recognized life expectancy providers and weighted to the more conservative of the two life expectancies. Additionally, we provided mortality adjustment reserve by reducing a mortality table based on the assumption that higher net worth individuals will live longer based on access to better healthcare.

We also provide additional reserve for future expenses, operational risk and a reserve for highly impaired lives. For 2012, the total of those reserves was $356 million. That gives us future positive net cash flows of $439 million. That $439 million is then discounted by 7.5% resulting in our December 31, 2012 carrying value of $193 million and an effective discount rate of 17.7%. On both the quarterly and annual basis, our evaluations are reviewed by nationally recognized like actuarial firm. If we were to simply use the discount rate of 7.5% applied to the expected positive future cash flows of $790 million – $795 million, the carrying value of our portfolio would have been $383 million as opposed to the $193 million, which we actually carried at December 31, 2012.

To-date, we have had four mortality events and have collected benefit on all four of those policies. The total benefit collected was $24.5 million. Those four policies were purchased for $1.3 million and we paid a total of $400,000 of premium. We carry those policies at a value of $5.2 million. Those four policies generated a cash gain of $22.8 million. We reported these assets when the market for these assets was very distressed, and that philosophy is consistent with being contrary and buying half cheaply that produced very high returns over the long-term with very little capital at risk. To summarize, what is referred to as our internal rate of return and our 10-K of 17.7% is our effective discount rate on our life settlement portfolio.

And with that, I will turn it back over to Hilly.

Hilly Gross - Vice President, Investor Relations

Thank you, Ron and thank you, Barry. Both Mr. Zyskind and Mr. Pipoly have indicated their willingness to entertain questions from those of you listening to our earnings conference call. And so you access us, we are going to turn this over momentarily to our moderator for instructions.

Question-and-Answer Session

Operator

(Operator Instructions) Our first question comes from the line of Randy Binner of FBR Capital Markets. Your line is open. Please go ahead.

Randy Binner - FBR Capital Markets

Good morning. Thank you. Ron I just wanted to just review you math, so on the life settlement issue you said that $705 million of future cash flows and then that’s reduced by $266 million from basically mortality assumptions for a future profit of $439 million and that discounted back by the 7.5% gets to the $193 million I just want you to review those numbers?

Ron Pipoly

Randy, this is Ron. The numbers, the expected future positive cash flows are $795 million.

Randy Binner - FBR Capital Markets

$795 million, okay.

Ron Pipoly

The initial reserves that we apply are total of $356 million that would be then resulted in the expected future positive cash flows of $430 million – $439 million which is then discounted 7.5%.

Randy Binner - FBR Capital Markets

Okay, thank you. That maybe fast, but I appreciate the clarification. And then so but I could ask a couple in regards to workers’ compensation, Barry, you mentioned that your ‘12 accident year was excuse me looking better, but just kind of interested on what your thoughts are on ‘13, so far, and in particular, if the accident New Year result on ‘13 should improve over ‘12 given rate increases as well as hopefully some moderation of loss costs genesis in California, because of the reforms there.

Barry Zyskind

Yeah, I will start and then I will give it over to Ron. But basically so far ‘12 looks good, but ‘13 looks even better, I mean all the trends we are seeing so far for the first couple of months of ‘13 show us that it’s much better than even ‘12. So, we think we are going back into a pattern of where we were in four, five, six, seven, those years. Basically as we mentioned in the last call, you are getting rate upon rates and the trends are looking good. The economy for the most part is picking up, so some of the far doing claims, I think that you would normally get in small business are declining. Our frequency and severity is declining as well. California as well, we were very fortunate in terms of timing we got in 2011 when things were just starting to turn ‘12. Nearly, we believe that ‘12 even though we are booking it to be conservative right now somewhere in the 70s we believe indications show that’s going to be still in the 60s. Based on the rate increase in the ‘12 and on ‘13, we continue to get rate increase on top of that. So, for the preferred business that we are going after we believe that ‘13 will even be better than ‘12, but this business, this trend we are seeing all over, whether it’s New York or Florida, all our states we are seeing really good result in terms of growth and loss trends.

Ron Pipoly

Hi Randy, this is Ron. Again just to reiterate setting in terms of the loss trends it’s their extent, we are seeing the claim frequency, we have actually seen a bit claims that vary for the first quarter of ‘12 versus first quarter of ’13. In this very sense, we are very seeing very attractive rate increases I believe California was in mid-teens for our first quarter 2013 rate increases. We got 6% rate increase in Florida. Our rate increases across our other states are around 5%. So, again, we are very encouraged with what we see from our workers’ comp perspective.

Randy Binner - FBR Capital Markets

Alright. And just one more if I can, there was the New York State has reopened case fund for workers’ comp claims that was not noted anywhere in the press release or the comments, is that something that Amtrust needs to evaluate this year?

Ron Pipoly

Well, Randy, it’s Ron again. We are obviously working closely with our claims management team. We have examined our files. We will continue to look at it in reality, you expect anything of substance to come of the change in terms of the fund in New York and how that will affect us. When we look to close claims we look to close claims with medical releases, which obviously would end our responsibility for those claims. But again, I don’t expect anything of substance to come of this to our claims.

Randy Binner - FBR Capital Markets

Alright, great thanks.

Barry Zyskind

Thank you.

Operator

Thank you. Our next question comes from the line of Adam Klauber of William Blair. Your line is open. Please go ahead.

Adam Klauber - William Blair

Good morning. Thank you.

Barry Zyskind

Good morning.

Adam Klauber - William Blair

Could you give us an idea by line what was organic and what was acquisition related growth?

Ron Pipoly

Hi, Adam, it’s Ron. Really this quarter, I mean, there really wasn’t much in the way of acquisitions. I mean, for Car Care, we closed Car Care late February, so we are going to have one month of activity that generated about $9 million of premium moving growth that you are seeing in the first quarter of this year is organically driven.

Barry Zyskind

So, organically means these – it’s organic and acquisitions that we have done several years in the past. So, lot of our California business is coming from the majestic operation that we did in 2011 that was coming from BTIS. But basically most of the business is really this quarter is organic. We just closed Sequoia in this quarter. So, we didn’t have any of that growth. And as Ron mentioned, Car Care Plan was only one month. So, it really has been – this has been a story of really strong organic growth.

Adam Klauber - William Blair

Right. So, as you mentioned mostly, acquisitions will close now we had to grow going forward for the year. Was there any lumpiness in the specialty program or warranty business? Did any books of business come on that just come on at once?

Ron Pipoly

There was – within our European operations, there was probably lumpiness, I don’t think it’s the right word. I mean, the certain lines of business that we write in Europe that tend to be more weighted towards first quarter, but there wasn’t anything kind of one event, one anomaly that grow premium growth in the Specialty Risk and Extended Warranty. I mean, I know in the past when we brought our new claims – there has been instances, where we have brought in loss portfolio are actually like 100 premium transfers and those types of things. We didn’t have any of those types of events in the first quarter of this year.

Adam Klauber - William Blair

Okay. Could you help maybe into a bit more I guess detail or give us more color I mean within Specialty Risk and Specialty Program, which areas, which products, which lines are seeing pretty strong growth?

Barry Zyskind

I think in terms of Specialty Risk and Extended Warranty, it’s really the same. We continue to add new accounts, new clients here in the U.S. We recently won some big multinational accounts in our Specialty Risk and Extended Warranty. So, these are accounts one, we have never done business before, and we hope to continue building on that and one, was a kind that we actually did business before with and now it’s they gave so much large accounted growth. So, we continue to see a lot of opportunity, but really it’s the same thing. It’s the auto warranty, it’s the retail, it’s consumer electronics, some of the Case New Holland acquisition. We have been growing that nicely. So, I mean, it’s really all those same things that we have seen, same thing in Europe, same type of business, we continue growing that as well.

As we noted in the past in that segment, we do have our medical mal, that business really has been flat. We continue to renew a lot of the business, but we are very disciplined about our pricing. We believe we have maximum amount of business in terms of the price that we want and that’s something that’s not really going. But it’s really mostly all the Specialty Risk and Extended Warranty whether it’s cell phone insurance. We did have a big pick up in the UK. We did write a lot of legal expense business, which is something we have been writing for a long time. And there has been some changes to the law there. So, there was a big push on our team to get a lot of the business on to the books, because that earns over three to four years with very low loss ratio. So, there was a big push to get a lot of premium in before the change in loss. So, it’s just general, just going out there and like we like to say adding real estate, getting new accounts, growing current accounts, being aggressive about growing it all over the place where we operate whether it’s Europe or in the U.S.

In terms of the Specialty Program, some of the growth is really on some of our large accounts, we are seeing very nice rate increasing – increases in that business. And as well we have seen very as we mentioned we have been deemphasizing really bringing in any new comp players for the program business, because we are such a large player on ourselves in the commercial risk. But we did have four – we do have four programs that we have been doing for several years in comp. And all those programs have seen very, very strong growth. So, I would say that comp was a good grower for them as well. In addition, we are bringing on some new accounts that we brought on probably the last 12 months just because where the market is. And we are seeing some growth there as well. So same as much what we are doing for the past, we continue doing in the future. We are not looking to get into new things, but we are just taking being very, very – we are taking full advantage of the opportunities we see in terms of the pricing.

Adam Klauber - William Blair

Okay, thanks. On the fee revenue, obviously that’s going to grow nicely throughout the rest of the year, you mentioned the EBITDA margins could be in the 20%, 25% range, how about the pre-tax margin, do you think that will be in line with what we have seen so far or could it get better or worse as the new business comes on?

Ron Pipoly

Hi, Adam, it’s Ron. I think the pre-tax margins will be pretty consistent with the additional fee business that we are going to be bringing on with close of the transaction that was recently announced, our expectation will be very, very consistent.

Adam Klauber - William Blair

Okay, okay that’s all I have. Thank you very much.

Barry Zyskind

Thank you.

Operator

Your next question comes from the line of Matt Carletti from JMP Securities. Your line is open. Please go ahead.

Matt Carletti - JMP Securities

Thanks. Good morning.

Barry Zyskind

Good morning.

Matt Carletti - JMP Securities

Just had a few questions, I guess the first one is going back kind of following on where Adam left off on, on the fee income, is there any seasonality in some of the larger contributors there, I know looking back, it looks like the second quarter has been a lighter quarter at times, is there any seasonality we should be aware of as we ramp that going forward?

Barry Zyskind

Hi Matt, it’s Ron. Going from the fee income perspective, there isn’t going to be any seasonality. I think, the run rate that we had in the first quarter, the $60.5 million, I mean obviously you are going to have a full quarter of Car Care in there. Next quarter, again, Barry has talked about some of the multinationals we have added from a working perspective. So, as we bring those clients up and ramp up their premium volumes in the fee that we get associated with the administration will increase. So, I think the first quarter is a consistent run rate and then factored in the acquisitions as Barry said it’s going to get ramped up.

Barry Zyskind

Yes, sometimes Matt, on the retail side you do see because of a maybe very strong holiday season at the year end let’s say November-December you will see that a pickup when you get reports in probably in first quarter. Some times you will see some seasonality maybe on the first quarter. But generally because of how adverse the fee business is now, I tend to agree with Ron that we feel pretty good about this run rate of around $60 million, which will put us on a run rate of about $240 million, then you add in the acquisition which we said to be something around $70 million and we hope to continue growing the fee business. So, our goal is on the third quarter to be on a run rate in the excess of $300 million.

Matt Carletti - JMP Securities

Okay. And then next question I had was just, sorry if I missed in your comments Ron, but the loss ratio in the personal lines reinsurance was a little bit higher in the quarter, any color there?

Ron Pipoly

Yeah, I mean Matt again I mean it’s obviously our smaller segment and as we look at the results we just thought it’s appropriate to set the current year, it kicks a little bit higher. But again, it still runs far from these from a combined ratio standpoint. And when you look at the quota share, I think you have to look at it in the context of the fee revenue we are able to generate because of our relationship with ACAC as well as the asset management and some of the other ancillary services. So, overall, the quarter share reinsurance is just a part of the overall picture with them and very strong economical relationship.

Barry Zyskind

And from a Personal Line standpoint Matt they have been taking rate increasing as you know throughout ‘12 and ‘13. So, I do believe that it’s going to come in better, but we are just being conservative right now we want to see it falling, but if you look where they are actually pricing the business, it should do be better than that throughout the year.

Matt Carletti - JMP Securities

Okay. And then last question just Barry if you can give us kind of if there is any updates on the Italian hospital liability business has that have been stable state or any changes?

Barry Zyskind

Yeah, everything is stable. I mean actually we are seeing very good trends. As I mentioned in a couple of previous calls the big thing that we have done is really handle the claims our self taking the claims. We don’t give it to TPAs, we have our own people. We have our own lawyers, we have he own claims people handing it and that’s what we believe is the big difference. We think in Italy there is a big range of where claims get settled out. And if you are aggressive and on the top of it and not sitting out, they are waiting for it to go through the legal system, but really doing what we do in comp getting in there closing it quickly. And we are starting to see very positive trends. So, we feel very good, we are seeing now on 2010 for example the loss ratio has been dropping I think like six or seven months in a row because now its the claims made policies. You have all your claims ready and now you are working those clients and closing them down. And so the trends are very positive and based on what we are seeing now and where the book we have stable, we really believe that this is going to be somewhere mid-80’s combined ratio all in on a significant book of business. So, we feel very good about it right now.

Matt Carletti - JMP Securities

Okay, great. Thanks for the answers and congrats on the great start of the year.

Barry Zyskind

Thank you

Operator

Thank you and our next question comes from the line of Doug Mewhirter from SunTrust Robinson Humphrey. Your line is open, please go ahead.

Doug Mewhirter - SunTrust Robinson Humphrey

Hi, good morning. I just had – most of my questions have been answered, just had one additional question. I am not sure if I missed in your press release, was there any positive or negative reserve development in your loss ratio this quarter?

Ron Pipoly

Hi Doug, this is Ryan. On an aggregate basis there was no positive or negative development. I mean obviously each quarter you are going to have strong movements in prior accident years by line of business, but on an aggregate basis there, we had no reserve at least as I know there was no net aggregate development.

Doug Mewhirter - SunTrust Robinson Humphrey

Okay. And actually if I could ask just one more, you talked – you gave some good detail on your workers’ comp rate actions in various states, what about your other specialty businesses rate actions sort of trending with the market in mid-single digits or better word I know it’s quite diverse?

Barry Zyskind

I would say that on some of our larger programs for example some of programs we have had a conventional program in New York where we took – last year we have 20% increase on the entire book and this year we are pushing for again 20% that’s 20 on 20, it’s depending on the class on the comp overall depending on where the comp is receiving its similar rate increase that we are seeing overall to the Amtrust small commercial book. So, probably I would say in average around 5%, 6%. And then depending on the lines of business over the cash lines and some of the performers that are really performing low loss ratio we are not taking the rate up for the sake of it, because we want to continue writing, but once that we feel that need to rate we are pushing up. I would say, probably our average casualty lines in the Specialty Program we are taking up rates probably still between 5% to 7%.

Doug Mewhirter - SunTrust Robinson Humphrey

Okay, great. Thanks. That’s all my questions.

Barry Zyskind

Thank you.

Operator

Thank you. And I’m showing no additional questions in queue. I would like to turn the conference back over to Mr. Hilly Gross for any closing remarks.

Hilly Gross - Vice President, Investor Relations

Thank you. With no further questions, that concludes our first quarter 2013 earnings conference call. On behalf of all of us at Amtrust, we thank you for taking the time and trouble out of your business schedules to join us this morning, and we wish you all a pleasant day. Thank you.

Operator

Ladies and gentlemen, thank you for your participation in today’s conference. This does conclude the program and you may all disconnect. Have a great rest of the day.

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