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Amtrust Financial Services, Inc. (NASDAQ:AFSI)

Q2 2014 Earnings Conference Call

August 07, 2014 10:00 AM ET

Executives

Hilly Gross - VP of IR

Barry Zyskind - President and CEO

Ron Pipoly - CFO

Beth Malone - SVP of IR and Corporate Development

Analyst

Matt Carletti - JMP Securities

Ken Billingsley - Compass Point

Randy Binner - FBR Capital

Bijan Moazami - Guggenheim

Adam Klauber - William Blair & Company

Operator

Good day, ladies and gentlemen, and welcome to the AmTrust Financial Second Quarter 2014 Earnings Conference Call. At this time all participants are in a listen-only mode, later we will conduct a question-and-answer session and instructions will follow at that time. (Operator Instructions) As a reminder, this conference call is being recorded.

I would now like to introduce your host for today's conference, Hilly Gross, Vice President of Investor Relations. Sir, you may begin.

Hilly Gross

Thank you, good morning. Good morning, Silvy and thank you everyone for taking the time to join us this morning for this AmTrust Financial's second quarter 2014 earnings conference call. 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 Barry Zyskind and Ron Pipoly to give you their review and analysis of this second quarter results, I would with your indulgence read into the record the obligatory paragraphs on forward-looking statements.

Since members of our management team may include in today’s presentation statements other than historical facts, such statements may include the plans and objectives of management for future operations, including those relating to future growth of the company’s business activities, future availabilities of funds, etcetera. And since these statements are based on current expectations and involve assumptions that are difficult or even impossible to predict, many in fact, which is of course beyond our control. So, there can be no assurance that actual developments will be consistent with these assumptions.

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

Finally, in the prepared remarks and responses to questions on today’s presentation, our management will refer to financial measures that are not derived from generally accepted accounting principles, or as commonly known GAAP. Reconciliations of these non-GAAP financial measures to the most directly comparable GAAP measures are provided in the press release of our second quarter earnings which of course will be available on the Investor Relations section of our website at www.AmTrustgroup.com again I repeat, www.AmTrustgroup.com.

There, 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

Thank you, Hilly. Good morning and thank you for joining us on our call today. I’m pleased to announce that we grew both our top line and our profits in all of our operations. Workers comp continues to enjoy the benefits of an attractive rate environment especially in the states where we are strongest.

We continue to focus on initiatives that made us successful and after 15 years we believe that we’re one of the best players in the low hazard workers comp arena. As always we’re very pleased with a specialty risk and extended warranty. We are very focused on growing our warranty products globally. We continue to add very strong client that we are very proud of.

Again our program business have nice growth and profitability, this is the one line that we’ve always stated that we would grow in a hardening environment that is what we are seeing, when we’ve done that as it continues to be dislocation in the program market. We continue every day to invest in our technology platform. We believe more and more that this is a differentiator for us and for our company that allows us to operate efficiently, more efficiently and profitable than our peers.

We continue to look for acquisitions that we believe will be very accretive for our shareholders. We are very optimistic about the remainder of 2014 and look forward to a strong 2015. I would like to now turn over the call to Ron Pipoly.

Ron Pipoly

Thank you, Barry and good morning. The second quarter of 2014 marks the first quarter in which surpassed $1 billion in total revenue. Gross written premium for the quarter was $1.44 billion, an increase of $400 million or 38.7% from the second quarter of last year. All of our operating segments experienced growth during the quarter. AmTrust gross written premium over the past four quarters has been $5.2 billion. Unless or otherwise noted, my comments this morning will revolve around a discussion of our results this quarter compared with the second quarter of last year.

For the quarter, we generated net income of $106.3 million or $1.33 per diluted share. We had operating earnings of $107.1 million or $1.34 per diluted share, included in operating earnings with a loss of approximately $2.1 million or $0.03 per diluted share associated with the life settlement contract. Annualized return on equity for the quarter was 27.8% and annualized return on equity from operating earnings was 28%.

Four to six months, we generated net income of $206.1 million or $2.60 per diluted share. We had operating earnings of $204.5 million or $2.58 per diluted share. Our small commercial business segment produced gross written premium of $705 million and an increase of $315 million or 80.9%. The growth was driven by the continued integration of the Tower commercial property and casualty business which contributed a $139 million of premium during the quarter.

Additionally, we continue to experience organic growth in our workers compensation business. Workers compensation premium increased by $108 million during the quarter, California, New York and Florida were the states with the largest premium growth. Our workers compensation policy count increased by 35.6% during the quarter, while average policy side increased by 1.6%.

Specialty risk and extended warranty segment produced gross written premium of $505 million, an increase of $56 or 12.4%.Growth within this segment benefitted from the December 2013 acquisition of Sagicor's, which contributed $100.6 million of premium during the quarter. Also affecting the quarterly premium comparisons, there were two one-time events of which $100 million in gross written premium that occurred in the second quarter of 2013.

Without considering those events, growth would have been $157 million or 45%. 73.4% of the gross written premium was generated outside of the United States this quarter, which compares to 78.3% for the second quarter of 2013. Our specialty program segment produced $235 million of gross written premium, an increase of $52 million or 35.4%. Growth for the quarter was driven by non-workers compensation program.

Consistent with prior quarters, we continue to see a firming environment within this segment. For the six-month gross written premium increased by $1.13 billion or 56.7% from $1.98 billion to $3.11 billion. Specialty risk and extended warranty gross written premium totaled $951 million, an increase of $165 million. Small commercial segment gross written premium totaled $1.64 billion, an increase of $878 million.

Specialty program gross written premium totaled $515 million, an increase of $133 million. The Tower renewal rights contributed $407 million of premium and the Sagicor acquisition contributed $184 million of premium for the six month. Regardless of segment, we have written 2.16 billion workers compensation gross written premium over the prior four quarter.

The Tower renewal rights contributed 108 million of workers compensation premium. Our net written premium for the quarter rose to $924 million from $640 million. We’ve retained 64% of our gross written premium for the quarter compared to 60.8% in the second quarter of 2013. For the quarter, we see that $364 million of premium to Maiden.

For the six months, our net written premium totaled $2.05 billion compared to $1.17 billion for the six months ended June 30, 2013. We retained 66.1% of our gross written premium for the year compared to 58.7% in 2013 for the year; we exceeded $772 million of premium to Maiden.

Net earned premium for the quarter totaled $875 million up over 63% from the second quarter of 2013. Our small commercial business segment accounted 44% of written premium, specialty risk and extended warranty was 37% of the total and specialty program was 19. For the quarter, we see a $360 million of earned premium to Maiden. For the six months, net earned premium was $1.7 billion and we exceeded $629 million of earned premium to Maiden.

Our combined ratio came in at 90.9% for the second quarter compare to 92.1% last year. The loss ratio totaled 67.1% this quarter compare to 67.9% for the same period last year. Our expense ratio for the quarter was 23.8%, which compared to 24.2% in the second quarter of 2013.

Our service and fee income for the quarter totaled $99.5 million, which is an increase of approximately $11 million from the prior year quarter. The increase was a combination of organic as well as in July 2013 acquisition AmTrust Consumer Services. Our service and fee income for the six months totaled $191 million, which is an increase of approximately $42 million from the first six months 2013. Again, growth in fee revenue was a combination of organic growth as well as the acquisition of AmTrust Consumer Services.

Our total revenues, which again, were excess of $1 billion for the first time grew by 57% from the second quarter of last year and 71% for the six months. We generated $32.6 million in investment income for the quarter and have $2.5 million of net realized gains after tax. For the six months, we have generated investment of $61.1 million and had net realized gains of $6.1 million after tax.

Our effective tax rate for the quarter was 15.2%. During the quarter, our tax provision was reduced by $18.6 million related to the reduction in the deferred tax liability associated with our Luxembourg Reinsurance Companies. Without the reduction, our effective tax rate for the quarter would have been 29.8%.

Our effective tax rate for the six months was 19.8%, which also included the reduction of $18.6 million without the effective debt reduction. Our effective tax rate for the six months would have been 28%. Total shareholders’ equity was $1.7 billion which represents a book value of $21.13 per share, the increase in book value since December 31, 2013 has been $3.48 per share.

We have declared two quarterly dividends that totaling $0.40 per common share. Under the equity method of accounting, our current carrying value of the National General Common Stock that we hold is $112 million. The current market value for the stock is approximately $226 million. Therefore, there is an unrecognized additional value of approximately $114 million.

Our total capitalization as of June 30, was $2.25 billion, we successfully raised the $105 million in perpetual preferred shares in July, which would bring our total capitalization to $2.35 billion on a proforma basis. Total assets as of June 30, were approximately $12.8 billion, the total invested assets were $5.1 billion. Fixed maturity comprised 79% of the portfolio, cash in short-term investments 17%, equity securities 2% and other investments 2%.

We’ve generated over $615 million of cash flow from operations for the six months period and with that I’ll turn it back over to Hilly.

Hilly Gross

Both Mr. Pipoly and Mr. Zyskind have indicated their willingness to entertain questions from those of you and our listening audience. To facilitate your access to us to ask those questions, I'm going to momentarily turn it back to our central control booth so stay tuned.

Question-and-Answer Session

Operator

(Operator Instructions) And our first question comes from Matt Carletti from JMP Securities; your line is now open.

Matt Carletti - JMP Securities

Barry, can you just give a little more color on the fee and service income line? It has been, obviously, an area of growth, and I think probably surpassing most people's expectations. Can you just give a little granularity on we know there is a lot of components to that line kind of where has the bulk of the growth been coming from, and where do you see it coming from going forward?

Ron Pipoly

In terms of on the six months basis, the increase of $42 million about 55% of that has come from acquisitions and primarily the July 2013 acquisition to be AmTrust consumer services, which contributed based on the whole six months period in 2014, contributed an additional $21 million of fee revenue of the overall 42%. And then we had a little growth on Car Care because that was a February 2013 acquisition as well but outside of that if you look at your growth on a comparable basis, our Case New Holland agency operations increased by $8.1 million. You had increases at AMT warranty, which acts as our warranty administrator.

On a six month basis AMT warranty has generated total fee revenue of $45.6 million, AmTrust consumer services has generated $32.7 million, Case New Holland agency operations have generated about $22.5 million and Car Care has been about $21.2 million. So, we are seeing growth really across all of our fee-generating business.

Matt Carletti - JMP Securities

Great. Then just one other question, focusing on California workers' comp. Where there any changes to your loss ratio pick there during the quarter? I know you have been holding it steady, despite some positive underlying trends. Are you still holding it there?

Ron Pipoly

Yes Matt, its Ron here, yes we continue to hold it there and I agree with your observation is that we continue to see strong trends. As a matter of fact our average rate increase in California for the first six months of the year as well as the second quarter is little bit over 7%.

Operator

Thank you, and our next question comes from Ken Billingsley from Compass Point, your line is now open.

Ken Billingsley - Compass Point

I may have missed this in the early comments. Were there any reserve releases during the quarter?

Ron Pipoly

No Ken we did not have any. This is Ron; we did not have any reserve releases.

Ken Billingsley - Compass Point

I am assuming there was movement up and down, but net neutral.

Ron Pipoly

Correct, movement within individual lines, but net neutral, yes.

Ken Billingsley - Compass Point

And nothing, no movements that were significant?

Ron Pipoly

Yes, there were no significant movement on a line of business phases.

Ken Billingsley - Compass Point

Okay. I wanted to get to a comment that Barry had mentioned in his opening remarks, talking about the hardening market in the Program segment. Could you just expand? Competition seems to be increasing everywhere in general. So could you talk about what programs specifically you are seeing a hardening market? And then maybe foresight on where you think competition is likely to be flowing into that area over the next 18 months as well?

Ron Pipoly

I think with this theme if you look back for many years after we acquired the program business in 2005, we really did not grow the business that if you look back in the cycle 2005, ’06, ’07, and ’08 as well into ’10 those are very very competitive years and we actually do not make a lot of margin. However, since that time there has been players who have gotten out, there has been players that have had issues. Some of the larger players decided to get out of a program because it competes with some of their regular retail business. So, in the last couple of years especially you could see our growth really started coming 11, 12 at the end of 11 really into 12, 13 and this year 14. We’ve seen a lot of programs that for years, we never had the opportunity even to bid on that we’re able to bid and it’s actually the right pricing environment as well as seeing on a accounts that we’ve been writing for many years, 7, 8 years. We really started pushing the last couple of years of rate increases to get the returns that we wanted. All of this, we’re pushing more and more into our platforms insisting that all new MPAs that come on use our platform, taking over the claims, doing the claims ourselves. So, we actually look there’s been a big change in the business and because of the dislocations because of the issues that have happened the couple of years and we are actually look at the business more of sort of a combining authority business. And we’ve been in a play, we’ve been consistent. We’ve kept a lot of our clients, we’ve taken the race up and now we have the opportunities last couple of years to bring on some new accounts that we feel very good about. Again that’s the one line, it’s starts to come a very competitive and we lose accounts, we’ll pull back on that line, but right now where we are, we see very good about growth, some new programs coming in as well as increase in rates in some of the program business.

Ken Billingsley - Compass Point

And is most of that in non-workers' comp, so that growth that is coming in there?

Ron Pipoly

The growth is coming from non-workers comp. A couple of years back; we made the decision really not to bring on new model line workers comp program we did out for many years. We still have some grandfathered-in programs that perform very, very well. But really the only comp we really take on as a new program if it’s part of the package.

Ken Billingsley - Compass Point

On the investment income side, could you speak to -- that was a bit higher than what we had modeled and just trying to get an idea of run rate and such going across the board. Could you talk about what was in that number for this quarter? If there is any items that we may not see going forward, or is this a run rate to build?

Ron Pipoly

I think we have been also seeing this is run rate to build on, I mean you look at the asset base we’ve been having very strong positive cash flow the invested assets are over $5 billion. And I think, it took us awhile to catch to put the assets to work again we’re careful when we deploy the assets we’re, like the rates are now we’re very, very careful and things, sometimes you get little bump on rates if tenure goes 255 and we see opportunities to buy things, we’ll buy. So as we’re deploying more and more the cash, you’ll see the investment income really start moving up and that’s something I think that you really look at the growth and the cash flow and the point of the asset and I think you’ll the trend is very highly correlated and it’s very consistent.

Ken Billingsley - Compass Point

Last question and I am sure it will probably come up again, but regarding Tower Group and the business. They had their vote yesterday. So as that business comes forward, I know at one point you said that you were likely seeing some of that business come directly to you guys as opposed to coming through the Tower Group business. Can you talk about how much more premiums is likely to come from that going forward, especially if the deal closes?

Ron Pipoly

Yes. They did vote on the deal yesterday which we’re very happy and pleased about we’re currently in the process of getting regulatory approvals, to have that in the next few weeks. We hope to have a closing sometime by the end of the summer that’s our optimistic view on it. We think that we’ve said consistently some between 350 million to 500 million of the business that we’re going after, that really is our target, we hoped obviously on the good business to be closer to the $500 million target and we’ll see. Right now, there is really three buckets. There is the original cut-through that we took on their premium and there’s a cut through business that we wrote them and we continue to write. And then there is an MGA contract that we have with them we’re writing business on our paper, we’re starting to see a nice flow coming through that MGA contract as well. So obviously, we feel very good about the business, really focusing on the business that we think was one of their core lines of business which was the small commercial package and comp and that’s something we were putting the big focus on and we hope the a very successful transaction. And we think we will be very accretive to our earnings.

Operator

And our next question comes from Randy Binner from FBR Capital. Your line is now open.

Randy Binner - FBR Capital

Just picking up on Ken's question there, it sounds like maybe closer to the $500 million is the target for Tower, but just trying to understand the earned pattern a little bit better. As far as the UEPR transfer is concerned. How much, I guess, accelerated earned pattern and I guess those are my words; you may disagree with. But your earned premium pattern came in better than we were forecasting. I am guessing that is probably true for street numbers. How much more of that UEPR transfer was in the earned premium line, in the second-quarter result?

Ron Pipoly

If you look, it’s a triple transaction in the first quarter we had about $93 million of our earned premium was associated with the Tower business. And the second quarter that number had increased about a $103 million, which really given the business that we’re on is really kind of to normalize run rate. Now UEPR obviously had a bigger impact. So to the extent you want to say that there normally and premium was probably more of a first quarter in the sense that you took $176 million of in force policies that we are at the height of their earnings routine. Really second quarter is more normalized in the first quarter of the $93 million of earned premium that we had up $70 million that was associated with the UEPR that has dropped off into the second quarter obviously replaced by the policies with effective days after January 01st, so the $47 million that we have assumed through six months the $100 million is about the normalized quarterly run rate so there was no acceleration in our earned pattern as a result of the tower acquisition.

Randy Binner - FBR Capital

No. Yes, understood. I think you have answered it. Basically, the earned premium pattern there should normalize now. This quarter is a better reflection of the earned from Tower…

Barry Zyskind

Correct.

Randy Binner - FBR Capital

…because we are past the dislocation. So understood there. And actually, speaking of earned premium pattern; Specialty Risk and Extended Warranty also seemed to come little bit faster unearned. You mentioned there is a decent amount of growth there. Is that earned faster, some of the newer business? Because I know that between some European business, but especially warranty, you can have different earned premium time frames. Is that a faster pattern in the business mix as it is developing there?

Ron Pipoly

It might be a slightly faster impairment given the fact that with the addition of Sagicor again, which we took over the balance sheet it was a stock transaction so therefore you have policies that I guess at the end of the year more traditional 12 months. It’s a business mix that’s driving that, if you want to call it acceleration. So yes, to the extent that there has been acceleration in that earned pattern it’s really because that’s more kind of traditional 12 months policy, this is opposed to extended warranties which could have directions up to five years on some of those.

Randy Binner - FBR Capital

Then jumping to the tax rate -- sorry, go ahead.

Ron Pipoly

Those just that you also remember as you have years and years of building up writing premium; naturally you are going to start earning more just because you’re under written premium has built up significantly over the years.

Randy Binner - FBR Capital

Barry, you are talking more about warranty stuff with that, right?

Barry Zyskind

Right.

Randy Binner - FBR Capital

Yes, totally. Got it. But the Lloyd's stuff I think was the piece that we were missing. So on the tax rate, it looks like that was lower in the quarter. And are you going to be kind of changing the presentation of how the Luxembourg benefits come through the tax line? Is that going to be more of a bigger benefit in the first, second, and third quarters, and then you would true it up in the fourth quarter? Is that what we are seeing with this lower tax rate in the quarter?

Ron Pipoly

In terms of the reduction of the DTL associated with our Luxembourg reinsurance company, we’re looking at based on actually results for the underlying contracts that give rise to the reduction of the deferred tax liability but what I would expect to see if you want to talk about from an effective tax rate kind of a normalized tax rate it’s reasonable to assume that the effective tax rate with the inclusion of the reduction of tax provisions associated with the reduction of Luxembourg DTL to be somewhere around we’re at 19.8% from the six months for the year I would say that’s probably somewhere between 20 and 22 and then you would look at effective tax rate if you remove the reduction of the Luxembourg DTL to be something around 28% or so.

Randy Binner - FBR Capital

Right. That makes sense, but I guess if I was going to parse out the next two quarters, I would say third quarter would probably be more similar to this quarter; and then you would have a higher rate to true it up in the fourth quarter. Does that contour sound right?

Ron Pipoly

I don’t think that the fourth quarter would be markedly different than the second quarter more of the third quarter quite frankly.

Randy Binner - FBR Capital

Okay. So you are not going to have goodwill catch-up dynamic in the fourth quarter?

Ron Pipoly

Well, obviously we’ll evaluate our goodwill during the fourth quarter as we do is all of our good will but any movement in goodwill is certainly not effect tax line.

Randy Binner - FBR Capital

Okay, I got you. Then one more if I could, because it's just on the life settlement. When you said that was a loss there, that is just simply paying out premiums and not collecting a death benefit. That is just cash outflow?

Ron Pipoly

Yes, if you look at the components of the loss on life settlements, which you obviously when the 8-Q is filed, you will see that reconciliation table, quite frankly it’s a very modest wash for the quarter $2.1 million or $0.03 per diluted share and that’s really reflection of not acquiring any new policies during the quarter is really rerunning the cash flow models. There was not any maturities during the quarter.

So, and it’s a very stable portfolio and we still to be are very conservative the way we calculate a fair value.

Operator

Thank you. And our next question comes from Bijan Moazami from Guggenheim; your line is now open.

Bijan Moazami - Guggenheim

From Guggenheim. Impressive results, guys, all around. I guess the first question I have is regard to your surplus and your capital position. Ron, could you give us your proforma surplus at the end of the quarter?

Ron Pipoly

Our proforma surplus on our combined insurance company. So, all of the 13 U.S. insurance companies as well as our foreign operations proforma is $2.056 billion. So, nearly $2.1 billion of combined surplus in capital at our insurance operations at the end of the six months.

Bijan Moazami - Guggenheim

Perfect. When I think about your BCAR ratio and the leverage that you can have going forward, is the change in the mix of business having an impact on that? Is your acquisition having an impact on that? And whether or not at the stop-loss reinsurance cover you are providing ACP Re is having an impact on that?

Barry Zyskind

Well, quite frankly the stop was at ACP Re we’ll have virtually no impact on the overall from a BCAR perspective because don’t forget that is immediately retroceded to ACP Re, so really we don't have any residual exposure to that to that stop-loss. And from a BCAR perspective, I mean we look BCAR on a quarterly basic and we model that out anytime we’re looking at doing an acquisition and we’ve comfortable with where we’re at on a total capitalization at AFFI level, a total capitalization. And then add an individual insurance company level when we evaluate the, using the statutory surpluses of that entity we’re very comfortable with where we add from a BCAR perspective and we have a very interactive relationship with the, invest and obviously discuss this things and discuss the impacts on our financial operations as we move forward.

Bijan Moazami - Guggenheim

Right. As far as your Luxembourg tax benefit goes, is there any kind of goodwill amortization associated with the benefit that you got during the quarter?

Ron Pipoly

Well, the Luxembourg when we acquire Luxembourg reinsurance companies it generates good will which goodwill you evaluate at minimum on an annual basis for an impairment. So we have, we have elected to do those impairment analysis during the fourth quarter. So obviously when you get to the fourth quarter we will evaluate the usage of the DTL as that usage resulted any impairment to the underlying goodwill and to the extent that it has we will impaired as appropriate. So that will be something that we will evaluate in the fourth quarter as well as the valuation work we do on all of our intangible and other good will as well.

Bijan Moazami - Guggenheim

Yes. But under GAAP, you don't need to be matching the timing of the benefit versus amortization?

Ron Pipoly

Yes, correct. You don’t amortize goodwill, you just valuate it for impairment on an annual basis or certainly instance unless some market conditions we indicate otherwise. Intangible is something where you create a useful life and amortize it ratably over the useful life.

Operator

Thank you. And our next question comes from Adam Klauber from William Blair & Company. Your line is now open.

Adam Klauber - William Blair & Company

Within the small business growth, roughly 80%, how much of that was organic versus acquisitions?

Barry Zyskind

Really from an acquisition perspective if you look it there $139 million of that related to Tower. So if you would take the Tower number out of it, you’re still approaching growth that is 45% for the quarter. So really if you look at it, slightly over 50% was associated with or slightly less than 50% was associated with Tower and the rest was been organically driven.

Adam Klauber - William Blair & Company

Okay, okay. That's helpful. I was recently talking to a broker who said, relate to that, maybe in the last couple years a number of the state workers' comp funds have actually become more disciplined and I think called it more rational. Would you say that's true? And is that helping the market?

Barry Zyskind

You have two different stories there’s obviously been some changes in New York; for example, that has made reinsurance one have to more in a level field with other carries because of, some of the fees in the past on expenses that have they have charge to the customer for many year they had a competitive advantages so that’s change the dynamic significantly in New York. In California there is some time, we hear that the fund is very competitive, sometimes we have our competitive so it hasn’t really big consistent it depends really on the state. Those are, really the two states that we have big funds that we complete in, there’s some smaller stage for example like Arizona that has been privatized and things where we see some competition. But that’s been there and to some stage that we don’t even complete the funds really dominate. And then you have on top of that you have all the pools, NCCI pools. And again, we are a servicing carrying in a lot of states that we, I would say that rates have increased and you’ve seen a lot of growth into those, NCCI pools which mean in general that sort of a leading market indicator that choose the market has become much more discipline and therefore the pools continue growing with high hedge of business that the companies don’t want to take in that pricing that the companies are now willing to play at.

Adam Klauber - William Blair & Company

Okay, okay. Thanks. Then of the comp growth, the organic, just roughly how much of that is coming from California? Is it still a good chunk?

Ron Pipoly

California for the quarter we were up about $50 million in California for the quarter. So the largest three growing states traditionally been our, I mean our traditional three largest states in California, New York and Florida. And really if you think about California and New York for the first six months of the year, our average rate increase in both of those states is little over 7%. Our float is relatively flat that means slightly down something less than a 1% but again Florida is always consistent we’ve been a very solid performing state for us. So we’re certainly pleased that where we’re at in California, New York and Florida.

Adam Klauber - William Blair & Company

Okay, okay. And following up, I think earlier maybe Matt had asked about, I think was it California loss picks in comp? How about overall loss picks in comp in 2014 versus 2013, 2012?

Ron Pipoly

You know 2014, we evaluate our loss reserves in all of our lines of business on a monthly basis and we’re certainly encouraged about the trends that we see in prior excellent years as low as the current excellent year at seven month of valuation period. We’d encouraged about the trends we see in frequency, trends we see in average severity. We are holding steady with our loss picks. And, again we evaluate it on a monthly basis and have a lot of internal discussion about direction and the trends that we see and look to take advantage of the market.

Barry Zyskind

Just to add to it, as I said it in some previous call. 12, obviously, we started seeing a lot of approval in the 12 compare to the 11 year, 13 was much improved over 12 and I would say 14 is tracking very similar to 13 and may be in some cases even better. So we’re looking at the trends, we’re seeing now for the 13, 14 and the 12 year and really we see very solid performance and again we think very conservative and discipline where we have to pick but we think that the performance is very, very solid and we think there’s a lot of profitability in those lines.

Adam Klauber - William Blair & Company

Okay. And then as far as the Tower premium coming through, you've got the cut-through and then the MGA, you are writing your own paper. It seems like you have got sort of the traditional small BOP Tower book. And then you've got the workers' comp. Some of that has been the traditional, some of them not. How much are you increasing rates on those two different books of business?

Barry Zyskind

We’re working our comp, obviously our comp underwriters are working very closely with them and making sure some line where we like to see it on, some of their habitation and their BOP business, again we are working with our underwriters. I think the first important thing was to capture the business to make sure the flow is there. I think Tower ready on their own before we got involved they already started raising the rates on those lines. We think right now where the business is, its prices somewhere in the mid-60s which we think is very healthy and obviously once we get in fully integrated into our infrastructure and get the expense ratio down similar to the expense ratio we think that the business for the most part is priced well. Something, some of the lines of question all the things, they started taking lines we’re improving on top of it, we’re looking our underwriters and our pricing actually they are looking closely at their business. Working closely with them but I think the people there at Tower done a very, very good job at the business that they have and I think their issue is more with a book then not where the business is actually priced I think for many years, booking in the low 50s caught up with them, but I think the actual business probably is as we believe prices well somewhere into the 60s and that’s what historic number show and that’s what we think it is right now. So we think they are in very good position.

Operator

Thank you. I am showing no further question. I’d like to now turn the call over to Hilly Gross for any closing remarks.

Hilly Gross

Thank you. Thank you Selena and thank you every one for taking the time out of your busy schedule to join us this morning. On behalf of Ron Pipoly, Barry Zyskind and all of us at AmTrust, we wish you a pleasant day. Thank you.

Operator

Thank you. Ladies and gentlemen, this does conclude today's program. You may all disconnect. Everyone have a wonder day.

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Source: Amtrust Financial Services' (AFSI) CEO Barry Zyskind on Q2 2014 Results - Earnings Call Transcript

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