Amtrust Financial Services, Inc (NASDAQ:AFSI)

On August 18, 2014, we released the following:

GeoInvesting has become aware of a piece on Amtrust (NASDAQ:AFSI) written by Roddy Boyd for the Southern Investigative Reporting Foundation, published on August 17, 2014. The piece is going to be sourced throughout this write-up and can be viewed in its entirety here. GeoInvesting recommends that all parties involved with AmTrust read the full article, as its consequences not only serve to point out questionable activity, but also could have a material effect on AmTrust stock.

Quick Summary

• The Karfunkel brothers, board members and majority shareholders of Amtrust (AFSI) stock, used their foundations to place high-risk bets on financial institutions in 2008 that ultimately resulted in significant losses.
• Michael Karfunkel has been using a GRAT (a form of a trust) in violation of both SEC and IRS rules.
• Stock donated to the brothers’ foundations was valued higher than it should have been, presumably for a larger tax write off.
• In order to comply with IRS rules, 16% of AmTrust outstanding shares appear to need to be either donated to an “unaffiliated charity” or outright sold.

Please see the full article here.

The GeoTeam' follow-up report on Amtrust (AFSI) is  now available viewing to Premium Members.

We will present new evidence to support our belief that AFSI’s reported financial statements are unreliable.  AFSI appears to have understated gross adverse development by over $100 million, and therefore gross adverse development appears to be 300% larger than reported in the company’s 10-K. We believe that this is yet another telltale sign that the losses ceded to the company’s Luxembourg captives are not reflected in the 10-K, as covered exhaustively in our first report. Additionally, the 10-K appears to be missing $276.9 million of gross loss reserves confirming our initial report.

Please see entire report here.

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The Wall Street Journal has reported that the SEC is “...pushing life insurers to disclose the potential cost if they are forced to halt use of controversial " captive " entities, according to regulatory filings and people familiar with the matter.”

Please recall that on 12/12/2013 the GeoTeam released a bearsh article on Amtrust Financial Services  (NSMCP:AFSI) ($32.39) , a property and casualty insurance provider, citing that the company appeared to be inflating earnings/net equity via offshore entities ( captives ), making it difficult for regulators to see the complete picture and/or get accurate information, and could face regulatory scrutiny .

After our initial report on AmTrust Capital (AFSI), "Amtrust Financial Servies: A House of Cards?", Bronte Capital ("Bronte") criticized the report as a "hit-piece" with "howling error after howling error". We stand by our report and appreciate the opportunity to provide additional clarity.

Please see our follow-up here.

Please see the rest of our revealing report here. To be among the first to receive alerts like this, subscribe to our premium service!

We have released a bearish report on Amtrust (AFSI) on our site.

We will show that AFSI appears to be inflating earnings/net equity via offshore entities, making it difficult for regulators to see the complete picture and/or get accurate information. We think that AFSI could be next in line to face regulatory scrutiny.

Summary of Findings

1. A cross section of public documents (AFSI SEC filings, Statutory financial filings by AFSI subsidiaries and Credit Rating information) shows that AFSI appears to be excluding losses of wholly-owned subsidiaries in its SEC filings
2. From 2009 to 2012 we believe that AFSI has not disclosed a total of $276.9 million in losses ceded to Luxembourg subsidiaries.
3. AFSI seems to be mismarking its LSCs by using egregiously aggressive assumptions relative to peers despite lawsuit documents showing AFSI holds many policies which are probably worthless.
4. Applying industry standard discount rates would result in an impairment/markdown of $90-$135 million in AFSI LSCs.
5. These findings regarding AFSI's LCSs are especially troublesome since more than half of the policies held by AFSI are of contracts where Phoenix Life Insurance, (PNX) (see footnote 1) is the issuing carrier / counterparty. Since PNX and/or its subsidiaries are faced with possible bankruptcy, its ability to honor the payout on these policies could be diminished and AFSI's expected collection on these contracts would be even less than other comparable policies.
6. Press releases contain different accounts than those reported in SEC filings, leading us to question the company's internal controls over financial reporting.
7. We conclude that AFSI is worth between $3.87 and $13.00 per share.

Please see the entire report here.

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