AmTrust Financial's Exposure To Cat Loss Raises Concern
Zacks Investment Research | Nov 20, 2017 08:37PM ET
As a property and casualty (P&C) insurer, AmTrust Financial Services, Inc. (NASDAQ:AFSI) is exposed to both natural and man-made catastrophe events. The company has been incurring inclement weather-related losses over a considerable period of time. In the first nine months of 2017 catastrophe loss amounted to $103.3 million, mainly stemming from the hurricanes Harvey, Irma, Maria and two major earthquakes in Mexico. Given the unpredictable nature of such calamities, the Zacks Rank #5 (Strong Sell) P&C insurer might experience catastrophe loss in the near term as well.
It is important to note that being a P&C insurer, AmTrust Financial cannot avoid the aftermath of such catastrophe events, which in turn pose a threat to weigh on the company’s underwriting profitability. Irrespective of catastrophe mitigation techniques deployed by the company, exposure to weather-oriented disasters inevitably makes its earnings volatile.
This apart, the company has been experiencing escalating expenses, primarily due to higher losses and loss adjustment expenses, interest expenses, acquisition and other underwriting expenses. This in turn will restrict the operating margin expansion, thereby hampering the company’s overall results and limiting its growth.
Moreover, high level of debt has led to an increase in interest burden, which in turn has weighed on the margin expansion.
Southbound Estimates: The stock has seen the Zacks Consensus Estimate for current-year earnings being revised 32.3% downward over the last 60 days. While the same for 2018 has declined nearly 21.5% over the same time frame. This is reflected in the company’s Zacks Rank as well.
An Underperformer: Shares of AmTrust Financial have plunged 66.2% year to date, significantly underperforming the Original post
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