AmTrust Financial Services 10Q/A 2016 Q2 Quarterly report (amended)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q/A

Amendment No. 1

(Mark One)



x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the quarterly period ended June 30, 2016



¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ___________________ to ___________________

Commission file no. 001-33143

_______________________________

AmTrust Financial Services, Inc.

(Exact name of registrant as specified in its charter)



Delaware		04-3106389
(State or other jurisdiction of		(IRS Employer Identification No.)
incorporation or organization)

59 Maiden Lane, 43rd Floor, New York, New York		10038
(Address of principal executive offices)		(Zip Code)

(212) 220-7120

(Registrant’s telephone number, including area code)

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 (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x 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 x No¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company and emerging growth company in Rule 12b-2 of the Exchange Act. (Check one):



Large accelerated filer x		Accelerated filer ¨

Non-accelerated filer ¨		Smaller reporting company ¨
(Do not check if a smaller reporting company)		Emerging growth company ¨

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Securities Exchange Act).Yes ¨ No x

As of August 1, 2016, the Registrant had one class of Common Stock ($.01 par value), of which 170,668,960 shares were issued and outstanding.

Explanatory Note

As previously disclosed, on March 14, 2017, the Audit Committee of our Board of Directors, in consultation with management and our current and former independent registered public accounting firms, concluded that our previously issued Consolidated Financial Statements for fiscal years 2015 and 2014, along with each of the four quarters included in fiscal year 2015 as well as the first three quarters of fiscal year 2016, needed to be restated.

Accordingly, within this report, we have included restated unaudited quarterly financial statements for the second quarter of 2015 and 2016, which we refer to as the “Restatement.” Our restated consolidated financial statements as of and for the years ended December 31, 2015 and 2014 were included in our Annual Report on Form 10-K for the year ended December 31, 2016.

This Amendment No. 1 to our Quarterly Report on Form 10-Q (the “Form 10-Q/A”) amends our Quarterly Report on Form 10-Q for the quarter ended June 30, 2016 previously filed on August 9, 2016 (the “Original Filing”). We are filing this Form 10-Q/A to restate our unaudited consolidated financial statements, financial data and related disclosures as of and for the three-month and six-month periods ended June 30, 2016 and 2015 to give effect to the Restatement. In Note 2. “Restatement of Previously Issued Consolidated Financial Statements,” we have included information regarding the Restatement and specific changes to our previously issued unaudited quarterly financial statements, including details of the adjustments to the previously issued unaudited quarterly financial statements as a result of the Restatement.

Background of the Restatement

The restatement of our unaudited quarterly financial statements and related disclosures primarily relates to the correction of two errors reported in our historical unaudited quarterly financial statements. In accordance with accounting guidance presented in ASC 250-10 and SEC Staff Accounting Bulletin No. 99, Materiality, management assessed the materiality of these errors and concluded that they were material to the Company’s previously issued financial statements. The two primary errors relate to: (1) upfront recognition of the portion of warranty contract revenue associated with administration services, instead of recognizing the revenue over the life of the contract, and (2) bonuses that were expensed in the year paid but that should have been accrued as earned based on ASC 270, Interim Reporting and ASC 450, Contingencies. We also identified other adjustments described in Note 2. “Restatement of Previously Issued Consolidated Financial Statements” that we have corrected as part of this Restatement.

The impact of the Restatement on the Consolidated Statements of Income primarily resulted in decreased service and fee income, increased acquisition costs and other underwriting expenses (other than in the three months ended June 30, 2016), increased other expense, decreased interest expense and increased foreign currency loss (three and six months ended June 30, 2016), increased interest expense and increased foreign currency gain (three and six months ended June 30, 2015), which ultimately resulted in decreases to net income in both the six months ended June 30, 2016 and 2015. The impact of the Restatement on the Consolidated Balance Sheets primarily resulted in an increase of premiums receivable, an increase to other assets in 2016, a decrease to other assets in 2015, a reduction of deferred policy acquisition costs and property plant and equipment, an increase in accrued expenses and other liabilities, and a decrease in shareholders’ equity. The impact of the Restatement adjustments on the Consolidated Statements of Cash Flows resulted in an increase of net cash provided by operating activities in the six months ended June 30, 2016 and 2015, a decrease of net cash used in investing activities in the six months ended June 30, 2016 and 2015, and a decrease in net cash provided by financing activities in the six months ended June 30, 2016 and 2015.

This Form 10-Q/A amends and restates Items 1, 2, and 4 of Part I and Item 6 of Part II of the Original Filing and no other information included in the Original Filing is amended hereby. Generally, no attempt has been made in this Form 10-Q/A to modify or update the foregoing items, except as required to reflect the effects of the Restatement. Information not affected by the Restatement is unchanged and reflects the disclosures made at the time of the Original Filing. Accordingly, this Form 10-Q/A should be read in conjunction with our filings made with the Securities and Exchange Commission (“SEC”) subsequent to the Original Filing.

In accordance with applicable SEC rules, this Form 10-Q/A includes new certifications from our Chief Executive Officer and Chief Financial Officer as Exhibits 31.1, 31.2, 32.1 and 32.2. Subsequent to the Original Filing, we appointed a new Chief Financial Officer. Accordingly, these certifications are signed by our Chief Executive Officer and our Chief Financial Officer as of the date of filing this Form 10-Q/A.

INDEX



		Page
PART I	FINANCIAL INFORMATION	4

Item 1.	Financial Statements:	4

	Consolidated Balance Sheets as of June 30, 2016 (as restated) (unaudited) and December 31, 2015 (as restated)	4

	Consolidated Statements of Income — Three and six months ended June 30, 2016 (as restated) and 2015 (as restated) (unaudited)	5

	Consolidated Statements of Comprehensive Income – Three and six months ended June 30, 2016 and 2015 (as restated) (unaudited)	6

	Consolidated Statements of Cash Flows — Six months ended June 30, 2016 (as restated) and 2015 (as restated) (unaudited)	7

	Notes to Consolidated Financial Statements (unaudited)	9

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	72

Item 4.	Controls and Procedures	96

PART II	OTHER INFORMATION	96

Item 6.	Exhibits	96

	Signatures	98

Amounts are presented in United States of America (“U.S.”) dollars and all amounts are in thousands, except number of shares

and per share amounts.

PART 1 - FINANCIAL INFORMATION

Item 1. Financial Statements

AMTRUST FINANCIAL SERVICES, INC.

Consolidated Balance Sheets (unaudited)

(In thousands, except par value)



	June 30, 2016			December 31, 2015
	(As restated)			(As restated)
ASSETS
Investments:
Fixed maturities, available-for-sale, at fair value (amortized cost $6,617,396; $5,482,042)	$	6,838,968		$	5,433,797
Equity securities, available-for-sale, at fair value (cost $154,536; $109,346)	161,880			104,497
Equity securities, trading, at fair value (cost $26,232; $26,937)	26,847			27,271
Short-term investments	9,868			17,171
Equity investment in unconsolidated subsidiaries – related party	149,573			138,023
Other investments (related party $68,186; $64,869)	129,414			106,176
Total investments	7,316,550			5,826,935
Cash and cash equivalents	1,127,546			1,003,916
Restricted cash and cash equivalents	591,984			380,699
Accrued interest and dividends	55,940			51,487
Premiums receivable, net	2,708,311			2,235,953
Reinsurance recoverable (related party $2,236,292; $1,963,140)	3,856,087			3,007,377
Prepaid reinsurance premium (related party $1,194,588; $1,066,961)	1,924,747			1,531,866
Other assets (related party $205,320; $189,223; recorded at fair value $304,434; $264,001)	1,427,604			1,477,006
Deferred policy acquisition costs	842,298			693,639
Property and equipment, net	316,516			257,128
Goodwill	603,662			432,700
Intangible assets	395,589			367,345
	$	21,166,834		$	17,266,051
LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities:
Loss and loss adjustment expense reserves	$	9,097,408		$	7,208,367
Unearned premiums	4,819,255			4,014,387
Ceded reinsurance premiums payable (related party $679,083; $379,988)	843,473			651,051
Accrued expenses and other liabilities (related party $167,975; $167,975; recorded at fair value $473,492; $139,861)	1,968,305			1,497,772
Debt (net of debt issuance cost of $16,542, $16,902)	1,229,599			993,067
Total liabilities	17,958,040			14,364,644
Commitments and contingencies
Redeemable non-controlling interest	941			1,172
Stockholders’ equity:
Common stock, $0.01 par value; 500,000 shares authorized; 196,455 issued in 2016 and 2015, respectively; 172,432 and 175,915 outstanding in 2016 and 2015, respectively	1,965			1,964
Preferred stock, $0.01 par value; 10,000 shares authorized; 5,112 and 4,968 issued and outstanding; $626,250 and $482,500 aggregated liquidation preference in 2016 and 2015, respectively.	626,250			482,500
Additional paid-in capital	1,380,153			1,383,492
Treasury stock at cost; 24,023 and 20,540 shares in 2016 and 2015, respectively	(262,984		)	(162,867		)
Accumulated other comprehensive loss, net of tax	(29,806		)	(133,392		)
Retained earnings	1,311,056			1,152,083
Total AmTrust Financial Services, Inc. equity	3,026,634			2,723,780
Non-controlling interest	181,219			176,455
Total stockholders’ equity	3,207,853			2,900,235
	$	21,166,834		$	17,266,051

See accompanying notes to unaudited consolidated financial statements.

AmTrust Financial Services, Inc.

Consolidated Statements of Income (unaudited)

(In thousands, except per share data)



	Three Months Ended June 30,						Six Months Ended June 30,
	2016			2015			2016			2015
	(As restated)			(As restated)			(As restated)			(As restated)
Revenues:
Premium income:
Net written premium	$	1,268,436		$	1,008,721		$	2,489,115		$	2,051,910
Change in unearned premium	(86,684		)	(39,751		)	(233,081		)	(133,563		)
Net earned premium	1,181,752			968,970			2,256,034			1,918,347
Service and fee income (related parties - three months $21,608; $21,281 and six months $41,771; $38,685)	124,306			96,160			253,111			198,279
Net investment income	50,745			36,283			100,160			70,856
Net realized gain (loss) on investments	15,099			(2,642		)	23,074			13,011
Total revenues	1,371,902			1,098,771			2,632,379			2,200,493
Expenses:
Loss and loss adjustment expense	784,393			638,475			1,499,466			1,251,758
Acquisition costs and other underwriting expenses (net of ceding commission - related party - three months $145,610; $129,222 and six months $284,001; $247,909)	294,477			246,172			566,945			478,953
Other	134,344			101,136			263,611			202,096
Total expenses	1,213,214			985,783			2,330,022			1,932,807
Income before other income (expense), provision for income taxes, equity in earnings of unconsolidated subsidiaries and non-controlling interest	158,688			112,988			302,357			267,686
Other income (loss):
Interest expense (net of interest income - related party - three months $2,187; $2,211 and six months $4,375; $4,399)	(17,912		)	(11,472		)	(33,786		)	(23,553		)
Loss on extinguishment of debt	—			—			—			(4,714		)
Gain on investment in life settlement contracts net of profit commission	12,676			3,096			23,406			14,469
Foreign currency loss	(28,995		)	(61,852		)	(67,228		)	(37,195		)
Gain on acquisition	39,097			—			48,775			—
Total other income (loss)	4,866			(70,228		)	(28,833		)	(50,993		)
Income before provision for income taxes, equity in earnings of unconsolidated subsidiaries and non-controlling interest	163,554			42,760			273,524			216,693
Provision for income taxes	23,807			(8,969		)	42,767			27,524
Income before equity in earnings of unconsolidated subsidiaries	139,747			51,729			230,757			189,169
Equity in earnings of unconsolidated subsidiaries – related parties	4,802			4,042			10,578			9,571
Net income	$	144,549		$	55,771		$	241,335		$	198,740
Net income attributable to non-controlling interest and redeemable non-controlling interest of subsidiaries	(5,817		)	(1,346		)	(9,834		)	(5,429		)
Net income attributable to AmTrust Financial Services, Inc.	$	138,732		$	54,425		$	231,501		$	193,311
Dividends on preferred stock	(11,576		)	(8,639		)	(20,367		)	(14,008		)
Net income attributable to AmTrust common stockholders	$	127,156		$	45,786		$	211,134		$	179,303
Earnings per common share:
Basic earnings per share	$	0.73		$	0.28		$	1.21		$	1.09
Diluted earnings per share	$	0.73		$	0.27		$	1.20		$	1.07
Dividends declared per common share	$	0.15		$	0.125		$	0.30		$	0.25
Net realized gain (loss) on investments:
Total other-than-temporary impairment loss	$	(16,956	)	$	(1,466	)	$	(16,956	)	$	(2,482	)
Portion of loss recognized in other comprehensive income	—			—			—			—
Net impairment losses recognized in earnings	(16,956		)	(1,466		)	(16,956		)	(2,482		)
Net realized gain (loss) on available for sale securities	33,391			(856		)	38,663			15,813
Net unrealized gain (loss) on trading securities and other investments	(1,336		)	(320		)	1,367			(320		)
Net realized investment gain (loss)	$	15,099		$	(2,642	)	$	23,074		$	13,011

See accompanying notes to unaudited consolidated financial statements.

AmTrust Financial Services, Inc.

Consolidated Statements of Comprehensive Income (unaudited)

(In thousands)



	Three Months Ended June 30,						Six Months Ended June 30,
	2016			2015			2016			2015
	(As restated)			(As restated)			(As restated)			(As restated)
Net income	$	144,549		$	55,771		$	241,335		$	198,740
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments	(32,809		)	30,665			(80,003		)	(26,862		)
Change in fair value of interest rate swap	168			163			287			190
Unrealized gain (loss) on securities:
Gross unrealized holding gain (loss)	170,466			(92,766		)	298,119			(80,163		)
Tax expense (benefit) arising during period	62,093			(32,468		)	106,772			(28,057		)
Net unrealized holding gain (loss)	108,373			(60,298		)	191,347			(52,106		)
Reclassification adjustments for investment gain (loss) included in net income, net of tax:
Other-than-temporary impairment loss	(10,537		)	—			(10,537		)	—
Other net realized gain (loss) on investments	2,920			(790		)	2,492			(1,205		)
Reclassification adjustments for investment gain (loss) included in net income:	(7,617		)	(790		)	(8,045		)	(1,205		)
Other comprehensive income (loss), net of tax	$	68,115		$	(30,260	)	$	103,586		$	(79,983	)
Comprehensive income	212,664			25,511			344,921			118,757
Less: Comprehensive income attributable to non-controlling interest and redeemable non-controlling interest	5,817			1,346			9,834			5,429
Comprehensive income attributable to AmTrust Financial Services, Inc.	$	206,847		$	24,165		$	335,087		$	113,328

See accompanying notes to unaudited consolidated financial statements.

AmTrust Financial Services, Inc.

Consolidated Statements of Cash Flows (unaudited)

(In thousands)



	Six Months Ended June 30,
	2016			2015
	(As restated)			(As restated)
Cash flows from operating activities:
Net income	$	241,335		$	198,740
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	59,865			40,310
Net amortization of bond premium or discount	9,707			6,537
Equity earnings on investment in unconsolidated subsidiaries	(10,578		)	(9,571		)
Gain on investment in life settlement contracts, net	(23,406		)	(14,469		)
Net realized gain on investments	(40,030		)	(15,493		)
Non-cash write-down of investments	16,956			2,482
Discount on notes payable	2,910			2,769
Stock based compensation	11,542			10,436
Loss on extinguishment of debt	—			4,714
Bad debt expense	8,241			7,724
Foreign currency loss	67,228			37,195
Gain on acquisition	(48,775		)	—
Changes in assets - (increase) decrease:
Premiums and note receivables	(376,594		)	(604,812		)
Reinsurance recoverable	(174,241		)	(355,894		)
Deferred policy acquisition costs	(104,759		)	(59,846		)
Prepaid reinsurance premiums	(392,881		)	(280,712		)
Prepaid expenses and Other assets	205,431			(112,310		)
Changes in liabilities - increase (decrease):
Ceded reinsurance premium payable	185,275			155,340
Loss and loss adjustment expense reserve	780,599			664,495
Unearned premiums	383,135			392,662
Funds held under reinsurance treaties	(28,041		)	13,525
Accrued expenses and other current liabilities	(124,170		)	111,615
Net cash provided by operating activities	648,749			195,437
Cash flows from investing activities:
Purchases of fixed maturities, available-for-sale	(1,100,754		)	(1,168,051		)
Purchases of equity securities, available-for-sale	(20,424		)	(14,923		)
Purchase of equity securities, trading	(100,087		)	(109,555		)
Purchase of other investments	(11,345		)	(18,868		)
Sales of fixed maturities, available-for-sale	699,304			557,111
Sales of equity securities, available-for-sale	11,697			12,184
Sales of equity securities, trading	102,267			108,325
Sales of other investments	1,242			13,337
Net (purchase) sale of short term investments	7,303			66,498
Net (purchase) sale of securities sold but not purchased	(17,448		)	15,456
Receipt of life settlement contract proceeds	8,058			81,014
Acquisition of subsidiaries, net of cash obtained	(118,607		)	(121,401		)
Increase in restricted cash and cash equivalents	(211,285		)	(62,715		)
Purchase of property and equipment	(84,094		)	(46,560		)
Net cash used in investing activities	(834,173		)	(688,148		)



Cash flows from financing activities:
Revolving credit facility borrowings	—			430,000
Revolving credit facility payments	—			(365,000		)
Repurchase agreements, net	366,860			48,819
Secured loan borrowings	39,361			—
Secured loan agreements payments	(3,569		)	(3,478		)
Convertible senior notes settlement	—			(53,606		)
Subordinated notes due 2055 proceeds	—			150,000
Financing fees	—			(4,990		)
Common stock issuance	276			171,672
Common stock repurchase	(103,509		)	—
Contingent consideration payments	(23,446		)	(9,874		)
Preferred stock issuance	139,070			176,529
Non-controlling interest capital distributions from consolidated subsidiaries, net	(5,301		)	(41		)
Stock option exercise and other	(7,084		)	(1,982		)
Dividends distributed on common stock	(52,624		)	(39,901		)
Dividends distributed on preferred stock	(20,367		)	(14,008		)
Net cash provided by financing activities	329,667			484,140
Effect of exchange rate changes on cash	(20,613		)	(2,359		)
Net increase in cash and cash equivalents	123,630			(10,930		)
Cash and cash equivalents, beginning of the period	1,003,916			880,899
Cash and cash equivalents, end of the period	$	1,127,546		$	869,969
Supplemental Cash Flow Information
Income tax payments	$	22,575		$	226,278
Interest payments on debt	$	28,902		$	18,245
Declared dividends on common stock	$	52,189		$	41,187

See accompanying notes to unaudited consolidated financial statements.

Notes to Consolidated Financial Statements

(Unaudited)

(Dollars In Thousands, Except Share and Per Share Data)


1.	Basis of Reporting

The accompanying unaudited interim consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial statements and with the instructions to Form 10-Q and Article 10 of Regulation S-X and, therefore, do not include all of the information and footnotes required by GAAP for complete financial statements. These interim statements should be read in conjunction with the consolidated financial statements and notes thereto included in the AmTrust Financial Services, Inc. (“AmTrust” or the “Company”) Annual Report on Form 10-K for the year ended December 31, 2015, previously filed with the Securities and Exchange Commission (“SEC”) on February 29, 2016.

These interim consolidated financial statements reflect all adjustments that are, in the opinion of management, necessary for a fair presentation of the results for the interim period and all such adjustments are of a normal recurring nature. The results of operations for the interim period are not necessarily indicative, if annualized, of those to be expected for the full year. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates.

The Company implemented a two-for-one stock split on February 2, 2016. As a result, the Company retrospectively adjusted all share and per share amounts in the accompanying consolidated financial statements and notes to the consolidated financial statements to apply the effect of the stock split for all periods presented.

A detailed description of the Company’s significant accounting policies and management judgments is located in the audited consolidated financial statements for the year ended December 31, 2015, included in the Company’s Form 10-K filed with the SEC.

All significant inter-company transactions and accounts have been eliminated in the consolidated financial statements.

To facilitate period-to-period comparisons, certain reclassifications have been made to prior period consolidated financial statement amounts to conform to current period presentation.

Correction of an Immaterial Error

The Company identified an immaterial error related to its classification on the consolidated statement of cash flows for purchases and sales of securities sold but not yet purchased, at fair value. The Company determined that in prior periods reported, these amounts were improperly reflected as changes in accrued expenses and other current liabilities in cash flow from operating activities instead of securities sold but not yet purchased, at fair value, in cash flow from investing activities. The Company reviewed the impact of this error on the prior periods and determined that the error was not material to the prior period consolidated financial statements. The Company has corrected the consolidated statement of cash flows for the six months ended June 30, 2015 by presenting this amount separately within investing activities and decreasing the changes in accrued expenses and other current liabilities within operating activities. The impact of the error decreased the Company's net cash provided by operating activities by $15,456 and increased the Company's cash flows from investing activities by an equivalent amount for the period ended June 30, 2015.

2. Restatement of Previously Issued Consolidated Financial Statements

In connection with the preparation, review and audit of the Company's consolidated financial statements required to be included in the Annual Report on Form 10-K for the year ended December 31, 2016, management identified certain errors in the Company's historical financial statements. As a result, the Company concluded that its previously issued consolidated financial statements for fiscal years 2015 and 2014, along with each of the four quarters included in fiscal year 2015, as well as the first three quarters of fiscal year 2016, needed to be restated. The Company's restated consolidated financial statements as of and for the years ended December 31, 2015 and 2014 were included in its Annual Report on Form 10-K for the year ended December 31, 2016. Within this report, the Company has included restated unaudited interim consolidated financial statements as of and for the three and six months ended June 30, 2016 and 2015, respectively. This Note 2 to the unaudited interim consolidated financial statements discloses the nature of the restatement matters and adjustments and shows the impact of the restatement for the three and six months ended June 30, 2016 and 2015, respectively.

The restatement corrects errors primarily related to: (1) upfront recognition of the portion of warranty contract revenue associated with administration services, instead of recognizing the revenue over the life of the contract; and (2) bonuses that were expensed in the year paid but that should have been accrued as earned based on ASC 270, Interim Reporting, and ASC 450, Contingencies. The Company has also identified other adjustments described below in items (3) – (9) that have been corrected as part of this restatement.

Adjustments needed to correct errors

(1)

Warranty fee revenue – During the preparation of its financial statements for the year ended December 31, 2016, management became aware of a misapplication of the revenue recognition guidance in relation to its accounting for warranty contract revenue associated with promotion, marketing and administration services (collectively, "administration services") provided as part of extended service plans (“ESPs”). The Company had historically recognized the majority of revenue related to administration services at the time of the sale of ESP. However, the Company revised its application of the revenue recognition guidance to record revenue related to administration services on a straight-line basis over the term of the ESP contracts. This correction of an error created an overstatement of service and fee income and an overstatement of other expenses that were also recognized upfront at the time of the sale.

(2)

Accrual of bonuses – In prior years, the Company had expensed discretionary bonuses paid to its employees in the year the bonuses were paid because the Company did not consider the discretionary bonuses to be “probable,” which is the standard required for accrual. Upon review of ASC 270, Interim Reporting, and ASC 450, Contingencies, management determined that its application was incorrect because, even though the bonuses were discretionary, the bonuses should have been estimated and expenses assigned to interim periods so that the interim periods bear a reasonable portion of the anticipated annual amount. This created an error resulting in an overstatement of acquisition costs and other underwriting expenses.

(3)

Deferred policy acquisition costs – The Company corrected errors in its calculation of deferred policy acquisition costs related to (a) the over-amortization of certain deferred acquisition costs in 2015, resulting in an overstatement of expenses in 2015, (b) the deferral of certain non-eligible salaries and consulting fees, resulting in an understatement of expenses, (c) the treatment of certain costs as both underwriting expenses and salary and benefit expenses, resulting in the duplication of the amount originally deferred, and (d) the inclusion of deferred warranty administration fees and obligor liabilities associated with the administration services provided to our ESPs, which resulted in an increase to policy acquisition expense.

(4)

Foreign exchange gain/(loss) – The Company corrected errors related to the re-measurement of monetary balances denominated in foreign currencies into their functional currencies that were originally recorded as a component of other comprehensive income. Given the monetary nature of some of these balances, the re-measurement impact should have been recorded as foreign currency transaction gain/(loss) in the Company's statements of income.

(5)

Capitalized software – The Company capitalized certain internally developed software costs that did not meet criteria for capitalization under ASC 350, Intangibles - Goodwill and Other. This error resulted overall in an over-capitalization of certain software expenses, which resulted in an understatement of expenses for the three and six months ended June 30, 2016 and an overstatement of expenses for the three and six months ended June 30, 2015.


(6)	Imputed interest – The Company corrected an error related to imputed interest on contingent consideration owed as a result of certain business acquisitions, which resulted in an overstatement of interest expense during the three months

and six months ended June 30, 2016 and an understatement of interest expense during the three and six months ended June 30 2015.


(7)	Intercompany eliminations – The Company corrected an error related to internal brokerage commissions paid from one of its subsidiaries to another subsidiary, which should have been eliminated in consolidation, thereby causing an overstatement of commission income in the three and six months ended June 30, 2015.


(8)	Other items – The Company corrected other errors that impacted the three and six months ended June 30, 2016 and 2015 interim consolidated financial statements, including unaccrued liabilities, uncollectible other receivables, accrued commissions, unrecognized amortization expense, unrealized losses on investments and proper quarter end cut-off related to premiums and claims.

(9)

Balance sheet items – The Company historically recorded certain receivables (premium and other) net of commissions. The error was corrected and the Company now records the receivables on a gross basis, with the associated commission payable in other accrued expenses and liabilities. In addition, the Company corrected a classification error involving short term investments and cash and cash equivalents as of June 30, 2016 and 2015.

The following summarizes the impact of the Restatement on our previously reported unaudited interim Consolidated Balance Sheets, Consolidated Statements of Income, Consolidated Statements of Comprehensive Income, Consolidated Statements of Stockholders' Equity and Consolidated Statements of Cash Flows for the three and six months ended June 30, 2016 and 2015:



	Consolidated Balance Sheet
	June 30, 2016
ASSETS	As previously reported			Adjustments			As restated			Reference
	(in thousands)
Investments:
Fixed maturities, available-for-sale, at fair value (amortized cost $6,617,396)	$	6,838,968		$	—		$	6,838,968
Equity securities, available-for-sale, at fair value (cost $154,536)	161,880			—			161,880
Equity securities, trading, at fair value (cost $26,232)	26,847			—			26,847
Short-term investments	127,880			(118,012		)	9,868			9
Equity investment in unconsolidated subsidiaries – related parties	149,573			—			149,573
Other investments (related party $68,186; recorded at fair value $38,039)	129,414			—			129,414
Total investments	7,434,562			(118,012		)	7,316,550
Cash and cash equivalents	1,009,534			118,012			1,127,546			8, 9
Restricted cash and cash equivalents	591,984			—			591,984
Accrued interest and dividends	55,940			—			55,940
Premiums receivable, net	2,562,165			146,146			2,708,311			8, 9
Reinsurance recoverable (related party $2,236,292)	3,856,087			—			3,856,087
Prepaid reinsurance premiums (related party $1,194,588)	1,924,747			—			1,924,747
Other assets (related party $205,320; recorded at fair value $304,434)	1,371,771			55,833			1,427,604			1 – 9
Deferred policy acquisition costs	873,641			(31,343		)	842,298			3
Property and equipment, net	327,311			(10,795		)	316,516			5, 8,9
Goodwill	603,662			—			603,662
Intangible assets	395,589			—			395,589
	$	21,006,993		$	159,841		$	21,166,834
LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities:
Loss and loss adjustment expense reserves	$	9,097,408		$	—		$	9,097,408
Unearned premiums	4,819,255			—			4,819,255
Ceded reinsurance premiums payable (related party $679,083)	843,473			—			843,473
Accrued expenses and other liabilities (related party $167,975; recorded at fair value $473,492)	1,604,413			363,892			1,968,305			1, 2, 6, 8, 9
Debt (net of debt issuance cost of $16,542)	1,229,599			—			1,229,599
Total liabilities	17,594,148			363,892			17,958,040
Commitments and contingencies
Redeemable non-controlling interest	941			—			941
Stockholders’ equity:
Common stock, $0.01 par value; 500,000 shares authorized, 196,455 issued; 172,432 outstanding	1,965			—			1,965
Preferred stock, $0.01 par value; 10,000 shares authorized, 5,112 issued and outstanding; aggregated liquidation preference $626,250	626,250			—			626,250
Additional paid-in capital	1,380,153			—			1,380,153
Treasury stock at cost; 24,023 shares	(262,984		)	—			(262,984		)
Accumulated other comprehensive loss, net of tax	(31,791		)	1,985			(29,806		)	4
Retained earnings	1,517,092			(206,036		)	1,311,056			1 – 8
Total AmTrust Financial Services, Inc. equity	3,230,685			(204,051		)	3,026,634
Non-controlling interest	181,219			—			181,219
Total stockholders’ equity	3,411,904			(204,051		)	3,207,853
	$	21,006,993		$	159,841		$	21,166,834



	Consolidated Statements of Income
	Three Months Ended June 30, 2016									Six Months Ended June 30, 2016
	As previously reported			Adjustments			As restated			As previously reported			Adjustments			As restated			Reference
	(in thousands, except per share)
Revenues:
Premium income:
Net written premium	$	1,268,436		$	—		$	1,268,436		$	2,489,115		$	—		$	2,489,115
Change in unearned premium	(86,684		)	—			(86,684		)	(233,081		)	—			(233,081		)
Net earned premium	1,181,752			—			1,181,752			2,256,034			—			2,256,034
Service and fee income (related parties - three months $21,608 and six months $41,771)	138,270			(13,964		)	124,306			282,471			(29,360		)	253,111			1, 8
Net investment income	50,745			—			50,745			100,160			—			100,160
Net realized gain on investments	15,099			—			15,099			23,074			—			23,074
Total revenues	1,385,866			(13,964		)	1,371,902			2,661,739			(29,360		)	2,632,379
Expenses:
Loss and loss adjustment expense	784,393			—			784,393			1,499,466			—			1,499,466
Acquisition costs and other underwriting expenses (net of ceding commission - related party - three months $145,610 and six months $284,001)	298,803			(4,326		)	294,477			563,437			3,508			566,945			2, 3, 5, 8
Other	132,970			1,374			134,344			261,156			2,455			263,611			1, 5, 7, 8
Total expenses	1,216,166			(2,952		)	1,213,214			2,324,059			5,963			2,330,022
Income before other income (loss), provision for income taxes, equity in earnings of unconsolidated subsidiaries and non-controlling interest	169,700			(11,012		)	158,688			337,680			(35,323		)	302,357
Other (expenses) income:
Interest expense (net of interest income - related party - three months $2,187 and six months $4,375)	(19,738		)	1,826			(17,912		)	(37,438		)	3,652			(33,786		)	6
Gain on investment in life settlement contracts net of profit commission	12,676			—			12,676			23,406			—			23,406
Foreign currency loss	(26,435		)	(2,560		)	(28,995		)	(62,108		)	(5,120		)	(67,228		)	4, 8
Gain on acquisition	39,097			—			39,097			48,775			—			48,775
Total other income (loss)	5,600			(734		)	4,866			(27,365		)	(1,468		)	(28,833		)
Income before provision for income taxes, equity in earnings of unconsolidated subsidiaries and non-controlling interest	175,300			(11,746		)	163,554			310,315			(36,791		)	273,524
Provision for income taxes	27,918			(4,111		)	23,807			55,644			(12,877		)	42,767			1 – 8
Income before equity in earnings of unconsolidated subsidiaries	147,382			(7,635		)	139,747			254,671			(23,914		)	230,757
Equity in earnings of unconsolidated subsidiary – related parties	4,802			—			4,802			10,578			—			10,578
Net income	$	152,184		$	(7,635	)	$	144,549		$	265,249		$	(23,914	)	$	241,335
Net income attributable to non-controlling interests and redeemable non-controlling interests of subsidiaries	(5,817		)	—			(5,817		)	(9,834		)	—			(9,834		)
Net income attributable to AmTrust Financial Services, Inc.	$	146,367		$	(7,635	)	$	138,732		$	255,415		$	(23,914	)	$	231,501
Dividends on preferred stock	(11,576		)	—			(11,576		)	(20,367		)	—			(20,367		)
Net income attributable to AmTrust common stockholders	$	134,791		$	(7,635	)	$	127,156		$	235,048		$	(23,914	)	$	211,134
Earnings per common share:
Basic earnings per share	$	0.79		$	(0.06	)	$	0.73		$	1.36		$	(0.15	)	$	1.21
Diluted earnings per share	$	0.78		$	(0.05	)	$	0.73		$	1.34		$	(0.14	)	$	1.20
Dividends declared per common share	$	0.15		$	—		$	0.15		$	0.30		$	—		$	0.30



	Consolidated Statements of Comprehensive Income
	Three Months Ended June 30, 2016									Six Months Ended June 30, 2016
	As previously reported			Adjustments			As restated			As previously reported			Adjustments			As restated			Reference
	(in thousands, except per share)
Net income	$	152,184		$	(7,635	)	$	144,549		$	265,249		$	(23,914	)	$	241,335
Other comprehensive (loss) income, net of tax:
Foreign currency translation adjustments	(36,820		)	4,011			(32,809		)	(84,665		)	4,662			(80,003		)	4
Change in fair value of interest rate swap	168			—			168			287			—			287
Unrealized gain on securities:
Gross unrealized holding (loss) gain	168,963			1,503			170,466			293,683			4,436			298,119			8
Less tax expense	59,137			2,956			62,093			102,789			3,983			106,772			8
Net unrealized holding gain	109,826			(1,453		)	108,373			190,894			453			191,347
Reclassification adjustment for investment loss included in net income, net of tax:
Other-than-temporary impairment loss	(10,537		)	—			(10,537		)	(10,537		)	—			(10,537		)
Other net realized loss on investments	2,920			—			2,920			2,492			—			2,492
Reclassification adjustment for investment loss included in net income	(7,617		)	—			(7,617		)	(8,045		)	—			(8,045		)
Other comprehensive income, net of tax	$	65,557		$	2,558		$	68,115		$	98,471		$	5,115		$	103,586
Comprehensive income	217,741			(5,077		)	212,664			363,720			(18,799		)	344,921
Less: Comprehensive income attributable to non-controlling and redeemable non-controlling interest	5,817			—			5,817			9,834			—			9,834
Comprehensive income attributable to AmTrust Financial Services, Inc.	$	211,924		$	(5,077	)	$	206,847		$	353,886		$	(18,799	)	$	335,087



	Consolidated Statement of Stockholders' Equity
	As of June 30, 2016
	As previously reported			Adjustments			As restated			Reference
	(in thousands)
Common stock	$	1,965		$	—		$	1,965
Preferred stock	626,250			—			626,250
Additional paid-in capital	1,380,153			—			1,380,153
Treasury stock	(262,984		)	—			(262,984		)
Accumulated other comprehensive income (loss)	(31,791		)	1,986			(29,805		)	4, 8
Retained earnings	1,517,092			(206,037		)	1,311,055			1 – 8
	$	3,230,685		$	(204,051	)	$	3,026,634



	Consolidated Statements of Cash Flows
	Six Months Ended June 30, 2016
	As previously reported			Adjustments			As restated			Reference
	(in thousands)
Cash flows from operating activities:
Net income	$	265,249		$	(23,914	)	$	241,335
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	54,842			5,023			59,865			5
Net amortization of bond premium or discount	9,707			—			9,707
Equity earnings on investment in unconsolidated subsidiaries	(10,578		)	—			(10,578		)
Gain on investment in life settlement contracts, net	(23,406		)	—			(23,406		)
Net realized gain on investments	(40,030		)	—			(40,030		)
Non-cash write-down of investments	16,956			—			16,956
Discount on notes payable	2,910			—			2,910
Stock based compensation	11,542			—			11,542
Bad debt expense	8,241			—			8,241
Foreign currency loss	62,108			5,120			67,228			4, 8
Gain on acquisition	(48,775		)	—			(48,775		)
Changes in assets – (increase) decrease:
Premiums receivable	(350,748		)	(25,846		)	(376,594		)	8, 9
Reinsurance recoverable	(172,948		)	(1,293		)	(174,241		)	8
Deferred policy acquisition costs	(125,499		)	20,740			(104,759		)	3
Prepaid reinsurance premiums	(392,881		)				(392,881		)
Other assets	186,005			19,426			205,431			1 – 9
Changes in liabilities – increase (decrease):
Ceded reinsurance premium payable	185,275			—			185,275
Loss and loss expense adjustment reserves	780,599			—			780,599
Unearned premiums	382,794			341			383,135			8
Funds held under reinsurance treaties	(28,041		)	—			(28,041		)
Accrued expenses and other liabilities	(154,560		)	30,390			(124,170		)	1, 2, 6, 8, 9
Net cash provided by operating activities	618,762			29,987			648,749
Cash flows from investing activities:
Purchases of fixed maturities, available-for-sale	(1,299,160		)	198,406			(1,100,754		)	4
Purchases of equity securities, available-for-sale	(111,284		)	90,860			(20,424		)	4
Purchases of equity securities, trading	(100,101		)	14			(100,087		)	4
Purchases of other investments	(18,509		)	7,164			(11,345		)	8
Sales, maturities, paydowns of fixed maturities, available-for-sale	910,939			(211,635		)	699,304			4
Sales of equity securities, available-for-sale	89,348			(77,651		)	11,697			4
Sales of equity securities, trading	102,261			6			102,267			4
Sales of other investments	1,242			—			1,242
Net (purchases) of short term investments	(43,614		)	50,917			7,303			9
Net (purchases) of securities sold but not purchased	(17,448		)	—			(17,448		)
Receipt of life settlement contract proceeds	8,058			—			8,058
Acquisition of subsidiaries, net of cash obtained	(118,607		)	—			(118,607		)
Decrease in restricted cash and cash equivalents, net	(211,285		)	—			(211,285		)
Purchase of property and equipment	(65,538		)	(18,556		)	(84,094		)	5
Net cash used in investing activities	(873,698		)	39,525			(834,173		)



	Consolidated Statements of Cash Flows
	Six Months Ended June 30, 2016
	As previously reported			Adjustments			As restated			Reference
	(in thousands)
Cash flows from financing activities:
Repurchase agreements, net	366,860			—			366,860
Secured loan agreement borrowings	39,361			—			39,361
Secured loan agreement payments	(3,569		)	—			(3,569		)
Common stock issuance	276			—			276
Common stock repurchase	(103,509		)	—			(103,509		)
Preferred stock issuance	139,070			—			139,070
Contingent consideration payments	—			(23,446		)	(23,446		)	6
Non-controlling interest capital contributions to consolidated subsidiaries, net	(5,301		)	—			(5,301		)
Stock option exercise and other	(7,084		)	—			(7,084		)
Dividends distributed on common stock	(52,624		)	—			(52,624		)
Dividends distributed on preferred stock	(20,367		)	—			(20,367		)
Net cash provided by financing activities	353,113			(23,446		)	329,667
Effect of exchange rate changes on cash	(20,613		)	—			(20,613		)
Net increase in cash and cash equivalents	77,564			46,066			123,630
Cash and cash equivalents, beginning of year	931,970			71,946			1,003,916			1, 2, 4 – 9
Cash and cash equivalents, end of period	$	1,009,534		$	118,012		$	1,127,546
Supplemental Cash Flow Information
Interest payments on debt	$	28,902		—			$	28,902
Income tax payments	22,575			—			22,575
Declared dividends on common stock	52,189			—			52,189



	Consolidated Balance Sheet
	June 30, 2015
ASSETS	As previously reported			Adjustments			As restated			Reference
	(in thousands)
Investments:
Fixed maturities, available-for-sale, at fair value (amortized cost $4,814,001)	$	4,842,644		$	—		$	4,842,644
Equity securities, available-for-sale, at fair value (cost $99,595)	103,093			—			103,093
Equity securities, trading, at fair value (cost $29,668)	30,652			—			30,652
Short-term investments	41,707			(23,997		)	17,710			9
Equity investment in unconsolidated subsidiaries – related parties	126,919			—			126,919
Other investments (related party $9,923; recorded at fair value $14,759)	45,572			—			45,572
Securities pledged, at fair value (amortized cost of $51,862)	50,801			—			50,801
Total investments	5,241,388			(23,997		)	5,217,391
Cash and cash equivalents	845,972			23,997			869,969			8, 9
Restricted cash and cash equivalents	248,940			—			248,940
Accrued interest and dividends	38,167			—			38,167
Premiums receivable, net	2,376,818			108,421			2,485,239			8, 9
Reinsurance recoverable (related party $1,824,707)	2,799,007			—			2,799,007
Prepaid reinsurance premium (related party $1,136,562)	1,583,560			—			1,583,560
Other assets (related party $169,615; recorded at fair value $267,393)	1,190,777			(3,618		)	1,187,159			1,5,8,9
Deferred policy acquisition costs	695,150			(5,301		)	689,849			3
Property and equipment, net	180,822			(8,684		)	172,138			5, 8
Goodwill	422,357			—			422,357
Intangible assets	330,871			—			330,871
	$	15,953,829		$	90,818		$	16,044,647
LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities:
Loss and loss adjustment expense reserves	$	6,380,845		$	—		$	6,380,845
Unearned premiums	3,868,747			—			3,868,747
Ceded reinsurance premiums payable (related party $535,843)	831,665			—			831,665
Accrued expenses and other liabilities (related party $167,975; recorded at fair value $127,684)	1,289,511			237,080			1,526,591			1, 2, 6, 8, 9
Deferred income taxes	35,257			—			35,257
Debt (net of debt issuance cost of $13,122)	914,482			—			914,482
Total liabilities	13,320,507			237,080			13,557,587
Commitments and contingencies
Redeemable non-controlling interest	977			—			977
Stockholders’ equity:
Common stock, $0.01 par value; 300,000 shares authorized, 196,442 issued; 165,274 outstanding	1,964			—			1,964
Preferred stock, $0.01 par value; 10,000 shares authorized, 4,968 issued and outstanding; aggregated liquidation preference $482,500	482,500			—			482,500
Additional paid-in capital	1,117,249			—			1,117,249
Treasury stock at cost; 15,584 shares	(222,240		)	—			(222,240		)
Accumulated other comprehensive loss	(48,545		)	29,139			(19,406		)	4
Retained earnings	1,138,929			(175,401		)	963,528			1, 2, 4, 5, 8
Total AmTrust Financial Services, Inc. equity	2,469,857			(146,262		)	2,323,595
Non-controlling interest	162,488			—			162,488
Total stockholders’ equity	2,632,345			(146,262		)	2,486,083
	$	15,953,829		$	90,818		$	16,044,647



	Consolidated Statements of Income
	Three Months Ended June 30, 2015									Six Months Ended June 30, 2015
	As previously reported			Adjustments			As restated			As previously reported			Adjustments			As restated			Reference
	(in thousands, except share data)
Revenues:
Premium income:
Net written premium	$	1,008,721		$	—		$	1,008,721		$	2,051,910		$	—		$	2,051,910
Change in unearned premium	(39,751		)	—			(39,751		)	(133,563		)	—			(133,563		)
Net earned premium	968,970						968,970			1,918,347			—			1,918,347
Service and fee income (related parties - three months $21,281 and six months $38,685)	107,737			(11,577		)	96,160			220,623			(22,344		)	198,279			1
Net investment income	36,283			—			36,283			70,856			—			70,856
Net realized gain on investments	(2,642		)	—			(2,642		)	13,011			—			13,011
Total revenues	1,110,348			(11,577		)	1,098,771			2,222,837			(22,344		)	2,200,493
Expenses:
Loss and loss adjustment expense	638,475			—			638,475			1,251,758			—			1,251,758
Acquisition costs and other underwriting expenses (net of ceding commission - related party - three months $129,222 and six months $247,909)	238,710			7,462			246,172			470,386			8,567			478,953			2, 3, 5, 8
Other	98,130			3,006			101,136			196,587			5,509			202,096			1, 5, 7, 8
Total expenses	975,315			10,468			985,783			1,918,731			14,076			1,932,807
Income before other (expense) income, provision for income taxes, equity in earnings of unconsolidated subsidiaries and non-controlling interest	135,033			(22,045		)	112,988			304,106			(36,420		)	267,686
Other (expenses) income:
Interest expense (net of interest income - related party - three months $2,211 and six months $$4,399)	(9,646		)	(1,826		)	(11,472		)	(19,901		)	(3,652		)	(23,553		)	6
Loss on extinguishment of debt	—			—			—			(4,714		)	—			(4,714		)
Gain on investment in life settlement contracts net of profit commission	3,096			—			3,096			14,469			—			14,469
Foreign currency loss	(47,320		)	(14,532		)	(61,852		)	(7,366		)	(29,829		)	(37,195		)	4, 8
Total other (expenses) income	(53,870		)	(16,358		)	(70,228		)	(17,512		)	(33,481		)	(50,993		)
Income before provision for income taxes, equity in earnings of unconsolidated subsidiaries and non-controlling interest	81,163			(38,403		)	42,760			286,594			(69,901		)	216,693
Provision for income taxes	4,472			(13,441		)	(8,969		)	51,284			(23,760		)	27,524			1, 2, 3, 4, 5, 6, 8
Income before equity in earnings of unconsolidated subsidiaries	76,691			(24,962		)	51,729			235,310			(46,141		)	189,169
Equity in earnings of unconsolidated subsidiary – related parties	4,042			—			4,042			9,571			—			9,571
Net income	$	80,733		$	(24,962	)	$	55,771		$	244,881		$	(46,141	)	$	198,740
Net income attributable to non-controlling interests and redeemable non-controlling interests of subsidiaries	(1,346		)	—			(1,346		)	(5,429		)	—			(5,429		)
Net income attributable to AmTrust Financial Services, Inc.	$	79,387		$	(24,962	)	$	54,425		$	239,452		$	(46,141	)	$	193,311
Dividends on preferred stock	(8,639		)	—			(8,639		)	(14,008		)	—			(14,008		)
Net income attributable to AmTrust common stockholders	$	70,748		$	(24,962	)	$	45,786		$	225,444		$	(46,141	)	$	179,303
Earnings per common share:
Basic earnings per share	$	0.43		$	(0.15	)	$	0.28		$	1.38		$	(0.29	)	$	1.09
Diluted earnings per share	$	0.42		$	(0.15	)	$	0.27		$	1.35		$	(0.28	)	$	1.07
Dividends declared per common share	$	0.125		$	—		$	0.125		$	0.25		$	—		$	0.25



	Consolidated Statements of Comprehensive Income
	Three Months Ended June 30, 2015									Six Months Ended June 30, 2015
	As previously reported			Adjustments			As Restated			As previously reported			Adjustments			As Restated			Reference
	(in thousands, except per share)
Net income	$	80,733		$	(24,962	)	$	55,771		$	244,881		$	(46,141	)	$	198,740
Other comprehensive loss, net of tax:										0			0
Foreign currency translation adjustments	14,021			16,644			30,665			(51,332		)	24,470			(26,862		)	4
Change in fair value of interest rate swap	163			—			163			190			—			190
Unrealized loss on securities:
Gross unrealized holding loss	(91,679		)	(1,087		)	(92,766		)	(80,494		)	331			(80,163		)	8
Less: tax benefit	(32,088		)	(380		)	(32,468		)	(28,173		)	116			(28,057		)	8
Net unrealized holding loss	(59,591		)	(707		)	(60,298		)	(52,321		)	215			(52,106		)
Reclassification adjustment for investment loss included in net income, net of tax:
Other-than-temporary impairment loss	—			—			—			—			—			—
Other net realized loss on investments	(790		)	—			(790		)	(1,205		)	—			(1,205		)
Reclassification adjustment for investment loss included in net income	(790		)	—			(790		)	(1,205		)	—			(1,205		)
Other comprehensive loss, net of tax	$	(46,197	)	$	15,937		$	(30,260	)	$	(104,668	)	$	24,685		$	(79,983	)
Comprehensive income	34,536			(9,025		)	25,511			140,213			(21,456		)	118,757
Less: Comprehensive income attributable to non-controlling and redeemable non-controlling interest	1,346			—			1,346			5,429			—			5,429
Comprehensive income attributable to AmTrust Financial Services, Inc.	$	33,190		$	(9,025	)	$	24,165		$	134,784		$	(21,456	)	$	113,328



	Consolidated Statement of Stockholders' Equity
	As of June 30, 2015
	As previously reported			Adjustments			As Restated			Reference
	(in thousands)
Common stock	$	1,964		$	—		$	1,964
Preferred stock	482,500			—			482,500
Additional paid-in capital	1,117,249			—			1,117,249
Treasury stock	(222,240		)	—			(222,240		)
Accumulated other comprehensive loss	(48,545		)	29,139			(19,406		)	4, 8
Retained earnings	1,138,929			(175,401		)	963,528			1, 2, 4, 5, 8
	$	2,469,857		$	(146,262	)	$	2,323,595



	Consolidated Statement of Cash Flows
	Six Months Ended June 30, 2015
	As previously reported			Adjustments			As restated			Reference
	(in thousands)
Cash flows from operating activities:
Net income	$	244,881		$	(46,141	)	$	198,740
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	38,519			1,791			40,310			5
Net amortization of bond premium or discount	6,537			—			6,537
Equity earnings on investment in unconsolidated subsidiaries	(9,571		)	—			(9,571		)
Gain on investment in life settlement contracts, net	(14,469		)	—			(14,469		)
Net realized gain on investments	(15,493		)	—			(15,493		)
Non-cash write-down of investments	2,482			—			2,482
Discount on notes payable	2,769			—			2,769
Stock based compensation	10,436			—			10,436
Loss on extinguishment of debt	4,714			—			4,714
Bad debt expense	7,724			—			7,724
Foreign currency loss	7,366			29,829			37,195			4
Changes in assets – (increase) decrease:
Premiums receivable	(536,715		)	(68,097		)	(604,812		)	8, 9
Reinsurance recoverable	(355,989		)	95			(355,894		)	8
Deferred policy acquisition costs	(66,026		)	6,180			(59,846		)	3
Prepaid reinsurance premiums	(280,712		)	—			(280,712		)
Other assets	(124,061		)	11,751			(112,310		)	1, 8, 9
Changes in liabilities – increase (decrease):
Ceded reinsurance premium payable	155,340			—			155,340
Loss and loss adjustment expense reserves	664,495			—			664,495
Unearned premiums	394,994			(2,332		)	392,662			8
Funds held under reinsurance treaties	13,525			—			13,525
Accrued expenses and other current liabilities	15,883			95,732			111,615			1, 2, 6, 8, 9
Net cash provided by operating activities	166,629			28,808			195,437
Cash flows from investing activities:
Purchases of fixed maturities, available-for-sale	(1,168,051		)	—			(1,168,051		)
Purchases of equity securities, available-for-sale	(14,923		)	—			(14,923		)
Purchases of equity securities, trading	(109,555		)	—			(109,555		)
Purchases of other investments	(27,234		)	8,366			(18,868		)	8
Sales, maturities, paydowns of fixed maturities, available-for-sale	560,386			(3,275		)	557,111			9
Sales of equity securities, available-for-sale	12,184			—			12,184
Sales of equity securities, trading	108,325			—			108,325
Sales of other investments	13,337			—			13,337
Net sales of short term investments	42,501			23,997			66,498			9
Net sale of securities sold but not purchased	15,456			—			15,456
Receipt of life settlement contract proceeds	81,014			—			81,014
Acquisition of subsidiaries, net of cash obtained	(121,401		)	—			(121,401		)
Increase in restricted cash and cash equivalents, net	(62,715		)	—			(62,715		)
Purchase of property and equipment	(44,386		)	(2,174		)	(46,560		)	5
Net cash used in investing activities	(715,062		)	26,914			(688,148		)
Cash flows from financing activities:
Revolving credit facility borrowings	430,000			—			430,000
Revolving credit facility payments	(365,000		)	—			(365,000		)
Repurchase agreements, net	48,819			—			48,819
Secured loan agreement payments	(3,478		)	—			(3,478		)
2055 Subordinated notes proceeds	150,000			—			150,000




	Consolidated Statement of Cash Flows
	Six Months Ended June 30, 2015
	As previously reported			Adjustments			As restated			Reference
	(in thousands)
Convertible senior notes payments	(53,606		)	—			(53,606		)
Financing fees	(4,990		)	—			(4,990		)
Common stock issuance	171,672			—			171,672
Preferred stock issuance	176,529			—			176,529
Contingent consideration payments	—			(9,874		)	(9,874		)	6
Non-controlling interest capital contributions to consolidated subsidiaries, net	(41		)	—			(41		)
Stock option exercise and other	(1,982		)	—			(1,982		)
Dividends distributed on common stock	(39,901		)	—			(39,901		)
Dividends distributed on preferred stock	(14,008		)	—			(14,008		)
Net cash provided by financing activities	494,014			(9,874		)	484,140
Effect of exchange rate changes on cash	(2,359		)	—			(2,359		)
Net increase in cash and cash equivalents	(56,778		)	45,848			(10,930		)
Cash and cash equivalents, beginning year	902,750			(21,851		)	880,899			1, 2, 4 – 9
Cash and cash equivalents, end of period	$	845,972		$	23,997		$	869,969
Supplemental Cash Flow Information
Income tax payments	$	226,278		$	—		$	226,278
Interest payments on debt	18,245			—			18,245
Declared dividends on common stock	41,187			—			41,187


3.	Recent Accounting Pronouncements

With the exception of those discussed below, there have been no recent accounting pronouncements or changes in accounting pronouncements during the six months ended June 30, 2016, as compared to those described in our Annual Report on Form 10-K for the fiscal year ended December 31, 2015, that are of significance, or potential significance, to the Company.

In June 2016, the Financial Accounting Standards Board ("FASB") completed its Financial Instruments—Credit Losses project by issuing Accounting Standards Update ("ASU") No. 2016-13, Financial Instruments—Credit Losses (Topic 326). The new guidance requires organizations to measure all expected credit losses for financial instruments held at the reporting date based on historical experience, current conditions and reasonable and supportable forecasts. The new guidance affects loans, debt securities, trade receivables, net investments in leases, off-balance-sheet credit exposures, reinsurance receivables, and any other financial assets not excluded from the scope that have the contractual right to receive cash. The new guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. The Company is currently evaluating the impact this guidance will have on its results of operations, financial position or liquidity.

In March 2016, the FASB issued Accounting Standards Update ASU 2016-09, Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting, which simplified several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or a liability, and classification on the statement of cash flows. The updated guidance is effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period. The Company is currently evaluating the impact this guidance will have on its results of operations, financial position or liquidity.

In March 2016, the FASB issued ASU 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations, which improves the operability and understandability of the implementation guidance on principal versus agent considerations by clarifying that 1) an entity determines whether it is a principal or an agent for each specific good or service promised to the customer; 2) an entity determines the nature of each specific good or service; 3) when another party is involved in providing goods or services to a customer, an entity that is a principal obtains control of (a) a good or another asset from the other party that it then transfers to the customer, (b) a right to a service that will be performed by another party, which gives the entity the ability to direct that party to provide the service to the customer on the entity's behalf, or (c) a good or service from the other party that is combines with other goods or services to provide the specific good or service to the customer; and 4) the purpose of the indicators in paragraph 606-10-55-39 in Topic 606 is to support or assist in the assessment of control. The effective date and transition requirement for this ASU are the same as the effective date and transition requirements of ASU 2014-09, which were deferred to the quarter ending March 31, 2018 by ASU 2015-14. The Company is currently evaluating the impact this guidance will have on its results of operations, financial position or liquidity.

In March 2016, the FASB issued ASU 2016-06, Derivatives and Hedging (Topic 815): Contingent Put and Call Options in Debt Instruments, which clarifies the requirements for assessing whether contingent call (put) options that can accelerate the payment of principal on debt instruments are clearly and closely related to their debt hosts. An entity performing the assessment under the amended guidance in this ASU is required to assess the embedded call (put) options solely in accordance with the four-step decision sequence prescribed by Topic 815. The updated guidance is effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. This ASU should be applied on a modified retrospective basis. Early adoption is permitted, including adoption in an interim period. The Company is currently evaluating the impact this guidance will have on its results of operations, financial position or liquidity.

In March 2016, the FASB issued ASU 2016-05, Derivatives and Hedging (Topic 815): Effect of Derivative Contract Novations on Existing Hedge Accounting Relationships, which clarifies that a change in the counterparty to a derivative instrument that has been designated as a hedging instrument under Topic 815 does not, in and of itself, require designation of that hedging relationship provided that all other hedge accounting criteria continue to be met. The updated guidance is effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period. The adoption of this guidance is not expected to have a material effect on the Company's results of operations, financial position or liquidity.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which requires a lessee to recognize a right of use asset and a lease liability on the balance sheet for leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. The updated guidance is effective for fiscal years beginning after December 31, 2018, including interim periods within those fiscal years. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. The Company is currently evaluating the impact this guidance will have on its results of operations, financial position or liquidity.

In January 2016, the FASB issued ASU 2016-01, Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities, which address certain aspects of recognition, measurement, presentation, and disclosure of financial instruments. Specifically, the guidance (a) requires equity investments to be measured at fair value with changes in fair value recognized in earnings. However, an entity may choose to measure equity investments that do not have readily determinable fair value at cost minus impairment, if any, plus or minus changes resulted from observable price changes in orderly transactions for identical or similar investments of the same issuer, (b) simplifies the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment, (c) eliminates the requirement to disclose the methods and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost, (d) requires the use of the exit price notion when measuring the fair value of financial instruments for disclosure purposes, (e) requires an entity to present separately in other comprehensive income the portion of the total change in fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option, (f) requires separate presentation of financial assets and liabilities by measurement category and form on the balance sheet or the notes to the financial statements, and (g) clarifies that the need for a valuation allowance on a deferred tax asset related to an available for sale security should be evaluated with other deferred tax assets. The updated guidance is effective for reporting periods beginning after December 15, 2017. The Company is currently evaluating the impact this guidance will have on its results of operations, financial position or liquidity.

In September 2015, the FASB issued ASU 2015-16, Business Combinations (Topic 805): Simplifying the Accounting for Measurement-Period Adjustments, which requires that an acquirer in a business combination transaction recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined. The ASU requires that the acquirer record, in the same period's financial statements, the effect on earnings of changes in depreciation, amortization, or other income effects, if any, as a result of the change to the provisional amounts, calculated as if the accounting had been completed at the acquisition date. It also requires an entity to present separately on the face of the income statement or disclose in the notes to the financial statements the portion of the amount recorded in current-period earnings by line item that would have been recorded in previous reporting periods if the adjustment to the provisional amounts had been recognized as of the acquisition date. The updated guidance was effective for reporting periods beginning after December 15, 2015, and should be applied prospectively to adjustments to provisional amounts that occur after the effective date of this ASU with earlier application permitted for financial statements that have not been issued. The Company elected to early adopt this ASU on September 30, 2015. The adoption of this guidance did not have a material effect on the Company's results of operations, financial position or liquidity.

In May 2015, the FASB issued ASU 2015-09, Financial Services - Insurance (Topic 944): Disclosure about Short-Duration Contracts, which provides certain new and additional disclosure requirements about the liability for unpaid claims and claim adjustment expenses associated with short-duration contracts as defined in Topic 944. Pursuant to the updated guidance, all insurance entities that issue short-duration contracts are required to disclose, among other things, incurred and paid claims development information, a reconciliation of such information to the aggregate carrying amount of the liability for unpaid claims and claim adjustment expenses, and significant changes in methodologies and assumptions used to calculate the liability for unpaid claims and claim adjustment expenses, including the reasons for the change and the effects on the financial statements. The updated guidance was effective for reporting periods beginning after December 15, 2015, and should be applied retrospectively by providing comparative disclosures for each period presented, except for those requirements that apply only to the current period. The adoption of this guidance did not have a material effect on the Company's results of operations, financial position or liquidity.

In May 2015, the FASB issued ASU 2015-07, Fair Value Measurement (Topic 820): Disclosure for Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent), which provides guidance that removes the requirement to categorize within the fair value hierarchy all investments for which fair value is measured using the net asset value per share practical expedient, and limits certain disclosure requirements only to investments for which the entity elects to measure the fair value using that practical expedient. The updated guidance is effective for reporting periods beginning after December 15, 2015, and should be applied retrospectively for all periods presented. The Company adopted this ASU on January 1, 2016. The adoption of this guidance did not have a material effect on the Company's results of operations, financial position or liquidity.

In April 2015, the FASB issued ASU 2015-05, Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40): Customer's Accounting for Fees Paid in a Cloud Computing Arrangement, which provides guidance to determine whether a cloud computing arrangement includes a software license. If a cloud computing arrangement includes a software license, then the customer should account for the software license element of the arrangement consistent with the acquisition of other software licenses. If a cloud computing arrangement does not include a software license, the customer should account for the arrangement as a service contract. The updated guidance is effective for reporting periods beginning after December 15, 2015, and can be adopted either prospectively to all arrangements entered into or materially modified after the effective date, or retrospectively. The Company

adopted this ASU on January 1, 2016. The adoption of this guidance did not have a material effect on the Company's results of operations, financial position or liquidity.

In April 2015, the FASB issued ASU 2015-03, Interest - Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs, which provides updated guidance to clarify the required presentation of debt issuance costs. The amended guidance requires that debt issuance costs be presented in the balance sheet as a direct reduction from the carrying amount of the recognized debt liability, consistent with the treatment of debt discounts. Amortization of debt issuance costs is to be reported as interest expense. The recognition and measurement guidance for debt issuance costs are not affected by the updated guidance. The Company adopted this ASU on January 1, 2016. The adoption of this guidance did not have a material effect on the Company's results of operations, financial position or liquidity.

In February 2015, the FASB issued ASU 2015-02, Consolidation (Topic 810): Amendments to the Consolidation Analysis, which provides amended guidance on a reporting entity's evaluation whether to consolidate certain legal entities. Specifically, the amendments will modify the evaluation of whether limited partnerships and similar legal entities are variable interest entities ("VIEs") or voting entities, eliminate the presumption that a general partner should consolidate a limited partnership, affect the consolidation analysis of reporting entities with interests in VIEs, particularly those that have fee arrangements and related party relationships, and provide a scope exception from consolidation guidance for reporting entities with interests in legal entities that are required to comply with or operate in accordance with requirements that are similar to those in Rule 2a-7 of the Investment Company Act of 1940 for registered money market funds. The Company adopted this ASU on January 1, 2016. The adoption of this guidance did not have a material effect on the Company's results of operations, financial position or liquidity.


4.	Investments

(a) Available-for-Sale Securities

The cost or amortized cost, gross unrealized gains and losses, and estimated fair value of fixed maturities and equity securities classified as available-for-sale as of June 30, 2016 and December 31, 2015, are presented below:



(Amounts in Thousands) As of June 30, 2016	Original or amortized cost		Gross unrealized gains		Gross unrealized losses			Fair Value
Preferred stock	$	3,629	$	—	$	(33	)	$	3,596
Common stock	150,907		14,895		(7,518		)	158,284
U.S. treasury securities	272,547		4,778		(1		)	277,324
U.S. government agencies	9,541		207		—			9,748
Municipal bonds	838,930		40,406		(1,151		)	878,185
Foreign government	122,470		8,314		(503		)	130,281
Corporate bonds:
Finance	1,389,171		60,930		(18,270		)	1,431,831
Industrial	2,051,346		113,173		(25,306		)	2,139,213
Utilities	183,995		7,155		(4,749		)	186,401
Commercial mortgage backed securities	186,920		5,898		(1,731		)	191,087
Residential mortgage backed securities:
Agency backed	1,117,536		37,748		(254		)	1,155,030
Non-agency backed	51,932		1,495		(276		)	53,151
Collateralized loan / debt obligations	367,228		2,968		(9,122		)	361,074
Asset-backed securities	25,780		59		(196		)	25,643
	$	6,771,932	$	298,026	$	(69,110	)	$	7,000,848



(Amounts in Thousands) As of December 31, 2015	Original or amortized cost		Gross unrealized gains		Gross unrealized losses			Fair value
Preferred stock	$	4,869	$	150	$	(30	)	$	4,989
Common stock	104,477		3,816		(8,785		)	99,508
U.S. treasury securities	69,547		1,470		(258		)	70,759
U.S. government agencies	45,586		235		(263		)	45,558
Municipal bonds	530,004		11,952		(1,530		)	540,426
Foreign government	109,645		4,912		(812		)	113,745
Corporate bonds:
Finance	1,358,765		38,058		(34,393		)	1,362,430
Industrial	1,706,772		20,542		(80,251		)	1,647,063
Utilities	157,067		1,548		(9,115		)	149,500
Commercial mortgage backed securities	151,164		1,334		(1,180		)	151,318
Residential mortgage backed securities:
Agency backed	964,059		14,912		(4,133		)	974,838
Non-agency backed	124,046		322		(4,139		)	120,229
Collateralized loan / debt obligation	232,245		10		(6,161		)	226,094
Asset backed securities	33,142		4		(1,309		)	31,837
	$	5,591,388	$	99,265	$	(152,359	)	$	5,538,294

Investments in foreign government securities include securities issued by national entities as well as instruments that are unconditionally guaranteed by such entities. As of June 30, 2016, the Company's foreign government securities were issued or guaranteed primarily by governments in Europe, Canada and Mexico.

Proceeds from the sale of investments in available-for-sale securities during the three months ended June 30, 2016 and 2015 were approximately $585,894 and $267,049, respectively. Proceeds from the sale of investments in available-for-sale securities during the six months ended June 30, 2016 and 2015 were approximately $711,001 and $569,295, respectively.

A summary of the Company’s available-for-sale fixed maturities as of June 30, 2016 and December 31, 2015, by contractual maturity, is shown below. Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.



	June 30, 2016				December 31, 2015
(Amounts in Thousands)	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Due in one year or less	$	216,852	$	217,214	$	125,563	$	124,763
Due after one through five years	1,508,569		1,543,107		913,365		909,634
Due after five through ten years	2,753,851		2,883,670		2,586,061		2,537,734
Due after ten years	388,727		408,992		352,397		357,288
Mortgage and asset backed securities	1,749,397		1,785,986		1,504,656		1,504,378
Total fixed maturities	$	6,617,396	$	6,838,969	$	5,482,042	$	5,433,797

Other-than-temporary impairment ("OTTI") charges of our fixed maturities and equity securities classified as available-for-sale are presented below:



	Three Months Ended June 30,				Six Months Ended June 30,
(Amounts in Thousands)	2016		2015		2016		2015
Equity securities recognized in earnings	$	16,956	$	176	$	16,956	$	1,192
Fixed-maturity securities recognized in earnings	—		1,290		—		1,290
	$	16,956	$	1,466	$	16,956	$	2,482

The tables below summarize the gross unrealized losses of our fixed maturity and equity securities by length of time the security has continuously been in an unrealized loss position as of June 30, 2016 and December 31, 2015:



	Less Than 12 Months						12 Months or More						Total
(Amounts in Thousands) As of June 30, 2016	Fair Market Value		Unrealized Losses			No. of Positions Held	Fair Market Value		Unrealized Losses			No. of Positions Held	Fair Market Value		Unrealized Losses
Common and preferred stock	$	19,282	$	(6,740	)	68	$	1,490	$	(812	)	28	$	20,772	$	(7,552	)
U.S. treasury securities	960		(1		)	5	651		—			1	1,611		(1		)
Municipal bonds	48,738		(456		)	36	15,391		(694		)	29	64,129		(1,150		)
Foreign government	13,405		(503		)	10	—		—			—	13,405		(503		)
Corporate bonds:
Finance	161,268		(17,068		)	109	42,783		(1,201		)	32	204,051		(18,269		)
Industrial	191,697		(20,201		)	162	119,185		(5,105		)	61	310,882		(25,306		)
Utilities	10,658		(1,702		)	17	20,747		(3,047		)	10	31,405		(4,749		)
Commercial mortgage backed securities	39,385		(547		)	16	47,712		(1,184		)	60	87,097		(1,731		)
Residential mortgage backed securities:
Agency backed	4,028		(13		)	28	26,573		(241		)	34	30,601		(254		)
Non-agency backed	18,001		(207		)	16	3,521		(70		)	5	21,522		(277		)
Collateralized loan / debt obligations	157,122		(6,105		)	61	58,079		(3,018		)	24	215,201		(9,123		)
Asset-backed securities	16,188		(187		)	23	1,041		(8		)	8	17,229		(195		)
Total temporarily impaired securities	$	680,732	$	(53,730	)	551	$	337,173	$	(15,380	)	292	$	1,017,905	$	(69,110	)



	Less Than 12 Months						12 Months or More						Total
(Amounts in Thousands) As of December 31, 2015	Fair Market Value		Unrealized Losses			No. of Positions Held	Fair Market Value		Unrealized Losses			No. of Positions Held	Fair Market Value		Unrealized Losses
Common and preferred stock	$	59,302	$	(8,711	)	67	$	402	$	(104	)	2	$	59,704	$	(8,815	)
U.S. treasury securities	31,658		(232		)	77	2,586		(26		)	8	34,244		(258		)
U.S. government agencies	22,412		(262		)	20	182		(1		)	2	22,594		(263		)
Municipal bonds	121,550		(867		)	111	17,163		(663		)	30	138,713		(1,530		)
Foreign government	18,598		(688		)	27	5,977		(124		)	1	24,575		(812		)
Corporate bonds:
Finance	604,898		(33,068		)	349	59,020		(1,325		)	22	663,918		(34,393		)
Industrial	858,632		(65,887		)	633	82,495		(14,364		)	55	941,127		(80,251		)
Utilities	79,358		(5,305		)	113	7,712		(3,810		)	5	87,070		(9,115		)
Commercial mortgage backed securities	35,405		(1,079		)	100	2,870		(101		)	6	38,275		(1,180		)
Residential mortgage backed securities:
Agency backed	334,224		(2,788		)	163	35,446		(1,345		)	29	369,670		(4,133		)
Non-agency backed	95,001		(4,077		)	39	4,023		(62		)	4	99,024		(4,139		)
Collateralized loan / debt obligations	201,086		(6,161		)	78	—		—			—	201,086		(6,161		)
Asset-backed securities	30,302		(1,309		)	70	—		—			—	30,302		(1,309		)
Total temporarily impaired securities	$	2,492,426	$	(130,434	)	1,847	$	217,876	$	(21,925	)	164	$	2,710,302	$	(152,359	)

There are 843 and 2,011 securities at June 30, 2016 and December 31, 2015, respectively, that account for the gross unrealized loss, none of which is deemed by the Company to be OTTI. At June 30, 2016, we have determined that the unrealized losses on fixed maturities were primarily due to market interest rate movements since their date of purchase. The Company considers an investment, primarily equity securities, to be impaired when it has been in a significant unrealized loss position (in excess of 35% of cost if the issuer has a market capitalization of under $1,000,000 and in excess of 25% of cost if the issuer has a market capitalization of $1,000,000 or more) for over 24 months. Additionally, other factors influencing the Company’s determination that unrealized losses were temporary included an evaluation of the investment’s discounted cash flows, the magnitude of the unrealized losses in relation to each security’s cost, near-term and long-term prospects of the issuer or the issuer's ability to have adequate resources to fulfill contractual obligations, the nature of the investment and management’s intent not to sell these securities, and it being not more likely than not that the Company will be required to sell these investments before anticipated recovery of fair value to the Company’s cost basis. As of June 30, 2016, for the $15,380 of unrealized losses related to securities in unrealized loss positions for a period of twelve or more consecutive months, $2,091 of those unrealized losses were related to securities in unrealized loss positions greater than or equal to 20% of amortized cost or cost.

(b) Trading Securities

The original or amortized cost, estimated market value and gross unrealized gain and loss of trading securities as of June 30, 2016 and December 31, 2015 are presented in the tables below:



(Amounts in Thousands) As of June 30, 2016	Cost or amortized cost		Gross unrealized gains		Gross unrealized losses			Market value
Common stock	$	26,232	$	1,215	$	(600	)	$	26,847



(Amounts in Thousands) As of December 31, 2015	Cost or amortized cost		Gross unrealized gains		Gross unrealized losses			Market value
Common stock	$	26,937	$	739	$	(405	)	$	27,271

Proceeds from the sale of investments in trading securities during the three months ended June 30, 2016 and 2015 were approximately $49,517 and $48,057, respectively. Proceeds from the sale of investments in trading securities during the six months ended June 30, 2016 and 2015 were approximately $102,267 and $108,325, respectively.

Net investment income for the three and six months ended June 30, 2016 and 2015 was derived from the following sources:



	Three Months Ended June 30,						Six Months Ended June 30,
(Amounts in Thousands)	2016			2015			2016			2015
Fixed maturities, available-for-sale	$	46,235		$	35,199		$	92,428		$	67,952
Equity securities, available-for-sale	4,098			661			6,462			1,070
Equity securities, trading	(125		)	32			(278		)	40
Cash and short term investments	686			923			1,772			2,588
	50,894			36,815			100,384			71,650
Investment expenses	(149		)	(532		)	(224		)	(794		)
	$	50,745		$	36,283		$	100,160		$	70,856

(d) Realized Gains and Losses

The tables below summarize the gross realized gains and (losses) for the three and six months ended June 30, 2016 and 2015:



(Amounts in Thousands) Three Months Ended June 30, 2016	Gross Gains		Gross Losses			Net Gains (Losses)
Fixed maturities, available-for-sale	$	35,008	$	(1,571	)	$	33,437
Equity securities, available-for-sale	608		(658		)	(50		)
Equity securities, trading	5,315		(5,575		)	(260		)
Other invested assets	4		(1,076		)	(1,072		)
Write-down of equity securities, available-for-sale	—		(16,956		)	(16,956		)
	$	40,935	$	(25,836	)	$	15,099

(Amounts in Thousands) Three Months Ended June 30, 2015	Gross Gains		Gross Losses			Net Gains (Losses)
Fixed maturities, available-for-sale	$	2,228	$	(3,653	)	$	(1,425	)
Equity securities, available-for-sale	102		(32		)	70
Equity securities, trading	3,414		(2,025		)	1,389
Other invested assets	—		(1,210		)	(1,210		)
Write-down of fixed maturities, available-for-sale	—		(176		)	(176		)
Write-down of equity securities, available-for-sale	—		(1,290		)	(1,290		)
	$	5,744	$	(8,386	)	$	(2,642	)

(Amounts in Thousands) Six Months Ended June 30, 2016	Gross Gains		Gross Losses			Net Gains (Losses)
Fixed maturities, available-for-sale	$	39,811	$	(1,617	)	$	38,194
Equity securities, available-for-sale	1,268		(799		)	469
Equity securities, trading	14,927		(12,431		)	2,496
Other invested assets	4		(1,133		)	(1,129		)
Write-down of equity securities, available-for-sale	—		(16,956		)	(16,956		)
	$	56,010	$	(32,936	)	$	23,074

(Amounts in Thousands) Six Months Ended June 30, 2015	Gross Gains		Gross Losses			Net Gains (Losses)
Fixed maturities, available-for-sale	$	22,922	$	(7,843	)	$	15,079
Equity securities, available-for-sale	2,266		(1,711		)	555
Equity securities, trading	6,737		(4,500		)	2,237
Other invested assets	—		(2,378		)	(2,378		)
Write-down of fixed securities, available-for-sale	—		(1,290		)	(1,290		)
Write-down of equity securities, trading	—		(1,192		)	(1,192		)
	$	31,925	$	(18,914	)	$	13,011

(e) Derivatives

The Company from time to time invests in a limited number of derivatives and other financial instruments as part of its investment portfolio to manage interest rate changes or other exposures to a particular financial market. The Company records

changes in valuation on its derivative positions not designated as a hedge, if any, as a component of net realized gains and losses. The Company records changes in valuation on its hedge positions as a component of other comprehensive income.

As of June 30, 2016 and December 31, 2015, the Company had two interest rate swaps designated as hedges that were recorded as a liability in the total amount of $636 and $1,077, respectively, and were included as a component of accrued expenses and other liabilities.

The following table presents the notional amounts by remaining maturity of the Company’s interest rate swaps as of June 30, 2016:



	Remaining Life of Notional Amount ⁽¹⁾
(Amounts in Thousands)	One Year		Two Through Five Years		Six Through Ten Years		After Ten Years		Total
Interest rate swaps	$	70,000	$	—	$	—	$	—	$	70,000


⁽¹⁾	Notional amount is not representative of either market risk or credit risk and is not recorded in the consolidated balance sheet.

(f) Restricted Cash and Investments

The Company, in order to conduct business in certain states, is required to maintain letters of credit or assets on deposit to support state mandated regulatory requirements and certain third party agreements. The Company also utilizes trust accounts to collateralize business with its reinsurance counterparties. These assets are primarily in the form of cash and certain high grade securities. The fair values of the Company's restricted assets as of June 30, 2016 and December 31, 2015 are as follows:



(Amounts in Thousands)	June 30, 2016		December 31, 2015
Restricted cash and cash equivalents	$	591,984	$	380,699
Restricted investments - fixed maturities at fair value	1,815,846		1,490,547
Total restricted cash, cash equivalents, and investments	$	2,407,830	$	1,871,246

(g) Other

Securities sold but not yet purchased are securities that the Company has sold, but does not own, in anticipation of a decline in the market value of the security. The Company's risk is that the value of the security will increase rather than decline. Consequently, the settlement amount of the liability for securities sold, not yet purchased may exceed the amount recorded in the consolidated balance sheet as the Company is obligated to purchase the securities sold, not yet purchased in the market at prevailing prices to settle the obligations. To establish a position in security sold, not yet purchased, the Company needs to borrow the security for delivery to the buyer. When the transaction is open, the liability for the obligation to replace the borrowed security is marked to market and an unrealized gain or loss is recorded. At the time the transaction is closed, the Company realizes a gain or loss equal to the differences between the price at which the security was sold and the cost of replacing the borrowed security. While the transaction is open, the Company will also incur an expense for any dividends or interest which will be paid to the lender of the securities. The Company’s liability for securities to be delivered is measured at their fair value and was $21,170 and $38,618 as of June 30, 2016 and December 31, 2015, respectively. The securities sold but not yet purchased consisted primarily of equity and fixed maturity securities, and the liability for securities sold but not yet purchased is included in accrued expenses and other liabilities in the consolidated balance sheet.

From time to time, the Company enters into repurchase agreements that are subject to a master netting arrangement, which are accounted for as collateralized borrowing transactions and are recorded at contract amounts. The Company receives cash or securities that it invests or holds in short term or fixed income securities. As of June 30, 2016, the Company had 28 repurchase agreements with an outstanding principal amount of $366,860, which approximates fair value, at interest rates between 0.70% and 1.00%. The Company had 24 repurchase agreements with one counter-party totaling $232,540 and 4 repurchase agreements with another counter-party totaling $134,319. Interest expense associated with these repurchase agreements for the three and six months ended June 30, 2016 was $52. The Company had approximately $326,586 of collateral pledged in support of these agreements. The Company records interest expense related to repurchase agreements as a component of investment income.


5.	Fair Value of Financial Instruments

The following tables present the level within the fair value hierarchy at which the Company’s financial assets and financial liabilities are measured on a recurring basis as of June 30, 2016 and December 31, 2015:



(Amounts in Thousands) As of June 30, 2016	Total		Level 1		Level 2		Level 3
Assets:
U.S. treasury securities	$	277,324	$	277,324	$	—	$	—
U.S. government agencies	9,748		—		9,748		—
Municipal bonds	878,185		—		878,185		—
Foreign government	130,281		—		130,281		—
Corporate bonds and other bonds:
Finance	1,431,831		—		1,431,831		—
Industrial	2,139,212		—		2,139,212		—
Utilities	186,401		—		186,401		—
Commercial mortgage backed securities	191,087		—		191,087		—
Residential mortgage backed securities:
Agency backed	1,155,030		—		1,155,030		—
Non-agency backed	53,151		—		53,151		—
Collateralized loan / debt obligations	361,074		—		361,074		—
Asset-backed securities	25,644		—		25,644		—
Equity securities, available-for-sale	161,880		129,994		7,121		24,764
Equity securities, trading	26,847		26,847		—		—
Short term investments (As restated)	9,868		9,868		—		—
Life settlement contracts	304,434		—		—		304,434
	$	7,341,997	$	444,033	$	6,568,765	$	329,198
Liabilities:
Equity securities sold but not yet purchased	$	21,170	$	21,170	$	—	$	—
Securities sold under agreements to repurchase, at contract value	366,860		—		366,860		—
Life settlement contract profit commission	9,054		—		—		9,054
Contingent consideration (As restated)	75,772		—		—		75,772
Derivatives	636		—		636		—
	$	473,492	$	21,170	$	367,496	$	84,826



(Amounts in Thousands) As of December 31, 2015	Total		Level 1		Level 2		Level 3
Assets:
U.S. treasury securities	$	70,759	$	70,759	$	—	$	—
U.S. government agencies	45,558		—		45,558		—
Municipal bonds	540,426		—		540,426		—
Foreign government	113,745		—		113,745		—
Corporate bonds and other bonds:
Finance	1,362,430		—		1,362,430		—
Industrial	1,647,063		—		1,647,063		—
Utilities	149,500		—		149,500		—
Commercial mortgage backed securities	151,318		—		151,318		—
Residential mortgage backed securities:
Agency backed	974,838		—		974,838		—
Non-agency backed	120,229		—		120,229		—
Collateralized loan / debt obligations	226,094		—		226,094		—
Asset-backed securities	31,837		—		31,837		—
Equity securities, available-for-sale	104,497		38,563		28,723		37,211
Equity securities, trading	27,271		27,271		—		—
Short term investments (as restated)	17,171		17,171		—		—
Life settlement contracts	264,001		—		—		264,001
	$	5,846,737	$	153,764	$	5,391,761	$	301,212
Liabilities:
Equity securities sold but not yet purchased	$	18,163	$	18,163	$	—	$	—
Fixed maturity securities sold but not yet purchased	20,455		—		20,455		—
Life settlement contract profit commission	15,406		—		—		15,406
Contingent consideration (as restated)	84,760		—		—		84,760
Derivatives	1,077		—		1,077		—
	$	139,861	$	18,163	$	21,532	$	100,166

There were no transfers between Level 1 and Level 2 during the six months ended June 30, 2016 and 2015, respectively.

The Company classifies its financial assets and liabilities in the fair value hierarchy based on the lowest level input that is significant to the fair value measurement. This classification requires judgment in assessing the market and pricing methodologies for a particular security. The fair value hierarchy includes the following three levels:


•	Level 1 – Valuations are based on unadjusted quoted market prices in active markets for identical financial assets or liabilities.

Examples of instruments utilizing Level 1 inputs include: exchange-traded securities and U.S. Treasury bonds.

•

Level 2 – Valuations of financial assets and liabilities are based on quoted prices for similar assets or liabilities in active markets, quoted prices for identical assets or liabilities in inactive markets obtained from third party pricing services or valuations based on models where the significant inputs are observable (e.g., interest rates, yield curves, prepayment speeds, default rates, loss severities, etc.) or can be corroborated by observable market data. The fair value of securities in this category are determined by management after reviewing market prices obtained from independent pricing services and brokers.

Examples of instruments utilizing Level 2 inputs include: U.S. government-sponsored agency securities; non-U.S. government obligations; corporate and municipal bonds; mortgage-backed bonds; asset-backed securities; listed derivatives that are not actively traded; and equity securities that are not publicly traded.

•

Level 3 – Valuations are based on unobservable inputs for assets and liabilities where there is little or no market activity. Management’s assumptions are used in internal valuation pricing models to determine the fair value of financial assets or liabilities, which may include projected cash flows, collateral performance or liquidity circumstances in the security or similar securities that may have occurred since the prior pricing period.

Examples of instruments utilizing Level 3 inputs include: hedge and credit funds with partial transparency.

The following tables provides a summary of changes in fair value of the Company’s Level 3 financial assets and liabilities for the three and six months ended June 30, 2016 and 2015:



(Amounts in Thousands)	Balance as of March 31, 2016			Net income			Other comprehensive income			Purchases and issuances			Sales and settlements			Net transfers into (out of) Level 3		Balance as of June 30, 2016
Equity securities, available-for-sale	25,556			—			(776		)	(16		)	—			—		24,764
Life settlement contracts	294,573			28,532			—			11,330			(30,001		)	—		304,434
Life settlement contract profit commission	(7,168		)	(1,886		)	—			—			—			—		(9,054		)
Contingent consideration (as restated)	(73,867		)	(3,587		)	—			(11,461		)	13,143			—		(75,772		)
Total	$	239,094		$	23,059		$	(776	)	$	(147	)	$	(16,858	)	$	—	$	244,372

(Amounts in Thousands)	Balance as of January 1, 2016			Net income			Other comprehensive income			Purchases and issuances			Sales and settlements			Net transfers into (out of) Level 3		Balance as of June 30, 2016
Equity securities, available-for-sale	37,211			—			(12,449		)	2			—			—		24,764
Life settlement contracts	264,001			59,161			—			11,330			(30,058		)	—		304,434
Life settlement contract profit commission	(15,406		)	(9,054		)	—			—			15,406			—		(9,054		)
Contingent consideration (as restated)	(84,760		)	(5,998		)	—			(8,460		)	23,446			—		(75,772		)
Total	$	201,046		$	44,109		$	(12,449	)	$	2,872		$	8,794		$	—	$	244,372



(Amounts in Thousands)	Balance as of March 31, 2015			Net income			Other comprehensive income		Purchases and issuances			Sales and settlements			Net transfers into (out of) Level 3		Balance as of June 30, 2015
Equity securities, available-for-sale	37,765			—			2,467		—			—			—		40,232
Life settlement contracts	259,785			17,640			—		—			(10,032		)	—		267,393
Life settlement contract profit commission	(14,575		)	(2,419		)	—		—			—			—		(16,994		)
Contingent consideration (as restated)	(80,688		)	(3,652		)	—		28			5,696			—		(78,616		)
Total	$	202,287		$	11,569		$	2,467	$	28		$	(4,336	)	$	—	$	212,015

(Amounts in Thousands)	Balance as of January 1, 2015			Net income			Other comprehensive income		Purchases and issuances			Sales and settlements			Net transfers into (out of) Level 3		Balance as of June 30, 2015
Equity securities, available-for-sale	34,886			—			5,392		—			(46		)			40,232
Life settlement contracts	264,517			38,890			—		—			(36,014		)	—		267,393
Life settlement contract profit commission	(16,534		)	(460		)	—		—			—			—		(16,994		)
Contingent consideration (as restated)	(41,704		)	(1,826		)	—		(44,960		)	9,874			—		(78,616		)
Total	$	241,165		$	36,604		$	5,392	$	(44,960	)	$	(26,186	)	$	—	$	212,015

The Company changed its classification from Level 2 to Level 3 in the fair value hierarchy for certain of its foreign investments of approximately $8,807 during the six months ended June 30, 2016 based on a better understanding of the inputs and assumptions related to the security. The Company's policy for transfers between fair value levels, transfer into the levels, and transfer out of levels is to recognize such transfers as of the actual date of the event or change in circumstances that cause the transfer. The Company had no transfers among the levels of fair value hierarchy during the six months ended June 30, 2015.

A reconciliation of net income for life settlement contracts in the above table to gain on investment in life settlement contracts net of profit commission included in the Consolidated Statements of Income for the three and six months ended June 30, 2016 and 2015 is as follows:



	Three Months Ended June 30,						Six Months Ended June 30,
(Amounts in Thousands)	2016			2015			2016			2015
Net income	$	28,532		$	17,640		$	59,161		$	38,890
Premiums paid	(13,354		)	(11,158		)	(25,456		)	(22,288		)
Profit commission	(1,886		)	(2,419		)	(9,054		)	(460		)
Other expenses	(616		)	(967		)	(1,245		)	(1,673		)
Gain on investment in life settlement contracts	$	12,676		$	3,096		$	23,406		$	14,469

The Company uses the following methods and assumptions in estimating its fair value disclosures for financial instruments:

•

Equity and Fixed Income Investments: Fair value disclosures for these investments are disclosed above in this note. As of June 30, 2016, the Company's Level 3 equity securities consisted primarily of privately placed warrants of companies that have publicly traded common stock. The fair value of these equity securities as of June 30, 2016 was derived from the quoted price of the underlying common stock adjusted for other inputs that are not market observable.


•	Cash and Cash Equivalents, Restricted Cash and Cash Equivalents, and Short Term Investments: The carrying value of cash and cash equivalents, restricted cash and cash equivalents, and short term investments approximate their respective fair value and are classified as Level 1 in the fair value hierarchy.


•	Premiums Receivable, Accrued Interest, Reinsurance Recoverables: The carrying values reported in the accompanying balance sheets for these financial instruments approximate their fair values due to the short term nature of the asset and are classified as Level 1 in the fair value hierarchy.

•

Equity Investment in Unconsolidated Subsidiaries - Related Party: The Company has an ownership percentage of approximately 12% in National General Holdings Corp. ("NGHC"), a publicly held insurance holding company (Nasdaq: NGHC). The Company accounts for this investment under the equity method of accounting as it has the ability to exert significant influence on NGHC. The fair value and carrying value of the investment was approximately $263,368 and $149,573, respectively, as of June 30, 2016.


•	Subordinated Debentures and Debt: The fair value of the Company's material debt arrangements as of June 30, 2016 was as follows:



	Carrying Value		Fair Value
7.25% Subordinated Notes due 2055	$	145,140	$	153,420
7.50% Subordinated Notes due 2055	130,628		139,914
2.75% Convertible senior notes due 2044	163,269		178,833
6.125% Notes due 2023	248,048		259,224
Junior subordinated debentures due 2035-2037	121,984		80,900
Trust preferred securities due 2033-2037	92,786		92,786
Revolving credit facility	130,000		130,000
Other	197,744		197,744

The 7.25% subordinated notes due 2055, the 7.50% subordinated notes due 2055, the 2.75% convertible senior notes due 2044, and the 6.125% notes due 2023 are publicly traded instruments and are classified as Level 1 in the fair value hierarchy. The fair value of the junior subordinated debentures due 2035-2037 and trust preferred securities due 2033-2037 were determined using the Black-Derman-Toy interest rate lattice model and are classified as Level 3 in the fair value hierarchy. In determining the fair value of its remaining debt, the Company uses estimates based on rates currently available to the Company for debt with similar terms and remaining maturities. Accordingly, the fair value of the Republic promissory note and other debt is classified as Level 2 within the valuation hierarchy. The Company considers its other debt's carrying value to approximate fair value as their interest rates approximate current borrowing rates.

•

Derivatives: The Company classifies interest rate swaps as Level 2 in the fair value hierarchy. The Company uses these interest rate swaps to hedge floating interest rates on its debt, thereby changing the variable rate exposure to a fixed rate exposure for interest on these obligations. The estimated fair value of the interest rate swaps, which is obtained from a third party pricing service, is measured using discounted cash flow analysis that incorporates significant observable inputs, including the LIBOR forward curve and a measurement of volatility.


•	Contingent consideration: The fair value of contingent consideration is based on a discounted cash flow methodology and is classified as Level 3 in the fair value hierarchy. The range of discount rates used for contingent consideration was primarily between 8% and 14%.

•

Life settlement contracts and life settlement contract profit commission: Life settlement contracts are described in Note 6. "Investment in Life Settlements" elsewhere in this report. The fair value of life settlement contracts as well as life settlement profit commission liability is based on information available to the Company at the end of the reporting period. These financial instruments are classified as Level 3 in the fair value hierarchy. The Company considers the following factors in its fair value estimates: cost at date of purchase, recent purchases and sales of similar investments (if available and applicable), financial standing of the issuer, changes in economic conditions affecting the issuer, maintenance cost, premiums, benefits, standard actuarially developed mortality tables and life expectancy reports prepared by nationally recognized and independent third party medical underwriters. The Company estimates the fair value of policies in the portfolio based on the expected cash flow to be generated by the policies (death benefit less premium payments), discounted to reflect the cost of funding, policy specific adjustments and reserves. In order to confirm the integrity of their calculation of fair value, the Company, quarterly, retains an independent third-party actuary to verify that the actuarial modeling used by the Company to determine fair value was performed correctly and that the valuation, as determined through the Company's actuarial modeling, is consistent with other methodologies. The Company considers this information in its assessment of the reasonableness of the life expectancy and discount rate inputs used in the valuation of these investments.

The Company adjusts the standard mortality for each insured for the insured's life expectancy based on reviews of the insured's medical records and the independent life expectancy reports based thereon. The Company establishes policy specific reserves for the following uncertainties: improvements in mortality, the possibility that the high net worth individuals represented in its portfolio may have access to better health care, the volatility inherent in determining the life expectancy of insureds with significant reported health impairments, and the future expenses related to the administration of the portfolio, which incorporates current life expectancy assumptions, premium payments, the credit exposure to the insurance company that issued the life settlement contracts and the rate of return that a buyer would require on the contracts as no comparable market pricing is available. The application of the investment discount rate to the expected cash flow generated by the portfolio, net of the policy specific reserves, yields the fair value of the portfolio. The effective discount rate reflects the relationship between the fair value and the expected cash flow gross of these reserves.

The following summarizes data utilized in estimating the fair value of the portfolio of life insurance policies as of June 30, 2016 and December 31, 2015 and only includes data for policies to which the Company assigned value at those dates:



	June 30, 2016			December 31, 2015
Average age of insured	82.5 years			82.0 years
Average life expectancy, months ⁽¹⁾	108			114
Average face amount per policy (Amounts in thousands)	$	6,365		$	6,564
Effective discount rate ⁽²⁾	12.8		%	13.7		%


⁽¹⁾	Standard life expectancy as adjusted for specific circumstances.

⁽²⁾

Effective discount rate ("EDR") is the Company's estimated internal rate of return on its life settlement contract portfolio and is determined from the gross expected cash flows and valuation of the portfolio. The EDR is inclusive of the reserves and the gross expected cash flows of the portfolio. The Company anticipates that the EDR's range is between 12.5% and 17.5% and reflects the uncertainty that exists surrounding the information available as of the reporting date. As the accuracy and reliability of information improves (declines), the EDR will decrease (increase).

The Company's assumptions are, by their nature, inherently uncertain and the effect of changes in estimates may be significant. The fair value measurements used in estimating the present value calculation are derived from valuation techniques generally used in the industry that include inputs for the asset that are not based on observable market data. The extent to which the fair value could reasonably vary in the near term has been quantified by evaluating the effect of changes in significant underlying assumptions used to estimate the fair value amount. If the life expectancies were increased or decreased by 4 months and the discount factors were increased or decreased by 1% while all other variables were held constant, the carrying value of the investment in life insurance policies would increase or (decrease) by the unaudited amounts summarized below as of June 30, 2016 and December 31, 2015:



	Change in life expectancy
(Amounts in Thousands)	Plus 4 Months			Minus 4 Months
Investment in life policies:
June 30, 2016	$	(38,254	)	$	45,092
December 31, 2015	$	(37,697	)	$	40,997



	Change in discount rate ⁽¹⁾
(Amounts in Thousands)	Plus 1%			Minus 1%
Investment in life policies:
June 30, 2016	$	(26,601	)	$	29,514
December 31, 2015	$	(26,558	)	$	29,644


⁽¹⁾	Discount rate is a present value calculation that considers legal risk, credit risk and liquidity risk and is a component of EDR.


6.	Investment in Life Settlements

The Company has a 50% ownership interest in each of four entities (collectively, the "LSC Entities") formed for the purpose of acquiring life settlement contracts, with a subsidiary of NGHC owning the remaining 50%. The LSC Entities are: Tiger Capital LLC (“Tiger”); AMT Capital Alpha, LLC (“AMT Alpha”); AMT Capital Holdings, S.A. (“AMTCH”); and AMT Capital Holdings II, S.A. (“AMTCH II”).

A life settlement contract is a contract between the owner of a life insurance policy and a third-party who obtains the ownership and beneficiary rights of the underlying life insurance policy. During the six months ended June 30, 2016, the Company terminated an agreement with a third party administrator of the Tiger and AMTCH II life settlement contract portfolios, under which the third party received an administrative fee. The third party administrator was also eligible to receive a percentage of profits after certain time and performance thresholds had been met. This profit commission was calculated based on the discounted anticipated cash flows and the provisions of the underlying contract, and was settled with the third party administrator in 2016. The Company accrues the related profit on the life settlements at fair value, in relation to the life settlements purchased prior to December 31, 2010. This profit commission is calculated based on the discounted anticipated cash flows and the provisions of the underlying contract. The Company provides certain actuarial and finance functions related to the LSC Entities. In conjunction with the Company’s approximate 12% ownership percentage of NGHC, the Company ultimately receives 56% of the profits and losses of the LSC Entities. As such, in accordance with ASC 810-10, Consolidation, the Company has been deemed the primary beneficiary and, therefore, consolidate the LSC Entities.

The Company accounts for investments in life settlements in accordance with ASC 325-30, Investments in Insurance Contracts, which states that an investor shall elect to account for its investments in life settlement contracts by using either the investment method or the fair value method. The election is made on an instrument-by-instrument basis and is irrevocable. The Company has elected to account for these policies using the fair value method. The Company determines fair value as discussed in Note 5. "Fair Value of Financial Instruments."

Capital contributions were made to the LSC Entities during the three and six months ended June 30, 2016 totaling $11,000. The Company recorded a gain of $12,676 and $3,096 on investment in life settlement contracts, net of profit commission, for the three months ended June 30, 2016 and 2015, respectively, and $23,406 and $14,469 for the six months ended June 30, 2016 and 2015.

The following tables describe the Company’s investment in life settlements as of June 30, 2016 and December 31, 2015:



(Amounts in Thousands, except number of Life Settlement Contracts) Expected Maturity Term in Years	Number of Life Settlement Contracts	Fair Value ⁽¹⁾		Face Value
As of June 30, 2016
0-1	—	$	—	$	—
1-2	1	1,868		2,500
2-3	8	42,956		71,000
3-4	9	35,331		64,422
4-5	9	19,542		62,000
Thereafter	228	204,737		1,412,314
Total	255	$	304,434	$	1,612,236



(Amounts in Thousands, except number of Life Settlement Contracts) Expected Maturity Term in Years	Number of Life Settlement Contracts	Fair Value ⁽¹⁾		Face Value
As of December 31, 2015
0-1	—	$	—	$	—
1-2	—	—		—
2-3	8	31,261		70,500
3-4	8	20,117		46,500
4-5	4	6,760		20,000
Thereafter	235	205,863		1,481,313
Total	255	$	264,001	$	1,618,313

(1)

The Company determined the fair value as of June 30, 2016 based on 215 policies out of 255 policies, as the Company assigned no value to 40 of the policies as of June 30, 2016. The Company determined the fair value as of December 31, 2015 based on 213 policies out of 255 policies, as the Company assigned no value to 42 of the policies as of December 31, 2015. The Company estimated the fair value of a life insurance policy using a cash flow model with an appropriate discount rate. In some cases, the cash flow model calculates the value of an individual policy to be negative, and therefore the fair value of the policy is zero as no liability exists when a negative value is calculated. The Company is not contractually bound to pay the premium on its life settlement contracts and, therefore, would not pay a willing buyer to assume title of these contracts. Additionally, certain of the Company's acquired policies were structured to have low premium payments at inception of the policy term, which later escalate greatly towards the tail end of the policy term. At the current time, the Company expenses all premium paid, even on policies with zero fair value. Once the premium payments escalate, the Company may allow the policies to lapse. In the event that death benefits are realized in the time frame between initial acquisition and premium escalation, it is a benefit to cash flow.

For these contracts where the Company determined the fair value to be negative and therefore assigned a fair value of zero, the table below details the amount of premiums paid and the death benefits received during the twelve months preceding June 30, 2016 and December 31, 2015:



(Amounts in Thousands, except number of Life Settlement Contracts)	June 30, 2016		December 31, 2015
Number of policies with a negative value from discounted cash flow model as of period end	40		42
Premiums paid for the preceding twelve month period for period ended	$	7,163	$	4,971
Death benefit received	$	—	$	—

Premiums to be paid by the LSC Entities for each of the five succeeding fiscal years to keep the life insurance policies in force as of June 30, 2016, are as follows:



(Amounts in Thousands)	Premiums Due on Life Settlement Contracts
2016	$	64,353
2017	42,020
2018	43,105
2019	41,350
2020	37,788
Thereafter	443,511
Total	$	672,127

7. Deferred Policy Acquisition Costs

The following table reflects the amounts of policy acquisition costs deferred and amortized for the three and six months ended June 30, 2016 and 2015:



	Three Months Ended June 30,						Six Months Ended June 30,
	2016			2015			2016			2015
(Amounts in Thousands)	(As restated)			(As restated)			(As restated)			(As restated)
Balance, beginning of period	$	736,307		$	649,233		$	693,639		$	629,261
Acquisition costs deferred	293,133			209,110			509,625			386,158
Amortization	(187,142		)	(168,494		)	(360,966		)	(325,570		)
Balance, end of period	$	842,298		$	689,849		$	842,298		$	689,849

8. Debt

The Company’s outstanding debt consisted of the following at June 30, 2016 and December 31, 2015:



(Amounts in Thousands)	June 30, 2016		December 31, 2015
Revolving credit facility	$	130,000	$	130,000
5.5% Convertible senior notes due 2021 (the "2021 Notes")	5,166		5,103
2.75% Convertible senior notes due 2044 (the "2044 Notes")	163,269		160,258
6.125% Senior notes due 2023 (the "2023 Notes")	248,048		247,911
Junior subordinated debentures (the "2035-2037 Notes")	121,984		121,940
Trust preferred securities (the "2033-2037 TPS Notes")	92,786		—
7.25% Subordinated Notes due 2055 (the "7.25% 2055 Notes")	145,140		145,078
7.50% Subordinated Notes due 2055 (the "7.50% 2055 Notes")	130,628		130,572
Secured loan agreements	74,038		38,455
Promissory notes	118,540		13,750
	$	1,229,599	$	993,067

Aggregate scheduled maturities of the Company’s outstanding debt, excluding unamortized deferred origination costs, at June 30, 2016 are:



(Amounts in Thousands)	June 30, 2017
2016	$	3,617
2017	33,690
2018	35,921
2019	160,798
2020	26,576
Thereafter	985,539			⁽¹⁾
Total scheduled payments	1,246,141
Unamortized deferred origination costs	(16,542		)
	1,229,599


(1)	Amount includes debt outstanding under the 2021 Notes and 2044 Notes, which is net of unamortized original issue discount of $795 and $48,352, respectively.

Additionally, the Company utilizes various letters of credit in its operations. The following is a summary of the Company's letters of credit as of June 30, 2016:



(Amounts in Thousands)	Letters of Credit Limit		Letters of Credit Outstanding		Letters of Credit Available
Revolving credit facility	$	175,000	$	120,136	$	54,864
Funds at Lloyd's facility, in USD equivalent	399,420		390,405		9,015
ING Bank N.V. and Deutsche Bank Netherlands N.V. facilities, in USD equivalent	87,300		67,976		19,324
Comerica bank letters of credit	75,000		48,467		26,533
Other letters of credit, in aggregate	1,675		1,675		—

Interest expense, including amortization of original issue discount and deferred origination costs, as well as applicable bank fees, related to the Company's outstanding debt and letters of credit for the three and six months ended June 30, 2016 and 2015 was:



	Three Months Ended June 30,					Six Months Ended June 30,
(Amounts in Thousands)	2016			2015		2016			2015
Revolving credit facility	$	1,098		$	728	$	2,254		$	1,544
Funds at Lloyd's facility	1,123			634		2,322			1,681
2021 Notes	114			245		229			594
2023 Notes	3,896			3,896		7,793			7,793
2035-2037 Notes	1,546			1,695		3,061			3,715
2033-2037 TPS Notes	769			—		769			—
2044 Notes	3,116			3,016		6,232			6,031
7.25% 2055 Notes	2,750			368		5,500			368
7.50% 2055 Notes	2,559			—		5,118			—
Secured loan agreements	178			223		367			459
Promissory notes	1,397			154		1,555			310
Other, including interest income (As restated)	(634		)	513		(1,414		)	1,058
	$	17,912		$	11,472	$	33,786		$	23,553

Promissory Note

On April 18, 2016, in connection with the acquisition of Republic Companies, Inc. and its affiliates ("Republic"), the Company issued a term promissory note ("TPM") to Delek Finance U.S. Inc. in the amount of $104,685 as part of the consideration. See Note 14. "Acquisitions" for a description of this transaction. The principal will be paid in four equal installments on each of the first four anniversaries of the issuance date. The note bears interest of 5.75% per annum and is payable from time to time based on the outstanding principal balance until the promissory note is fully paid. In the event that indebtedness under the Company's revolving credit facility or the Company's 2023 Notes is required to be paid on an accelerated basis, the holder of the TPM may cause the Company to repay unpaid principal and interest immediately. The Company recorded interest expense, including amortization of the deferred origination costs and fees associated with the loan agreement, of approximately $1,237 for the three and six months ended June 30, 2016.

2033-2037 TPS Notes

In connection with the acquisition of Republic, the Company assumed Republic's outstanding trust preferred securities. Republic participated in the private placement of floating rate capital securities through five capital trusts. Each trust was created solely for the purpose of issuing trust preferred securities. Republic has guaranteed the payment by the trusts of distributions and other amounts under the capital securities to the extent that the trusts have funds available for such payments. The trusts invested the proceeds from the private placement in junior subordinated debentures issued by Republic. The trusts must redeem the capital securities when the debentures are paid at maturity or upon any earlier prepayment of the debentures. The debentures may be prepaid if certain events occur, including a change in the tax status or regulatory capital treatment of the capital securities or a change in the existing laws that require the trusts to register as an investment company. Under the provisions of the debentures, the Company has the right to defer payment of interest on the debentures at any time, or from time to time, for up to twenty consecutive quarterly periods. If interest payments on the debentures are deferred, the distributions on the capital securities will

also be deferred. In accordance with FASB ASC 810-10-25, the Republic does not consolidate such special purpose trusts, as Republic is not considered to be the primary beneficiary. The equity investment, totaling $2,786 as of June 30, 2016 on Republic's balance sheet, represents the Republic's ownership of common securities issued by the trusts.

The table below summarizes the Company’s trust preferred securities assumed in the Republic acquisition as of June 30, 2016:



(Amounts in Thousands) Name of Trust	Aggregate Liquidation Amount of Trust Preferred Securities		Aggregate Liquidation Amount of Common Securities		Aggregate Principal Amount of Notes		Stated Maturity of Notes	Per Annum Interest Rate of Notes
RIG Capital Trust I	$	10,000	$	310	$	10,310	9/30/2033	4.631	⁽¹⁾
RIG Capital Statutory Trust II	20,000		619		20,619		10/29/2033	4.489	⁽²⁾
RIG Capital Trust III	20,000		619		20,619		12/15/2036	3.853	⁽³⁾
RIG Capital Trust IV	25,000		774		25,774		6/15/2037	3.853	⁽³⁾
RIG Capital Trust V	15,000		464		15,464		9/15/2037	3.950	⁽⁴⁾
Total trust preferred securities	$	90,000	$	2,786	$	92,786


(1)	The interest rate is three-month LIBOR plus 4.00%.


(2)	The interest rate is three-month LIBOR plus 3.85%.


(3)	The interest rate is three-month LIBOR plus 3.20%.


(4)	The interest rate is three-month LIBOR plus 3.30%.

Secured Loan Agreements

On April 7, 2016, the Company entered into a ten-year secured loan agreement with Citigroup Global Markets Realty Corp., in the aggregate amount of $29,000. The loan is secured by a commercial office building the Company owns in Dallas, Texas. The loan bears interest at a fixed rate of 4.96% per annum and requires monthly interest only payments of approximately $169 through May 6, 2026 and payment of principal at maturity. The Company recorded interest expense, including amortization of the deferred origination costs and fees associated with the loan agreement, of approximately $363 for the three and six months ended June 30, 2016.

On April 6, 2016, the Company through a wholly-owned subsidiary, entered into a five-year secured term loan agreement with Lloyd's Bank PLC in the aggregate amount of £7,800 (or $11,028) to finance the purchase of a commercial office building in Nottingham, U.K. The loan bears a variable rate of interest based on LIBOR plus a margin and was 2.83% as of June 30, 2016. The Company had deferred financing costs of £78 (or $114) related to the term loan. The mortgage requires quarterly principal payments of £30 and interest for the term of the loan with the remaining principal to be paid at maturity. The Company recorded interest expense, including amortization of the deferred origination costs and fees associated with the loan agreement, of approximately $86 for the three and six months ended June 30, 2016. Pursuant to a covenant in the agreement, if the loan exceeds 70% of the fair value of the property, the Company is required to pay the lender the entire amount necessary to reduce the outstanding principal balance to be equal to or less than 70% of the fair value of the building.

Nationale Borg

Through the Company's acquisition of N.V. Nationale Borg-Maatscappij and its affiliates ("Nationale Borg"), the Company assumed Nationale Borg's existing credit facilities pursuant to which trade related guarantees and comparable standby letters of credit are issued primarily to secure obligations owed by Nationale Borg to third parties in the normal course of business. See Note 14. "Acquisitions" for a description of this transaction. The credit facilities are with Deutsche Bank Netherlands N.V. and ING Bank N.V. and are primarily used to obtain guarantees for the benefit of financial institutions. The credit limit under these credit facilities is approximately £76,650 (or $87,300). The credit facilities were utilized for £61,239 (or $67,976) as of June 30, 2016. The Company recorded total interest expense of $97 for the three and six months ended June 30, 2016.


9.	Acquisition Costs and Other Underwriting Expenses

The following table summarizes the components of acquisition costs and other underwriting expenses for the three and six months ended June 30, 2016 and 2015:



	Three Months Ended June 30,				Six Months Ended June 30,
	2016		2015		2016		2015
(Amounts in Thousands)	(As restated)		(As restated)		(As restated)		(As restated)
Policy acquisition expenses	$	130,488	$	97,578	$	279,152	$	211,196
Salaries and benefits	139,139		140,785		256,960		246,899
Other insurance general and administrative expenses	24,850		7,809		30,833		20,858
	$	294,477	$	246,172	$	566,945	$	478,953

10. Earnings Per Share

The Company implemented a two-for-one stock split on February 2, 2016. As such, the weighted average number of shares used for the basic and diluted earnings per share have been adjusted retrospectively to reflect the effect of the split.

During the three and six months ended June 30, 2016 and 2015, the Company’s unvested restricted shares contained rights to receive nonforfeitable dividends and were, therefore, considered participating securities. As a result, the Company computed earnings per share using the two-class method during the three months and six months ended June 30, 2016 and 2015. There were no outstanding unvested restricted shares as of June 30, 2016.

The following table is a summary of the elements used in calculating basic and diluted earnings per share for the three and six months ended June 30, 2016 and 2015:



	Three Months Ended June 30,				Six Months Ended June 30,
	2016		2015		2016		2015
(Amounts in Thousands, except for earnings per share)	As restated		As restated		As restated		As restated
Basic earnings per share:
Net income attributable to AmTrust common shareholders	$	127,156	$	45,786	$	211,134	$	179,303
Less: Net income allocated to participating securities and redeemable non-controlling interest	—		111		—		444
Net income allocated to AmTrust common shareholders	$	127,156	$	45,675	$	211,134	$	178,859

Weighted average common shares outstanding – basic	173,182		165,120		174,346		163,904
Less: Weighted average participating shares outstanding	—		404		—		410
Weighted average common shares outstanding - basic	173,182		164,716		174,346		163,494
Net income per AmTrust common share - basic	$	0.73	$	0.28	$	1.21	$	1.09

Diluted earnings per share:
Net income attributable to AmTrust common shareholders	$	127,156	$	45,786	$	211,134	$	179,303
Less: Net income allocated to participating securities and redeemable non-controlling interest	—		111		—		444
Net income allocated to AmTrust common shareholders	$	127,156	$	45,675	$	211,134	$	178,859

Weighted average common shares outstanding – basic	173,182		164,716		174,346		163,494
Plus: Dilutive effect of stock options, convertible debt, other	1,865		3,352		1,881		3,622
Weighted average common shares outstanding – dilutive	175,047		168,068		176,227		167,116
Net income per AmTrust common shares – diluted	$	0.73	$	0.27	$	1.20	$	1.07

The Company's anti-dilutive securities excluded from diluted earnings per share calculation were immaterial for the three and six months ended June 30, 2016 and 2015, respectively.

11. Share Based Compensation

The Company’s 2010 Omnibus Incentive Plan (the “Plan”), which permits the Company to grant to its officers, employees and non-employee directors incentive compensation directly linked to the price of the Company’s stock, authorizes up to an aggregate of 14,630,136 shares of Company stock for awards of options to purchase shares of the Company’s common stock ("Stock Option"), restricted stock, restricted stock units (“RSU”), performance share units (“PSU”) or appreciation rights. Shares used may be either newly issued shares or treasury shares or both. The aggregate number of shares of common stock for which awards may be issued may not exceed 14,630,136 shares, subject to the authority of the Company’s Board of Directors to adjust this amount in the event of a consolidation, reorganization, stock dividend, stock split, recapitalization or similar transaction affecting the Company’s common stock. As of June 30, 2016, approximately 7,300,000 shares of Company common stock remained available for grants under the Plan.

The Company recognizes compensation expense under FASB ASC 718-10-25 for its share-based payments based on the fair value of the awards. Compensation expense for all share-based payments under ASC 718-10-30 was approximately $5,901 and $5,522 for the three months ended June 30, 2016 and 2015, respectively and $11,542 and $10,436 for the six months ended June 30, 2016 and 2015, respectively. The Company has unrecognized compensation cost related to unvested stock options, restricted stock and non-vested RSU awards of $53,361 and $39,111 at June 30, 2016 and December 31, 2015, respectively.

On December 15, 2015, the Company’s Board of Directors declared a two-for-one stock split on the Company’s common stock, payable in the form of a 100% stock dividend. On February 2, 2016, the dividend payment date, all options outstanding were adjusted by 100% and their respective exercise prices were reduced by 50%. The Company also adjusted outstanding RSUs, unvested restricted stock and PSUs for the split.

Stock Options

The Company grants stock options at prices equal to the closing stock price of the Company’s stock on the dates the options are granted. The options have a term of ten years from the date of grant and vest primarily in equal annual installments over the four year period following the date of grant for employee options. The Company uses the simplified method in determining the expected life. Employees have three months after the employment relationship ends to exercise all vested options. The fair value of each option grant is separately estimated for each vesting date. The fair value of each option is amortized into compensation expense on a straight-line basis between the grant date for the award and each vesting date. The Company has estimated the fair value of all stock option awards as of the date of the grant by applying the Black-Scholes-Merton multiple-option pricing valuation model. The application of this valuation model involves assumptions that are judgmental and highly sensitive in the determination of compensation expense.

The following schedule shows all options granted, exercised, and expired under the Plan for the six months ended June 30, 2016 and 2015:



	2016				2015
	Shares		Weighted Average Exercise Price		Shares		Weighted Average Exercise Price
Outstanding at beginning of period	2,783,880		$	6.99	3,868,740		$	5.80
Granted	—		—		85,000		27.09
Exercised	(345,137	)	3.79		(907,086	)	4.40
Canceled or terminated	—		—		(47,650	)	5.09
Outstanding at end of period	2,438,743		7.44		2,999,004		6.84

The Company did not grant any stock options during the six months ended June 30, 2016. The weighted average grant date fair value of options granted was $10.93 during the six months ended June 30, 2015.

The per share fair value of options was estimated at the date of grant based on the following weighted average assumptions for the six months ended June 30, 2015:



	2015
Volatility	40.95	%
Risk-free interest rate	1.95	%
Weighted average expected lives in years	6.25
Dividend rate	1.85	%
Forfeiture rate	0.50	%

The intrinsic value of stock options exercised during the six months ended June 30, 2016 and 2015 was $7,436 and $21,108, respectively. The intrinsic value of stock options that were outstanding as of June 30, 2016 and December 31, 2015 was $41,992 and $66,300, respectively. The intrinsic value of stock options that were exercisable as of June 30, 2016 and December 31, 2015 was $41,617 and $64,705, respectively.

Cash received from options exercised was $1,249 and $3,835 during the six months ended June 30, 2016 and 2015, respectively. The excess tax benefit from award exercises was approximately $2,861 and $6,254 for the six months ended June 30, 2016 and 2015, respectively. Such benefits were recorded as a reduction of income tax payable and an increase in additional paid-in capital.

Restricted stock, RSU and PSU

The Company grants restricted shares, RSUs and PSUs with a grant date fair value equal to the closing stock price of the Company’s stock on the dates the shares or units are granted. The restricted shares and RSUs vest over a period of one to four years, while PSUs vest based on the terms of the awards.

A summary of the Company’s restricted stock and RSU activity for the six months ended June 30, 2016 and 2015 is shown below:



	2016				2015
	Shares or Units		Weighted Average Grant Date Fair Value		Shares or Units		Weighted Average Grant Date Fair Value
Non-vested at beginning of period	1,853,516		$	20.54	2,611,022		$	16.71
Granted	846,180		26.03		462,856		29.16
Vested	(789,186	)	17.45		(811,422	)	14.40
Forfeited	(32,987	)	23.73		(20,136	)	20.35
Non-vested at end of period	1,877,523		24.26		2,242,320		20.08

A summary of the Company's PSU activity for the six months ended June 30, 2016 and 2015 is shown below:



	2016				2015
	Shares or Units		Weighted Average Grant Date Fair Value		Shares or Units		Weighted Average Grant Date Fair Value
Non-vested at beginning of period	752,466		$	24.58	549,670		$	19.42
Granted	198,881		26.16		373,628		29.93
Vested	(234,358	)	22.89		(155,842	)	18.86
Forfeited	(35,766	)	25.57		—		—
Non-vested at end of period	681,223		25.57		767,456		24.65

PSUs are conditional grants of a specified maximum number of common shares. In general, grants are earned, subject to the attainment of pre-specified performance goals at the end of the pre-determined period.

12. Income Taxes

The following table is a reconciliation of the Company’s statutory income tax expense to its effective tax rate for the three and six months ended June 30, 2016 and 2015:



	Three Months Ended June 30,						Six Months Ended June 30,
	2016			2015			2016			2015
(Amounts in Thousands)	As restated			As restated			As restated			As restated
Income before equity in earnings of unconsolidated subsidiaries and non-controlling interest	$	163,554		$	42,760		$	273,524		$	216,693
Tax at federal statutory rate of 35%	$	57,244		$	14,966		$	95,733		$	75,843
Tax effects resulting from:
Foreign rate differential	(31,523		)	(15,152		)	(48,844		)	(13,049		)
Adjustment to prior year taxes	830			861			977			(27,659		)
Permanent adjustments	3,886			(10,202		)	(587		)	(13,257		)
Valuation allowance	(9,425		)	—			(9,936		)	—
Other, net	2,795			558			5,424			5,646
Provision (benefit) for income taxes	$	23,807		$	(8,969	)	$	42,767		$	27,524
Effective tax rate	14.6		%	(21.0		)%	15.6		%	12.7		%

As of June 30, 2016, the Company has U.S. Net Operating Losses ("NOLs") of $52,885 that expire beginning in 2018 through 2036. These NOLs are subject to certain limitations under Section 382 of the Internal Revenue Code due to changes in ownership of $3,197 per year. The Company also has foreign NOLs of $675,422 that currently have no expiration. The Company’s management believes that as of June 30, 2016, except for a portion of foreign NOLs, it will realize the benefits of its deferred tax assets, which are included as a component of the other assets on the consolidated balance sheet. As a result, the Company recorded a valuation allowance of $159,004 and $170,043 as of June 30, 2016 and December 31, 2015, respectively, related to the foreign NOLs. The decrease in the valuation allowance from December 31, 2015 to June 30, 2016 was driven primarily by the release of the valuation allowance on NOLs that were in place on the Company’s U.K. operations. The Company determined, based on income projections of the U.K. operations, that sufficient positive evidence exists that it is more likely than not that the NOL deferred tax assets will be realized. The Company did not utilize any equalization reserves attributed to its Luxembourg reinsurance companies during the three and six months ended June 30, 2016 and 2015, respectively.

The earnings of certain of the Company’s foreign subsidiaries have been indefinitely reinvested in foreign operations. Therefore, no provision has been made for any U.S. taxes or foreign withholding taxes that may be applicable upon any repatriation or disposition.

The Company’s major taxing jurisdictions include the U.S. (federal and state), the United Kingdom and Ireland. The years subject to potential audit vary depending on the tax jurisdiction. Generally, the Company’s statute of limitation is open for tax years ended December 31, 2011 and forward.

As permitted by FASB ASC 740-10 Income Taxes, the Company recognizes interest and penalties, if any, related to unrecognized tax benefits in its income tax provision. The Company does not have any unrecognized tax benefits and, therefore, has not recorded any unrecognized tax benefits, or any related interest and penalties, as of June 30, 2016 and December 31, 2015. No interest or penalties have been recorded by the Company for the three and six months ended June 30, 2016 and 2015, respectively. The Company does not anticipate any significant changes to its total unrecognized tax benefits in the next 12 months.

13. Related Party Transactions

The following disclosure includes, among other items, transactions with companies in which Michael Karfunkel had a controlling interest, either individually or through The Michael Karfunkel 2005 Family Trust (the “Trust”). Mr. Karfunkel passed away on April 27, 2016. At that time, he and the Trust were controlling shareholders of the Company, he was the Company’s Chairman of the Board, and the chairman and chief executive officer of National General Holdings Corp. Mr. Karfunkel’s wife, Mrs. Leah Karfunkel, was the primary beneficiary of Mr. Karfunkel’s estate, and is a co-trustee and primary beneficiary of the Trust.

Significant Transactions with Maiden Holdings, Ltd.

The Company has various reinsurance and service agreements with Maiden Holdings, Ltd. (“Maiden”). Maiden is a publicly-held Bermuda insurance holding company (Nasdaq: MHLD) formed by Michael Karfunkel, George Karfunkel and Barry Zyskind, principal shareholders, and, respectively, the Company's former chairman of the board of directors, a director, and the current chairman, chief executive officer and director of the Company. As of June 30, 2016, our principal shareholders, Leah Karfunkel (one of the Company's directors and co-trustee of The Trust), George Karfunkel and Barry Zyskind, own or control approximately 9.1%, 2.3% and 8.7%, respectively, of the issued and outstanding capital stock of Maiden. Mr. Zyskind serves as the non-executive chairman of the board of Maiden’s board of directors. Maiden Reinsurance Ltd. (“Maiden Reinsurance”), a wholly-owned subsidiary of Maiden, is a Bermuda reinsurer. The following section describes the agreements in place between the Company and its subsidiaries and Maiden and its subsidiaries.

Reinsurance Agreements with Maiden Holdings, Ltd.

In 2007, the Company and Maiden entered into a master agreement, as amended, by which the parties caused the Company’s Bermuda subsidiary, AmTrust International Insurance, Ltd. (“AII”), and Maiden Reinsurance to enter into a quota share reinsurance agreement (the “Maiden Quota Share”), as amended, by which AII retrocedes to Maiden Reinsurance an amount equal to 40% of the premium written by the Company’s U.S., Irish and U.K. insurance companies (the “AmTrust Ceding Insurers”), net of the cost of unaffiliated inuring reinsurance (and in the case of the Company’s U.K. insurance subsidiary, AmTrust Europe Ltd. ("AEL"), net of commissions). AII also retrocedes 40% of losses. Certain business that the Company commenced writing after the effective date of the Maiden Quota Share, including the Company’s European medical liability business discussed below, business assumed from Tower Group International, Ltd. ("Tower") pursuant to the cut-through quota share reinsurance agreement, and risks, other than workers’ compensation risks and certain business written by the Company’s Irish subsidiary, AmTrust International Underwriters Limited (“AIU”), for which the AmTrust Ceding Insurers’ net retention exceeds $5,000 is not ceded to Maiden Reinsurance under the Maiden Quota Share (ceded business defined as “Covered Business”).

AII receives a ceding commission of 31% of ceded written premiums with respect to all Covered Business other than retail commercial package business, for which the ceding commission remains 34.375%. With regards to the Specialty Program portion of Covered Business only, the Company will be responsible for ultimate net loss otherwise recoverable from Maiden Reinsurance to the extent that the loss ratio to Maiden Reinsurance, which shall be determined on an inception to date basis from July 1, 2007 through the date of calculation, is between 81.5% and 95% (the "Specialty Program Loss Corridor"). For the purpose of determining whether the loss ratio falls within the Specialty Program Loss Corridor, workers’ compensation business written in the Company’s Specialty Program segment from July 1, 2007 through December 31, 2012 is excluded from the loss ratio calculation.

The Maiden Quota Share was renewed through June 30, 2019 and will automatically renew for successive three-year terms unless either AII or Maiden Reinsurance notifies the other of its election not to renew no less than nine months prior to the end of any such three-year term. In addition, either party is entitled to terminate on thirty days’ notice or less upon the occurrence of certain early termination events, which include a default in payment, insolvency, change in control of AII or Maiden Reinsurance, run-off, or a reduction of 50% or more of the shareholders’ equity of Maiden Reinsurance or the combined shareholders’ equity of AII and the AmTrust Ceding Insurers.

The Company, through its subsidiaries AEL and AIU, has a reinsurance agreement with Maiden Reinsurance by which the Company cedes to Maiden Reinsurance 40% of its European medical liability business, including business in force at April 1, 2011. The quota share had an initial term of one year and has been renewed through March 31, 2017. The agreement can be terminated at any April 1 by either party on four months’ prior written notice. Maiden Reinsurance pays the Company a 5% ceding commission, and the Company will earn a profit commission of 50% of the amount by which the ceded loss ratio is lower than 65%.

The following is the effect on the Company’s results of operations for the three and six months ended June 30, 2016 and 2015 related to Maiden Reinsurance agreements:



	Three Months Ended June 30,						Six Months Ended June 30,
(Amounts in Thousands)	2016			2015			2016			2015
Results of operations:
Premium written – ceded	$	(529,267	)	$	(522,435	)	$	(1,072,955	)	$	(1,050,720	)
Change in unearned premium – ceded	40,704			89,077			127,402			217,692
Earned premium - ceded	$	(488,563	)	$	(433,358	)	$	(945,553	)	$	(833,028	)
Ceding commission on premium written	$	155,204		$	160,082		$	329,538		$	328,855
Ceding commission – deferred	(9,594		)	(30,860		)	(45,537		)	(80,946		)
Ceding commission – earned	$	145,610		$	129,222		$	284,001		$	247,909
Incurred loss and loss adjustment expense – ceded	$	304,480		$	336,540		$	659,334		$	585,930

Note Payable to Maiden – Collateral for Proportionate Share of Reinsurance Obligations

In conjunction with the Maiden Quota Share, as described above, the Company entered into a loan agreement with Maiden Reinsurance during the fourth quarter of 2007, whereby Maiden Reinsurance loaned to the Company the amount equal to AII's quota share of the obligations of the AmTrust Ceding Insurers that AII was then obligated to secure. The loan agreement provides for interest at a rate of LIBOR plus 90 basis points and is payable on a quarterly basis. Advances under the loan are secured by a promissory note and totaled $167,975 as of June 30, 2016 and December 31, 2015, respectively. The Company recorded $568 and $460 of interest expense during the three months ended June 30, 2016 and 2015, respectively, and $1,130 and $909 during the six months ended June 30, 2016 and 2015, respectively. Effective December 1, 2008, AII and Maiden Reinsurance entered into a Reinsurer Trust Assets Collateral agreement whereby Maiden Reinsurance is required to provide AII the assets required to secure Maiden’s proportional share of the Company’s obligations to its U.S. subsidiaries. The amount of this collateral contained in various reinsurance trusts as of June 30, 2016 was approximately $2,824,553. Maiden retains ownership of the collateral in the trust account.

Reinsurance Brokerage Agreement

The Company, through a subsidiary, has a reinsurance brokerage agreement with Maiden. Pursuant to the brokerage agreement, the Company provides brokerage services relating to the Maiden Quota Share for a fee equal to 1.25% of reinsured premium. The Company recorded $6,362 and $6,255 of brokerage commission during the three months ended June 30, 2016 and 2015, respectively, and $13,224 and $12,860 during the six months ended June 30, 2016 and 2015, respectively. The brokerage commission was recorded as a component of service and fee income.

Asset Management Agreement

The Company, through a subsidiary, has an asset management agreement with Maiden Reinsurance, pursuant to which the Company provides investment management services to Maiden Reinsurance and certain of its affiliates. As of June 30, 2016, the Company managed approximately $4,513,000 of assets related to this agreement. The asset management services fee is an annual rate of 0.20% for periods in which average invested assets are $1,000,000 or less and an annual rate of 0.15% for periods in which the average invested assets exceeds $1,000,000. As a result of this agreement, the Company recorded $1,697 and $1,506 of asset management fees during the three months ended June 30, 2016 and 2015, respectively, and $3,342 and $2,937 during the six months ended June 30, 2016 and 2015, respectively. The asset management fees were recorded as a component of service and fee income.

Significant Transactions with National General Holding Corp.

The Company has an ownership interest in NGHC of approximately 12%. NGHC is a publicly-held specialty personal lines insurance holding company (Nasdaq: NGHC) that operates fourteen insurance companies in the United States and provides a variety of insurance products, including personal and commercial automobile, homeowners and umbrella, and supplemental health. As of June 30, 2016, NGHC's two largest shareholders were The Trust and Leah Karfunkel individually. Leah Karfunkel is a member of the Company's Board of Directors, and the mother-in-law of Barry D. Zyskind, the Chairman, President and Chief Executive Officer of the Company. The ultimate beneficiaries of the Trust include Leah Karfunkel’s children, one of whom is married to Mr. Zyskind. In addition, Michael Karfunkel was the chairman and chief executive officer of NGHC when he passed away in April 2016, at which time Barry Karfunkel, the son of Michael and Leah Karfunkel and brother-in-law of Barry D. Zyskind,

was appointed chief executive officer of NGHC and Barry D. Zyskind was elected as NGHC's non-executive chairman of the board. In accordance with ASC 323-10-15, Investments-Equity Method and Joint Ventures, the Company accounts for its investment in NGHC under the equity method as it has the ability to exert significant influence on NGHC's operations.

During the three months ended June 30, 2016 and 2015, the Company recorded $4,802 and $3,819 of income, respectively, and $10,578 and $9,348 during the six months ended June 30, 2016 and 2015, respectively, related to its equity investment in NGHC.

Master Services Agreement

The Company provides NGHC and its affiliates information technology services in connection with the development and licensing of a policy management system. The Company provides the license at a cost that is currently 1.25% of gross written premium of NGHC and its affiliates plus the Company’s costs for development and support services. The Company provides development services at a price of cost plus 20%. In addition, the Company provides NGHC and its affiliates printing and mailing services at a per piece cost for policy and policy related materials, such as invoices, quotes, notices and endorsements, associated with the policies the Company processes for NGHC and its affiliates on the policy management system. The Company recorded approximately $11,276 and $10,353 of fee income during the three months ended June 30, 2016 and 2015, respectively, and $21,186 and $17,369 during the six months ended June 30, 2016 and 2015, respectively, related to this agreement. The fees for these services were recorded as a component of service and fee income.

Asset Management Agreement

A subsidiary of the Company manages the assets of certain of NGHC's subsidiaries, including the assets of reciprocal insurers managed by subsidiaries of NGHC, for an annual fee equal to 0.20% of the average aggregate value of the assets under management for the preceding quarter if the average aggregate value for the preceding quarter is $1,000,000 or less and 0.15% of the average aggregate value of the assets under management for the preceding quarter if the average aggregate value for that quarter is more than $1,000,000. The Company managed approximately $2,453,320 of assets as of June 30, 2016 related to this agreement. As a result of this agreement, the Company earned approximately $807 and $613 of asset management fees during the three months ended June 30, 2016 and 2015, respectively, and $1,600 and $1,139 during the six months ended June 30, 2016 and 2015, respectively. The asset management fees were recorded as a component of service and fee income.

800 Superior, LLC

The Company and NGHC each have a fifty percent ownership interest in 800 Superior, LLC ("800 Superior"), which owns an office building in Cleveland, Ohio. The cost of the building was approximately $7,500. The Company has been appointed managing member of 800 Superior. Additionally, in conjunction with the Company’s approximate 12% ownership percentage of NGHC, the Company ultimately receives 56% of the profits and losses of 800 Superior. As such, in accordance with ASC 810-10, Consolidation, the Company consolidates this entity. NGHC's portion of the net assets and earnings are recorded within non-controlling interest in the consolidated financial statements.

NGHC has an office lease agreement with 800 Superior. The lease agreement is through 2027. NGHC paid 800 Superior approximately $684 and $664 of rent during the three months ended June 30, 2016 and 2015, respectively, and $1,367 and $1,266 during the six months ended June 30, 2016 and 2015, respectively, under the lease agreement. As discussed in Note 15. "New Market Tax Credit," 800 Superior, the Company and NGHC participated in a financing transaction related to capital improvements on the office building. As part of that transaction, NGHC and the Company entered into an agreement related to the payment and performance guaranties provided by the Company to the various parties to the financing transaction whereby NGHC has agreed to contribute 50% toward any payments the Company is required to make pursuant to the guaranties.

4455 LBJ Freeway, LLC

In 2015, the Company and NGHC each acquired a fifty percent ownership interest in 4455 LBJ Freeway, LLC ("4455 LBJ Freeway"), which owns an office building in Dallas, Texas. The cost of the building was approximately $21,050. The Company has been appointed managing member of 4455 LBJ Freeway. Additionally, in conjunction with the Company’s approximate 12% ownership percentage of NGHC, the Company ultimately receives 56% of the profits and losses of 4455 LBJ Freeway. As such, in accordance with ASC 810-10, Consolidation, the Company consolidates this entity. NGHC's portion of the net assets and earnings are recorded within non-controlling interest in the consolidated financial statements. The Company recorded approximately $518 of service and fee income related to rent for the three and six months ended June 30, 2016.

Significant Transactions with ACP Re, Ltd.

ACP Re, Ltd. (“ACP Re”) is a privately-held Bermuda reinsurance holding company owned by the Trust. In 2014, a subsidiary of ACP Re merged with Tower. As a result of the merger, ACP Re now operates 10 insurance companies in the United States and Bermuda. The following section describes the significant agreements in place between the Company and its subsidiaries and ACP Re and its subsidiaries.

Asset Management Agreement

A subsidiary of the Company provides asset management services to ACP Re and certain of its subsidiaries at (i) an annual rate of 0.20% of the average value of the invested assets under management, excluding investment in the Company's stock, for the preceding calendar quarter if the average value of such assets for the quarter was $1,000,000 or less, or (ii) an annual rate of 0.15% of the average value of the invested assets under management, excluding investment in the Company's stock, for the preceding calendar quarter if the average value of such assets for the quarter was greater than $1,000,000. The Company managed approximately $507,671 of assets as of June 30, 2016. The Company recorded approximately $226 and $358 of asset management fees during the three months ended June 30, 2016 and 2015, respectively, and $457 and $824 during the six months ended June 30, 2016 and 2015, respectively. The asset management fees were recorded as a component of service and fee income.

Agreements as a result of the ACP Re / Tower Merger

The Company and ACP Re entered into the agreements and transactions described below, as well as the asset management agreement described above, as a result of ACP Re’s acquisition of 100% of the outstanding stock of Tower on September 15, 2014. As set forth in Note 19. “Subsequent Events,” in July 2016, Tower’s statutory insurance companies (the “Tower Companies”) merged into CastlePoint National Insurance Company (“CNIC”), with CNIC as the surviving entity, in connection with a Conservation Plan developed by the Commissioner of Insurance of the State of California for CNIC. Upon approval of the Conservation Plan by the Superior Court of the State of California, several of the agreements described below will either be amended or terminated.

Commercial Lines Reinsurance Agreements

Technology Insurance Company, Inc. ("TIC") entered into the Commercial Lines Quota Share Reinsurance Agreement (the “CL Reinsurance Agreement”) with Tower’s ten statutory insurance companies (the “Tower Companies”) pursuant to which TIC reinsures 100% of all losses under the Tower Companies’ new and renewal commercial lines business written after September 15, 2014. The ceding commission payable by TIC under the CL Reinsurance Agreement is equal to the sum of (i) reimbursement of the Tower Companies’ acquisition costs in respect of the business covered, including commission payable to AmTrust North America, Inc., a subsidiary of the Company (“ANA”), pursuant to the CL MGA Agreement described below, and premium taxes and (ii) 2% of gross written premium (net of cancellations and return premiums) collected pursuant to the CL MGA Agreement described below. The CL Reinsurance Agreement will remain in effect until termination of the CL MGA Agreement. The Company no longer assumes premium under the CL Reinsurance Agreement and policies previously assumed are in run off.

Commercial Lines MGA Agreement

ANA produces and manages all new and renewal commercial lines business written by the Tower Companies pursuant to the Commercial Lines Managing General Agency Agreement (the “CL MGA Agreement”). As described above, all post-September 15, 2014 commercial lines business written by the Tower Companies is reinsured by TIC pursuant to the CL Reinsurance Agreement. The Tower Companies pay ANA a 10% commission on all business written pursuant to the CL MGA Agreement and reimburse ANA for commissions payable to agents producing such business. All payments by the Tower Companies to ANA pursuant to the CL MGA Agreement will be netted out of the ceding commission payable by TIC to the Tower Companies pursuant to the CL Reinsurance Agreement. The CL MGA Agreement has a term of ten years. The Company did not record any commission during the three and six months ended June 30, 2016, and recorded $1,487 and $2,058 of commission under the CL MGA Agreement during the three and six months ended June 30, 2015. The commission income was recorded as a component of service and fee income.

Commercial Lines Administrative Services Agreement

ANA, the Tower Companies and CastlePoint Reinsurance Company, Ltd. (“CP Re,” a subsidiary of ACP Re) entered into the Commercial Lines LPTA Administrative Services Agreement (the “CL Administrative Agreement”) pursuant to which ANA administers the runoff of CP Re’s and the Tower Companies’ commercial lines business written prior to September 15, 2014 at cost. CP Re and the Tower Companies reimburse ANA for its actual costs, including costs incurred in connection with claims

operations, out-of-pocket expenses, costs incurred in connection with any required modifications to ANA’s claims systems and an allocated portion of the claims service expenses paid by TIC to the Tower Companies pursuant to the CL Reinsurance Agreement. The CL Administrative Agreement will remain in effect until the first to occur of (i) the completed performance of all obligations and duties arising under the agreement, or (ii) mutual written consent. The Company charged ACP Re $1,057 and $6,447 for these services during the three months ended June 30, 2016 and 2015, respectively, and $5,983 and $23,443 for the six months ended June 30, 2016 and 2015, respectively, which were recorded as a reduction of salary and other expense. See Note 19. "Subsequent Events" elsewhere in this report for additional information on this agreement.

Stop-Loss and Retrocession Agreements

AII and National General Re, Ltd., a subsidiary of NGHC (“NG Re Ltd.”), as reinsurers, entered into a $250,000 Aggregate Stop Loss Reinsurance Agreement (the “Stop-Loss Agreement”) with CP Re. AII and NG Re Ltd. also entered into an Aggregate Stop Loss Retrocession Contract (the “Retrocession Agreement”) with ACP Re pursuant to which ACP Re will reinsure the full amount of any payments that AII and NG Re Ltd. are obligated to make to CP Re under the Stop-Loss Agreement. Pursuant to the Stop-Loss Agreement, each of the Company and NGHC will provide, severally, $125,000 of stop loss coverage with respect to the run-off of the Tower business written on or before September 15, 2014. The reinsurers’ obligation to indemnify CP Re under the Stop-Loss Agreement will be triggered only at such time as CP Re’s ultimate net loss related to the run-off of the pre-September 15, 2014 Tower business exceeds a retention equal to the Tower Companies’ loss and loss adjustment reserves and unearned premium reserves as of September 15, 2014, which the parties to the LPTA have agreed will be established upon reevaluation as of December 31, 2015. CP Re will pay AII and NG Re Ltd. total premium of $56,000 on the five-year anniversary of the Stop-Loss Agreement. The premium payable by AII and NG Re Ltd. to ACP Re pursuant to the Retrocession Agreement will be $56,000 in the aggregate, less a ceding commission of 5.5% to be retained by AII and NG Re Ltd. The Stop-Loss Agreement and the Retrocession Agreement are accounted for under the deposit method of accounting. See Note 19. "Subsequent Events" elsewhere in this report for additional information on this agreement.

ACP Re Credit Agreement

The Company, AII, and NG Re Ltd. entered into a credit agreement (the “ACP Re Credit Agreement”) among the Company, as Administrative Agent, ACP Re and Tower, now a wholly-owned subsidiary of ACP Re, as the borrowers (collectively, the “Borrowers”), ACP Re Holdings, LLC, as Guarantor, and AII and NG Re Ltd., as Lenders pursuant to which the Lenders made a $250,000 loan ($125,000 made by each Lender) to the Borrowers.

The ACP Re Credit Agreement has a maturity date of September 15, 2021. Outstanding borrowings under the ACP Re Credit Agreement bear interest at a fixed annual rate of 7%, payable semi-annually on the last day of January and July. Fees payable to the Company for its service as Administrative Agent include an annual fee equal to $30, plus reimbursement of costs, expenses and certain other charges. The obligations of the Borrowers are secured by (i) a first-priority pledge of 100% of the stock of ACP Re and ACP Re’s U.S. subsidiaries and 65% of the stock of certain of ACP Re’s foreign subsidiaries, and (ii) a first-priority lien on all of the assets of the Borrowers and Guarantor and certain of the assets of ACP Re’s subsidiaries (other than the Tower Companies).

The Borrowers have the right to prepay the amounts borrowed, in whole or in part. The Borrowers are required to prepay the amounts borrowed within thirty (30) days from the receipt of net cash proceeds received by ACP Re from (i) certain asset sales, (ii) the disposition of certain equity interests, (iii) the issuance or incurrence of certain debt, (iv) any dividend or distribution from Tower subsidiaries to ACP Re, (v) premiums and other payments received pursuant to the Retrocession Agreement, and (vi) any tax refunds, pension plan reversions, insurance proceeds, indemnity payments, purchase price adjustments (excluding working capital adjustments) under acquisition agreements, litigation proceeds and other similar receipts received by the Borrowers after the effective date of the ACP Re Credit Agreement, unless any of the foregoing proceeds (other than payments received pursuant to the Retrocession Agreement) are required for the ordinary course business operations of the Borrowers. The Borrowers are also required to deposit any excess cash flow (including payments under the Master Agreement) into a reserve account that also secures Borrowers’ obligations under the ACP Re Credit Agreement. Any funds in the reserve account after January 1, 2018 that exceed the amount of interest payable by the Borrowers for the remainder of the term of the ACP Re Credit Agreement must be applied by the Borrowers as a prepayment of principal under the ACP Re Credit Agreement.

The ACP Re Credit Agreement contains certain customary restrictive covenants (subject to negotiated exceptions and baskets), including restrictions on indebtedness, liens, acquisitions and investments, dispositions, creation of subsidiaries and restricted payments. There are also financial covenants that require ACP Re to maintain minimum current assets, a maximum leverage ratio, and a minimum fixed charge coverage ratio. If ACP Re fails to comply with the leverage ratio or fixed charge coverage ratio covenants as of any measurement date, the Borrowers may cure such breach by making a capital contribution to ACP Re sufficient to bring the Borrowers into compliance.

The ACP Re Credit Agreement also provides for customary events of default, with grace periods where appropriate, including failure to pay principal when due, failure to pay interest or fees within three business days after becoming due, failure to comply with covenants, breaches of representations and warranties, default under certain other indebtedness, certain insolvency, receivership or insurance regulatory events affecting the Borrowers, the occurrence of certain material judgments, certain amounts of reportable ERISA or foreign pension plan noncompliance events, a change in control of the Guarantor, any security interest created under the ACP Re Credit Agreement ceases to be in full force and effect, or if ACP Re defaults on its obligations under the Retrocession Agreement. Upon the occurrence and during the continuation of an event of default, the Company, as Administrative Agent, upon the request of any Lender, will declare the Borrowers’ obligations under the ACP Re Credit Agreement immediately due and payable and/or exercise any and all remedies and other rights under the ACP Re Credit Agreement.

As of June 30, 2016 and December 31, 2015, the Company recorded $129,375 and $129,375, respectively, of loan and related interest receivable as a component of other assets on the consolidated balance sheet. The Company recorded total interest income of approximately $2,187 and $2,211 for the three months ended June 30, 2016 and 2015, respectively, and $4,375 and $4,399 during the six months ended June 30, 2016 and 2015, respectively, under the ACP Re Credit Agreement. See Note 19. "Subsequent Events" elsewhere in this report for additional information on this agreement.

Other Related Party Transactions

Lease Agreements

The Company leases office space at 59 Maiden Lane in New York, New York from 59 Maiden Lane Associates, LLC, an entity that is wholly-owned by Leah Karfunkel and George Karfunkel. The lease term is through May 2023. The Company paid approximately $356 and $483 of rent during the three months ended June 30, 2016 and 2015, respectively, and $738 and $948 during the six months ended June 30, 2016 and 2015, respectively, for the leased office space.

The Company leased office space in Chicago, Illinois from 135 LaSalle Property, LLC, an entity that is wholly-owned by entities controlled by Leah Karfunkel and George Karfunkel. The lease terminated on May 31, 2016. The Company paid rent of approximately $65 and $195 during the three months ended June 30, 2016 and 2015, respectively, and $197 and $270 during the six months ended June 30, 2016 and 2015, respectively, for the leased office space.

The Company leases office space in Chicago, Illinois from IC 233 Building Company LLC, a wholly-owned subsidiary of Illinois Center Building Company, discussed below. The lease term is ten years through the end of May 2026. The Company's rent expense was immaterial during the three and six months ended June 30, 2016 for the leased office space.

Equity Investments in Limited Partnerships

In February 2015, the Company invested approximately $9,700 in North Dearborn Building Company, L.P. (“North Dearborn”), a limited partnership that owns an office building in Chicago, Illinois. NGHC is also a limited partner in North Dearborn, and the general partner is NA Advisors GP LLC (“NA Advisors”), an entity controlled by Leah Karfunkel and managed by an unrelated third party. The Company and NGHC each received a 45% limited partnership interest in North Dearborn for their respective $9,700 investments, while NA Advisors invested approximately $2,200 and holds a 10% general partnership interest and a 10% profit interest, which NA Advisors pays to the unrelated third party manager. North Dearborn appointed NA Advisors as the general manager to oversee the day-to-day operations of the office building and pays NA Advisors an annual fee for these services. This investment is included within other investments and is accounted for using the equity method of accounting on a three-month lag basis. The Company recorded approximately $172 and $445 of income from this investment during the three and six months ended June 30, 2016 and $223 during the three and six months ended June 30, 2015.

In August 2015, certain of the Company's subsidiaries invested approximately $53,715 in Illinois Center Building Company, L.P. ("Illinois Center"), a limited partnership that owns an office building complex in Chicago, Illinois. NGHC and ACP Re are also limited partners in Illinois Center, and the general partner is NA Advisors. The Company and NGHC each have a 37.5% limited partnership interest in Illinois Center, while ACP Re has a 15.0% limited partnership interest. NA Advisors holds a 10% general partnership interest and a 10% profit interest, which NA Advisors pays to the unrelated third party manager. Illinois Center appointed NA Advisors as the general manager to oversee the day-to-day operations of the office building and pays NA Advisors an annual fee for these services. This investment is included within other investments and is accounted for using the equity method of accounting on a three month lag basis. The Company recorded approximately $1,154 and $1,747 of income from this investment during the three and six months ended June 30, 2016.

These limited partnerships are considered variable interest entities ("VIEs"). Based on current accounting guidance, the Company is required to consolidate any VIEs in which it is deemed to be the primary beneficiary through having: (i) power over

the significant activities of the entity, and (ii) having an obligation to absorb losses or the right to receive benefits from the VIE that are potentially significant to the VIE. The Company performed a primary beneficiary analysis on the aforementioned limited partnerships and determined the Company was not the primary beneficiary since it does not have power over the significant activities of the entity. These limited partnerships are recorded as a component of other investments on the consolidated balance sheet. The carrying value of these limited partnerships, in aggregate, was $68,186 and $64,869 as of June 30, 2016 and December 31, 2015, respectively. The maximum exposure to loss, which is the estimated loss that would be incurred under severe, hypothetical circumstances, for which the possibility of occurrence is remote, such as where the value of the Company's interests declines to zero, without any consideration of recovery or offset from any economic hedges, was $68,186 and $64,869 as of June 30, 2016 and December 31, 2015, respectively. The maximum exposure to loss is a required disclosure under US GAAP and is not an indication of expected loss.

Use of the Company Aircraft

The Company and its wholly-owned subsidiary, AmTrust Underwriters, Inc. (“AUI”), are each a party to aircraft time share agreements with each of Maiden and NGHC. The agreements provide for payment to the Company or AUI for the usage of their respective company-owned aircraft and cover actual expenses incurred and permissible under federal aviation regulations. Such expenses include, among others, travel and lodging expenses of the crew, in-flight catering, flight planning and weather contract services, ground transportation, fuel, landing and hanger fees, and airport taxes. Neither the Company nor AUI charge Maiden or NGHC for the fixed costs that would be incurred in any event to operate the aircraft (for example, aircraft purchase costs, insurance and flight crew salaries). During the three months ended June 30, 2016, Maiden paid $17 and NGHC paid $27, respectively, for their use of the company-owned aircraft under these agreements. During the six months ended June 30, 2016, Maiden paid $39 and NGHC paid $40, respectively, for their use of the Company-owned aircraft under these agreements. The amount that each of Maiden and NGHC paid for the use of the Company-owned aircraft under these agreements was not material, either individually or in the aggregate, during the three and six months ended June 30, 2015.

In addition, for personal travel, Mr. Barry Zyskind, the Company’s Chairman, President and Chief Executive Officer, entered into an aircraft reimbursement agreement with the Company and AUI. Since entering into such agreements, Mr. Zyskind has fully reimbursed the Company and AUI for the incremental cost billed by the Company and AUI for his personal use of the respective company-owned aircraft. During the three months ended June 30, 2016 and 2015, Mr. Zyskind reimbursed the Company and AUI, in aggregate, $404 and $122, respectively, for his personal use of the company-owned aircraft. During the six months ended June 30, 2016 and 2015, Mr. Zyskind reimbursed the Company and AUI, in aggregate, $484 and $334, respectively, for his personal use of the company-owned aircraft.

14. Acquisitions

Nationale Borg

On May 31, 2016, the Company completed the acquisition of N.V. Nationale Borg-Maatscappij and its affiliates ("Nationale Borg") for £161,350 (or $179,583). Nationale Borg is an Amsterdam-based international direct writer and reinsurer of surety and trade credit insurance in over 70 countries that has been in existence for approximately 120 years.

A summary of the preliminary assets acquired and liabilities assumed for Nationale Borg are as follows:



(Amounts in Thousands)
Assets
	Cash and investments	$	229,607
	Premium receivable	4,301
	Accrued interest and dividends	83
	Reinsurance recoverable	4,322
	Other assets	8,414
	Property and equipment	10,319
	Goodwill and intangible assets	55,424
Total assets		$	312,470

Liabilities
	Loss and loss adjustment expense reserves	$	78,909
	Unearned premiums	24,782
	Accrued expenses and other liabilities	29,196
Total liabilities		$	132,887
Acquisition price		$	179,583

The goodwill and intangible assets, as well as Nationale Borg's results of operations, are included as a component of the Specialty Risk and Extended Warranty segment. The goodwill is not expected to be deductible for income tax purposes. The intangible assets consist primarily of trade names, licenses and agent relationships. The Company anticipates completing its acquisition accounting by the end of 2016. As a result of this acquisition, the Company recorded approximately $9,495 of gross written premium during the three months ended June 30, 2016.

First Nationwide Title Agency

On May 20, 2016, the Company completed the acquisition of First Nationwide Title Agency and its subsidiaries ("First Nationwide"). First Nationwide is a title agency providing title insurance products primarily in the state of New York. The consideration for the purchase consisted of approximately $24,200 at closing and contingent consideration based on profitability of the agency over a four-year period.

The net assets recorded for First Nationwide consisted primarily of goodwill and intangible assets and are included in the Specialty Risk and Extended Warranty segment. The goodwill is not expected to be deductible for income tax purposes. The intangible assets consist primarily of customer relationships and trade names. The Company anticipates completing its acquisition accounting by the end of 2016. First Nationwide's results of operations were immaterial for the three and six month periods ended June 30, 2016.

Genworth

On May 9, 2016, the Company completed the acquisition of Genworth Financial Mortgage Insurance Ltd. ("Genworth"). Genworth provides mortgage insurance in Europe, primarily in the U.K. Finland, Italy and Germany. The consideration given for Genworth consisted of cash of approximately $54,500.

A summary of the preliminary assets acquired and liabilities assumed for Genworth are as follows:



(Amounts in Thousands)
Assets
	Cash and investments	$	239,695
	Reinsurance recoverable	27,570
	Other assets	8,422
	Property and equipment	964
Total assets		$	276,651

Liabilities
	Loss and loss adjustment expense reserves	$	84,463
	Unearned premiums	76,308
	Accrued expenses and other liabilities	13,060
Total liabilities		$	173,831
Acquisition price		$	54,500
Acquisition gain		$	48,320

Genworth's results of operations are included as a component of the Specialty Risk and Extended Warranty segment. The Company anticipates completing its acquisition accounting by the end of 2016. As a result of this acquisition, the Company recorded approximately $4,300 of gross written premium during the three and six months ended June 30, 2016.

Republic

On April 18, 2016, the Company completed the acquisition of Republic Companies, Inc. and its affiliates ("Republic") from Delek Group Ltd., and Republic Insurance Holdings, LLC. Republic provides commercial and personal lines property and casualty insurance through independent agents and managing general agents. Republic primarily distributes the majority of its business to individuals and small and medium-size businesses through a network of independent agents in the southwestern United States. In addition, Republic generates fee revenue by providing insurance services to third parties.

The consideration given for Republic consisted of approximately $113,456 of cash at closing, a promissory note payable of approximately $104,685 due to Delek Group Ltd. and deferred payments of approximately $15,200 that are owed to the minority owners of Republic. Further information on the promissory note can be found in "Note 8. Debt". The deferred payments will be made in nineteen quarterly installments of $800 beginning three months after the acquisition date.

A summary of the preliminary assets acquired and liabilities assumed for Republic are as follows:



(Amounts in Thousands)
Assets
	Cash and investments	$	621,068
	Premium receivable, net	85,455
	Accrued interest and dividends	4,779
	Reinsurance recoverable	625,023
	Deferred tax assets	41,743
	Other assets	220,004
	Property and equipment	435
	Goodwill and intangible assets	128,714
Total assets		$	1,727,221

Liabilities
	Loss and loss adjustment expense reserves	$	885,898
	Unearned premiums	301,972
	Trust Preferred Outstanding	93,106
	Accrued expenses and other liabilities	130,221
	Funds held under reinsurance treaties	83,331
Total liabilities		$	1,494,528
Acquisition price		$	232,693

The goodwill and intangible assets as well as Republic's results of operations will be included as a component of the Small Commercial Business and Specialty Program segments. The goodwill is not expected to be deductible for income tax purposes. The intangible assets consist primarily of trade names, licenses and agent relationships. The Company anticipates completing its acquisition accounting by the end of 2016. As a result of this acquisition, the Company recorded approximately $153,126 of gross written premium and $1,544 of services and fee income during the three months ended June 30, 2016.

ARI Insurance Company

On January 22, 2016, the Company completed the acquisition of ARI Holdco Inc. ("ARIH") and its subsidiaries. ARIH's primary operating subsidiary, ARI Insurance Company ("ARI"), is an underwriter of commercial automobile insurance in New Jersey, Pennsylvania and Maryland. Immediately prior to the acquisition, ARI converted from a mutual form to a stock form of ownership in a transaction "sponsored" by the Company. As required by the plan of conversion and applicable Delaware law, the Company offered shares of its common stock, at a discount to the market price, to the members of ARI who held policies as of December 31, 2014 and the directors, officers and employees of ARI and its subsidiaries. The Company received subscriptions for approximately $276, resulting in the issuance by the Company of 12,347 (on a post-split basis) shares of its common stock at a discounted price of 20% (or approximately $69 in the aggregate) from the Company's market trading price. Pursuant to the stock purchase agreement, after the expiration of the offering, the Company purchased all of the authorized shares of capital stock of ARIH at a purchase price equal to the greater of the gross proceeds received by the Company in the offering, and $3,750. The Company made a payment to ARIH of $23,500, which included the $276 in proceeds the Company received in the offering, for the stock of ARI. Additionally, the Company, as part of the transaction, was required to make a payment to an employee bonus pool of ARI of $3,750, as discussed above. The remaining $23,500 of cash contributed to ARIH was retained by the Company. In accordance with FASB ASC 805-10 Business Combinations, the Company recorded an initial acquisition price of approximately $3,819.

A summary of the preliminary assets acquired and liabilities assumed for ARI are as follows:



(Amounts in Thousands)
Assets
	Cash and investments	$	53,917
	Premium receivable, net	15,577
	Accrued interest and dividends	375
	Reinsurance recoverable	17,554
	Other assets	2,116
	Intangible assets	1,097
Total assets		$	90,636

Liabilities
	Loss and loss adjustment expense reserves	$	59,723
	Unearned premiums	18,672
	Accrued expenses and other liabilities	7,968
Total liabilities		$	86,363
Acquisition price		$	3,819
Acquisition gain		$	454

The intangible assets associated with the acquisition were initially measured at $1,097 and are not deductible for income tax purposes. The Company is in the process of completing its acquisition accounting and expects to have it completed in 2016. The intangible assets as well as ARI's results of operations are included as a component of the Small Commercial Business segment. As a result of this acquisition, the Company recorded approximately $12,227 and $25,610 of gross written premium during the three and six months ended June 30, 2016.

Springfield

On October 7, 2015, the Company acquired all of the issued and outstanding stock of Springfield Insurance Company and its affiliates, Springfield Insurance Company Ltd. and Unified Grocers Insurance Services (collectively "Springfield"). Springfield, domiciled in California, is an insurance carrier providing workers' compensation and commercial package insurance to Unified Grocers Inc., an association of independently owned grocery stores, its members and its customers. The purchase agreement required the Company to pay approximately $26,574 in cash on the acquisition date and contained an earn-out provision that is contingent on Springfield meeting certain performance conditions over a five-year period. The contingent consideration associated with the earn-out provision was initially valued at $5,000 as of the acquisition date.

A summary of the preliminary assets acquired and liabilities assumed for Springfield are as follows:



(Amounts in Thousands)
Assets
	Cash and investments	$	93,837
	Premium receivable, net	4,651
	Accrued interest and dividends	470
	Other assets	2,752
	Deferred tax asset	1,905
	Property and equipment	1,376
	Goodwill and intangible assets	4,253
Total assets		$	109,244

Liabilities
	Loss and loss adjustment expense reserves	$	65,725
	Unearned premiums	7,006
	Accrued expenses and other liabilities	4,199
	Reinsurance payable on paid losses	740
Total liabilities		$	77,670
Acquisition price		$	31,574

The goodwill and intangible assets associated with the acquisition were initially measured at $4,253 and are not expected to be deductible for income tax purposes. The Company is in the process of completing its acquisition accounting and expects to have it completed in 2016. The goodwill and intangible assets as well as Springfield's results of operations are included as a component of the Small Commercial Business segment. As a result of this acquisition, the Company recorded approximately $1,760 and $4,878 of gross written premium for the three and six months ended June 30, 2016 and $428 and $842 of service and fee income during the three and six months ended June 30, 2016.

Warranty Solutions

On September 25, 2015, the Company acquired all of the issued and outstanding stock of Warranty Solutions, a Wells Fargo business ("Warranty Solutions"), for $156,247 in cash. Warranty Solutions designs, markets, administers and underwrites vehicle service contracts for new and used automobiles through a national network of more than 70 active agencies and 1,500 franchised and independent dealers.

A summary of the preliminary assets acquired and liabilities assumed for Warranty Solutions are as follows:



(Amounts in Thousands)
Assets
	Cash and investments	$	192,015
	Prepaid reinsurance premium	77,777
	Other assets	22,466
	Deferred tax asset	50,399
	Goodwill and Intangible assets	84,215
Total assets		$	426,872

Liabilities
	Loss and loss expense reserves	$	3,013
	Unearned premiums	182,441
	Accrued expenses and other liabilities	85,171
Total liabilities		$	270,625
Acquisition price		$	156,247

The goodwill and intangible assets associated with the acquisition were initially measured at $84,215, which initially included customer relationships and licenses. The goodwill associated with the acquisition is not deductible for income tax purposes. The Company is in the process of completing its acquisition accounting and expects to have it completed in 2016. The goodwill and intangible assets, as well as Warranty Solutions' results of operations, are included as a component of the Special Risk and Extended Warranty segment. As a result of this acquisition, during the three months ended June 30, 2016, the Company recorded approximately $22,290 of gross written premium and $20,615 of service and fee income, and for the six months ended June 30, 2016, the Company recorded approximately $46,008 of gross written premium and $44,934 of service and fee income.

Magna Carta

On March 11, 2016, one of our subsidiary insurance companies entered into a loss portfolio transfer with Public Service Insurance Company, Paramount Insurance Company and Western Select Insurance Company. The Company will reinsure 100% of the existing obligations with respect to their business for accident years 2014 and 2015, including a loss portfolio transfer of 100% of the loss and LAE reserves as of the effective date. The Company received approximately $163,400 of cash and recorded loss reserves of approximately $163,400. The Company followed deposit accounting under the guidelines of ASC 340-30, Other Assets and Deferred Costs. During the three and six months ended June 30, 2016, the Company (recovered) paid losses of approximately $(1,060) and $9,440, respectively. During the three and six months ended June 30, 2016, the Company did not record any gains or losses as a result of this transaction. Additionally, one of our subsidiaries entered into a renewal rights transaction with the forenamed parties as well as Creative Intermediaries, Inc., Magna Carta Companies, Inc. and Public Service Mutual Holding Company, whereby the Company may reinsure their existing book of policies for their commercial and property insurance business. The acquisition price paid for the renewal rights transaction was approximately $1,000.

Other

The Company had additional immaterial acquisitions totaling approximately $12,000 during the three and six months ended June 30, 2016. No individual acquisition or acquisitions in the aggregate were significant and, therefore, the Company was not required to include any pro forma financial information in this report.

15. New Market Tax Credit

In 2012, the Company's subsidiary, 800 Superior, LLC (an entity owned equally by the Company and NGHC) received $19,400 in net proceeds from a financing transaction the Company and NGHC entered into with Key Community Development Corporation (“KCDC”) related to a capital improvement project for an office building in Cleveland, Ohio owned by 800 Superior, LLC. The Company, NGHC and KCDC collectively made capital contributions (net of allocation fees) and loans to 800 Superior NMTC Investment Fund II LLC and 800 Superior NMTC Investment Fund I LLC (collectively, the “Investment Funds”) under a qualified New Markets Tax Credit (“NMTC”) program. The NMTC program was provided for in the Community Renewal Tax Relief Act of 2000 (the “Act”) and is intended to induce capital investment in qualified lower income communities. The Act permits taxpayers to claim credits against their federal income taxes for up to 39% of qualified investments in the equity of community development entities (“CDEs”). CDEs are privately managed investment institutions that are certified to make qualified low-income community investments (“QLICIs”).

In addition to the capital contributions and loans from the Company, NGHC and KCDC, as part of the transaction, the Investment Funds received, directly and indirectly, proceeds of approximately $8,000 from two loans originating from state and local governments of Ohio. These loans are each for a period of 15 years and have a weighted average interest rate approximately of 2.0% per annum.

The Investment Funds then contributed the loan proceeds and capital contributions of $19,400 to two CDEs, which, in turn, loaned the funds on similar terms to 800 Superior, LLC. The proceeds of the loans from the CDEs (including loans representing the capital contribution made by KCDC, net of allocation fees) will be used to fund the capital improvement project. As collateral for these loans, the Company has granted a security interest in the assets acquired with the loan proceeds.

The Company and NGHC are each entitled to receive an equal portion of 49% of the benefits derived from the NMTCs generated by 800 Superior Investment Fund II LLC, while KCDC is entitled to the remaining 51%. The NMTC is subject to 100% recapture for a period of 7 years as provided in the Internal Revenue Code. During this seven-year compliance period, the entities involved are required to be in compliance with various regulations and contractual provisions that apply to the NMTC arrangement. Non-compliance with applicable requirements could result in the projected tax benefits not being realized and, therefore, could require the Company to indemnify KCDC for any loss or recapture of NMTCs related to the financing until such time as the obligation to deliver tax benefits is relieved. The Company does not anticipate any credit recaptures will be required in connection with this arrangement. In addition, this transaction includes a put/call provision whereby the Company may be obligated or entitled to repurchase KCDC's interest in the Investment Funds in September 2019 at the end of the recapture period. The Company believes that KCDC will exercise its put option and, therefore, attributed an insignificant value to the put/call.

The Company has determined that the Investment Funds are VIEs. The ongoing activities of the Investment Funds - collecting and remitting interest and fees and NMTC compliance - were all considered in the initial design and are not expected to significantly affect economic performance throughout the life of the Investment Funds. When determining whether to consolidate the Investment Funds, Company management considered the contractual arrangements that obligate it to deliver tax benefits and provide various other guarantees to the structure, KCDC's lack of a material interest in the underlying economics of the project, and the fact that the Company is obligated to absorb losses of the Investment Funds. Also, the Company has an approximate 12% ownership in NGHC. The Company concluded that it was the primary beneficiary and consolidated the Investment Funds, as VIEs, in accordance with the accounting standard for consolidation. KCDC's contribution, net of syndication fees, is included as accrued liability in the accompanying consolidated balance sheets. Direct costs incurred in structuring the financing arrangement are deferred and will be recognized as expense over the term of the loans. Incremental costs to maintain the structure during the compliance period are recognized as incurred.

16. Stockholder's Equity and Accumulated Other Comprehensive Income (Loss)

Common Stock

The Company implemented a two-for-one stock split on February 2, 2016.

Issuances of Preferred Stock

In March 2016, the Company completed a public offering of 5,750,000 of its depositary shares, each representing a 1/40th interest in a share of its 7.75% Non-Cumulative Preferred Stock, Series E, $0.01 par value per share (the "Series E Preferred Stock"), with a liquidation preference of $1,000 per share (equivalent to $25 per depositary share). Each depositary share entitles the holder to a proportional fractional interest in all rights and preferences of the Series E Preferred Stock represented thereby (including any dividend, liquidation, redemption and voting rights). Dividends on the Series E Preferred Stock represented by the depositary shares will be payable on the liquidation preference amount, on a non-cumulative basis, when, as and if declared by the Company’s board of directors, at a rate of 7.75% per annum, quarterly in arrears, on March 15, June 15, September 15, and December 15 of each year, beginning on June 15, 2016, from and including the date of original issuance. The Series E Preferred Stock represented by the depositary shares is not redeemable prior to March 15, 2021. After that date, the Company may redeem at its option, in whole or in part, the Series E Preferred Stock represented by the depositary shares at a redemption price of $1,000 per share (equivalent to $25 per depositary share) plus any declared and unpaid dividends for prior dividend periods and accrued but unpaid dividends (whether or not declared) for the then current dividend period. Net proceeds from this offering were $139,070. In addition, the Company incurred $4,680 in underwriting discount and commissions and expenses, which were recognized as a reduction to additional paid-in capital.

Stockholders' Equity

The following table summarizes the ownership components of total stockholders' equity:



	Six Months Ended June 30,
	2016									2015
	AmTrust			Non-Controlling Interest			Total			AmTrust			Non-Controlling Interest			Total
(Amounts in Thousands)	(As restated)						(As restated)			(As restated)						(As restated)
Balance, December 31,	$	2,723,780		$	176,455		$	2,900,235		$	1,912,213		$	159,181		$	2,071,394
Net income	231,501			9,493			240,994			193,311			4,771			198,082
Unrealized holding gain (loss)	191,347			—			191,347			(52,106		)	—			(52,106		)
Reclassification adjustment	(8,045		)	—			(8,045		)	(1,205		)	—			(1,205		)
Foreign currency translation	(80,007		)	—			(80,007		)	(26,862		)	14			(26,848		)
Unrealized gain on interest rate swap	287			—			287			190			—			190
Extinguishment of 2021 senior notes, equity component	—			—			—			(3,345		)	—			(3,345		)
Share exercises, compensation and other	4,421			—			4,421			8,455			—			8,455
Common share (purchase) issuance, net	(103,164		)	—			(103,164		)	171,672			—			171,672
Common share dividends	(52,189		)	(10,229		)	(62,418		)	(41,249		)	—			(41,249		)
Preferred stock issuance, net of fees	139,070			—			139,070			176,529			—			176,529
Preferred stock dividends	(20,367		)	—			(20,367		)	(14,008		)	—			(14,008		)
Capital contribution (distribution), net	—			5,500			5,500			—			(1,478		)	(1,478		)
Balance, June 30,	$	3,026,634		$	181,219		$	3,207,853		$	2,323,595		$	162,488		$	2,486,083

During the six months ended June 30, 2016, net income attributable to non-controlling interest was $9,493 and net income attributable to redeemable non-controlling interest was $341. Net income for AmTrust, Non-controlling interest and Redeemable non-controlling interest totaled $9,834 for the six months ended June 30, 2016. During the six months ended June 30, 2015, net income attributable to non-controlling interest was $4,771 and net income attributable to redeemable non-controlling interest was $658. Net income for AmTrust, Non-controlling interest and Redeemable non-controlling interest totaled $5,429 for the six months ended June 30, 2015.

Accumulated Other Comprehensive Income (Loss)

The following table summarizes the activities and components of accumulated other comprehensive income (loss):



(Amounts in Thousands)	Foreign Currency Items			Unrealized Gains (Losses) on Investments			Interest Rate Swap Hedge			Net Benefit Plan Assets and Obligations Recognized in Stockholders' Equity			Accumulated Other Comprehensive Income (Loss)
Balance, March 31, 2016 (As restated)	$	(145,268	)	$	48,035		$	(581	)	$	(107	)	$	(97,921	)
Other comprehensive income (loss) before reclassification	(32,809		)	158,930			258			—			126,379
Amounts reclassed from accumulated other comprehensive income	—			(3,920		)	—			—			(3,920		)
Income tax benefit (expense)	—			(54,254		)	(90		)	—			(54,344		)
Net current-period other comprehensive (loss) income	(32,809		)	100,756			168			—			68,115
Balance, June 30, 2016 (As restated)	$	(178,077	)	$	148,791		$	(413	)	$	(107	)	$	(29,806	)

Balance, March 31, 2015 (As restated)	$	(66,349	)	$	81,290		$	(1,294	)	$	(2,793	)	$	10,854
Other comprehensive income before reclassification	30,665			(92,766		)	251			—			(61,850		)
Amounts reclassed from accumulated other comprehensive income	—			(1,216		)	—			—			(1,216		)
Income tax benefit (expense)	—			32,894			(88		)	—			32,806
Net current-period other comprehensive income	30,665			(61,088		)	163			—			(30,260		)
Balance, June 30, 2015 (As restated)	$	(35,684	)	$	20,202		$	(1,131	)	$	(2,793	)	$	(19,406	)



(Amounts in Thousands)	Foreign Currency Items			Unrealized Gains (Losses) on Investments			Interest Rate Swap Hedge			Net Benefit Plan Assets and Obligations Recognized in Stockholders' Equity			Accumulated Other Comprehensive Income (Loss)
Balance, December 31, 2015 (as restated)	$	(98,074	)	$	(34,511	)	$	(700	)	$	(107	)	$	(133,392	)
Other comprehensive income (loss) before reclassification	(80,003		)	286,588			441			—			207,026
Amounts reclassed from accumulated other comprehensive income	—			(4,578		)	—			—			(4,578		)
Income tax benefit (expense)	—			(98,708		)	(154		)	—			(98,862		)
Net current-period other comprehensive income (loss)	(80,003		)	183,302			287			—			103,586
Balance, June 30, 2016 (As restated)	$	(178,077	)	$	148,791		$	(413	)	$	(107	)	$	(29,806	)

Balance, December 31, 2014 (As restated)	$	(8,822	)	$	73,513		$	(1,321	)	$	(2,793	)	$	60,577
Other comprehensive income before reclassification	(26,862		)	(80,163		)	292			—			(106,733		)
Amounts reclassed from accumulated other comprehensive income	—			(1,854		)	—			—			(1,854		)
Income tax benefit (expense)	—			28,706			(102		)	—			28,604
Net current-period other comprehensive (loss) income	(26,862		)	(53,311		)	190			—			(79,983		)
Balance, June 30, 2015 (As restated)	$	(35,684	)	$	20,202		$	(1,131	)	$	(2,793	)	$	(19,406	)

17. Commitment and Contingent Liabilities

Litigation

The Company’s insurance subsidiaries are named as defendants in various legal actions arising principally from claims made under insurance policies and contracts. Those actions are considered by the Company in estimating the loss and LAE reserves. The Company’s management believes the resolution of those actions will not have a material adverse effect on the Company’s financial position or results of operations.

Pending Acquisition

Acquisition of ANV Holding B.V. and its affiliates ("ANV")

In April 2016, the Company entered into an agreement to acquire ANV from Ontario Teachers’ Pension Plan Board for approximately $218,700 in cash, subject to purchase price adjustments. ANV is a specialty insurance company that underwrites a variety of commercial property and casualty insurance products through its three Lloyd’s syndicates and managing general underwriter. The Company expects to fund the transaction with existing working capital, and, pending regulatory approval, to close the transaction during the second half of 2016.

18. Segments

The Company currently operates three business segments: Small Commercial Business; Specialty Risk and Extended Warranty; and Specialty Program. The Company also has a former segment, Personal Lines Reinsurance, which is in run-off and is now included within its Corporate and Other segment. The Corporate and Other segment also represents the activities of the holding company as well as a portion of service and fee revenue. In determining total assets (excluding cash and invested assets) by segment, the Company identifies those assets that are attributable to a particular segment such as deferred acquisition cost, reinsurance recoverable, goodwill, intangible assets and prepaid reinsurance while the remaining assets are allocated based on gross written premium by segment. In determining cash and invested assets by segment, the Company matches certain identifiable liabilities such as unearned premium and loss and loss adjustment expense reserves by segment. The remaining cash and invested assets are then allocated based on gross written premium by segment. Investment income and realized gains (losses) are determined by calculating an overall annual return on cash and invested assets and applying that overall return to the cash and invested assets by segment. Ceding commission is allocated to each segment based on that segment’s proportionate share of the Company’s overall acquisition costs. Interest expense is allocated based on gross written premium by segment. Income taxes are allocated on a pro-rata basis based on the Company’s effective tax rate. Additionally, management reviews the performance of underwriting income in assessing the performance of and making decisions regarding the allocation of resources to the segments. Underwriting income excludes, primarily, service and fee revenue, investment income and other revenues, other expenses, interest expense and income taxes. Management believes that providing this information in this manner is essential to providing the Company’s stockholders with an understanding of the Company’s business and operating performance.

During three and six months ended June 30, 2016 and 2015, the Company's Specialty Program segment derived over ten percent of its gross written premium primarily from one agent.

The following tables summarize the results of operations of the business segments for the three and six months ended June 30, 2016 and 2015:




(Amounts in Thousands)	Small Commercial Business			Specialty Risk and Extended Warranty			Specialty Program			Corporate and Other			Total
Three Months Ended June 30, 2016:
Gross written premium	$	1,060,558		$	651,561		$	360,993		$	—		$	2,073,112

Net written premium	601,638			447,061			219,737			—			1,268,436
Change in unearned premium	(28,660		)	(89,177		)	31,153			—			(86,684		)
Net earned premium	572,978			357,884			250,890			—			1,181,752

Loss and loss adjustment expense	(382,950		)	(231,328		)	(170,115		)	—			(784,393		)
Acquisition costs and other underwriting expenses (As restated)	(150,149		)	(78,773		)	(65,555		)	—			(294,477		)
	(533,099		)	(310,101		)	(235,670		)	—			(1,078,870		)
Underwriting income (As restated)	39,879			47,783			15,220			—			102,882
Service and fee income (As restated)	25,745			69,155			1,228			28,178			124,306
Investment income and realized gain	28,193			19,506			18,211			(66		)	65,844
Other expenses (As restated)	(34,321		)	(21,154		)	(11,697		)	(67,172		)	(134,344		)
Interest expense (As restated)	(9,180		)	(5,612		)	(3,120		)	—			(17,912		)
Foreign currency loss (As restated)	—			(28,995		)	—			—			(28,995		)
Gain on life settlement contracts	6,507			3,961			2,208			—			12,676
Acquisition gain (reduction) on purchase	(9,223		)	48,320			—			—			39,097
Provision for income taxes (As restated)	(6,256		)	(19,030		)	(3,184		)	4,663			(23,807		)
Equity in earnings of unconsolidated subsidiary – related party	—			—			—			4,802			4,802
Net income (As restated)	$	41,344		$	113,934		$	18,866		$	(29,595	)	$	144,549

(Amounts in Thousands)	Small Commercial Business			Specialty Risk and Extended Warranty			Specialty Program			Corporate and Other			Total
Three Months Ended June 30, 2015:
Gross written premium	$	875,828		$	479,863		$	322,697		$	—		$	1,678,388

Net written premium	517,392			306,784			184,545			—			1,008,721
Change in unearned premium	(34,333		)	(22,816		)	17,398			—			(39,751		)
Net earned premium	483,059			283,968			201,943			—			968,970

Loss and loss adjustment expense	(314,344		)	(185,345		)	(138,786		)	—			(638,475		)
Acquisition costs and other underwriting expenses (As restated)	(129,217		)	(58,442		)	(58,513		)	—			(246,172		)
	(443,561		)	(243,787		)	(197,299		)	—			(884,647		)
Underwriting income (As restated)	39,498			40,181			4,644			—			84,323
Service and fee income (As restated)	25,042			50,193			32			20,893			96,160
Investment income and realized gain	15,604			11,807			6,216			14			33,641
Other expenses (As restated)	(26,387		)	(14,446		)	(9,735		)	(50,568		)	(101,136		)
Interest expense and loss on extinguishment of debt (As restated)	(5,989		)	(3,314		)	(2,169		)	—			(11,472		)
Foreign currency loss (As restated)	—			(61,852		)	—			—			(61,852		)
Gain on life settlement contracts	1,619			942			535			—			3,096
(Provision) benefit for income taxes (As restated)	(1,077		)	7,997			1,116			933			8,969
Equity in earnings of unconsolidated subsidiary – related party	—			—			—			4,042			4,042
Net income	$	48,310		$	31,508		$	639		$	(24,686	)	$	55,771



(Amounts in Thousands)	Small Commercial Business			Specialty Risk and Extended Warranty			Specialty Program			Corporate and Other			Total
Six Months Ended June 30, 2016:
Gross written premium	$	2,126,690		$	1,181,007		$	698,489		$	—		$	4,006,186

Net written premium	1,226,166			784,894			478,055			—			2,489,115
Change in unearned premium	(149,094		)	(105,169		)	21,182			—			(233,081		)
Net earned premium	1,077,072			679,725			499,237			—			2,256,034

Loss and loss adjustment expense	(715,634		)	(442,264		)	(341,568		)	—			(1,499,466		)
Acquisition costs and other underwriting expenses (As restated)	(283,681		)	(151,624		)	(131,640		)	—			(566,945		)
	(999,315		)	(593,888		)	(473,208		)	—			(2,066,411		)
Underwriting income (As restated)	77,757			85,837			26,029			—			189,623
Service and fee income (As restated)	58,282			143,539			1,517			49,773			253,111
Investment income and realized gain	55,047			38,676			29,511			—			123,234
Other expenses (As restated)	(69,968		)	(38,856		)	(22,981		)	(131,806		)	(263,611		)
Interest expense (As restated)	(17,935		)	(9,960		)	(5,891		)	—			(33,786		)
Foreign currency loss (As restated)	—			(67,228		)	—			—			(67,228		)
Gain on life settlement contracts	12,425			6,900			4,081			—			23,406
Acquisition gain on purchase	455			48,320			—			—			48,775
(Provision) benefit for income taxes (As restated)	(17,471		)	(31,195		)	(4,857		)	10,756			(42,767		)
Equity in earnings of unconsolidated subsidiary – related party	—			—			—			10,578			10,578
Net income (As restated)	$	98,592		$	176,033		$	27,409		$	(60,699	)	$	241,335

(Amounts in Thousands)	Small Commercial Business			Specialty Risk and Extended Warranty			Specialty Program			Corporate and Other			Total
Six Months Ended June 30, 2015:
Gross written premium	$	1,776,947		$	950,733		$	681,844		$	—		$	3,409,524

Net written premium	1,040,632			594,473			416,805			—			2,051,910
Change in unearned premium	(133,582		)	18,626			(18,607		)	—			(133,563		)
Net earned premium	907,050			613,099			398,198			—			1,918,347

Loss and loss adjustment expense	(588,690		)	(393,985		)	(269,083		)	—			(1,251,758		)
Acquisition costs and other underwriting expenses (As restated)	(239,287		)	(129,254		)	(110,412		)	—			(478,953		)
	(827,977		)	(523,239		)	(379,495		)	—			(1,730,711		)
Underwriting income (As restated)	79,073			89,860			18,703			—			187,636
Service and fee income (As restated)	51,675			107,188			365			39,051			198,279
Investment income and realized gain	38,850			28,547			16,366			104			83,867
Other expenses (As restated)	(52,663		)	(28,177		)	(20,208		)	(101,048		)	(202,096		)
Interest expense and loss on extinguishment of debt (As restated)	(14,732		)	(7,882		)	(5,653		)	—			(28,267		)
Foreign currency loss (As restated)	—			(37,195		)	—			—			(37,195		)
Loss on life settlement contracts	7,540			4,035			2,894			—			14,469
(Provision) benefit for income taxes (As restated)	(13,350		)	(19,021		)	(1,516		)	6,363			(27,524		)
Equity in earnings of unconsolidated subsidiary – related party	—			—			—			9,571			9,571
Net income	$	96,393		$	137,355		$	10,951		$	(45,959	)	$	198,740

The following tables summarize net earned premium by major line of business, by segment, for the three and six months ended June 30, 2016 and 2015:



(Amounts in Thousands)	Small Commercial Business		Specialty Risk and Extended Warranty		Specialty Program		Total
Three Months Ended June 30, 2016:
Workers' compensation	$	358,894	$	—	$	199,704	$	558,598
Warranty	—		179,169		—		179,169
Other liability	—		33,305		12,800		46,105
Commercial auto and liability, physical damage	111,992		8,684		30,602		151,278
Medical malpractice	—		62,733		—		62,733
Other	102,092		73,993		7,784		183,869
Total net earned premium	$	572,978	$	357,884	$	250,890	$	1,181,752

(Amounts in Thousands)	Small Commercial Business		Specialty Risk and Extended Warranty		Specialty Program		Total
Three Months Ended June 30, 2015:
Workers' compensation	$	322,703	$	—	$	86,344	$	409,047
Warranty	—		144,316		—		144,316
Other liability	14,425		32,485		35,333		82,243
Commercial auto and liability, physical damage	67,491		8,714		34,465		110,670
Medical malpractice	—		40,143		—		40,143
Other	78,440		58,310		45,801		182,551
Total net earned premium	$	483,059	$	283,968	$	201,943	$	968,970

(Amounts in Thousands)	Small Commercial Business		Specialty Risk and Extended Warranty		Specialty Program		Total
Six Months Ended June 30, 2016:
Workers' compensation	$	704,937	$	—	$	307,417	$	1,012,354
Warranty	—		347,502		—		347,502
Other liability	5,249		74,018		83,381		162,648
Commercial auto and liability, physical damage	197,896		17,176		65,745		280,817
Medical malpractice	—		106,750		—		106,750
Other	168,990		134,279		42,694		345,963
Total net earned premium	$	1,077,072	$	679,725	$	499,237	$	2,256,034

(Amounts in Thousands)	Small Commercial Business		Specialty Risk and Extended Warranty		Specialty Program		Total
Six Months Ended June 30, 2015:
Workers' compensation	$	614,768	$	—	$	163,946	$	778,714
Warranty	—		295,847		—		295,847
Other liability	24,944		65,296		75,853		166,093
Commercial auto and liability, physical damage	119,411		12,154		69,698		201,263
Medical malpractice	—		76,454		—		76,454
Other	147,927		163,348		88,701		399,976
Total net earned premium	$	907,050	$	613,099	$	398,198	$	1,918,347

The following table summarizes total assets of the business segments as of June 30, 2016 and December 31, 2015:



(Amounts in Thousands)	June 30, 2016		December 31, 2015
Small Commercial Business (As restated)	$	9,960,183	$	7,870,360
Specialty Risk and Extended Warranty (As restated)	7,001,339		6,420,747
Specialty Program (As restated)	4,205,312		2,972,538
Corporate and Other (As restated)	—		2,406
	$	21,166,834	$	17,266,051

19. Subsequent Event

Share repurchase

Subsequent to June 30, 2016 through July 27, 2016, the Company repurchased 1,689,875 shares of its common stock for approximately $41,300 under the share repurchase program approved by the Company's Board of Directors.

Trust Risk Group dispute

In October 2014, a dispute arose between the Company's subsidiary, AmTrust Europe Ltd., and its Italian medical liability broker, Trust Risk Group SpA ("TRG"), and agent, Trust Risk Italia SRL ("TRI," a subsidiary of TRG, collectively, “TRG”). TRG asserted that it was entitled to advanced commissions of approximately €95,800 (or $106,300) related to the Company's Italian medical liability business produced by TRG. TRG deducted approximately €42,200 (or $46,800) from premium payable to the Company with the intention of deducting approximately €48,700 (or $54,100) from future premium payable to the Company. The Company disputed that TRG was entitled to advanced commission. The Company terminated its brokerage and agency relationship with TRG and TRI, respectively, and notified its insureds and retail brokers to pay premiums directly to the Company.

TRG initiated two arbitration proceedings against the Company in Milan, Italy seeking monetary damages based upon its allegations that the Company improperly terminated the producer agreements and an entitlement to advanced commissions on the business produced for the Company. Subsequently, the Company commenced litigation in England and the U.S. against Antonio Somma, the current or former principal of TRG, and Marco Lacchini, the chairman of the two arbitration proceedings pending in Milan, Italy. The Company brought the English and U.S. legal actions based on allegations that the two ongoing Italian arbitrations were not being conducted in accordance with the law, as well as certain other matters. The Company was successful in its application in Italy to remove Mr. Lacchini as chairman of the two arbitral tribunals.

As disclosed in the Company’s Current Report on Form 8-K filed on July 20, 2016, the Company, AmTrust Europe, Ltd., and TRG and Mr. Somma reached a settlement agreement on July 15, 2016 that included the dismissal of all actions, claims and counterclaims among the parties, the terms of which all parties agreed to keep confidential. The terms of the settlement did not have a material effect on the Company's results of operations, financial position or liquidity.

Restructuring of ACP Re Credit Agreement

As disclosed in the Company’s Current Report on Form 8-K filed on July 29, 2016, the Company, AII and NG Re Ltd. entered into a restatement agreement (the “Restatement Agreement”) to the ACP Re Credit Agreement described in the “Significant Transactions with ACP Re, Ltd.” subsection of Note 13. “Related Party Transactions” included elsewhere in this report. The following restated terms of the ACP Re Credit Agreement will become effective upon the approval of the Conservation Plan developed by the Commissioner of Insurance of the State of California for CNIC as successor by merger to all of the Tower Companies (the “Conservation Plan”) by the Superior Court of the State of California, which is supervising the Conservation Plan process:


•	The borrower will become ACP Re Holdings, LLC, a Delaware limited liability company owned by the Trust;


•	The Trust will cause ACP Re Holdings, LLC to maintain assets having a value greater than 115% of the value of the then outstanding loan balance, and if there is a shortfall, the Trust will make a contribution to ACP Re Holdings, LLC of assets having a market value of at least the shortfall (the “Maintenance Covenant”);


•	The amounts borrowed will be secured by equity interests, cash and cash equivalents, other investments held by ACP Re Holdings, LLC and proceeds of the foregoing in an amount equal to the requirements of the Maintenance Covenant;


•	The maturity date will change from September 15, 2021 to the twentieth anniversary of the date on which the restatement becomes effective;


•	Interest on the outstanding principal balance of $250,000 will change from a fixed annual rate of 7% (payable in cash, semi-annually in arrears) to a fixed annual rate of 3.7% (payable in cash, semi-annually in arrears), provided that up to 1.2% thereof may be paid in kind;


•	Commencing on the tenth anniversary of the date on which the restatement becomes effective, and for each year thereafter, two percent of the then outstanding principal balance of the loan (inclusive of any amounts previously paid in kind) will be due and payable;


•	At the Lenders’ discretion, ACP Re Holdings, LLC may repay the loan using cash or tradeable stock of an equivalent market value of any publicly traded company on the NYSE, NASDAQ or London stock exchange; and


•	A change of control of ACP Re Holdings, LLC of greater than 50% and an uncured breach of the Maintenance Covenant are included as events of default.

In addition, if the Conservation Plan is approved, the following agreements (all of which are described in the “Significant Transactions with ACP Re, Ltd.” subsection of Note 13. “Related Party Transactions” included elsewhere in this report) will be terminated: (a) the Stop-Loss Agreement, (b) the Retrocession Agreement, and (c) the CL Administrative Agreement. The hearing on the motion to approve the Conservation Plan is scheduled for September 13, 2016.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes included elsewhere in this Form 10-Q. Amounts in the following discussion may not reconcile due to rounding differences.

Note on Forward-Looking Statements

This Form 10-Q 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, 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, the impact of Brexit, developments relating to existing agreements, disruptions to our business relationships with Maiden Holdings, Ltd., National General Holdings Corp., or ACP Re, Ltd., 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 our filings with the SEC, including our Annual Report on Form 10-K for the year ended December 31, 2015, and our quarterly reports on Form 10-Q. 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.

Overview

We are a multinational specialty property and casualty insurer focused on generating consistent underwriting profits. We provide insurance coverage for small businesses and products with high volumes of insureds and loss profiles that we believe are predictable. We target lines of insurance that we believe generally are underserved by the market. We have grown by hiring teams of underwriters with expertise in our specialty lines, through acquisitions of companies and assets that, in each case, provide access to distribution networks and renewal rights to established books of specialty insurance business. We have operations in three business segments:


•	Small Commercial Business. We provide workers’ compensation, commercial package and other commercial insurance lines produced by wholesale agents, retail agents and brokers in the United States.

•

Specialty Risk and Extended Warranty. We provide coverage for consumer and commercial goods and custom designed coverages, such as accidental damage plans and payment protection plans offered in connection with the sale of consumer and commercial goods, in the United States and Europe, and certain niche property, casualty and specialty liability risks in the United States and Europe, including general liability, employers’ liability and professional and medical liability.


•	Specialty Program. We write commercial insurance for narrowly defined classes of insureds, requiring an in-depth knowledge of the insured’s industry segment, through general and other wholesale agents.

We transact business primarily through our insurance subsidiaries, the majority of which are domiciled in the United States. We also transact business through insurance subsidiaries domiciled internationally, primarily in Bermuda and Europe. We are authorized to write business in all 50 states in the United States and in the European Union. Through our subsidiary, AmTrust at Lloyd's, we are licensed to underwrite business internationally in locations where Lloyd's is licensed. Our principal operating subsidiaries are rated "A"(Excellent) by A.M. Best Company ("A.M. Best").

For the three and six months ended June 30, 2016, our results of operations include activity of the entities we acquired subsequent to June 30, 2015, primarily:


•	N.V. Nationale Borg-Maatscappij and its affiliates (collectively, "Nationale Borg")


•	First Nationwide Title Agency and its subsidiaries (collectively, "First Nationwide")

•

Republic Underwriters Insurance Company, Republic-Vanguard Insurance Company, Southern Underwriters Insurance Company, Republic Fire & Casualty Insurance Company, Southern Insurance Company, Republic Diversified Services, Inc, Republic Lloyds, Republic Group No. Two Company, Southern County Mutual Insurance Company, Canyon State Auto Insurance Services, Inc., and Eagle General Agency, Inc. (collectively, "Republic ")


•	Genworth Financial Mortgage Insurance Limited and Genworth Financial Mortgage Services Limited (collectively, "Genworth")


•	ARI Insurance Company and ARI Casualty Company (collectively, "ARI")


•	Springfield Insurance Company, Springfield Insurance Company Limited, and Unified Grocers Insurance Services (collectively, "Springfield")


•	Heritage Indemnity Company, Warranty Solutions Management Corporation, Westlake Insurance Company (Bermuda), Ltd., Warranty Solutions Administrative Services, Inc., Heritage Mechanical Breakdown Corporation and WS Aftermarket Services Corporation (collectively, "Warranty Solutions")

In addition, on March 11, 2016, one of our subsidiary insurance companies entered into a loss portfolio transfer with Public Service Insurance Company, Paramount Insurance Company and Western Select Insurance Company. We will reinsure 100% of the existing obligations with respect to their business for accident years 2014 and 2015, including a loss portfolio transfer of 100% of the loss and LAE reserves as of the effective date. We received approximately $163.4 million of cash and recorded the obligation of approximately $163.4 million of loss reserves. During the three and six months ended June 30, 2016, we paid (recouped) losses of approximately $(1.1) million and $9.4 million, respectively. During the six months ended June 30, 2016, we did not record any gains or losses as a result of this transaction. Additionally, one of our subsidiaries entered into a renewal rights transaction, with the forenamed parties as well as Creative Intermediaries, Inc., Magna Carta Companies, Inc. and Public Service Mutual Holding Company, whereby we may reinsure their existing book of policies for their commercial and property insurance business. The acquisition price paid for the renewal rights transaction was approximately $1 million.

Insurance, particularly workers’ compensation, is generally affected by seasonality. The first quarter generally produces greater premiums than subsequent quarters. Nevertheless, the impact of seasonality on our Small Commercial Business and Specialty Program segments has not been significant. We believe that this is because we serve many small businesses in different geographic locations. We believe seasonality may be muted by our acquisition activity. Additionally, our Specialty Risk and Extended Warranty segment may be impacted by the seasonality of the automotive and consumer electronic markets.

We evaluate our operations by monitoring key measures of growth and profitability, including return on equity and net combined ratio. Our return on annualized average equity was 21.6% and 9.9% for the three months ended June 30, 2016 and 2015, respectively, and 18.2% and 20.8% for the six months ended June 30, 2016 and 2015, respectively. Our overall financial objective is to produce a return on equity of 15.0% or more over the long term. In addition, we target a net combined ratio of 95.0% or lower over the long term, while seeking to maintain optimal operating leverage in our insurance subsidiaries commensurate with our A.M. Best rating objectives. Our net combined ratio was 91.3% and 91.3% for the three months ended June 30, 2016 and 2015, respectively, and 91.6% and 89.8% for the six months ended June 30, 2016 and 2015, respectively.

Restatement of Previously Issued Financial Statements

On March 14, 2017, the Audit Committee of our Board of Directors, in consultation with management and our current and former independent registered public accounting firms, concluded that our previously issued consolidated financial statements for the fiscal years 2014 and 2015, (including each of the four quarters within fiscal year 2015) as well as for the first three quarters of fiscal year 2016 needed to be restated to correct errors related to revenue recognition and bonus accruals, as well as other adjustments. The effects of the Restatement are reflected in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” See the Explanatory Note included in the front section of this report and Note 2. “Restatement of Previously Issued Consolidated Financial Statements” for more information regarding the Restatement and the specific changes to our previously issued financial statements.

The error related to the recognition of revenue for the portion of warranty contract revenue associated with administration

services is reflected entirely within the results of operations for our Specialty Risk and Extended Warranty segment, while the

remaining errors are reflected within the results of operations of all of our segments.

We included restated consolidated financial statements for fiscal years 2014 and 2015 in Note 3. “Restatement of Previously Issued Consolidated Financial Statements” of our Annual Report on Form 10-K for the year ended December 31, 2016. The financial information that had been previously filed or otherwise reported for the three and six months ended June 30, 2015 and 2016 is superseded by the information in this report, and the financial statements and related financial information contained in such previously filed reports should no longer be relied upon.

The following summary further describes our principal revenue and expense measures and key ratios that we use to evaluate our results of operations:

Gross Written Premium. Gross written premium represents estimated premiums from each insurance policy that we write, including as a servicing carrier for assigned risk plans, during a reporting period based on the effective date of the individual policy. Certain policies that we underwrite are subject to premium audit at that policy’s cancellation or expiration. The final actual gross premiums written may vary from the original estimate based on changes to the final rating parameters or classifications of the policy.

Net Written Premium. Net written premium is gross written premium less that portion of premium that we ceded to third party reinsurers under reinsurance agreements. The amount ceded under these reinsurance agreements is based on the contractual formula contained in the individual reinsurance agreements.

Net Earned Premium. Net earned premium is the earned portion of our net written premiums. We earn insurance premiums on a pro-rata basis over the term of the policy. At the end of each reporting period, premiums written that are not earned are classified as unearned premiums, which are earned in subsequent periods over the remaining term of the policy. Our workers’ compensation insurance and commercial package policies typically have a term of one year. Thus, for a one-year policy written on July 1, 2015 for an employer with a constant payroll during the term of the policy, we would earn half of the premiums in 2015 and the other half in 2016. We earn our specialty risk and extended warranty coverages over the estimated exposure time period. The terms vary depending on the risk. The coverages range in duration from one month to 120 months. Our U.S. warranty business has an average duration of 57 months, while our European warranty business has an average duration of 43 months and our European casualty business has an average duration of 12 months.

Service and Fee Income. We currently generate service and fee income from the following sources:


•	Product warranty registration and service — Our Specialty Risk and Extended Warranty business generates fee revenue for product warranty registration and claims handling services provided to unaffiliated third party retailers, manufacturers and dealerships. Additionally, we provide credit monitoring services for a fee.


•	Servicing carrier — We act as a servicing carrier for workers’ compensation assigned risk plans in multiple states. In addition, we also offer claims adjusting and loss control services for fees to unaffiliated third parties.

•

Management services — We provide services to insurance consumers, traditional insurers and insurance producers by offering flexible and cost effective alternatives to traditional insurance tools in the form of various risk retention groups and captive management companies, as well as management of workers’ compensation and commercial property programs. We also offer programs and alternative funding options for non-profit and public sector organizations for the management of their state unemployment insurance obligations.

•

Insurance fees — We recognize fee income associated with the issuance of workers’ compensation policies for installment fees, in jurisdictions where it is permitted and approved, and reinstatement fees, which are fees charged to reinstate a policy after it has been canceled for non-payment, in jurisdictions where it is permitted and approved. Additionally, we recognize broker commissions and policy management fees associated with general liability policies placed by one of our managing general agencies.


•	Broker services — We provide brokerage services to Maiden Holdings Ltd. ("Maiden") in connection with our reinsurance agreement for which we receive a fee.


•	Asset management services — We currently manage the investment portfolios of certain subsidiaries of Maiden, National General Holdings Corp. ("NGHC") and ACP Re, Ltd. ("ACP Re") for which we receive a management fee.


•	Information technology services — We provide information technology and printing and mailing services to NGHC and its affiliates for a fee.

Net Investment Income and Realized Gains and (Losses). We invest our statutory surplus funds and the funds supporting our insurance liabilities primarily in cash and cash equivalents, fixed maturity and equity securities. Our net investment income includes

interest and dividends earned on our invested assets. We report net realized gains and losses on our investments separately from our net investment income. Net realized gains occur when we sell our investment securities for more than their costs or amortized costs, as applicable. Net realized losses occur when we sell our investment securities for less than their costs or amortized costs, as applicable, or we write down the investment securities as a result of other-than-temporary impairment. We classify equity securities and our fixed maturity securities primarily as available-for-sale. We report net unrealized gains (losses) on those securities classified as available-for-sale separately within accumulated other comprehensive income on our balance sheet. Additionally, we have a small portfolio of equity securities classified as trading securities. We report unrealized gains (losses) on those securities classified as trading securities within realized gains (losses).

Loss and Loss Adjustment Expenses Incurred. Loss and loss adjustment expenses (“LAE”) incurred represent our largest expense item and, for any given reporting period, include estimates of future claim payments, changes in those estimates from prior reporting periods and costs associated with investigating, defending and servicing claims. These expenses fluctuate based on the amount and types of risks we insure. We record loss and loss adjustment expenses related to estimates of future claim payments based on case-by-case valuations and statistical analysis. We seek to establish all reserves at the most likely ultimate exposure based on our historical claims experience. It is typical for our more serious bodily injury claims to take several years to settle and we revise our estimates as we receive additional information about the condition of injured employees and claimants and the costs of their medical treatment. Our ability to estimate loss and loss adjustment expenses accurately at the time of pricing our insurance policies is a critical factor in our profitability.

Acquisition Costs and Other Underwriting Expenses. Acquisition costs and other underwriting expenses consist of policy acquisition expenses, salaries and benefits and general and administrative expenses, net of ceding commissions. These items are described below:

•

Policy acquisition expenses comprise commissions directly attributable to those agents, wholesalers or brokers that produce premiums written on our behalf. In most instances, we pay commissions based on collected premium, which reduces our credit risk exposure associated with producers in case a policyholder does not pay a premium. We pay state and local taxes, licenses and fees, assessments and contributions to various state guaranty funds based on our premiums or losses in each state. Surcharges that we may be required to charge and collect from insureds in certain jurisdictions are recorded as accrued liabilities, rather than expense. These expenses are offset by ceding commissions received.

•

Salaries and benefits expenses are those salaries and benefits expenses for employees that are directly involved in the origination, issuance and maintenance of policies, claims adjustment and accounting for insurance transactions that are associated with successful acquisition of insurance contracts. We classify salaries and benefits associated with employees that are involved in fee generating activities as other expenses.


•	General and administrative expenses are comprised of other costs associated with our insurance activities, such as federal excise tax, postage, telephones and internet access charges, as well as legal and auditing fees and board and bureau charges.

•

Ceding commission on reinsurance transactions is a commission we receive from ceding gross written premium to third party reinsurers, and is netted against acquisition costs and other underwriting expenses. In connection with the Maiden Quota Share, which is our primary source of ceding commissions, the amount we receive is a blended rate based on a contractual formula contained in the individual reinsurance agreements, and the rate may not correlate specifically to the cost structure of the individual segments. The ceding commissions we receive cover a portion of our capitalized direct acquisition costs and a portion of other underwriting expenses. Ceding commissions received from reinsurance transactions that represent recovery of capitalized direct acquisition costs are recorded as a reduction of capitalized unamortized deferred acquisition costs and the net amount is charged to expense in proportion to net premium revenue recognized. Ceding commissions received from reinsurance transactions that represent the recovery of other underwriting expenses are recognized in the income statement over the insurance contract period in proportion to the insurance protection provided and classified as a reduction of acquisition costs and other underwriting expenses. Ceding commissions received, but not yet earned, that represent the recovery of other underwriting expenses are classified as a component of accrued expenses and other current liabilities. We allocate earned ceding commissions to our segments based on each segment’s proportionate share of total acquisition costs and other underwriting expenses recognized during the period.

Gain (loss) on Investment in Life Settlement Contracts. The gain (loss) on investment in life settlement contracts includes the gain (loss) on acquisition of life settlement contracts, the gain (loss) realized upon a mortality event and the change in fair value of the investments in life settlements as evaluated at the end of each reporting period. We determine fair value based upon our estimate of the discounted cash flow related to policies (net of reserves for improvements in mortality, the possibility that the

high net worth individuals represented in our portfolio may have access to better health care, the volatility inherent in determining the life expectancy of insureds with significant reported health impairments, the possibility that the issuer of the policy or a third party will contest the payment of the death benefit payable to us and the future expenses related to the administration of the portfolio), which incorporates current life expectancy assumptions, premium payments, credit exposure to the insurance companies that issued the life insurance policies and the rate of return that a buyer would require on the policies as no comparable market pricing is available. The gain (loss) realized upon a mortality event is the difference between the death benefit received and the recorded fair value of that particular policy. We allocate gain (loss) on investment in life settlement contracts to our segments based on gross written premium by segment.

Net Loss Ratio. The net loss ratio is a measure of the underwriting profitability of an insurance company's business. Expressed as a percentage, this is the ratio of net losses and LAE incurred to net premiums earned.

Net Expense Ratio. The net expense ratio is a measure of an insurance company’s operational efficiency in administering its business. Expressed as a percentage, this is the ratio of the sum of acquisition costs and other underwriting expenses to net premiums earned. As we allocate certain acquisition costs and other underwriting expenses based on premium volume to our segments, net loss ratio on a segment basis may be impacted period over period by a shift in the mix of net written premium.

Net Combined Ratio. The net combined ratio is a measure of an insurance company's overall underwriting profit. This is the sum of the net loss and net expense ratios. If the net combined ratio is at or above 100 percent, an insurance company cannot be profitable without investment income, and may not be profitable if investment income is insufficient.

Net Premiums Earned less Expenses Included in Combined Ratio (Underwriting Income). Underwriting income is a measure of an insurance company’s overall operating profitability before items such as investment income, interest expense and income taxes.

Return on Equity. We calculate return on equity by dividing net income by the average of shareholders’ equity.

Critical Accounting Policies

Our discussion and analysis of our results of operations, financial condition and liquidity are based upon our consolidated financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles. The preparation of these financial statements requires us to make estimates and judgments that affect the amounts of assets and liabilities, revenues and expenses and disclosure of contingent assets and liabilities as of the date of the financial statements. As more information becomes known, these estimates and assumptions could change, which would have an impact on actual results that may differ materially from these estimates and judgments under different assumptions. We have not made any changes in estimates or judgments that have had a significant effect on the reported amounts as previously disclosed in our Annual Report on Form 10-K for the fiscal period ended December 31, 2015.

We implemented a two-for-one stock split on February 2, 2016. As a result, we retrospectively adjusted all share and per share amounts in the accompanying consolidated financial statements and notes to the consolidated financial statements to apply the effect of the stock split for all periods presented.

Results of Operations

Consolidated Results of Operations for the Three and Six Months Ended June 30, 2016 and 2015 (Unaudited)



	Three Months Ended June 30,						Six Months Ended June 30,
	2016			2015			2016			2015
(Amounts in Thousands)	(As restated)			(As restated)			(As restated)			(As restated)
Gross written premium	$	2,073,112		$	1,678,388		$	4,006,186		$	3,409,524

Net written premium	$	1,268,436		$	1,008,721		$	2,489,115		$	2,051,910
Change in unearned premium	(86,684		)	(39,751		)	(233,081		)	(133,563		)
Net earned premium	1,181,752			968,970			2,256,034			1,918,347
Service and fee income (related parties - three months $21,608; $21,281 and six months $41,771; $38,685)	124,306			96,160			253,111			198,279
Net investment income	50,745			36,283			100,160			70,856
Net realized and unrealized gain (loss) on investments	15,099			(2,642		)	23,074			13,011
Total revenues	1,371,902			1,098,771			2,632,379			2,200,493
Loss and loss adjustment expense	784,393			638,475			1,499,466			1,251,758
Acquisition costs and other underwriting expenses (net of ceding commission - related party - three months $145,610; $129,222 and six months $284,001; $247,909)	294,477			246,172			566,945			478,953
Other	134,344			101,136			263,611			202,096
Total expenses	1,213,214			985,783			2,330,022			1,932,807
Income before other income (expense), provision for income taxes, equity in earnings of unconsolidated subsidiaries and non-controlling interest	158,688			112,988			302,357			267,686
Other income (loss):
Interest expense (net of interest income - related party - three months $2,187; $2,211 and six months $4,375; $4,399)	(17,912		)	(11,472		)	(33,786		)	(23,553		)
Loss on extinguishment of debt	—			—			—			(4,714		)
Net gain on investment in life settlement contracts net of profit commission	12,676			3,096			23,406			14,469
Foreign currency loss	(28,995		)	(61,852		)	(67,228		)	(37,195		)
Gain on acquisition	39,097			—			48,775			—
Total other (loss) income	4,866			(70,228		)	(28,833		)	(50,993		)
Income before provision for income taxes, equity in earnings (loss) of unconsolidated subsidiaries and non-controlling interest	163,554			42,760			273,524			216,693
Provision for income taxes	23,807			(8,969		)	42,767			27,524
Income before equity in earnings of unconsolidated subsidiaries	139,747			51,729			230,757			189,169
Equity in earnings of unconsolidated subsidiaries – related parties	4,802			4,042			10,578			9,571
Net income	144,549			55,771			241,335			198,740
Net income attributable to non-controlling interest and redeemable non-controlling interest of subsidiaries	(5,817		)	(1,346		)	(9,834		)	(5,429		)
Net income attributable to AmTrust Financial Services, Inc.	138,732			54,425			231,501			193,311
Dividends on preferred stock	(11,576		)	(8,639		)	(20,367		)	(14,008		)
Net income attributable to AmTrust common shareholders	$	127,156		$	45,786		$	211,134		$	179,303

Net realized gain (loss) on investments:
Total other-than-temporary impairment loss	$	(16,956	)	$	(1,466	)	$	(16,956	)	$	(2,482	)
Portion of loss recognized in other comprehensive income	—			—			—			—
Net impairment losses recognized in earnings	(16,956		)	(1,466		)	(16,956		)	(2,482		)
Net realized gain (loss) on available for sale securities	33,391			(856		)	38,663			15,813
Net unrealized gain on trading securities	(1,336		)	(320		)	1,367			(320		)
Net realized investment gain (loss)	$	15,099		$	(2,642	)	$	23,074		$	13,011

Key measures:
Net loss ratio	66.4		%	65.9		%	66.5		%	65.3		%
Net expense ratio	24.9		%	25.4		%	25.1		%	24.5		%
Net combined ratio	91.3		%	91.3		%	91.6		%	89.8		%

Consolidated Results of Operations for the Three Months Ended June 30, 2016 and 2015 (Unaudited)

Gross Written Premium. Gross written premium increased $394.7 million, or 23.5%, to $2,073.1 million from $1,678.4 million for the three months ended June 30, 2016 and 2015, respectively. The increase of $394.7 million was attributable to growth primarily in our Small Commercial Business and Specialty Risk and Extended Warranty segments. The majority of the increase in the Small Commercial Business segment was attributable to an increase in the number of workers' compensation policies issued and the acquisition of Republic, which produced $153 million of gross written premium during the three months ended June 30, 2016. The increase in our Specialty Risk and Extended Warranty segment was attributable to our acquisition of Warranty Solutions in September 2015, expansion of our existing programs in Europe, and growth within our Lloyd's platform.

Net Written Premium. Net written premium increased $259.7 million, or 25.7%, to $1,268.4 million from $1,008.7 million for the three months ended June 30, 2016 and 2015, respectively. The increase by segment was: Small Commercial Business - $84.2 million, Specialty Risk and Extended Warranty - $140.3 million and Specialty Program – $35.2 million. Net written premium increased for the three months ended June 30, 2016 compared to the same period in 2015 due to the increase in gross written premium, and an increase in the retention of gross written premium to 61.2% from 60.1% for the three months ended June 30, 2016 and 2015, respectively. The increase in retention resulted from a decrease, as compared to 2015, in business written that is reinsured under the Maiden Quota Share agreement.

Net Earned Premium. Net earned premium increased $212.8 million, or 22.0%, to $1,181.8 million from $969.0 million for the three months ended June 30, 2016 and 2015, respectively. The increase by segment was: Small Commercial Business — $89.9 million, Specialty Risk and Extended Warranty — $73.9 million and Specialty Program — $48.9 million. The increase in net earned premium resulted from an increase in gross written premium in the second quarter of 2016 compared to the second quarter of 2015.

Service and Fee Income. Service and fee income increased $28.1 million, or 29.3%, to $124.3 million from $96.2 million for the three months ended June 30, 2016 and 2015, respectively. Approximately $21 million of the increase is attributable to acquisitions, primarily Warranty Solutions. Fees for product warranty registration and claims handling services increased by approximately $5 million. Fees for services provided to Maiden, NGHC and ACP Re were flat period over period.

Net Investment Income. Net investment income increased $14.5 million, or 39.9%, to $50.7 million from $36.3 million for the three months ended June 30, 2016 and 2015, respectively. The increase resulted primarily from having a higher average value of fixed maturity securities during the three months ended June 30, 2016 compared to the same period in 2015, arising from our investment of certain proceeds from stock and debt offerings since the second half of 2015 and income from investment portfolios obtained in acquisitions.

Net Realized Gains/(Loss) on Investments. We had a net realized gain on investments of $15.1 million and a net realized loss on investments of $2.6 million for the three months ended June 30, 2016 and 2015, respectively. The increase related primarily to an increase in sales of securities in gain positions. Net realized gain/(loss) on investments were partially offset by a recognition of a loss of $0.3 million in 2016 compared to a gain of $1.4 million in 2015 on investments classified as trading securities. In addition, we had realized losses for other-than-temporary impairment of securities during the three months ended June 30, 2016 and 2015 of $17.0 million and $1.5 million, respectively.

Loss and Loss Adjustment Expenses. Loss and loss adjustment expenses increased $145.9 million, or 22.9%, to $784.4 million for the three months ended June 30, 2016 from $638.5 million for the three months ended June 30, 2015. Our loss ratio for the three months ended June 30, 2016 and 2015 was 66.4% and 65.9%, respectively. The increase in the loss ratio resulted from higher selected ultimate losses for current and prior accident years as compared to originally selected ultimate losses in prior accident years primarily in our Small Commercial Business segment. This was the result, primarily, of revisions to our ultimate losses on certain casualty lines in our Small Commercial Business segment due to an increase in our carried incurred but not reported claim reserves. Although our loss ratio increased as compared to the second quarter of 2015, it decreased when compared to the last three quarters on a sequential basis when the loss ratio, on average, was 67.5%. The decrease as compared to the last three sequential quarters resulted primarily from a stabilizing of our ultimate losses on certain casualty lines in our European specialty risk and extended warranty business. We did not have any material increases or decreases as a result of prior year loss development.

Acquisition Costs and Other Underwriting Expenses. Acquisition costs and other underwriting expenses increased $48.3 million, or 19.6%, to $294.5 million for the three months ended June 30, 2016 from $246.2 million for the three months ended June 30, 2015. Acquisition costs and other underwriting expenses in each period were reduced by ceding commission primarily earned through the Maiden Quota Share, through which we receive a ceding commission of 31% of premiums ceded for all business

except retail commercial package business, and 34.375% for retail commercial package business. The ceding commission earned during the three months ended June 30, 2016 and 2015 was $146.9 million and $129.2 million, respectively. Ceding commission increased period over period as a result of increases in gross written premium, partially offset by the retention of a larger percentage of our gross written premium. Our overall expense ratio decreased period over period as a percentage of earned premium, and was 24.9% and 25.4% during the three months ended June 30, 2016 and 2015, respectively. The decrease in the expense ratio primarily reflects higher earned premium growth with a minimal increase in underwriting expenses.

Income Before Other Income (Expense), Income Taxes and Equity Earnings of Unconsolidated Subsidiaries. Income before other income (expense), income taxes and equity earnings of unconsolidated subsidiaries increased $45.7 million, or 40.4%, to $158.7 million for the three months ended June 30, 2016 from $113.0 million for the three months ended June 30, 2015. The $45.7 million increase resulted primarily from an increase in investment income and realized gains. Additionally, we benefited from an increase in earned premium and a consistent combined ratio.

Net Interest Expense. Net interest expense for the three months ended June 30, 2016 was $17.9 million, compared to $11.5 million for the same period in 2015. The majority of the increase related to additional interest expense incurred from the issuance of $285 million of subordinated notes in June and September 2015, and increased use of letters of credit.

Net Gain (Loss) on Investment in Life Settlement Contracts Net of Profit Commission. We recognized gains on investment in life settlement contracts of $12.7 million for the three months ended June 30, 2016 compared to $3.1 million for the three months ended June 30, 2015. The increase in the recognized gain related to an increase in the fair value of the portfolio of policies, partially offset by increases in commission expense. Three policies matured during the three months ended June 30, 2016 and two policies matured during the three months ended June 30, 2015.

Foreign Currency Gain (Loss). The foreign currency transaction loss was $29.0 million during the three months ended June 30, 2016 compared to a transaction loss of $61.9 million during the same period in 2015. The loss during the three months ended June 30, 2016 resulted from the weakening of the British pound sterling compared to the Euro, which negatively impacted our European insurance subsidiaries that write Euro-denominated risks that are re-valued at the end of each reporting period.

Provision for Income Tax. Income tax provision for the three months ended June 30, 2016 was $23.8 million, which resulted in an effective tax rate of 14.6%, compared to an income tax benefit of $9.0 million, which resulted in an effective tax rate of (21.0)% for the three months ended June 30, 2015. We did not have any benefit from utilization of equalization reserves of our Luxembourg reinsurers in either period. The overall increase in the effective tax rate in the three months ended June 30, 2016 compared to the three months ended June 30, 2015 resulted from a change in profitability by jurisdiction, an increase in unfavorable permanent adjustments, related primarily to deemed income inclusions on our U.S. federal income tax return from foreign operations, and the release of a valuation allowance on a deferred tax asset in the second quarter of 2016.

Equity in Earnings of Unconsolidated Subsidiaries - Related Parties. Equity in earnings of unconsolidated subsidiaries - related parties was $4.8 million and $4.0 million for the three months ended June 30, 2016 and 2015, respectively. Our earnings from our equity investment was stable period over period.

Consolidated Results of Operations for the Six Months Ended June 30, 2016 and 2015 (Unaudited)

Gross Written Premium. Gross written premium increased $596.7 million, or 17.5%, to $4,006.2 million from $3,409.5 million for the six months ended June 30, 2016 and 2015, respectively. The increase of $596.7 million was attributable to growth in our Small Commercial Business and Specialty Risk and Extended Warranty segments. The majority of the increase in the Small Commercial Business segment was attributable to an increase in the number of workers' compensation policies issued and the acquisition of Republic. The increase in our Specialty Risk and Extended Warranty segment was attributable to our acquisition of Warranty Solutions in September 2015, expansion of our existing programs in Europe, and growth within our Lloyd's platform.

Net Written Premium. Net written premium increased $437.2 million, or 21.3%, to $2,489 million from $2,051.9 million for the six months ended June 30, 2016 and 2015, respectively. The increase by segment was: Small Commercial Business - $185.5 million, Specialty Risk and Extended Warranty - $190.4 million and Specialty Program – $61.3 million. Net written premium increased for the six months ended June 30, 2016 compared to the same period in 2015 due to the increase in gross written premium, and an increase in the retention of gross written premium to 62.1% from 60.2% for the six months ended June 30, 2016 and 2015, respectively. The increase in retention resulted from a decrease, as compared to 2015, in business written that is reinsured under the Maiden Quota Share agreement.

Net Earned Premium. Net earned premium increased $337.7 million, or 17.6%, to $2,256.0 million from $1,918.3 million for the six months ended June 30, 2016 and 2015, respectively. The increase by segment was: Small Commercial Business — $170.0

million, Specialty Risk and Extended Warranty — $66.6 million and Specialty Program — $101.0 million. The increase in net earned premium resulted from an increase in gross written premium in the first six months of 2016 compared to the first six months of 2015.

Service and Fee Income. Service and fee income increased $54.8 million, or 27.7%, to $253.1 million from $198.3 million for the six months ended June 30, 2016 and 2015, respectively. Approximately $45 million of the increase is attributable to acquisitions, primarily Warranty Solutions. Fees for services provided to Maiden, NGHC and ACP Re increased by approximately $3 million and fees for product warranty registration and claims handling services increased by $7 million.

Net Investment Income. Net investment income increased $29.3 million, or 41.4%, to $100.2 million from $70.9 million for the six months ended June 30, 2016 and 2015, respectively. The increase resulted primarily from having a higher average value of fixed maturity securities during the six months ended June 30, 2016 compared to the same period in 2015, arising from our investment of certain proceeds from stock and debt offerings since the second half of 2015 and investment portfolios obtained through acquisitions.

Net Realized Gains/(Loss) on Investments. We had net realized gains on investments of $23.1 million and $13.0 million for the six months ended June 30, 2016 and 2015, respectively. The increase related primarily to an increase in sales of securities in gain positions. We had realized losses from other-than-temporary impairment of securities of $17.0 million and $2.5 million during the six months ended June 30, 2016 and 2015, respectively. Additionally, net realized gains included a recognition of a gain of $2.5 million in 2016 compared to a gain of $2.2 million in 2015 on investments classified as trading securities.

Loss and Loss Adjustment Expenses. Loss and loss adjustment expenses increased $247.7 million, or 19.8%, to $1,499 million for the six months ended June 30, 2016 from $1,251.8 million for the six months ended June 30, 2015. Our loss ratio for the six months ended June 30, 2016 and 2015 was consistent period to period and was 66.5% and 65.3%, respectively. The increase in the loss ratio resulted from higher selected ultimate losses for current and prior accident years as compared to originally selected ultimate losses in prior accident years across all three segments. We did not have any material increases or decreases as a result of prior year loss development.

Acquisition Costs and Other Underwriting Expenses. Acquisition costs and other underwriting expenses increased $88.0 million, or 18.4%, to $566.9 million for the six months ended June 30, 2016 from $479.0 million for the six months ended June 30, 2015. Acquisition costs and other underwriting expenses in each period were reduced by ceding commission primarily earned through the Maiden Quota Share, through which we receive a ceding commission of 31% of premiums ceded for all business except retail commercial package business, and 34.375% for retail commercial package business. The ceding commission earned during the six months ended June 30, 2016 and 2015 was $286.5 million and $247.9 million, respectively. Ceding commission increased period over period as a result of increases in gross written premium, partially offset by the retention of a larger percentage of our gross written premium. Our overall expense ratio increased period over period as a percentage of earned premium, and was 25.1% and 24.5% during the six months ended June 30, 2016 and 2015, respectively. The increase was primarily due to higher policy acquisition expenses in our Small Commercial Business segment and higher salary expense in our Specialty Risk and Extended Warranty segment.

Income Before Other Income (Expense), Income Taxes and Equity Earnings of Unconsolidated Subsidiaries. Income before other income (expense), income taxes and equity earnings of unconsolidated subsidiaries increased $34.7 million, or 13.0%, to $302.4 million for the six months ended June 30, 2016 from $267.7 million for the six months ended June 30, 2015. The $34.7 million increase resulted primarily from an increase in investment income and realized gains. Additionally, we benefited from an increase in earned premium, partially offset by a higher combined ratio.

Net Interest Expense. Net interest expense for the six months ended June 30, 2016 was $33.8 million, compared to $23.6 million for the same period in 2015. The majority of the increase related to additional interest expense incurred from the issuance of $285 million of subordinated notes in June and September 2015, which was approximately $10 million. Additionally, we incurred additional interest expense related to additional debt or assumed debt associated with the Republic acquisition, and an overall increase in use of letters of credit.

Net Gain (Loss) on Investment in Life Settlement Contracts Net of Profit Commission. We recognized gains on investment in life settlement contracts of $23.4 million for the six months ended June 30, 2016 compared to $14.5 million for the six months ended June 30, 2015. The increase in the recognized gain related to an increase in the fair value of the portfolio of policies, partially offset by an increases in commission expense. Three policies matured during the six months ended June 30, 2016 and five policies matured during the six months ended June 30, 2015.

Foreign Currency Gain (Loss). The foreign currency transaction loss was $67.2 million during the six months ended June 30, 2016 compared to a transaction loss of $37.2 million during the same period in 2015, both of which resulted from fluctuations in exchange rates related to internal reinsurance transactions between our European insurance companies and our Bermuda reinsurance company.

Provision for Income Tax. Income tax provision for the six months ended June 30, 2016 was $42.8 million, which resulted in an effective tax rate of 15.6%, compared to an income tax benefit of $27.5 million, which resulted in an effective tax rate of 12.7% for the six months ended June 30, 2015. The overall increase in the effective tax rate in the six months ended June 30, 2016 compared to the six months ended June 30, 2015 resulted from an increase in unfavorable permanent adjustments related to income inclusions on our U.S. federal income tax return from foreign operations and the release of a valuation allowance on a deferred tax asset in the second quarter of 2016.

Equity in Earnings of Unconsolidated Subsidiaries - Related Parties. Equity in earnings of unconsolidated subsidiaries - related parties was $10.6 million and $9.6 million for the six months ended June 30, 2016 and 2015, respectively. Our earnings from our equity investment was stable period over period.

Small Commercial Business Segment Results of Operations for the Three and Six Months Ended June 30, 2016 and 2015 (Unaudited)



	Three Months Ended June 30,						Six Months Ended June 30,
	2016			2015			2016			2015
(Amounts in Thousands)	(As restated)			(As restated)			(As restated)			(As restated)
Gross written premium	$	1,060,558		$	875,828		$	2,126,690		$	1,776,947

Net written premium	$	601,638		$	517,392		$	1,226,166		$	1,040,632
Change in unearned premium	(28,660		)	(34,333		)	(149,094		)	(133,582		)
Net earned premium	572,978			483,059			1,077,072			907,050

Loss and loss adjustment expense	(382,950		)	(314,344		)	(715,634		)	(588,690		)
Acquisition costs and other underwriting expenses	(150,149		)	(129,217		)	(283,681		)	(239,287		)
	(533,099		)	(443,561		)	(999,315		)	(827,977		)
Underwriting income	$	39,879		$	39,498		$	77,757		$	79,073

Key measures:
Net loss ratio	66.8		%	65.1		%	66.4		%	64.9		%
Net expense ratio	26.2		%	26.7		%	26.4		%	26.4		%
Net combined ratio	93.0		%	91.8		%	92.8		%	91.3		%

Small Commercial Business Segment Results of Operations for the Three Months Ended June 30, 2016 and 2015 (Unaudited)

Gross Written Premium. Gross written premium increased $184.7 million, or 21.1%, to $1,060.6 million for the three months ended June 30, 2016 from $875.8 million for the three months ended June 30, 2015. The increase was attributable to an increase in the number of workers' compensation policies issued and the continued growth in California and New York. The acquisition of Republic contributed approximately $102 million of incremental gross written premium, and the acquisitions of ARI and Springfield contributed an additional $13 million of gross written premium for the three months ended June 30, 2016.

Net Written Premium. Net written premium increased $84.2 million, or 16.3%, to $601.6 million for the three months ended June 30, 2016 from $517.4 million for the three months ended June 30, 2015. The increase resulted from an increase in gross written premium for the three months ended June 30, 2016 compared to the same period in 2015, partially offset by a decrease in the retention of gross written premium during 2016 compared to 2015. Our retention of gross written premium for the segment was 56.7% and 59.1% for the three months ended June 30, 2016 and 2015, respectively.

Net Earned Premium. Net earned premium increased $89.9 million, or 18.6%, to $573.0 million for the three months ended June 30, 2016 from $483.1 million for the three months ended June 30, 2015. As premiums written are earned ratably over an annual period, the increase in net earned premium resulted from higher net written premium for the twelve months ended June 30, 2016 compared to the same period in 2015.

Loss and Loss Adjustment Expenses. Loss and loss adjustment expenses increased $68.6 million, or 21.8%, to $383.0 million for the three months ended June 30, 2016 from $314.3 million for the three months ended June 30, 2015. Our loss ratio for the segment for the three months ended June 30, 2016 increased to 66.8% compared to 65.1% for the three months ended June 30, 2015. The increase in the loss ratio was the result, primarily, of higher current accident year selected ultimate losses as compared to selected ultimate losses in the prior period, which related to growth in our non-workers' compensation business, to which we assign a higher ultimate loss selection. We did not have any material increases or decreases as a result of prior year loss development.

Acquisition Costs and Other Underwriting Expenses. Acquisition costs and other underwriting expenses increased $20.9 million, or 16.2%, to $150.1 million for the three months ended June 30, 2016 from $129.2 million for the three months ended June 30, 2015. Acquisition costs and other underwriting expenses were reduced by ceding commission of $73.8 million and $67.2 million earned during the three months ended June 30, 2016 and 2015, respectively. The ceding commission increased period over period as a result of an increase in net earned premium, as the segment received a consistent allocation of ceding commission for its proportionate share of our overall policy acquisition expense. The expense ratio was 26.2% and 26.7% for the three months ended June 30, 2016 and 2015, respectively. The decrease in the expense ratio primarily reflects higher earned premium growth with a minimal increase in underwriting expenses.

Net Earned Premiums less Expense Included in Combined Ratio (Underwriting Income). Net premiums earned less expenses included in combined ratio decreased $0.4 million, or 1.0%, to $39.9 million for the three months ended June 30, 2016 from $39.5 million for the three months ended June 30, 2015. The decrease resulted primarily from an increase in the combined ratio partially offset by a higher earned premium during the three months ended June 30, 2016 compared to the three months ended June 30, 2015.

Small Commercial Business Segment Results of Operations for the Six Months Ended June 30, 2016 and 2015 (Unaudited)

Gross Written Premium. Gross written premium increased $349.7 million, or 19.7%, to $2,126.7 million for the six months ended June 30, 2016 from $1,776.9 million for the six months ended June 30, 2015. The increase was attributable to an increase in the number of workers' compensation policies issued and the continued growth in California, New York and Florida. The acquisition of Republic contributed approximately $102 million of incremental gross written premium, and the acquisitions of ARI and Springfield contributed an additional $30 million of gross written premium for the six months ended June 30, 2016.

Net Written Premium. Net written premium increased $185.5 million, or 17.8%, to $1,226.2 million for the six months ended June 30, 2016 from $1,040.6 million for the six months ended June 30, 2015. The increase resulted from an increase in gross written premium for the six months ended June 30, 2016 compared to the same period in 2015, partially offset by a decrease in the retention of gross written premium during 2016 compared to 2015. Our retention of gross written premium for the segment was 57.7% and 58.6% for the six months ended June 30, 2016 and 2015, respectively.

Net Earned Premium. Net earned premium increased $170.0 million, or 18.7%, to $1,077.1 million for the six months ended June 30, 2016 from $907.1 million for the six months ended June 30, 2015. As premiums written are earned ratably over an annual period, the increase in net earned premium resulted from higher net written premium for the twelve months ended June 30, 2016 compared to the same period in 2015.

Loss and Loss Adjustment Expenses. Loss and loss adjustment expenses increased $126.9 million, or 21.6%, to $715.6 million for the six months ended June 30, 2016 from $588.7 million for the six months ended June 30, 2015. Our loss ratio for the segment for the six months ended June 30, 2016 increased to 66.4% compared to 64.9% for the six months ended June 30, 2015. The increase in the loss ratio was the result, primarily, of higher current accident year selected ultimate losses as compared to selected ultimate losses in the prior period, which related to growth in our non-workers' compensation business, to which we assign a higher ultimate loss selection. We did not have any material increases or decreases as a result of prior year loss development.

Acquisition Costs and Other Underwriting Expenses. Acquisition costs and other underwriting expenses increased $44.4 million, or 18.6%, to $283.7 million for the six months ended June 30, 2016 from $239.3 million for the six months ended June 30, 2015. Acquisition costs and other underwriting expenses were reduced by ceding commission of $142.6 million and $124.3 million earned during the six months ended June 30, 2016 and 2015, respectively. The ceding commission increased period over period as a result of an increase in net earned premium, as the segment received a consistent allocation of ceding commission for its

proportionate share of our overall policy acquisition expense. The expense ratio was 26.4% for both the six months ended June 30, 2016 and 2015, respectively.

Net Earned Premiums less Expense Included in Combined Ratio (Underwriting Income). Net premiums earned less expenses included in combined ratio decreased $1.3 million, or 1.7%, to $77.8 million for the six months ended June 30, 2016 from $79.1 million for the six months ended June 30, 2015. The decrease resulted primarily from an increase in the combined ratio, partially offset by an increase to earned premium during the six months ended June 30, 2016 compared to the six months ended June 30, 2015.

Specialty Risk and Extended Warranty Segment Results of Operations for the Three and Six Months Ended June 30, 2016 and 2015 (Unaudited)



	Three Months Ended June 30,						Six Months Ended June 30,
	2016			2015			2016			2015
(Amounts in Thousands)	(As restated)			(As restated)			(As restated)			(As restated)
Gross written premium	$	651,561		$	479,863		$	1,181,007		$	950,733

Net written premium	$	447,061		$	306,784		$	784,894		$	594,473
Change in unearned premium	(89,177		)	(22,816		)	(105,169		)	18,626
Net earned premium	357,884			283,968			679,725			613,099

Loss and loss adjustment expense	(231,328		)	(185,345		)	(442,264		)	(393,985		)
Acquisition costs and other underwriting expenses	(78,773		)	(58,442		)	(151,624		)	(129,254		)
	(310,101		)	(243,787		)	(593,888		)	(523,239		)
Underwriting income	$	47,783		$	40,181		$	85,837		$	89,860

Key measures:
Net loss ratio	64.6		%	65.3		%	65.1		%	64.3		%
Net expense ratio	22.0		%	20.6		%	22.3		%	21.0		%
Net combined ratio	86.6		%	85.9		%	87.4		%	85.3		%

Specialty Risk and Extended Warranty Segment Results of Operations for the Three Months Ended June 30, 2016 and 2015 (Unaudited)

Gross Written Premium. Gross written premium increased $171.7 million, or 35.8%, to $651.6 million for the three months ended June 30, 2016 from $479.9 million for the three months ended June 30, 2015. We experienced growth both domestically and in our European business during the three months ended June 30, 2016 compared to the three months ended June 30, 2015. The increase in our U.S. business was the result of organic growth and expansion of existing business along with the acquisition of Warranty Solutions, which contributed $22 million of gross written premium. Additionally, in our European business, we grew our core businesses and our Lloyd's business during the three months ended June 30, 2016 compared to the three months ended June 30, 2015. Fluctuations in European currencies reduced our gross written premiums during the second quarter of 2016 by approximately $24 million.

Net Written Premium. Net written premium increased $140.3 million, or 45.7%, to $447.1 million for the three months ended June 30, 2016 from $306.8 million for the three months ended June 30, 2015. The increase resulted from an increase of gross written premium for the three months ended June 30, 2016 compared to the same period in 2015 and an increase in our retention of gross written premium period over period. Our overall retention of gross written premium for the segment was 68.6% and 63.9% for the three months ended June 30, 2016 and 2015, respectively. The increase in the retention of gross written premium related to a decrease, as compared to 2015, in business that is reinsured under the Maiden Quota Share agreement.

Net Earned Premium. Net earned premium increased $73.9 million, or 26.0%, to $357.9 million for the three months ended June 30, 2016 from $284.0 million for the three months ended June 30, 2015. As net written premium is earned ratably over the term of a policy, the increase in net earned premium resulted from an increase in net written premium, partially offset by the writing of a higher mix of longer term business during the twelve months ended June 30, 2016 compared to the same period in 2015.

Loss and Loss Adjustment Expenses. Loss and loss adjustment expenses increased $46.0 million, or 24.8%, to $231.3 million for the three months ended June 30, 2016 from $185.3 million for the three months ended June 30, 2015. Our loss ratio for the segment for the three months ended June 30, 2016 decreased to 64.6% compared to 65.3% for the same period in 2015. The decrease in the loss ratio resulted from slightly lower selected ultimate losses for current accident years as compared to originally selected ultimate losses in prior accident years. The decrease resulted primarily from a stabilizing of our ultimate losses on certain casualty lines in our European specialty risk and extended warranty business. We did not have any material increases or decreases as a result of prior year loss development.

Acquisition Costs and Other Underwriting Expenses. Acquisition costs and other underwriting expenses increased $20.3 million, or 34.8%, to $78.8 million for the three months ended June 30, 2016 from $58.4 million for the three months ended June 30, 2015. Acquisition costs and other underwriting expenses were reduced by ceding commission of $38.8 million and $31.8 million earned during the three months ended June 30, 2016 and 2015, respectively. The ceding commission was consistent period over period as the segment received a consistent allocation of ceding commission for its proportionate share of our overall policy acquisition expense. The expense ratio was 22.0% for the three months ended June 30, 2016 from 20.6% for the three months ended June 30, 2015. The increase in the expense ratio resulted from increases in salary expense.

Net Earned Premiums less Expenses Included in Combined Ratio (Underwriting Income). Net earned premiums less expenses included in combined ratio increased $7.6 million, or 18.9%, to $47.8 million for the three months ended June 30, 2016 from $40.2 million for the three months ended June 30, 2015. The increase was attributable to an increase in the segment's earned premium partially offset by an increase in the segment’s combined ratio during the three months ended June 30, 2016 compared to the three months ended June 30, 2015.

Specialty Risk and Extended Warranty Segment Results of Operations for the Six Months Ended June 30, 2016 and 2015 (Unaudited)

Gross Written Premium. Gross written premium increased $230.3 million, or 24.2%, to $1,181.0 million for the six months ended June 30, 2016 from $950.7 million for the six months ended June 30, 2015. We experienced growth both domestically and in our European business during the six months ended June 30, 2016 compared to the six months ended June 30, 2015. In our European business we grew our core businesses, which includes warranty and general liability products. Additionally, we grew our Lloyd's business during the first half of 2016 compared to the same period in 2015. Fluctuations in European currencies reduced our gross written premiums during the first half of 2016 by approximately $38 million. Our U.S. business increased during the six months ended June 30, 2016 compared to the six months ended June 30, 2015, primarily based on growth in existing businesses and the acquisition of Warranty Solutions.

Net Written Premium. Net written premium increased $190.4 million, or 32.0%, to $784.9 million for the six months ended June 30, 2016 from $594.5 million for the six months ended June 30, 2015 as a result of an increase of gross written premium for the six months ended June 30, 2016 compared to the same period in 2015, and an increase in our retention of gross written premium period over period. Our overall retention of gross written premium for the segment was 66.5% and 62.5% for the six months ended June 30, 2016 and 2015, respectively. The increase in the retention of gross written premium related to a decrease, as compared to 2015, in business that is reinsured under the Maiden Quota Share agreement.

Net Earned Premium. Net earned premium increased $66.6 million, or 10.9%, to $679.7 million for the six months ended June 30, 2016 from $613.1 million for the six months ended June 30, 2015. Net earned premium increased due to an increase in net written premium, which was partially offset by the writing of a higher mix of longer term business during the twelve months ended June 30, 2016 compared to the same period in 2015, which is earned ratably over the term of a policy.

Loss and Loss Adjustment Expenses. Loss and loss adjustment expenses increased $48.3 million, or 12.3%, to $442.3 million for the six months ended June 30, 2016 from $394.0 million for the six months ended June 30, 2015. Our loss ratio for the segment for the six months ended June 30, 2016 increased to 65.1% compared to 64.3% for the same period in 2015. The increase in the loss ratio resulted from having a higher percentage of earned premium in lines of business with higher ultimate loss selections during the six months ended June 30, 2016 compared to the six months ended June 30, 2015. We did not have any material increases or decreases as a result of prior year loss development.

Acquisition Costs and Other Underwriting Expenses. Acquisition costs and other underwriting expenses increased $22.4 million, or 17.3%, to $151.6 million for the six months ended June 30, 2016 from $129.3 million for the six months ended June 30, 2015. Acquisition costs and other underwriting expenses were reduced by ceding commission of $75.3 million and $67.7 million earned during the six months ended June 30, 2016 and 2015, respectively. The ceding commission was consistent period over period as the segment received a consistent allocation of ceding commission for its proportionate share of our overall policy acquisition expense. The expense ratio was 22.3% for the six months ended June 30, 2016 from 21.0% for the six months ended June 30, 2015. The increase in the expense ratio resulted from increases in salary expense.

Net Earned Premiums less Expenses Included in Combined Ratio (Underwriting Income). Net earned premiums less expenses included in combined ratio decreased $4.0 million, or 4.5%, to $85.8 million for the six months ended June 30, 2016 from $89.9 million for the six months ended June 30, 2015. The decrease was attributable to an increase in the segment's combined ratio, partially offset by an increase in the segment’s earned premium during the six months ended June 30, 2016 compared to the six months ended June 30, 2015.

Specialty Program Segment Results of Operations for The Three and Six Months Ended June 30, 2016 and 2015 (Unaudited)



	Three Months Ended June 30,						Six Months Ended June 30,
	2016			2015			2016			2015
(Amounts in Thousands)	(As restated)			(As restated)			(As restated)			(As restated)
Gross written premium	$	360,993		$	322,697		$	698,489		$	681,844

Net written premium	$	219,737		$	184,545		$	478,055		$	416,805
Change in unearned premium	31,153			17,398			21,182			(18,607		)
Net earned premium	250,890			201,943			499,237			398,198

Loss and loss adjustment expense	(170,115		)	(138,786		)	(341,568		)	(269,083		)
Acquisition costs and other underwriting expenses	(65,555		)	(58,513		)	(131,640		)	(110,412		)
	(235,670		)	(197,299		)	(473,208		)	(379,495		)
Underwriting income	$	15,220		$	4,644		$	26,029		$	18,703

Key measures:
Net loss ratio	67.8		%	68.7		%	68.4		%	67.6		%
Net expense ratio	26.1		%	29.0		%	26.4		%	27.7		%
Net combined ratio	93.9		%	97.7		%	94.8		%	95.3		%

Specialty Program Segment Results of Operations for the Three Months Ended June 30, 2016 and 2015 (Unaudited)

Gross Written Premium. Gross written premium increased $38.3 million, or 11.9%, to $361.0 million for the three months ended June 30, 2016 from $322.7 million for the same period in 2015. The majority of the increase resulted from the acquisition of Republic, which was $52 million, and an increase in new commercial package programs during the three months ended June 30, 2016. The increase was partially offset by the termination or curtailment of certain workers' compensation programs and commercial package programs.

Net Written Premium. Net written premium increased $35.2 million, or 19.1%, to $219.7 million for the three months ended June 30, 2016 from $184.5 million for the same period in 2015 as a result of an increase in gross written premium for the three months ended June 30, 2016 compared to the three months ended June 30, 2015, and the cession of a smaller percentage of gross written premium to reinsurers during 2016 compared to 2015. Our overall retention of gross written premium for the segment was 60.9% and 57.2% for the three months ended June 30, 2016 and 2015, respectively. The increase in the retention of gross written premium related to an increase in business written that is not covered under the Maiden Quota Share.

Net Earned Premium. Net earned premium increased $48.9 million, or 24.2%, to $250.9 million for the three months ended June 30, 2016 from $201.9 million for the same period in 2015. As premiums written are earned ratably over an annual period, the increase in net premium earned resulted from higher net written premium for the annual period prior to the twelve months ended June 30, 2016 compared to the same period in 2015.

Loss and Loss Adjustment Expenses. Loss and loss adjustment expenses increased $31.3 million, or 22.6%, to $170.1 million for the three months ended June 30, 2016, compared to $138.8 million for the same period in 2015. Our loss ratio for the segment decreased to 67.8% compared to 68.7% for the three months ended June 30, 2016 and 2015, respectively. The decrease in the loss ratio resulted from lower selected ultimate losses for current and prior accident years as compared to originally selected ultimate losses in prior accident years. This was the result, primarily, of revisions to our selected ultimate losses on certain casualty lines due to a decrease in our incurred but not reported claim reserves. We did not have any material increases or decreases as a result of prior year loss development.

Acquisition Costs and Other Underwriting Expenses. Acquisition costs and other underwriting expenses increased $7.0 million, or 12.0%, to $65.6 million for the three months ended June 30, 2016 from $58.5 million for the same period in 2015. Acquisition costs and other underwriting expenses were reduced by ceding commission of $34.3 million and $30.7 million earned during the three months ended June 30, 2016 and 2015, respectively. The ceding commission increased period over period as a result of an increase in net earned premium, as the segment received its proportionate share of our overall policy acquisition expense. The

expense ratio was 26.1% for the three months ended June 30, 2016 compared to 29.0% for the three months ended June 30, 2015. The decrease in the expense ratio during the three months ended June 30, 2016 related to the issuance of a higher percentage of workers' compensation policies, which have lower policy acquisition costs than other types of business in this segment.

Net Earned Premiums less Expense Included in Combined Ratio (Underwriting Income). Net earned premiums less expenses included in combined ratio increased $10.6 million, or 228%, to $15.2 million for the three months ended June 30, 2016 from $4.6 million for the three months ended June 30, 2015. The increase resulted from higher earned premium and a significant decrease in the combined ratio in 2016 compared to 2015.

Specialty Program Segment Results of Operations for the Six Months Ended June 30, 2016 and 2015 (Unaudited)

Gross Written Premium. Gross written premium increased $16.6 million, or 2.4%, to $698.5 million for the six months ended June 30, 2016 from $681.8 million for the same period in 2015. Gross written premium increased modestly period over period as increases in gross written premium from the acquisition of Republic, which was $52 million, were partially offset by the termination or curtailment of certain commercial package programs. Additionally, during the six months ended June 30, 2015, we wrote one large policy for approximately $16 million that had an 18-month policy term, which if it is renewed, will not be renewed until the third quarter of 2016.

Net Written Premium. Net written premium increased $61.3 million, or 14.7%, to $478.1 million for the six months ended June 30, 2016 from $416.8 million for the same period in 2015. The increase in net written premium resulted from the cession of a smaller percentage of gross written premium to reinsurers during 2016 compared to 2015, and an increase in gross written premium for the six months ended June 30, 2016 compared to the six months ended June 30, 2015. Our overall retention of gross written premium for the segment was 68.4% and 61.1% for the six months ended June 30, 2016 and 2015, respectively. The increase in the retention of gross written premium related to an increase in business written that is not covered under the Maiden Quota Share.

Net Earned Premium. Net earned premium increased $101.0 million, or 25.4%, to $499.2 million for the six months ended June 30, 2016 from $398.2 million for the same period in 2015. As premiums written are earned ratably over an annual period, the increase in net premium earned resulted from higher net written premium for the annual period prior to the twelve months ended June 30, 2016 compared to the same period in 2015.

Loss and Loss Adjustment Expenses. Loss and loss adjustment expenses increased $72.5 million, or 26.9%, to $341.6 million for the six months ended June 30, 2016, compared to $269.1 million for the same period in 2015. Our loss ratio for the segment increased to 68.4% compared to 67.6% for the six months ended June 30, 2016 and 2015, respectively. The increase in the loss ratio resulted from higher selected ultimate losses for current and prior accident years as compared to originally selected ultimate losses in prior accident years. This was the result, primarily, of revisions to our selected ultimate losses on certain casualty lines due to an increase in our incurred but not reported claim reserves. We did not have any material increases or decreases as a result of prior year loss development.

Acquisition Costs and Other Underwriting Expenses. Acquisition costs and other underwriting expenses increased $21.2 million, or 19.2%, to $131.6 million for the six months ended June 30, 2016 from $110.4 million for the same period in 2015. Acquisition costs and other underwriting expenses were reduced by ceding commission of $68.5 million and $57.6 million earned during the six months ended June 30, 2016 and 2015, respectively. The ceding commission increased period over period as a result of an increase in net earned premium, as the segment received a larger allocation of ceding commission for its proportionate share of our overall policy acquisition expense. The expense ratio was 26.4% for the six months ended June 30, 2016 compared to 27.7% for the six months ended June 30, 2015. The decrease in the expense ratio during the six months ended June 30, 2016 related to the issuance of a higher percentage of workers' compensation policies, which have lower policy acquisition costs than other types of business in this segment.

Net Earned Premiums less Expense Included in Combined Ratio (Underwriting Income). Net earned premiums less expenses included in combined ratio increased $7.3 million, or 39.2%, to $26.0 million for the six months ended June 30, 2016 from $18.7 million for the six months ended June 30, 2015 due to an increase in earned premium, and a decrease in the combined ratio in 2016 compared to 2015.

Liquidity and Capital Resources

Our principal sources of operating funds are premiums, service and fee income, investment income and proceeds from sales and maturities of investments. Our primary uses of operating funds include payments of claims and operating expenses. Currently, we pay claims using cash flow from operations and invest our excess cash primarily in fixed maturity and equity securities. We forecast claim payments based on our historical trends. We seek to manage the funding of claim payments by actively managing available cash and forecasting cash flows on short-term and long-term bases. Cash payments for claims were approximately $1,216 million and $874 million in the six months ended June 30, 2016 and 2015, respectively. We expect that projected cash flow from operations will provide us sufficient liquidity for at least twelve months to fund our anticipated growth, by providing capital to increase the surplus of our insurance subsidiaries, as well as for the payment of claims and operating expenses, payment of interest and principal on our debt facilities, payment of any cash in settlement of convertible senior notes submitted by holders for conversion, and other holding company expenses. We anticipate net income from operations will create sufficient additional surplus at our insurance subsidiaries, which will fund our growth. However, if our growth attributable to potential acquisitions, internally generated growth or a combination of these, exceeds our projections, we may have to raise additional capital sooner to support our growth and manage our debt profile. As a result, we may from time to time raise capital from the issuance of equity, debt, equity-related debt or other capital securities, or seek to redeem, repurchase or exchange for other securities, prior to maturity, some or all of our outstanding debt in the open market, as circumstances allow. If we cannot obtain adequate capital or refinance all or a portion of our debt on favorable terms or at all, we may be unable to support future growth or operating requirements and, as a result, our business, financial condition and results of operation could be adversely affected.

The following table is summary of our statement of cash flows:



	Six Months Ended June 30,
	2016			2015
(Amounts in Thousands)	(As restated)			(As restated)
Cash and cash equivalents provided by (used in):
Operating activities	$	648,749		$	195,437
Investing activities	(834,173		)	(688,148		)
Financing activities	329,667			484,140

Net cash provided by operating activities for the six months ended June 30, 2016 increased compared to cash provided by operating activities in the six months ended June 30, 2015. The increase in cash provided from operations resulted primarily from an increase in premiums and note receivables, reinsurance premium payable, loss and loss expense reserves and unearned premiums in 2016 compared to 2015.

Net cash used in investing activities was approximately $834.2 million during the six months ended June 30, 2016 and consisted primarily of approximately $401 million for the net purchase of fixed maturity securities, equity securities and short-term investments, approximately $211 million for an increase in restricted cash, approximately $119 million for acquisitions, and approximately $84 million for capital expenditures. Net cash used in investing activities was $688 million for the six months ended June 30, 2015 and consisted primarily of approximately $548 million for the net purchase of fixed maturity securities, equity securities, and short-term investments, approximately $63 million for an increase in restricted cash, approximately $121 million for acquisitions and approximately $47 million for capital expenditures, partially offset by the net proceeds of approximately $81 million received from the maturity of life settlement contracts.

Net cash provided by financing activities was approximately $330 million for the six months ended June 30, 2016 compared to approximately $484 million net cash provided by financing activities during the six months ended June 30, 2015. In 2016, we issued preferred stock for approximately $139 million, entered into secured loans of approximately $39 million and entered into repurchase transactions of approximately $367 million, which was partially offset by common and preferred stock dividends paid of approximately $73 million, and approximately $104 million to repurchase shares of our stock. In 2015, we issued preferred stock for approximately $177 million, common stock for approximately $172 million, issued $150 million in subordinated notes, entered into a repurchase agreements for approximately $49 million and utilized approximately $65 million of our revolving credit facility, which was partially offset by common and preferred stock dividends paid of approximately $54 million, and payment of approximately $54 million to settle conversions of our 2021 Notes.

Other Material Changes in Financial Position



(Amounts in thousands)	June 30, 2016		December 31, 2015
Selected Assets:
Fixed maturities, available-for-sale	$	6,838,968	$	5,433,797
Premium receivable, net (As restated)	2,708,311		2,235,953
Reinsurance recoverable	3,856,087		3,007,377

Selected Liabilities:
Loss and loss adjustment expense reserve	9,097,408		7,208,367
Unearned premium (As restated)	4,819,255		4,014,387
Debt	1,229,599		993,067

The increase in fixed maturities, available-for-sale, from December 31, 2015 to June 30, 2016 was primarily attributable to the acquisitions and utilization of cash from our preferred shared offering during the six months ended June 30, 2016. The increase in premium receivable, net related to higher premium writings and the acquisition of Republic. The majority of the increase in reinsurance recoverable related to the acquisition of Republic. The increase in loss and loss expense reserve and unearned premium related to an increase in premium writings and acquisitions. The increase in debt related primarily to the acquisition of Republic.

Common Stock

The Company implemented a two-for-one stock split on February 2, 2016.

Preferred Stock

We have outstanding five separate series (Series A through E) of non-cumulative preferred stock. Four of these series (Series B, C, D and E) were issued in offerings using depositary shares, each representing a 1/40th interest in a share of the particular series of preferred stock. Dividends on the Series A Preferred Stock and the Series B, C, D and E Preferred Stock represented by depositary shares are payable on the liquidation preference amount, on a non-cumulative basis, when, as and if declared by our Board of Directors, quarterly in arrears, on March 15, June 15, September 15, and December 15 of each year.

A summary description of the terms of these series of preferred stock is presented in the table below:



Series	Dividend rate per year %	Shares of Preferred Stock issued	Depositary shares issued	Liquidation preference amount per share of Preferred Stock $		Net proceeds ($ in thousands)		Dividend paid during the six months ended June 30, 2016 ($ in thousands)
A	6.75	4,600,000	N/A	$	25	$	111,130	$	1,941
B	7.25	105,000	4,200,000	1,000		101,702		1,903
C	7.625	80,000	3,200,000	1,000		77,480		1,525
D	7.50	182,500	7,300,000	1,000		176,529		3,422
E	7.75	143,750	5,750,000	1,000		139,042		2,785

For a detailed description of our Series A Preferred Stock and Series B, C and D Preferred Stock represented by depositary shares, refer to Note 20. “Stockholder’s Equity” in Item 8. “Financial Statements and Supplementary Data” in our 2015 Form 10-K. For a detailed description related to our Series E Preferred Stock represented by depositary shares, refer to Note 16. “Stockholder’s Equity and Accumulated Other Comprehensive Income (Loss)” to the accompanying financial statements included elsewhere in this report.

Credit Facilities

$350 million credit facility

Our five-year, $350 million credit facility is a revolving credit facility with a letter of credit sublimit of $175 million and an expansion feature of not more than an additional $150 million. As of June 30, 2016, we had outstanding borrowings of $130 million and outstanding letters of credit in place under this Credit Agreement of $120.1 million, which reduced the total aggregate availability under the facility to $99.9 million and the availability for letters of credit to $54.9 million.

Borrowings under this credit facility bear interest at either the Alternate Base Rate or the LIBO rate. Borrowings bearing interest at a rate determined by reference to the Alternate Base Rate will bear interest at (x) the greatest of (a) the administrative agent’s prime rate, (b) the federal funds effective rate plus 0.5% or (c) the adjusted LIBO rate for a one-month interest period on such day plus 1.0%, plus (y) a margin ranging from 0.125% to 0.625%, adjusted on the basis of our consolidated leverage ratio. Eurodollar borrowings will bear interest at the adjusted LIBO rate for the interest period in effect plus a margin ranging from 1.125% to 1.625%, adjusted on the basis of our consolidated leverage ratio.

Fees payable by us under this credit facility include a letter of credit participation fee (equal to the margin applicable to Eurodollar borrowings), a letter of credit fronting fee with respect to each letter of credit (0.125%) and a commitment fee on the available commitments of the lenders (a range based on our consolidated leverage ratio, which was greater than or equal to 25% but less than 30%, resulting in a commitment fee rate of 0.20%).

Interest expense, including amortization of the deferred origination costs and fees associated with the letters of credit, was approximately $2.3 million and $1.5 million for six months ended June 30, 2016 and 2015, respectively.

Funds at Lloyd's facility

We use this £300 million (or $399 million) letter of credit facility to support our capacity at Lloyd’s as a member and/or reinsurer of Syndicates 2526, 1206 and 44 for the 2016 underwriting year of account, as well as prior open years of account. The facility is 35% secured by a pledge of a collateral account.

Fees payable under this letter of credit facility include a letter of credit issuance fee payable on the secured portion of the letters of credit at the rate of 0.50% and on the unsecured portion of the letters of credit determined based on AII's then-current financial strength rating issued by A.M. Best. As of June 30, 2016, the applicable letter of credit fee rate on the unsecured portion was 1.15% based on AII's A.M. Best financial strength rating of “A”. We also pay a commitment fee of 0.35% per year on the aggregate unutilized and uncanceled amount of the facility, and pay a facility fee upon closing of 0.15% of the total aggregate commitment.

As of June 30, 2016, the Company had outstanding letters of credit of £300.0 million (or $390.4 million) in place under this credit facility, which reduced the aggregate availability under this facility to £6.8 million (or $9.0 million). We recorded total interest expense of approximately $2.3 million and $1.7 million during the six months ended June 30, 2016 and 2015, respectively.

Other letter of credit facilities

We, through one of our subsidiaries, have a secured letter of credit facility with Comerica Bank that we utilize to comply with the deposit requirements of the State of California and the U.S. Department of Labor as security for our obligations to workers’ compensation and Federal Longshore and Harbor Workers’ Compensation Act policyholders. The credit limit is for $75 million, of which $48.5 million was utilized as of June 30, 2016. We are required to pay a letter of credit participation fee for each letter of credit in the amount of 0.40%. In addition, we, through certain subsidiaries, have additional existing stand-by letters of credit with various lenders in the amount of $1.7 million as of June 30, 2016.

Through our acquisition of Nationale Borg, we assumed their existing credit facilities pursuant to which trade related guarantees and comparable standby letters of credit are issued primarily to secure obligations owed by Nationale Borg to third parties in the normal course of business. The credit facilities are with Deutsche Bank Netherlands N.V. and ING Bank N.V. and are primarily used to obtain guarantees for the benefit of financial institutions. The credit limit under these credit facilities is approximately £76.6 million (or $87.3 million). The credit facilities were utilized for £61.2 million (or $67.9 million) as of June 30, 2016. We recorded total interest expense of $0.1 million for the six months ended June 30, 2016.

For further information on these credit facilities, including applicable restrictive covenants and events of default, see Note 12. "Debt" in Item 8. "Financial Statements and Supplementary Data" in our 2015 Form 10-K.

Outstanding Notes

Convertible Debt

We have an outstanding principal balance of $214 million of Convertible Senior Notes due 2044 ("2044 Notes"), with a carrying value of approximately $163 million, that bear interest at a rate equal to 2.75% per year, payable semiannually in arrears on June 15th and December 15th of each year. Additionally, we have an outstanding principal balance of $6 million of Convertible Senior Notes due 2021 ("2021 Notes"), with a carrying a value of approximately $5 million, that bear interest at a rate equal to 5.5% per year, payable semiannually in arrears on June 15th and December 15th of each year. Interest expense recognized on the 2044 Notes was $6.2 million and $6 million during the six months ended June 30, 2016 and 2015, respectively. Interest expense recognized on the 2021 Notes was $0.2 million and $0.6 million for the six months ended June 30, 2016 and 2015, respectively. For further information on the 2044 Notes and the 2021 Notes, including contingent interest on the 2044 Notes, conversion triggers, redemption and repurchase features and the exchange of 2021 Notes for 2044 Notes, see Note 12. "Debt" in Item 8. "Financial Statements and Supplementary Data" in our 2015 Form 10-K.

6.125% Notes due 2023

We have outstanding $250 million aggregate principal amount of our 6.125% notes due 2023 ("2023 Notes"), with a carrying value of approximately $248 million, that bear interest at a rate equal to 6.125% per year, payable semiannually in arrears on February 15th and August 15th of each year. The interest rate will increase by 0.50% per year if our consolidated leverage ratio exceeds 30% and will increase an additional 1.00% per year (for an aggregate increase of 1.50% per year) if the consolidated leverage ratio exceeds 35%. As of June 30, 2016, the consolidated leverage ratio was less than 30%. Interest expense recognized on the 2023 Notes was approximately $7.8 million for both the six months ended June 30, 2016 and 2015, respectively. For further information on the 2023 Notes, including restrictive covenants and events of default, see Note 12. "Debt" in Item 8. "Financial Statements and Supplementary Data" in our 2015 Form 10-K.

7.25% Subordinated Notes due 2055

We have outstanding $150 million aggregate principal amount of our 7.25% subordinated notes due 2055 (the "7.25% 2055 Notes"), with a carrying value of approximately $145 million that bear interest at a rate equal to 7.25% per year, payable quarterly in arrears on March 15, June 15, September 15 and December 15 of each year, commencing on September 15, 2015. The 7.25% 2005 Notes mature on June 15, 2055. We have the right to redeem the 7.25% 2055 Notes, in whole or in part, on June 18, 2020, or on any interest payment date thereafter, at a redemption price equal to 100% of the principal amount of the notes plus accrued and unpaid interest to, but not including, the date of redemption. The 7.25% 2055 Notes are our subordinated unsecured obligations and are structurally subordinated to all our existing and future indebtedness, liabilities and other obligations of our subsidiaries. Interest expense, including amortization of deferred origination costs, recognized on the 7.25% 2055 Notes was $5.5 million and

$0.4 million for the six months ended June 30, 2016 and 2015, respectively. For further information on the 7.25% 2055 Notes, see Note 12. "Debt" in Item 8. "Financial Statements and Supplementary Data" in our 2015 Form 10-K.

2035-2037 Notes

We have outstanding $124 million aggregate principal amount of four junior subordinated debenture notes ("2035-2037 Notes"). These debenture notes, maturing between 2035 and 2037, were issued by us using the proceeds from issuing trust preferred securities in connection with establishing four special purpose trusts. The debentures require interest-only payments to be made on a quarterly basis, with principal due at maturity. The debentures contain covenants that restrict declaration of dividends on our common stock under certain circumstances, including default of payment. We recognized interest expense, including amortization of deferred origination costs, of approximately $3.1 million and $3.7 million for the six months ended June 30, 2016 and 2015, respectively. For further information on the 2035-2037 Notes, see Note 8. "Debt" in the audited consolidated financial statements included elsewhere in this report.

2033-2037 Notes

Through our acquisition of Republic, we assumed $93 million aggregate principal amount of five junior subordinated debenture notes ("2033-2037 Notes"). These debenture notes mature between 2033 and 2037. The debentures require interest-only payments to be made on a quarterly basis, with principal due at maturity. The debentures contain covenants that restrict declaration of dividends on our common stock under certain circumstances, including default of payment. We recognized interest expense, including amortization of deferred origination costs, of approximately $0.8 million for the six months ended June 30, 2016.

7.50% Subordinated Notes due 2055

We have outstanding $135 million aggregate principal amount of our 7.50% subordinated notes due 2055 (the "7.50% 2055 Notes"), with a carrying value of approximately $131 million, that bear interest at a rate equal to 7.50% per year, payable quarterly in arrears on March 15, June 15, September 15 and December 15 of each year, commencing December 15, 2015. The 7.50% 2055 Notes mature on September 15, 2055. We have the right to redeem the 7.50% 2055 Notes, in whole or in part, on September 16, 2020, or on any interest payment date thereafter, at a redemption price equal to 100% of the principal amount of the 7.50% 2055 Notes plus accrued and unpaid interest to, but not including, the date of redemption. The 7.50% 2055 Notes are our subordinated unsecured obligations and are structurally subordinated to all existing and future indebtedness, liabilities and other obligations of our subsidiaries. Interest expense, including amortization of deferred origination costs, recognized on the 7.50% 2055 Notes was $5.1 million for the six months ended June 30, 2016. For further information on the 7.50% 2055 Notes, see Note 12. "Debt" in Item 8. "Financial Statements and Supplementary Data" in our 2015 Form 10-K.

Delek Promissory Note

We have outstanding a term promissory note to Delek Finance U.S. Inc. in the amount of $104.7 million that we issued as part of the consideration for our acquisition of Republic. The principal will be paid in four equal installments on each of the first four anniversaries of the issuance date. The note bears interest of 5.75% per annum and is payable from time to time based on the outstanding principal balance until the promissory note is fully paid. In the event we are required to pay indebtedness under our revolving credit facility or our 2023 Notes on an accelerated basis, the holder of the term promissory note may cause us to repay unpaid principal and interest immediately. We recorded interest expense, including amortization of the deferred origination costs and fees associated with the loan agreement, of approximately $1.2 million for the three and six months ended June 30, 2016.

Short-Term Borrowings

We did not engage in short-term borrowings to fund our operations or for liquidity purposes during the six months ended June 30, 2016.

Contractual Obligations

During the six months ended June 30, 2016, our contractual obligations have not changed materially from those discussed in our Annual Report on Form 10-K for the year ended December 31, 2015.

Reinsurance

Our insurance subsidiaries utilize reinsurance agreements to transfer portions of the underlying risk of the business we write to various affiliated and third-party reinsurance companies. Reinsurance does not discharge or diminish our obligation to pay

claims covered by the insurance policies we issue; however, it does permit us to recover certain incurred losses from our reinsurers and our reinsurance recoveries reduce the maximum loss that we may incur as a result of a covered loss event. We believe it is important to ensure that our reinsurance partners are financially strong and they generally carry at least an A.M. Best rating of ‘‘A-’’ (Excellent) at the time we enter into our reinsurance agreements. We also enter into reinsurance relationships with third-party captives formed by agents and other business partners as a mechanism for sharing risk and profit. The total amount, cost and limits relating to the reinsurance coverage we purchase may vary from year to year based upon a variety of factors, including the availability of quality reinsurance at an acceptable price and the level of risk that we choose to retain for our own account. We have not experienced any significant changes to our reinsurance programs since December 31, 2015. For a more detailed description of our reinsurance arrangements, including our reinsurance arrangements with Maiden Reinsurance Ltd., see ‘‘Reinsurance’’ in ‘‘Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations’’ in our Annual Report on Form 10-K for the year ended December 31, 2015.

Cash and Investment Portfolio

Cash, which consists of cash, cash equivalents and restricted cash and cash equivalents, along with our investment portfolio, which consists of fixed maturity securities, equity securities, and short-term investments, but excludes life settlement contracts, other investments and equity investments, increased $1,790 million, or 25.7%, to $8.8 billion for the six months ended June 30, 2016 from $7.0 billion as of December 31, 2015. Our investment portfolio is primarily classified as available-for-sale, as defined by ASC 320, Investments — Debt and Equity Securities. The increase in our investment portfolio during the six months ended June 30, 2016 compared to December 31, 2015 was primarily attributable to the acquisition of ARI, Genworth, Nationale Borg and Republic, as well as the utilization of excess cash from our equity offering during the fourth quarter of 2015. Our fixed maturity securities, including fixed maturity securities pledged to support our repurchase agreement, had a fair value of $6.8 billion and an amortized cost of $6.6 billion as of June 30, 2016. Our equity securities, including both available-for-sale and trading equity securities, had a fair value of $188.7 million with a cost of $180.8 million as of June 30, 2016.

Our cash and investment portfolio, exclusive of life settlement contracts, equity investment in unconsolidated related party subsidiaries, and other investments is summarized in the table below by type of investment:



	June 30, 2016				December 31, 2015
(Amounts in Thousands)	Carrying Value		Percentage of Portfolio		Carrying Value		Percentage of Portfolio
Cash, cash equivalents and restricted cash (As restated)	$	1,719,530	19.6	%	$	1,384,615	19.8	%
Short-term investments (As restated)	9,868		0.1		17,171		0.3
U.S. treasury securities	277,324		3.2		70,759		1.0
U.S. government agencies	9,748		0.1		45,558		0.7
Municipals	878,185		10.0		540,426		7.8
Foreign government	130,281		1.5		113,745		1.6
Commercial mortgage back securities	191,087		2.2		151,318		2.2
Residential mortgage backed securities:
Agency backed	1,155,030		13.2		974,838		14.0
Non-agency backed	53,151		0.6		120,229		1.7
Collateralized loan / debt obligations	361,074		4.1		226,094		3.2
Asset-backed securities	25,643		0.3		31,837		0.5
Corporate bonds	3,757,445		43.0		3,158,993		45.3
Preferred stocks	3,596		—		4,989		0.1
Common stocks	185,131		2.1		126,779		1.8
	$	8,757,093	100.0	%	$	6,967,351	100.0	%

The table below summarizes the credit quality of our fixed maturity securities as of June 30, 2016 and December 31, 2015, as rated by Standard and Poor’s.



	June 30, 2016		December 31, 2015
U.S. Treasury	4.1	%	1.3	%
AAA	8.4		12.2
AA	31.3		29.0
A	28.8		28.8
BBB, BBB+, BBB-	23.7		25.8
BB, BB+, BB-	2.1		1.9
B, B+, B-	0.4		0.1
Other	1.2		0.9
Total	100.0	%	100.0	%

The table below summarizes the average duration by type of fixed maturity as well as detailing the average yield as of June 30, 2016 and December 31, 2015:



	June 30, 2016		December 31, 2015
	Average Yield %	Average Duration in Years	Average Yield %	Average Duration in Years
U.S. treasury securities	1.28	3.1	1.73	3.9
U.S. government agencies	2.29	4.4	2.63	4.2
Foreign government	2.16	5.2	2.27	5.7
Corporate bonds	3.67	5.9	3.33	6.1
Municipal bonds	3.20	7.2	3.33	6.9
Collateralized loan / debt obligations	4.77	0.5	4.22	1.1
Mortgage and asset backed securities	3.32	5.2	3.38	4.6

As of June 30, 2016, the weighted average duration of our fixed income securities was approximately 5.48 years and had an average yield of 3.47%.

Other investments represented approximately1.5% and 1.4% of our total investment portfolio as of June 30, 2016 and December 31, 2015, respectively. At June 30, 2016, other investments consisted primarily of real estate partnerships totaling $82 million, private limited partnerships totaling $20 million, an interest in a syndicated term loan of $6 million, and annuity and other investments totaling $17 million. At December 31, 2015, other investments consisted primarily of real estate partnerships totaling $64.9 million, private limited partnerships totaling $21.2 million, an interest in a syndicated term loan of $6.3 million, and annuity and other investments totaling $6.7 million.

Based on guidance in FASB ASC 320-10-65, in the event of the decline in fair value of a debt security, a holder of that security that does not intend to sell the debt security and for whom it is not more than likely than not that such holder will be required to sell the debt security before recovery of its amortized cost basis, is required to separate the decline in fair value into (a) the amount representing the credit loss and (b) the amount related to other factors. The amount of total decline in fair value related to the credit loss shall be recognized in earnings as an other than temporary impairment ("OTTI"), with the amount related to other factors recognized in accumulated other comprehensive loss net loss, net of tax. OTTI credit losses result in a permanent reduction of the cost basis of the underlying investment. The determination of OTTI is a subjective process, and different judgments and assumptions could affect the timing of the loss realization.

Quarterly, our Investment Committee (“Committee”) evaluates each available-for-sale security that has an unrealized loss as of the end of the subject reporting period for OTTI. We generally consider an investment, primarily equity securities, to be impaired when it has been in a significant unrealized loss position (in excess of 35% of cost if the issuer has a market capitalization of under $1 billion and in excess of 25% of cost if the issuer has a market capitalization of $1 billion or more) for over 24 months. In addition, the Committee uses a set of quantitative and qualitative criteria to review our investment portfolio to evaluate the necessity of recording impairment losses for other-than-temporary declines in the fair value of our investments. The criteria the Committee primarily considers include:


•	the current fair value compared to amortized cost;


•	the length of time the security’s fair value has been below its amortized cost;


•	specific credit issues related to the issuer such as changes in credit rating, reduction or elimination of dividends or non-payment of scheduled interest payments;


•	whether management intends to sell the security and, if not, whether it is not more than likely than not that we will be required to sell the security before recovery of its amortized cost basis;


•	the financial condition and near-term prospects of the issuer of the security, including any specific events that may affect its operations or earnings;


•	the occurrence of a discrete credit event resulting in the issuer defaulting on material outstanding obligations or the issuer seeking protection under bankruptcy laws; and


•	other items, including company management, media exposure, sponsors, marketing and advertising agreements, debt restructuring, regulatory changes, acquisitions and dispositions, pending litigation, distribution agreements and general industry trends.

Impairment of investment securities results in a charge to operations when a market decline below cost is deemed to be other-than-temporary. We write down investments immediately that we consider to be impaired based on the above criteria collectively.

The impairment charges of our fixed and equity securities classified as available-for-sale for the six months ended June 30, 2016 and 2015 are presented in the table below:



(Amounts in Thousands)	2016		2015
Equity securities	$	16,956	$	1,192
Fixed maturity securities	—		1,290
	$	16,956	$	2,482

Additionally, we had gross unrealized losses of $61.6 million related to available-for-sale fixed maturity securities and $7.6 million related to available-for-sale equity securities during the six months ended June 30, 2016.

As of June 30, 2016, we own 2,250 purchase lots of corporate bonds in the financial institutions, industrial, and other sectors, which account for approximately 31%, 21% and 3%, respectively, and 55% in the aggregate of the total fair value of our fixed maturity securities, and 30%, 41% and 8%, respectively, and 79% in the aggregate of the total unrealized losses of our fixed maturity securities. We believe that the unrealized losses in these securities are the result, primarily, of general economic conditions and not the condition of the issuers, which we believe are solvent and have the ability to meet their obligations. Therefore, we expect that the market price for these securities should recover within a reasonable time. Additionally, we do not intend to sell the investments and it is not more likely than not that we will be required to sell the investments before recovery of their amortized cost basis.

Our investment in marketable equity securities classified as available-for-sale consist of investments in preferred and common stock across a wide range of sectors. We evaluated the near-term prospects for recovery of fair value in relation to the severity and duration of the impairment and have determined in each case that the probability of recovery is reasonable and we have the ability and intent to hold these investments until a recovery of fair value. We believe the gross unrealized losses of $7.6 million as of June 30, 2016 are not material to our financial position.

Item 4. Controls and Procedures

Our management, with the participation and under the supervision of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")) as of the end of the period covered by this report. Based on such evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of June 30, 2016, due to the material weaknesses in internal control over financial reporting that were disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2016 that we determined were also present as of June 30, 2015, our disclosure controls and procedures were not effective in ensuring that information required to be disclosed by us in the reports we file or submit under the Exchange Act is timely recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.

As a result of the control deficiencies identified in our Annual Report on Form 10-K for the fiscal year ended December 31, 2016, we restated our unaudited quarterly financial information for the fiscal quarters ended June 30, 2016 and 2015. During the fiscal quarter ended June 30, 2016, there were no changes in our internal controls over financial reporting (as defined in Exchange Act Rule 13a-15(f) and 15d-15(f)) that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II - OTHER INFORMATION

Item 6. Exhibits



Exhibit Number		Description
3.1		Amended and Restated Certificate of Incorporation of the Company (incorporated by reference to Exhibit 3.1 to the Company's Quarterly Report on Form 10-Q (No. 001-33143) filed on August 9, 2016).

3.2		Certificate of Amendment to the Company's Amended and Restated Certificate of Incorporation (incorporated by reference to Exhibit 3.1 to the Company's Current Report on Form 8-K (No. 001-33143) filed on May 19, 2016).

10.1		Amending Agreement, dated April 14, 2016, related to the £300,000,000 Facility Agreement, dated November 24, 2015, among AmTrust Corporate Capital Limited, AmTrust Corporate Member Limited and AmTrust Corporate Member Two Limited, AmTrust International Insurance, Ltd., the Company and ING Bank N.V. London Branch, and The Bank of Nova Scotia, London Branch (incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q (No. 001-33143) filed on August 9, 2016).

10.2		Term Promissory Note, dated April 18, 2016, issued by the Company in favor of Delek Finance US Inc. (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K (No. 001-33143) filed on April 20, 2016).

10.3		Amendment No. 5, dated May 12, 2016, to the Credit Agreement, dated September 12, 2014, among the Company, JPMorgan Chase Bank, N.A., as Administrative Agent, and the various lending institutions party thereto (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K (No. 001-33143) filed on May 12, 2016).

10.4*		2010 Omnibus Incentive Plan, as amended and restated (incorporated by reference to Appendix A to the Company’s definitive proxy statement on Schedule 14A filed on March 29, 2016).

10.5*		Form of Restricted Stock Unit Agreement, amended and restated effective May 19, 2016 (incorporated by reference to Exhibit 10.2 to the Company's Current Report on Form 8-K (No. 001-33143) filed on May 19, 2016).

10.6		Endorsement No. 3 to the Amended and Restated Quota Share Reinsurance Agreement, effective September 30, 2015, between AmTrust International Insurance, Ltd. and Maiden Reinsurance Ltd. (incorporated by reference to Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q (No. 001-33143) filed on August 9, 2016).

31.1		Certification of the Chief Executive Officer, pursuant to Rule 13a-14(a) or 15d-14(a), for the quarter ended June 30, 2016 (filed herewith).

31.2		Certification of the Chief Financial Officer, pursuant to Rule 13a-14(a) or 15d-14(a), for the quarter ended June 30, 2016 (filed herewith).

32.1		Certification of the Chief Executive Officer, pursuant to 18 U.S.C. Section 1350, for the quarter ended June 30, 2016 (furnished herewith).

32.2		Certification of the Chief Financial Officer, pursuant to 18 U.S.C. Section 1350, for the quarter ended June 30, 2016 (furnished herewith).



101.1		The following materials from the Company’s Quarterly Report on Form 10-Q/A for the quarter ended June 30, 2016, formatted in XBRL (Extensible Business Reporting Language): (i) the Consolidated Balance Sheets at June 30, 2016 and December 31, 2015 (as restated); (ii) the Consolidated Statements of Income for the three and six months ended June 30, 2016 and 2015 (as restated); (iii) the Consolidated Statements of Comprehensive Income for the three and six months ended June 30, 2016 and 2015 (as restated); (iv) the Consolidated Statements of Cash Flows for the six months ended June 30, 2016 and 2015 (as restated); and (v) the Notes to Unaudited Consolidated Financial Statements.

* Indicates management contract or compensatory plan, contract or arrangement in which one or more directors or executive officers of the Company may be participants.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.



		AmTrust Financial Services, Inc.
		(Registrant)

Date:	June 30, 2017		/s/ Barry D. Zyskind
			Barry D. Zyskind
			Chairman, President and Chief Executive Officer

			/s/ Adam Karkowsky
			Adam Karkowsky
			Chief Financial Officer

AmTrust Financial Services (AFSIP) 10-Q/A2016 Q2 Quarterly report (amended)