Quarterly Report

Washington, D.C. 20549

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

For the quarterly period ended June 30, 2009

o	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, 6 th 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 o

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 registrants were required to submit and post such files).

Yes o No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer” “accelerated filer” and “smaller reporting company" in Rule 12b-2 of the Exchange Act:

Large accelerated filer o		Accelerated filer x

Non-accelerated filer o		Smaller reporting company o
(Do not check if a smaller reporting company)

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

As of July 31, 2009, the Registrant had one class of Common Stock ($.01 par value), of which 59,344,936 shares were issued and outstanding.

INDEX

		Page
PART I	FINANCIAL INFORMATION

Item 1.	Unaudited Financial Statements:

	Condensed Consolidated Balance Sheets as of June 30, 2009 and December 31, 2008	3

	Condensed Consolidated Statements of Income	4
	— Three and six months ended June 30, 2009 and 2008

	Condensed Consolidated Statements of Cash Flows	5
	— Three and six months ended June 30, 2009 and 2008

	Notes to Condensed Consolidated Financial Statements	6

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	28

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	47

Item 4.	Controls and Procedures	49

PART II	OTHER INFORMATION

Item 1.	Legal Proceedings	50

Item 1A.	Risk Factors	50

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	50

Item 3.	Defaults Upon Senior Securities	50

Item 4.	Submission of Matters to a Vote of Security Holders	50

Item 5.	Other Information	51

Item 6.	Exhibits	51

	Signatures	52

PART 1 - FINANCIAL INFORMATION

Item 1. Financial Statements

AMTRUST FINANCIAL SERVICES, INC. AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

	(Unaudited)
(in thousands, except per share data)	June 30, 2009			December 31, 2008
ASSETS
Fixed maturities, held-to-maturity, at amortized cost (fair value $-; $50,242)	$	—		$	48,881
Fixed maturities, available-for-sale, at market value (amortized cost $952,502; $988,779)		912,513			910,376
Equity securities, available-for-sale, at market value (cost $72,034; $84,090)		38,343			28,828
Short-term investments		189,088			167,845
Other investments		13,017			13,457
Total investments		1,152,961			1,169,387
Cash and cash equivalents		257,872			192,053
Funds held with reinsurance companies		110			110
Accrued interest and dividends		6,731			9,028
Premiums receivable, net		383,736			419,577
Note receivable – related party		22,026			21,591
Reinsurance recoverable		345,604			363,608
Reinsurance recoverable – related party		265,989			221,214
Prepaid reinsurance premium		135,668			128,519
Prepaid reinsurance premium – related party		235,852			243,511
Federal income tax receivable		4,529			4,667
Prepaid expenses and other assets		64,371			72,221
Deferred policy acquisition costs		137,481			103,965
Deferred income taxes		49,793			76,910
Property and equipment, net		14,413			15,107
Goodwill		51,468			49,794
Intangible assets		51,254			52,631
Total assets	$	3,179,858		$	3,143,893
LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities:
Loss and loss expense reserves	$	1,057,646		$	1,014,059
Unearned premiums		767,842			759,915
Ceded reinsurance premiums payable		50,696			59,990
Ceded reinsurance premium payable – related party		89,624			102,907
Reinsurance payable on paid losses		4,780			8,820
Funds held under reinsurance treaties		305			228
Securities sold but not yet purchased, at market value		15,486			22,608
Securities sold under agreements to repurchase, at contract value		230,605			284,492
Accrued expenses and other current liabilities		144,688			144,304
Derivatives liabilities		2,320			1,439
Note payable – related party		167,975			167,975
Non interest bearing note – net of unamortized discount of ($1,843) and ($2,439)		20,657			27,561
Term loan		26,667			33,333
Junior subordinated debt		123,714			123,714
Total liabilities		2,703,005			2,751,345
Commitments and contingencies
Stockholders’ equity:
Common stock, $.01 par value; 100,000 shares authorized, 84,158 and 84,146 issued as of June 30, 2009 and December 31, 2008, respectively; 59,343 and 60,033 outstanding as of June 30, 2009 and December 31, 2008, respectively		842			842
Preferred stock, $.01 par value; 10,000,000 shares authorized		—			—
Additional paid-in capital		541,328			539,421
Treasury stock at cost; 24,815 shares and 24,113 shares as of June 30, 2009 and December 31, 2008, respectively		(300,295	)		(294,803	)
Accumulated other comprehensive income (loss)		(62,288	)		(105,815	)
Retained earnings		297,266			252,903
Total stockholders’ equity		476,853			392,548
Total liabilities and stockholders’ equity	$	3,179,858		$	3,143,893

See accompanying notes to unaudited condensed consolidated statements.

AmTrust Financial Services, Inc.

Condensed Consolidated Statements of Income

(Unaudited)

(in thousands, except per share data)

	Three Months Ended June 30,						Six Months Ended June 30,
	2009			2008			2009			2008
Revenues:
Premium income:
Net premium written	$	137,120		$	132,057		$	273,299		$	249,499
Change in unearned premium		(317	)		(16,112	)		(4,073	)		(36,141	)
Net premium earned		136,803			115,945			269,226			213,358
Ceding commission – primarily related party		32,278			37,209			59,869			58,084
Commission and fee income		7,607			8,375			15,061			14,662
Net investment income		13,582			14,190			27,171			27,721
Net realized gain (loss) on investments		(7,709	)		(2,135	)		(16,947	)		(7,355	)
Other investment loss on managed assets		—			—			—			(2,900	)
Total revenues		182,561			173,584			354,380			303,570
Expenses:
Loss and loss adjustment expense		76,585			74,134			151,500			129,299
Acquisition costs and other underwriting expenses		64,587			57,824			122,741			98,701
Other expense		5,774			2,504			10,968			7,298
Total expenses		146,946			134,462			285,209			235,298
Operating income from continuing operations		35,615			39,122			69,171			68,272
Other income (expenses):
Foreign currency gain (loss)		611			(15	)		644			144
Interest expense		(4,007	)		(5,541	)		(8,178	)		(8,170	)
Total other expenses		(3,396	)		(5,556	)		(7,534	)		(8,026	)
Income from continuing operations before provision for income taxes and minority interest		32,219			33,566			61,637			60,246
Provision for income taxes		5,448			7,216			10,704			14,533
Minority interest in net income of subsidiary		—			—			-			(2,900	)
Net income		26,771			26,350			50,933			48,613

Basic earnings per common share	$	0.45		$	0.44		$	0.86		$	0.81
Diluted earnings per common share	$	0.45		$	0.43		$	0.85		$	0.80
Dividends declared per common share	$	0.06		$	0.04		$	0.11		$	0.08

	Three Months Ended June 30,						Six Months Ended June 30,
	2009			2008			2009			2008
Net Realized Gain (Loss) on Investments:
Total other-than-temporary impairment losses	$	(10,786	)	$	(7,230	)	$	(12,213	)	$	(7,972	)
Portion of loss recognized in other comprehensive income		—			—			—			—
Net impairment losses recognized in earnings		(10,786	)		(7,230	)		(12,213	)		(7,972	)
Other net realized gain (loss) on investments		3,077			5,095			(4,734	)		617
Net realized investment gain (loss)	$	(7,709	)	$	(2,135	)	$	(16,947	)	$	(7,355	)

See accompanying notes to unaudited condensed consolidated financial statements.

AmTrust Financial Services, Inc.

Consolidated Statements of Cash Flows

(Unaudited)

	Six Months Ended June 30,
(in thousands)	2009			2008
Cash flows from operating activities:
Net income from continuing operations	$	50,933		$	48,613
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		4,415			3,736
Realized loss (gain) marketable securities		4,734			(616	)
Non-cash write-down of marketable securities		12,213			7,971
Discount on notes payable		596			101
Stock compensation expense		1,812			1,495
Bad debt expense		1,951			1,237
Foreign currency (gain)		(644	)		(144	)
Changes in assets - (increase) decrease:
Premium and notes receivable		33,890			(91,137	)
Reinsurance recoverable		18,004			(6,869	)
Reinsurance recoverable – related party		(44,775	)		(64,889	)
Deferred policy acquisition costs, net		(33,516	)		(9,950	)
Prepaid reinsurance premiums		(7,149	)		(34,502	)
Prepaid reinsurance premiums – related party		7,659			(111,583	)
Prepaid expenses and other assets		9,850			(4,591	)
Deferred tax asset		27,117			(11,738	)
Changes in liabilities - increase (decrease):
Reinsurance premium payable		(9,294	)		(55,555	)
Reinsurance premium payable – related party		(13,283	)		(28,436	)
Loss and loss expense reserve		43,587			47,631
Unearned premiums		7,927			184,553
Funds held under reinsurance treaties		77			50,804
Accrued expenses and other current liabilities		(3,270	)		(3,981	)
Net cash provided by operating activities		112,834			90,132
Cash flows from investing activities:
Net sales (purchases) of securities with fixed maturities		36,935			(237,556	)
Net (purchases) sales of equity securities		(4,615	)		14,234
Net sales of other investments		441			12,680
Note receivable - related party		-			(2,000	)
Acquisition of subsidiary, net of cash obtained		-			(55,883	)
Acquisition of renewal rights and goodwill		(910	)		(963	)
Purchase of property and equipment		(1,833	)		(1,214	)
Net cash provided by (used in) investing activities		30,018			(270,702	)
Cash flows from financing activities:
Repurchase agreements, net		(53,887	)		185,909
Term loan borrowing		-			40,000
Term loan payment		(6,666	)		-
Non-interest bearing note payment		(7,500	)		-
Debt financing fees		-			(52	)
Repurchase of common stock		(5,492	)		-
Stock option exercise		95			307
Dividends distributed on common stock		(5,970	)		(4,800	)
Net cash (used in) provided by financing activities		(79,420	)		221,364
Effect of exchange rate changes on cash		2,387			4,955
Net increase in cash and cash equivalents		65,819			45,749
Cash and cash equivalents, beginning of the period		192,053			145,337
Cash and cash equivalents, end of the period	$	257,872		$	191,086
Supplemental Cash Flow Information:
Income tax payments	$	9,098		$	18,125
Interest payments on debt		8,296			7,125

See accompanying notes to unaudited condensed consolidated financial statements

Notes to Unaudited Condensed Consolidated Financial Statements

(Unaudited)

(dollars in thousands, except 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 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, 2008, previously filed with the Securities and Exchange Commission (“SEC”) on March 16, 2009. The balance sheet at December 31, 2008 has been derived from the audited consolidated financial statements at that date but does not include all of the information and footnotes required by GAAP for complete financial statements.

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 financial statements and accompanying notes. Actual results could differ from those estimates.

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, 2008, 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. There was no effect on net income from the changes in presentation.

2.	Recent Accounting Pronouncements

With the exception of those discussed below, there have been no recent accounting pronouncements or changes in accounting pronouncements during the three and six months ended June 30, 2009, as compared to the recent accounting pronouncements described in our Annual Report on Form 10-K for the fiscal year ended December 31, 2008, that are of significance, or potential significance, to us.

In June 2009, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 168, The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles-a replacement of FASB Statement No. 162 (“SFAS 168”). SFAS 168 will serve as the single source of authoritative non-governmental U.S. Generally Accepted Accounting Principles. Accordingly, all other accounting literature not included is considered non-authoritative. SFAS 168 is effective on a prospective basis for interim and annual periods ending after September 15, 2009. The Company does not expect that the adoption of SFAS 168 will impact the Company’s results of operations, financial position or liquidity.

In June 2009, the FASB issued SFAS No. 166, Accounting for Transfers of Financial Assets, an Amendment of FASB Statement No. 140 (“SFAS 166”). SFAS 166 requires additional disclosures for transfers of financial assets, including securitization transactions, and any continuing exposure to the risks related to transferred financial assets. SFAS 166 eliminates the concept of a qualifying special-purpose entity and changes the requirements for derecognizing financial assets. SFAS 166 is effective on a prospective basis for the annual period beginning after November 15, 2009 and interim and annual periods thereafter. The Company does not expect that the provisions of SFAS 166 will have a material effect on its results of operations, financial position or liquidity.

In June 2009, the FASB issued SFAS No. 167, Amendments t o FASB Interpretation No. 46(R) (“SFAS 167”). SFAS 167 amends FIN 46(R) to require an analysis of whether a company has: (1) the power to direct the activities of a variable interest entity that most significantly impact the entity’s economic performance, and (2) the obligation to absorb the losses that could potentially be significant to the entity or the right to receive benefits from the entity that could potentially be significant to the entity. SFAS 167 also requires an entity to be re-evaluated as a variable interest entity when the holders of the equity investment at risk, as a group, lose the power from voting rights or similar rights to direct the activities that most significantly impact the entity’s economic performance. SFAS 167 amends FIN 46(R) to require additional disclosures about a company’s involvement in variable interest entities and an ongoing assessment of whether a company is the primary beneficiary. SFAS 167 is effective on a prospective basis for the annual period beginning after November 15, 2009 and interim and annual periods thereafter. The Company does not expect that the provisions of SFAS 167 will have a material effect on its results of operations, financial position or liquidity.

In May 2009, the FASB issued SFAS No. 165, “Subsequent Events” (“SFAS 165”), which establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. The provisions of SFAS 165 are effective for interim and annual reporting periods ended after June 15, 2009. The adoption of SFAS 165 on June 30, 2009 had no effect on the Company’s results of operations, financial position or liquidity.

In April 2009, the FASB issued FASB Staff Position (“FSP”) No. 115-2 and FSP No. 124-2, “ Recognition and Presentation of Other-Than-Temporary Impairments ” (“FSP 115-2/124-2”). FSP 115-2 modifies the existing other-than-temporary impairment guidance to require the recognition of an other-than-temporary impairment when an entity has the intent to sell a debt security or when it is more likely than not an entity will be required to sell the debt security before its anticipated recovery. Additionally, FSP 115-2 changes the presentation and amount of other-than-temporary losses recognized in the income statement for instances when the Company determines that there is a credit loss on a debt security but it is more likely than not that the entity will not be required to sell the security prior to the anticipated recovery of its remaining cost basis. For these debt securities, the amount representing the credit loss will be reported as an impairment loss in the Consolidated Statement of Income and the amount related to all other factors will be reported in accumulated other comprehensive income. FSP 115-2 also requires the presentation of other-than-temporary impairments separately from realized gains and losses on the face of the income statement.

In addition to the changes in measurement and presentation, FSP 115-2 is intended to enhance the existing disclosure requirements for other-than-temporary impairments and requires all disclosures related to other-than-temporary impairments in both interim and annual periods.

The provisions of FSP 115-2 are effective for interim periods ended after June 15, 2009, with early adoption permitted for periods ended after March 15, 2009. The Company adopted FSP 115-2 on April 1, 2009. The adoption did not have a material impact on its financial condition or results of operations.

In April 2009, the FASB issued FSP No. 157-4, “ Determining Fair Value When Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions that are Not Orderly ” (“FSP 157-4”). FSP 157-4 provides guidance for determining when a transaction is not orderly and for estimating fair value in accordance with FASB Statement No. 157, Fair Value Measurements (“SFAS 157”), when there has been a significant decrease in the volume and level of activity for an asset or liability. FSP 157-4 does not change the measurement objective of SFAS 157 which is “the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.”

FSP 157-4 requires the disclosure of the inputs and valuation techniques used, as well as any changes in valuation techniques and inputs used during the period, to measure fair value in interim and annual periods. In addition, FSP 157-4 requires that the presentation of the fair value hierarchy be presented by major security type as described in FASB Statement No. 115, Accounting for Certain Investments in Debt and Equity Securities (as amended by FSP 115-2 and FSP 124-2, Recognition and Presentation of Other-Than-Temporary Impairments ).

The provisions of FSP 157-4 are effective for interim periods ended after June 15, 2009, with early adoption permitted for periods ended after March 15, 2009. The Company adopted FSP 157-4 on April 1, 2009 and the adoption did not have a material effect on its results of operations, financial position or liquidity.

In April 2009, the FASB issued FSP 107-1 and APB 28-1, “ Interim Disclosures about Fair Value of Financial Instruments ” (“FSP 107-1 and APB 28-1”). FSP 107-1 and APB 28-1 require disclosures about fair value of financial instruments in interim and annual financial statements. FSP 107-1 and APB 28-1 are effective for periods ended after June 15, 2009, with early adoption permitted for periods ended after March 15, 2009. The adoption of the FSP 107-1 did not have a material impact on the Company’s financial condition or results of operations.

In June 2008, the FASB issued FSP No. 03-6-1, “ Determining Whether Instruments Granted in Share-Based Payment Transactions are Participating Securities ” (“FSP 03-6-1”). FSP 03-6-1 clarifies that unvested share-based payment awards that contain nonforfeitable rights to dividends or dividend equivalents (whether paid or unpaid) are participating securities and are to be included in the computation of earnings per share under the two-class method described in Statement of Financial Accounting Standards No. 128 (“SFAS 128”), “ Earnings Per Share ” This FSP is effective for financial statements issued for fiscal years which began after December 15, 2008 and requires all presented prior-period earnings per share data to be adjusted retrospectively. FSP 03-6-1 did not have a material impact on the Company’s financial condition or results of operations.

In April 2008, the FASB issued FSP No. 142-3, “ Determination of the Useful Life of Intangible Assets ” (“FSP 142-3”). FSP 142-3 amends the factors that should be considered in developing assumptions about renewals or extensions used in estimating the useful life of a recognized intangible asset under Statement No. 142, “ Goodwill and Other intangible Assets ” (“SFAS 142”). This standard is intended to improve the consistency between the useful life of a recognized intangible asset under SFAS 142 and the period of expected cash flows used to measure the fair value of the asset under Statement No. 141(R) and other GAAP. FSP 142-3 is effective for financial statements issued for fiscal years which began after December 15, 2008. The measurement provisions of this standard applies only to intangible assets of the Company acquired after the effective date. FSP 142-3 did not have a material impact on the Company’s consolidated financial position, results of operations or cash flows.

In March 2008, the FASB issued SFAS No. 161, “ Disclosures about Derivative Instruments and Hedging Activities ” (“SFAS 161”). SFAS 161 requires companies with derivative instruments to disclose information that should enable financial-statement users to understand how and why a company uses derivative instruments, how derivative instruments and related hedged items are accounted for under FASB Statement No. 133 “ Accounting for Derivative Instruments and Hedging Activities ” and how derivative instruments and related hedged items affect a company’s financial position, financial performance and cash flows. SFAS 161 is effective for financial statements issued for fiscal years and interim periods which began after November 15, 2008. SFAS 161 did not have a material impact on the Company’s consolidated financial position, results of operations or cash flows.

In December 2007, the FASB issued SFAS No. 160, “ Noncontrolling Interests in Consolidated Financial Statements, an amendment of ARB No. 51 ”. (“SFAS 160”) SFAS 160 amends Accounting Research Bulletin No. 51 to establish accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. In addition, it clarifies that a noncontrolling interest in a subsidiary is an ownership interest in the consolidated entity that should be reported as a component of equity in the consolidated statements. SFAS 160 became effective on a prospective basis beginning January 1, 2009, except for presentation and disclosure requirements which are applied on a retrospective basis for all periods presented. SFAS 160 did not have a material impact on the Company's consolidated financial position, results of operations or cash flows.

In December 2007, the FASB issued SFAS No. 141(R), “ Business Combinations ” (“SFAS 141(R)”). SFAS 141(R) establishes principles and requirements for how an acquirer recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree and recognizes and measures the goodwill acquired in the business combination or a gain from a bargain purchase. SFAS 141(R) also sets forth the disclosures required to be made in the financial statements to evaluate the nature and financial effects of the business combination. SFAS 141(R) applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. SFAS 141(R) did not have a material impact on the Company’s consolidated financial position, results of operations or cash flows.

In September 2006, the FASB issued SFAS No. 157, “ Fair Value Measurements ,” (“SFAS 157”) which defines fair value, establishes guidelines for measuring fair value and expands disclosures regarding fair value measurements. SFAS 157 does not require any new fair value measurements but rather eliminates inconsistencies in guidance found in various prior accounting pronouncements. Pursuant to FASB FSP 157-2, issued in February, 2008, which delayed the effective date of SFAS 157 for all nonfinancial assets and nonfinancial liabilities, except those that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually), SFAS 157 became effective for fiscal years beginning after November 15, 2008, and interim periods within those fiscal years. These nonfinancial items include assets and liabilities such as reporting units measured at fair value in a goodwill impairment test and nonfinancial assets acquired and liabilities assumed in a business combination. The Company applied the provisions of SFAS 157 to the nonfinancial assets, nonfinancial liabilities and reporting units within the scope of SFAS 157 on January 1, 2009. The Company’s adoption of SFAS 157 did not materially impact the fair values of its nonfinancial assets, nonfinancial liabilities and reporting units within the scope of this FSP.

3.	Investments

(a) Available-for-Sale Securities

The original cost, estimated fair value and gross unrealized appreciation and depreciation of available-for-sale securities as of June 30, 2009, are presented in the table below:

(Amounts in thousands)	Original or amortized cost		Gross unrealized gains		Gross unrealized losses			Fair value
Preferred stock	$	5,266	$	-	$	(1,803	)	$	3,463
Common stock		66,768		1,721		(33,609	)		34,880
U.S. treasury securities		14,738		529		(59	)		15,208
U.S. government agencies		7,693		606		-			8,299
Municipal bonds		27,835		851		(415	)		28,271
Corporate bonds:
Finance		321,895		1,873		(46,868	)		276,900
Industrial		115,591		4,110		(12,826	)		106,875
Utilities		11,839		773		(446	)		12,166
Commercial mortgage backed securities		3,504		4		(146	)		3,362
Residential mortgage backed securities:
Agency backed		445,650		13,600		(1,502	)		457,748
Non-agency backed		35		-		(15	)		20
Asset-backed securities		3,722		120		(178	)		3,664
	$	1,024,536	$	24,187	$	(97,867	)	$	950,856

During the three months ended June 30, 2009, the Company disposed of a portion of its fixed maturities classified as held to maturity. As such, the Company assessed the appropriateness of its remaining fixed maturity portfolio classified as held to maturity. The Company determined that all remaining fixed maturities should be classified as available for sale under the provisions of SFAS 115, “Accounting for Certain Investments in Debt and Equity Securities.” The effect of this one time reclassification increased the carrying value of the fixed maturities by approximately $1,000.

(b) Investment Income

Net investment income for the three and six months ended June 30, 2009 and 2008 were derived from the following sources:

	Three Months Ended June 30,						Six Months Ended June 30,
(Amounts in thousands)	2009			2008			2009			2008
Fixed maturities	$	11,582		$	12,183		$	23,464		$	23,066
Equity securities		163			274			351			805
Cash and cash equivalents		1,768			3,534			3,572			6,869
Loss on equity investment		(217	)		(561	)		(619	)		(561	)
Note receivable - related party		821			980			1,633			1,569
		14,117			16,410			28,401			31,748
Less: Investment expenses and interest expense on securities sold under agreement to repurchase		535			2,220			1,230			4,027
	$	13,582		$	14,190		$	27,171		$	27,721

Quarterly, the Company’s Investment Committee (“Committee”) evaluates each security which has an unrealized loss as of the end of the subject reporting period for other-than-temporary-impairment. 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. Some of the criteria the Company 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 the Company 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; and

the occurrence of a discrete credit event resulting in the issuer defaulting on material outstanding obligation or the issuer seeking protection under bankruptcy laws.

Impairment of investment securities results in a charge to operations when a market decline below cost is deemed to be other-than-temporary. The Company generally considers investments to be subject to impairment testing when an asset is in an unrealized loss position in excess of 25% of cost basis.

Based on recent guidance in FSP 115-2 “Recognition and Presentation of Other-Than-Temporary-Impairments” 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. OTTI charges of our fixed-maturities and equity securities for the three months and six months ended June 30, 2009 and 2008 are presented in the table below:

	Three Months Ended June 30,				Six Months Ended June 30,
(Amounts in thousands)	2009		2008		2009		2008
Equity securities	$	8,761	$	7,230	$	10,188	$	7,972
Fixed maturities		2,025		-		2,025		-
	$	10,786	$	7,230	$	12,213	$	7,972

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, 2009:

	Less Than 12 Months							12 Months or More							Total
(Amounts in thousands)	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	$	8,368	$	(5,608	)		58	$	21,571	$	(29,804	)		301	$	29,939	$	(35,412	)
U.S. treasury securities		1,012		(59	)		3		—		—			—		1,012		(59	)
U.S. government agencies		—		—			—		—		—			—		—		—
Municipal bonds		13,082		(333	)		5		1,860		(82	)		2		14,942		(415	)
Corporate bonds:
Finance		29,953		(1,337	)		22		176,914		(45,531	)		54		206,867		(46,868	)
Industrial		13,658		(3,963	)		15		30,807		(8,863	)		16		44,465		(12,826	)
Utilities		—		—			—		2,642		(446	)		3		2,642		(446	)
Commercial mortgage backed securities		—		—			—		2,469		(146	)		5		2,469		(146	)
Residential mortgage backed securities:
Agency backed		5,639		(45	)		1		164,170		(1,457	)		23		169,809		(1,502	)
Non-agency backed		—		—			—		20		(15	)		1		20		(15	)
Asset-backed securities		—		—			—		176		(178	)		1		176		(178	)
Total temporarily impaired	$	71,712	$	(11,345	)		104	$	400,629	$	(86,522	)		406	$	472,341	$	(97,867	)

There are 510 securities at June 30, 2009 that account for the gross unrealized loss, none of which is deemed by the Company to be OTTI. Significant factors influencing the Company’s determination that unrealized losses were temporary included the magnitude of the unrealized losses in relation to each security’s cost, 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.

(d) Derivatives

The following table presents the notional amounts by remaining maturity of the Company’s Interest Rate Swaps, Credit Default Swaps and Contracts for Differences as of June 30, 2009:

	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	$	—	$	26,667	$	—	$	—	$	26,667
Credit default swaps		—		12,000		—		—		12,000
Contracts for differences		—		—		2,066		—		2,066
	$	—	$	38,667	$	2,066	$	—	$	40,733

(1)

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

The Company records changes in valuation on its derivative positions as a component of net realized gains and losses. The Company records changes in valuation on its interest rate swap related to its term loan (See “Note 5. Debt”) as a component of interest expense.

(e) Other

Securities sold but not yet purchased, represent obligations of the Company to deliver the specified security at the contracted price and thereby, create a liability to purchase the security in the market at prevailing prices. The Company’s liability for securities to be delivered is measured at their fair value and as of June 30, 2009 was $14,120 for corporate bonds and $1,366 for equity securities. These transactions result in off-balance sheet risk, as the Company’s ultimate cost to satisfy the delivery of securities sold, not yet purchased, may exceed the amount reflected at June 30, 2009. Subject to certain limitations, all securities owned, to the extent required to cover the Company’s obligations to sell or repledge the securities to others, are pledged to the clearing broker.

The Company enters into repurchase agreements. The agreements 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, 2009, there were $230,605 principal amount outstanding at interest rates between 0.40% and 0.60%. Interest expense associated with these repurchase agreements for the three months ended June 30, 2009 and 2008 was $535 and $2,219, respectively, of which $38 was accrued as of June 30, 2009. Interest expense associated with the repurchase agreements for the six months ended June 30, 2009 and 2008 was $1,230 and $4,004, respectively. The Company has approximately $235,000 of collateral pledged in support of these agreements.

4.	Fair Value of Financial Instruments

The fair value of a financial instrument is the estimated amount at which the instrument could be exchanged in an orderly transaction between unrelated parties. The estimated fair value of a financial instrument may differ from the amount that could be realized if the security was sold in a forced transaction. Additionally, valuation of fixed maturity investments is more subjective when markets are less liquid due to lack of market based inputs, which may increase the potential that the estimated fair value of an investment is not reflective of the price at which an actual transaction could occur.

For investments that have quoted market prices in active markets, the Company uses the quoted market prices as fair value and includes these prices in the amounts disclosed in the Level 1 hierarchy. The Company receives the quoted market prices from nationally recognized third-party pricing services (“pricing service”). When quoted market prices are unavailable, the Company utilizes a pricing service to determine an estimate of fair value. This pricing method is used, primarily, for fixed maturities. The fair value estimates provided by the pricing service are included in the Level 2 hierarchy. The Company will challenge any prices for its investments which are considered to not represent fair value. If quoted market prices and an estimate from pricing services are unavailable, the Company produces an estimate of fair value based on dealer quotations of the bid price for recent activity in positions with the same or similar characteristics to that being valued or through consensus pricing of a pricing service. Depending on the level of observable inputs, the Company will then determine if the estimate is Level 2 or Level 3 hierarchy.

Fixed Maturities. The Company utilized a pricing service to estimate fair value measurements for approximately 99% of its fixed maturities. The pricing service utilizes market quotations for fixed maturity securities that have quoted market prices in active markets. Since fixed maturities other than U.S. treasury securities generally do not trade on a daily basis, the pricing service prepares estimates of fair value measurements using relevant market data, benchmark curves, sector groupings and matrix pricing. The pricing service utilized by the Company has indicated it will produce an estimate of fair value only if there is verifiable information to produce a valuation. As the fair value estimates of most fixed maturity investments are based on observable market information rather than market quotes, the estimates of fair value other than U.S. Treasury securities are included in Level 2 of the hierarchy. U.S. Treasury securities are included in the amount disclosed in Level 1 as the estimates are based on unadjusted prices. The Company’s Level 2 investments include obligations of U.S. government agencies, municipal bonds, corporate debt securities and other mortgage backed securities. While virtually all of the Company’s fixed maturities are included in Level 1 or Level 2, the Company holds a small percentage, approximately 0.6%, of investments which were not valued by a pricing service. Typically, the Company estimates the fair value of these fixed maturities using a pricing matrix with some unobservable inputs that are significant to the valuation. Due to the limited amount of unobservable market information, the Company includes the fair value estimates for these investments in Level 3. At June, 30, 2009 the Company held certain fixed maturity investments, which included corporate and bank debt, that were not suitable for matrix pricing. For these assets, a quote is obtained from a market maker broker. Due to the disclaimers on the quotes that indicate that the price is indicative only, the Company includes these fair value estimates in Level 3.

Equity Securities . For public common and preferred stocks, the Company receives estimates from a pricing service that are based on observable market transactions and includes these estimates in Level 1 hierarchy.

Other Investments . The Company has approximately 1% of its investment portfolio, in limited partnerships or hedge funds where the fair value estimate is determined by a fund manager based on recent filings, operating results, balance sheet stability, growth and other business and market sector fundamentals. Due to the significant unobservable inputs in these valuations, the Company includes the estimate in the amount disclosed in Level 3 hierarchy. The Company has determined that its investments in Level 3 securities are not material to its financial position or results of operations.

Derivatives . The Company from time to time invests in a limited amount of derivatives and other financial instruments as part of its investment portfolio. Derivatives, as defined in SFAS 133, are financial arrangements among two or more parties with returns linked to an underlying equity, debt, commodity, asset, liability, foreign exchange rate or other index. Unless subject to a scope exclusion, the Company carries all derivatives on the consolidated balance sheet at fair value. The changes in fair value of the derivative are presented as a component of operating income. The Company primarily utilizes the following types of derivatives at any one time:

Credit default swap contracts (“CDS”), which, are valued in accordance with the terms of each contract based on the current interest rate spreads and credit risk of the referenced obligation of the underlying issuer and interest accrual through valuation date. Fair values are based on the price of the underlying bond on the valuation date. The Company may be required to deposit collateral with the counterparty if the market values of the contract fall below a stipulated amount in the contract. Such amounts are limited to the total equity of the account;

Interest rate swaps (“IS”), which are valued in terms of the contract between the Company and the issuer of the swaps, are based on the difference between the stated floating rate of the underlying indebtedness, and a predetermined fixed rate for such indebtedness with the result that the indebtedness carries a net fixed interest rate; and

Contracts for difference contracts (“CFD”), which, are valued based on the market price of the underlying stock. The Company may be required to deposit collateral with the counterparty if the market values of the contract fall below a stipulated amount in the contract.

The Company estimates fair value using information provided by the portfolio manager for IS and CDS and the counterparty for CFD and classifies derivatives as Level 3 hierarchy.

Fair Value Hierarchy

The following table presents 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, 2009:

(Amounts in thousands)	Total		Level 1		Level 2		Level 3
Assets:
Fixed securities	$	912,514	$	15,208	$	891,566	$	5,740
Equity securities		38,343		38,343		-		-
Other investments		13,017		-		-		13,017
	$	963,874	$	53,551	$	891,566	$	18,757
Liabilities:
Securities sold but not yet purchased, market	$	15,486	$	1,366	$	14,120	$	-
Securities sold under agreements to repurchase, at contract value		230,605		-		230,605		-
Derivatives		2,320		-		-		2,320
	$	248,411	$	1,366	$	244,725	$	2,320

The following table provides a summary of changes in fair value of the Company’s Level 3 financial assets as of June 30, 2009:

(Amounts in thousands)	Assets			Liabilities			Total
Three months ended June 30, 2009:
Beginning balance as of April 1, 2009	$	19,145		$	(982	)	$	18,163
Total net losses for the quarter included in:
Net income		15			(139	)		(124	)
Other comprehensive loss		-			-			-
Purchases, sales, issuances and settlements, net		(403	)		(1,199	)		(1,602	)
Net transfers into (out of) Level 3		-			-			-
Ending balance as of June 30, 2009	$	18,757		$	(2,320	)	$	16,437

(Amounts in thousands )	Assets			Liabilities			Total
Six months ended June 30, 2009:
Beginning balance as of January 1, 2009	$	21,352		$	(1,439	)	$	19,913
Total net losses for the quarter included in:
Net income		(39	)		(123	)		(162	)
Other comprehensive loss		-			-			-
Purchases, sales, issuances and settlements, net		(2,556	)		(758	)		(3,314	)
Net transfers into (out of) Level 3		-			-			-
Ending balance as of June 30, 2009	$	18,757		$	(2,320	)	$	16,437

Debt

Junior Subordinated Debt

The Company established four special purpose trusts for the purpose of issuing trust preferred securities. The proceeds from such issuances, together with the proceeds of the related issuances of common securities of the trusts, were invested by the trusts in junior subordinated debentures issued by the Company. As a result of FIN 46, the Company does not consolidate such special purpose trusts, as the Company is not considered to be the primary beneficiary under this accounting standard. The equity investment, totaling $3,714 as of June 30, 2009 on the Company’s consolidated balance sheet, represents the Company’s ownership of common securities issued by the 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 the Company’s common stock under certain circumstances, including default of payment The Company incurred $2,605 of placement fees in connection with these issuances which is being amortized over thirty years.

The table below summarizes the Company’s trust preferred securities as of June 30, 2009:

(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
AmTrust Capital Financing Trust I	$	25,000	$	774	$	25,774	3/17/2035		8.275	%(1)
AmTrust Capital Financing Trust II		25,000		774		25,774	6/15/2035		7.710	(1)
AmTrust Capital Financing Trust III		30,000		928		30,928	9/15/2036		8.830	(2)
AmTrust Capital Financing Trust IV		40,000		1,238		41,238	3/15/2037		7.930	(3)
Total trust preferred securities	$	120,000	$	3,714	$	123,714

(1)

The interest rate will change to three-month LIBOR plus 3.40% after the tenth anniversary.

(2)

The interest rate will change to LIBOR plus 3.30% after the fifth anniversary.

(3)

The interest rate will change to LIBOR plus 3.00% after the fifth anniversary.

The Company recorded $2,552 and $2,530 of interest expense for the three months ended June 30, 2009 and 2008, respectively, and $5,104 and $5,060 of interest expense for the six months ended June 30, 2009 and 2008, respectively, related to these trust preferred securities.

Term Loan

On June 3, 2008, the Company entered into a term loan with JP Morgan Chase Bank, N.A. in the aggregate amount of $40,000. The term of the loan is for a period of three years and requires quarterly principal payments of $3,333, which began on September 3, 2008 and end on June 3, 2011. The loan carries a variable rate and is based on a Eurodollar rate plus an applicable margin. The Eurodollar rate is a periodic fixed rate equal to the London Interbank Offered Rate “LIBOR” plus a margin rate, which was 185 basis points. As of June 30, 2009 the interest rate was 2.45%. The Company recorded $385 and $151 of interest expense for the three months ended June 30, 2009 and 2008, respectively, and $842 and $151 of interest expense for the six months ended June 30, 2009 and 2008, respectively. The Company can prepay any amount after the first anniversary date without penalty upon prior notice. The term loan contains affirmative and negative covenants, including limitations on additional debt, limitations on investments and acquisitions outside the Company’s normal course of business. The loan requires the Company to maintain a debt to capital ratio of 0.35 to 1 or less. The Company incurred financing fees of $52 related to the agreement.

On June 4, 2008, the Company entered into a fixed rate interest swap agreement with a total notional amount of $40,000 to convert the term loan from variable to fixed rate. Under this agreement, the Company pays a fixed rate of 3.47% plus a margin of 185 basis points or 5.32% and receives a variable rate in return based on LIBOR plus a margin rate, which was 185 basis points. The variable rate is reset every three months, at which time the interest will be settled and will be recognized as adjustments to interest expense. The Company recorded interest expense of $164 and $0 for the three months ended June 30, 2009 and 2008, respectively, and $439 and $0 for the six months ended June 30, 2009 and 2008 related to this agreement.

Promissory Note

In connection with the stock and asset purchase agreement with a subsidiary of Unitrin, Inc. (“Unitrin”), the Company, on June 1, 2008, issued a promissory note to Unitrin in the amount of $30,000. The note is non-interest bearing and requires four annual principal payments of $7,500 beginning on June 1, 2009 through June 1, 2012, the first of which was paid in 2009, and the remaining principal payments are due on June 1, 2010, 2011 and 2012. Upon entering into the promissory note, the Company calculated imputed interest of $3,155 based on interest rates available to the Company, which was 4.5%. Accordingly, the note’s carrying balance was adjusted to $26,845 at the acquisition. The note is required to be paid in full, immediately, under certain circumstances involving default of payment or change of control of the Company. The Company included $283 and $101 of amortized discount on the note in its results of operations for the three months ended June 30, 2009 and 2008, respectively and $596 and $101 for the six months ended June 30, 2009 and 2008, respectively. The note’s carrying value at June 30, 2009 was $20,657.

Line of Credit

On June 3, 2008, the Company entered into an agreement for an unsecured line of credit with JP Morgan Chase Bank, N.A. in the aggregate amount of $25,000. The line is being used for collateral for letters of credit. On June 30, 2009, the Company amended this agreement, whereby, the line increased in the aggregate amount to $30,000 and its term was extended to June 30, 2010. The Company incurred fees of $30 for this amendment. Interest payments are required to be paid monthly on any unpaid principal and bears interest at a rate of LIBOR plus 150 basis points. As of June 30, 2009 there was no outstanding balance on the line of credit. The Company has outstanding letters of credit in place at June 30, 2009 for $24,075 that reduced the availability on the line of credit to $5,925 as of June 30, 2009.

Maturities of Debt

Maturities of the Company’s debt for the remainder of 2009 and future periods are as follows:

(Amounts in thousands)	2009		2010		2011		2012		2013		Thereafter
Junior subordinated debt	$	—	$	—	$	—	$	—	$	—	$	123,714
Term loan		6,667		13,333		6,667		—		—		—
Promissory note		—		6,258		7,037		7,362		—		—
Total	$	6,667	$	19,591	$	13,704	$	7,362	$	—	$	123,714

6. 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, 2009 and 2008:

	Three Months Ended June 30,				Six Months Ended June 30,
(Amounts in thousands)	2009		2008		2009		2008
Policy acquisition expenses	$	34,776	$	24,678	$	64,024	$	43,677
Salaries and benefits		20,660		17,602		39,941		29,646
Other insurance general and administrative expense		9,151		15,544		18,776		25,378
	$	64,587	$	57,824	$	122,741	$	98,701

7.	Earnings Per Share

The following is a summary of the elements used in calculating basic and diluted earnings per share for the three and six months ended June 30, 2009 and 2008:

	Three Months Ended June 30,				Six Months Ended June 30,
(Amounts in thousands)	2009		2008		2009		2008
Net income available to common shareholders	$	26,771	$	26,350	$	50,933	$	48,613

Weighted average number of common shares outstanding – basic		59,338		59,989		59,551		59,979
Potentially dilutive shares:
Dilutive shares from stock-based compensation		397		1,012		312		981
Weighted average number of common shares outstanding – dilutive		59,735		61,001		59,863		60,960

Basic earnings per common share	$	0.45	$	0.44	$	0.86	$	0.81

Diluted earnings per common share	$	0.45	$	0.43	$	0.85	$	0.80

As of June 30, 2009, there were approximately 1,345 of anti-dilutive securities excluded from diluted earnings per share.

During the three months ended March 31, 2009, the Company repurchased approximately 702 of its common shares for approximately $5,492. The effect of the purchase, reduced the weighted average shares outstanding by approximately 310 shares for the six months ended June 30, 2009.

8.	Share Based Compensation

The Company’s 2005 Equity and Incentive Plan (“2005 Plan”) permits the Company to grant to officers, employees and non-employee directors of the Company incentive compensation directly linked to the price of the Company’s stock. The Company grants options at prices equal to the closing stock price of the Company’s stock on the dates the options are granted. The Company recognizes compensation expense under SFAS No. 123(R) “Share-Based Payment” for its share-based payments based on the fair value of the awards. 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. SFAS 123(R)’s fair value valuation method resulted in share-based expense (a component of salaries and benefits) in the amount of approximately $1,141 and $737 related to stock options for the three months ended June 30, 2009 and 2008, respectively and $1,812 and $1,495 for the six months ended June 30, 2009 and 2008, respectively.

The following schedule shows all options granted, exercised, expired and exchanged under the 2005 Plan for the six months ended June 30, 2009 and 2008:

	2009						2008
(Amounts in thousands except per share)	Number of Shares			Amount per Share			Number of Shares			Amount per Share

Outstanding beginning of period		3,728			$	7.00-15.02		3,126			$	7.00-14.55
Granted		423				8.99-11.40		50				15.02
Exercised		(13	)			7.50		(41	)			7.50
Cancelled or terminated		(86	)			7.50-14.55		(15	)			7.50
Outstanding end of period		4,052			$	7.00-15.02		3,120			$	7.00-15.02

The weighted average grant date fair value of options granted during the six months ended June 30, 2009 and 2008 was $2.94 and $4.84, respectively. As of June 30, 2009 there was approximately $6,127 of total unrecognized compensation cost related to non-vested share-based compensation arrangements.

9.	Comprehensive Income

The following table summarizes the components of comprehensive income:

	Three Months Ended June 30,					Six Months Ended June 30,
(Amounts in thousands)	2009		2008			2009		2008
Net income	$	26,771	$	26,350		$	50,933	$	48,613
Unrealized holding gain (loss)		40,967		(13,329	)		25,997		(30,416	)
Reclassification adjustment		5,993		8,367			14,407		8,232
Foreign currency translation		3,963		(268	)		3,123		620
Comprehensive income (loss)	$	77,694	$	21,120		$	94,460		27,049

10.	Income Taxes

Income tax expense (benefit) for the three months ended June 30, 2009 and 2008 was $5,448 and $7,216, respectively, and $10,704 and $14,533 for the six months ended June 30, 2009 and 2008, respectively. The following table reconciles the Company’s statutory federal income tax rate to its effective tax rate.

	Three Months Ended June 30,						Six Months Ended June 30,
(Amounts in thousands)	2009			2008			2009			2008
Income from continuing operations before provision for income taxes and minority interest	$	32,219		$	33,566		$	61,637		$	60,246
Less: minority interest		—			—			—			(2,900	)
Income from continuing operations after minority interest before provision for income taxes	$	32,219		$	33,566		$	61,637		$	63,146

Income taxes at statutory rates	$	11,277		$	11,714		$	21,573		$	22,101
Effect of income not subject to U.S. taxation		(4,675	)		(4,876	)		(9,888	)		(7,868	)
Other, net		(1,154	)		378			(981	)		300
Provision for income taxes as shown on the consolidated statements of earnings	$	5,448		$	7,216		$	10,704		$	14,533
GAAP effective tax rate		16.9	%		21.5	%		17.4	%		23.0	%

The Company’s management believes that it will realize the benefits of its deferred tax asset and, accordingly, no valuation allowance has been recorded for the periods presented. The Company does not provide for income taxes on the unremitted earnings of foreign subsidiaries where, in management’s opinion, such earnings have been indefinitely reinvested. It is not practical to determine the amount of unrecognized deferred tax liabilities for temporary differences related to these investments.

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, 2004 and forward. At June 30, 2009, the Company has approximately $1,520 of accrued interest and penalties related to FIN 48 unrecognized tax benefits.

During 2007, the Company, while performing a review of the income tax return filed with the Internal Revenue Service (“IRS”) for calendar year ending December 31, 2006, determined an issue existed per FIN 48 guidelines concerning its position related to accrued market discount. The Company reverses accrued market discount income recognized for book purposes when calculating taxable income. The reversal results from the accrued market discount income recognized by the insurance subsidiaries for bonds and other investments. The Company inadvertently reversed the amount related to commercial paper investments on the 2006 income tax return. The Company has estimated the potential liability to be approximately $942 (including $125 for penalties and interest) and has reflected this position, per FIN 48 guidelines, in the consolidated financial statements.

During 2006, the IRS completed an audit of the Company’s subsidiaries, Associated Industries Insurance Services, Inc. (“AIIS”) and Associated Industries Insurance Company’s (“AIIC”) (collectively “Associated”), which the Company acquired in 2007. For Associated’s 2002 and 2003 consolidated federal income tax returns, the field examiner indicated Associated underpaid their liability by approximately $3,200. In addition, interest and penalties of $600 were assessed. During 2006, management of Associated accrued a liability for its best estimate of a settlement with the IRS. Although the predecessor management of Associated disagreed with the majority of the positions taken by the examiner and appealed the assessment, the Company has estimated the potential liability related to the audit to be $4,325 (including $1,395 for penalties and interest) and has reflected this position, per FIN 48 guidelines, in the consolidated financial statements. In October 2008, the appeals agent found in favor of Associated on substantially all issues and also agreed to abate all related penalties. The preliminary report and recommendation of settlement has been prepared by the appeals agent. The Company expects the IRS to issue their final settlement report and proposed adjustment of tax and interest due during the second half of 2009. Additionally, during the second quarter 2008, AIIS received notification from the IRS indicating the 2006 consolidated federal tax return had been selected for audit. The majority of the field work has been completed and responses for all initial information document requests have been provided to the examining agent. The Company expects the agent to issue any proposed adjustments and related audit report during the second half of 2009.

11.	Related Party Transactions

Reinsurance Agreement

Maiden Holdings, Ltd. (“Maiden”) is a publicly-held Bermuda insurance holding company (Nasdaq:MHLD) formed by Michael Karfunkel, George Karfunkel and Barry Zyskind, the principal shareholders, and, respectively, the Chairman of the Board of Directors, a Director, and the Chief Executive Officer and Director of AmTrust. As of June 30, 2009, Michael Karfunkel owns or controls 15% of the issued and outstanding capital stock of Maiden, George Karfunkel owns or controls 10.5% of the issued and outstanding capital stock of Maiden and Mr. Zyskind owns or controls 5.7% of the issued and outstanding stock of Maiden. Mr. Zyskind serves as the non-executive Chairman of the Board of Maiden’s Board of Directors. Maiden Insurance Company, Ltd (“Maiden Insurance”), a wholly-owned subsidiary of Maiden, is a Bermuda reinsurer.

During the third quarter of 2007, the Company and Maiden entered into master agreement, as amended, by which they caused the Company’s Bermuda affiliate, AmTrust International Insurance, Ltd. (“AII”) and Maiden Insurance to enter into a quota share reinsurance agreement (the “Maiden Quota Share”), as amended, by which (a) AII retrocedes to Maiden Insurance an amount equal to 40% of the premium written by AmTrust’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 AmTrust’s U.K. insurance subsidiary IGI, net of commissions) and 40% of losses and (b) AII transferred to Maiden Insurance 40% of the AmTrust Ceding Insurer’s unearned premium reserves, effective as of July 1, 2007, with respect to the Company's then current lines of business, excluding risks for which the AmTrust Ceding Insurers’ net retention exceeded $5,000 (“Covered Business”).

AmTrust also has agreed to cause AII, subject to regulatory requirements, to reinsure any insurance company which writes Covered Business in which AmTrust acquires a majority interest to the extent required to enable AII to cede to Maiden Insurance 40% of the premiums and losses related to such Covered Business. In June 2008, AII, pursuant to the Maiden Quota Share, offered to cede to Maiden and Maiden agreed to assume 100% of unearned premium and losses related to in-force Retail Commercial Package Business assumed by the Company in connection with its acquisition of UBI, the commercial package business of Unitrin, Inc. (“Unitrin”) from a subsidiary of Unitrin and 40% of prospective net premium written and losses related to Retail Commercial Package Business. In September 2008, AII, pursuant to the Maiden Quota Share, offered to cede and Maiden Insurance agreed to assume 40% of the net premium written and losses with respect to certain business written by AmTrust’s Irish insurance subsidiary, AIU, for which AIU retains in excess of $5,000 per loss (“Excess Retention Business”).

The Maiden Quota Share, as amended, further provides that AII receives a ceding commission of 31% of ceded written premiums with respect to Covered Business and the AIU Excess Retention Business and 34.375% with respect to Retail Commercial Package Business. The Maiden Quota Share has an initial term of three years and will automatically renew for successive three year terms thereafter, unless either AII or Maiden Insurance notifies the other of its election not to renew not less than nine months prior to the end of any such three year term. In addition, either party is entitled to terminate on thirty day’s 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 Insurance, run-off, or a reduction of 50% or more of the shareholders’ equity of Maiden Insurance or the combined shareholders’ equity of AII and the AmTrust Ceding Insurers.

The following is the effect on the Company’s balance sheet as of June 30, 2009 and December 31, 2008 and the results of operations for the three and six months ended December 31, 2009 and 2008 related to the Maiden Quota Share agreement:

(Amounts in thousands)	As of June 30, 2009			As of December 31, 2008
Assets and liabilities:
Reinsurance recoverable	$	265,989			221,214
Prepaid reinsurance premium		235,852			243,511
Ceded reinsurance premiums payable		(89,624	)		(102,907	)
Note payable		(167,975	)		(167,975	)

	Three Months Ended June 30,						Six Months Ended June 30,
(Amounts in thousands)	2009			2008			2009			2008
Results of operations:
Premium written - ceded	$	(90,079	)	$	(168,069	)	$	(177,559	)	$	(251,017	)
Change in unearned premium - ceded		2,218			91,824			(4,753	)		110,983
Earned premium - ceded	$	(87,861	)	$	(76,245	)	$	(182,312	)	$	(140,034	)

Ceding commission on premium written	$	27,570		$	54,753		$	55,123		$	80,745
Ceding commission – deferred		3,960			(19,531	)		3,525			(25,339	)
Ceding commission - earned	$	31,530		$	35,222		$	58,648		$	55,406

Incurred loss and loss adjustment expense - ceded	$	66,908		$	48,528		$	138,113		$	90,000
Interest expense		554			2,695			1,124			2,695

The Maiden Quota Share requires that Maiden Insurance provide to AII sufficient collateral to secure its proportional share of AII’s obligations to the U.S. AmTrust Ceding Insurers. AII is required to return to Maiden Insurance any assets of Maiden Insurance in excess of the amount required to secure its proportional share of AII’s collateral requirements, subject to certain deductions. In order to secure its proportional share of AII’s obligation to the AmTrust Ceding Insurers, domiciled in the U.S., AII currently has outstanding a collateral loan issued to Maiden Insurance in the amount of $167,975 (See Note Payable - Collateral for Proportionate Share of Reinsurance Obligation). Effective December 1, 2008, AII and Maiden Insurance entered into a Reinsurer Trust Assets Collateral agreement whereby Maiden Insurance 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 as of June 30, 2009 was $155,994. Maiden retains ownership of the collateral in the trust account.

Reinsurance Brokerage Agreement

Effective July 1, 2007, AmTrust, through a subsidiary, entered into a reinsurance brokerage agreement with Maiden. Pursuant to the brokerage agreement, AmTrust provides brokerage services relating to the Reinsurance Agreement for a fee equal to 1.25% of reinsured premium. The brokerage fee is payable in consideration of AII Reinsurance Broker Ltd.’s brokerage services. The Company recorded $1,096 and $2,101 of brokerage commission during the three months ended June 30, 2009 and 2008, respectively and $2,229 and $3,138 during the six months ended June 30, 2009 and 2008, respectively.

Asset Management Agreement

Effective July 1, 2007, AmTrust, through a subsidiary, entered into an asset management agreement with Maiden, pursuant to which it provides investment management services to Maiden. Pursuant to the asset management agreement, AmTrust earned an annual fee equal to 0.35% per annum of average invested assets plus all costs incurred. Effective April 1, 2008, the investment management services fee was reduced to 0.20% per annum for periods in which average invested assets are $1,000,000 or less and 0.15% per annum for periods in which the average invested assets exceed $1,000,000. As a result of this agreement, the Company recorded approximately $618 and $460 of investment management fees for the three months ended June 30, 2009 and 2008, respectively and $1,215 and $960 for the six months ended June 30, 2009 and 2008, respectively.

Services Agreement

AmTrust, through its subsidiaries, entered into services agreements in 2008, pursuant to which it provides certain marketing and back office services to Maiden. Pursuant to the services agreements, AmTrust earns a fee equal to the amount required to reimburse AmTrust for its costs plus 8%. As a result of this agreement, the Company recorded approximately $182 and $382 for the three months ended June 30, 2009 and 2008, respectively, and $335 and $498 for the six months ended June 30, 2009 and 2008, respectively.

Note Payable — Collateral for Proportionate Share of Reinsurance Obligation

In conjunction with the Maiden Quota Share, AII entered into a loan agreement with Maiden Insurance during the fourth quarter of 2007, whereby, Maiden Insurance agreed to lend to AII from time to time the amount of the obligation of the AmTrust Ceding Insurers that AII is obligated to secure, not to exceed an amount equal to Maiden Insurance’s proportionate share of such obligations. The loan agreement was amended in February 2008 to provide for interest at a rate of LIBOR plus 90 basis points and is payable on a quarterly basis. Each advance under the loan is secured by a promissory note. Advances totaled $167,975 as of June 30, 2008. The Company recorded $554 and $2,695 of interest expense during the three months ended June 30, 2009 and 2008, respectively, and $1,124 and $2,695 during the six months ended June 30, 2009 and 2008, respectively.

Other Reinsurance Agreement

Effective January 1, 2008, Maiden became a participating reinsurer in the first layer of the Company’s workers’ compensation excess of loss program, which provides coverage in the amount of $9,000 per occurrence in excess of $1,000, subject to an annual aggregate deductible of $1,250. Maiden, which is one of two participating reinsurers in the layer, has a 45% participation. Maiden participates in the first layer of the excess of loss program on the same market terms and conditions as the other participant.

Leap Tide Capital Management

Leap Tide Capital Management, Inc. (“LTCMI”), our wholly owned subsidiary, currently manages approximately $35,600 of our assets. LTCMI also serves as the Investment Manager of Leap Tide Partners, L.P., a domestic partnership and Leap Tide Offshore, Ltd., a Cayman exempted company, both of which were formed for the purpose of providing qualified third-party investors the opportunity to invest funds in a vehicle managed by LTCMI (the “Hedge Funds”). As of June 30, 2009, the current value of the invested funds in the Hedge Funds was less than $7,700. The majority of funds invested in the Hedge Funds were provided by members of the Karfunkel family. The Company’s Audit Committee has reviewed the Leap Tide transactions and determined that they were entered into at arm’s-length and did not violate the Company’s Code of Business Conduct and Ethics. The management company earned approximately $0 and $37 of fees under the agreement during the three months ended June 30, 2009 and 2008, respectively and $0 and $80 during the six months ended June 30, 2009 and 2008.

Lease Agreements

In 2002, the Company entered into a lease for approximately 9,000 square feet of office space at 59 Maiden Lane in New York, New York from 59 Maiden Lane Associates, LLC, an entity which is wholly-owned by Michael Karfunkel and George Karfunkel. Effective January 1, 2008, the Company entered into an amended lease whereby it increased its leased space to 14,807 square feet and extended the lease through December 31, 2017. The Company’s Audit Committee reviewed and approved the amended lease agreement. The Company paid approximately $159 and $134 for the lease for the three months ended June 30, 2009 and 2008, respectively and $325 and $217 for the six months ended June 30, 2009 and 2008, respectively.

In 2008, the Company entered into a lease for approximately 5,000 square feet of office space in Chicago, Illinois from 33 West Monroe Associates, LLC, an entity which is wholly-owned by Michael Karfunkel and George Karfunkel. Effective May 1, 2009, the Company entered into an amended lease by which the Company increased its leased space to 7,156 square feet. The Company’s Audit Committee reviewed and approved the lease agreement. The Company paid approximately $50 and $31 for the lease for the three months ended June 30, 2009 and 2008, respectively and $91 and $62 for the six months ended June 30, 2009 and 2008, respectively.

Employment Relationship

Barry Karfunkel, was an analyst with a Company subsidiary through January 31, 2009, earned approximately $0 and $87 for the three months ended June 30, 2009 and 2008, respectively and $21 and $150 for the six months ended June 30, 2009 and 2008, respectively. Barry Karfunkel is the son of Michael Karfunkel and the brother-in-law of Barry Zyskind.

Warrantech

In February of 2007, the Company participated with H.I.G. Capital, a Miami-based private equity firm, in financing H.I.G. Capital’s acquisition of Warrantech in a cash merger. The Company contributed $3,850 for a 27% equity interest in Warrantech. Warrantech is an independent developer, marketer and third party administrator of service contracts and after-market warranty primarily for the motor vehicle and consumer product industries. The Company currently insures a majority of Warrantech’s business, which produced gross written premium of approximately $20,300 and $32,900 during the three months ended 2009 and 2008, respectively, and $43,300 and $50,600 during the six months ended June 30, 2009 and 2008. The Company recorded investment loss of approximately $217 and $561 from its equity investment for the three months ended June 30, 2009 and 2008, respectively and $619 and $561 for the six months ended June 30, 2009 and 2008, respectively. As of June 30, 2009 the Company’s equity investment was approximately $1,491. Additionally in 2007, the Company provided Warrantech with $20,000 in funds in exchange for a senior secured note due January 31, 2012 in that principal amount (note receivable — related party). Interest on the notes is payable monthly at a rate of 15% per annum and consisted of a cash component at 11% per annum and 4% per annum for the issuance of additional notes (“PIK Notes”) in a principle amount equal to the interest not paid in cash on such date. As of June 30, 2009 the carrying value of the note receivable was $22,026 (note receivable — related party).

12.	Acquisition

During the three months ended March 31, 2009, the Company, through a subsidiary, acquired all the issued and outstanding stock of Imagine Captive Holdings Limited (“ICHL”), a Luxembourg holding company, which owned all of the issued and outstanding stock of Imagine Re Beta SA, Imagine Re (Luxembourg) 2007 SA and Imagine Re SA (collectively, the “Captives”), each of which is a Luxembourg domiciled captive insurance company, from Imagine Finance SARL (“SARL”). ICHL subsequently changed its name to AmTrust Captive Holdings Limited (“ACHL”) and the Captives changed their names to AmTrust Re Beta SA, AmTrust Re (Luxembourg) 2007 SA and AmTrust Re SA, respectively. The purchase price of ACHL was $20 which represented the capital of ACHL. The acquisition allows the Company to obtain the benefit of the Captives’ utilization of their equalization reserves. In accordance with SFAS No 141(R), the Company recorded approximately $12,500 of cash, $66,500 of receivables and $79,000 of loss reserves. The results of operations have been included since acquisition date.

Additionally, the Captives had previously entered into a stop loss agreement with Imagine Insurance Company Limited (“Imagine”) by which Imagine agreed to cede certain losses to the Captives. Concurrently, with the Company’s purchase of ACHL, the Company, through AII, entered into a novation agreement by which AII assumed all of Imagine’s rights and obligations under the stop loss agreement.

13.	Fair Value of Financial Instruments

Statement of Financial Accounting Standards No. 107, “Disclosures about Fair Value of Financial Instruments,” requires all entities to disclose the fair value of financial instruments, both assets and liabilities recognized and not recognized in the balance sheet, for which it is practicable to estimate fair value.

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 investments are included in “Note 4— Fair Value of Financial Instruments.”;

Premiums receivable: 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;

Subordinated debentures and debt: The carrying values reported in the accompanying balance sheets for these financial instruments approximate fair value. Fair value was estimated using projected cash flows, discounted at rates currently being offered for similar notes.

14.	Contingent Liabilities

The Company’s insurance subsidiaries and other operating 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 loss expense reserves. The Company’s management believes the resolution of those actions should not have a material adverse effect on the Company’s financial position or results of operations.

15.	Assets Under Management

In December 2006, the Company formed two, wholly-owned subsidiaries currently named Leap Tide Capital Management, Inc. (LTCMI) and Leap Tide Capital Management GP, LLC (LTCM GP). Concurrently with these formations, the Company also formed Leap Tide Partners, LP (LTP), a hedge fund limited partnership, for the purpose of managing the assets of its limited partners. LTCMI has a 1% ownership in LTP. LTCMI earns a management fee equal to 1% of the LTP’s assets. LTCMI also earns an incentive fee of 20% of the cumulative profits of the LTP. Through March 31, 2008 LTCMI, the general partner of LTP, consolidated LTP in accordance with EITF 04-05 “Determining Whether a General Partner, or the General Partners as a Group Controls a Limited Partnership or Similar Entity When the Limited Partners Have Certain Rights,” as the rights of the limited partners did not overcome the rights of the general partner. Effective April 1, 2008, the limited partnership agreement was amended such that a majority of the limited partners had the right to liquidate the limited partnership. In addition, the Company ceased being the managing member of LTCM GP. Due to this amendment, in accordance with EITF 04-05, the Company ceased to consolidate LTP as of April 1, 2008.

Through March 31, 2008, we allocated an equivalent portion of the limited partners’ income or loss to minority interest. For the three and six months ended June 30, 2009 and 2008, LTP had an investment loss of $0 and $2,900, respectively and resulted in an allocation to minority interest of $0 and $2,900. The management companies earned approximately $0 and $37 of fees under the agreement during the three and months ended June 30, 2009 and 2008, respectively, and $0 and $80 during the six months ended June 30, 2009 and 2008, respectively.

16.

Segments

The Company currently operates three business segments, Small Commercial Business; Specialty Risk and Extended Warranty Insurance; and Specialty Middle-Market Property and Casualty Insurance. The “Corporate & Other” segment represents the activities of the holding company as well as a portion of 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 premium receivable, deferred acquisition cost, reinsurance recoverable and prepaid reinsurance while the remaining assets are allocated based on net 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 net 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. Interest expense and income taxes are allocated based on net written premium by segment. 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, commission and fee revenue, investment income and other revenues, other underwriting expenses, interest expense and income taxes. Management believes that providing this information in this manner is essential to providing Company’s shareholders with an understanding of the Company’s business and operating performance. The following tables summarize business segments for the three and six months ended June 30, 2009 and 2008.

(Amounts in thousands)

Small

commercial

business

Specialty risk

and extended

warranty