**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      D.C. 20549**





**FORM
      10-Q**





(Mark
      One)





x
            QUARTERLY
                REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
                ACT OF
                1934For
                the quarterly period ended March 31,
                2008





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 is a large accelerated filer, an
      accelerated filer, or a non-accelerated filer. See definition of “accelerated
      filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check
      one):





Large
      accelerated filer o Accelerated
      FilerxNon-accelerated
      filero





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
      April 2, 2008, the Registrant had one class of Common Stock ($.01 par value),
      of
      which 59,989,839 shares were issued and outstanding.














INDEX





PagePART
                I
            FINANCIAL
                INFORMATIONItem
                1.
            Unaudited
                Financial Statements:Condensed
                Consolidated Balance Sheets as of March 31, 2008 and December 31,
                2007
            3Condensed
                Consolidated Statements of Income
            4—
                Three months ended March 31, 2008 and 2007Condensed
                Consolidated Statements of Cash Flows
            5—
                Three months ended March 31, 2008 and 2007Notes
                to Condensed Consolidated Financial Statements
            6Item
                2.
            Management’s
                Discussion and Analysis of Financial Condition and Results of
                Operations
            20Item
                3.
            Quantitative
                and Qualitative Disclosures About Market Risk
            31Item
                4.
            Controls
                and Procedures
            33PART
                II
            OTHER
                INFORMATIONItem
                6.
            Exhibits
            34Signatures
            35





2




PART
      1 -
      FINANCIAL INFORMATION





Item 1. Financial Statements





**AMTRUST
      FINANCIAL SERVICES, INC. AND SUBSIDIARIES**





**Condensed
      Consolidated Balance Sheets**


**(in
      thousands, except per share data)**





****
            
            **March 31,****2008**
            
            **December 31,2007**(Unaudited)**ASSETS**Investments:Fixed
                maturities, held-to-maturity, at amortized cost (fair value $119,971;
                $162,661)
            
            $
            118,501
            
            $
            161,901Fixed
                maturities, available-for-sale, at market value (amortized cost $863,440;
                $745,132)
            
            
            826,251
            
            
            726,749Equity
                securities, available-for-sale, at market value (cost $106,165;
                $106,956)
            
            
            68,643
            
            
            79,037Short-term
                investments
            
            
            259,027
            
            
            148,541Other
                investments
            
            
            22,739
            
            
            28,035**Total
                investments**
            
            
            1,295,161
            
            
            1,144,263Cash
                and cash equivalents
            
            
            168,777
            
            
            145,337Assets
                under management
            
            
            15,639
            
            
            18,541Accrued
                interest and dividends
            
            
            8,588
            
            
            9,811Premiums
                receivable, net
            
            
            296,806
            
            
            257,756Note
                receivable – related party
            
            
            20,954
            
            
            20,746Reinsurance
                recoverable
            
            
            233,194
            
            
            225,941Reinsurance
                recoverable – related party
            
            
            87,050
            
            
            55,973Prepaid
                reinsurance premium
            
            
            108,915
            
            
            107,585Prepaid
                reinsurance premium – related party
            
            
            156,258
            
            
            137,099Prepaid
                expenses and other assets
            
            
            31,483
            
            
            26,131Deferred
                policy acquisition costs
            
            
            73,005
            
            
            70,903Deferred
                income taxes
            
            
            45,567
            
            
            36,502Property
                and equipment, net
            
            
            14,555
            
            
            12,974Goodwill
            
            
            10,733
            
            
            10,549Intangible
                assets
            
            
            41,875
            
            
            42,683$
            2,608,560
            
            $
            2,322,794**LIABILITIES
                AND STOCKHOLDERS’ EQUITY****Liabilities:**Loss
                and loss expense reserves
            
            $
            786,051
            
            $
            775,392Unearned
                premiums
            
            
            570,267
            
            
            527,758Ceded
                reinsurance premiums payable
            
            
            68,307
            
            
            39,464Ceded
                reinsurance premium payable – related party
            
            
            85,552
            
            
            38,792Reinsurance
                payable on paid losses
            
            
            4,342
            
            
            4,266Federal
                income tax payable
            
            
            12,659
            
            
            4,123Funds
                held under reinsurance treaties
            
            
            3,086
            
            
            4,400Securities
                sold but not yet purchased, market
            
            
            16,686
            
            
            18,426Securities
                sold under agreements to repurchase, at contract value
            
            
            300,492
            
            
            146,403Accrued
                expenses and other current liabilities
            
            
            107,691
            
            
            113,800Derivatives
                liabilities
            
            
            5,932
            
            
            4,101Note
                payable – related party
            
            
            113,228
            
            
            113,228Junior
                subordinated debt
            
            
            123,714
            
            
            123,714**Total
                liabilities**
            
            
            2,198,007
            
            
            1,913,867**Commitments
                and contingencies****Minority
                Interest**
            
            
            15,639
            
            
            18,541**Stockholders’
                equity:**Common
                stock, $.01 par value; 100,000 shares authorized, 84,047 issued in
                March
                31, 2008 and December 31, 2007, respectively; 59,985 and 59,952
                outstanding in March 31, 2008 and December 31, 2007,
                respectively
            
            
            841
            
            
            841Preferred
                stock, $.01 par value; 10,000,000 shares authorized
            
            
            —
            
            
            —Additional
                paid-in capital
            
            
            536,122
            
            
            535,123Treasury
                stock at cost; 24,094 shares in 2008 and 2007
            
            
            (294,671
            )
            
            (294,671
            )Accumulated
                other comprehensive income (loss)
            
            
            (48,021
            )
            
            (31,688
            )Retained
                earnings
            
            
            200,643
            
            
            180,781**Total
                stockholders’ equity**
            
            
            394,914
            
            
            390,386$
            2,608,560
            
            $
            2,322,794




*See
      accompanying notes to unaudited condensed consolidated
      statements.*





3


**AmTrust
      Financial Services, Inc.**


**Condensed
      Consolidated Statements of Income**


**(Unaudited)**


**(in
      thousands, except per share data)**




**Three Months Ended March 31,****2008**
            
            **2007**Gross
                written premium
            
            $
            234,756
            
            $
            189,673**Revenues:**Premium
                income:Net
                premium written
            
            $
            117,442
            
            $
            160,619Change
                in unearned premium
            
            
            (20,029
            )
            
            (41,927
            )**Net
                earned premium**
            
            
            97,413
            
            
            118,692Ceding
                commission – related party
            
            
            20,184
            
            
            -Commission
                and fee income
            
            
            6,287
            
            
            4,490Net
                investment income
            
            
            13,531
            
            
            11,391Net
                realized (loss) gain on investments
            
            
            (5,220
            )
            
            6,060Other
                investment loss on managed assets
            
            
            (2,900
            )
            
            (290
            )**Total
                revenues**
            
            
            129,295
            
            
            140,343**Expenses:**Loss
                and loss adjustment expense
            
            
            55,165
            
            
            74,557Policy
                acquisition expenses
            
            
            18,308
            
            
            14,583Salaries
                and benefits
            
            
            12,044
            
            
            9,012Other
                insurance general and administrative expense
            
            
            9,834
            
            
            7,574Other
                underwriting expenses
            
            
            4,794
            
            
            3,113**Total
                expenses**
            
            
            100,145
            
            
            108,839**Operating
                income from continuing operations**
            
            
            29,150
            
            
            31,504**Other
                income (expenses):**Foreign
                currency gain (loss)
            
            
            159
            
            
            (510
            )Interest
                expense
            
            
            (2,629
            )
            
            (1,804
            )**Total
                other expenses**
            
            
            (2,470
            )
            
            (2,314
            )**Income
                from continuing operations before provision for income taxes and
                minority
                interest**
            
            
            26,680
            
            
            29,190**Provision
                for income taxes**
            
            
            7,317
            
            
            8,002**Minority
                interest in net loss of subsidiary**
            
            
            (2,900
            )
            
            (290
            )**Net
                income**
            
            $
            22,263
            
            $
            21,478**Earnings
                per common share:**Basic
                - EPS
            
            $
            0.37
            
            $
            0.36Diluted
                - EPS
            
            
            0.37
            
            
            0.36**Dividends
                Declared Per Share**
            
            $
            0.04
            
            $
            0.02




*See
      accompanying notes unaudited to condensed consolidated financial
      statements.*




4




**AmTrust
      Financial Services, Inc.**


**Consolidated
      Statements of Cash Flows**


**(Unaudited)**


**(in
      thousands)**




**Three Months Ended March 31,****2008**
            
            **2007****Cash
                flows from operating activities:**Net
                income from continuing operations
            
            $
            22,263
            
            $
            21,478Adjustments
                to reconcile net income from continuing operations to net cash provided
                by
                operating activities of continuing operations:Depreciation
                and amortization
            
            
            1,614
            
            
            927Realized
                loss (gain) marketable securities
            
            
            4,478
            
            
            (6,060
            )Non-cash
                write-down of marketable securities
            
            
            742
            
            
            -Non-cash
                stock compensation expense
            
            
            758
            
            
            361Bad
                debt expense
            
            
            475
            
            
            299Foreign
                currency (gain) loss
            
            
            (159
            )
            
            510Changes
                in assets - (increase) decrease:Premiums
                receivable
            
            
            (37,525
            )
            
            (40,511
            )Reinsurance
                recoverable
            
            
            (7,253
            )
            
            (5,312
            )Reinsurance
                recoverable – related party
            
            
            (31,077
            )
            
            -Deferred
                policy acquisition costs, net
            
            
            (2,102
            )
            
            (9,540
            )Prepaid
                reinsurance premiums
            
            
            (1,330
            )
            
            (10,156
            )Prepaid
                reinsurance premiums – related party
            
            
            (19,159
            )
            
            -Prepaid
                expenses and other assets
            
            
            (4,337
            )
            
            (12,066
            )Deferred
                tax asset
            
            
            (9,065
            )
            
            (2,382
            )Changes
                in liabilities - increase (decrease):Reinsurance
                premium payable
            
            
            75,603
            
            
            4,938Loss
                and loss expense reserve
            
            
            10,659
            
            
            38,038Unearned
                premiums
            
            
            42,509
            
            
            53,169Funds
                held under reinsurance treaties
            
            
            (1,314
            )
            
            5,016Accrued
                expenses and other current liabilities
            
            
            (983
            )
            
            16,047**Net
                cash provided in operating activities**
            
            
            44,797
            
            
            54,756**Cash
                flows from investing activities:**Net
                (purchases) sales of securities with fixed maturities
            
            
            139,499
            
            
            33,145Net
                (purchases) sales of equity securities
            
            
            (10,839
            )
            
            (1,412
            )Net
                sales (purchases) of other investments
            
            
            5,296
            
            
            (14,156
            )Note
                receivable - related party
            
            
            (2,000
            )
            
            (18,000
            )Acquisition
                of renewal rights and goodwill
            
            
            (296
            )
            
            (989
            )Purchase
                of property and equipment
            
            
            (2,275
            )
            
            (328
            )**Net
                cash used in investing activities**
            
            
            129,385
            
            
            (1,740
            )**Cash
                flows from financing activities:**Repurchase
                agreements, net
            
            
            (153,775
            )
            
            **-**Issuance
                of junior subordinated debentures
            
            
            -
            
            
            40,000Debt
                financing fees
            
            
            -
            
            
            (820
            )Option
                exercise
            
            
            241
            
            
            -Dividends
                distributed on common stock
            
            
            (2,400
            )
            
            (1,199
            )**Net
                cash provided by financing activities**
            
            
            (155,934
            )
            
            37,981**Effect
                of exchange rate changes on cash**
            
            
            5,192
            
            
            29**Net
                increase in cash and cash equivalents**
            
            
            23,440
            
            
            91,026**Cash
                and cash equivalents, beginning of the period**
            
            
            145,337
            
            
            59,916**Cash
                and cash equivalents, end of the period**
            
            $
            168,777
            
            $
            150,942**Supplemental
                Cash Flow Information**Income
                tax payments
            
            $
            574
            
            $
            2,436Interest
                payments on debt
            
            
            2,530
            
            
            1,713





*See
      accompanying notes to unaudited condensed consolidated financial
      statements*




5




**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, 2007, previously filed with the Securities and Exchange Commission
      (“SEC”) on March 14, 2008. The balance sheet at December 31, 2007 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, 2007, 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 change
      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 months
      ended March 31, 2008, as compared to the recent accounting pronouncements
      described in our Annual Report on Form 10-K for the fiscal year ended
      December 31, 2007, that are of significance, or potential significance, to
      us.





In
      March
      2008, the Financial Accounting Standards Board (“FASB”) issued FASB Statement
      No. 161 (“SFAS 161”), “ *Disclosures
      about Derivative Instruments and Hedging Activities* ”.
      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 beginning
      after
      November 15, 2008. We are currently evaluating the impact, if any, that
      SFAS 161 will have on our consolidated financial statements.




In
      December 2007, the FASB issued SFAS No. 160, “ *Noncontrolling
      Interests in Consolidated Financial Statements, an amendment of ARB No.
      51* ”.
      SFAS
      No. 160 establishes accounting and reporting standards that require that the
      ownership interests in subsidiaries held by parties other than the parent be
      clearly identified, labeled, and presented in the consolidated statement of
      financial position within equity, but separate from the parent’s equity; the
      amount of consolidated net income attributable to the parent and to the
      noncontrolling interest be clearly identified and presented on the face of
      the
      consolidated statement of income; and changes in a parent’s ownership interest
      while the parent retains its controlling financial interest in its subsidiary
      be
      accounted for consistently. SFAS No. 160 also requires that any retained
      noncontrolling equity investment in the former subsidiary be initially measured
      at fair value when a subsidiary is deconsolidated. SFAS No. 160 also sets forth
      the disclosure requirements to identify and distinguish between the interests
      of
      the parent and the interests of the noncontrolling owners. SFAS No. 160 applies
      to all entities that prepare consolidated financial statements, except
      not-for-profit organizations, but will affect only those entities that have
      an
      outstanding noncontrolling interest in one or more subsidiaries or that
      deconsolidate a subsidiary. SFAS No. 160 is effective for fiscal years, and
      interim periods within those fiscal years, beginning on or after December 15,
      2008. Earlier adoption is prohibited. SFAS No. 160 must be applied prospectively
      as of the beginning of the fiscal year in which SFAS No. 160 is initially
      applied, except for the presentation and disclosure requirements. The
      presentation and disclosure requirements are applied retrospectively for all
      periods presented. The Company does not have a noncontrolling interest in one
      or
      more subsidiaries. The Company does not believe the adoption will have a
      material impact on its financial condition or results of
      operations.




6





In
      December 2007, the FASB issued SFAS No. 141(R), “ *Business
      Combinations* ”.
      SFAS
      No. 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 No. 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 No. 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. Accordingly, SFAS No. 141(R) will be applied by the
      Company to business combinations occurring on or after January 1,
      2009.





In
      February 2007, the FASB issued SFAS No. 159, “ *The
      Fair Value Option for Financial Assets and Financial
      Liabilities* ”.
      Under
      SFAS 159, companies may elect to measure certain financial instruments and
      certain other items at fair value. The standard requires that unrealized gains
      and losses on items for which the fair value option has been elected be reported
      in earnings. SFAS 159 was effective for us beginning in the first quarter
      of fiscal 2008. We chose not elect the fair value option. Therefore, the
      adoption of SFAS 159 in the first quarter of fiscal 2008 did not impact our
      consolidated financial position, results of operations or cash
      flows.





In
      September 2006, the FASB issued SFAS No. 157, “ *Fair
      Value Measurements* ,”
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 and is effective
      for
      fiscal years beginning after November 15, 2007. In February 2008, the FASB
      issued FASB FSP 157-2 which delays 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), until 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. Effective January 1, 2008, we adopted
      SFAS 157 for financial assets and liabilities recognized at fair value on a
      recurring basis. The partial adoption of SFAS 157 for financial assets and
      liabilities did not have a material impact on our consolidated financial
      position, results of operations or cash flows. See Note 5. “Fair Value of
      Financial Instruments” for information and related disclosures regarding our
      fair value measurements.




7


**3.**
            **Investments**





*(a)
      Available-for-Sale Securities*





The
      original cost, estimated market value and gross unrealized appreciation and
      depreciation of available-for-sale securities as of March 31, 2008, are
      presented in the table below:




**Original or**
              **amortized**
              **cost**
            
            **Gross**
              **unrealized**
              **gains**
            
            **Gross**
              **unrealized**
              **losses**
            
            **Market**
              **value**Preferred
                stock
            
            $
            750
            
            $
            -
            
            $
            (166
            )
            $
            584Common
                stock
            
            
            105,415
            
            
            1,969
            
            
            (39,325
            )
            
            68,059U.S.
                treasury securities
            
            
            5,554
            
            
            377
            
            
            -
            
            
            5,931U.S.
                government agencies
            
            
            22,331
            
            
            793
            
            
            -
            
            
            23,124U.S.
                agency - collateralized mortgage obligations
            
            
            300,438
            
            
            225
            
            
            (1,952
            )
            
            298,711U.S.
                agency - mortgage backed securities
            
            
            92,785
            
            
            1,563
            
            
            (5
            )
            
            94,343Other
                mortgage backed securities
            
            
            4,034
            
            
            24
            
            
            (24
            )
            
            4,034Municipal
                bonds
            
            
            9,731
            
            
            430
            
            
            -
            
            
            10,161Asset
                backed securities
            
            
            9,583
            
            
            115
            
            
            (83
            )
            
            9,615Corporate
                bonds
            
            
            418,984
            
            
            1,394
            
            
            (40,046
            )
            
            380,332$
            969,605
            
            $
            6,890
            
            $
            (81,601
            )
            $
            894,894




*(b)
      Held-to-Maturity Securities*




The
      amortized cost, estimated market value and gross unrealized appreciation and
      depreciation of held to maturity securities as of March 31, 2008 are presented
      in the table below:


**Amortized**
                **cost**
              
              **Unrealized**
                **gains**
              
              **Unrealized**
                **losses**
              
              **Fair**
                **value**U.S.
                  treasury securities
              
              $
              12,465
              
              $
              195
              
              $
              (1
              )
              $
              12,659U.S.
                  government agencies
              
              
              57,139
              
              
              793
              
              
              -
              
              
              57,932U.S.
                  agency - collateralized mortgage obligations
              
              
              193
              
              
              3
              
              
              -
              
              
              196U.S.
                  agency - mortgage backed securities
              
              
              48,704
              
              
              752
              
              
              (272
              )
              
              49,184$
              118,501
              
              $
              1,743
              
              $
              (273
              )
              $
              119,971




*(c)
      Investment Income*





Net
      investment income for the three months ended March 31, 2008 and 2007 was derived
      from the following sources:




**2008**
            
            **2007**Fixed
                maturities
            
            **$**
            10,883
            
            $
            7,930Equity
                securities
            
            
            531
            
            
            488Cash
                and short term investments
            
            
            3,336
            
            
            2,737Note
                receivable - related party
            
            
            589
            
            
            50015,339
            
            
            11,655Less:Investment
                expenses
            
            
            23
            
            
            264Interest
                expense on securities sold under agreement to repurchase
            
            
            1,785
            
            
            -**$**
            13,531
            
            $
            11,391


8





*(d)
      Other-Than-Temporary Impairment*




We
      review
      our investment portfolio for impairment on a quarterly basis. Impairment of
      investment securities result in a charge to operations when a market decline
      below cost is deemed to be other-than-temporary. As of March 31, 2008, we
      reviewed our fixed-maturity and equity securities portfolios to evaluate the
      necessity of recording impairment losses for other-than-temporary declines
      in
      the fair value of investments. The Company determined that 4 equity
      investments were other-than-temporarily impaired and accordingly wrote down
      the
      investments and recorded a $742 realized loss during the three months ended
      March 31, 2008.




The
      tables below summarize the gross unrealized losses of our fixed maturity and
      equity securities as of March 31, 2008:




**Less than 12 months**
            
            **12 months or more**
            
            **Total****Fair market**
              **value**
            
            **Unrealized**
              **losses**
            
            **Fair market**
              **value**
            
            **Unrealized**
              **losses**
            
            **Fair market**
              **value**
            
            **Unrealized**
              **losses****Available-for-sale
                securities:**Common
                and preferred stock
            
            $
            42,288
            
            $
            (26,474
            )
            $
            10,077
            
            $
            (13,016
            )
            $
            52,365
            
            $
            (39,490
            )Collateralized
                mortgage obligations
            
            
            242,514
            
            
            (1,952
            )
            
            -
            
            
            -
            
            
            242,514
            
            
            (1,952
            )U.S.
                Agency - mortgage backed securities
            
            
            365
            
            
            (5
            )
            
            -
            
            
            -
            
            
            365
            
            
            (5
            )Other
                - mortgage backed securities
            
            
            1,411
            
            
            (24
            )
            
            -
            
            
            -
            
            
            1,411
            
            
            (24
            )Asset
                backed securities
            
            
            2,453
            
            
            (81
            )
            
            1,751
            
            
            (2
            )
            
            4,204
            
            
            (83
            )Corporate
                bonds
            
            
            296,987
            
            
            (38,882
            )
            
            12,122
            
            
            (1,165
            )
            
            309,109
            
            
            (40,047
            )Total
                temporarily impaired -available-for-sale securities
            
            $
            586,018
            
            $
            (67,418
            )
            $
            23,950
            
            $
            (14,183
            )
            $
            609,968
            
            $
            (81,601
            )






**Less than 12 months**
            
            **12 months or more**
            
            **Total****Fair market**
              **value**
            
            
            **Unrealized**
              **losses**
            
            
            **Fair
                market**
              **value**
            
            
            **Unrealized**
              **losses**
            
            
            **Fair
                market**
              **value**
            
            
            **Unrealized**
              **losses****Held-to-maturity
                securities:**U.S.
                treasury securities
            
            $
            124
            
            $
            (1
            )
            $
            124
            
            $
            -
            
            $
            248
            
            $
            (1
            )Mortgage
                backed securities
            
            
            1,600
            
            
            (89
            )
            
            6,836
            
            
            (183
            )
            
            8,436
            
            
            (272
            )Total
                temporarily impaired -held-to-maturity
                securities
            
            $
            1,724
            
            $
            (90
            )
            $
            6,960
            
            $
            (183
            )
            $
            8,684
            
            $
            (273
            )




*(e)
      Derivatives*




The
      following table presents the notional amounts by remaining maturity of the
      Company’s Total Return Swaps, Credit Default Swaps and Contracts for Differences
      as of March 31, 2008:





**Remaining Life of Notional Amount****(1)****One Year**
            
            **Two Through**
              **Five Years**
            
            **Six Through**
              **Ten Years**
            
            **After Ten**
              **Years**
            
            **Total**Total
                return swaps
            
            $
            —
            
            $
            21,243
            
            $
            —
            
            $
            —
            
            $
            21,243Credit
                default swaps
            
            
            6,436
            
            
            3,436
            
            
            630
            
            
            —
            
            
            10,502Contracts
                for differences
            
            
            —
            
            
            —
            
            
            2,066
            
            
            —
            
            
            2,066$
            6,436
            
            $
            24,679
            
            $
            2,696
            
            $
            —
            
            $
            33,811


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




9


*(f)
      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 March 31, 2008 and was $4,053 for corporate bonds and $12,633 and  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 March 31, 2008. Substantially
      all
      securities owned are pledged to the clearing broker to sell or repledge the
      securities to others subject to certain limitations.




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 hold in short term
      or
      fixed income securities. As of March 31, 2008, there were $300,492 principal
      amount outstanding at interest rates between 2.4% and 3.6%. Interest expense
      associated with these repurchase agreements for the three months ended March
      31,
      2008 was $1,784 of which $398 was accrued as of March 31, 2008. The Company
      has
      approximately $305,000 of collateral pledged in support of these
      agreements.





**4.**
            **Assets
                Under Management**





Leap
      Tide
      Partners, LP (“LTP”), a hedge fund limited partnership, manages the assets of
      the Company’s wholly-owned subsidiaries, AmTrust Capital Management Inc.
      (“ACMI”) and AmTrust Capital Mangement GP, LLC (“ACM”). ACM has a 1% ownership
      in LTP. ACMI earns a management fee equal to 1% of LTP’s assets. ACM also earns
      an incentive fee of 20% of the cumulative profits of LTP. In accordance with
      EITF 04-05 “Determining Whether a General Partner, or General Partners as a
      Group Controls a Limited Partnership or Similar Entity When the Limited Partners
      Have Certain Rights,” ACM consolidates LTP as the rights of the limited
      partners’ do not overcome the rights of the general partner. We allocate an
      equivalent portion of the limited partners’ income or loss to minority interest.
      For the three months ended March 31, 2008 and 2007, LTP had an investment loss
      of $2,900 and $290, respectively and resulted in an allocation to minority
      interest of $2,900 and $290. The management companies earned approximately
      $43
      and $55 of fees under the agreement during the three months ended March 31,
      2008
      and 2007, respectively.





The
      original cost, estimated market value and gross unrealized appreciation and
      depreciation of equity securities as of March 31, 2008 are presented in the
      table below:




*(a)
        Trading Securities*
  **Original or**
                **amortized**
                **cost**
              
              **Gross**
                **unrealized**
                **gains**
              
              **Gross**
                **unrealized**
                **losses**
              
              **Market**
                **value**Equity
                  securities
              
              $
              27,312
              
              $
              613
              
              $
              (9,841
              )
              $
              18,084Corporate
                  bond
              
              
              584
              
              
              -
              
              
              (237
              )
              
              347Securities
                  sold but not yet purchased, at market
              
              
              (2,162
              )
              
              200
              
              
              (434
              )
              
              (2,396
              )$
              25,734
              
              $
              813
              
              $
              (10,512
              )
              $
              16,035
 
 *(b)
        Investment Income from Assets Under Management*
  Net
        investment income for the three months ended March 31, 2008 and 2007 was
        derived
        from the following sources:
 
 **2008**
              
              **2007**Equity
                  securities:Dividends
              
              $
              8
              
              $
              74Realized
                  gain (loss)
              
              
              431
              
              
              565Unrealized
                  gain (loss)
              
              
              (3,297
              )
              
              (1,011
              )Cash
                  and cash equivalents
              
              
              6
              
              
              136(2,852
              )
              
              (236
              )Less:
                  Investment expenses
              
              
              (48
              )
              
              (54
              )$
              (2,900
              )
              $
              (290
              )
 
 Additionally,
        LTP had approximately $396 of accrued liabilities as of March 31,
        2008.


10





**5.**
            **Fair
                Value of Financial Instruments**





The
      Company’s estimates of fair value for financial assets and financial liabilities
      are based on the framework established in SFAS 157. The framework is based
      on
      the inputs used in valuation and gives the highest priority to quoted prices
      in
      active markets and requires that observable inputs be used in the valuations
      when available. The disclosure of fair value estimates in the SFAS 157 hierarchy
      is based on whether the significant inputs into the valuation are observable.
      In
      determining the level of the hierarchy in which the estimate is disclosed,
      the
      highest priority is given to unadjusted quoted prices in active markets and
      the
      lowest priority to unobservable inputs that reflect the Company’s significant
      market assumptions. The three levels of the hierarchy are as
      follows:





·
            Level
                1***-***Unadjusted quoted market prices for identical assets or liabilities
                in
                active markets that the Company has the ability to
                access.





·
            Level
                2***-***Quoted prices for similar assets or liabilities in active markets;
                quoted
                prices for identical or similar assets or liabilities in inactive
                markets;
                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.





·
            Level
                3***-***Valuations based on models where significant inputs are not observable.
                The unobservable inputs reflect the Company’s own assumptions about the
                assumptions that market participants would
                use.





In
      accordance with SFAS 157, the Company determines fair value based on 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. The
      following section describes the valuation methodologies used by the Company
      to
      measure assets and liabilities at fair value, including an indication of the
      level within the fair value hierarchy in which each asset or liability is
      generally classified.





*Investments
      held to maturity* .
      Investments held to maturity are recorded at cost on a recurring basis and
      include fixed maturities. Fair value of investments held to maturity is measured
      based upon quoted prices in active markets, if available. If quoted prices
      in
      active markets are not available, fair values are measured by an independent
      pricing service that utilizes valuation techniques based upon observable market
      data. Level 1 investments include those traded on an active exchange, such
      as
      the NASDAQ. Since fixed maturities other than U.S. treasury securities generally
      do not trade on a daily basis, an independent pricing service prepares estimates
      of fair value measurements for these securities using its proprietary pricing
      applications which include available relevant market information. These
      investments are classified as Level 2 investments and include obligations of
      U.S. government agencies, municipal bonds, corporate debt securities and other
      mortgage backed securities.




*Investments
        available for sale* .
        Investments available for dale are recorded at fair value on a recurring
        basis
        and include fixed maturities, equity securities, securities sold not yet
        purchased and securities sold under agreements to repurchae. Fair value of
        investments is measured based upon quoted prices in active markets, if
        available. If quoted prices in active markets are not available, fair values
        are
        measured by an independent pricing service that utilizes valuation techniques
        based upon observable market data. Level 1 investments include those traded
        on
        an active exchange, such as the NASDAQ. Since fixed maturities other than
        U.S.
        treasury securities generally do not trade on a daily basis, the independent
        pricing service prepares estimates of fair value measurements for these
        securities using its proprietary pricing applications which include available
        relevant market information. These investments are classified as Level 2
        investments and include obligations of U.S. government agencies, municipal
        bonds, corporate debt securities and other mortgage backed
        securities.
  *Other
        investments.* Other
        investments consist primarily of limited partnerships or hedge funds where
        the
        fair value estimate is determined by an external 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.




11




*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,
      AmTrust 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:





·
            Total
                return swap contracts (“TRS”), which, are valued based upon market maker
                quoted prices. Fair values are based on valuations provided by the
                counterparty based on prices provided by an independent pricing service
                or
                dealer runs;





·
            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
                valuations provided by a counterparty. 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;
                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 TRS and CDS and the counterparty for CFD.





*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 March 31, 2008:





**Total**
            
            **Level
                1**
            
            **Level
                2**
            
            **Level
                3**Assets:Held-to-maturity
                securities
            
            $
            119,971
            
            
            12,659
            
            
            107,312
            
            
            -Available-for-sale
                fixed securities
            
            
            826,251
            
            
            5,931
            
            
            820,320
            
            
            -Equity
                securities
            
            
            68,643
            
            
            68,059
            
            
            584
            
            
            -Other
                investments
            
            
            22,739
            
            
            -
            
            
            -
            
            
            22,7391,037,604
            
            
            86,649
            
            
            928,216
            
            
            22,739Liabilities:Securities
                sold but not yet purchased, market
            
            
            16,686
            
            
            12,633
            
            
            4,053
            
            
            -Securities
                sold under agreements to repurchase, at contract value
            
            
            300,492
            
            
            -
            
            
            300,492
            
            
            -Derivatives
            
            
            5,932
            
            
            -
            
            
            -
            
            
            5,932$
            323,110
            
            
            12,633
            
            
            304,545
            
            
            5,932




The
        following table provides a summary of changes in fair value of the Company’s
        Level 3 financial assets as of March 31, 2008:
 
 **Other**
                **investments**
              
              **Derivatives**
              
              **Total**Beginning
                  balance as of January 1, 2008
              
              $
              28,035
              
              $
              (4,101
              )
              $
              23,934Total
                  net losses for the quarter include in:Net
                  income
              
              
              44
              
              
              (1,831
              )
              
              (1,786
              )Other
                  comprehensive loss
              
              
              -
              
              
              -
              
              
              -Purchases,
                  sales, issuances and settlements, net
              
              
              (5,340
              )
              
              -
              
              
              (5,340
              )Net
                  transfers into (out of) Level 3
              
              
              -
              
              
              -
              
              
              -Ending
                  balance as of March 31, 2008
              
              $
              22,739
              
              $
              (5,932
              )
              $
              16,808


12




**6.**
            **Junior
                Subordinated Debt**




The
      Company established four special purpose trusts between 2005 and 2007 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 March 31, 2008 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 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 March 31,
      2008:





**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.




**7.**
            **Earnings
                Per Share**





The
      following, is a summary of the elements used in calculating basic and diluted
      earnings per share for the three months ended March 31, 2008 and
      2007:





**2008**
            
            **2007**Net
                income available to common shareholders
            
            **$**
            22,263
            
            $
            21,478Weighted
                average number of common shares outstanding - basic
            
            
            59,969
            
            
            59,959Potentially
                dilutive shares:Dilutive
                shares from stock-based compensation
            
            
            956
            
            
            9Weighted
                average number of common shares outstanding - dilutive
            
            
            60,925
            
            
            59,968Net
                income - basic and diluted earnings per share
            
            **$**
            0.37
            
            $
            0.36




As
      of
      March 31, 2008, there were approximately 190 anti-dilutive securities excluded
      from diluted earnings per share.




13





**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 were 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 $758 and $361 related to stock options
      for the three months ended March 31, 2008 and 2007, respectively.





The
      following schedule shows all options granted, exercised, expired and exchanged
      under the 2005 Plan for the three months ended March 31, 2008 and
      2007:





**2008**
            
            **2007***Amounts
                in thousands except per share*
            
            **Number of**
              **Shares**
            
            **Amount per**
              **Share**
            
            **Number of**
              **Shares**
            
            **Amount per**
              **Share**Outstanding
                beginning of period
            
            
            3,126
            
            $
            7.00-14.55
            
            
            2,390
            
            $
            7.00-7.50Granted
            
            
            50
            
            
            15.02
            
            
            160
            
            
            10.56-10.77Exercised
            
            
            (32
            )
            
            7.50
            
            
            -
            
            
            -Cancelled
                or terminated
            
            
            (6
            )
            
            7.50
            
            
            (12
            )
            
            7.50Outstanding
                end of period
            
            
            3,138
            
            $
            7.00-15.02
            
            
            2,538
            
            $
            7.00-10.77




The
      weighted average grant date fair value of options granted during the first
      quarter of 2008 was $4.89. As of March 31, 2008 there was approximately $6,500
      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 March 31,****2008**
                
                **2007**Net
                    Income
                
                $
                22,263
                
                $
                21,478Unrealized
                    holding loss
                
                
                (17,087
                )
                
                (3,831
                )Reclassification
                    adjustment
                
                
                (135
                )
                
                2,668Foreign
                    currency translation
                
                
                888
                
                
                510Comprehensive
                    Income
                
                $
                5,929
                
                $
                20,825


14




**10.**
            **Income
                Taxes**





Income
      tax expense for the three months ended March 31, 2008 was $7,317 compared to
      $8,002 for the three months ended March 31, 2007. The following table reconciles
      the Company’s statutory federal income tax rate to its effective tax
      rate.


**Three Months Ended********March 31,****2008**
            
            **2007**Income
                from continuing operations before provision for income taxes and
                minority
                interest
            
            $
            26,680
            
            $
            29,190Less:
                minority interest
            
            
            (2,900
            )
            
            (290
            )Income
                from continuing operations after minority interest before provision
                for
                income taxes
            
            
            29,580
            
            
            29,480Income
                taxes at statutory rates
            
            
            10,231
            
            
            9,660Effect
                of Income not subject to US taxation
            
            
            (2,992
            )
            
            (1,658
            )Other,
                net
            
            
            78
            
            
            -Provision
                for income taxes as shown on the Consolidated Statements of
                Earnings
            
            $
            7,317
            
            $
            8,002GAAP
                effective tax rate
            
            
            24.7
            %
            
            27.1
            %




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 March 31, 2008,
      the
      Company has approximately $1,500 of accrued interest and penalties related
      to
      FIN 48 unrecognized tax benefits.





During
      2006, the Internal Revenue Service (“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 the IRS’ 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 Associated’s
      management disagrees with the majority of the positions taken by the examiner
      and has appealed the assessment, the Company has estimated the potential
      liability related to the audit to be $4,300 (including $1,400 for penalties
      and
      interest) and has reflected this position, per FIN 48 guidelines, in the
      consolidated financial statements.




During
        2007, the Company, while performing a review of the most recently filed income
        tax return with the IRS for calendar year ending December 31, 2006, determined
        an issue exists 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 $900
        (including $100 for penalties and interest) and has reflected this position,
        per
        FIN 48 guidelines, in the consolidated financial
        statements.


15




**11.**
            **Acquisition**





In
      September 2007, the Company acquired all the issued and outstanding stock of
      AIIS a Florida-based workers' compensation managing general agency, and its
      wholly-owned subsidiary, AIIC, a Florida workers' compensation insurer, also
      licensed in Alabama, Georgia and Mississippi for consideration of approximately
      $38,854. The $38,854 consisted of approximately $33,930 of cash, $599 of direct
      acquisition costs and $4,325 for a contingent liability related to income taxes
      (see Note 10. “Income Taxes”). The Company estimates the contingency period will
      last approximately six months at which time the Company will distribute the
      $4,325 to either the IRS or the sellers of Associated. Additionally, the Company
      preliminarily recorded $3,720 of goodwill and $10,210 of intangible assets
      related to trademarks, licenses, distribution networks and non-compete
      agreements. The Company determined that the trademarks and licenses have
      indefinite lives and the remaining intangible assets are being amortized over
      a
      period of one to 15 years.





The
      results of operations of Associated have been included in the Company’s
      consolidated financial statements since the acquisition date. Selected unaudited
      pro forma results of operations assuming acquisition had occurred as of January
      1, 2007, are set forth below:





Three Months Ended
              March 31, 2007Net premium
                written
            
            $
            186,404Income
                from continuing operations
            
            $
            22,601Income
                from continuing operations:per
                common share - basic
            
            $
            0.38per
                common share - diluted
            
            $
            0.38





**12.**
            **Other
                Investments**





In
      February 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
      Corporation (“Warrantech”) in a cash merger. The Company contributed $3,850 for
      a 27% equity interest in Warrantech. Additionally, the Company provided
      Warrantech with a $20,000 senior secured note due January 30, 2012 (note
      receivable - related party). Interest on the note is payable monthly at a rate
      of 15% per annum and consists of a cash component at 11% per annum and 4% per
      annum for the issuance of additional notes (“PIK Notes”) in a principal amount
      equal to the interest not paid in cash on such date. The Company provided the
      funding for the senior secured note in two tranches, which included an initial
      funding of $18,000 during the three months ended March 31, 2007 and the
      remaining $2,000 during the three months ended March 31, 2008. Warrantech is
      an
      independent developer, marketer and third party administrator of service
      contracts and after-market warranties primarily for the motor vehicle and
      consumer products industries. The Company currently provides insurance coverage
      for Warrantech's consumer product programs and on certain nationwide warranty
      programs, which produced premiums of approximately $17,700 and $6,000 during
      the
      three months ended March 31, 2008 and 2007, respectively. As the Company does
      not control Warrantech, the Company accounts for this investment under the
      equity method. As of March 31, 2008 the carrying value of the note receivable
      was $20,954 (note receivable - related party).


16





**13.**
            **Related
                Party Transactions**





*Reinsurance
      Agreement*





Maiden
      Holdings, Inc. (“Maiden”) is a Bermuda insurance holding company 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. Messrs.
      Karfunkel and Mr. Zyskind contributed $50,000 to Maiden Insurance. In July
      2007,
      Maiden raised approximately $480,600 in a private placement. 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, AII and Maiden
      Insurance to enter into a quota share reinsurance agreement (the “Reinsurance
      Agreement”) 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 insuring
      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 current lines of business, excluding risks for which
      the AmTrust Ceding Insurers’ net retention exceeds $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. The Agreement further provides that the AII receives a ceding
      commission of 31% of ceded written premiums. The Reinsurance Agreement 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 Company recorded approximately $20,184 of ceding
      commission during the three months ended March 31, 2008 as a result of this
      transaction.




The
      following is the effect on the Company’s balance sheet as of March 31, 2008 and
      the results of operations for the three months ended March 31, 2008 related
      to
      reinsurance agreement with Maiden Insurance:





Assets
                and liabilities:Reinsurance
                recoverable
            
            $
            87,050Prepaid
                reinsurance premium
            
            
            156,258Ceded
                reinsurance premiums payable
            
            
            85,552Note
                payable
            
            
            113,228Results
                of operations:Premium
                written - ceded
            
            $
            (82,948
            )Change
                in unearned premium - ceded
            
            
            19,160Earned
                premium - ceded
            
            $
            (63,788
            )Ceding
                commission on premium written
            
            $
            25,992Ceding
                commission – deferred
            
            
            (5,808
            )Ceding
                commission - earned
            
            $
            20,184Incurred
                loss and loss adjustment expense - ceded
            
            $
            41,472





The
      Reinsurance Agreement 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.





AmTrust,
      through subsidiaries, has entered into a reinsurance brokerage agreement and
      an
      asset management agreement with Maiden Insurance, under which the Company
      receives a brokerage commission of 1.25% of reinsured premium and an annual
      asset management fee of 0.35% of assets under management, respectively. The
      Company recorded $1,036 of brokerage commission during the three months ended
      March 31, 2008.


17





*AmTrust
      Capital Management*





AmTrust
      Capital Management, Inc. (“ACM”), our wholly owned subsidiary, currently manages
      approximately $57,800 of our assets.  These assets are held in a Bermuda
      managed account.




ACM
      also
      serves as the Investment Manager of Leap Tide Partners, L.P., a domestic
      partnership, (see Note 4 “Assets under Management”) 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 ACM (the “Hedge Funds”).  To date, approximately $22,400
      have been invested in the Hedge Funds.  Approximately 88% of these funds
      were contributed by Michael Karfunkel, George Karfunkel and Barry D.
      Zyskind.  Our Audit Committee has reviewed the Leap Tide transactions and
      determined that they were entered into at arm’s-length and did not violate our
      Code of Business Conduct and Ethics.




*Note
      Payable — Collateral for Proportionate Share of Reinsurance
      Obligation*




In
      conjunction with the Reinsurance Agreement, AII entered into a loan agreement
      with Maiden Insurance during the fourth quarter of 2007, whereby, Maiden
      Insurance will lend to AII from time to time for the amount of obligation of
      the
      AmTrust Ceding Insurers that AII is obligated to secure, not to exceed an amount
      equal to the Maiden Insurance’s proportionate share of such obligations to such
      AmTrust Ceding Insurers in accordance with the reinsurance agreement. The
      Company is required to deposit all proceeds from the advances into a sub-account
      of each trust account that has been established for each AmTrust Ceding Insurer.
      To the extent of the loan, Maiden Insurance shall be discharged from
      providing  security
      for its proportionate share of the obligations as contemplated by the
      reinsurance agreement. If an AmTrust Ceding Insurer withdraws loan proceeds
      from
      the trust account for the purpose of reimbursing such AmTrust Ceding Insurer,
      for an ultimate net loss, the outstanding principal balance of the loan shall
      be
      reduced by the amount of such withdrawal. 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 $113,228 as of March 31, 2008.





*Lease
      Agreement*





In
      June
      2002, we entered into a lease for approximately 9,000 square feet of office
      space at 59 Maiden Lane in downtown Manhattan from 59 Maiden Lane Associates,
      LLC, an entity which is wholly owned by Michael Karfunkel and George Karfunkel.
      Effective January 1, 2008, we entered into an amended lease whereby we increased
      our leased space to 14,807 square feet and extended the lease through December
      31, 2017. The Audit Committee reviewed and approved the amended lease agreement.
      The Company paid approximately $83 and $92 for the lease for the three months
      ended March 31, 2008 and 2007, respectively.





*Employment
      Relationship*





Barry
      Karfunkel, an analyst with a Company subsidiary, earned approximately $63 and
      $56 for the three months ended March 31, 2008 and 2007, 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 (see Note
        12 “Other Investments”) in a cash merger. The Company contributed $3,850 for a
        27% equity interest Warrantech. As of March 31, 2008 the Company’s equity
        interest was approximately $3,100. 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 provides insurance coverage for Warrantech’s consumer product
        programs and on certain nationwide warranty programs, which produced premiums
        of
        approximately $17,700 and $6,000 during the three months ended March 31,
        2008
        and 2007, respectively. Additionally in 2007, the Company provided Warrantech
        with a $20,000 senior secured note due January 31,2012 (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 March 31, 2008 the carrying
        value of the note receivable was $20,954 (note receivable - related
        party).




**14.**
            **Contingent
                Liabilities**




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 should not have a material adverse effect on the Company’s financial
      position or results of operations.


18





**15.**
            **Segments**





The
      Company currently operates three business segments, Workers’ Compensation
      Insurance; 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 including interest
      income attributed to holding company assets 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. These operating segments
      are
      segments of the Company for which separate financial information is available
      and for which operating results are evaluated regularly by executive management
      in deciding how to allocate resources and in assessing performance.




The
      following tables summarize business segments as follows:





**Workers’**
              **compensation**
            
            **Specialty risk**
              **and extended**
              **warranty**
            
            **Specialty**
              **middle-market**
              **property and**
              **casualty**
              **insurance**
            
            **Corporate**
              **and other**
            
            **Total**Three
                months ended March 31, 2008:Gross
                premium written
            
            $
            89,261
            
            $
            87,769
            
            $
            57,726
            
            $
            -
            
            $
            234,756Earned
                premium
            
            
            46,305
            
            
            29,596
            
            
            21,512
            
            
            -
            
            
            97,413Ceding
                commission revenue – related party
            
            
            11,909
            
            
            3,431
            
            
            4,844
            
            
            -
            
            
            20,184Investment
                income and other revenues
            
            
            4,303
            
            
            2,583
            
            
            1,425
            
            
            (2,900
            )
            
            5,411Commission
                and fee revenue
            
            
            2,759
            
            
            1,796
            
            
            -
            
            
            1,732
            
            
            6,287Operating
                income from continuing operations
            
            
            15,008
            
            
            4,755
            
            
            8,085
            
            
            (1,168
            )
            
            26,680Interest
                expense
            
            
            1,100
            
            
            925
            
            
            604
            
            
            -
            
            
            2,629Income
                taxes
            
            
            3,713
            
            
            1,176
            
            
            2,000
            
            
            428
            
            
            7,317Net
                income
            
            
            11,295
            
            
            3,579
            
            
            6,085
            
            
            1,304
            
            
            22,263Three
                months ended March 31, 2007:Gross
                written premium
            
            $
            89,796
            
            $
            47,942
            
            $
            51,935
            
            $
            -
            
            $
            189,673Earned
                premium
            
            
            65,209
            
            
            24,700
            
            
            28,783
            
            
            -
            
            
            118,692Investment
                income and other revenues
            
            
            10,054
            
            
            4,085
            
            
            3,312
            
            
            (290
            )
            
            17,161Commission
                and fee revenue
            
            
            2,642
            
            
            1,701
            
            
            -
            
            
            147
            
            
            4,490Operating
                income from continuing operations
            
            
            19,259
            
            
            8,458
            
            
            3,930
            
            
            (143
            )
            
            31,504Interest
                expense
            
            
            960
            
            
            430
            
            
            414
            
            
            -
            
            
            1,804Income
                taxes
            
            
            4,970
            
            
            1,899
            
            
            1,093
            
            
            40
            
            
            8,002Net
                income
            
            
            13,410
            
            
            5,399
            
            
            2,562
            
            
            107
            
            
            21,478As
                of March 31, 2008:Fixed
                assets
            
            $
            6,091
            
            $
            5,121
            
            $
            3,343
            
            $
            -
            
            $
            14,555Goodwill
                and intangible assets
            
            
            28,484
            
            
            12,564
            
            
            11,560
            
            
            -
            
            
            52,608Total
                assets
            
            
            1,316,391
            
            
            849,694
            
            
            426,836
            
            
            15,639
            
            
            2,608,560As
                of March 31, 2007:Fixed
                assets
            
            $
            5,869
            
            $
            2,631
            
            
            2,530
            
            $
            -
            
            $
            11,030Goodwill
                and intangible assets
            
            
            18,608
            
            
            2,500
            
            
            8,796
            
            
            -
            
            
            29,904Total
                assets
            
            
            735,704
            
            
            304,618
            
            
            299,255
            
            
            23,204
            
            
            1,362,781




19




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





The
      Company is 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
      which we believe are predictable. We target lines of insurance that we believe
      generally are underserved by larger insurance carriers. The Company has grown
      by
      hiring teams of underwriters with expertise in our specialty lines and through
      stock and asset acquisitions of companies and access to distribution networks
      and renewal rights to established books of specialty insurance business. We
      have
      operations in three business segments:




·
            Workers’
                compensation for small businesses (average premium less than $5,000
                per
                policy) in the United States;




·
            Specialty
                risk and extended warranty 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 Kingdom, certain other European Union
                countries and the United States;
                and




·
            Specialty
                middle-market property and casualty insurance. We write commercial
                insurance for homogeneous, narrowly defined classes of insureds,
                requiring
                an in-depth knowledge of the insured’s industry segment, through general
                and other wholesale agents.





The
      Company transacts business through seven insurance company subsidiaries:
      Technology Insurance Company, Inc. (“TIC”), Rochdale Insurance Company (“RIC”),
      Wesco Insurance Company (“WIC”) and Associated Industries Insurance Company,
      Inc. (“AIIC”), which are domiciled in New Hampshire, New York, Delaware and
      Florida, respectively; and AmTrust International Insurance Ltd. (“AII”), AmTrust
      International Underwriters Limited (“AIU”) and IGI Insurance Company, Ltd.
      (“IGI”), which are domiciled in Bermuda, Ireland and England,
      respectively.





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 business workers’
compensation and specialty middle market segments has not been significant.
      We
      believe that this is because we serve many small businesses in different
      geographic locations. In addition, seasonality may have been muted by our
      acquisition activity.





We
      evaluate our operations by monitoring key measures of growth and profitability.
      We measure our growth by examining our net income, return on average equity,
      and
      our loss, expense and combined ratios. The following provides further
      explanation of the key measures that we use to evaluate our
      results:




*Gross
      Premium Written.* Gross
      premium written represent estimated premiums from each insurance policy that
      we
      write, including as part of an assigned risk pool, during a reporting period
      based on the effective date of the individual policy. Certain policies that
      are
      underwritten by the Company 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
      Premium Written.* Net
      premium written are gross premiums written less that portion of premium that
      is
      ceded to third party reinsurers under reinsurance agreements. The amount ceded
      under these reinsurance agreements is based on a contractual formula contained
      in the individual reinsurance agreement.




*Net
      Premium Earned.* Net
      premium earned is the earned portion of our net premiums written. Insurance
      premiums are earned 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 and are earned in subsequent periods over the remaining term
      of the policy. Our workers’ compensation insurance policies typically have a
      term of one year. Thus, for a one-year policy written on July 1, 2007 for an
      employer with a constant payroll during the term of the policy, we would earn
      half of the premiums in 2007 and the other half in 2008. Our specialty risk
      and
      extended warranty coverages are earned over the estimated exposure time period.
      The terms vary depending on the risk and have an average duration of
      approximately 31 months, but range in duration from one month to 84
      months.




*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.


20





*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 policy acquisition expenses, salaries and benefits, and other insurance
      general and administrative expenses less ceding commission to net premiums
      earned.




*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%, an insurance company cannot be profitable
      without investment income, and may not be profitable if investment income is
      insufficient.





*Annualized*  *Return
      on Equity.* Return
      on equity is calculated by dividing net income (net income excludes results
      of
      discontinued operations as well as any currency gain or loss associated with
      discontinued operations on an after tax basis) by the average of shareholders’
equity.




One
      of
      the key financial measures that we use to evaluate our operating performance
      is
      return on average equity. Our return on average equity was 22.7% and 24.5%
      for
      the three months ended March 31, 2008 and 2007. 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 77.2% and 89.1% for
      the
      three months ended March 31, 2008 and 2007, respectively. The decline in the
      combined ratio period over period resulted primarily from entering into a
      reinsurance agreement with Maiden Insurance during the third quarter of 2007.
      We
      plan to write additional premiums without a proportional increase in expenses
      and further reduce the expense component of our net combined ratio over
      time.





**Critical
      Accounting Policies**




The
      Company’s discussion and analysis of its results of operations, financial
      condition and liquidity are based upon the Company’s consolidated financial
      statements, which have been prepared in accordance with U.S. generally accepted
      accounting principles. The preparation of these financial statements requires
      the Company 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. The Company has 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, 2007.


21




**Results
      of Operations**





**Consolidated
      Results of Operations (Unaudited)**




**Three Months Ended****March 31,****2008**
            
            **2007**($
                amounts in thousands)Gross
                written premium
            
            $
            234,756
            
            $
            189,673Net
                premium written
            
            $
            117,442
            
            $
            160,619Change
                in unearned premium
            
            
            (20,029
            )
            
            (41,927
            )Net
                earned premium
            
            
            97,413
            
            
            118,692Ceding
                commission – related party
            
            
            20,184
            
            
            -Commission
                and fee income
            
            
            6,287
            
            
            4,490Net
                investment income
            
            
            13,531
            
            
            11,391Net
                realized (loss) gain on investments
            
            
            (5,220
            )
            
            6,060Other
                investment income (loss) on managed assets
            
            
            (2,900
            )
            
            (290
            )Total
                revenue
            
            
            129,295
            
            
            140,343Loss
                and loss adjustment expense
            
            
            55,165
            
            
            74,557Policy
                acquisition expenses
            
            
            18,308
            
            
            14,583Salaries
                and benefits
            
            
            12,044
            
            
            9,012Other
                insurance general and administrative expense
            
            
            9,834
            
            
            7,574Other
                underwriting expenses
            
            
            4,794
            
            
            3,113100,145
            
            
            108,839Income
                from continuing operations
            
            
            29,150
            
            
            31,504Other
                income (expense):Foreign
                currency gain (loss)
            
            
            159
            
            
            (510
            )Interest
                expense
            
            
            (2,629
            )
            
            (1,804
            )Total
                other expense
            
            
            (2,470
            )
            
            (2,314
            )Income
                from continuing operations before provision for income taxes and
                minority
                interest
            
            
            26,680
            
            
            29,190Provision
                for Income taxes
            
            
            7,317
            
            
            8,002Minority
                interest in net loss of subsidiary
            
            
            (2,900
            )
            
            (290
            )Net
                income
            
            $
            22,263
            
            $
            21,478Key
                measures:Net
                loss ratio
            
            
            56.6
            %
            
            62.8
            %Net
                expense ratio
            
            
            20.5
            %
            
            26.3
            %Net
                combined ratio
            
            
            77.2
            %
            
            89.1
            %





***Consolidated
      Result of Operations for the Three Months Ended March 31, 2008 and
      2007***





*Gross
      Premium Written* .
      Gross
      premium written increased $45.1 million or 23.8% from $189.7 million to $234.8
      million for the three months ended March 31, 2007 and 2008, respectively. The
      increase of $45.1 million was attributable to a $0.5 million decrease in our
      small business workers’ compensation business, a $39.8 million increase in our
      specialty risk and extended warranty business and a $5.8 million increase in
      our
      specialty middle-market property and casualty business. The increase in
      specialty risk and extended warranty business resulted primarily from the
      underwriting of new coverage plans in the United States as well as the
      acquisition of IGI in the second quarter of 2007, which contributed
      approximately $17.0 million of gross written premium. The increase in the
      specialty middle-market gross premiums written resulted, primarily, from the
      underwriting of new programs and the growth of existing programs.




22





*Net
      Premium Written* .
      Net
      premium written decreased $43.2 million or 26.9% from $160.6 million to $117.4
      million for the three months ended March 31, 2007 and 2008, respectively. The
      decrease of $43.2 million resulted from the cession of $82.9 million of written
      premium to Maiden Insurance during the first quarter of 2008 under the terms
      of
      a reinsurance agreement entered into during the third quarter of 2007. Before
      cessions to Maiden Insurance, net written premium increased $39.7 million in
      the
      first quarter of 2008 compared to the first quarter of 2007. The increase before
      cessions by segment was: small business workers’ compensation - $(1.6) million;
      specialty risk and extended warranty - $32.1 million; and specialty middle
      market property and casualty - $9.2 million.





*Net
      Premium Earned* .
      Net
      premium earned decreased $21.3 million or (17.9)% from $118.7 million to $97.4
      million for the three months ended March 31, 2007 and 2008. The decrease of
      $21.3 million resulted from the cession of earned premium to Maiden Insurance
      during the first quarter of 2008 under the terms of a reinsurance agreement
      entered into during the third quarter of 2007. Before cessions to Maiden
      Insurance, earned premium increased $42.5 million in the first quarter of 2008
      compared to the first quarter of 2007. The increase by segment before cessions
      was: small business workers’ compensation - $6.5 million; specialty risk and
      extended warranty - $26.5 million; and specialty middle market property and
      casualty - $9.5 million.





*Commission
      and*  *Fee
      Income.* Commission and fee income increased $1.8 million or 40.0% from $4.5 million
      to
      $6.3 million for the three months ended March 31, 2007 and 2008, respectively.
      A
      majority of the increase resulted from entering into a reinsurance agreement
      during the third quarter of 2007 with Maiden Insurance whereby the Company
      earned reinsurance brokerage fees under the agreement.





*Net
      Investment Income.* Net
      investment income increased $2.1 million or 18.8% from $11.4 million to $13.5
      million for the three months ended March 31, 2007 and 2008, respectively. The
      increase resulted primarily from increased invested assets over the two periods.
      Average invested assets (excluding equity securities) was approximately $1.4
      billion for the three months ended March 31, 2008 compared to approximately
      $0.8
      billion for the three months ended March 31, 2007, an increase of $0.5 billion.
      The increase was offset by lower yields on the Company’s fixed maturities which
      decreased over the same time period from approximately 6.0% to
      4.2%.





*Net
      Realized Gains (Losses) on Investments.* Net
      realized losses on investments for the three months ended March 31, 2008 were
      $5.2 million, compared to net realized gains of $6.1 million for the same period
      in 2007. The decrease related to the timing of certain sales of underperforming
      investments of the Company’s equity portfolio and the non-cash write-down of 4
      equity securities of $0.7 million that were determined to be other than
      temporarily impaired during the first quarter of 2008.





*Loss
      and Loss Adjustment Expenses.* Loss and
      loss adjustment expenses decreased $19.4 million or 26.0% from $74.6 million
      for
      the three months ended March 31, 2007 to $55.2 million for the three months
      ended March 31, 2008. The Company’s loss ratio for the three months ended March
      31, 2007 decreased to 56.6% from 62.8% for the three months ended March 31,
      2007. The improvement of the loss and loss adjustment ratio resulted primarily
      from a decrease in the Company’s actuarially projected ultimate losses based on
      the Company’s loss experience.




*Policy
      Acquisition Expense, Salaries and Benefits Expense and Other Insurance General
      and Administrative Expense less Ceding* Commission.
      Policy acquisition expense, salaries and benefits expense and other insurance
      general and administrative expense less ceding commission decreased $11.2
      million or 35.8% from $31.2 million for the three months ended March 31, 2007
      to
      $20.0 million for the three months ended March 31, 2008. The expense ratio
      for
      the same periods decreased from 26.3% to 20.5%, respectively. The decrease
      in
      expense ratio resulted primarily from ceding commission of $20.2 million earned
      through the reinsurance agreement with Maiden Insurance during the third quarter
      of 2007.





*Operating
      Income from Continuing Operations.* Income
      from continuing operations decreased $2.3 million or 7.4% from $31.5 million
      to
      $29.2 million for the three months ended March 31, 2007 and 2008, respectively.
      The change in income from continuing operations from 2007 to 2008 resulted
      primarily from losses on managed assets as growth in gross premium written
      and
      commission income combined with an improvement in the net expense ratio was
      offset by net realized losses on our equity investments in the first quarter
      of
      2008.





*Interest
      Expense.*Interest
      expense for the three months ended March 31, 2008 was $2.6 million, compared
      to
      $1.8 million for the same period in 2007. The increase was attributable to
      interest expense on $40.0 million of junior subordinated debentures issued
      by the Company in the first quarter of 2007.





*Income
      Tax Expense (Benefit).* Income
      tax expense for three months ended March 31, 2008 was $7.3 million which
      resulted in an effective tax rate of 24.7%. Income tax expense for three months
      ended March 31, 2007 was $8.0 million which resulted in an effective tax rate
      of
      27.1%. The decrease in our effective rate was due primarily to federal
      tax-exempt investment income earned during the period ending March 31,
      2008.





23





**Small
      Business Workers’ Compensation Segment**




**(Unaudited)**
              **Three Months Ended****March 31,****2008**
            
            **2007**($
                amounts in thousands)Gross
                premium written
            
            $
            89,261
            
            $
            89,796Net
                premium written
            
            
            51,332
            
            
            85,464Change
                in unearned premium
            
            
            (5,027
            )
            
            (20,255
            )Net
                premium earned
            
            
            46,305
            
            
            65,209Ceding
                commission revenue
            
            
            11,909
            
            
            -Loss
                and loss adjustment expense
            
            
            24,567
            
            
            38,824Policy
                acquisition expenses
            
            
            10,494
            
            
            9,240Salaries
                and benefits
            
            
            7,415
            
            
            4,848Other
                insurance general and administrative expense
            
            
            4,752
            
            
            4,26947,228
            
            
            57,181Net
                premiums earned less expenses included in combined ratio
            
            $
            10,986
            
            $
            8,028Key
                Measures:Net
                loss ratio:
            
            
            53.1
            %
            
            59.5
            %Net
                expense ratio:
            
            
            23.2
            %
            
            28.2
            %Net
                combined ratio:
            
            
            76.3
            %
            
            87.7
            %





***Small
      Business Workers’ Compensation Segment Results of Operations for the Three
      Months Ended March 31, 2008 and 2007***





*Gross
      Premium Written* .
      Gross
      premium written decreased $0.5 million or (0.6)% from $89.8 million for the
      three months ended March 31, 2007 to $89.3 million for the three months ended
      March 31, 2008. On an overall basis, gross premium written was relatively flat
      primarily as a result of mandated rate reductions in New York and Florida,
      which
      was offset by increases in policies resulting from the acquisition of Associated
      in the third quarter of 2007.





*Net
      Premium Written* .
      Net
      premium written decreased $34.2 million or (39.9)% from $85.5 million to $51.3
      million for the three months ended March 31, 2007 and 2008, respectively. The
      decrease of $34.2 million resulted from the cession of $32.5 million of premium
      written to Maiden Insurance during the first quarter of 2008 under the terms
      of
      a reinsurance agreement entered into during the third quarter of 2007. Before
      cessions to Maiden Insurance, net premium written decreased $1.7 million in
      the
      first quarter of 2008 compared to the first quarter of 2007. The decrease of
      $1.7 million resulted from a gross premium written decline of $0.5 million
      period over period.





*Net
      Premium Earned* .
      Net
      premium earned decreased $18.9 million or (29.0)% from $65.2 million for the
      three months ended March 31, 2007 to $46.3 million for the three months ended
      March 31, 2008. The decrease of $18.9 million resulted from the cession of
      earned premium of $25.4 million to Maiden Insurance during the first quarter
      of
      2008. Before cessions to Maiden Insurance, earned premium increased $6.5 million
      in the first quarter of 2008 compared to the first quarter of 2007. This
      increase was a result of the premium in the preceding twelve months being
      greater than the twelve months ended March 31, 2007.





*Loss
      and Loss Adjustment Expenses.* Loss and
      loss adjustment expenses decreased $14.2 million or 36.7% from $38.8 million
      for
      the three months ended March 31, 2007 to $24.6 million for the three months
      ended March 31, 2008. The Company’s loss ratio for the segment for the three
      months ended March 31, 2008 decreased to 53.1% from 59.5% for the three months
      ended March 31, 2007. The improvement of the loss and loss adjustment ratio
      resulted primarily from a decrease in the Company’s actuarially projected
      ultimate losses based on the Company’s loss experience.




24





*Policy
      Acquisition Expense, Salaries and Benefits Expense and Other Insurance General
      and Administrative Expense less Ceding Commission.* Policy
      acquisition expense, salaries and benefits expense and other insurance general
      and administrative expense less ceding commission decreased $7.6 million or
      41.4% from $18.4 million for the three months ended March 31, 2007 to $10.8
      million for the three months ended March 31, 2008. The expense ratio decreased
      from 28.2% for the three months ended March 31, 2007 to 23.2% for the three
      months ended March 31, 2008. The decrease in expense ratio resulted primarily
      from ceding commissions of $11.9 million earned through the reinsurance
      agreement with Maiden Insurance during the third quarter of 2007 offset by
      increased salary expense of $2.6 million.





*Net
      Premiums Earned less Expenses Included in Combined Ratio (Underwriting
      Income).* Net premiums earned less expenses included in combined ratio increased $3.0
      million or 36.8% from $8.0 million for the three months ended March 31, 2007
      to
      $11.0 million for the three months ended March 31, 2008. This increase is
      attributable to improvements in the expense ratio attributable to ceding
      commission from Maiden Insurance during the first quarter of 2008.





**Specialty
      Risk and Extended Warranty Segment**




**(Unaudited)**
              **Three Months Ended March 31,****2008**
            
            **2007**($
                amounts in thousands)Gross
                premium written
            
            $
            87,769
            
            $
            47,942Net
                premium written
            
            
            38,085
            
            
            38,312Change
                in unearned premium
            
            
            (8,489
            )
            
            (13,612
            )Net
                premiums earned
            
            
            29,596
            
            
            24,700Ceding
                commission revenue
            
            
            3,431
            
            
            -Loss
                and loss adjustment expense
            
            
            17,914
            
            
            17,910Policy
                acquisition expenses
            
            
            1,002
            
            
            -Salaries
                and benefits
            
            
            2,647
            
            
            2,232Other
                insurance general and administrative expense
            
            
            3,136
            
            
            1,37624,699
            
            
            21,518Net
                premiums earned less expenses included in combined ratio
            
            $
            8,328
            
            $
            3,182Key
                Measures:Net
                loss ratio
            
            
            60.5
            %
            
            72.5
            %Net
                expense ratio
            
            
            11.3
            %
            
            14.6
            %Net
                combined ratio
            
            
            71.9
            %
            
            87.1
            %




***Specialty
      Risk and Extended Warranty Segment Results of Operations for the Three Months
      Ended March 31, 2008 and***  ***2007***





*Gross
      Premium Written* .
      Gross
      premium written increased $39.8 million or 83.1% from $47.9 million for the
      three months ended March 31, 2007 to $87.8 million for the three months ended
      March 31, 2008. The increase in premium resulted, primarily, from the
      underwriting growth of coverage plans in the United States and the acquisition
      of IGI in the second quarter of 2007, which contributed $17.0 million of
      premiums in the first quarter of 2008.




*Net
      Premium Written* .
      Net
      premium written decreased $0.2 million or 0.6% from $38.3 million to $38.1
      million for the three months ended March 31, 2007 and 2008, respectively. The
      decrease of $0.2 million resulted from the cession of $32.4 million of premium
      written to Maiden Insurance during the first quarter of 2008 under the terms
      of
      a reinsurance agreement entered into during the third quarter of 2007. Before
      cessions to Maiden Insurance, net premium written increased $32.2 million in
      the
      first quarter of 2008 compared to the first quarter of 2007. The increase of
      $32.2 million resulted from an increase in gross written premium written in
      2008.




25





*Net
      Premium Earned* .
      Net
      premium earned increased $4.9 million or 19.8% from $24.7 million for the three
      months ended March 31, 2007 to $29.6 million for the three months ended March
      31, 2008. The increase of $4.9 million resulted from the cession of earned
      premium of $21.6 million to Maiden Insurance during the first quarter of 2008.
      Before cessions to Maiden Insurance, earned premium increased $26.5 million
      in
      the first quarter of 2008 compared to the first quarter of 2007. The increase
      was a result of an increase in gross written premium in 2008.





*Loss
      and Loss Adjustment Expenses.* Loss and
      loss adjustment expenses were $17.9 million for the three months ended March
      31,
      2007 and 2008. The Company’s loss ratio for the segment for the three months
      ended March 31, 2008 decreased to 60.5% from 72.5% for the three months ended
      March 31, 2007. The improvement of the loss and loss adjustment ratio resulted
      primarily from a decrease in the Company’s actuarially projected ultimate losses
      based on the Company’s loss experience.





*Policy
      Acquisition Expense, Salaries and Benefits Expense and Other Insurance General
      and Administrative Expense less Ceding Commission.* Policy
      acquisition expense, salaries and benefits expense and other insurance general
      and administrative expense less ceding commission decreased $0.3 million or
      (7.0)% from $3.6 million for the three months ended March 31, 2007 to $3.3
      million for the three months ended March 31, 2008. The expense ratio decreased
      from 14.6% for the three months ended March 31, 2007 to 11.3% for the three
      months ended March 31, 2008. The decrease in expense ratio resulted primarily
      from ceding commissions of $3.4 million earned through the reinsurance agreement
      with Maiden Insurance during the third quarter of 2007 offset by increases
      in
      general and administrative expense of $1.8 million in the first quarter of
      2008.





*Net
      Premiums Earned less Expenses Included in Combined Ratio (Underwriting
      Income).* Net premiums earned less expenses included in combined ratio increased $5.1
      million or 161.7% from $3.2 million for the three months ended March 31, 2007
      to
      $8.3 million for the three months ended March 31, 2008. This increase is
      attributable to strong growth in gross written premium combined with
      improvements in the expense ratio attributable to ceding commission from Maiden
      Insurance during the first quarter of 2008.





**Specialty
      Middle Market Property and Casualty Segment Results of Operations**





**(Unaudited)****Three Months Ended****March 31,****2008**
            
            **2007**($
                amounts in thousands)Gross
                premium written
            
            $
            57,726
            
            $
            51,935Net
                premium written
            
            
            28,025
            
            
            36,844Change
                in unearned premium
            
            
            (6,513
            )
            
            (8,061
            )Net
                premium earned
            
            
            21,512
            
            
            28,783Ceding
                commission revenue
            
            
            4,844
            
            
            -Loss
                and loss adjustment expense
            
            
            12,684
            
            
            17,823Policy
                acquisition expenses
            
            
            6,812
            
            
            5,343Salaries
                and benefits
            
            
            1,982
            
            
            1,932Other
                Insurance General and Administrative Expense
            
            
            1,946
            
            
            1,92823,424
            
            
            27,026Net
                premiums earned less expenses included in combined ratio
            
            $
            2,932
            
            $
            1,757Key
                Measures:Net
                loss ratio
            
            
            59.0
            %
            
            61.9
            %Net
                expense ratio
            
            
            27.4
            %
            
            32.0
            %Net
                combined ratio
            
            
            86.4
            %
            
            93.9
            %





26





***Specialty
      Middle Market Segment Result of Operations for the Three Months Ended March
      31,
      2008 and 2007***





*Gross
      Premium Written* .
      Gross
      premium increased $5.8 million or 11.2% from $51.9 million for the three months
      ended March 31, 2007 to $57.7 million for the three months ended March 31,
      2008.
      The increase related to growth in existing and new programs.





*Net
      Premium Written* .
      Net
      premium decreased $8.8 million or 23.9% from $36.8 million for the three months
      ended March 31, 2007 to $28.0 million for the three months ended March 31,
      2008.
      The decrease of $8.8 million resulted from the cession of $18.0 million of
      written premium to Maiden Insurance during the first quarter of 2008 under
      the
      terms of a reinsurance agreement entered into during the third quarter of 2007.
      Before cessions to Maiden Insurance, net written premium increased $9.2 million
      for the three months ended March 31, 2008 compared to the three months ended
      March 31, 2007. The increase of $9.2 million resulted from an increase in gross
      premium written in 2008.





*Net
      Premium Earned* .
      Net
      premium earned decreased $7.3 million or 25.3% from $28.8 million for the three
      months ended March 31, 2007 to $21.5 million for the three months ended March
      31, 2008. The decrease of $7.3 million resulted from the cession of earned
      premium ceded to Maiden Insurance during the first quarter of 2008. Before
      cessions to Maiden Insurance, earned premium increased $9.5 million in the
      first
      quarter of 2008 compared to the first quarter of 2007. This increase was a
      result of an increase in gross premium written.




*Loss
      and Loss Adjustment Expenses.* Loss and
      loss adjustment expenses decreased $5.1 million or 28.8% from $17.8 million
      for
      the three months ended March 31, 2007 compared to $12.7 million for the three
      months ended March 31, 2008. The loss ratio for the segment decreased for the
      three months ended March 31, 2008 to 59.0% from 61.9% for the three months
      ended
      March 31, 2007. The improvement of the loss and loss adjustment ratio resulted
      primarily from a decrease in the Company’s actuarially projected ultimate losses
      based on the Company’s loss experience.





*Policy
      Acquisition Expense, Salaries and Benefits Expense and Other Insurance General
      and Administrative Expense less Ceding Commission.* Policy
      acquisition expense, salaries and benefits expense and other insurance general
      and administrative expense less ceding commission decreased $3.3 million or
      (35.9)% from $9.2 million for the three months ended March 31, 2007 to $5.9
      million for the three months ended March 31, 2008. The expense ratio decreased
      from 32.0% for the three months ended March 31, 2007 to 27.4% for the three
      months ended March 31, 2008. The decrease in expense ratio resulted primarily
      from ceding commission of $4.8 million earned through the reinsurance agreement
      with Maiden Insurance during the first quarter of 2008.




*Net
      Premiums Earned less Expenses Included in Combined Ratio (Underwriting
      Income).* Net premiums earned less expenses included in combined ratio were $2.9 million
      and $1.8 million for the three months ended March 31, 2008 and 2007,
      respectively. The increase of $1.1 million resulted from growth in revenue
      and
      improvements in the expense ratio and the loss ratio.





**Liquidity**  **and
      Capital Resources**





Our
      principal sources of operating funds are premiums, 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 $58.1 million and $40.3 million in the
      three months ended March 31, 2008 and 2007, respectively. We expect cash flow
      from operations should be sufficient to meet our anticipated claim obligations.
      We further expect that projected cash flow from operations and the issuance
      of
      junior subordinated debentures should provide us sufficient liquidity to fund
      our current operations and anticipated growth for at least the next twelve
      months.  However,
      if our growth attributable to acquisitions, internally generated growth or
      a
      combination of these exceeds our projections, we may have to raise additional
      capital sooner to support our growth.





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




**Three
                Months Ended March 31,****2008**
            
            **2007**($
                amounts in thousands)Cash
                and cash equivalents provided by (used in):Operating
                activities
            
            $
            44,797
            
            $
            54,756Investing
                activities
            
            
            129,385
            
            
            (1,740
            )Financing
                activities
            
            
            (155,934
            )
            
            37,981




27


Net
      cash
      provided by operating activities was positive for the three months ended March
      31, 2008 but lower than net cash provided by operating activities in the three
      months ended March 31, 2007, primarily because of the increase in claims paid
      during the three months ended March 31, 2008.




Cash
      used
      in investing activities during the period represents, primarily, the net
      purchases (purchases less sales) of investments. For the three months ended
      March 31, 2008, the Company’s net sales of fixed securities totaled $139.5
      million and net sales of equity securities was $10.8 million. For the three
      months ended March 31, 2007, the Company’s net sales of fixed income securities
      totaled $33.1 million, net purchases of equity securities totaled $1.4 million
      and net purchases of other investments totaled $14.2 million. Additionally,
      in
      connection with the Warrantech transaction, the Company provided $18.0 million
      related to a secured note (see Note 12. “Other Investments”) to
      Warrantech.





Cash
      used
      in financing activities for the three months ended March 31, 2008 consisted
      of
      purchases of $153.8 million of securities sold under agreements to
      repurchase  and
      dividend payments of $2.4 million. Cash provided by financing activities for
      the
      three months ended March 31, 2007 consisted primarily of $40 million generated
      by the issuance of additional junior subordinated debt in connection with the
      issuance of trust preferred securities offset by dividend payments of $1.2
      million.





**Line
      of Credit**





The
      Company entered into an agreement for an unsecured line of credit on June 30,
      2007 with JP Morgan Chase Bank, N.A. in the aggregate amount of $50 million.
      The
      line will be used for general corporate purposes as required, as well as
      collateral for letters of credit. The agreement matures on June 30,
      2008.   Interest payments are required to be paid monthly on any
      unpaid principal and bears interest at LIBOR plus 150 basis points.  As of
      March 31, 2008 there was no outstanding balance on the line of credit. The
      Company has an outstanding letter of credit in place at March 31, 2008 for
      $21.5
      million that reduced the availability on the line of credit to $28.5 million
      as
      of March 31, 2008.The
      Company currently is negotiating to replace its existing line of credit 
The Company does not believe its liquidity or borrowing rate will be materially
      impacted.





**Securities
      Sold Under Agreements to Repurchase, at Contract Value**




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 hold in short term
      or
      fixed income securities. As of March 31, 2008, there were $300.5 million
      principal amount outstanding at interest rates between 2.4% and 3.6%. Interest
      expense associated with these repurchase agreements for the three months ended
      March 31, 2008 was $1.8 million of which $0.4 million was accrued as of March
      31, 2008. The Company has approximately $305.0 million of collateral pledged
      in
      support of these agreements.




**Note
      Payable — Collateral for Proportionate Share of Reinsurance
      Obligation**




In
      conjunction with the Reinsurance Agreement between AII and Maiden Insurance
      (see
      Note 13. “Related Party Transactions”), AII entered into a loan agreement with
      Maiden Insurance during the fourth quarter of 2007, whereby, Maiden Insurance
      will lend to AII from time to time for the amount of obligation of the AmTrust
      Ceding Insurers that AII is obligated to secure, not to exceed an amount equal
      to the Maiden Insurance’s proportionate share of such obligations to such
      AmTrust Ceding Insurers in accordance with the reinsurance agreement. The
      Company is required to deposit all proceeds from the advances into a sub-account
      of each trust account that has been established for each AmTrust Ceding Insurer.
      To the extent of the loan, Maiden Insurance shall be discharged from
      providing  security
      for its proportionate share of the obligations as contemplated by the
      reinsurance agreement. If an AmTrust Ceding Insurer withdraws loan proceeds
      from
      the trust account for the purpose of reimbursing such AmTrust Ceding Insurer,
      for an ultimate net loss, the outstanding principal balance of the loan shall
      be
      reduced by the amount of such withdrawal. 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 $113.2 million as of March 31,
      2008.




28





**Reinsurance**




The
      Company utilizes reinsurance agreements to reduce its exposure to large claims
      and catastrophic loss occurrences. These agreements provide for recovery from
      reinsurers of a portion of losses and LAE under certain circumstances without
      relieving the insurer of its obligation to the policyholder. Losses and LAE
      incurred and premiums earned are reflected after deduction for reinsurance.
      In
      the event reinsurers are unable to meet their obligations under reinsurance
      agreements, the Company would not be able to realize the full value of the
      reinsurance recoverable balances. The Company periodically evaluates the
      financial condition of its reinsurers in order to minimize its exposure to
      significant losses from reinsurer insolvencies. Reinsurance does not discharge
      or diminish the primary liability of the Company; however, it does permit
      recovery of losses on such risks from the reinsurers.




The
      Company has coverage for its workers’ compensation line of business under excess
      of loss reinsurance agreements. The agreements cover losses in excess of $500
      through December 31, 2004, $600 effective January 1, 2005 and $1,000 effective
      July 1, 2006, per occurrence up to a maximum $130,000 ($80,000 prior to 2004)
      in
      losses per occurrence. Our reinsurance for worker’s compensation losses caused
      by acts of terrorism is more limited than our reinsurance for other types of
      workers’ compensation losses. Beginning with policies effective January 1, 2006,
      the Company retains the first $1,000 per occurrence. We have obtained
      reinsurance for this line of business with higher limits as our exposures have
      increased. As the scale of our workers’ compensation business has increased, we
      have also increased the amount of risk we retain.




During
      2007, TIC acted as servicing carrier on behalf of both the Georgia and Virginia
      Workers’ Compensation Assigned Risk Plans. In 2006, TIC was only a servicing
      carrier for the Georgia Assigned Risk Plan. In its role as a serving carrier
      TIC
      issues and services certain workers compensation policies to Georgia and
      Virginia insureds. Those policies are subject to a 100% quota-share reinsurance
      agreement offered by the National Workers Compensation Reinsurance Pool a
      state-based equivalent, which is administered by the National Council on
      Compensation Insurance, Inc. (“NCCI”).




As
      part
      of the agreement to purchase Wesco from Household Insurance Group Holding
      Company (“Household”), the Company agreed to write certain business on behalf
      Household for a three year period. The premium written under this arrangement
      is
      100% reinsured by HSBC Insurance Company of Delaware, a subsidiary of Household.
      The reinsurance recoverable associated with this business is guaranteed by
      Household.




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, AII and Maiden
      Insurance to enter into a the Reinsurance Agreement 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 insuring 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 current lines
      of
      business, excluding risks for which the AmTrust Ceding Insurers’ net retention
      exceeds $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. The Agreement further provides
      that
      the AII receives a ceding commission of 31% of ceded written premiums. The
      Reinsurance Agreement 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.




As
      part
      of the acquisition of Associated, the Company acquired reinsurance recoverable
      as of the date of closing. The most significant reinsurance recoverable is
      from
      American Home Assurance Co. (“American Home”). AIIC’s reinsurance relationship
      with American Home incepted January 1, 1998 on a loss occurring basis. From
      January 1, 1998 through March 31, 1999 the American Home reinsurance covered
      losses in excess of $250 per occurrence up to statutory coverage limits.
      Effective April 1, 1999, American Home provided coverage in the amount of $150
      in excess of $100. This additional coverage terminated on December 31, 2001
      on a
      run-off basis. Therefore, for losses occurring in 2002 that attached to a 2001
      policy, the retention was $100 per occurrence. Effective January 1, 2002
      American Home increased its attachment was $250 per occurrence. The XOL treaty
      that had an attachment of $250 was terminated on a run-off basis on December
      31,
      2002. Therefore, losses occurring in 2003 that attached to a 2002 policy were
      ceded to American Home at an attachment point of $250 per
      occurrence.




29




Since
      January 1, 2003, the Company has had variable quota share reinsurance with
      Munich Reinsurance Company (“Munich Re”) for our specialty risk and extended
      warranty insurance. The scope of this reinsurance arrangement is broad enough
      to
      cover all of our specialty risk and extended warranty insurance worldwide.
      However, we do not cede to Munich Re the majority of our U.S. specialty risks
      and extended warranty business, although we may cede more of this U.S. business
      to Munich Re in the future.




Under
      the
      variable quota share reinsurance arrangements with Munich Re, we may elect
      to
      cede from 15% to 50% of each covered risk, but Munich Re shall not reinsure
      more
      than £500 for each ceded risk which we at acceptance regard as one individual
      risk. This means that regardless of the amount of insured losses generated
      by
      any ceded risk, the maximum coverage for that ceded risk under this reinsurance
      arrangement is £500,000. For the majority of the business ceded under this
      reinsurance arrangement, we cede 15% of the risk to Munich Re, but for some
      newer or larger risks, we cede a larger share to Munich Re. This reinsurance
      is
      subject to a limit of £2.5 million per occurrence of certain natural perils such
      as windstorms, earthquakes, floods and storm surge. Coverage for losses arising
      out of acts of terrorism is excluded from the scope of this
      reinsurance.




In
      October 2006, the Company entered into a quota-share reinsurance agreement
      with
      5 syndicate members of Lloyd’s of London who collectively reinsure 70% of a
      particular specialty risk and extended warranty program.





**Investment
      Portfolio**





Our
      investment portfolio, including cash and cash equivalents, increased $179.6
      million, or 14.2% to $1,441.2 million at March 31, 2008 from $1,261.6 million
      as
      of December 31, 2007 (excluding $22.7 million and $28.1 million of other
      investments, respectively). A majority of our fixed maturities are classified
      as
      available for sale (87.5%) as of March 31, 2008, as defined by SFAS No. 115,
      “Accounting for Certain Investments in Debt and Equity Securities.” As such, the
      reported value of those securities is equal to their fair value. Additionally,
      our fixed maturities classified as held to maturity (12.5%) are not impacted
      by
      changing interest rates. Our fixed maturity securities, gross, as of this date
      had a fair value of $946.2 million and an amortized cost of $981.9 million.
      Our
      equity securities are classified as available-for-sale, as defined by SFAS
      115.
      These securities are reported at fair value. The equity securities, gross,
      carried at fair value were $68.6 million with a cost of $106.2 million as of
      March 31, 2008. 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
      rates. Sales of securities under repurchase agreements are accounted for as
      collateralized borrowing transactions and are recorded at their contracted
      amounts. Our investment portfolio is summarized in the table below by type
      of
      investment:





****
            
            **March
                31, 2008**
            
            **December
                31, 2007**($
                amounts in thousands)
            
            **Carrying**
              **Value**
            
            **Percentage of**
              **Portfolio**
            
            **Carrying**
              **Value**
            
            **Percentage of**
              **Portfolio**Cash
                and cash equivalents
            
            $
            168,777
            
            
            11.7
            %
            $
            145,337
            
            
            11.5
            %Time
                and short-term deposits
            
            
            259,027
            
            
            18.0
            
            
            148,541
            
            
            11.8U.S.
                treasury securities
            
            
            18,396
            
            
            1.3
            
            
            19,074
            
            
            1.5U.S.
                government agencies
            
            
            80,263
            
            
            5.6
            
            
            144,173
            
            
            11.4U.S.
                agency - collateralized mortgage obligations
            
            
            298,904
            
            
            20.7
            
            
            239,200
            
            
            19.0U.S.
                agency – mortgage backed securities
            
            
            143,047
            
            
            9.9
            
            
            91,663
            
            
            7.3Other
                mortgage backed securities
            
            
            4,034
            
            
            0.3
            
            
            4,153
            
            
            0.3Municipal
                bonds
            
            
            10,161
            
            
            0.7
            
            
            10,428
            
            
            0.8Asset
                backed securities
            
            
            9,615
            
            
            0.7
            
            
            10,226
            
            
            0.8Corporate
                bonds
            
            
            380,332
            
            
            26.4
            
            
            369,733
            
            
            29.3Common
                stock
            
            
            68,059
            
            
            4.7
            
            
            78,533
            
            
            6.3Preferred
                stock
            
            
            584
            
            
            —
            
            
            504
            
            
            —$
            1,441,199
            
            
            100.0
            %
            $
            1,261,565
            
            
            100.0
            %





As
      of
      March 31, 2008, the weighted average duration of our fixed income securities
      was
      5.6 years.




30




Quarterly,
      the Company’s Investment Committee (“Committee”) evaluates for
      other-than-temporary-impairment, whereby it evaluates each security which has
      an
      unrealized loss as of the end of the subject reporting period. 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 we consider include:




·
            how
                long and by how much the fair value of the security has been below
                its
                amortized cost;




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




·
            our
                intent and ability to keep the security for a sufficient time period
                for
                it to recover its value;




·
            any
                reduction or elimination of dividends, or nonpayment of scheduled
                interest
                payments; and




·
            The
                occurrence of discrete credit event resulting in (i) the issuer defaulting
                on material outstanding obligation (ii) the issuer seeking protection
                under bankruptcy law.




During
      the three months ended March 31, 2008, based on the criteria above, we
      determined that 4 equity securities were other-than-temporarily-impaired and
      accordingly wrote them down resulting in a $0.7 million realized
      loss.





At
      March
      31, 2008, the Company had $39.5 million of gross unrealized losses related
      to
      marketable equity securities. The Company’s investment in marketable equity
      securities consist of investments in common stock across a wide range of
      sectors. The Company evaluated the near-term prospects for recovery of fair
      value in relation to the severity and duration of the impairment and has
      determined in each case that the probability of recovery is reasonable. Within
      the Company’s portfolio of common stocks, 39 equity securities comprised $37.6
      million, or 95 % of the unrealized loss. The 39 stocks consisted of 16
      securities in the consumer products sector and represent approximately 43%
      of
      the total fair value and 50% of the Company’s unrealized loss, four securities
      in the financial sector and represent approximately 9% of the total fair value
      and 9% of the Company’s total unrealized losses and 13 common stocks in the
      health care, industrial and technology sectors which have fair values of
      approximately 14%, 12% and 10%, respectively, and approximately 9%, 10%
      and 11%, respectively, of the Company’s unrealized losses. Additionally,
      the Company owns 6 stocks in other sectors which accounts for 7% of the
      Company’s unrealized losses. The duration of these impairments range from
      one to 19 months. The remaining securities in a loss position are not considered
      individually significant and accounted for 5% of the Company’s unrealized
      losses.





Corporate
      bonds represent 40% of the fair value of our fixed maturities and 96% of the
      total unrealized losses of our fixed maturities. The Company owns 210 corporate
      bonds in the industrial, bank & financial and other sectors, which have a
      fair value of approximately 8%, 31% and 1%, respectively, and 26%, 68% and
      2% of
      total unrealized losses, respectively, of our fixed maturities. The Company
      expects the spreads to narrow again as the economic situation improves and
      the
      market price for these securities recovers.




**Item
      3. Quantitative and Qualitative Disclosures About Market
      Risk**





Market
      risk is the risk of potential economic loss principally arising from adverse
      changes in the fair value of financial instruments. The major components of
      market risk affecting us are credit risk, interest rate risk, foreign currency
      risk and equity price risk.




*Liquidity
      Risk.* Liquidity
      risk represents the potential inability of AmTrust to meet all payment
      obligations when they become due. The Company maintains sufficient cash and
      marketable securities to fund claim payments and operations. We purchase
      reinsurance coverage to mitigate the liquidity risk of an unexpected rise in
      claims severity or frequency from catastrophic events or a single large loss.
      The availability, amount and cost of reinsurance depend on market conditions
      and
      may vary significantly.





*Credit
      Risk.* Credit
      risk is the potential loss arising principally from adverse changes in the
      financial condition of the issuers of our fixed maturity securities and the
      financial condition of our third party reinsurers. We address the credit risk
      related to the issuers of our fixed maturity securities by investing primarily
      in fixed maturity securities that are rated “BBB-” or higher by Standard &
Poor’s. We also independently monitor the financial condition of all issuers of
      our fixed maturity securities. To limit our risk exposure, we employ
      diversification policies that limit the credit exposure to any single issuer
      or
      business sector.




31





We
      are
      subject to credit risk with respect to our third party reinsurers. Although
      our
      third party reinsurers are obligated to reimburse us to the extent we cede
      risk
      to them, we are ultimately liable to our policyholders on all risks we have
      ceded. As a result, reinsurance contracts do not limit our ultimate obligations
      to pay claims covered under the insurance policies we issue and we might not
      collect amounts recoverable from our reinsurers. We address this credit risk
      by
      selecting reinsurers which have an A.M. Best rating of “A” (Excellent) or better
      at the time we enter into the agreement and by performing, along with our
      reinsurance broker, periodic credit reviews of our reinsurers. If one of our
      reinsurers suffers a credit downgrade, we may consider various options to lessen
      the risk of asset impairment, including commutation, novation and letters of
      credit. See “—Reinsurance.”




*Interest
      Rate Risk.*We had
      fixed maturity securities (excluding $259.0 million of time and short-term
      deposits) with a fair value of $946.2 million and a carrying value of $981.9
      million as of March 31, 2008 that are subject to interest rate risk. Interest
      rate risk is the risk that we may incur losses due to adverse changes in
      interest rates. Fluctuations in interest rates have a direct impact on the
      market valuation of our fixed maturity securities. We manage our exposure to
      interest rate risk through a disciplined asset and liability matching and
      capital management process. In the management of this risk, the characteristics
      of duration, credit and variability of cash flows are critical elements. These
      risks are assessed regularly and balanced within the context of our liability
      and capital position.




The
      table
      below summarizes the interest rate risk associated with our fixed maturity
      securities by illustrating the sensitivity of the fair value and carrying value
      of our fixed maturity securities as of March 31, 2008 to selected hypothetical
      changes in interest rates, and the associated impact on our stockholders’
equity. Because we anticipate that the Company will continue to meet its
      obligations out of income, we classify our fixed maturity securities, other
      than
      redeemable preferred stock, mortgage backed and corporate obligations, as
      held-to-maturity and carry them on our balance sheet at cost or amortized cost,
      as applicable. Any redeemable preferred stock we hold from time to time is
      classified as available-for-sale and carried on our balance sheet at fair value.
      Temporary changes in the fair value of our fixed maturity securities that are
      held-to-maturity, such as those resulting from interest rate fluctuations,
      do
      not impact the carrying value of these securities and, therefore, do not affect
      our shareholders’ equity. However, temporary changes in the fair value of our
      fixed maturity securities that are held as available-for-sale do impact the
      carrying value of these securities and are reported in our shareholders’ equity
      as a component of other comprehensive income, net of deferred taxes. The
      selected scenarios in the table below are not predictions of future events,
      but
      rather are intended to illustrate the effect such events may have on the fair
      value and carrying value of our fixed maturity securities and on our
      shareholders’ equity, each as of March 31, 2008.





**Hypothetical Change in Interest Rates**
            
            **Fair
                Value**
            
            **Estimated**
              **Change
                in**
              **Fair Value**
            
            **Carrying**
              **Value**
            
            **Estimated**
              **Change
                in**
              **Carrying**
              **Value**
            
            **Hypothetical**
              **Percentage**
              **(Increase)**
              **Decrease
                in**
              **Shareholders’**
              **Equity**($
                in thousands)200
                basis point increase
            
            $
            888,881
            
            $
            (57,341
            )
            $
            —
            
            $
            (49,010
            )
            
            (12.3)%100
                basis point increase
            
            
            915,233
            
            
            (30,989
            )
            
            —
            
            
            (26,182
            )
            
            (6.6)No
                change
            
            
            946,222
            
            
            —
            
            
            944,752
            
            
            —
            
            
            —100
                basis point decrease
            
            
            972,666
            
            
            26,444
            
            
            —
            
            
            23,411
            
            
            5.9200
                basis point decrease
            
            
            1,002,399
            
            
            56,177
            
            
            —
            
            
            48,771
            
            
            12.3




*Foreign
      Currency Risk.* We write
      insurance in the United Kingdom and certain other European Union member
      countries through AIU. While the functional currency of AIU is the Euro, we
      write coverages that are settled in local currencies, including the British
      Pound. We attempt to maintain sufficient local currency assets on deposit to
      minimize our exposure to realized currency losses. Assuming a 5% increase in
      the
      exchange rate of the local currency in which the claims will be paid and that
      we
      do not hold that local currency, we would recognize a $1.9 million after tax
      realized currency loss based on our outstanding foreign denominated reserves
      of
      $57.6 million at March 31, 2008.




32





*Equity
      Price Risk.* Equity
      price risk is the risk that we may incur losses due to adverse changes in the
      market prices of the equity securities we hold in our investment portfolio,
      which include common stocks, non-redeemable preferred stocks and master limited
      partnerships. We classify our portfolio of equity securities as
      available-for-sale and carry these securities on our balance sheet at fair
      value. Accordingly, adverse changes in the market prices of our equity
      securities result in a decrease in the value of our total assets and a decrease
      in our shareholders’ equity. As of March 31, 2008, the equity securities in our
      investment portfolio had a fair value of $68.6 million, representing
      approximately nine percent of our total invested assets on that date. We are
      fundamental long buyers and short sellers, with a focus on value oriented
      stocks. The table below illustrates the impact on our equity portfolio and
      financial position given a hypothetical movement in the broader equity markets.
      The selected scenarios in the table below are not predictions of future events,
      but rather are intended to illustrate the effect such events may have on the
      carrying value of our equity portfolio and on shareholders’ equity as of March
      31, 2007. The hypothetical scenarios below assume that the Company’s Beta is 1
      when compared to the S&P 500 index.





**Hypothetical Change in S&P 500 Index**
            
            **Fair
                Value**
            
            **Estimated
                Change in**
              **Fair
                Value**
            
            **Carrying**
              **Value**
            
            **Estimated
                Change in Carrying**
              **Value**
            
            **Hypothetical**
              **Percentage**
              **Increase**
              **(Decrease)
                in**
              **Shareholders**
              **Equity**($
                in thousands)5%
                increase
            
            $
            72,075
            
            $
            3,432
            
            
            
            
            $
            3,432
            
            
            0.6%No
                change
            
            
            68,643
            
            
            
            
            $
            68,6435%
                decrease
            
            
            65,211
            
            
            (3,432
            )
            
            
            
            
            (3,432
            )
            
            (0.6)%




*Off
      Balance Sheet Risk* .
      The
      Company has exposure or risk related to securities sold but not yet
      purchased.





***Risks
      Associated with Forward-Looking Statements Included in this Form
      10-Q***





This
      Form
      10-Q contains certain forward-looking statements within the meaning of Section
      27A of the Securities Act of 1933 and Section 21E of the Securities Exchange
      Act
      of 1934, which are intended to be covered by the safe harbors created thereby.
      These statements include the plans and objectives of management for future
      operations, including plans and objectives relating to future growth of the
      Company’s business activities and availability of funds. The forward-looking
      statements included herein are based on current expectations that involve
      numerous risks and uncertainties. Assumptions relating to the foregoing involve
      judgments with respect to, among other things, future economic, competitive
      and
      market conditions, regulatory framework, weather-related events and future
      business decisions, all of which are difficult or impossible to predict
      accurately and many of which are beyond the control of the Company. Although
      the
      Company believes that the assumptions underlying the forward-looking statements
      are reasonable, any of the assumptions could be inaccurate and, therefore,
      there
      can be no assurance that the forward-looking statements included in this Form
      10-Q will prove to be accurate. In light of the significant uncertainties
      inherent in the forward-looking statements included herein, the inclusion of
      such information should not be regarded as a representation by the Company
      or
      any other person that the objectives and plans of the Company will be
      achieved.




**Item
      4. Controls and Procedures**





The
      principal executive officer and principal financial officer of the Company
      have
      evaluated the Company’s disclosure controls and procedures and have concluded
      that, as of the end of the period covered by this report, such disclosure
      controls and procedures were effective in ensuring that information required
      to
      be disclosed by the Company in the reports that it files or submits under the
      Securities Exchange Act of 1934 is timely recorded, processed, summarized and
      reported. The principal executive officer and principal financial officer also
      concluded that such disclosure controls and procedures were effective in
      ensuring that information required to be disclosed by the Company in the reports
      that it files or submits under such Act is accumulated and communicated to
      the
      Company’s management, including its principal executive officer and principal
      financial officer, as appropriate, to allow timely decisions regarding required
      disclosure. During the most recent fiscal quarter, there have been no changes
      in
      the Company’s internal controls over financial reporting that have materially
      affected, or are reasonably likely to materially affect, the Company’s internal
      control over financial reporting.




33




PART
      II -
      OTHER INFORMATION




**Item
      6.**  **Exhibits**




**Exhibit**
              **Number**
            
            **Description**31.1
            
            Certification
                of the Chief Executive Officer, pursuant to Rule 13a-14(a) or 15d-14(a),
                for the quarter ended March 31, 2008.31.2
            
            Certification
                of the Chief Financial Officer, pursuant to Rule 13a-14(a) or 15d-14(a),
                for the quarter ended March 31, 2008.32.1
            
            Certification
                of the Chief Executive Officer, pursuant to 18 U.S.C. Section 1350,
                for
                the quarter ended March 31, 2008.32.2
            
            Certification
                of the Chief Financial Officer, pursuant to 18 U.S.C. Section 1350,
                for
                the quarter ended March 31, 2008.




34





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:
                May 12, 2008
            
            /s/ Barry
                D. ZyskindBarry
                D. Zyskind
              President
                and Chief Executive Officer/s/ Ronald
                E. Pipoly, Jr.Ronald
                E. Pipoly, Jr.
              Chief
                Financial Officer




35