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Street hopes AmTrust's CFO hire signals greater transparency

The surprise CFO shakeup at AmTrust Financial Services Inc. may address some concerns about the embattled property & casualty insurer amid continued investor skepticism.

AmTrust named Adam Karkowsky CFO following months of accounting problems made public alongside an expansion of the company's executive team to address growth.

In a statement, Karkowsky highlighted the need to improve AmTrust's financial disclosures — a point of frustration for observers and investors, according to Keefe Bruyette & Woods analyst Meyer Shields.

"Providing more information would give people more comfort that they understand what's going well and what's not going well," Shields said in an interview.

AmTrust disclosed in February that it found material weaknesses in controls over financial reporting and that it was revising its reports for prior periods. The company's stock price tumbled. A subsequent report in The Wall Street Journal that the SEC was looking into its accounting practices sent the company's shares into another nosedive.

The CFO change could reinforce the bear case that AmTrust might have more accounting problems than those already made public, Compass Point analyst Ken Billingsley wrote in a June 5 note to clients. Skeptics may also question the inside hire of Karkowsky, who has been with the company since 2011, and was executive vice president when he was named to replace Ronald Pipoly, the analyst noted.

"The bears could push the narrative that the CFO change infers that there are more accounting issues to address," Billingsley wrote.

AmTrust shares lost 3.48% in trading following the unexpected executive change, closing at $13.05 on June 5.

The company said in its announcement that the change concluded a previously undisclosed CFO search that included internal and external candidates. Karkowsky's appointment is part of AmTrust's effort to match its executive team to a company that has grown from a small business to an insurer with more than $8 billion in gross written premiums, spokeswoman Chaya Cooperberg said in an interview.

"It's a much different company today than it was when [Pipoly] first joined," said Cooperberg, the company's chief communications officer. Karkowsky was instrumental in the recent development of the finance team that included hiring its first ever chief accounting officer, a new head of investment accounting and a CFO for international subsidiaries, she said, and he has developed a deep understanding of AmTrust's business mechanics and the industry.

"We're confident that [Karkowsky] is a uniquely qualified individual to lead the finance organization," she said.

While unexpected, KBW's Shields does not think the CFO change was unwelcome. But because AmTrust has grown with little change in leadership, the CFO replacement would likely have been better received had the company brought in an executive from another large insurer, Shields said.

"I think they would probably get more credibility and maybe even a different skill set if they were able to attract someone who had been a senior leader at an established global P&C firm," he said.

Although the company had not said publicly that it was looking for another CFO, Billingsley said there had been talk among observers that a new hand at the position would be a positive.

"It appears that the company was listening," he said.