AmTrust Financial Services Inc. (AFSI), a New York-headquartered insurer whose stock price fell last week in wake of a negative report from research firm GeoInvesting, is assuring investors its business is strong.

The insurer described the negative report as “misleading statements made in recent days about our financial reporting by short sellers.”

“While we come to work every day and our focus is on continuing to create shareholder value, the short sellers use inaccuracies and deception to manipulate our stock price in an effort to capitalize in the short term by destroying well-deserved shareholder value,” said AmTrust Chief Executive Officer Barry Zyskind during a conference call Monday.

AmTrust is a multinational specialty and workers’ compensation insurer with a focus on coverage for small- to mid-sized businesses.

In general, short selling is utilized to profit from an expected downward price movement, or to hedge the risk of a long position in the same security or in a related security, according to a description on the Securities and Exchange Commission’s website. Short selling can be any sale of a security which the seller does not own or any sale which is consummated by the delivery of a security borrowed by, or for the account of, the seller.

The controversy began last Thursday when Penn.-based GeoInvesting published a bearish report questioning AmTrust’s accounting practices. In a report titled “AmTrust Financial Services: A House Of Cards?” GeoInvesting said, “AFSI appears to be excluding losses of wholly-owned subsidiaries in its SEC filings.” GeoInvesting disclosed in its report that it has a short position on AmTrust.

“From 2009 to 2012 we believe that AFSI has not disclosed a total of $276.9 million in losses ceded to Luxembourg subsidiaries,” GeoInvesting said in its report. It also questioned the insurer’s accounting of its investments in life settlements, saying AFSI seems to be mismarking its life settlement contracts (LSCs).

“We believe short sellers have the winning position in AmTrust Financial Services (AFSI),” GeoInvesting said in its report.

AmTrust rebuked GeoInvesting’s negative comments and said the report is circulated by “parties that have a vested interest” in the common shares of AmTrust falling in value.

Last Friday, AmTrust issued a statement saying the fundamental outlook for the company remains positive.

“We believe that recent negative articles that individuals have distributed are false and misleading and are being distributed with the intention of manipulating the shares of AmTrust in order to benefit those who own short position in our shares,” AmTrust CEO Zyskind said in a statement.

AmTrust also held a conference call Monday to assure investors. “This report, authored by investors that have a short position in our stock was inaccurately critical of two of our businesses: our Luxembourg reinsurance business and our investment in life settlements,” AmTrust CEO Zyskind said during the conference call.

“Let me begin by putting things in perspective. All of the Luxembourg reinsurance companies’ results are consolidated on our financials in accordance with U.S. GAAP,” Zyskind said.

For the period beginning in 2009 through the first nine months of 2013, AmTrust said it has earned pre-tax profits of approximately $1.1 billion. Less than $25 million of that profit resulted from its direct operations in Luxembourg, or just under 2.5 percent, Zyskind said.

Zyskind said the notion that his company is hiding losses in an off-balance sheet insurance company is completely not true. “There is no off-balance sheet item; there is no hiding of losses. A loss ratio that is reported in our segment information is our actual loss ratio. It is in no way affected by any inter-company reinsurance transactions,” he said.

“As it relates to our Luxembourg reinsurance platform, we purchased these reinsurance companies to allow ourselves to obtain the benefit of their capital in the utilization of their existing and future loss reserves to a series of reinsurance agreements with one or more of our insurance subsidiaries,” AmTrust Chief Financial Officer Ron Pipoly said during the conference call. These reinsurance agreements are primarily aggregate treaties designed to cover perceived insurance volatility and are not proportional quota shares.

“Premiums and associated losses are ceded to our Luxembourg companies and are reflected in our annual audited financial statements. Our consolidated net earned premium, net incurred loss, as well as the balance sheet loss reserves, are properly stated in the AFSI consolidated financial statements,” CFO Pipoly added. “Regardless of local accounting requirements, all of our foreign companies are reported in our consolidation under U.S. GAAP.”

CEO Zyskind also said his company has addressed issues that have been raised regarding its investment in life settlements and has clarified the accounting of the life settlement portfolio. “The continued mischaracterization of our carrying value has been addressed many times before,” he said.

“We believe we acquired these assets at an attractive price at the right time and that our financial returns will be significant,” Zyskind said. “Keep in mind that our total net carrying value is approximately $132 million and represents less than 1.5 percent of our total assets as of Sept. 30, 2013.”

“I can assure you that this company has never been in a better and stronger position and I look forward to 2014 with supreme confidence, and that we will grow our top line and bottom line and that our shareholders will be very pleased with our results,” Zyskind said.

(Reporter Young Ha is the East Coast editor of Insurance Journal.)