A.M. Best Co. has commented that the financial strength rating of
A (Excellent) and issuer credit ratings (ICR) of "a" of the subsidiaries
of AmTrust Financial Services, Inc. (AmTrust) (headquartered in
New York, NY) (NASDAQ:AFSI) as well as its ICR of "bbb" and debt ratings
are unchanged following the recent announcement of its transaction with Tower
Group International, Ltd. (Tower) (Bermuda). The outlook for all
ratings is stable.
Under the terms of the transaction, which involves multiple parties, ACP
Re Ltd (ACP Re) (Bermuda) has agreed to acquire 100% of the
outstanding stock of Tower. In addition, AmTrust will enter into a 100%
quota share reinsurance agreement and provide a cut-through endorsement
on a portion of Tower's commercial lines business, which will be
effective January 1, 2014. AmTrust intends to reinsure not less than 60%
on a prospective basis of the approximately $290 million of unearned
premium relating to Tower's commercial business.
Upon completion of ACP Re's merger with Tower, AmTrust intends to
acquire the commercial lines renewal rights and assets, including
several of Tower's domestic insurance subsidiaries, to support the
commercial lines business. Furthermore, similar to the acquisition of
the cmmercial lines business, National General Holdings Corporation
(National General) (Delaware) will acquire the renewal rights and
assets, including several insurance subsidiaries, of Tower's personal
lines insurance operations. The purchase price of the subsidiaries
acquired by AmTrust and National General will be equal to the statutory
tangible book value of the acquired companies. ACP Re will retain all
liabilities at the time of sale of the acquired companies through a
reinsurance agreement that will be fully collateralized.
AmTrust has historically maintained excellent risk-adjusted
capitalization and has reported strong operating results driven by an
experienced management team, emphasis on technology and focus on low
hazard and predictable books of business. In addition, a significant
portion of AmTrust's growth has been driven by successfully executing on
renewal rights transactions, which is similar to the transaction with
Tower. Based on management's expectations, the additional premium
generated by this transaction is manageable considering AmTrust's
current premium and surplus levels. A.M. Best expects the renewal rights
acquisition to positively impact AmTrust's earnings and for the company
to continue to maintain excellent risk adjusted capitalization that
supports the acquisition of the additional business.
The methodology used in determining these ratings is Best's Credit
Rating Methodology, which provides a comprehensive explanation of A.M.
Best's rating process and contains the different rating criteria
employed in the rating process. Best's Credit Rating Methodology can be
found at www.ambest.com/ratings/methodology.
A.M. Best Company is the world's oldest and most authoritative
insurance rating and information source. For more information, visit www.ambest.com.
Copyright © 2014 by A.M. Best Company, Inc. ALL RIGHTS
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