A.M. Best Co. has commented that the financial strength rating of
A- (Excellent) and the issuer credit ratings (ICR) of "a-" of the
subsidiaries of National General Holdings Corporation (National
General) (Delaware) 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 Financial Services,
Inc. (AmTrust) (headquartered in New York, NY) 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 commercial lines business, National General 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.
National General has historically maintained excellent risk-adjusted
capitalization and reported favorable earnings with a focus on personal
lines business. The company was formed in 2009 to acquire GMAC's
personal lines business, which had historically produced solid results.
This transaction will provide product diversification to National
General, which currently writes largely personal auto business, with
approximately two-thirds of Tower's personal lines book consisting of
homeowners' business. Although this transaction could expose National
General to increased variability driven by the vagaries of weather and
catastrophe events, A.M. Best anticipates that all existing Tower
reinsurance treaties will remain intact, thus bringing this exposure to
a manageable level. A.M. Best expects National General to maintain
excellent risk-adjusted capitalization through raising additional
capital to support the business acquired in this transaction.
Management's successful track record of acquisitions and its intention
and financial wherewithal to raise capital to support the business as
the renewals are written supports this assertion.
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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