A.M. Best Co. has placed under review with negative implications
the financial strength rating of A- (Excellent) and issuer credit rating
of "a-" of ACP Re Ltd. (ACP Re) (Bermuda) following the recent
announcement that it has agreed to acquire 100% of the outstanding stock
of Tower Group International, Ltd. (Tower) (Bermuda).
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 Holdings Corporation (National
General) wil 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.
The under review with negative implications status reflects ACP Re's
execution risk due to the significant change in the business plan and
the uncertainty regarding the adequacy of loss reserves from the
acquired Tower business, which has recently experienced significant
adverse development. However, this risk is offset by management's
successful track record of acquisitions and its intention and financial
wherewithal to maintain risk-adjusted capitalization at strong levels.
The ratings will remain under review pending the close of the
transaction, which is subject to regulatory and shareholder approval,
and A.M. Best's further discussion with ACP Re's management.
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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