OLDWICK, N.J.--(BUSINESS WIRE)--A.M. Best has commented that the Long-Term Issuer Credit Rating (Long-Term ICR) of “bbb“ of AmTrust Financial Services, Inc. (AFSI) [NASDAQ:AFSI] (headquartered in New York, NY) and all Long-Term Issue Credit Ratings assigned to AFSI-issued securities are unchanged by today’s announcement that the company has entered into a reinsurance agreement with Premia Holdings, Ltd. (Premia), which will cover loss reserve development up to $400 million over AFSI’s stated reserves as of March 31, 2017. Similarly, the Financial Strength Rating (FSR) of A (Excellent) and the Long-Term ICR of “a” of the members of the AmTrust Group, and the FSR of A- (Excellent) and the Long-Term ICR of “a-” of AmTrust Title Insurance Company also are unchanged by the announcement. The outlook of these Credit Ratings (ratings) remains negative.
Under the terms of the reinsurance agreement, Premia will provide up to $1.025 billion in coverage for adverse development of reserves, attaching when losses exceed $5.96 billion of net loss reserves. This provides approximately $400 million of coverage above AFSI’s carried reserve position of $6.59 billion as of March 31, 2017. The premium that will be paid for the coverage is approximately $50 million. AFSI also will pay administrative fees of $1 million annually, which will be accrued as an expense liability at a present value of $11 million. AFSI will recognize an after-tax charge to net income of approximately $39 million in the second quarter of 2017 as a result of this transaction. A.M. Best anticipates that this will be more than offset by the gain AFSI will recognize from the sale of its common equity holdings of National General Holdings Corp. during the second quarter.
The implementation of the reinsurance agreement will increase the future stability of AFSI’s balance sheet, which A.M. Best views as credit positive. However, the agreement does not significantly strengthen A.M. Best’s view of AFSI’s risk-adjusted capital position as calculated by Best’s Capital Adequacy Ratio (BCAR), given the assumed deficiency incorporated in the BCAR. The future development of AFSI’s reserves, including reserves that may be transferred under this agreement, may drive future positive or negative rating action.
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