AmTrust Financial Services’s disclosure of a filing delay for its annual report due to an internal audit drew a quick, negative reaction from A.M. Best.

The ratings agency revised its outlook to negative from stable for AmTrust and its subsidiaries. At the same time, it affirmed the credit ratings of both.

At issue: AmTrust’s disclosure of a delay in the filing of its annual report, due to a delay in completing its consolidated financial audit and assessment of internal controls, though A.M. Best noted this is still considered timely by the Securities and Exchange Commission.

As well, A.M. Best noted that AmTrust “has identified material weaknesses related to its internal controls over the assessment of risks associated with financial reporting and corporate accounting and corporate financial reporting resources within the company.”

A.M. Best pointed out that the specific items AmTrust cited may not lead to “any material issues with respect to the financial reports themselves,” but “they highlight the strain the organization’s substantial growth in recent years has placed in resources.”

A.M. Best said it expects actions designed to address AmTrust’s auditor’s concerns to be enough “in the near term” but warns that there could be ratings downgrades “should there be material changes in AmTrust’s fourth-quarter financial results compared with the financial data released Feb. 27, 2017, or upon the disclosure of further material weaknesses prior to the resolution of those disclosed in the 2016 Form 10-K.”

AmTrust reported Q4 2016 net written premium of $1.91 billion and net earned premium of $1.22 billion, up 19 percent and 15 percent, respectively, from the same period in 2015. It said that Q4 net income came to $98.7 million, or $0.57 per diluted share, versus $59.7 million, or $0.35 per diluted share in the 2015 fourth quarter.

The Q4 combined ratio reached 95.5, AmTrust said, up from 91.9 over the same period a year ago.

The ratings agency affirmed, in part, the long-term issuer credit rating of “bbb” and the long-term credit ratings of AmTrust Financial Services. Also, A.M. Best affirmed the financial strength ratings of “A (Excellent)” and the long-term issuer credit ratings of “a” for members of the AmTrust Group.

AmTrust officially filed its notification of late filing on March 1, which allows for a 15-day extension, from March 1, 2017 through March 16, 2017.

The company explained that it needed more time to “complete its consolidated financial statements and assessment of internal controls over financial reporting” for the 2016 fiscal year, as well as an independent audit.

AmTrust said in its filing that it needed to “make immaterial corrections to errors” in financial statements for the 2015 and 2014 fiscal years and for “certain financial information” in its 2013 and 2012 fiscal years that will be included in its 2016 annual report.” These processes, it said, “have not been completed.”

Why was all this necessary? AmTrust said it “identified material weaknesses in its internal control over financial reporting” as of Dec. 31, 2016, specifically related to “ineffective assessment of the risks associated with the financial reporting and an insufficient complement of corporate accounting and corporate financial reporting resources within the organization.”

Sources: A.M. Best, AmTrust FORM 12b-24 Notification of Late Filing

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