AmTrust Financial Services is pocketing $200 million by selling to National General Holdings Corp. a personal lines policy management system it developed for the insurer.
National General will pay for the system through three equal installments, with the first payment coming once the sale agreement closes. The next two payments come six months and then 18 months after the deal closes, the companies said.
The deal allows for National General to acquire the right, title and interests in the policy management system.
Why the sale? It formalizes a relationship that has been in play between the two companies for a while. Since 2010, AmTrust has provided National General and its affiliates information technology development services relating to the development and licensing of the policy management system.
Based on the initial deal, National General could acquire the license royalty-free in 2023.
AmTrust Chairman and CEO Barry Zyskind said that the sale helps AmTrust monetize its technology know-how.
“With this sale … we are unlocking value that we created through our technological expertise,” Zyskind said in prepared remarks. “The proceeds will further strengthen our balance sheet and the transaction demonstrates our commitment to simplifying our organization and financial disclosure.”
According to AmTrust, development, support and licensing fees from National General related to the policy management system generated it about $26 million in pre-tax income in 2016 ($17.1 million after-tax).
Earlier in September, AmTrust signed a new quota share reinsurance contract designed to reduce hurricane and tropical storm exposure for its Republic Companies business.
In July, it inked a reinsurance agreement with Premia Reinsurance Ltd. addressing loss reserve development up to $400 million over the company’s stated reserves of $6.59 billion as of March 31, 2017. The arrangement is designed to help AmTrust insulate itself from future reserve volatility.
AmTrust’s Q2 2017 financial results were challenging. The company reported $5.8 million in net income for the quarter, versus $127.2 million over the same period the previous year. Premium volume grew but AmTrust’s combined ratio reached 101.2 for the quarter, up from 91.3 in Q2 2016. Zyskind at the time noted “transformative steps” the company took to make improvements and boost confidence in AmTrust’s long-term financial strength.