AmTrust Financial Group’s recent efforts to raise capital and stabilize its finances apparently aren’t enough for A.M. Best, which placed the company’s credit and financial strength ratings under review, with negative implications.

The ratings agency said its caution stems from expectations that AmTrust’s Q3 2017 financial results and capital reserves will be worse off compared to the previous year, and also below expectations. (Details will be announced on Nov. 8.)

“The negative implications … reflect A.M. Best’s expectations that reported financial results for 2017 will deteriorate from prior years’ results and from expectations, and result in associated deterioration in risk-adjusted capital at the AmTrust Holding Company,” A.M. Best wrote.

A.M. Best added that the under review status stems from “uncertainty regarding future changes in loss reserves and current year pricing and underwriting actions.”

On Nov. 6, AmTrust said it would raise $950 million by selling a 51 percent equity interest in some of its U.S.-based fee businesses to private equity firm Madison Dearborn Partners.

In July, it also 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 million, as of Marh 31, 2017. The arrangement was designed to help AmTrust insulate itself from future reserve volatility. A separate announcement on Nov. 6 disclosed that a third-quarter boost to prior year reserves of $327 million before taxes will exhaust the Premia reinsurance cover.

That’s another cause for concern from A.M. Best, despite the fee business sale and the reserve adjustment, which the ratings agency said were positive actions in and of themselves.

“Significant improvements in balance sheet strength is expected following the closure of the fee business sale,” A.M. Best wrote. “However, until the transaction is closed, these benefits will not be realized.

A.M. Best said the ratings will remain under review until the fee business sale closes and A.M. Best assesses the closing terms’ impact on risk adjusted capital, and also until the year-end 2017 financials are filed. At that point, A.M. Best wants to assess the full- year reserve information to determine appropriate capital charges connected to enterprise reserves.

Specifically, A.M. Best placed under review with negative implications the long-term issuer credit rating of “bbb” for AmTrust Financial Services. As well, a similar status has been assigned to the financial strength rating of A (Excellent} and the long-term issuer credit ratings of “a” for the members of AmTrust Group. Additionally, the financial strength rating of A- (Excellent) and the long-term issuer credit rating of “a-” is under review with negative implications for the AmTrust Title Insurance Company.

Source: A.M. Best

Topics AM Best