A.M. Best has downgraded the financial strength rating to B (Fair) from B+ (Good) and the issuer credit rating to “bb” from “bbb-” of ARI Mutual Insurance Company based in Newtown, Pennsylvania. A.M. Best also has maintained the under review status, while revising the implications to developing from positive.
A.M. Best said the rating action reflects ARI Mutual’s weak underwriting results during the third quarter of 2015, primarily driven by an increased level of adverse loss reserve development reported on prior accident years, which has negatively impacted risk-adjusted capitalization. The significant underwriting loss during the third quarter of 2015 led to a $4.1 million loss to surplus, a 21 percent reduction, the ratings agency said.
The ratings had been under review with positive implications since March 2015, when AmTrust Financial Services Inc. entered into a definitive agreement to acquire ARI Mutual in a subscription rights-sponsored demutualization transaction. As part of the transaction, ARI Mutual will convert to a stock company from a mutual company.
The under review with developing implications status reflects A.M. Best’s expectation that if the pending acquisition by AmTrust closes as planned, positive rating actions could occur following a review by A.M. Best and meetings with management. However, the ratings agency added, in light of ARI Mutual’s materially weakened underwriting results and decreased risk-adjusted capitalization, negative rating actions could occur if the acquisition does not close as planned.
A.M. Best’s ratings of the property/casualty subsidiaries of AmTrust, which currently hold a financial strength rating of A (Excellent) and issuer credit ratings of “a”, are not affected by this rating action.
ARI Mutual also entered into a quota share reinsurance agreement with AmTrust pertaining to all prospective commercial automobile policies, which went into effect March 1, 2015. Under the quota share, ARI Mutual cedes 50 percent of its net business to AmTrust.
A.M. Best said the ratings will remain under review until the close of the transaction, which is expected in January 2016, and review by A.M. Best of the post-transaction details.