Best Affirms AmTrust Financial and Subs P&C Ratings; Outlook Stable

June 2, 2014

A.M. Best has affirmed the financial strength rating (FSR) of ‘A’ (Excellent) and issuer credit ratings (ICR) of “a” of the property/casualty subsidiaries of AmTrust Financial Services, Inc. (AFSI), based in New York, NY, also known as AmTrust Group. Best also affirmed the ICR of “bbb” and the debt ratings of AFSI.

The outlook for all ratings is stable.

The rating actions reflect “AmTrust’s solid balance sheet strength, albeit weaker due to the significant growth in premiums and associated liabilities, strong underwriting and operating performance within its niche market segments as well as the implicit and explicit support from its parent, AFSI, if needed for AmTrust’s expanding operations,” the report said.

“AmTrust has been successful in executing its business plan, which is focused on growth through the acquisition of companies, renewal rights offerings and established books of business at appropriate rates, terms and conditions. This enables AmTrust to further benefit from its expandable underwriting platform to drive expense savings.

As partial offsetting factors Best cited “AmTrust’s continued significant growth in both premium volume and associated liabilities over the current five-year period, primarily achieved through rate increases, and acquisitions that are either renewal rights transactions or outright purchases of companies.”

Best explained that these acquisitions “have the inherent risk associated with expansion into new markets and integrating new business, such as the Tower cut-through transaction announced in the first quarter of 2014. Although the organization has historically executed these types of transactions in the past, and the group appears to be applying discipline in its underwriting and controls, there remains a considerable risk associated with the amount of growth over the past five years.

“AFSI’s adjusted debt-to-total capital, excluding accumulated other comprehensive income (AOCI) of 23.2 percent and adjusted debt-to-tangible capital (excluding AOCI) of 33.6 percent as of March 31, 2014, (40 percent of the group’s equity consists of goodwill and intangible assets) was within Best’s expectations at its current rating level, combined with the company’s access to a $200 million credit facility and non-operating company dividend capacity provide ample liquidity to meet any corporate obligations. AFSI maintains a strong interest coverage ratio that is well within A.M. Best’s guidelines for its ratings.

“Key rating factors that may lead to positive rating actions include the organization outperforming its peers for an extended period while maintaining a sound balance sheet and solid risk-adjusted capitalization.

“However, negative rating actions could occur if the group’s operating performance falls markedly short of A.M. Best’s expectations, there is deterioration in its loss reserve position or risk-adjusted capitalization significantly declines.

The FSR of ‘A’ (Excellent) and ICRs of “a” have been affirmed for the following property/casualty subsidiaries of AmTrust Financial Services, Inc. as follows:

– AmTrust International Insurance, Ltd.

– Technology Insurance Company, Inc.

– Rochdale Insurance Company

– Wesco Insurance Company

– Milwaukee Casualty Insurance Company

– Security National Insurance Company

– AmTrust Insurance Company of Kansas

– AmTrust Lloyd’s Insurance Company of Texas

– AmTrust International Underwriters Limited

– AmTrust Europe Limited

– Associated Industries Insurance Company, Inc.

– AmTrust Insurance Luxembourg S.A.

– Sequoia Insurance Company

– Sequoia Indemnity Company

– Indemnity Company of California

– Developers Surety and Indemnity Company

– First Nonprofit Insurance Company

The following debt ratings have been affirmed:

AmTrust Financial Services, Inc.—

– “bbb” on $250 million 6.125 percent senior unsecured notes, due 2023

– “bb+” on $115 million 6.75 percent preferred stock

The following indicative ratings on securities available under the shelf registration have been affirmed:

AmTrust Financial Services, Inc.—

– “bbb” on senior unsecured debt

– “bbb-” on subordinated debt

– “bb+” on preferred stock

Source: A.M. Best

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