Majestic Capital Terminates Merger Agreement with Bayside Capital

March 21, 2011

Bermuda-based Majestic Capital Ltd. announced that Bayside Capital Partners LLC has terminated the previously announced merger agreement with Majestic Capital. In its termination notice, Bayside cited a material deterioration in Majestic Capital’s capital surplus, an inability to secure regulatory approval for the merger, and a failure to satisfy the closing condition with respect to termination of Majestic Capital’s lease for office space in Poughkeepsie, N.Y., on terms acceptable to Bayside.

As a result of Bayside’s termination of the merger agreement, Majestic Capital’s previously scheduled Special General Meeting of Shareholders to vote on the merger agreement scheduled for March 28, 2011 has been cancelled.

The failure to complete the merger with Bayside is expected to result in a downgrade of Majestic Insurance’s “B++” financial strength rating and a conservation proceeding by the California Department of Insurance, the company noted. As a result, Majestic Capital and its subsidiaries expect to seek protection under applicable United States and Bermuda bankruptcy and other similar laws for the protection of creditors.

Majestic Insurance Co., Majestic Capital’s wholly-owned insurance subsidiary, has entered into a non-binding letter of intent with AmTrust Financial Services Inc. by which Majestic Insurance would sell AmTrust its renewal rights and AmTrust would assume Majestic Insurance’s loss reserves and in-force insurance business through a loss portfolio transfer and 100 percent quota share reinsurance agreement. The transactions contemplated by the letter of intent are subject to negotiation and execution of definitive agreements and approval by the CDI. Majestic Insurance has granted AmTrust an exclusivity period until the earlier of June 20, 2011, and the commencement of a conservation proceeding. The proposed transactions by Majestic Insurance with AmTrust are not expected to yield any amounts that would be available for distribution to shareholders of Majestic Capital.

Pending the closing of the transactions, Majestic Insurance will arrange for workers’ compensation insurance policies to be underwritten by the AmTrust group companies and reinsured by Majestic Insurance under the previously announced 90 percent quota share reinsurance agreement.

Majestic Capital, through its subsidiaries, is a specialty provider of workers’ compensation insurance products and services that are placed through approximately 475 independent agents and brokers. Majestic is licensed to write workers’ compensation insurance in 16 states, although in 2009 it wrote coverage in 10 states.

Majestic wrote the majority of its business (76 percent) in California, 20 percent of its business in New York and New Jersey, and 4 percent in other states, based on the first nine months of 2010, the most recent period for which figures are available, according to Mark Collinson, company spokesman.

The company’s annual report notes that Majestic in 2009 took in $105 million in total direct written premiums in California (68 percent); New York $23.2 million (15 percent); New Jersey $18.3 million (12 percent); Arizona $4.4 million (3 percent); Florida $1.2 million (1 percent); Nevada $1.1 million (1 percent); Washington -$109,000 (0 percent); Alaska $93,000 (0 percent); and other states $62,000 (0 percent).

AmTrust Financial Services, headquartered in New York, is a multinational insurance holding company, which, through its insurance carriers, offers specialty property and casualty insurance products, including workers’ compensation, commercial automobile and general liability; extended service and warranty coverage.

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