What A.M. Best Thinks of AmTrust’s Plan to Go Private, Sell Some Fee-Based Business

A.M. Best, which placed the ratings of AmTrust Financial Services under review with negative implications last November, says it is still reviewing the impact of the company’s plans to sell some of its fee business and take the insurer private but that it is not making any changes to the company’s ratings at this time. They remain under review with negative implications.

The ratings agency did warn, however, that if AmTrust misses a March 16 financial reporting deadline, that could result in negative ratings action.

On Nov. 6, 2017, A.M. Best placed under review with negative implications the Long-Term Issuer Credit Rating of “bbb” and the Long-Term Issue Credit Ratings of AmTrust and the Financial Strength Rating (FSR) of A (Excellent) and the Long-Term ICRs of other members of the AmTrust Group. It did so after the company’s announcement that it would be selling 51 percent of a portion of its fee-based businesses.

Last week, AmTrust announced the closing of that transaction of its fee business. The insurer also unveiled details of a $2.7 billion plan to take the insurer private. Under the plan, a new entity, Evergreen Parent, managed by Stone Point Capital along with Barry D. Zyskind, chairman and CEO of AmTrust, and shareholders George Karfunkel and Leah Karfunkel, will acquire the approximately 45 percent of shares the families of Karfunkel-Zyskind do not already own.

According to A.M Best, as a result of the sale of the 51 percent interest in the U.S.-based fee business, AmTrust will receive an infusion of cash that will strengthen the company’s balance sheet and provide tangible resources to support the insurance operations. Through its continuing ownership of a 49 percent interest in the newly created company, The Amynta Group, AFSI continues to have exposure to a significant private asset with modest liquidity characteristics. However, the “sale does provide a basis for valuation of that asset and AFSI will have the opportunity to benefit from future profitable operations of the new company,” the ratings agency added. A.M. Best said it is working with management to assess the impact of the closing.

A.M. Best also said it does not view the transfer to private from public ownership as material to the ratings in and of itself. “While the financial flexibility afforded by access to public capital markets is viewed positively within the ratings process, the company’s ability to leverage that benefit has been strained by recent events,” the ratings agency noted. While the company will still have filing costs associated with being a public filer, A.M. Best said it views the opportunity for AFSI’s management to “focus on long-term actions to strengthen capital, improve underwriting and pricing tools and discipline, refocus operations and develop and implement necessary infrastructure improvements under a private structure as a positive for the organization over the near to medium term.”

Noting that AmTrust has filed for an extension on its annual filing for the second straight year, A.M. Best said this “reflects the strain on resources to support the completion of the various major transactions in which the company has been involved.” The ratings agency said it would wait until the automatic 15-day extension is up on March 16 to again review. “Should the March 16 deadline be missed, there is heightened potential for negative rating action,” A.M. Best said.

When A.M. Best placed the ratings under review with negative implications on Nov. 6, 2017, its analysts indicated that the ratings would remain under review until the close of the sale of the fee businesses and A.M. Best’s assessment of the impact of the final closing terms on risk-adjusted capital is completed. Also, it said the status would remain until AmTrust filed its year-end 2017 financials, allowing A.M. Best to assess the full-year reserve information.

While the fee business sale has closed, A.M. Best said its review of the impact of the transaction is continuing. In addition, A.M. Best said it awaits the year-end 2017 financials and will continue to monitor developments and take rating action as conditions warrant.