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) (New York, NY)(NASDAQ:AFSI) also known as AmTrust Group (AmTrust). Concurrently, A.M. Best has affirmed the ICR of “bbb” and the debt ratings of AFSI. The outlook for all ratings is stable. (See below for a detailed list of the companies and ratings.)
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. 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.
Partially offsetting these positive rating factors are 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. 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% and adjusted debt-to-tangible capital (excluding AOCI) of 33.6% as of March 31, 2014, (40% of the group’s equity consists of goodwill and intangible assets) was within A.M. 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.
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