A.M. Best Affirms Ratings Of AmTrust Financial Services, Inc. And Its Subsidiaries

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.

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.:
  • 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% senior unsecured notes, due 2023-- “bb+” on $115 million 6.75% 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

The methodology used in determining these ratings is Best’s Credit Rating Methodology, which provides a comprehensive explanation of A.M. Best’s rating process and contains the different rating criteria employed in the rating process. Best’s Credit Rating Methodology can be found at www.ambest.com/ratings/methodology.

A.M. Best Company is the world’s oldest and most authoritative insurance rating and information source. For more information, visit www.ambest.com.

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