8 July 2016USA analysis

AM Best affirms ratings of AmTrust Group

AM Best has affirmed the financial strength rating (FSR) of A (Excellent) of the property/casualty subsidiaries of AmTrust Financial Services (AFSI), including AmTrust Captive Solutions, which are collectively known as the AmTrust Group.

According to AM Best, the ratings actions reflect AmTrust’s supportive balance sheet strength, strong underwriting and operating performance within its niche market segments, as well as implicit and explicit support from AFSI as needed to support AmTrust’s expanding operations.

AmTrust’s business plan is focused on growth through the acquisition of companies and renewal rights offerings, as well as expanding established books of business at appropriate rates, terms and conditions. AM Best said this has enabled AmTrust to further leverage its scalable underwriting platform to drive expense savings.

AmTrust’s continued significant growth in premium volume and associated liabilities over the current five-year period has partially offset these positive rating factors, which has been primarily achieved through policy renewal rights transactions and acquisitions, along with organic growth through rate increases and new policies.

While the group has historically executed acquisitions of companies and renewal rights transactions favourably, and the group appears to be applying discipline in its underwriting and controls, considerable risk associated with the recent growth remains, AM Best said.

According to AM Best, AmTrust’s more recent acquisitions will benefit from the expense controls associated with the implementation of AmTrust’s underwriting platform, but they also will need to utilise that platform to improve underwriting selection and loss ratios. Concerns with growth in the group's workers’ compensation business are somewhat mitigated by the focus on target lower hazard niche classes and smaller accounts.

AFSI's adjusted debt-to-total capital, excluding accumulated other comprehensive income (AOCI), of 20.3 percent, and its adjusted debt-to-tangible capital, excluding AOCI, of 24.7 percent, both as of March 31, 2016, were within AM Best’s expectations.

The group’s goodwill and intangible assets of $787.6 million as of that date account for approximately 23.7 percent of generally accepted accounting principles (GAAP) equity. In addition, the company’s access to a $350 million credit facility and non-operating company dividend capacity provides additional liquidity to meet corporate obligations. AFSI maintains a strong interest coverage ratio that is well within AM Best’s guidelines.

Positive movement in the ratings could occur should the group's operating results outperform similarly rated peers over an extended time, while maintaining strong risk-adjusted capitalisation.

AM Best further suggested that negative action could be taken on the ratings should there be a change in the financial performance or a decline in risk-adjusted capitalisation, whether due to an event, emergence of adverse development of loss reserves or other factors. Negative rating action also could occur should there be a change in the financial condition of the group's ultimate parent.