Agreement covers loss development of up to $400
million in excess of stated reserves as of March 31, 2017,
increasing certainty around AmTrust’s net reserve positionAgreement
consistent with commitment to strong and stable long-term financial
performanceAmTrust maintains control of claims handling and
continues focus on customer care
AmTrust Financial Services, Inc. (Nasdaq:AFSI)
(the “Company” or “AmTrust”) announced today that
it has entered into an agreement (the “agreement”), effective June
30, 2017, for a loss development cover with Premia Reinsurance
Ltd., a subsidiary of Premia Holdings Ltd. (the “Reinsurer” or
“Premia”), a Bermuda reinsurer group whose majority shareholders
are Arch Capital Group Limited (Nasdaq:ACGL) and private equity
firm Kelso & Company. The agreement provides up to $400 million
of reinsurance for adverse net loss reserve development in excess
of AmTrust’s stated net loss reserves as of March 31, 2017, of
approximately $6.59 billion, and covers AmTrust’s exposures through
April 1, 2017.
“By entering into a reinsurance agreement, we are
providing confidence to all of our stakeholders that we are well
insulated from any potential reserve volatility in the future,”
said Barry Zyskind, Chairman and Chief Executive Officer, AmTrust.
“We are committed to acting in the long-term interests of the
Company and our shareholders, supporting opportunities for growth
and success across our global operations and continuing to be a
strong, stable partner for our brokers, agents, and
policyholders.”
The agreement provides up to $1.025 billion of
coverage for adverse net loss reserve development, attaching when
losses exceed approximately $5.96 billion of net loss reserves and
extending $400 million in coverage in excess of the carried loss
reserves of approximately $6.59 billion up to approximately $6.99
billion. The consideration for this agreement is a payment of
approximately $675 million, of which $50 million represents a
premium payment for the coverage above the carried loss reserves of
approximately $6.59 billion. AmTrust will also accrue an expense
liability of approximately $11 million, the present value of a $1
million annual administration monitoring fee for 30
years.
The agreement, which will be accounted for in
AmTrust’s second quarter 2017 financial statements as a retroactive
reinsurance agreement, will result in a one-time, non-operating
pre-tax charge to net income of approximately $61 million. On an
after-tax basis, the charge will be approximately $39 million, or
$0.22 per common share, based on weighted average common shares
outstanding of approximately 181 million in the second quarter
ended June 30, 2017.
The consideration paid to Premia will be placed
into a collateral trust account as security for Premia’s claim
payment obligations to AmTrust. Ceded reserves will be
collateralized by the premium payment and all investment income
will inure to the benefit of the collateral trust account. Premia
will deposit an incremental $100 million of excess collateral at
inception and will also deposit incremental collateral in
accordance with a pre-agreed schedule.
AmTrust will retain sole authority to handle and
resolve claims, continuing its commitment to customer care, and
Premia has various access, association and consultation rights.
“This agreement supports our goal of reducing
exposure to volatility and creating more certainty and confidence
in our future financial performance,” said Adam Karkowsky,
Executive Vice President and Chief Financial Officer, AmTrust. “We
are taking a thoughtful, conservative approach to the ongoing
management of our balance sheet, consistent with that of property
and casualty insurance providers of our size, scale and
capacity.”
About AmTrust Financial Services,
Inc.
AmTrust Financial Services, Inc., a multinational
insurance holding company headquartered in New York City, offers
specialty property and casualty insurance products, including
workers' compensation, commercial automobile, general liability and
extended service and warranty coverage through its primary
insurance subsidiaries rated "A" (Excellent) by A.M. Best. AmTrust
is included in the Fortune 500 list of largest companies. For more
information about AmTrust visit www.amtrustgroup.com.
Forward-Looking Statements
This news release contains certain forward-looking
statements that are intended to be covered by the safe harbors
created by the Private Securities Litigation Reform Act of 1995.
When we use words such as “anticipate,” “intend,” “plan,”
“believe,” “estimate,” “expect,” or similar expressions, we do so
to identify forward-looking statements. Examples of forward-looking
statements include the plans and objectives of management for
future operations, including those relating to future growth of our
business activities and availability of funds, projections of the
impact of potential errors or misstatements in our financial
statements, and estimates of the impact of material weaknesses in
our internal control over financial reporting, and are based on
current expectations that involve assumptions that are difficult or
impossible to predict accurately and many of which are beyond our
control. Actual results may differ materially from those expressed
or implied in these statements as a result of significant risks and
uncertainties, including, but not limited to, non-receipt of
expected payments from insureds or reinsurers, changes in interest
rates, a downgrade in the financial strength ratings of our
insurance subsidiaries, the effect of the performance of financial
markets on our investment portfolio, the amounts, timing and prices
of any share repurchases made by us under our share repurchase
program, development of claims and the effect on loss reserves,
accuracy in projecting loss reserves, the cost and availability of
reinsurance coverage, the effects of emerging claim and coverage
issues, changes in the demand for our products, our degree of
success in integrating acquired businesses, the effect of general
economic conditions, state and federal legislation, regulations and
regulatory investigations into industry practices, the impact of
known or potential errors or misstatements in our financial
statements, our ability to timely and effectively remediate the
material weaknesses in our internal control over financial
reporting and implement effective internal control over financial
reporting and disclosure controls and procedures in the future,
risks associated with conducting business outside the United
States, the impact of Brexit, developments relating to existing
agreements, disruptions to our business relationships with Maiden
Holdings, Ltd. or National General Holdings Corp., breaches in data
security or other disruptions with our technology, heightened
competition, changes in pricing environments, and changes in asset
valuations. Additional information about these risks and
uncertainties, as well as others that may cause actual results to
differ materially from those projected, is contained in our filings
with the SEC, including our Annual Report on Form 10-K and our
quarterly reports on Form 10-Q. The projections and statements in
this news release speak only as of the date of this release and we
undertake no obligation to update or revise any forward-looking
statement, whether as a result of new information, future
developments or otherwise, except as may be required by law.
For more information, please contact:
AmTrust Financial Services, Inc.
Chaya Cooperberg
Chief Communications Officer & SVP Corporate Affairs
chaya.cooperberg@amtrustgroup.com
646.458.3332
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