A.M. Best has commented that the Long-Term Issuer Credit Rating (Long-Term ICR) of “bbb” of AmTrust Financial Services, Inc. (AFSI) [NASDAQ: AFSI] (headquartered in New York, NY) and all associated Long-Term Issue Credit Ratings and indicative Long-Term Issue Credit Ratings, as well as the Long-Term ICRs and Financial Strength Ratings of its operating subsidiaries are unchanged by recent announcements regarding the closing of the sale of a 51% interest in a portion of AFSI’s U.S.-based fee businesses; the sale of the company to Evergreen Parent, L.P., an investor group comprised of various equity funds managed by Stone Point Capital, LLC and members of the Karfunkel and Zyskind families; and the filing of a Form 12b-25 related to its Form 10-K for the year ended Dec. 31, 2017. These Credit Ratings (ratings) remain under review with negative implications.

As a result of the sale of the interest in the U.S.-based fee business, AFSI will receive an infusion of cash and achieve a material reduction in the goodwill and intangible assets that represented a significant portion of assets as of the company’s most recent financial filings. These factors will strengthen the company’s balance sheet and provide tangible resources to support the insurance operations. Through its continuing ownership of a 49% 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. A.M. Best is working with management to assess the impact of the closing on risk-adjusted capitalization.

Under the terms of a definitive agreement announced on March 1, 2018, Evergreen Parent, L.P., which has been formed by private equity funds managed by Stone Point Capital LLC (Stone Point) along with Barry D. Zyskind, Chairman and CEO of AmTrust, George Karfunkel and Leah Karfunkel (collectively, the Karfunkel-Zyskind Family), will acquire the approximately 45% of AFSI’s issued and outstanding common shares not currently owned or controlled by the Karfunkel-Zyskind Family and certain affiliated and related parties. The transaction values the fully diluted equity at $2.7 billion, exclusive of AFSI’s outstanding preferred stock, which is expected to remain outstanding with continued listing on the New York Stock Exchange. The deal is expected to close during the second half of 2018, subject to the approval of a majority of AFSI’s shares not owned or controlled by the Karfunkel-Zyskind Family, their children, senior management or their respective affiliates and certain related parties, as well as receipt of all necessary regulatory approvals.

A.M. Best does not view the transfer of AFSI 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. As it is expected that the company will continue to prepare and submit financial statements to support the public listing of its preferred shares, the company will have continued costs associated with being a public filer. A.M. Best 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.

Recognizing that the Securities and Exchange Commission allows for an automatic 15-day extension of its March 1, 2018, filing deadline upon request, A.M. Best does not view the filing of a form 12b-25 by AFSI as cause for rating action. However, this is the second consecutive use of the extension by the company for an annual filing and reflects the strain on resources to support the completion of the various major transactions in which the company has been involved. Should the March 16 deadline be missed, there is heightened potential for negative rating action.

The ratings of AFSI and its operating insurance companies were placed under review with negative implications on Nov. 6, 2017. At the time, A.M. Best 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; and
  • AFSI files its year-end 2017 financials, and A.M. Best assesses the full-year reserve information to determine appropriate capital charges associated with enterprise reserves.

As noted above, while the fee business sale has closed, A.M. Best’s review of the impact of the transaction is continuing. In addition, A.M. Best awaits the year-end 2017 financials. A.M. Best will continue to monitor developments and take rating action as conditions warrant.

This press release relates to Credit Ratings that have been published on A.M. Best’s website. For all rating information relating to the release and pertinent disclosures, including details of the office responsible for issuing each of the individual ratings referenced in this release, please see A.M. Best’s Recent Rating Activity web page. For additional information regarding the use and limitations of Credit Rating opinions, please view Understanding Best’s Credit Ratings. For information on the proper media use of Best’s Credit Ratings and A.M. Best press releases, please view Guide for Media - Proper Use of Best’s Credit Ratings and A.M. Best Rating Action Press Releases.

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

Copyright © 2018 by A.M. Best Rating Services, Inc. and/or its affiliates. ALL RIGHTS RESERVED.

A.M. BestJennifer Marshall, CPCU, ARM, +1 908-439-2200, ext. 5327Directorjennifer.marshall@ambest.comorMichael J. Lagomarsino, CFA, FRM, +1 908-439-2200, ext. 5810Senior Directormichael.lagomarsino@ambest.comorChristopher Sharkey, +1 908-439-2200, ext. 5159Manager, Public Relationschristopher.sharkey@ambest.comorJim Peavy, +1 908-439-2200, ext. 5644Director, Public Relationsjames.peavy@ambest.com

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