A.M. Best Affirms Ratings of AmTrust Financial Services, Inc. and Its Subsidiaries

A.M. Best has affirmed the financial strength rating of A (Excellent) and the issuer credit ratings (ICR) of “a” of the property/casualty subsidiaries of AmTrust Financial Services, Inc. (AFSI) [NASDAQ:AFSI], known collectively as the AmTrust Group (AmTrust). Concurrently, A.M. Best has affirmed the ICR of “bbb” and all issue ratings and indicative issue ratings of AFSI. The outlook for each rating is stable. All companies are headquartered in New York, NY, unless otherwise specified. (See below for a detailed listing of the companies and ratings).

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 has been successful in executing its business plan, which 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. This enables AmTrust to further leverage its scalable underwriting platform to drive expense savings.

Partially offsetting these positive rating factors are AmTrust’s continued significant growth in premium volume and associated liabilities over the current five-year period, primarily achieved through policy renewal rights transactions and acquisitions, along with organic growth through rate increases and new policies. The acquisitions have the inherent risk associated with expansion into new markets and integrating new business.

While the group has historically executed acquisitions of companies and renewal rights transactions favorably, and the group appears to be applying discipline in its underwriting and controls, considerable risk associated with the recent growth remains. 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 utilize 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%, and its adjusted debt-to-tangible capital, excluding AOCI, of 24.7%, both as of March 31, 2016, were within A.M. Best’s expectations. The group’s goodwill and intangible assets of $787.6 million as of that date account for approximately 23.7% of 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 A.M. 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 capitalization.

Negative action could be taken on the ratings should there be a change in the financial performance or a decline in risk-adjusted capitalization, 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.

The rating action was, in part, driven by regulatory requirements pursuant to a Look Back Review because a former Rating Analyst participated in previous Rating Actions on Credit Ratings related to their current employer. The credit rating actions referenced is the FSR of A (Excellent) and the ICR of “a” with a stable outlook of the members of the AmTrust Group, published on May 30, 2014, and on May 29, 2015. The result of the Look Back Review was that the ratings were not influenced by a conflict of interest.

The FSR of A (Excellent) and the ICRs of “a” have been affirmed for the following property/casualty subsidiaries of AmTrust Financial Services, Inc.:

• AmTrust Captive Solutions Limited
• AmTrust Europe Limited
• AmTrust Insurance Company of Kansas
• AmTrust Insurance Luxembourg S.A.
• AmTrust International Insurance Ltd
• AmTrust International Underwriters Limited
• ARI Insurance Company
• Associated Industries Insurance Company, Inc.
• Comp Options Insurance Company, Inc.
• CorePointe Insurance Company
• Developers Surety and Indemnity Company
• First Nonprofit Insurance Company
• Heritage Indemnity Company
• Indemnity Company of California
• Milwaukee Casualty Insurance Company
• Republic Fire and Casualty Insurance Company
• Republic Lloyds
• Republic Underwriters Insurance Company
• Republic-Vanguard Insurance Company
• Rochdale Insurance Company
• Security National Insurance Company
• Sequoia Indemnity Company
• Sequoia Insurance Company
• Southern County Mutual Insurance Company
• Southern Insurance Company
• Southern Underwriters Insurance Company
• Springfield Insurance Company
• Technology Insurance Company, Inc.
• Wesco Insurance Company

The following issue ratings have been affirmed:

AmTrust Financial Services, Inc.—

-- “bbb” on $250 million, 6.125% senior unsecured notes, due 2023
-- “bbb” on $69 million 5.5% convertible senior unsecured notes, due 2021
-- “bbb” on $158 million 2.75% convertible senior unsecured notes, due 2044
-- “bbb” on $76 million 2.75% convertible senior unsecured notes, due 2044
-- “bbb-” on $150 million 7.25% subordinated notes, due 2055
-- “bbb-” on $125 million 7.5% subordinated notes, due 2055
-- “bb+” on $120 million 6.75% preferred stock
-- “bb+” on $100 million 7.25% preferred stock
-- “bb+” on $182.5 million 7.5% preferred stock
-- “bb+” on $80 million 7.625% preferred stock
-- “bb+” on $125 million 7.75% preferred stock

The following indicative issue 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

This press release relates to rating(s) 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.

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

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