A.M. Best Downgrades Ratings of ARI Mutual Insurance Company; Revises Under Review Status

OLDWICK, N.J.--(BUSINESS WIRE)-- A.M. Best has downgraded the financial strength rating (FSR) to B (Fair) from B+ (Good) and the issuer credit rating (ICR) to “bb” from “bbb-” of ARI Mutual Insurance Company (ARI) (Newtown, PA). A.M. Best also has maintained the under review status, while revising the implications to developing from positive.

The rating action reflects ARI’s weak underwriting results during the third quarter of 2015, primarily driven by an increased level of adverse loss reserve development reported on prior accident years, which has negatively impacted risk-adjusted capitalization. The significant underwriting loss during the third quarter of 2015 led to a $4.1 million loss to surplus, a 21% reduction.

The ratings had been under review with positive implications since March 2015, when AmTrust Financial Services, Inc. (AmTrust) entered into a definitive agreement to acquire ARI in a subscription rights-sponsored demutualization transaction. As part of the transaction, ARI will convert to a stock company from a mutual company. The under review with developing implications status reflects A.M. Best’s expectation that if the pending acquisition by AmTrust closes as planned, positive rating actions could occur following a review by A.M. Best and meetings with management. However, in light of ARI’s materially weakened underwriting results and decreased risk-adjusted capitalization, negative rating actions could occur if the acquisition does not close as planned.

A.M. Best’s ratings of the property/casualty subsidiaries of AmTrust, which currently hold an FSR of A (Excellent) and ICRs of “a”, are not affected by this rating action.

ARI also entered into a quota share reinsurance agreement with AmTrust pertaining to all prospective commercial automobile policies, which went into effect March 1, 2015. Under the quota share, ARI cedes 50% of its net business to AmTrust.

The ratings will remain under review until the close of the transaction, which is expected in January 2016, and review by A.M. Best of the post-transaction details.

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 visit A.M. Best’s Ratings & Criteria Center.

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

Copyright © 2015 by A.M. Best Company, Inc. ALL RIGHTS RESERVED.

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A.M. Best Company, Inc.

Robert Valenta, 908-439-2200, ext. 5291

Senior Financial Analyst

robert.valenta@ambest.com

or

Gerard Altonji, 908-439-2200, ext. 5626

Assistant Vice President

gerard.altonji@ambest.com

or

Christopher Sharkey, 908-439-2200, ext. 5159

Manager, Public Relations

christopher.sharkey@ambest.com

or

Jim Peavy, 908-439-2200, ext. 5644

Assistant Vice President, Public Relations

james.peavy@ambest.com

Source: A.M. Best Company, Inc.