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Amtrust Financial Services Inc. has purchased $400 million in adverse development coverage from a Bermuda-based runoff reinsurer affiliated with Arch Capital Group Ltd., Amtrust announced Thursday.
The struggling New York-based insurer will pay a $50 million premium to Premia Reinsurance Ltd., a runoff reinsurer established earlier this year whose majority shareholders are Arch and private equity firm Kelso & Co. In addition, it will transfer $625 million in loss reserves to Premia, which will provide Amtrust with up to $1.025 billion in adverse development coverage when losses exceed $5.96 billion of net loss reserves, an Amtrust statement said. Amtrust will also pay an annual $1 million administrative fee to Premia for 30 years.
Amtrust will recognize an after-tax charge of about $39 million in the second quarter as a result of the retroactive reinsurance transaction, the statement said. The agreement covers Amtrust 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,” Barry Zyskind, chairman and CEO of Amtrust, said in a statement.
Amtrust, which writes small commercial business but also has a specialty division, has had well-publicized issues with its financial reporting. The insurer delayed filing its 10K with the U.S. Securities and Exchange Commission earlier this year.
In May, family members of the company’s founders injected $300 million into the insurer, and last month Amtrust announced it was selling shares in personal lines insurer National General Holdings Corp. for about $210 million.
The insurer, which was a significant player in the public-entity market in California, has largely pulled out of that market or been dropped by policyholders, according to multiple sources.
In a statement commenting on the retroactive reinsurance coverage, Oldwick, New Jersey-based rating agency A.M. Best Co. Inc. said the agreement does not change its negative outlook for Amtrust’s A financial strength rating.
A surge in liability claims against public entities is driving up insurance prices for some cities, counties and schools in California during mid-year renewals.