21 December 2015 Insurance

AM Best downgrades ratings of ARI Mutual

AM Best has downgraded the financial strength rating (FSR) of ARI Mutual Insurance Company, a commercial motor carrier, to B from B+.

AM Best said 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 capitalisation. The underwriting loss during the third quarter of 2015 resulted in a $4.1 million loss to surplus, a 21 percent reduction.

The ratings had been under review with positive implications since March 2015, when AmTrust Financial Services, entered into a definitive agreement to acquire ARI in a subscription rights-sponsored demutualisation transaction. As part of the transaction, ARI will convert to a stock company from a mutual company.

The rating remains under review with developing implications, a status which AM Best said reflects its expectation that if the pending acquisition by AmTrust closes as planned, positive rating actions could occur following a review by AM Best and meetings with management. However, in light of ARI’s materially weakened underwriting results and decreased risk-adjusted capitalisation, negative rating actions could occur if the acquisition does not close as planned, said the firm.

AM Best’s ratings of the property/casualty subsidiaries of AmTrust, which currently hold an FSR 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 percent 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 AM Best of the post-transaction details.

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