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AmTrust inks adverse loss development deal with Premia

July 07, 2017

AmTrust has entered into an adverse loss development cover with Arch-owned reinsurer Premia Re.

The agreement will see the reinsurer provide up to $1.025bn of coverage for adverse net loss reserve development, attaching when losses exceed approximately $5.96bn of AmTrust’s net loss reserves and extending $400mn in coverage above AmTrust's $6.59bn of carried loss reserves as of 31 March.

AmTrust said the deal became effective on 30 June and covers exposures through 1 April 2017.

The carrier said that it will pay $675mn to Premia in consideration of the agreement, of which $50mn is for a premium payment for the protection above the carried loss reserves of $6.59bn.

AmTrust will also experience an expense liability of around $11mn.

The firm noted that the transaction will result in a one-time $61mn pre-tax charge to second quarter net income.

The move follows a turbulent few months for the carrier, which has included a delay in its 2016 results and an announcement that it would have to restate its financials between 2014 and the first nine months of 2016 and a note from KBW analysts speculating that AmTrust may need to take a nine-digit reserve charge in order to restore investor confidence.

Commenting on the transaction, AmTrust chairman and CEO Barry Zyskind said: "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.

Meanwhile, the carrier’s CFO Adam Karkowsky added: "This agreement supports our goal of reducing exposure to volatility and creating more certainty and confidence in our future financial performance."

We are taking a thoughtful, conservative approach to the ongoing management of our balance sheet, consistent with that of property and casualty insurance providers of our size, scale and capacity."

Run-off reinsurance vehicle Premia Re was launched at the beginning of 2017 following a $510mn initial capital raise and is majority owned by Arch Capital and private equity firm Kelso & Company. It is led by former Chubb exec Bill O'Farrell.