AM Best has placed ACP Re’s A- (Excellent) rating under review with negative implications following its decision to acquire troubled Bermuda-based insurer, Tower Group.
The rating agency says that the review with negative implications reflects execution risk on the transaction, which entails significant change to ACP Re’s business plan and uncertainty regarding the adequacy of loss reserves at Tower.
Tower got in hot water with the Securities and Exchange Commission in 2013 due to holes in its 2009 to 2011 accident year business that eventually led to its sale.
AM Best commended ACP Re management’s track record of successful M&A however, adding that the reinsurer had the “financial wherewithal to maintain risk-adjusted capitalisation at strong levels.”
ACP Re has entered into a further agreement with Am Trust to reinsure a portion of Tower’s commercial lines business on a cut-through basis. Am Trust has agreed to reinsure not less than 60 percent of Tower’s existing business.
Upon completion of the transaction, Tower’s renewal rights and assets will then be divided between Am Trust and National General Holdings. Commercial lines renewal rights and assets, including several of Tower’s domestic insurance subsidiaries, will be acquired by Am Trust. While Tower’s personal lines renewal rights, assets and several insurance subsidiaries will go to National General Holdings.
ACP Re will retain all liabilities at the time of the sale through a collateralised reinsurance arrangement.
Am Trust’s rating has also been reviewed by AM Best, but has remained stable at A (Excellent). The rating agency cited Am Trust’s success in executing similar renewal rights transactions and experienced management team as giving cause for confidence in the transaction. AM Best predicts the transaction will positively impact Am Trust’s earnings.
ACP Re, Tower Group, M&A, Am Trust, Bermuda