AmTrust Financial Services, Inc. said it has fully utilised the $400 million loss development reinsurance coverage that it entered into with Premia Holdings Ltd. subsidiary, Premia Reinsurance Ltd. in July.
The agreement provided AmTrust with adverse net loss reserve development reinsurance protection of up to $400 million, in excess of stated net loss reserves of roughly $6.59 billion and has clearly been necessary as the company continues to resolve issues with its prior year book.
AmTrust said it has suffered prior year adverse loss and allocated loss adjustment expenses reserve development of $326.9 million, pre-tax basis for Q3 of 2017.
All of this prior year development was ceded to Premia under the adverse development reinsurance cover, resulting in a deferred reinsurance gain of $337 million on AmTrust’s balance sheet.
“With this reserving action and the transactions we have announced earlier this year and today, we have transformed the Company’s balance sheet and established the strongest capital profile in AmTrust’s history,” commented Barry Zyskind, Chairman and Chief Executive Officer, AmTrust. “With our large capital base and disciplined underwriting approach, we are well positioned to continue to be a leading provider of small commercial business insurance and warranty coverage globally. Our two core operating segments of Small Commercial Business and Specialty Risk and Extended Warranty, representing approximately 80% of our gross written premium, continue to perform strongly.”
Adam Karkowsky, EVP and Chief Financial Officer, added, “We continue to execute on our plan of strengthening our balance sheet and responding to our rigorous and diligent actuarial process. With this reserve charge, we have utilized the full benefit of the ADC and believe that we have increased certainty around reserves associated with accident years 2016 and prior. In Q3 2017, IBNR represented 56% of our total net reserves, compared to 55% in Q2 2017 and 52% in Q3 2016. We believe we have established a reserve base that mitigates uncertainty on previous accident years and we are exercising more caution on the 2017 accident year to insulate the Company from future reserve volatility.”
Karkowsky also said, “We expect to maintain underwriting profitability through disciplined pricing and conservative reserving that acknowledges recent loss trends that led to the prior year development, including the previously communicated discontinuation of a number of programs in our Specialty Program segment, which contributed to a significant portion over the overall reserve development. Even after recognizing the prior year development, primarily in accident years 2013 through 2016, our overall underwriting business was profitable. Accident year loss ratios in our core Small Commercial Business segment continue to outperform industry averages. We remain focused on driving operational excellence, maintaining disciplined underwriting, and achieving our financial goals, including a targeted 12-15% operating return on equity.”
Recent prior year development is largely related to AmTrust’s Specialty Program business, including commercial auto and general liability where performance has been below expectations and business is already in runoff, as well as some Small Commercial Business and the Specialty Risk and Extended Warranty book.
