Oldwick, NJ -(BusinessWire)- A.M. Best Co. has placed under review with negative implications the financial strength rating of B (Fair) and issuer credit ratings (ICR) of “bb” of American Service Insurance Company Inc. and American Country Insurance Company (both domiciled in Elk Grove Village, IL), subsidiaries of Atlas Financial Holdings, Inc. (Atlas) (Cayman Islands) [TSXV: AFH]. These companies operate under an intercompany reinsurance pooling agreement and are collectively referred to as American Service Pool. A.M. Best also has placed under review with negative implications the ICR of “b-” and the debt rating of “ccc” on $18 million 4.5% preferred shares of Atlas.
The rating actions follow disclosure of a definitive agreement under which Atlas will acquire all of the issued and outstanding shares of Camelot Services, Inc. (Missouri) and its wholly owned subsidiary, Gateway Insurance Company (Gateway) (St. Louis, MO). The negative implications reflect the inherent risk associated with integrating Gateway’s ongoing business into American Service Pool’s existing infrastructure, while overseeing the run off of Gateway’s non-core lines, and the increase in financial leverage at Atlas as a result of funding the transaction, in part, with the issuance of preferred stock. These risks are somewhat mitigated by Atlas’ recent experience running off similar books of business as well as Gateway’s current owner fully reinsuring all of Gateway’s workers’ compensation related risk and providing additional adverse development protection as set out in the definitive purchase agreement.
The ratings will remain under review until the close of the transaction and the completion of A.M. Best’s analysis of its impact on the group’s ratings. The transaction is expected to close in the first quarter of 2013, pending regulatory approval.