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AmTrust's Ratings Downgraded by A.M. Best, Outlook Stable

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Credit rating giant A.M. Best has downgraded all of AmTrust Financial Services, Inc.’s (AFSI - Free Report) Long-Term Issue Credit Ratings (Long-Term IRs) and Indicative Long-Term IRs. This apart, the rating agency downgraded the Long-Term Issuer Credit Rating (Long-Term ICR) of AmTrust from “bbb” to “bbb-” while removing the same from review with negative implications.

Concurrently, the rating agency has downgraded the Financial Strength Rating to A- (Excellent) from A (Excellent) along with the Long-Term ICR from “a” to “a-” for the units of AmTrust Group. Moreover, the rating agency removed the ratings from under review status with negative implications.

Nonetheless, A.M. Best has affirmed the FSR of A- (Excellent) and the Long-Term ICR of “a-” of AmTrust Title Insurance Company while removing the assigned rating from under review status with negative implications. The outlook for all the aforementioned ratings remained stable.

AmTrust’s balance sheet, acknowledged as extremely strong by the rating agency, along with sustained operational performance, marginal enterprise risk management (ERM) and a neutral business profile are represented by the aforementioned ratings.

Also, an adequate level of risk-adjusted capitalization, measured by Best’s Capital Adequacy Ratio (BCAR), and financial leverage plus coverage metrics, which remain within the guidelines for the current rating level, are also reflected by the ratings.

The ratings of AmTrust Title Insurance Company signify a solid balance sheet, marginal operational performance, restricted business profile and marginal ERM.

AmTrust witnessed improvement in its risk-adjusted capitalization, measured by BCAR during the first quarter of 2018. This was attributable to a major interest sale from a portion of the property and casualty (P&C) insurer’s U.S.-based service and fee business.

Moreover, the balance sheet evaluation denotes the P&C insurer’s comparatively modest exposure to natural catastrophe and terrorism events, reflected in favorable performance on stress tests of its risk-adjusted capitalization.  

However, adverse development of previous years’ loss reserves suffered in 2016 and 2017 can offset the above-mentioned positive rating factors.

Completion of the rating agency’s review along with the issuance of an “A-” (Excellent) rating and a stable outlook, will allow the P&C insurer to move ahead with the much-needed confidence and assurance in its ability to lend support to its business on a global scale as well as capitalize on the opportunities for the future.

Rating affirmations or upgrades from credit rating agencies play an important role in retaining investor confidence as well as maintaining credit worthiness of a stock. Whereas rating downgrades not only hamper business but also increase the cost of future debt issuances.

Zacks Rank and Share Price Movement

Currently, AmTrust has a Zacks Rank #3 (Hold). Shares of AmTrust have surged 44.8% year to date against the industry’s decrease of 5.2%. We expect the company’s premium growth, high policy retention levels, disciplined sales execution as well as robust capital position to drive the stock higher in the near term.

Stocks to Consider

Some better-ranked stocks from the insurance industry are Argo Group International Holdings, Ltd. (ARGO - Free Report) , The Navigators Group, Inc. (NAVG - Free Report) and The Progressive Corporation (PGR - Free Report) , each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Argo Group underwrites specialty insurance and reinsurance products in the property and casualty markets. The company delivered positive surprises in three of the last four quarters with an average beat of 11.87%.

Navigators Group underwrites marine, property and casualty plus professional liability insurance products and services in the United States and internationally. The company came up with positive earnings surprises in three of the last four quarters with an average beat of 14.66%.  

Progressive Corporation provides personal and commercial auto insurance, residential property insurance and other specialty property-casualty insurance as well as related services, primarily in the United States. The company pulled off positive surprises in three of the last four quarters with an average beat of 6.23%.

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