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FOR IMMEDIATE RELEASE
OLDWICK, N.J. - NOVEMBER 14, 2012 12:00 AM (EST)
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 Gateways ongoing business into American Service Pools existing infrastructure, while overseeing the run off of Gateways 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 Gateways current owner fully reinsuring all of Gateways 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. Bests analysis of its impact on the groups ratings. The transaction is expected to close in the first quarter of 2013, pending regulatory approval.
The methodology used in determining these ratings is Bests Credit Rating Methodology, which provides a comprehensive explanation of A.M. Bests rating process and contains the different rating criteria employed in the rating process. Key criteria utilized include: Risk Management and the Rating Process for Insurance Companies; Insurance Holding Company and Debt Ratings; Equity Credit for Hybrid Securities; Understanding BCAR for Property/Casualty Insurers; and Rating Members of Insurance Groups.Bests Credit Rating Methodology can be found at www.ambest.com/ratings/methodology.
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