[November 14, 2012]

A.M. Best Places Ratings of Atlas Financial Holdings, Inc. and Its Subsidiaries Under Review With Negative Implications

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 (News - Alert) 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 infrastrcture, 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.

The methodology used in determining these ratings is Best's Credit Rating Methodology, which provides a comprehensive explanation of A.M. Best's 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." Best's Credit Rating Methodology can be found at www.ambest.com/ratings/methodology.

Founded in 1899, A.M. Best Company is the world's oldest and most authoritative insurance rating and information source. For more information, visit www.ambest.com.

Copyright © 2012 by A.M. Best Company, Inc. ALL RIGHTS RESERVED.

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