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TMCNet:  A.M. Best Comments on the Ratings of National General Holdings Corporation Following Announced Transaction with Tower Group International, Ltd.

[January 10, 2014]

A.M. Best Comments on the Ratings of National General Holdings Corporation Following Announced Transaction with Tower Group International, Ltd.

OLDWICK, N.J. --(Business Wire)--

A.M. Best Co. has commented that the financial strength rating of A- (Excellent) and the issuer credit ratings (ICR) of "a-" of the subsidiaries of National General Holdings Corporation (National General) (Delaware) are unchanged following the recent announcement of its transaction with Tower Group International, Ltd. (Tower) (Bermuda). The outlook for all ratings is stable.

Under the terms of the transaction, which involves multiple parties, ACP Re Ltd (ACP Re) (Bermuda) has agreed to acquire 100% of the outstanding stock of Tower. In addition, AmTrust Financial Services, Inc. (AmTrust) (headquartered in New York, NY) will enter into a 100% quota share reinsurance agreement and provide a cut-through endorsement on a portion of Tower's commercial lines business, which will be effective January 1, 2014. AmTrust intends to reinsure not less than 60% on a prospective basis of the approximately $290 million of unearned premium relating to Tower's commercial business.

Upon completion of ACP Re's merger with Tower, AmTrust intends to acquire the commercial lines renewal rights and assets, including several of Tower's domestic insurance subsidiaries, to support the commercial lines business. Furthermore, similar to the acquisition of the commercial lines business, National General will acquire the renewal rights and assets including several insurance subsidiaries, of Tower's personal lines insurance operations. The purchase price of the subsidiaries acquired by Amtrust and National General will be equal to the statutory tangible book value of the acquired companies. ACP Re will retain all liabilities at the time of sale of the acquired companies through a reinsurance agreement that will be fully collateralized.


National General has historically maintained excellent risk-adjusted capitalization and reported favorable earnings with a focus on personal lines business. The company was formed in 2009 to acquire GMAC's personal lines business, which had historically produced solid results. This transaction will provide product diversification to National General, which currently writes largely personal auto business, with approximately two-thirds of Tower's personal lines book consisting of homeowners' business. Although this transaction could expose National General to increased variability driven by the vagaries of weather and catastrophe events, A.M. Best anticipates that all existing Tower reinsurance treaties will remain intact, thus bringing this exposure to a manageable level. A.M. Best expects National General to maintain excellent risk-adjusted capitalization through raising additional capital to support the business acquired in this transaction. Management's successful track record of acquisitions and its intention and financial wherewithal to raise capital to support the business as the renewals are written supports this assertion.

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. Best's Credit Rating Methodology can be found at www.ambest.com/ratings/methodology.

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 © 2014 by A.M. Best Company, Inc. ALL RIGHTS RESERVED.


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