AmTrust Financial Services got slapped with a downgrade of its financial strength and credit ratings from A.M. Best, even as the company’s stockholders recently approved a bid to take it private.

The insurer’s financial strength rating has been downgraded to A- (Excellent) from A. Its long-term issuer credit dipped to “a-” from “a”. The insurer’s ratings had been under review with negative implications.

A.M. Best said that AmTrust’s balance sheet strength is “very strong,” though it added the ratings actions reflect the insurer’s “adequate operating performance, neutral business profile and marginal enterprise risk management.”

A.M. Best blamed the downgrade, in part, on the insurer’s poor performance in 2016 and 2017, “which was impacted by the adverse development of prior years’ loss reserves in the calendar years and by higher select loss ratios for those accident years.” The ratings agency added that AmTrust’s deterioration in underwriting results and uneven performance in recent years also played a role.

Last month, AmTrust stockholders approved a $2.95 billion plan to go private. The acquisition is spearheaded by entity formed by private equity funds managed by Stone Point Capital, along with AmTrust Chairman and CEO Barry Zyskind, and founders George Karfunkel and Leah Karfunkel. According to the deal, they will buy the 45 percent of the company’s shares that both the Karfunkels and Zyskinds don’t presently own or control.

A.M. Best acknowledges the bid to go private and other actions the company has taken to resolve financial issues, such as more accurate and timely financial filings. But it noted the insurer continued to face challenges through the first half of 2018.”

At the same time, A.M. Best asserted that AmTrust can improve its operations and stability.

“Given the volume of change that has characterized the enterprise over time – including merger and acquisition activity with the associated integration; capital raising to fund that activity; negotiating the sale of the fee-business; and the upcoming change in ownership – the opportunity for management to focus on its core business provides significant opportunity for more firmly embedding its risk management framework and developing strong and consistent capabilities to meet the on-going risks of the business,” A.M. Best wrote.

While AmTrust and its subsidiaries mostly saw downgrades, there were a few exceptions. A.M. Best removed from under review with negative implications and affirmed the A- (Excellent) and long term credit rating of “a-” for AmTrust Title Insurance Company.

All of AmTrust’s credit ratings also are designated with a stable outlook.

Source: A.M. Best