AmTrust Sells Shares in National General Holdings for $212 Million

AmTrust Financial Services Inc. said it has agreed to sell shares it owns in National General Holdings Corp. for approximately $211.7 million.

AmTrust has agreed to sell 10,586,000 common shares of NGHC at a price of $20.00 per share (representing a discount of 8.3 percent to NGHC’s common stock closing market price on the Nasdaq Stock Exchange on June 8, 2017) through separate, privately negotiated purchase agreements with unaffiliated third parties.

“We are taking the initiative to sell National General shares in order to simplify our balance sheet and investment portfolio composition. Our investment in National General has delivered meaningful returns, as National General’s business has grown over the past several years,” said Adam Karkowsky, who was named executive vice president and chief financial officer earlier this week.

The carrying value of the shares being sold was approximately $135 million as of March 31, 2017. The pre-tax gain on the sale of the shares will be approximately $76 million (pending AmTrust’s proportional share of NGHC’s earnings through the date of the sale).

AmTrust has held an ownership interest in NGHC since 2010.

AmTrust has made executive changes and taken steps to stabilize its finances in recent months.

The insurer announced a reserve shortfall in February and reported a “material weakness” in its accounting controls.

AmTrust twice delayed the release of its 2016 annual report due to an ongoing KPMG audit of financial results from 2014-2016. In mid-March, AmTrust also disclosed that prior work by BDO USA involving its opinion on its consolidated financial statements for 2014 and 2015 and its opinions on the effectiveness on internal financial reporting controls were also at issue.

In April, its stock price dropped following a Wall Street Journal report alleging a 2014 FBI investigation of its accounting practices. The New York-based insurance company denied knowledge of any investigation.

In late May, members of the families of CEO Barry Zyskind and Director George Karfunkel agreed to inject $300 million into the company for new shares in a private placement. The insurer said the funds will be used to strengthen subsidiaries and underwrite new insurance policies.

A.M. Best called the private placement a “positive step” for the New York-based company.

A.M. Best maintained its A rating for AmTrust but it lowered the outlook to negative in February.

In April, AmTrust brought Robert Schwarz onboard for the newly-created position of chief accounting officer and senior vice president. Schwarz, most recently a vice president and assistant controller at Assurant, is responsible for accounting policies and financial processes, including preparation of financial statements.

AmTrust said it has hired or promoted a number of other executives over the last year in order to beef up its finance and accounting leadership.

This week the company touted its achievement of making the Fortune 500 list of companies for the first time. AmTrust’s total revenue in 2016 was $5.45 billion, an increase of 18 percent over the prior year.

The company said making the Fortune 500 is a “recognition of AmTrust’s financial strength and stability and follows a year of record revenue for the company.”

AmTrust Financial, headquartered in New York City, offers specialty property/casualty insurance products including workers’ compensation, commercial automobile, general liability and extended service and warranty coverage.

Related:

• AmTrust Denies Knowledge of FBI Accounting Probe; Touts New Financial Team
• AmTrust Gets $300M Boost from CEO’s Family
• Karkowsky Succeeds Pipoly as AmTrust CFO