AmTrust plans to sell MGA operations to raise $1bn cash

New York-based insurance holding company AmTrust Financial Services is looking to sell a majority in its MGA network and warranty administration operations, CEO Barry Zyskind suggested during the company’s first quarter results conference call.

The company is exploring several ways to monetise the value of its fee business, Zyskind said.

“After discussions with several interested parties, we believe that the best approach would be to sell 51 percent to a private equity-like partner,” he added, according to a call transcript.

“This would allow the company to potentially raise an excess of 1 billion in cash through a combination of sale and putting leverage on the business. The company would still have access to writing the insurance premiums and would benefit from the growth of the company as a 49 percent owner,” he explained.

AmTrust has been struggling lately to reassure stakeholders of the strength of its business.

It delayed its 2016 consolidated financial statements (10-K) and warned that its 2014 and 2015 financial reports had to be restated. The restatement and delay were related to the timing of recognition of revenue in the company's service and fee business.

Furthermore, shareholder rights law firm Robbins Arroyo filed a class action complaint against AmTrust on behalf of all purchasers of AmTrust securities between March 2, 2015 and March 16, 2017, for alleged violations of the Securities Exchange Act of 1934 by AmTrust's officers and directors.

Analysts at Keefe, Bruyette & Woods had suggested that AmTrust should take a reserve charge “in the hundreds of millions of dollars” and commit to “much-improved disclosure” in order to restore investor confidence.