Griffin Advises ARI Mutual Insurance Company on Sponsored Demutualization Transaction with AmTrust Financial Services, Inc.
ARI Mutual Insurance Company (“ARI”) is a mutual property and casualty insurance company located in Newtown, Pennsylvania that provides commercial auto insurance primarily in New Jersey. For the year ended December 31, 2014, ARI had direct written premium of $58 million and, as of that date, statutory surplus of $19.4 million.
Because of the challenging New Jersey commercial auto market, ARI had begun a geographic diversification strategy and entered the Pennsylvania and Maryland markets in 2014. In order to fully implement this strategy, ARI determined that it needed capital. ARI engaged Griffin to conduct a strategic alternatives study to help it better understand the strategic and capital alternatives available to it, as well as the impact of each potential alternative on its policyholders, employees, agents and other constituents. To maximize the number of potential alternatives available to it, ARI had previously redomesticated from New Jersey to Pennsylvania, a subscription rights state that facilitates raising growth capital for mutual companies.
Griffin led management and the board through a comprehensive strategic alternatives study. Options considered included continued independence, mutual affiliation, and capital or sale transactions such as selling surplus notes, quota share reinsurance, a stand-alone subscription rights mutual-to-stock conversion, a sponsored mutual-to-stock conversion and a mutual-to-stock conversion that includes the sale of a majority interest to another insurance company. At the conclusion of the strategic alternatives study process, the board requested Griffin to prepare to do a stand-alone mutual-to-stock conversion but to simultaneously solicit indications of interest from other carriers and private equity for a sponsored demutualization or a mutual-to-stock conversion that included the sale of a majority interest to another insurance company. Subsequently, ARI recorded an additional loss relating to prior year adverse development and was downgraded to B+ by A.M. Best. As a result, Griffin was requested to focus on finding a partner that would provide rating support and capital to allow ARI to implement its diversification strategy. Griffin solicited a number of counterparties and after careful consideration, ARI selected AmTrust to sponsor its demutualization. In the transaction, AmTrust offered its stock to ARI policyholders at up to a 20% discount to AmTrust’s market price and use the proceeds plus AmTrust cash on hand to purchase all the capital stock of AmTrust for a minimum amount of $23.8 million. Closing took place on January 22, 2016.
For more information on this transaction, contact Jeffrey P. Waldron, Senior Managing Director, at 610.205.6028.