AmTrust to Invest $42.5 Million to Buy GMAC's Auto Business

Multinational insurance holding company AmTrust Financial Services Inc. said it will invest $42.5 million in a joint venture to purchase GMAC's book of domestic automobile insurance business.

AmTrust is partnering with American Capital Acquisition Corp., an acquisition arm of investment broker American Capital Partners LLC, based in Hauppauge, N.Y. American Capital said earlier this month it had agreed to acquire GMAC's domestic auto business. The acquisition is subject to approval by regulators and is expected to close in the first quarter of 2010.

In a statement, AmTrust President and Chief Executive Officer Barry Zyskind said the deal "provides us immediate access to a new distribution force of 10,500 agents that will be equipped to cross sell our AmTrust products."

He added, "This investment will generate substantial fee income from both the development of our unique IT platform and for asset management services, as well as generate underwriting profits through the contemplated reinsurance agreement."

Further terms were not disclosed and attempts to reach AmTrust for comment were not immediately successful.

GMAC, hammered by the financial crisis, is selling various lines to regain financial stability. The insurer has posted seven quarters of losses in the past two years and received two injections of bailout capital from the federal government to stay afloat (BestWire, Dec. 30, 2008).

Southfield, Mich.-based GMAC reported a pretax loss of about $476 million for the three months ended June 30 in its insurance operations. The company financial report included a $607 million write-down of its insurance businesses. GMAC sold its reinsurance business to Maiden Insurance of Bermuda late last year (BestWire, Nov. 3, 2008).

Following the announcements, A.M. Best Co. revised the implications of its financial strength ratings review of GMAC to "positive" from "developing." A.M. Best currently assigns ratings of B++ (Good) for several members of GMAC Insurance Group.

Best said its rating actions are based on the announcement that a definitive agreement had been reached for the purchase of GMAC's consumer auto business by American Capital. GMAC was placed under review with developing implications in June (BestWire, June 11, 2009).

AmTrust Financial Services (NASDAQ: AFSI) owns and operates 11 insurance companies -- eight domiciled in the United States and the remaining three domiciled overseas.

The group writes small commercial business insurance, workers' compensation, specialty risk, extended warranty insurance and specialty middle-market property/casualty insurance. Channels include select independent agents as well as purchases of both distribution networks and renewal rights from other insurance companies.

AmTrust's various operating companies have current Best's Financial Strength Ratings of A- (Excellent).