[January 10, 2014]

A.M. Best Places Ratings of ACP Re Ltd. Under Review With Negative Implications

A.M. Best Co. has placed under review with negative implications the financial strength rating of A- (Excellent) and issuer credit rating of "a-" of ACP Re Ltd. (ACP Re) (Bermuda) following the recent announcement that it has agreed to acquire 100% of the outstanding stock of Tower Group International, Ltd. (Tower) (Bermuda).

In addition, AmTrust Financial Services, Inc. (AmTrust) (headquartered in New York, NY) will enter into a 100% quota share reinsurance agreement and provide a cut-through endorsement on a portion of Tower's commercial lines business, which will be effective January 1, 2014. AmTrust intends to reinsure not less than 60% on a prospective basis of the approximately $290 million of unearned premium relating to Tower's commercial business.

Upon completion of ACP Re's merger with Tower, AmTrust intends to acquire the commercial lines renewal rights and assets, including several of Tower's domestic insurance subsidiaries, to support the commercial lines business. Furthermore, similar to the acquisition of the commercial lines business, National General Holdings Corporation (National General) wil acquire the renewal rights and assets, including several insurance subsidiaries, of Tower's personal lines insurance operations. The purchase price of the subsidiaries acquired by Amtrust and National General will be equal to the statutory tangible book value of the acquired companies. ACP Re will retain all liabilities at the time of sale of the acquired companies through a reinsurance agreement that will be fully collateralized.

The under review with negative implications status reflects ACP Re's execution risk due to the significant change in the business plan and the uncertainty regarding the adequacy of loss reserves from the acquired Tower business, which has recently experienced significant adverse development. However, this risk is offset by management's successful track record of acquisitions and its intention and financial wherewithal to maintain risk-adjusted capitalization at strong levels.

The ratings will remain under review pending the close of the transaction, which is subject to regulatory and shareholder approval, and A.M. Best's further discussion with ACP Re's management.

The methodology used in determining these ratings is Best's Credit Rating Methodology, which provides a comprehensive explanation of A.M. Best's rating process and contains the different rating criteria employed in the rating process. Best's Credit Rating Methodology can be found at www.ambest.com/ratings/methodology.

A.M. Best Company is the world's oldest and most authoritative insurance rating and information source. For more information, visit www.ambest.com.

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