AmTrust Financial Services Inc. intends to sign a quota share agreement with third-party reinsurers in the third quarter to reduce volatility related to the personal lines segment of its Republic business, CFO Adam Karkowsky said during an earnings call.
The decision comes after catastrophe losses related to the Republic personal lines segment hit AmTrust's loss ratio for two consecutive quarters.
In the first quarter, more than $25 million of pretax cat losses related to the Republic personal lines segment impacted AmTrust's loss ratio by 2.1 percentage points. In the second quarter, $24.8 million of pretax catastrophe losses related to the segment hit the company's loss ratio by 1.8 percentage points. The cat losses were primarily related to wind and hail activity in the U.S.
"Historically, we did not have a lot of cat business; we don't like the volatility," Karkowsky said. "So, we're in the process of putting a quota share for that business [to] take the volatility out. If the attritional loss ratio is low, we'll have nice returns; if there's cat, we'll see most of it away."
AmTrust CEO Barry Zyskind said the company is considering a 50% to 75% quota share, which means the company will be retaining some risk.