The $1.37bn offer to take AmTrust private raises questions over the future of closely linked companies Maiden Holdings and National General.
In particular, eyes will fall on Bermudian reinsurer Maiden, which is heavily reliant on assumed reinsurance premiums from AmTrust.
Maiden's trajectory is uncertain at this stage following the bid from the Karfunkel-Zyskind family and Stone Point to take AmTrust private, but it seems likely to move in one of three directions.
The business could shrink meaningfully with reduced volumes from the AmTrust reinsurance deals. It could also see a similar take-private deal to that which has been placed on the table for AmTrust. Or it could be broken up.
The business of reinsuring AmTrust accounted for 71 percent of Maiden's $2.7bn in net written premium in 2016. The two firms hold a master 40 percent quota share agreement, which on 1 July 2016 was renewed for a further three years, alongside a number of other class- or AmTrust subsidiary-specific reinsurances.
But with the prospect of AmTrust being a better capitalised entity with new backing from Stone Point, its reliance on reinsurance from Maiden could be significantly reduced.
"One possibility is that AmTrust decides it doesn't need this relationship anymore," Keefe, Bruyette & Woods analyst Meyer Shields told The Insurance Insider. "Or of course AmTrust could find somewhere between maintaining the current quota share and zero."
Even if AmTrust chooses to simply reduce the size of its quota share with Maiden, this could still result in a significant drop in the reinsurer's top line. This would potentially set the firm on a path to significant capital return, which could be highly accretive to book value per share and return on equity given where the shares currently trade.
Maiden's stock jumped 17 percent on 10 January after the announcement of the AmTrust take-private deal, and has stayed relatively stable since, with the most likely explanation that investors are pricing in the chance of some sort of transaction or restructuring exercise.
Following the AmTrust-induced surge, Maiden is now trading at 0.66x book value, a discounted valuation that seems to leave scope for a takeout.
Maiden's founding investors mirror those of AmTrust - namely the late Michael Karfunkel and his brother George Karfunkel, with the addition of AmTrust CEO Barry Zyskind. According to Maiden's latest quarterly filing, Leah Karfunkel and Zyskind, who is also chairman of the firm, own or control approximately 15.6 percent of Maiden, while George Karfunkel owns less than 5 percent of the company.
Through the Stone Point-AmTrust deal, the Karfunkels have demonstrated that they are willing to provide some limited floor to valuation when they believe the market isn't responding appropriately, Shields said.
"In which case you could argue that a similar takeout is possible for Maiden."
However, it may also be that Maiden could be worth more if the AmTrust business was separated out and the so-called diversified reinsurance business sold separately.
Maiden's third-party reinsurance book - which generated $766mn in net written premium in 2016 - is said to hold sticky non-catastrophe business that may prove attractive to fellow Bermudians.
Such a book would be valuable to Maiden's peers, and would otherwise take a company a long time to build, sources said. The Insurance Insider understands there has previously been some interest in Maiden from other Bermudians.
Having said that, Maiden has also had its fair share of adverse development. In full-year 2016, the diversified reinsurance segment took a total reserve charge of $96.7mn, and adverse development - particularly on the commercial auto book - continued into 2017.
"Maiden has had reserving issues, but it's been a tough time in the commercial auto space, so some of that is defensible and market wide," said Shields. "Depending on what a deeper dive would reveal on reserve adequacy, [a takeout] is a very legitimate argument."
Management could then put the AmTrust business in run-off and sell to a legacy acquirer - perhaps leveraging Stone Point's existing relationship with Enstar.
NatGen, on the other hand, may feel the benefit from AmTrust being taken private.
Investor sentiment on the company has arguably been tarnished in the past by its ties with AmTrust, although recent share divestitures have served to distance NatGen from AmTrust's troubles.
AmTrust subsidiaries now hold a combined stake in NatGen of just over 3 percent, after the firm divested a total 21.4 percent holding via two separate transactions.
However, members of the Karfunkel family still sit at the top of NatGen's management structure, with Barry Karfunkel serving as president and CEO and Robert Karfunkel as executive vice president and chief marketing officer. AmTrust CEO Zyskind remains chairman of the board.
Zyskind, Barry Karfunkel and Robert Karfunkel also all hold small stakes in the firm as individual investors, which together amount to a 1 percent stake.
Nevertheless, the AmTrust take-private deal should mean investors are able to more easily focus on NatGen's fundamentals without distraction, Shields said.
"National General seems to be operating well," he said. "Their current auto strategy makes sense and their results comport with that. Reserves will fluctuate in single digit millions, and that's fine.
"It's basically like a normal company, except with some components that leave the investment community sceptical like management and family involvement."
