National Indemnity Affirmed

A.M. Best Co. has affirmed the group financial strength rating of “A++” (Superior) of National Indemnity Group (NIG), based in Omaha, Neb.

The rating applies to National Indemnity Company and its eight affiliated property/casualty and life insurance companies that support the group’s operating profile. The rating reflects the group’s extraordinary capitalization and balance sheet liquidity, superior earnings fundamentals, recognized leadership position in the global insurance and reinsurance market, as well as the considerable financial flexibility afforded it through affiliation with its parent,
Berkshire Hathaway Inc.

Although NIG writes “super cat” and special risk insurance coverage, including terrorism coverage, its largest per occurrence catastrophe exposure is manageable, at less than 15 percent of statutory surplus due to its disciplined underwriting approach. It has also demonstrated the underwriting expertise to achieve favorable operating returns over the long term despite intermittent volatility in underwriting performance stemming from high severity losses and losses relating to large non-traditional reinsurance covers.

On an economic basis, NIG has generated excellent total returns on equity, averaging 11.0 percent over the past 10 years, benefiting from significant investment “float” generated by long-term reinsurance contracts.

Modestly offsetting these positive factors is NIG’s considerable common stock leverage, which is concentrated in a limited number of large U.S. corporations and a reported decline in statutory surplus for 2001.

In 2001, the group suffered a decline in reported statutory surplus due largely to a change in accounting, which resulted in recording a significant deferred tax liability.

Although this was the single most significant factor contributing to NIG’s reported decline in statutory surplus, it continues to maintain a superior level of capitalization.