A.M. Best Affirms Ratings of W.R. Berkley Group, Subsidiaries

April 12, 2011

A.M. Best Co. has affirmed the financial strength ratings (FSR) of A+ (Superior) and issuer credit ratings (ICR) of “aa-” of Berkley Insurance Group, Admiral Insurance Group, Berkley Regional Group and Nautilus Insurance Group and their respective property/casualty members.

A.M. Best also has affirmed the FSR of A+ (Superior) and ICR of “aa-” of Berkley Life and Health Insurance Co.

At the same time, A.M. Best has affirmed the ICR and debt ratings of “a-” on senior unsecured notes and “bbb” on trust preferred securities of the parent company, W. R. Berkley Corp.

A.M. Best said the outlook for all ratings is stable.

The rating affirmations for Berkley Insurance and Berkley Regional reflect the companies’ “highly favorable underwriting and operating performance, solid capitalization, strong operating cash flow and considerable business diversification,” A.M. Best said. Below-average catastrophe exposure and moderate risk profile were significant rating considerations as well.

A.M. Best said it believes the “excellent performance” of Berkley Insurance and Berkley Regional is “largely owed to well-established business strategies, which feature individual operating units focused on specific niche markets, primarily defined by geography and product orientation.”

The market expertise of the operating units has helped long-term stability resulting in above average retention, the analyst said.

A.M. Best said it believes these favorable operating results will continue, “as both groups maintain their established market position despite persisting competitive pressures.”

Partially offsetting these positive rating factors in A.M. Best’s view, is the above-average net underwriting leverage at both groups. The consistent generation of profitable operating results has helped overcome this negative issue. Although both groups have had significant favorable development on reserves for recent accident years, they continue to experience adverse loss reserve development in older accident years.

The rating affirmations of Admiral and Nautilus recognize their “historically profitable underwriting and operating performance, strong capitalization, excellent operating cash flows and well-established expertise in the surplus lines market,” according to the analyst.

Partially offsetting these positive risk factors is Admiral and Nautilus’ slightly above-average underwriting leverage and adverse development of older accident years’ reserves specific to Admiral, A.M. Best said.

W. R. Berkley’s ICR and debt ratings acknowledge A.M. Best’s view that its substantial financial flexibility has been evidenced by its ability to access capital markets and maintain investor interest. While W. R.Berkley has historically maintained considerable financial leverage, strong earnings have fueled the improved capital levels of its subsidiaries and led to the company’s debt-to-total capital trending lower over the last several years. However, its leverage has remained above that of industry peers, according to A.M. Best.

At Dec. 31, 2010, W. R. Berkley’s unadjusted debt-to-capital (including trust preferred securities) stood at 32 percent, towards the higher end of its stated target range for financial leverage of 25 percent to 35 percent. While the competitive property/casualty operating environment is still likely to place some pressure on 2011 underwriting results, A.M. Bests aid that W. R. Berkley’s earnings are expected to remain solid, and both its cash coverage ratios and its financial leverage, should remain supportive of its ratings.

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