Best Affirms W.R. Berkley and Subs ‘A+’ Ratings; Outlook Stable

October 26, 2011

A.M. Best Co. has affirmed the financial strength rating (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.

Best also affirmed the FSR of ‘A+’ (Superior) and ICR of “aa-” of Berkley Life and Health Insurance Company of Urbandale, Iowa, as well as the ICR and debt ratings of “a-” on senior unsecured notes and “bbb” on trust preferred securities of the parent company, W. R. Berkley Corporation of Greenwich, Conn.

The outlook for all of the ratings is stable.

The rating affirmations for Berkley Insurance and Berkley Regional “reflect the well-established market profile, historically favorable underwriting and operating performance, solid capitalization, strong operating cash flow and the considerable business diversification of both,” said Best. “The below average catastrophe exposure of both groups and their moderate risk profiles were significant rating considerations as well.”

Best also indicated that it “believes the excellent performances of Berkley Insurance and Berkley Regional are largely owed to their successfully executed, well-developed business strategies, which feature individual operating units focused on specific niche markets, primarily defined by geography and product orientation.

“Their demonstrated market expertise has led to favorable operating results, which has helped foster long-term stability and ultimately has resulted in their above average retentions. Based on these factors,” Best said it “believes these favorable operating results will continue, as both groups maintain their established market positions despite persisting competitive pressures.”

As partial offsetting factors, Best cited “the effects of the continued soft market, weak macro economic conditions, falling investment yields and above-average net underwriting leverages at both groups.” However, Best also noted that “the consistent generation of profitable operating results has helped mitigate these negative factors. Both groups have reported significant favorable development on reserves for recent accident years, despite experiencing some, albeit lessening, adverse loss reserve developments in some older accident years.”

Best explained that the “rating affirmations of Admiral and Nautilus recognize the highly profitable underwriting and operating performance, strong capitalization, excellent operating cash flow and demonstrated expertise in the surplus lines market of each group.”

As partial offsetting factors Best noted “the effects of soft market conditions, weak economic growth, low new money yields as well as Admiral and Nautilus’ slightly above-average underwriting leverages and the modest adverse development of older accident years’ reserves, at Admiral.”

The report stressed that the “ratings of all the affiliated property/casualty groups consider the role and strategic importance of each within the W. R. Berkley organization.” Best said that, as such, it “views these groups as core business units of W. R. Berkley, which are afforded implicit and explicit support by the parent.

“The affirmation of the ratings for Berkley Life and Health acknowledges its continued favorable risk-adjusted capital position, which is expected to support the company’s growing business going forward and the financial and operational support of W. R. Berkley. Berkley Life and Health is strategic in W. R. Berkley’s expansion in the accident and health market, primarily medical stop-loss coverage.”

As far as W. R. Berkley’s ICR and debt ratings are concerned, Best’s view is that the “organization’s substantial financial flexibility has been evidenced by its ability to access capital markets and maintain investor interest. While W. R. Berkley has historically maintained above average 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.”

Best pointed out that as of June 30, 2011, “W. R. Berkley’s unadjusted debt-to-capital (including trust preferred securities) stood at 31 percent, just over the midpoint of its stated target range for financial leverage of 25 percent to 35 percent.

“While weather-related losses suffered during the first three quarters of 2011 and the persisting competitive property/casualty operating environment is still likely to place some pressure on 2011 underwriting results, 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.”

Best added that it would “continue to closely monitor both measures, particularly financial leverage, to ensure that all remain in line with its expectations, and more importantly, continue to support the ratings.

For a complete listing of W. R. Berkley and its subsidiaries’ FSRs, ICRs and debt ratings, go to:

Source: A.M. Best

Topics Trends Property Casualty

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