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

December 16, 2013

A.M. Best Co. has affirmed the financial strength rating (FSR) of ‘A+’ (Superior) and issuer credit ratings (ICR) of “aa-” of the Delaware-based Berkley Insurance Company (BIC) and 24 of its reinsured subsidiaries and affiliates, collectively referred to as W. R. Berkley Insurance Group.

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

The outlook for all of the ratings is stable.

The rating affirmations of the members of W. R. Berkley Insurance Group “follow W. R. Berkley’s third quarter earnings release and reflect its historically favorable underwriting and operating performance, well-established market profile and solid risk-adjusted capitalization,” said Best. “Positive operating cash flow, good liquidity, considerable business diversification, in addition to better than average catastrophe exposure, were notable rating considerations as well.”

Best also indicated that it “believes the organization’s favorable performance is largely owed to successfully executed, well-developed business strategies, which feature individual operating units focused on specific niche markets, primarily defined by geography, product orientation and distribution channel.”

As partial offsetting factors Best cited the “effects of weak macroeconomic conditions, competitive market pressures impacting both the surplus lines and specialty commercial markets and declining investment yields. These ratings also recognize the favorable prior year loss reserve development reported in recent years and the earnings garnering from these redundancies.”

Best’s report notes that “through September 30, 2013, W. R. Berkley reported pretax income of $517 million and net income of $370 million while generating an 11 percent return on equity. Both income figures represent a slight improvement year over year. The company’s consolidated financial leverage measured on an unadjusted debt-to-capital basis (including trust preferred securities) stood at 33 percent. W. R. Berkley’s financial leverage is expected to remain virtually steady through the end of 2013.”

Best said it “expects W. R. Berkley’s earnings to remain strong, with both its cash coverage ratios and financial leverage remaining supportive of its ratings,” and Best said it will continue to closely monitor both measures, particularly financial leverage, to ensure that all remain in line with its expectations.

The affirmation of the ratings and the outlook of Berkley Life and Health acknowledge its “maintenance of a favorable risk-adjusted capital position, disciplined strategy to focus on the growth of core business segments and the financial and operational support of W. R. Berkley,” said Best. “The company is strategic to the organization’s expansion in the accident and health market, primarily medial stop-loss coverage.”

In conclusion Best said “potential positive rating actions are unlikely at this time; however, a favorable change in the outlook could possibly occur over the long term if the group exhibits notably enhanced operating results through market cycles, remains steadfast in maintaining a conservative reserve posture while avoiding adverse prior year loss reserve development and can sustain growth in earnings that lead to strengthened risk-adjusted capitalization and, in particular, improved financial leverage.

“Conversely, possible negative rating pressure could result from significant adverse reserve development, material deterioration in risk-adjusted capitalization, increased financial leverage and notable shortfalls in operating results and/or critical impediments to future earnings prospects.”

A complete list of W. R. Berkley Corporation and its subsidiaries’ FSRs, ICRs and debt ratings is available from A.M. Best.

Source: A.M. Best

Topics Profit Loss Trends

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