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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 P/C members.
Best also 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 Corporation. The outlook for all ratings is stable.
The rating affirmations for Berkley Insurance and Berkley Regional reflect their “highly favorable underwriting and operating performance, adequate capitalization, strong operating cash flow and considerable business diversification,” Best explained. “Below average catastrophe exposure, narrow volatility, moderate risk profile and more conservative loss reserve levels were significant rating considerations, as well.”
Best said it believes the excellent performance of Berkley Insurance and Berkley Regional is largely owed to “well-established business strategies featuring individual operating units, which focus on specific niche markets primarily defined by geography and product orientation. The demonstrated market expertise that has led to favorable operating results has also helped long-term stability resulting in above average retention.” Based on these past achievements, Best said it expects these “favorable operating results will continue, as both groups maintain their established market position despite the continued competitive pressures.”
However, Best cited the “adverse loss reserve development in older accident years, which has been experienced by both groups and their slightly above-average net underwriting leverage” as offsetting factors, adding that the “consistent generation of profitable operating results by both groups and the more favorable development on reserves of recent accident years for both, has helped overcome these negative issues.
“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.
“Partially offsetting these positive risk factors is Admiral and Nautilus’ slightly above-average underwriting leverage and the largely unfavorable loss reserve development in Admiral’s older accident years. However, more effective management during the current soft part of the market cycle has, at this point, led to very favorable reserve development of the most recent accident years’ loss reserves for both groups.”
In addition the rating agency stressed that the ratings of all the affiliated groups “consider the role and strategic importance of each within the W. R. Berkley organization.” Best said it views these groups as core business units of W. R. Berkley, which are afforded implicit and explicit support by the parent.
W. R. Berkley’s ICR and debt ratings reflect Best’s view that the company’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 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.”
Best’s analysis noted that as of March 31, 2010, W. R. Berkley’s “unadjusted debt-to-capital (including trust preferred securities) stood at 30 percent, right in the middle of its stated target range for financial leverage of 25 percent to 35 percent. With the expected repayment of indebtedness coming due in 2010, W. R. Berkley’s debt-to-capital by year-end 2010 is expected to decline slightly.
“While the competitive property/casualty operating environment is still likely to place some pressure on 2010 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 the ratings. A.M. Best will continue to closely monitor both measures, particularly financial leverage, to ensure that they remain in line with expectations and more importantly continue to support the ratings.”
For a complete listing of W. R. Berkley Corporation and its subsidiaries’ FSRs, ICRs and debt ratings, please visit http://www.ambest.com/press/051702wrberkley.pdf.
Source: A.M. Best