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FOR IMMEDIATE RELEASE
OLDWICK - JANUARY 22, 2015 12:08 PM (EST)
A.M. Best has affirmed the financial strength rating (FSR) of A+ (Superior) and the issuer credit ratings (ICR) of "aa-" of Berkley Insurance Company (BIC) (Wilmington, DE) and 25 of its reinsured subsidiaries and affiliates, collectively referred to as W. R. Berkley Insurance Group. A.M. Best also has affirmed the FSR of A+ (Superior) and ICR of "aa-" of Berkley Life and Health Insurance Company (Berkley Life and Health) (Urbandale, IA).
Concurrently, A.M. Best has affirmed the ICR of "a-" and debt ratings of "a-" on senior unsecured notes and "bbb" on trust preferred securities issued by W. R. Berkley Corporation (W. R. Berkley) (Greenwich, CT) [NYSE: WRB]. The outlook for all ratings is stable. (See link below for a detailed list of the companies and ratings.)
The rating affirmations of the members of W. R. Berkley Insurance Group reflect its consistently favorable underwriting and operating history, well-established market profile and good risk-adjusted capitalization driven by the group's consistent earnings. Positive operating cash flow has helped the group maintain solid liquidity. In addition, considerable business diversification, and a manageable exposure to catastrophe risks were notable rating considerations as well. A.M. Best believes the organization's favorable operating performance is largely driven by its well-developed and successfully executed business strategies. These include utilizing individual operating units focused on specific niche markets that are primarily defined by geography, product orientation and distribution channel. These ratings also recognize the modestly favorable prior year loss reserve development reported in recent years and the earnings garnered from these redundancies.
Partially offsetting these positive rating factors are the execution risk inherent in growing top line despite competitive market pressures impacting both the surplus lines and specialty commercial markets, and declining investment yields. In addition, W. R. Berkley's financial leverage currently is at the high end of A.M. Best's range, given its rating level. Through Sept. 30, 2014, W. R. Berkley reported pretax income of $790 million and net income of $538 million while generating a 13% net return on equity. Both income figures represent a sizable improvement year over year. The company's consolidated financial leverage, measured on an unadjusted debt-to-capital basis (including trust preferred securities), was almost 36% at the end of the third quarter. W. R. Berkley's financial leverage is expected to improve slightly by mid-year 2015 following the redemption of $200 million senior debt due to mature in May, which was pre-funded by a July 2014 senior debt issuance.
A.M. Best expects W. R. Berkley's earnings to remain strong, with both its cash coverage ratios and financial leverage remaining supportive of its ratings. A.M. Best will continue to closely monitor both measures, particularly financial leverage, to ensure that all remain in line with A.M. Best's expectations.
Positive rating action relative to W. R. Berkley Insurance Group is unlikely at this time. However, a favorable revision in the outlook could possibly occur over the long term if the group exhibits notably enhanced operating results, effectively manages through the current market cycle, remains steadfast in maintaining a conservative reserve posture while avoiding adverse prior year loss reserve development, and sustains growth in earnings that lead to strengthened risk-adjusted capitalization. Improved financial leverage at the parent company level that helps lessen pressure on the operating companies to service outstanding debt could also lead a favorable revision of the outlook. Conversely, possible negative rating pressure could result from material adverse prior year reserve development, leading to deterioration in risk-adjusted capitalization, continuing increases in financial leverage and notable shortfalls in operating results and/or critical impediments to future earnings prospects.
The affirmation of the ratings and the outlook of Berkley Life and Health acknowledge the financial and operational support of the parent company, the strategic focus on the growth of its core business segments and its favorable risk-adjusted capital position. Berkley Life and Health remains strategic to the organization's expansion in the accident and health market, primarily medical stop loss coverage.
For a complete list of W. R. Berkley Corporation and its subsidiaries' FSRs, ICRs and debt ratings, please visit W. R. Berkley Corporation.
The methodology used in determining these ratings is Best's Credit Rating Methodology, which provides a comprehensive explanation of A.M. Best's rating process and contains the different rating criteria employed in the rating process. Best's Credit Rating Methodology can be found at www.ambest.com/ratings/methodology.
Key insurance criteria reports utilized:
This press release relates to rating(s) that have been published on A.M. Best's website. For all rating information relating to the release and pertinent disclosures, including details of the office responsible for issuing each of the individual ratings referenced in this release, please visit A.M. Best's Ratings & Criteria Center.
A.M. Best Company is the world's oldest and most authoritative insurance rating and information source.