Press Release - JUNE 12, 2015

A.M. Best Affirms Ratings of Berkshire Hathaway Homestate Insurance Company and Its Affiliates


CONTACTS:
 Robert Valenta
Senior Financial Analyst
(908) 439-2200, ext. 5291
robert.valenta@ambest.com

Gerard Altonji
Assistant Vice President
(908) 439-2200, ext. 5626
gerard.altonji@ambest.com
Christopher Sharkey
Manager, Public Relations
(908) 439-2200, ext. 5159
christopher.sharkey@ambest.com

Jim Peavy
Assistant Vice President, Public Relations
(908) 439-2200, ext. 5644
james.peavy@ambest.com

FOR IMMEDIATE RELEASE

OLDWICK - JUNE 12, 2015
A.M. Best has affirmed the financial strength rating of A++ (Superior) and the issuer credit ratings of "aa+" of Berkshire Hathaway Homestate Insurance Company (Omaha, NE) and its five property/casualty affiliates: Cypress Insurance Company (San Francisco, CA), Oak River Insurance Company (Omaha, NE), Redwood Fire and Casualty Insurance Company (Omaha, NE), Brookwood Insurance Company (Coralville, IA) and Continental Divide Insurance Company (Englewood, CO). These companies are collectively referred to as Berkshire Hathaway Homestate Companies (BHHC). The outlook for all ratings is stable.

The ratings reflect BHHC's strong risk-adjusted capitalization, historically profitable operating performance and the successful track record of the executive team in managing operations. The ratings also acknowledge the group's conservative underwriting leverage measures, aggressive claims management, effective loss control services and history of conservative loss reserving standards. Lastly, the ratings consider the additional financial flexibility and support provided by the group's publicly traded parent and ultimate shareholder, Berkshire Hathaway Inc. [NYSE: BRK A and BRK B].

The positive rating factors are somewhat offset by volatility in the group's underwriting results in recent years, challenging market conditions and its business profile, which is concentrated in the workers' compensation line, primarily in California. Approximately 60% of direct writings in 2014 were from California. This concentration exposes the group to a heightened level of regulatory, judicial, legislative and competitive risks relative to its peers. An additional offsetting factor includes the risks associated with a large investment allocation in equity securities, as common stocks made up approximately 102% of policyholders' surplus at year-end 2014, thus remaining a potential source of volatility in earnings and capital appreciation. Despite these concerns, the rating outlook reflects the group's strong risk-adjusted capitalization, proven operating performance, management's ability to quickly adapt to changing market conditions and the long-term support of Berkshire Hathaway Inc., particularly in the management of the group's investment portfolio.

While the group is well-positioned at the current rating level, negative rating actions could result if operating performance falls markedly short of A.M. Best's expectations, if there is a considerable deterioration in risk-adjusted capitalization as measured by Best's Capital Adequacy Ratio, or if A.M. Best determines that the strategic importance of the group no longer warrants rating enhancement.

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:


  • Analyzing Insurance Holding Company Liquidity

  • Catastrophe Analysis in A.M. Best Ratings

  • Insurance Holding Company and Debt Ratings

  • Rating Members of Insurance Groups

  • Risk Management and the Rating Process for Insurance Companies

  • The Treatment of Terrorism Risk in the Rating Evaluation

  • Understanding BCAR for Property/Casualty Insurers

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.


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