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FOR IMMEDIATE RELEASE
OLDWICK, N.J. - APRIL 29, 2008 12:00 AM (EDT)
A.M. Best Co. has affirmed the financial strength rating (FSR) of A++ (Superior) and issuer credit ratings (ICR) of "aaa" of National Indemnity Group (National Indemnity) and its reinsurance and non-reinsurance members. All companies are headquartered in Omaha, NE. The outlook for all ratings is stable. (See below for a detailed listing of the companies and ratings.)
The ratings reflect National Indemnity's superior risk-adjusted capitalization, premier market profile, excellent operating and total return measures, astute management and very strong liquidity. These strengths are demonstrated in the group's significant underwriting capacity in both reinsurance and primary lines of business, unsurpassed claims paying ability and the operating flexibility to respond opportunistically to new and emerging market risks. This flexibility also is considered a competitive strength and critical success factor regarding the group's proven ability to manage the underwriting cycle while generating results that outperform industry averages. The ratings also factor National Indemnity's core importance within the Berkshire Hathaway Inc. [NYSE: BRK.A and BRK.B] collection of insurance and non-insurance organizations given the amount of "float" that is generated by National Indemnity.
Management's conservative enterprise risk management strategy has enabled the group to absorb significant catastrophe losses in recent years, while maintaining ample capacity to support its ongoing business risks. National Indemnity monitors its catastrophe exposure on a zonal aggregate limit basis, and its per occurrence exposure is manageable relative to its carried surplus. In addition, National Indemnity has demonstrated underwriting expertise to achieve favorable operating returns over the long term, despite volatility in earnings stemming from high severity losses and irregular earned premiums derived from retroactive reinsurance or single large risk contracts. On an economic basis, the group has generated excellent total returns on statutory surplus, which has averaged 17.6% over the most recent five-year period.
Somewhat offsetting these positive rating factors is the group's considerable common stock leverage, which is concentrated in a limited number of large publicly rated U.S. corporations. Management's long-standing investment philosophy has been to maximize its average annual rate of return through a buy and hold strategy of a limited number but diversified group of well-developed and stable companies. Such investments have generated significant unrealized capital gains over the long term, contributing to the group's superior level of capitalization. Additionally, the group has assumed a sizable amount of retroactive reinsurance contracts that are expected to run off over a long duration and potentially expose it to adverse loss reserve development. Within A.M. Best's review of National Indemnity's capitalization is risk charges in conjunction with the formation of Berkshire Hathaway Assurance Corp. and corresponding investments, as well as charges related to the net par value of financial guarantees issued to municipalities. Moreover, A.M. Best believes National Indemnity could currently withstand the compound effect of a mega-catastrophe and moderate devaluation in its invested assets while still maintaining its superior financial strength.
The FSR of A++ (Superior) and ICRs of "aaa" have been affirmed for National Indemnity Group and its following members:
- National Indemnity Company
- Columbia Insurance Company
- Wesco-Financial Insurance Company
- National Fire & Marine Insurance Company
- National Liability & Fire Insurance Company
- National Indemnity Company of Mid-America
- National Indemnity Company of the South
- Berkshire Hathaway Life Insurance Company of Nebraska
For Best's Ratings, an overview of the rating process and rating methodologies, please visit Best's Rating Center.
Founded in 1899, A.M. Best Company is a global full-service credit rating organization dedicated to serving the financial and health care service industries, including insurance companies, banks, hospitals and health care system providers.