Best’s News & Research Service - April 20, 2021 10:32 AM (EDT)
AM Best Affirms Credit Ratings of Berkshire Hathaway GUARD Insurance Companies’ Members
- April 20, 2021 10:32 AM (EDT)
Oldwick //BestWire// - AM Best has affirmed the Financial Strength Rating of A+ (Superior) and the Long-Term Issuer Credit Ratings of “aa-” of WestGUARD Insurance Company, AmGUARD Insurance Company, EastGUARD Insurance Company, NorGUARD Insurance Company and AZGUARD Insurance Company (Omaha, NE), which operate under an intercompany pooling agreement. These companies are members of Berkshire Hathaway GUARD Insurance Companies (GUARD) and are domiciled in Wilkes-Barre, PA, unless otherwise specified. The outlook of these Credit Ratings (ratings) is stable.
The ratings reflect GUARD’s balance sheet strength, which AM Best assesses as strongest, as well as its strong operating performance, neutral business profile and appropriate enterprise risk management.
GUARD has reported significant premium growth in most recent five-year period, during which time it has consistently maintained solid risk-adjusted capitalization. GUARD continues to generate favorable operating earnings on an absolute basis and relative to peers, although the group’s underwriting results have deteriorated for the past two calendar years, when the group’s performance was dampened by pricing pressure in its core workers compensation business and less favorable results in new business lines and segments. The ratings further recognize the implicit and explicit financial support provided by GUARD’s immediate parent, National Indemnity Company (NICO), including significant capital support via reinsurance transactions. NICO is a subsidiary of Berkshire Hathaway Inc. (Berkshire) [NYSE: BRK A and BRK B].
GUARD’s favorable operating performance and risk-adjusted capitalization is offset somewhat by above-average premium growth in most of its lines of business. While the group’s workers’ compensation business continues to produce favorable return ratios, the group’s new business lines have been less favorable. However, GUARD has been deliberate and measured in its approach to the market, expecting these product lines to improve the scale and diversification of earnings in the long term. Despite these concerns, the outlooks reflect GUARD’s enhanced financial flexibility provided by Berkshire, which manages GUARD’s investment portfolio, solid balance sheet and historical underwriting profitability. GUARD’s investment portfolio has contributed significantly to surplus growth through unrealized capital gains and accounted for almost half of surplus growth in the last 5 years.
The ratings could come under pressure should softer market conditions in their new product lines and expansion initiatives result in a decline in underwriting and overall profitability to levels that no longer outperform their peers. A significant, sudden reduction in surplus results from losses in their investment portfolio, which has a significant allocation to equity holdings, or from significant unfavorable reserve development, also could create negative rating pressure. In addition, the ratings could experience negative pressure should Berkshire cease to provide sufficient financial and operational support.
This press release relates to Credit Ratings that have been published on AM 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 see AM Best’s Recent Rating Activity web page. For additional information regarding the use and limitations of Credit Rating opinions, please view Guide to Best’s Credit Ratings. For information on the proper media use of Best’s Credit Ratings and AM Best press releases, please view Guide for Media - Proper Use of Best’s Credit Ratings and AM Best Rating Action Press Releases.
AM Best is a global credit rating agency, news publisher and data analytics provider specializing in the insurance industry. Headquartered in the United States, the company does business in over 100 countries with regional offices in London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City.