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FOR IMMEDIATE RELEASE
OLDWICK, N.J. - OCTOBER 14, 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 "aa-" of Berkley Insurance Group (Berkley Insurance) (Wilmington, DE), Berkley Regional Group (Greenwich, CT) (Berkley Regional), Admiral Insurance Group (Admiral) (Wilmington, DE ) and Nautilus Insurance Group (Nautilus) (Scottsdale, AZ) and their respective property/casualty members, as well as the FSR of A (Excellent) and ICR of "a" of Carolina Casualty Insurance Company (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 of 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 companies and ratings.)
The rating affirmations for Berkley Insurance and Berkley Regional reflect their positive 10-year average underwriting and operating performances—which compare favorably with other similarly rated peers; adequate capital positions; underwriting discipline in the currently competitive property/casualty markets; greater business diversification; and improved monitoring and controls companywide in recent years. Moderate risk profiles with low policy limits and below-average catastrophe and reinsurance exposure—which limit earnings volatility—and more robust reserve levels over the past several years also have contributed to the affirmations.
A.M. Best believes the excellent performance of Berkley Insurance and Berkley Regional largely stems from their business strategies with individual operating units that serve a niche market defined by geography, products or types of customers, which results in above-average retention. Both groups maintain a flexible decentralized operating structure and local market presence. The ratings also consider the position these groups maintain within the W. R. Berkley organization and the implicit and explicit support of W. R. Berkley.
A.M. Best believes these positive rating factors collectively have and will continue to result in improved competitive positioning and above-average operating profitability for both groups. Berkley Insurance's 10-year average calendar year combined ratio is 97.0, while Berkley Regional's ratio stands at 95.8.
Partially offsetting these positive rating factors are both groups' previously elevated operating leverage and material reserve development of older accident years, largely emanating from Berkley Insurance's reinsurance operations. The positive developments within both groups' operations over the past several years, namely consistent, highly profitable underwriting results, strengthened reserve levels, greater business diversification and the restructuring of reinsurance operations have largely overshadowed these negative issues.
The rating affirmations of Admiral and Nautilus primarily recognize their historically excellent underwriting and operating performances, solid capitalizations, strong operating cash flows, expertise in excess and surplus lines and operating flexibility, which allows them to pursue opportunities within the admitted and non-admitted sectors.
Partially offsetting these positive risk factors are the significant historical adverse loss reserve development at Admiral—albeit sharply lower in 2005, modestly favorable in 2006 and highly favorable in 2007—and the above-average growth of Nautilus for several years prior to 2006 and the inherent risks associated with such growth.
Carolina Casualty Insurance Company's rating affirmations acknowledge its market position within the transportation industry insurance sector and adequate capitalization for its current ratings, which was supported by significant capital contributions from W. R. Berkley through 2005. Consequently, the company's ratings reflect the financial and operational support of W.R. Berkley.
A.M. Best believes the increasingly competitive underwriting environment that has developed in property/casualty markets in recent quarters will result in significant pressures on the underwriting profitability of W. R. Berkley's insurance subsidiaries for the remainder of 2008 and through 2009. In addition, lower levels of net investment income are anticipated as a result of slowed earning asset growth and lower income from alternative investments, including the merger arbitrage portfolio as well as partnerships and affiliates. Furthermore, surplus growth of most subsidiaries is likely to be pressured in 2008 by lower operating income, unrealized capital losses on equity investments, impaired investments (realized losses) primarily in the financial services sector, and by substantial dividends paid to the parent. The substantial dividends paid by the subsidiaries to the parent, in large measure reflect W. R. Berkley's aggressive share repurchase program, which over the past two years has resulted in the repurchase of over 35 million of its shares (approximately 18% of shares outstanding) at a cost of over $1.0 billion. The carried value of W. R. Berkley's investments in Fannie Mae and Freddie Mac has been fully charged in A.M. Best's capital models for its subsidiaries.
W. R. Berkley's ICR and debt ratings reflect A.M. Best's view of the company's substantial financial flexibility, which has been evidenced by its ability to access the capital markets and maintain investor interest. While W. R. Berkley historically has maintained considerable financial leverage, strong earnings and subsidiary capital level stabilization have enabled the debt-to-total capital ratio to trend lower in recent years. At June 30, 2008, W. R. Berkley's debt-to-total capital (including trust preferred securities) stood at 28.0%, among its lowest levels over the past decade. A.M. Best believes that the historically elevated leverage has been mitigated by the company's moderate risk profile and well-managed capital structure.
The level of cash maintained at W. R. Berkley is anticipated to be sufficient to cover holding company expenses for the remainder of 2008. However, the level of cash has been, and is expected to be, substantially reduced given the company's aggressive stock repurchases previously noted. The subsidiaries' dividend payments to the parent resumed in 2006, were substantial in 2007 and will continue in 2008. A.M. Best believes that W. R. Berkley will appropriately balance its stock repurchases with new business and growth opportunities and the capital requirements of its insurance subsidiaries.
For a complete list of W. R. Berkley Corporation's FSRs, ICRs and debt ratings, please visit W. R. Berkley.
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.