CHICAGO--(BUSINESS WIRE)--Fitch Ratings has affirmed all ratings for W. R. Berkley Corporation (Berkley) and its related property/casualty operating subsidiaries. These ratings include Berkley's 'A-' Issuer Default Rating (IDR), as well as its senior debt and Insurer Financial Strength (IFS) ratings. A complete list of rating actions follows at the end of this release. The Rating Outlook is Stable.
KEY RATING DRIVERS
Fitch's rating affirmation reflects Berkley's favorable long-term financial results with solid capitalization despite more aggressive capital management, a strong underwriting culture with niche market positions in several lines, and modest exposure to catastrophe losses. These positive factors are partially offset by relatively high financial leverage and reserve risk stemming from long-tail casualty lines,
Berkley continued to generate very solid underwriting results through the first quarter of 2014 with a 93.9% GAAP combined ratio compared to 94.7% for the same period in 2013. This follows a profitable full year 2013 with a 95.1% combined ratio compared to 96.8% in 2012. Although the company has experienced premium rate increases, Underwriting profits are likely to improve only modestly in 2014 due to continued competitive insurance market conditions, recognizing the lag time between premiums written and earned, and reduced favorable reserve development.
Common shareholders' equity has increased by nearly 25% over the past five years to $4.4 billion as of March 31, 2014 despite share repurchases, a special dividend, and industry wide record catastrophe losses during the period, reflecting solid earnings and investment gains. Fitch believes the company remains adequately capitalized when examined against traditional measures on an absolute basis and relative to peers.
Berkley's financial leverage ratio (debt-to-total capital ratio excluding FAS 115) of 32.9% as of Mar. 31, 2014 is above peer averages but is down from 35.5% at year-end 2012 primarily due to the prefunding and refinancing of debt that matured in early 2013. Fitch expects run-rate leverage to stay near current levels with earnings-based interest coverage remaining in the mid-upper single digits.
Fitch believes that Berkley is positioned to grow premiums opportunistically with increased exposures and rate. Despite reporting significant growth in 2013, GAAP operating leverage (net premiums written to common equity) remains relatively low at 1.3x. Net leverage was roughly 4.3x at Dec. 31, 2013, down from 4.4x at year-end 2012.
RATING SENSITIVITIES
Key rating triggers that could lead to a positive rating action include: 1) a sustained reduction in financial leverage to the low-mid 20%'s; 2) continued profitable operating performance including a sustained combined ratio in the mid-90%'s and maintenance of aggregate loss reserve adequacy; and 3) maintenance of Fitch's Prism capital model score of 'Very Strong'.
Key rating triggers that could lead to a negative rating action include: 1) net leverage above 5.0x; 2) a material reduction in capitalization due to higher than expected losses in its investment portfolio, material adverse reserve development, or poor underwriting results; or 3) a sustained deterioration of operating performance on an absolute basis or relative to peers.
Additionally, a material increase in run rate debt to total capital ratio, or financial leverage ratio (debt to total capital excluding FAS 115), to 35% could lead Fitch to expand the notching between Berkley's IDR and debt rating, resulting in a one-notch downgrade to the senior and subordinated debt ratings.
Fitch has affirmed the following ratings:
W. R. Berkley Corporation
--IDR at 'A-';
--$200 million 5.6% senior debt due 2015 at 'BBB+';
--$150 million 6.15% senior debt due 2019 at 'BBB+';
--$300 million 7.375% senior debt due 2019 at 'BBB+';
--$300 million 5.375% senior debt due 2020 at 'BBB+';
--$76 million 8.7% senior debt due 2022 at 'BBB+';
--$350 million 4.625% senior debt due 2022 at 'BBB+';
--$250 million 6.25% senior debt due 2037 at 'BBB+';
--$350 million 5.625% junior subordinated debentures due 2053 at 'BBB-'.
Acadia Insurance Company
Admiral Insurance Company
Berkley National Insurance Co.
Berkley Regional Insurance Company
Berkley Regional Specialty Insurance Co.
Carolina Casualty Insurance Co.
Continental Western Insurance Co.
Firemens Ins Co of Washington DC
Nautilus Insurance Company
Tri State Insurance Co. of Minnesota
Union Insurance Company
Union Standard Lloyds
--IFS at 'A+'.
Berkley Insurance Company
--IFS at 'A'.
The Rating Outlook is Stable.
Additional information is available at 'www.fitchratings.com'.
THE ISSUER DID NOT PARTICIPATE IN THE RATING PROCESS, OR PROVIDE ADDITIONAL INFORMATION, BEYOND THE ISSUER'S AVAILABLE PUBLIC DISCLOSURE.
Applicable Criteria & Related Research:
--'Insurance Rating Methodology' (Nov. 13, 2013);
--'Property/Casualty Insurance (U.S.) - Sector Credit Factors' (Aug. 3, 2012).
Applicable Criteria and Related Research:
Insurance Rating Methodology
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=723072
Property/Casualty Insurance (U.S.) -- Sector Credit Factors
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=683831
Additional Disclosure
Solicitation Status
http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=840287
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