A.M. Best Affirms Berkley's Ratings - Analyst Blog

Earlier during the week, rating agency A.M. Best affirmed the issuer credit ratings (ICR) and debt ratings of W.R. Berkley Corp. (WRB). Its senior unsecured notes were affirmed at ‘a-’ while the trust preferred securities were affirmed at ‘bbb’.
 
A.M. Best’s ratings reflect a favorable debt-to-capital ratio for Berkley that stood at 30% as of March 31, 2010, well within the company’s target range of 25%−35%. Besides, the leverage is expected to come down with the repayment of debt expected in later 2010.
 
Of the 39 subsidiaries owned by Berkley, A.M. Best has affirmed the financial strength ratings (FSR) and ICR of four of them – Berkley Insurance Group, Admiral Insurance Group, Berkley Regional Group and Nautilus Insurance Group.
 
The rating affirmation for Berkley Insurance and Berkley Regional comes on the back of their robust operating fundamentals. This includes disciplined underwriting, adequate capitalization, significant market diversification, wide product portfolio, and unique market positioning. Moreover, prudent catastrophe (CAT) risk management at these companies has led to a below-average exposure to CAT loss, thus limiting earnings volatility. Adequate favorable reserve releases also reflect management’s prudent reserving practices. However, A.M. Best eyes unfavorable reserve release on older accident years as a limiting factor.
 
Besides, Admiral and Nautilus ratings reflect their positive and consistent operations, adequate capitalization, well established market position and favorable reserve development. 
 
On May 18, Berkley announced a 17% increase in its annual dividend to 28 cents, maintaining a track record for the sixth straight year.
 
Like all the property and casualty insurers, Berkley has also been a victim of the soft insurance market conditions. Increasing competition and declining pricing trend along with management’s disciplined approach towards underwriting has restricted top-line growth for the past couple of years.
 
We are fairly positive towards Berkley stock at this moment. The company, by virtue of its high return on equity, few intangibles, low leverage, sound underwriting and limited exposure to volatility, is uniquely poised to benefit from a turn in the cycle.