A.M. Best reiterated issuer credit ratings (ICR) and debt ratings of “a-” on senior unsecured notes and “bbb” on trust preferred securities of W.R. Berkley Corporation (WRB). The outlook for all ratings is stable.
A.M. Best’s ratings reflect a favorable debt-to-capital ratio for Berkley that stood at 32% as of December 31, 2010, at the higher end of the company’s target range of 25%−35%. Though the rating agency expects tough property/casualty operating environment to exert pressure on underwriting results in 2011, it believes Berkley is strongly positioned to deliver solid earnings.
The rating agency also reiterated the financial strength ratings (FSR) of A+ (Superior) and ICR of “aa-” of Berkley Insurance Group, Admiral Insurance Group, Berkley Regional Group and Nautilus Insurance Group and their respective property/casualty members. A.M. Best also reiterated a FSR of A+ (Superior) and ICR of “aa-” of Berkley Life and Health Insurance Company.
On the back of strong underwriting and operating performance, strong capitalization and operating cash flow coupled with business diversification and lower catastrophe exposure, A.M. Best affirmed its ratings on Berkley Insurance and Berkley Regional. However, above-average net underwriting leverage at both groups was a partial offset.
On the heels of continued profitable underwriting and operating performance, strong capitalization, solid operating cash flows and expertise in the surplus lines market, the rating agency affirmed its rating on Admiral Insurance Group and Nautilus Insurance Group. Above-average underwriting leverage and adverse development of older accident years’ reserves specific to Admiral were partial offsets to the positives.
Solid risk-adjusted capital position and the financial and operational support from W. R. Berkley guided A.M. Best to affirm its rating on Berkley Life and Health.
Berkley has been hurt by soft pricing conditions and increasing competition for the past several years. However, its numerous new ventures are bearing fruit and offsetting loss from the old businesses, witnessed by the third consecutive year-over-year growth in NPW since 2006. These new businesses are eventually expected to benefit from a turn in the insurance cycle.
Besides, buybacks and dividend payments add value to the shareholders’ wealth. However, earnings will be subdued due to soft market conditions and low investment income. Combined ratio is also expected to trend higher in the near future.
We maintain our Neutral recommendation on W.R. Berkley. The quantitative Zacks #4 Rank (short-term Sell rating) for the company indicates downward pressure on the shares over the near term.
Based in Greenwich, Connecticut, W.R. Berkley Corp. is one of the nation’s premier commercial lines property casualty insurance providers. It competes with CNA Financial Corporation (CNA) and The Travelers Companies Inc. (TRV).
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