August 25, 2017 / 6:37 PM / 10 months ago

Fitch Affirms W. R. Berkley's Ratings; Outlook Stable

(The following statement was released by the rating agency) CHICAGO, August 25 (Fitch) Fitch Ratings has affirmed all ratings for W. R. Berkley Corporation (Berkley) and its related property/casualty operating subsidiaries. These ratings include Berkley's 'BBB+' senior debt rating and 'A+' (Strong) 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 very strong long-term financial results with strong capitalization despite higher financial leverage than peers, a strong business profile with a diversified specialty underwriting portfolio and 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 has very strong financial performance with a 95.4% GAAP combined ratio through the first six months of 2017 compared to 94.2% for the same period in 2016. Fitch believes underwriting profits are likely to remain flat or improve only modestly for the remainder of 2017 due to continued competitive insurance market conditions. Berkley remains positioned to expand premium opportunistically with underwriting exposure growth at a time where premium rate competition is increasing. Berkley's insurance subsidiary capital adequacy, as measured by Fitch's Prism capital model, remains 'Very Strong' based on 2016 data. Berkley's common shareholders' equity increased by approximately 5% through 1H17, reflecting strong net earnings and unrealized investment gains, while the company did not repurchase common shares during the period. Berkley's level of GAAP net leverage was conservative at roughly 4.0x at Dec. 31, 2016, consistent with the current rating category. Berkley maintains financial leverage that is higher than peers and levels expected for the current rating category. As of June 30, 2017, financial leverage declined to 32.8%, down from 33.5% at year-end 2016 reflecting equity growth in 1H17. Run-rate leverage is expected to be maintained near the low-thirties and remain manageable for Berkley. Fixed charge coverage weakened through six months 2017 to 4.4x, down from 5.8x for the same period in 2016 as operating earnings declined as a result of a modest drop in underwriting income and interest expense that increased over the prior year following the issuance of subordinated notes in 2016. Berkley's reserve adequacy is considered to be strong by Fitch as the company conservatively manages its long-tail casualty reserves and has reported favorable prior year reserve development for 10 consecutive years. Berkley reported $23.6 billion of favorable reserve development in 1H17 with $49.4 million of reserve releases from the Insurance segment derived from loss costs that were more favorable than expected, partially offset by $25.8 billion of adverse development in the Reinsurance segment, largely related to the lowering of the Ogden discount rate in the UK. RATING SENSITIVITIES Key rating sensitivities that could lead to a negative rating action include: --Financial leverage ratio of 35% or greater could lead Fitch to expand the notching between Berkley's Issuer Default Rating (IDR) and debt rating, resulting in a one-notch downgrade to the senior and subordinated debt ratings; --Net leverage moving above 5x; --Fitch's Prism score deteriorating to the low end of the 'Strong' category; --GAAP fixed charge coverage below 5.5x; --A deterioration of operating performance including a consistent underwriting loss. Key rating sensitivities that could lead to a positive rating action include a combination of: --A sustained reduction in financial leverage to the low- to mid-20% range; --Continued profitable operating performance including a sustained combined ratio around mid-90% and maintenance of aggregate loss reserve adequacy; --Maintenance of Fitch's Prism capital model score of 'Very Strong'. FULL LIST OF RATING ACTIONS Fitch has affirmed the following ratings with a Stable Outlook: W.R. Berkley Corporation --IDR at 'A-'; --$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 4.75% senior debt due 2044 at 'BBB+'; --$350 million 5.625% subordinated debentures due 2053 at 'BBB-'; --$110 million 5.9% subordinated debentures due 2056 at 'BBB-'; --$290 million subordinated debt 5.75% due 2056 'BBB-'. Acadia Insurance Company Admiral Insurance Company Berkley Insurance Co. 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+'. Contact: Primary Analyst Christopher A. Grimes, CFA Director +1-312-368-3263 Fitch Ratings, Inc. 70 West Madison Street Chicago, IL 60602 Secondary Analyst Douglas Pawlowski, CFA Senior Director +1-312-368-2054 Committee Chairperson Douglas L. Meyer, CFA Managing Director +1-312-368-2061 Media Relations: Elizabeth Fogerty, New York, Tel: +1 (212) 908 0526, Email:; Benjamin Rippey, New York, Tel: +1 646 582 4588, Email: Additional information is available on Applicable Criteria Insurance Rating Methodology (pub. 26 Apr 2017) here Additional Disclosures Dodd-Frank Rating Information Disclosure Form here Solicitation Status here Endorsement Policy here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEB SITE AT WWW.FITCHRATINGS.COM. 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