Fitch Rates W. R. Berkley's Subordinated Notes 'BBB-'

CHICAGO--()--Fitch Ratings has assigned a 'BBB-' rating to W. R. Berkley Corporation's (Berkley) $100 million issuance of subordinated notes maturing in 2056.

KEY RATING DRIVERS

Fitch's rating affirmation reflects Berkley's solid capitalization despite aggressive capital management and Fitch's belief that Berkley's financial leverage, as measured by debt-to-total capital ratio excluding FAS 115, will remain within a reasonable range for the rating category in the near term. Berkley's financial leverage of 33.1% at Dec. 31, 2015, is above peer averages but favorably below the company's five-year average. Pro forma leverage as of year-end 2015, including the additional debt, will increase to 34.1%, within Fitch's expectations.

Berkley has granted the underwriters the option to purchase up to an additional $15 million of subordinated notes within 30 days to cover over-allotments which could bring the total issuance of the subordinated notes to $115 million, increasing pro forma leverage up to 34.3%.

The new notes' rating is equivalent to the ratings on Berkley's existing subordinated debt. Net proceeds from the issuance are expected to be used for general corporate purposes.

Fitch expects run-rate leverage to stay near the low-30s with earnings-based interest coverage remaining near 6x. Operating interest coverage in 2015 was 5.9x, down from 6.4x for in 2014 partially due to a temporary increase in interest expense from prefunded debt and reduced earnings from realized investment gains. Fitch believes financial leverage is manageable and within both Fitch's expectations for the company and Fitch's sector credit factor guidelines for the rating category.

RATING SENSITIVITIES

Key rating triggers that could lead to a positive rating action include:

--A sustained reduction in financial leverage to low-mid 20%;

--Continued profitable operating performance including a sustained combined ratio in the mid-90% and maintenance of aggregate loss reserve adequacy;

--Maintenance of Fitch's Prism capital model score of 'Very Strong'.

Key rating triggers that could lead to a negative rating action include:

--Net leverage above 5.0x;

--A material reduction in capitalization due to higher than expected losses in its investment portfolio, material adverse reserve development, or poor underwriting results;

--A deterioration of operating performance such that there is a consistent underwriting loss.

Additionally, a material increase in run rate financial leverage ratio (debt to total capital excluding FAS 115), to 35% 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.

FULL LIST OF RATING ACTIONS

Fitch has assigned the following rating:

W. R. Berkley Corporation

--$100 million subordinated debt 5.9% due 2056 'BBB-'.

Fitch currently rates the W. R. Berkley Corporation companies as follows:

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% junior subordinated debentures due 2053 at '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

--Issuer Financial Strength (IFS) at 'A+'.

Relevant Rating Committee: Nov. 16, 2015.

Additional information is available on www.fitchratings.com.

Applicable Criteria

Insurance Rating Methodology (pub. 16 Sep 2015)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=871172

Additional Disclosures

Solicitation Status

https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=1000124

Endorsement Policy

https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

Contacts

Fitch Ratings
Primary Analyst
Christopher A. Grimes, CFA
Director
+1-312-368-3263
Fitch Ratings, Inc.
70 West Madison Street
Chicago, IL 60602
or
Secondary Analyst
Douglas Pawlowski, CFA
Senior Director
+1-312-368-2054
or
Committee Chairperson
Julie Burke, CFA, CPA
Managing Director
+1-312-368-3158
or
Media Relations:
Hannah James, +1-646-582-4947
hannah.james@fitchratings.com

Contacts

Fitch Ratings
Primary Analyst
Christopher A. Grimes, CFA
Director
+1-312-368-3263
Fitch Ratings, Inc.
70 West Madison Street
Chicago, IL 60602
or
Secondary Analyst
Douglas Pawlowski, CFA
Senior Director
+1-312-368-2054
or
Committee Chairperson
Julie Burke, CFA, CPA
Managing Director
+1-312-368-3158
or
Media Relations:
Hannah James, +1-646-582-4947
hannah.james@fitchratings.com