Fitch Maintains Negative Watch on W.R. Berkley's Ratings; Affirms IFS Ratings; Outlook Stable

CHICAGO--()--Fitch Ratings has maintained its Negative Watch on W.R. Berkley Corporation's (Berkley) ratings, including the 'A-' Issuer Default Rating (IDR), and senior and subordinated debt. The Negative Watch will be readdressed in the next six months. Berkley's property/casualty operating subsidiaries' Insurer Financial Strength (IFS) ratings have been affirmed with a Stable Outlook. A complete list of rating actions follows at the end of this release.

KEY RATING DRIVERS

The Negative Watch on Berkley's holding company ratings reflects a financial leverage ratio (debt-to-total capital ratio excluding FAS 115) as of Sept. 30, 2016, of 35%, higher than similarly rated peers, which could lead to a one-notch downgrade of Berkley's senior ('BBB+') and subordinate debt ('BBB-'). Leverage has decreased slightly in the last six months as the company repaid $83 million of debt on various issuances and increased shareholders' equity. Fitch will monitor Berkley's financial leverage at year-end 2016 and subsequently resolve the Rating Watch. Berkley's financial flexibility remains adequate for the rating category with operating interest coverage of 5.6x through the first nine months of 2016 (9M16), equal to the coverage for full-year 2015.

The affirmation of Berkley's operating subsidiaries' IFS ratings reflects favorable long-term financial results with strong statutory capitalization, a diverse underwriting portfolio, and modest exposure to catastrophe losses. These positive factors are partially offset by the parent company's relatively high financial leverage and reserve risk stemming from long-tail casualty lines.

Berkley maintains a "Strong" business profile with varied business lines with a broad commercial insurance product portfolio that provides diversified sources of revenue and the flexibility to emphasize various products when market conditions are favorable, thus reducing the company's dependence on any single product line.

Berkley generated solid underwriting results in 9M16 with a 94.1% combined ratio following a 9M15 combined ratio of 94.0%. Common shareholders' equity increased by approximately 7.1% in the 9M16 to over $4.9 billion, reflecting solid earnings and investment gains. GAAP operating leverage (net premiums written to common equity excluding FAS 115) remains relatively low under 1.4x. Net leverage was roughly 4.1x at Dec. 31, 2015, similar to recent years.

Fitch believes that Berkley remains positioned to expand premium opportunistically with underwriting exposure growth at a time where premium rate competition is increasing. Growth in net premiums written was 4.8% in the 9M16, following 3.2% growth for full-year 2015.

RATING SENSITIVITIES

Berkley's holding company ratings risk incurring a one-notch downgrade if financial leverage is maintained above 35%. A decline in financial leverage to below 35% that is sustained is more likely to lead to a rating affirmation and a move from Negative Watch to a Stable Outlook.

Other key rating triggers that could lead to a downgrade of both Berkley's IFS and holding company ratings include:

--Operating interest coverage below 5.5x;

--Net leverage moving to above 5x due to higher than expected losses in the investment portfolio, material adverse reserve development, or poor results;

--A deterioration of operating performance including a consistent underwriting loss.

Key rating triggers that could lead to an upgrade of Berkley's IFS and holding company ratings include:

--A sustained reduction in financial leverage to the low to mid-20% range; combined with,

--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 maintained the Negative Watch on the following ratings:

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-'.

Fitch has affirmed the following ratings with a Stable Outlook:

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+'.

Additional information is available on www.fitchratings.com

Applicable Criteria

Insurance Rating Methodology (pub. 15 Sep 2016)

https://www.fitchratings.com/site/re/887191

Additional Disclosures

Dodd-Frank Rating Information Disclosure Form

https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=1014823

Solicitation Status

https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=1014823

Endorsement Policy

https://www.fitchratings.com/regulatory

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTPS://WWW.FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. 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. 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.

Copyright © 2016 by Fitch Ratings, Inc., Fitch Ratings Ltd. and its subsidiaries. 33 Whitehall Street, NY, NY 10004. Telephone: 1-800-753-4824, (212) 908-0500. Fax: (212) 480-4435. Reproduction or retransmission in whole or in part is prohibited except by permission. All rights reserved. In issuing and maintaining its ratings and in making other reports (including forecast information), Fitch relies on factual information it receives from issuers and underwriters and from other sources Fitch believes to be credible. Fitch conducts a reasonable investigation of the factual information relied upon by it in accordance with its ratings methodology, and obtains reasonable verification of that information from independent sources, to the extent such sources are available for a given security or in a given jurisdiction. The manner of Fitch's factual investigation and the scope of the third-party verification it obtains will vary depending on the nature of the rated security and its issuer, the requirements and practices in the jurisdiction in which the rated security is offered and sold and/or the issuer is located, the availability and nature of relevant public information, access to the management of the issuer and its advisers, the availability of pre-existing third-party verifications such as audit reports, agreed-upon procedures letters, appraisals, actuarial reports, engineering reports, legal opinions and other reports provided by third parties, the availability of independent and competent third- party verification sources with respect to the particular security or in the particular jurisdiction of the issuer, and a variety of other factors. Users of Fitch's ratings and reports should understand that neither an enhanced factual investigation nor any third-party verification can ensure that all of the information Fitch relies on in connection with a rating or a report will be accurate and complete. Ultimately, the issuer and its advisers are responsible for the accuracy of the information they provide to Fitch and to the market in offering documents and other reports. In issuing its ratings and its reports, Fitch must rely on the work of experts, including independent auditors with respect to financial statements and attorneys with respect to legal and tax matters. Further, ratings and forecasts of financial and other information are inherently forward-looking and embody assumptions and predictions about future events that by their nature cannot be verified as facts. As a result, despite any verification of current facts, ratings and forecasts can be affected by future events or conditions that were not anticipated at the time a rating or forecast was issued or affirmed.

The information in this report is provided "as is" without any representation or warranty of any kind, and Fitch does not represent or warrant that the report or any of its contents will meet any of the requirements of a recipient of the report. A Fitch rating is an opinion as to the creditworthiness of a security. This opinion and reports made by Fitch are based on established criteria and methodologies that Fitch is continuously evaluating and updating. Therefore, ratings and reports are the collective work product of Fitch and no individual, or group of individuals, is solely responsible for a rating or a report. The rating does not address the risk of loss due to risks other than credit risk, unless such risk is specifically mentioned. Fitch is not engaged in the offer or sale of any security. All Fitch reports have shared authorship. Individuals identified in a Fitch report were involved in, but are not solely responsible for, the opinions stated therein. The individuals are named for contact purposes only. A report providing a Fitch rating is neither a prospectus nor a substitute for the information assembled, verified and presented to investors by the issuer and its agents in connection with the sale of the securities. Ratings may be changed or withdrawn at any time for any reason in the sole discretion of Fitch. Fitch does not provide investment advice of any sort. Ratings are not a recommendation to buy, sell, or hold any security. Ratings do not comment on the adequacy of market price, the suitability of any security for a particular investor, or the tax-exempt nature or taxability of payments made in respect to any security. Fitch receives fees from issuers, insurers, guarantors, other obligors, and underwriters for rating securities. Such fees generally vary from US$1,000 to US$750,000 (or the applicable currency equivalent) per issue. In certain cases, Fitch will rate all or a number of issues issued by a particular issuer, or insured or guaranteed by a particular insurer or guarantor, for a single annual fee. Such fees are expected to vary from US$10,000 to US$1,500,000 (or the applicable currency equivalent). The assignment, publication, or dissemination of a rating by Fitch shall not constitute a consent by Fitch to use its name as an expert in connection with any registration statement filed under the United States securities laws, the Financial Services and Markets Act of 2000 of the United Kingdom, or the securities laws of any particular jurisdiction. Due to the relative efficiency of electronic publishing and distribution, Fitch research may be available to electronic subscribers up to three days earlier than to print subscribers.

For Australia, New Zealand, Taiwan and South Korea only: Fitch Australia Pty Ltd holds an Australian financial services license (AFS license no. 337123) which authorizes it to provide credit ratings to wholesale clients only. Credit ratings information published by Fitch is not intended to be used by persons who are retail clients within the meaning of the Corporations Act 2001

Contacts

Fitch Ratings
Primary Analyst
Christopher A. Grimes, CFA, +1-312-368-3263
Director
Fitch Ratings, Inc.
70 West Madison Street
Chicago, IL 60602
or
Secondary Analyst
Douglas Pawlowski, CFA, +1-312-368-2054
Senior Director
or
Committee Chairperson
Douglas L. Meyer, CFA, +1-312-368-2061
Managing Director
or
Media Relations
Hannah James, New York, +1-646-582-4947
hannah.james@fitchratings.com

Contacts

Fitch Ratings
Primary Analyst
Christopher A. Grimes, CFA, +1-312-368-3263
Director
Fitch Ratings, Inc.
70 West Madison Street
Chicago, IL 60602
or
Secondary Analyst
Douglas Pawlowski, CFA, +1-312-368-2054
Senior Director
or
Committee Chairperson
Douglas L. Meyer, CFA, +1-312-368-2061
Managing Director
or
Media Relations
Hannah James, New York, +1-646-582-4947
hannah.james@fitchratings.com