CHICAGO--(BUSINESS WIRE)--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.
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
Insurance Rating Methodology (pub. 15 Sep 2016)
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