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Late last week, rating agency A.M. Best affirmed the issuer credit ratings (“ICR”) and debt ratings of W.R. Berkley Corp. (WRB - Analyst Report). The company’s senior unsecured notes were affirmed at ‘a’ while the trust preferred securities were affirmed at ‘bbb’.

A.M.Best acknowledges Berkley’s consistent strong earnings performance, pricing momentum and a stable growth environment going forward. The company’s easy accessibility to capital markets is also viewed favorably by the rating agency.

The rating agency noted that the company’s debt ratio stands at 33%, which is near the high end of its expected range of 25%– 35%. However, this is anticipated to come down once the company pays its debt due in early 2013.

In addition, A.M. Best has affirmed the financial strength ratings (“FSR”) and ICR of four of Berkley’s operating units – Berkley Insurance Group (Berkley Insurance), Admiral Insurance Group (Admiral), Berkley Regional Group (Berkley Regional) and Nautilus Insurance Group (Nautilus).

All ratings carry stable outlook.

The rating affirmation for Berkley Insurance and Berkley Regional comes on the back of their robust operating fundamentals. This includes disciplined underwriting, adequate capitalization, significant market diversification, wide product portfolio and unique market positioning. Moreover, prudent catastrophe risk managements at these units have led to a below-average exposure to cat loss, thereby limiting earnings volatility.

Also, Admiral and Nautilus ratings reflect the units’ favorable and consistent operations, adequate capitalization and well established market position in the surplus lines market.   

The rating affirmation for its Life and Health unit comes on the back of a consistently strong capital position, which is essential for business growth.   

Going forward a positive rating action may be seen if the units perform better than the expectations and strengthen their capitals further.  A reverse rating action is likely if adverse reserve development, deterioration in operating results and weakening of capital levels are witnessed.

Berkley also announced its estimate of cat loss from Hurricane Sandy for fourth quarter 2012. It expects the loss to be in the range of $40–$50 million, before tax. The figures have been reached after taking into account reinsurance and reinstatement premiums.

Insurers such as Allstate Corporation (ALL - Analyst Report), Chubb Corp. (CB - Analyst Report), The Travelers Companies Inc. (TRV - Analyst Report), ACE Ltd. (ACE - Analyst Report), Progressive Corp. (PGR - Analyst Report), XL Group plc (XL - Analyst Report) and Tower Group Inc. (TWGP - Analyst Report) have also been affected by Sandy.

Berkley currently retains a Zacks #3 Rank, which translates into a short-term Hold rating. Considering the fundamentals, we are also maintaining our long-term Neutral recommendation on the shares.

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