AM Best Affirms Credit Ratings of Berkshire Hathaway GUARD Insurance Companies' Members
AM Best has affirmed the Financial Strength Rating of A+ (Superior) and the Long-Term Issuer Credit Ratings of "aa-" (Superior) of WestGUARD Insurance Company, AmGUARD Insurance Company, EastGUARD Insurance Company, NorGUARD Insurance Company and AZGUARD Insurance Company (Omaha, NE), which operate under an intercompany pooling agreement. These companies are members of Berkshire Hathaway GUARD Insurance Companies (GUARD) and are domiciled in Wilkes-Barre, PA, unless otherwise specified. The outlook of these Credit Ratings (ratings) is stable.
The ratings reflect GUARD's balance sheet strength, which AM Best assesses as strongest, as well as its adequate operating performance, neutral business profile and appropriate enterprise risk management, with lift from parental support.
GUARD continues to report significant premium growth in the most recent five-year period, with the help of significant rate increases in most of its lines of business. During this period, it has consistently maintained solid risk-adjusted capitalization. GUARD's operating earnings have deteriorated in the past two years, due to the reduction in premium rates of its main line, workers' compensation, and unfavorable reserve development in the business owners policies (i.e., commercial multi-peril line). Additionally, Guard suffered from increase property losses due to Winter Storm Uri, Hurricane Ida and other catastrophes. Despite a downward revision to adequate from strong on the operating performance assessment, AM Best sees GUARD's operating performance as well-placed in the adequate assessment on an absolute basis and relative to the commercial casualty segment.
Additionally, the ratings further recognize the implicit and explicit financial support provided by GUARD's immediate parent, National Indemnity Company (NICO), including significant capital support via reinsurance transactions. NICO is a subsidiary of Berkshire Hathaway Inc. (Berkshire) [NYSE: BRK A and BRK B]. Due to the weakened operating performance over the past several years due to the impact of various catastrophes, AM Best anticipates that there will be additional explicit financial support provided by the parent organization to offset this weakening.
GUARD's adequate operating performane and strongest level of risk-adjusted capitalization are somewhat offset by above-average premium growth in most of its lines of business. While the group's workers' compensation business continues to produce long-term favorable return ratios, the group's fast-growing business lines have shown less favorable performance. However, GUARD has been deliberate and measured in its approach to the market, expecting these product lines to improve the scale and diversification of earnings in the long term, while the company continues to improve its exposure-mapping systems to prevent losses. Despite these concerns, the stable outlooks reflect GUARD's enhanced financial flexibility provided by Berkshire, which also manages GUARD's investment portfolio, solid balance sheet and historical underwriting profitability. GUARD's investment portfolio has contributed significantly to surplus growth through unrealized capital gains and accounted for more than half of surplus growth in the last five years.
The ratings could come under pressure if underwriting results and overall operating performance fail to improve to levels that approximate the group's historically stronger levels. A significant, sudden reduction in surplus resulting from losses in GUARD's investment portfolio, which has a significant allocation to equity holdings, or from significant unfavorable reserve development, also could create negative rating pressure. In addition, the ratings could experience negative pressure should Berkshire cease to provide sufficient financial and operational support.
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