AM Best has affirmed the credit ratings of Berkshire Hathaway Homestate Insurance Company and its affiliates.
AM Best Affirms Ratings
AM Best has affirmed the Financial Strength Rating (FSR) of A++ (Superior) and the Long-Term Issuer Credit Ratings (Long-Term ICR) of “aa+” (Superior) for Berkshire Hathaway Homestate Insurance Company (Omaha, NE) and its five property/casualty affiliates. These companies are collectively known as Berkshire Hathaway Homestate Companies (BHHC). The outlook for these ratings is stable.
The ratings reflect BHHC’s balance sheet strength, which AM Best assesses as strongest, as well as its strong operating performance, neutral business profile and appropriate enterprise risk management.
These ratings also account for the financial flexibility and support from the group’s parent company, Berkshire Hathaway Inc. [NYSE: BRK A and BRK B].
BHHC’s consistently excellent risk-adjusted capitalization is also a factor. Despite occasional valuation fluctuations in the group’s equity portfolio, BHHC’s risk-adjusted capitalization, as measured by Best’s Capital Adequacy Ratio (BCAR), has consistently supported the strongest balance sheet strength assessment.
The group’s ratings further acknowledge its historically profitable operating performance. AM Best notes that BHHC’s key operating metrics consistently outperform peer benchmarks, especially when considering the group’s long-term investment results.
Workers’ Compensation Concentration in California
The positive rating factors are partially offset by tough market conditions and BHHC’s business profile, which is somewhat concentrated in the workers’ compensation line of business, mostly in California. Approximately half of BHHC’s direct writings come from California. This concentration has decreased as the group’s California workers’ compensation business has shrunk due to increased competition. This has been accompanied by business diversification outside of California, alongside strong growth in other insurance classes such as commercial auto and property lines. These classes now represent roughly one-third of total premiums and have combined to generate consistent underwriting profits over the past four years.
However, the large amount of California workers’ compensation business still exposes the group to a heightened level of regulatory, judicial, legislative, and competitive dangers relative to its peers.
The group’s long-tail focus also exposes its balance sheet strength to potential reserve volatility from high inflation and reinforces the need for BHHC to maintain its historically prudent reserving practices.
AM Best notes the favorable reserve development has added consistently and significantly to earnings for a prolonged period, and that any substantial decline or reversal of this favorable trend could negatively impact the group’s operating performance.
An additional offsetting rating factor is the risk associated with a large investment allocation in equity securities, which remains a potential source of volatility in earnings and capital appreciation.
The FSR of A++ (Superior) and the Long-Term ICR of “aa+” (Superior) have been affirmed with a stable outlook for Berkshire Hathaway Homestate Insurance Company and its following property/casualty affiliates:
- Cypress Insurance Company (San Francisco, CA)
- Oak River Insurance Company (Omaha, NE)
- Redwood Fire and Casualty Insurance Company (Omaha, NE)
- BHHC Special Risks Insurance Company (North Liberty, IA)
- Continental Divide Insurance Company (Denver, CO)
For more information, visit www.ambest.com.
