A.M. Best Assigns ‘A’ Rating to W.R. Berkley Insurance (Europe), Ltd. (WRB)

A.M. Best Co. has assigned a financial strength rating of A (Excellent) to W. R. Berkley Insurance (Europe), Limited (WRB), United Kingdom. The outlook is stable.

This newly established company was created by W. R. Berkley Corporation (WRBC) and Kiln plc to write professional indemnity insurance. The initial capitalization of the company is GBP 80 million (USD 133 million), 80 percent provided by WRBC and the remaining 20 percent provided by Kiln plc.

The rating benefits from explicit support in the form of a net worth maintenance agreement provided by the ultimate parent. It also reflects WRB’s excellent initial capitalization, its highly experienced management team, strong prospective financial performance and long-standing relationships with brokers in the London market. Offsetting factors are the logistical issues associated with establishing a new operation.

Excellent risk-based capitalization – According to A.M. Best’s risk-adjusted capital model, capitalization will be maintained at an excellent level. A.M. Best expects the company to grow its capital base through the retention of earnings, with no additional capital-raising being envisaged for the near future. A.M. Best expects the company to employ a conservative investment policy ensuring strong levels of liquidity.

Very good business profile- Gross premium income for 2004, the first full year of operation, is expected to be in excess of GBP 60 million (USD 100 million). The book will consist primarily of professional indemnity (over 80 percent of the total book) and general liability business, the majority of which will emanate from the United Kingdom.

Strong prospective financial performance – A.M. Best expects WRB’s financial performance to be excellent, taking into account the current shortage of professional indemnity capacity in the U.K. market and anticipated gradual stabilisation of rates for professional indemnity in the United Kingdom over the next few years. A.M. Best’s projections also reflect the track record of the current management and underwriting team for the proposed lines.

Logistical issues – The establishment of a new operation is likely to present significant challenges for the management team, with coordination required across all administrative activities, most of which will be outsourced.

Expectations:
WRB will build up gross premium volumes in the short term, while maintaining a risk-adjusted capital base commensurate with the company’s rating level. A.M. Best believes WRB will maintain a conservative reinsurance strategy based on a programme as indicated in its business plan.

A.M. Best will closely monitor the development of WRB’s operations, giving attention to its adherence to its business plan and the development of the operational infrastructure.