Press Release - JUNE 17, 2014
A.M. Best Affirms Ratings of Berkshire Hathaway Homestate Insurance Company and Its Affiliates
FOR IMMEDIATE RELEASE
OLDWICK - JUNE 17, 2014
The ratings reflect BHHC's strong risk-adjusted capitalization, historically profitable operating performance and the successful track record of the executive team in managing operations. The ratings also acknowledge the group's conservative underwriting leverage measures, aggressive claims management, effective loss control services and history of conservative loss reserving standards. Lastly, the ratings consider the additional financial flexibility and support provided by the group's publicly traded parent and ultimate shareholder, Berkshire Hathaway Inc. [NYSE: BRK A and BRK B].
The positive rating factors are somewhat offset by the volatility in the group's underwriting results in recent years, challenging market conditions and its business profile, which is concentrated in the workers' compensation line primarily in California. Nearly two-thirds of direct writings were from the state of California in 2013. These elements of concentration expose the group to a heightened level of regulatory, judicial, legislative and competitive risks relative to its peers. An additional offsetting factor includes the risks associated with a large investment allocation in equity securities, as common stocks made up nearly 94% of policyholders' surplus at year-end 2013, thus remaining a potential source of volatility in earnings and capital appreciation. Despite these concerns, the rating outlook reflects the group's strong risk-adjusted capitalization, proven operating performance, management's ability to quickly adapt to changing market conditions and the long-term support of Berkshire Hathaway Inc.
While the group is well positioned at the current rating level, negative rating actions could result if operating performance falls markedly short of A.M. Best's expectations, if there is a considerable deterioration in risk-adjusted capitalization as measured by Best's Capital Adequacy Ratio, or if A.M. Best determines that the strategic importance of the group no longer warrants rating enhancement.
The methodology used in determining these ratings is Best's Credit Rating Methodology, which provides a comprehensive explanation of A.M. Best's rating process and contains the different rating criteria employed in the rating process. Best's Credit Rating Methodology can be found at www.ambest.com/ratings/methodology.
A.M. Best Company is the world's oldest and most authoritative insurance rating and information source.