Best Sees No Change in National Indemnity Ratings from Equitas Deal

In a comment issued after the announcement that National Indemnity has reached an agreement in principal to enter into a significant reinsurance transaction with Llloyd’s run-off vehicle Equitas Ltd. (See IJ Website Oct. 20), A.M. Best Co. said that “the financial strength ratings of “A++” (Superior) and the issuer credit ratings of “aaa” of National Indemnity Group and its rated subsidiaries remain unchanged. The outlook for all ratings is stable.

Best indicated that,” although the transaction is pending regulatory approval–given the potential magnitude of such a transaction and the relative characteristics of any assumed liabilities, which include a substantial portion of asbestos and environmental (A&E) loss reserves—” it has “conducted preliminary due diligence and believes it is unlikely that National Indemnity’s ratings will be affected.”

Best also said its view is based on information it received from National Indemnity. Should the transaction proceed, Best said it “expects to conduct further analysis to assess any potential rating impacts based on updated information.

“The ratings of National Indemnity reflect its core importance within the Berkshire Hathaway Inc. insurance and non-insurance organizations, its superior risk-adjusted capitalization, premiere market profile, proven management and largely exceptional earnings.”

Best also noted that “modestly offsetting these strengths are National Indemnity’s considerable common stock leverage, potential exposure to large catastrophe losses and exposure to the run-off of long-term casualty liabilities. Nonetheless, A.M. Best believes that National Indemnity could withstand the compound effects of a mega-catastrophe and moderate devaluation in invested assets while still maintaining its superior financial strength.”