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Rating Action:

Moody’s rates W. R. Berkley's subordinated notes Baa2(hyb)

16 September 2020

New York , September 16, 2020 – Moody's Investors Service, ("Moody's") has assigned a Baa2(hyb) rating to approximately $250 million of 40-year subordinated notes, issued by W. R. Berkley Corporation (W. R. Berkley) off its multi-purpose shelf registration. Net proceeds from the offering are expected to be used to redeem the company's remaining $150 million aggregate principal amount of subordinated debentures due 2053 and for general corporate purposes. The rating outlook for W. R. Berkley is stable.

RATINGS RATIONALE

W. R. Berkley's ratings reflect the company's strong franchise within the commercial and specialty insurance segment with a diverse array of small- to medium-sized risks, a disciplined approach to underwriting, the company's track record of strong, stable profitability coupled with low catastrophe risk and good risk adjusted capitalization. Partially offsetting these strengths are the company's exposure to long-tail casualty businesses, which have greater reserve and pricing risk. The company also maintains somewhat high operating and financial leverage, which we view as tempering the groups' strong operational profile.

For P&C insurers, including W. R. Berkley, the coronavirus-related economic downturn has raised claim costs in certain business lines and added volatility to investment performance and capital levels. For the first six months of 2020, W. R. Berkley reported net income of $67 million, down from $397 million in the prior year period, primarily due to coronavirus and other catastrophe-related losses and realized and unrealized investment losses. The company reported catastrophe losses of $225 million for the first six months of 2020, with $143 million in coronavirus-related claims for worker's compensation, event cancellation and short-tail lines, $20 million from civil unrest, and the remainder primarily from tornados, hail and other US storms. While the company's reported combined ratio increased to 97.8% in the first half of 2020, the underlying combined ratio, which excludes catastrophes and prior-year development, improved to 91.3% from 93.4% in the prior year period. The improvement in underlying combined ratio was primarily driven by rate increases in a number of business lines excluding workers' compensation, partially offset by rising social inflation costs. Moody's expects the company will maintain strong liquidity and good capital adequacy during the economic downturn.

Following the September 2020 maturity of $300 million of senior notes and the redemption of the aforementioned subordinated debentures, the company's pro forma financial leverage will remain in the low- to mid-30% range, within our expectations. The five-year average earnings coverage of interest remained solid at about 6.2x as of 2019.

FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATING

The following factors could lead to a ratings upgrade: adjusted financial leverage consistently below 25%; gross underwriting leverage below 3x; consistent profitability through the insurance cycle with returns on capital in excess of 10%. Factors that could lead to a ratings downgrade include: adjusted financial leverage over 33% and/or interest coverage consistently below 4x; gross underwriting leverage above 4x; a decline in shareholders' equity by 10% or more as a result of losses; adverse reserve development (more than 3% of reserves).

The following rating has been assigned:

W. R. Berkley Corporation –$250 million subordinated notes at Baa2(hyb).

Based in Greenwich, CT, W. R. Berkley Corporation is an insurance holding company that conducts business in many segments of the property & casualty insurance and reinsurance markets through its operating subsidiaries. For the first six months of 2020, W. R. Berkley reported gross premiums written of $4.4 billion and net income of $66.8 million. As of June 30, 2020, common shareholders' equity was approximately $5.8 billion.

The principal methodology used in this rating was Property and Casualty Insurers Methodology published in November 2019 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1187352 . Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

REGULATORY DISCLOSURES

For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004 .

For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

The rating has been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

This rating is solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1133569 .

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Jasper Cooper, CFA
VP-Sr Credit Officer
Financial Institutions Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS : 1 212 553 0376
Client Service : 1 212 553 1653

Sarah Hibler
Associate Managing Director
Financial Institutions Group
JOURNALISTS : 1 212 553 0376
Client Service : 1 212 553 1653

Releasing Office :
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS : 1 212 553 0376
Client Service : 1 212 553 1653

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