AM Best has revised the outlooks for the members of Berkshire Hathaway GUARD Insurance Companies (GUARD) to negative from stable. This includes WestGUARD Insurance Company, AmGUARD Insurance Company, EastGUARD Insurance Company, NorGUARD Insurance Company, and AZGUARD Insurance Company, all domiciled in Omaha, Nebraska, and operating under an intercompany pooling agreement. Despite the revised outlook, AM Best has affirmed the group’s Financial Strength Rating (FSR) of A+ (Superior) and Long-Term Issuer Credit Ratings (ICR) of “aa-” (Superior).
Credit Strengths and Deteriorating Underwriting Results
The affirmed ratings reflect GUARD’s:
- Strongest level of balance sheet strength, as assessed by AM Best.
- Adequate operating performance over the long term.
- Neutral business profile and appropriate enterprise risk management (ERM) practices.
- Support from its immediate parent, National Indemnity Company (NICO), a subsidiary of Berkshire Hathaway Inc. [NYSE: BRK.A and BRK.B], which includes significant capital support through reinsurance transactions and capital contributions.
However, the negative outlook is driven by sharp deterioration in underwriting results beginning in the 2023 calendar year and worsening through the first nine months of 2024. This decline primarily stems from underperformance in business lines other than workers’ compensation, which continues to be a solid performer for the group.
Factors Driving Underwriting Challenges
GUARD experienced substantial underwriting losses in 2023 and 2024, largely due to:
- Material reserve strengthening across several non-workers’ compensation business lines.
- Performance issues in admitted personal lines, which the group has since discontinued.
- Challenges in its commercial auto and business owners policy (BOP) programs.
To address these challenges, GUARD has implemented several corrective measures, including:
- Exiting underperforming personal lines of business.
- Re-underwriting its commercial auto and BOP programs.
- Making significant investments in systems, internal controls, and personnel.
Additionally, GUARD has undergone a major leadership overhaul, with an almost entirely new senior management team introduced over the past 18 months. The new leadership is tasked with restoring underwriting performance to previously adequate levels.
Mitigating Factors: Support from Berkshire Hathaway
Concerns about GUARD’s credit profile are mitigated by its position as a subsidiary of Berkshire Hathaway Inc. The financial strength and support provided by its parent company remain critical to GUARD’s overall stability. Key mitigating factors include:
- Internal reinsurance agreements with NICO, which significantly offset the impact of adverse prior-year loss reserve development.
- A capital infusion from NICO in Q2 2024, bolstering GUARD’s balance sheet strength to maintain its strongest-level assessment.
These measures demonstrate Berkshire Hathaway Inc.’s commitment to supporting GUARD through challenging periods.
