A.M. Best Affirms Ratings of Berkshire Hathaway Inc.’s Subsidiaries
May 17, 2013 by Best's News Service
OLDWICK, N.J. – A.M. Best Co. has affirmed the financial strength rating (FSR) of A++ (Superior) and issuer credit ratings (ICR) of “aaa” of National Indemnity Company (Omaha, NE) (National Indemnity) and its affiliates. Concurrently, A.M. Best has affirmed the ICR of “bbb-” and debt rating of “bbb-” of Finial Holdings Inc. (Delaware) as well as the FSR of A- (Excellent) and ICR of “a-” of Finial Reinsurance Company (Stamford, CT). A.M. Best also has affirmed the FSR of A++ (Superior) and ICR of “aa+” of Berkshire Hathaway Life Insurance Company of Nebraska (BHLN) and FSR of A+ (Superior) and ICR of “aa-” of First Berkshire Hathaway Life Insurance Company (FBHL) (New York, NY). These companies are all subsidiaries of Berkshire Hathaway Inc. (Berkshire) [NYSE: BRK A and BRK B]. The outlook for all ratings is stable. All companies are headquartered in Omaha, NE, unless otherwise specified. (See below for a detailed listing of the companies and ratings.)
The affirmation for the ratings of National Indemnity reflects its consistently superior operating performance, historically strong risk-adjusted capitalization and global market profile. National Indemnity is a proven contributor to Berkshire’s overall operating strategy and ongoing success.
National Indemnity’s management team is adept at managing the underwriting cycle and has the financial resources and acumen necessary to take advantage of unique opportunities. A.M. Best believes that this distinctive aspect provides National Indemnity with the ability to outperform the market in terms of underwriting performance and its superior market profile. National Indemnity’s operating performance is enhanced by the investment returns generated by the strategies of its chief executive officer, (CEO) Mr. Warren Buffett, whose investment expertise is heavily relied upon to bolster the total returns of the organization.
National Indemnity’s risk-based capitalization remains at the superior level. Historically, the company has managed its aggregate risk accumulations conservatively, and as a result, its risk-based capitalization has continued to remain in the superior range even with a series of severe shock losses.
Partially offsetting these strengths is National Indemnity’s exposure to higher levels of equity investments as compared to most of its peers. These higher levels of equity investments can result in volatile results; however, A.M. Best’s concern is somewhat mitigated by National Indemnity’s investment portfolio’s superior long-term performance.
The importance of Mr. Buffett (as CEO) to the entire Berkshire organization and the lack of transparency with regard to his successor definitely pose a risk to the organization and is a continuing concern for A.M. Best. Although A.M. Best believes there are very strong internal candidates to succeed Mr. Buffett, the lack of clarity in regards to a chosen successor adds a degree of uncertainty to the future direction of the corporation, as Mr. Buffett personally controls the capital allocation within the firm. Nevertheless, A.M. Best believes Berkshire’s corporate strategy, culture and decentralized operating structure will facilitate a successful transition in management when it occurs.
Recently, announcements were made concerning National Indemnity’s expansion into the excess & surplus lines market. A.M Best anticipates that this expansion will be measured and controlled as all necessary financial resources of the Berkshire organization will be made available for its latest endeavor. The expanded excess & surplus lines operations are anticipated to be profitable in the near term with only a moderate effect on risk-based capitalization.
National Indemnity’s ratings could experience negative rating actions if large catastrophic losses in combination with large investment losses decreased its risk-based capitalization below the expectations of A.M. Best or it experiences a series of operating losses over several years that exceed A.M. Best’s expectations.
The ratings of BHLN recognize its acceptable level of risk-adjusted capitalization, premium growth and the implicit and explicit benefits of being part of the Berkshire organization. Partially offsetting these positive rating factors are BHLN’s exposure to below investment grade bonds, uncertainty surrounding longer-term mortality development of the recently assumed blocks of business and its heavy concentration in an affiliated non-insurance common stock investment.
BHLN is well positioned at its current rating level. Key rating drivers that may lead to negative rating actions include a material deterioration in BHLN’s operating performance, lack of capital support from Berkshire or substantial deterioration in its risk-adjusted capitalization as measured by Best’s Capital Adequacy Ratio (BCAR).
The FSR of A++ (Superior) and ICRs of “aaa” have been affirmed for National Indemnity Company and its following affiliates:
· Columbia Insurance Company
· National Fire & Marine Insurance Company
· National Liability & Fire Insurance Company
· National Indemnity Company of Mid-America
· National Indemnity Company of the South
The following debt rating has been affirmed:
Finial Holdings, Inc.—
– “bbb-” on $200 million 7.125% senior unsecured notes, due 2023
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 http://www.ambest.com/ratings/methodology. BN-NJ-05-15-2013 1525 ET #