Rating agency A.M. Best Co. undertook a rating action on a
number of subsidiaries of Berkshire Hathaway Inc. (
The rating agency affirmed the financial strength rating (FSR)
and issuer credit ratings (ICR) of A++ and "aaa" respectively of
National Indemnity Corporation. It also affirmed ICR of
"bbb-" and debt rating of "bbb-" on Finial Holdings Inc., FSR of
A- and ICR of "a-" of Finial Reinsurance Company, and FSR of A++
and ICR of "aa+" of Berkshire Hathaway Life Insurance Company of
Concurrently, it reiterated FSR of A+ (Superior) and ICR of
"aa-" of First Berkshire Hathaway Life Insurance Company.
All the ratings are of superior category and carry a stable
A.M. Best backed its rating affirmation on National Indemnity
on its solid operating performance, strong capital position and
market presence. It also takes into account the substantial
contribution of the subsidiary to the consolidated company's
revenue. The subsidiary's highly talented and focused
underwriting team along with good investment management by Warren
Buffett makes it possible for the unit to deliver favorable
operating results consistently. The rating agency also has a
favorable view of the unit's ability to maintain strong risk
adjusted capital levels despite significant loss activity.
The unit made investments to expand its reach in the excess
and surplus lines market. This strategic action is expected to
generate additional earnings in the near term, which will
solidify the unit's capital.
However, the above mentioned positives are offset by an above
average equity concentration in the company's investment
portfolio, which exposes income from investment to market
Moreover, speculations surrounding Buffett's succession plans
might as well have an adverse effect on the ratings not only for
National Indemnity but also for other units.
Despite the stable outlook, National Indemnity can see a
rating downgrade, in case its earnings get hit by cat losses or
investment losses, thereby causing loss of capital.
As for BHLN, the rating agency takes into account the unit's
adequate risk-based capitalization, favorable operating earnings
and the direct and indirect benefits of being a part of a huge
company. However, factors offsetting these positives include the
unit's exposure to below investment grade assets, and excess
investment in an affiliated non-insurance common stock. The
agency may downgrade BHLN if its operating results or capital
We do not see any material reason that may cause any rating
downgrade for the subsidiaries in the near term. The holding
company is doing well and the subsidiaries are likely to benefit
Berkshire Hathaway retains a Zacks Rank #2 (Buy). Other
players from the same industry such as Alleghany Corp. (
), Hanover Insurance Group Inc. (
) and Global Indemnity plc (
) all with Zacks Rank #1(Strong Buy) are worth considering.
BERKSHIRE HTH-A (BRK.A): Free Stock Analysis
GLOBAL INDEMNTY (GBLI): Free Stock Analysis
HANOVER INSURAN (THG): Free Stock Analysis
ALLEGHANY CORP (Y): Free Stock Analysis
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