The shares of
Berkshire Hathaway Inc.
) moved up 0.4% and closed at $126.98 on May 22, following the
affirmation of the financial strength rating (FSR) as well as
issuer credit ratings (ICR) of the company's subsidiaries by A.M.
Best on May 21.
The affirmations include FSR of A++ and issuer credit ratings of
"aaa" of National Indemnity Company; FSR of A- and ICR of "a-" of
Finial Reinsurance Company; ICR of "bbb-" and the debt rating of
"bbb-" of Finial Holdings Inc.; FSR of A++ and ICR of "aa+" of
Berkshire Hathaway Life Insurance Company of Nebraska ("BHLN") and
the FSR of A+ and ICR of "aa-" of First Berkshire Hathaway Life
The ratings of all these units carry a stable outlook, are of
investment grade and acknowledge their sturdy risk-adjusted capital
level. These also reflect their operating profitability and
available benefits that the units enjoy from their being part of
Other positives that support the ratings of National Indemnity
Company are its diversified market position and a talented
executive team which manages operations efficiently. The rating
agency also positively views the unit's ability to tide over
difficult market situations. Additionally, the support from Warren
Buffett in terms of his impeccable investment acumen has generated
strong investment returns for the organization thereby improving
However, the rating agency views an above-average allocation of
equity in the company's investment portfolio as a risk that can
restrict its results. But the presence of a high percentage of
equity is less bothersome to the rating agency as the long-term
performance of the unit's investment portfolio reveals superior
A.M.Best views the succession of Warren Buffett at Berkshire
Hathaway as a common factor affecting all the entities equally
under review. There remains uncertainty regarding the leadership of
the conglomerate after Buffett. Though Buffett has indicated that a
successor has almost be finalized, the identity remains under veil.
It remains to be seen whether the new head will able to match the
acumen of Buffett.
For National Indemnity, a negative rating action may occur if there
is a decline in operating performance and capital position.
The rating agency also detailed the factors that went into the
rating affirmation for Berkshire Hathaway Life Insurance Company of
Nebraska. Per the agency, the unit boasts a strong capital
position, derives all the direct and indirect benefits of being
associated with Berkshire Hathaway and has also witnessed an
increased level of transaction activity. Still, the unit's
disappointing mortality business and its high exposure to
non-insurance common stock investments are some headwinds.
Financial strength and credit ratings, which intend to measure a
company's ability to meet policyholder obligations, are important
factors affecting public confidence and creditworthiness of a
company, and hence contribute to a company's competitiveness.
Securing an investment grade debt rating with a stable outlook
reflects the optimism surrounding Berkshire Hathaway.
Berkshire Hathaway holds a Zacks Rank #2 (Buy). Other players from
the same industry such as
Allied World Assurance Company Holdings, AG
AmTrust Financial Services, Inc.
) and Aspen Insurance Holdings Ltd. (
) with a Zacks Rank #1(Strong Buy) are also worth considering.
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