A.M. Best Co. has undertaken a rating action on the Government
Employees Group (GEICO) which is a group of companies under GEICO
Corp., which in turn is a unit of
Berkshire Hathaway Inc.
) wholly owned subsidiary, National Indemnity Company.
The rating action included reiteration of the financial strength
rating (FSR) of A++ and the issuer credit ratings (ICR) of
"aaa" of the member companies of GEICO. A.M. Best also
retained the ICR of "aaa" as well as the debt rating of "aaa" on
$150 million 7.35% senior unsecured debentures, due 2023, of the
immediate parent holding, GEICO Corp.
The rating agency acknowledges the vast operational scale of GEICO
which primarily writes private passenger automobile insurance,
offering coverage to insureds in all U.S. states and the District
The rating agency views favorably GEICO's marketing strategy which
deploys a direct response method in which customers apply for
coverage directly to the company via the Internet or over the
telephone. This is a significant element in the company's strategy
which makes it a low-cost auto insurer.
Other strengths of the company that drove the positive rating
action include consistent generation of favorable loss experience
which signifies its underwriting expertise. The unit has also
generated a positive investment income. A combination of both the
above factors has enabled the company to maintain a thick capital
cushion over the last five years and payout a handsome dividend to
GEICO also enjoys the direct and indirect benefits from being part
of the conglomerate Berkshire Hathaway, which boasted $227.6
billion in stockholders' equity as of the first quarter ended Mar
31, 2014. The unit also maintains a low level of financial leverage
and generates healthy cash flow.
Nevertheless, the unit's exposure to a high amount of equity in its
investment portfolio and a high percentage of business accruing
from 5 states pose concentration risks.
The ratings carry a stable outlook. A.M.Best is unlikely to make
any rating change in the near term. A negative rating action,
however, may follow in case equity markets behave adversely and the
company shows poor underwriting results.
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 its competitiveness. Securing an investment
grade debt rating with a stable outlook reflects optimism on the
Berkshire Hathaway carries a Zacks Rank #2 (Buy). Other players
from the same industry such as
Allied World Assurance Company Holdings, AG
AmTrust Financial Services, Inc.
Aspen Insurance Holdings Ltd.
) are also worth considering. All these stocks sport a Zacks Rank
#1 (Strong Buy).
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