A.M. Best Affirms Ratings of Berkshire Hathaway Inc.’s Subsidiaries

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OLDWICK, N.J.--(BUSINESS WIRE)--

A.M. Best 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 FSR of A- (Excellent) and ICR of “a-” of Finial Reinsurance Company (Stamford, CT), as well as the ICR of “bbb-” and the debt rating of “bbb-” of Finial Holdings Inc. (Delaware). 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 the 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’s management team is adept at dealing with 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 and its superior market profile provide National Indemnity with the ability to outperform the market in terms of underwriting performance. Furthermore, 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 consistently 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 after being tested by 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 continue to pose a risk to the organization and is a 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.

National Indemnity’s ratings could experience negative rating actions if large catastrophic losses in combination with large investment losses decrease its risk-based capitalization below the expectations of A.M. Best and/or the company experiences a series of operating losses over several years that exceed A.M. Best’s expectations.

The ratings of BHLN recognize its adequate level of risk-adjusted capitalization, recent increased transaction activity and the implicit and explicit benefits of being part of the Berkshire organization. Partially offsetting these positive rating factors are BHLN’s underperforming block of mortality business and its heavy concentration in an affiliated non-insurance common stock investments.

Positive rating movements for BHLN are unlikely. Key rating drivers that may lead to negative rating actions include a material deterioration in its operating performance, lack of capital support from the parent, decreased importance within National Indemnity and/or substantial deterioration in 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
  • Berkshire Hathaway Specialty Insurance Company

    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 www.ambest.com/ratings/methodology.

A.M. Best Company is the world's oldest and most authoritative insurance rating and information source. For more information, visit www.ambest.com.

Copyright © 2014 by A.M. Best Company, Inc. ALL RIGHTS RESERVED.

Contact:
A.M. Best Company
Peter Dickey—P/C, 908-439-2200, ext. 5053
Assistant Vice President
peter.dickey@ambest.com
or
Edward Kohlberg—L/H, 908-439-2200, ext. 5664
Senior Financial Analyst
edward.kohlberg@ambest.com
or
Rachelle Morrow, 908-439-2200, ext. 5378
Senior Manager, Public Relations
rachelle.morrow@ambest.com
or
Jim Peavy, 908-439-2200, ext. 5644
Assistant Vice President, Public Relations
james.peavy@ambest.com

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