A.M. Best Rates Berkshire Units, Shares Rise

Zacks

The shares of Berkshire Hathaway Inc. (BRK.A) (BRK.B) 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 Insurance Company.

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 Berkshire Hathaway.

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 overall profitability.

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 results.

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.

Other Stocks

Berkshire Hathaway holds a Zacks Rank #2 (Buy). Other players from the same industry such as Allied World Assurance Company Holdings, AG (AWH), AmTrust Financial Services, Inc. (AFSI) and Aspen Insurance Holdings Ltd. (AHL) with a Zacks Rank #1(Strong Buy) are also worth considering.

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