Rating for Buffett's Berkshire cut by S&P

Thu May 16, 2013 4:48pm EDT
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By Jennifer Ablan, Ben Berkowitz and Jonathan Stempel

(Reuters) - Warren Buffett's Berkshire Hathaway Inc (BRKa.N: Quote) (BRKb.N: Quote) had its credit rating cut one notch by Standard & Poor's, which cited a new methodology for evaluating insurers and Berkshire's dependence on its insurance business for dividend income.

The rating was cut to "AA" from "AA-plus," and S&P assigned a "negative" outlook, suggesting another cut could occur within a few years. S&P left its credit and financial strength ratings for Berkshire's insurance operating units at "AA-plus."

Thursday's downgrade brings S&P's rating in line with the "Aa2" rating that Berkshire holds from Moody's Investors Service. Those ratings are the agencies' third-highest.

"The lower credit rating on Berkshire better reflects our view of Berkshire's dependence on its core insurance operations for most of its dividend income," S&P analyst John Iten wrote.

Jeff Matthews, a Berkshire shareholder who has written books about the company, said S&P's concerns appeared overblown, citing the insurance units' profitability and the $73 billion of "float," or money held between when policyholders make payments and claims are paid, they provide to help Berkshire invest.

"Which would S&P rather have, a lousy insurance underwriter with 'non-volatile' investments, or a world-class insurance underwriter with world-class, if sometimes 'volatile,' investments?" he asked.

Berkshire was rated "triple-A" by Moody's and S&P as recently as 2009. It lost the ratings after the global financial crisis boosted potential liabilities, and Buffett bought the railroad Burlington Northern Santa Fe Corp for $26.5 billion.

S&P said that while Berkshire retains a "very strong financial risk profile," with noninsurance operations generating a majority of operating profit, only Burlington Northern provides a significant portion of total dividends paid by those operating companies to the parent holding company.   Continued...

Berkshire Hathaway shareholders walk by a video screen at the company's annual meeting in Omaha May 4, 2013. REUTERS/Rick Wilking