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Apr-14-2008Berkshire Unit Gets Triple A(topic overview)
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Standard & Poor's is the first big credit agency to rate the new bond insurer that Buffett formed, partly at the request of the New York state insurance superintendent. The $2.6 trillion municipal auction rate market has been rocked by the deep wounds suffered by bond insurers when they expanded into the subprime mortgage area. Some of Buffett's competing bond guarantors have been downgraded, and worried investors have sold billions of dollars of municipal debt backed by these companies and some of their rivals, which also were caught up in the subprime nightmare. This has left some U.S. states, cities and agencies eager for a new insurer with a top-notch rating. Investors, who do not want any more bonds from insurers they deem tainted, also are keen on having a new and solid company. S&P; said its rating on the new Berkshire Hathaway Assurance also reflects a guaranty by Buffett's Columbia Insurance Co. that extends Columbia's "AAA" rating to the new insurer. [1] SAN FRANCISCO (MarketWatch) -- Standard & Poor's Ratings Services Friday assigned its AAA financial strength and financial enhancement ratings to Berkshire Hathaway Assurance Corp. (BHAC). S&P; assigned its AAA financial enhancement rating to Columbia Insurance Co. "The ratings on BHAC are based on a guaranty from Columbia in favor of BHAC that extends the Columbia 'AAA' rating to BHAC," said Damien Magarelli, S&P;'s credit analyst. The outlook on both entities is stable.[2] Berkshire Hathaway Assurance Corp., Warren Buffett's fledgling bond insurer, has received AAA financial strength and financial enhancement ratings from Standard & Poor's Rating Services, the top rating available.[3]
S&P; says the outlook for BHAC is "stable." While welcome, the triple-A from S&P; is not a surprise, since Berkshire Hathaway itself is rated AAA Berkshire is backing BHAC both implicitly and explicitly, through its Columbia Insurance and National Indemnity subsidiaries. Moody's has been giving its top rating to bonds backed by BHAC, although the bond insurer itself does not have its own Moody's rating yet.[3] S&P; also notes that "BHAC has a surplus of nearly $1 billion as of the first quarter of 2008 and is licensed as a financial guaranty insurer in 48 states and District of Columbia."'''' (The National Association of Insurance Commissioners takes some credit for BHAC's fast-track licensing.) In its news release today, S&P; says its AAA rating for parent company Berkshire Hathaway Inc. is "based on its extremely strong competitive position, insurance and reinsurance capitalization, and financial flexibility."'' It is "one of the few holdings companies with insurance and reinsurance operations that maintains pricing power, cycle management, distribution, and underwriting competitive advantages."[3] 'The ratings on BHAC are based on a guaranty from Columbia in favor of BHAC that extends the Columbia 'AAA' rating to BHAC,' said S&P;'s credit analyst Damien Magarelli. Columbia owns 51 percent of BHAC and National Indemnity Co. (NICO) owns 49 percent of BHAC. Both Columbia and NICO are wholly owned indirect insurance operating subsidiaries of Berkshire Hathaway Inc.[4]
Columbia is a wholly owned indirect subsidiary of Berkshire Hathaway Inc., which also enjoys S&P;'s top rating.[1]
S&P; notes that potential volatility will be partially offset by Berkshire's noninsurance operations, which "continue to provide steady and increasingly higher amounts of diversified" earnings. The only reason S&P; might start thinking about lowering its Berkshire Hathaway rating: a delicately worded "change in management."'' It doesn't expect "the CEO" (Buffett) to retire, "except in the case of disability."[3]
NEW YORK -- Standard & Poor's assigned a triple-A rating to Berkshire Hathaway Inc.' s municipal bond.[5] NEW YORK (Reuters) - Billionaire Warren Buffett's new municipal bond insurance company on Friday won the top "AAA" rating from Standard & Poor's Ratings Services, which cited the venture's nearly $1 billion surplus.[1]
SOURCES
1. Berkshire Hathaway muni insurer wins top S&P; rating | Reuters
2. S&P; rates Berkshire Hathaway Assurance Corp. 'AAA' - MarketWatch
3. Warren Buffett's Bond Insurer Gets Top Rating from S&P; - Warren Buffett Watch - MSNBC.com
4. Berkshire Hathaway Assurance rated 'AAA' with stable outlook - S&P; - Forbes.com
5. Free Preview - WSJ.com
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