(Source: Business Wire)
A.M. Best Co. has affirmed the financial strength rating (FSR) of A++ (Superior) and issuer credit ratings (ICR) of "aaa" of National Indemnity Group (National Indemnity) and its reinsurance and insurance member companies. All companies are headquartered in Omaha, NE. The outlook for all ratings is stable. (See below for a detailed listing of the companies and ratings.)
The ratings reflect National Indemnity's superior risk-adjusted capitalization and market profile, historically excellent operating and total return measures, strong management team and solid liquidity. Despite a sizable reduction of policyholder surplus reported at year-end 2008 and further declines reported through first quarter 2009, the group maintains strong financial flexibility.
A.M. Best's view on National Indemnity's capitalization also assesses its capital position after an extreme catastrophic event as well as a material erosion in market valuation of common stock holdings. A key component of the ratings also takes into account National Indemnity's core importance within the Berkshire Hathaway Inc. (NYSE: BRK.A and BRK.B) organization given the amount of "float" that has been accumulated by National Indemnity and other Berkshire Hathaway insurance operations, which constitute a significant source of Berkshire Hathaway's total earnings and revenue base.
A.M. Best believes that National Indemnity's financial position benefits from the significant asset value, cash flow generation and diversified earnings of Berkshire Hathaway's non-insurance segments as well as Berkshire Hathaway's financial flexibility and holding company cash resources and financing ability. Including operational debt, Berkshire Hathaway maintains conservative financial leverage, with total debt-to-total capital at approximately 25%, and strong interest coverage measures.
Somewhat offsetting these positive rating factors is the organization's considerable common stock leverage, increased liability leverage related to retroactive reinsurance contracts that are expected to run off over a long duration and recent deployment of capacity that is magnified by a reduced surplus position. Management's long-standing investment philosophy has been to maximize its average annual rate of return through a buy and hold strategy of a limited number but diversified group of well-developed and stable companies. However, given the global financial crisis, unrealized pre-tax capital losses of approximately $13 billion contributed to a 20% reduction of the group's statutory surplus at year-end 2008, which have reduced its excess capital position.
