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Warren Buffett's Bond Insurer Gets Top Rating from S&P

Friday, 11 Apr 2008 | 4:22 PM ET

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.

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.

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."

While S&P expects Berkshire Hathaway's earnings will be "very strong" this year, they could be significantly affected "if a sizable natural catastrophe or terrorist event were to occur." But 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." But it doesn't expect "the CEO" (Buffett) to retire, "except in the case of disability."

Current Berkshire price:

Questions? Comments? Email me at buffettwatch@cnbc.com

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