(The following statement was released by the rating agency)
CHICAGO, September 12 (Fitch) Fitch Ratings has affirmed the
Default Rating (IDR) of Berkshire Hathaway Inc. (NYSE: BRK) and
Insurer Financial Strength (IFS) ratings on BRK's key insurance
The Rating Outlook is Stable. A complete list of rating actions
follows at the
end of this release.
Fitch's ratings on BRK are supported by extremely strong
market position of its insurance subsidiaries, solid operating
good diversification across business lines and excellent
Also considered in the ratings are material equity market risk,
catastrophe exposures, growing exposure to asbestos and
environmental risk and
various issues associated with the company's acquisition
BRK's consolidated financial leverage was 24% of total capital
as of June 30,
2013. Consolidated interest coverage for the first six months of
2013 was 9.4x
and excluded investment and derivative gains or losses from the
BRK's debt-to-total capital and debt-to-tangible capital ratios
at the holding
company level (including debt issued by the company's finance
subsidiaries that is guaranteed by BRK) were moderate at 17% and
respectively at June 30, 2013. BRK's ability to fund finance
operations at a low
cost is an important competitive advantage for the finance
operations and a
considerable portion of the finance company debt is guaranteed
Fitch's expectation is that BRK's major non-insurance business
the company's utilities and railroad business, will service
their own debt.
BRK reported net income of $9.4 billion for the first half of
2013, up from $6.4
billion in the comparable period of 2012. All segments reported
pre-tax earnings, but the insurance segment was responsible for
the majority of
the period-to-period increase. BRK's insurance group reported
$4.7 billion in
earnings before tax in the first half of 2013, accounting for
39% of BRK's $12.1
billion in total pre-tax earnings.
Burlington Northern and Santa Fe (BNSF) railroad operation
continues to make
significant contributions to earnings. BNSF reported a pretax
gain of $2.7
billion (22% of BRK's total pre-tax earnings) for the first six
months of 2013,
up from $2.4 billion over the comparable period in 2012.
BRK's first half 2013 annualized return on equity was 9.8%,
gains on fixed income securities, up from 7.5% in the comparable
period of 2012.
Consolidated operating interest coverage for the first six
months of 2013 was
9.4X, which is below Fitch's expectations of 12x for companies
at BRK's rating
level. Somewhat offsetting this is approximately $31 billion of
equivalents mostly at the insurance operating companies at June
30, 2013, which
would cover annual interest expense by 11x.
BRK's GAAP basis earnings will continue to be exposed to
given the large notional values and long duration of BRK's
derivative contracts. Additionally, Fitch believes that BRK's
earnings will be
exposed to potential volatility from the company's reinsurance
its exposure to catastrophe-related losses as well as the
company's large equity
BRK has grown its asbestos & environmental insured liability
retroactive reinsurance contracts most notably with Equitas
Limited, AIG and
CNA. Fitch estimates BRK has approximately $13 billion in A & E
year-end 2012 and these reserves covered average paid losses by
Key rating triggers that could lead to a future downgrade
--Deterioration in the credit quality of key insurance
Indemnity, GenRe, and GEICO) that is no longer consistent with
the current 'AA+'
rating. Measures of credit quality include Fitch's judgment of
total financing and commitments ratio greater than 1.5X, net
affiliated investments) over 3.5X or a sharp and persistent
--A consolidated run-rate debt-to-total capital ratio that
exceeds 30% or a
run-rate debt-to-total capital ratio from the holding company,
finance operations (including debt issued or guaranteed by the
that exceeds 25%.
--Material increases in leveraged equity market exposure such as
index put derivative portfolio.
--Acquisitions or other actions that reduce outstanding cash
below $10 billion
or approximately 5X consolidated interest expense.
Key rating triggers that could lead to an upgrade include:
--A commitment to lower debt-to-tangible capital ratios
attributed to the
holding company, insurance and finance operations. Fitch
believes that this
would likely require the scaling back of the finance operations.
Fitch has affirmed the following ratings:
Berkshire Hathaway, Inc.
--IDR at 'AA-'.
--$750 million floating rate senior notes due Aug. 2014 at 'A+';
--$1.7 billion 3.20% senior notes due February 2015 at 'A+';
--$300 million 0.8% senior notes due February 2016 at 'A+';
--$750 million 2.20% senior notes due August 2016 at 'A+';
--$1.1 billion 1.9% senior notes due January 2017 at 'A+';
--$800 million 1.55% senior notes due February 2018 at 'A+';
--$500 million 3.75% senior notes due August 2021 at 'A+';
--$600 million 3.40% senior notes due January 2022 at 'A+'
--$500 million 3% senior notes due February 2023 at 'A+';
--$1 billion 4.5% senior notes due February 2043 at 'A+'.
Berkshire Hathaway Finance Corporation (BHFC)
--IDR at 'AA-';
--$950 million 4.625% notes due October 2013 at 'A+';
--$375 million floating rate senior notes due January 2014 at
--$375 million 1.50% senior notes due January 2014 at 'A+';
--$400 million 5.1% notes due July 2014 at 'A+';
--$1 billion 4.85% notes due January 2015 at 'A+';
--$500 million 2.45% senior notes due December 2015 at 'A+';
--$1,350 million 1.6% senior notes due May 2017 at 'A+';
--$1.25 billion 5.4% notes due May 2018 at 'A+';
--$750 million 4.25% senior notes due January 2021 at 'A+';
--$775 million 3% senior notes due May 2022 at 'A+';
--$750 million 5.75% senior notes due January 2040 at 'A+';
--$725 million 4.4% senior notes due May 2042 at at 'A+';
--$500 million 4.3% senior notes due May 2043 at 'A+'.
--$600 million 0.95% notes due August 2016 'A+';
--$500 million 1.3% notes due May 2018 'A+';
--$400 million 2% notes due August 2018 'A+'.
--IDR at 'AA-';
--$150 million 7.4% senior notes due July 15, 2023 at 'A+'.
General Re Corporation
--IDR at 'AA-';
--$500 million commercial paper program 'F1+';
--Short-term IDR 'F1+'.
Fitch has affirmed the 'AA+' Insurer Financial Strength ratings
on the following
BRK insurance subsidiaries:
--Government Employers Insurance Company;
--General Reinsurance Corporation;
--General Star Indemnity Company;
--General Star National Insurance Company;
--Genesis Insurance Company;
--National Indemnity Company;
--Columbia Insurance Company;
--National Fire and Marine Insurance Company;
--National Liability and Fire Insurance Company;
--National Indemnity Company of the South;
--National Indemnity Company of Mid-America;
--Wesco Financial Insurance Company.
Douglas M. Pawlowski, CFA
Fitch Ratings, Inc.
70 W. Madison
Chicago, IL 60602
Christopher A. Grimes, CFA
Douglas L. Meyer, CFA
Media Relations: Brian Bertsch, New York, Tel: +1 212-908-0549,
Additional information is available at 'www.fitchratings.com'.
General Reinsurance Corp. subsidiary participated directly in
process, BRK did not participate other than through the medium
of its public
Applicable Criteria & Related Research:
--'Insurance Rating Methodology' (Aug. 19, 2013).
Applicable Criteria and Related Research:
Insurance Rating Methodology
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