S&P cuts Berkshire Hathaway rating one notch to 'AA'

Berkshire Hathaway chairman Warren Buffett holds his hand over his heart during the singing of the national anthem, at the start of a 5km race sponsored by Brooks Sports Inc., a Berkshire-owned company, in Omaha May 5, 2013, a day after the company's annual meeting. REUTERS/Rick Wilking

(Reuters) - Credit-rating agency Standard & Poor's on Thursday cut its rating on Berkshire Hathaway Inc BRKa.NBRKb.N, the insurance and industrial conglomerate controlled by billionaire investor Warren Buffett, one notch, citing the company's reliance on its insurance operations for dividend income.

S&P cut the counterparty rating on Berkshire to “AA” from “AA+,” but the agency left Berkshire’s insurance units’ financial strength ratings intact at “AA+.”

“The lower credit rating on BRK better reflects our view of BRK’s dependence on its core insurance operations for most of its dividend income,” said Standard & Poor’s analyst John Iten.

The outlook on all ratings is negative, S&P said in a statement, and cited two reasons: a ratings cap for financial companies linked to the U.S. sovereign rating; and capital risks at the insurance unit.

Specifically, the agency said, there is the concern that if the insurance unit takes on more investment risk or funds a large acquisition, it could hurt capital adequacy for the insurance business.

S&P noted Berkshire’s high appetite for equity investments has made the insurance unit’s capital volatile and has resulted in “capital adequacy of the insurance operations being less than what we typically expect for the rating category.”

Reporting By Dan Burns and Ben Berkowitz; Editing by Gerald E. McCormick and Maureen Bavdek