Standard & Poor’s on Thursday cut the credit rating of Berkshire Hathaway one notch after changing its methodology for evaluating insurers but still affirmed the company’s overall financial strength.
The rating on Berkshire was cut to AA from AA+, S.&P. said in a statement, and its outlook on all of Berkshire’s ratings is negative.
“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,†John Iten, an S.&P. analyst, said in the statement, referring to company by its stock ticker symbol.
S.&P. said Berkshire’s non-insurance businesses generated most of its operating income, but other than the insurance operations, “only Burlington Northern Santa Fe has provided a significant portion of the total dividends paid from the operating companies to the holding company.†The credit rating agency said Berkshire’s adjusted metrics are more consistent with those of a AA rating under comparable corporate criteria.
S.&P. did note Berkshire’s “very strong financial risk profile, built on an extremely strong competitive position and very strong capital and earnings.†But it also cited what it called some offsetting factors, including the company’s high tolerance for equity investments and the issue of a successor to Warren E. Buffett, the 82-year-old chief executive.
