Berkshire Hathaway Inc. won the top financial-strength rating from A.M. Best Co. for a unit that plans to sell insurance directly to businesses over the Internet, paving the way for Chairman Warren Buffett to expand his company’s insurance operations.
Berkshire Hathaway Direct Insurance Co. will initially focus on workers compensation and business owners package policies, A.M. Best said Thursday in a statement announcing that it had assigned the A++ grade to the company. Insurers typically require such ratings to begin operations.
Buffett, 85, has soured on the reinsurance business as more investors pile into the market, pushing down prices. That’s forced him to find other ways to generate the premiums that he uses to make investments. In 2013, he hired a team of executives from American International Group Inc. to begin underwriting large, specialty risks for business. And he said earlier this year that he planned to begin sales of insurance over the Web to midsize businesses.
“The reinsurance business is not as good as it was,” he said in May during the company’s annual meeting in Omaha, Nebraska. “It’s a business whose prospects have turned for the worse and there’s not much we can do about it.”
Berkshire Hathaway Direct will get a backstop on its policies through an agreement with National Indemnity Co., the main insurance unit at Buffett’s company, according to A.M. Best. (Editor’s Note: Specifically, the A.M. Best said the ratings are based on the existence of a 90 percent quota share agreement with National Indemnity Company.) Back office functions, investment management and risk oversight will also be supported by other parts of the parent company.
Berkshire already has experience selling policies directly to consumers. Its GEICO unit was a pioneer in that business and is now the No. 2 auto insurer in the U.S.
(Accompanying Photo: AP Photo/Nati Harnik)