S&P Frees GEICO, National Indemnity, Gen Re from CreditWatch Negative Status

February 19, 2016

Berkshire Hathaway’s insurance subsidiaries are no longer on CreditWatch Negative with Standard & Poor’s.

The ratings entity removed National Indemnity Co., GEICO and General Reinsurance Corp. from that status after initially placing them there on Aug. 11. S&P also said that each has a stable outlook. Additionally, Standard & Poor’s affirmed its “AA+” financial strength and long-term counterparty credit ratings for each of the companies.

Why the change? Standard & Poor’s said it did so because Berkshire Hathaway’s insurance companies are maintaining both an “extremely strong” capital adequacy and a “very strong capital and earnings profile.”

This reassessment comes after S&P placed Berkshire Hathaway’s insurance companies on CreditWatch Negative following its $32 billion deal to buy Precision Castparts Corp., a maker of metal components for the aerospace industry, in a mostly cash transaction.

S&P said it had been uncertain about how much cash Berkshire Hathaway might take from its subsidiaries to support the Precision Castparts deal and whether this would lead to inadequate capital in those divisions. But the amount of dividends Berkshire Hathaway took from those subsidiaries ended up being “lower than we had originally anticipated, with capital metrics at the insurance companies remaining in line with our expectation for those ratings,” Standard & Poor’s said.

As well, S&P affirmed its “AA” long-term counterparty credit and senior unsecured debt ratings on General Re Corp., GEICO and General Re Financial Products Corp. S&P’s “A-1+” short-term rating for General Re is also affirmed. All, now with a stable outlook, had been placed on CreditWatch Negative.

Source: Standard & Poor’s