Berkshire Hathaway’s insurance subsidiaries are the beneficiaries of an improved ratings outlook from Standard & Poor’s Global Ratings.
S&P said it revised its outlook to stable from negative for Berkshire Hathaway’s operating insurance subsidiaries, including National Indemnity Co., Government Employees Insurance Co., General Reinsurance Corp. (Gen Re) and “other related insurance subsidiaries” (collectively, BRKIS).
Also, the ratings agency affirmed its “AA+” financial strength and long-term counterparty credit ratings on those same subsidiaries. As well, it affirmed its “AA” long-term counterparty credit and senior unsecured debt ratings on Berkshire Hathaway intermediate insurance holding companies, General Re Corp., GEICO Corp. and General Re Financial Products Corp. The outlook on ratings on these companies is unchanged at stable.
Standard & Poor’s explained that the outlook revision and ratings affirmation are based on the view that Berkshire Hathaway’s insurance subsidiaries will maintain adequate capital, plus “a very strong capital and earnings profile that supports our ratings.”
Standard & Poor’s noted that when it revised the outlook to negative in September 2017, there had been some uncertainty about maintaining a build-up of capital necessary over the next year or two to offset a hike in risk exposure due to major organic growth. S&P had also been concerned about “a large amount of retrospective reinsurance and corresponding growth in loss reserves and invested assets.”
Over time, however, Standard & Poor’s saw its concerns addressed as Berkshire Hathaway’s capital position at the end of 2017 was better than anticipated, thanks to strong earnings even with underwriting losses and large, unrealized capital gains that led to a big hike in statutory surplus.
“As a result, the capital metrics at the insurance companies not only remained in line with our expectation for the ratings, they also strengthened on a relative basis year-over-year,” Standard & Poor’s said. “Considering exposure to property-catastrophe and long-tail business lines, the large amount of equity holdings, and BRK’s acquisitive strategy, [the insurance subsidiaries’] capitalization is subject to volatility. However, we expect earnings accrual to help build up capital to sustain the current level of capitalization.”
Standard & Poor’s said it expects those subsidiaries to see premium growth in the low double digits for 2018 and mid-to-high single digits for 2019 and 2010, excluding retroactive reinsurance business. This will come from “increased business volumes in major segments and price increases in certain lines including personal auto,” the ratings agency added.
Source: Standard & Poor’s