Warren Buffett – billionaire investor and CEO of Berkshire Hathaway – just learned that the Standard & Poor’s (S&P) has reiterated its credit rating. After reevaluating the conglomerate, the outlook was even moved up to stable from negative.
The overall ratings were definitely kept intact are included by Berkshire Hathaway’s counterparty credit of AA/A- 1+ and the insurance financial strength rating of AA +
The affirmation and ratings accounts for the dependence of Berkshire Hathaway on it strong core insurance operations for the majority of its dividend income. The track of the strong insurance business has also helped the company build a strong capital position. Since the company has a wide moat, the Berkshire Hathaway insurance units have provided the company with large amounts of investment funds to hold in equity or to use for other buyouts.
However, there is concern with the S&P because they believe that some of Berkshire Hathaway’s insurance units are more risky than those of other insurers. They feel this way because large equity investments have the opportunity to be voluble. The Standard & Poor’s also tells us that the capital position of the company could eventually be hurt due to an investment loss or a large acquisition. But overall, when thinking about and considering Berkshire Hathaway’s past performance of their operating units, the agency feels that the company will successfully tide over any potential uncertainties.
This past May, the S&P dropped Berkshire Hathaway’s credit rating by a notch and also offered a negative outlook.
Presently, the stable outlook of the S&P implies rare chances of ratings rising and falling for the near term sans any major factor that could have an effect on the company.
However, the ratings agency also warned of a possible downgrade if investment losses caused the company to suffer capital drainage.
Earlier in the month, A.M. Best Co. also provided Berkshire Hathaway with a stable outlook among other insurance units.
Credit ratings and financial strengths are intended to help measure the ability for a company to meet policyholder obligations. They are important factors that influence creditworthiness and public confidence of a company. That’s why it’s so competitive. When a company scores a stable outlook and secures an investment debt grade this shows that there is optimism for the business.