MOODY'S CONCLUDES REVIEW OF BERKSHIRE HATHAWAY GROUP; OBH, INC. UPGRADED (SENIOR DEBT TO Aaa); GENERAL RE CORPORATION CONFIRMED (SENIOR DEBT AT Aa1)
Moody's Investors Service has upgraded the senior debt rating of OBH, Inc. (formerly known as Berkshire Hathaway Inc.) to Aaa from Aa1, and has confirmed the senior debt rating of General Re Corporation at Aa1. These rating actions follow the completion of the acquisition of General Re Corporation by Berkshire Hathaway Inc. on December 21, 1998. In order to facilitate the acquisition of General Re Corporation, Berkshire Hathaway Inc. was renamed OBH, Inc. and a new holding company was created with the name Berkshire Hathaway Inc. to own all of the common stock of OBH, Inc. and General Re Corporation. In addition, Moody's upgraded its insurance financial strength rating of Government Employees Insurance Company to Aaa from Aa1 and confirmed its Aaa insurance financial strength rating on General Reinsurance Corporation.
According to Moody's, these ratings are based on Berkshire Hathaway's superior capitalization, its modest debt leverage, and the diversified and overall strong earnings performance of its principal insurance and non-insurance subsidiaries. The rating agency noted that the strong market positions of Berkshire Hathaway's main operating subsidiaries, GEICO, National Indemnity Company, and General Reinsurance Corporation, and the success of the company's investment strategy, have combined to drive continued improvements in the firm's financial and operational position.
Expanding on its rationale, Moody's added that recently acquired General Re is the leading US-based property/casualty reinsurer, and it ranks among the three largest international reinsurance organizations. The company, a direct writer, has long distinguished itself by its strong client relationships, by its full-service underwriting capabilities, and by its sustained record of underwriting profitability, despite intensely competitive market conditions. Through its controlling interest in Cologne Re, General Re also has a strong position in the European, and other international markets. International operations, including life reinsurance, continue to expand in both established and emerging market regions. Moody's noted that General Re should benefit strategically from increased capital flexibility as part of the Berkshire Hathaway Group, potentially enhancing its risk assumption capabilities on its reinsurance contracts as well as its earnings potential.
National Indemnity ranks among the top ten leading US reinsurers, based on net premiums written and is a leading provider of catastrophe excess-of-loss reinsurance, in addition to other standard and specialty commercial lines coverages. National Indemnity is one of the most highly capitalized insurers in the US, in large part because it has long been the repository for most of Berkshire's portfolio of common stocks. GEICO is the seventh largest underwriter of private passenger automobile insurance in the US, based on net written premiums, and continues to benefit from its low-cost profile as a direct underwriter of personal lines insurance.
In further explanation of its ratings upgrades, Moody's said that Berkshire's exceptional financial fundamentals substantially mitigate risks associated with exposure to market volatility within the company's unaffiliated common stock holdings and the large, but measured, single-risk and catastrophe excess-of-loss exposures which contribute to underwriting volatility.
Regarding its ratings outlook, Moody's also commented that, going forward, issues of corporate governance at Berkshire are likely to be paramount rating considerations, in view of the company's substantial capital position as well as the Chairman's extraordinary influence over strategic direction and investment selection.
The following ratings were upgraded:
OBH, Inc. (formerly named Berkshire Hathaway Inc.) - senior unsecured long-term debt to Aaa from Aa1;
Government Employees Insurance Company - insurance financial strength to Aaa from Aa1;
GEICO Corporation - senior unsecured long-term debt to Aa1 from Aa3;
Wesco Financial Corporation - senior unsecured long-term debt to Aa2 from Aa3;
Scott Fetzer Financial Group, Inc. - guaranteed senior unsecured long-term debt to Aaa from Aa1.
The following ratings were confirmed:
General Reinsurance Corporation - insurance financial strength at Aaa;
Kolnische Ruckversicherungs-Gesellschaft AG (Cologne Re) - insurance financial strength at Aaa;
General Re Europe Ltd. - insurance financial strength at Aaa;
General Re Corporation - senior unsecured long-term debt at Aa1;
General Re Corporation - short term debt rating at Prime-1;
General Re Funding Corporation - guaranteed short term debt rating at Prime-1;
General Re Funding Corporation - guaranteed senior unsecured long-term debt at Aa1;
National Re Corporation - senior unsecured long-term debt at Aa2;
R.C. Willey Home Furnishings -- guaranteed short term debt rating at Prime-1.
Berkshire Hathaway Inc., based in Omaha, Nebraska, is a holding company that is engaged through its wholly-owned operations in property/casualty insurance and reinsurance, and in a variety of non-insurance businesses. As of September 30, 1998, Berkshire Hathaway reported year-to-date pre-tax operating income of $1.2 billion (excluding realized investment gains of $2.2 billion), and shareholders' equity of $31 billion. General Re Corporation, based in Stamford, Connecticut, is a holding company for a group of subsidiaries engaged in global reinsurance and financial products. As of September 30, 1998, General Re reported year-to-date pre-tax operating income of $1.0 billion and shareholders' equity of $8.4 billion.
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