MOODY'S RATES NATIONAL INDEMNITY COMPANY Aaa ("EXCEPTIONAL") FOR INSURANCE FINANCIAL STRENGTH
Moody's Investors Service has assigned a Aaa ("Exceptional") insurance financial strength rating to National Indemnity Company, a subsidiary of Berkshire Hathaway Inc. According to Moody's, the rating reflects National Indemnity's superior capitalization, its strong operating profitability, its leadership position in niche reinsurance markets as well as its ownership by Berkshire Hathaway Inc. National Indemnity's exceptional financial fundamentals significantly 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.
Expanding on its rationale, Moody's noted that National Indemnity ranks among the top ten leading US reinsurers, based on net premiums written, and it is among the most highly capitalized insurers in the world, in large part because it has long been the repository for most of Berkshire's portfolio of common stocks. In addition to other standard and specialty commercial lines coverages, the company is currently one of the leading providers of catastrophe excess-of-loss reinsurance in the world, a position that it is able to hold because of its exceptional capitalization, and its ability to provide unusually large underwriting limits, without significant reliance on retrocessions. Today, considerable excess capacity exists in the market and pricing is extremely competitive; and as a result, Berkshire has reduced its business volume in this segment. Although Moody's does not believe that current market conditions represent a substantial risk to National Indemnity, its superior position in property catastrophe reinsurance could be eroded in the long term by the advent of catastrophe securitization.
In addition to its catastrophe reinsurance operations, National Indemnity provides other traditional and non-traditional reinsurance products. Non-traditional products include finite-risk contracts, which are a form of reinsurance that combines in varying degrees, consideration of both underwriting risk and the time value of money. In recent years, National Indemnity's reinsurance operation has written a few contracts that provide reinsureds with very large amounts of adverse development coverage on an excess-of-loss basis. Such contracts have produced considerable levels of premiums and new investable policyholder funds.
As the reinsurance market continues to develop multi-year, multi-line products, an opportunity exists for National Indemnity to utilize its existing capital base to write contracts with very large limits. Moody's believes that National Indemnity will continue to write business on an opportunistic basis and will look for creative ways in the future to leverage its exceptional capital strength.
Regarding its ratings outlook, Moody's also commented that, going forward, issues of corporate governance at Berkshire Hathaway Inc. are likely to be paramount rating considerations for National Indemnity, in view of the company's substantial capital position as well as the Chairman's extraordinary influence over strategic direction and investment selection.
National Indemnity Company, headquartered in Omaha, Nebraska, reported statutory assets of $32 billion and policyholders' surplus of approximately $27 billion as of December 31, 1998, and pre-tax operating income of $251 million for 1998. 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 June 30, 1999, Berkshire Hathaway [NYSE: BRKa] reported year-to-date total revenues of $10.9 billion and pre-tax operating income of $948 million (excluding realized investment gains of $799 million), and shareholders' equity of $58 billion.
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